Universal May Get Publishing Unit of BMG

Vivendi's record giant is expected to pay about $2.1 billion for the song-rights division owned by Germany's Bertelsmann.

By Charles Duhigg
Times Staff Writer

September 6, 2006

Universal Music Group is expected to purchase Bertelsmann's BMG Music Publishing unit for about $2.1 billion, creating the world's largest music publisher, said people familiar with the negotiations.

Bertelsmann is selling the operation to help pay for its buyback of a 25.1% stake in the German media giant for $5.8-billion from Groupe Bruxelles Lambert, which had been threatening to force the privately held company to go public. Bertelsmann had raised funds for the buyback by pledging to sell the publishing business.

An auction of the unit, which owns the rights to more than 1 million songs by recording artists such as Nelly, Coldplay and Mariah Carey, ended last week. Bidders included Warner Music Group, Viacom Inc. and Universal Music, which is owned by French conglomerate Vivendi.

Details were still being negotiated, but the purchase could be announced as early as today. Representatives of Bertelsmann and Universal Music declined to comment.

Music publishers own the rights to a song's melody and lyrics and license those rights to record companies, which record the song and sell it on compact disc and via digital download. Publishers also sell rights to film, television and video game producers who want to use the song in shows or games.

In addition, publishing rights are needed to sell ring tones — song clips played on cellphones — which have exploded into a multibillion-dollar business.

Each publishing transaction is typically small, but publishers that sell millions of songs profit handsomely. Moreover, because of the steady nature of catalog sales, publishing companies tend to exhibit less of the volatility that marks the hit-driven recording industry.

With the deal, Universal Music, the world's largest seller of records, would also become the No. 1 music publisher, vaulting above EMI Music Publishing, Warner/Chappell Music Inc. and Sony/ATV Music Publishing.

"The more music publishing a recording company can aggregate, the more advantage it has," said Joshua Wattles, a music attorney who once ran Famous Music Publishing Cos. "Record companies spend a lot marketing their acts, but unless they own the publishing rights, they only get revenue from record sales. If they also own the publishing, they get more revenue for every marketing dollar spent."

A purchase of the BMG unit would require U.S. and European regulatory approval, but sources said the music publishing business is held to less stringent standards than record labels are because it does not sell products directly to consumers.

Recently, the European Union overturned a decision that allowed recording giants Sony Music and BMG Music to merge in 2004.