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“Four years ago, dear colleagues, there was no alternative to the establishment of Sony BMG. On their own, both partners would today be in a much more difficult situation than side by side.”
——Hartmut Ostrowski

THE END OF AN ERROR

Ostrowski and Stringer Tell It Like It Is and Was …Kind Of
It’s official. Bertelsmann will sell its 50% of Sony BMG to Sony Corp., the companies jointly announced today. In a statement released by Bertie, the new company will be called Sony Music Entertainment Inc. and become a wholly owned subsidiary of the Sony Corporation of America. The joint venture was created four years ago this month.

In an internal memo, SBMG head Rolf Schmidt-Holtz indicated he's in for the long haul with this memo to the troops: "Earlier today, Sony and Bertelsmann announced that Sony has agreed to purchase Bertelsmann’s 50% stake in Sony BMG Music Entertainment, which will be renamed Sony Music Entertainment Inc.(SMEI) when the deal is completed. It currently remains subject to a number of conditions, including the approval of regulatory authorities in certain jurisdictions. This transaction demonstrates Sony’s commitment to the music business and belief in the opportunities ahead. The top management team and I share this view. With Sony’s full support, we can continue to focus our efforts on transforming this organization into a comprehensive and dynamic music entertainment company. We look forward to this exciting next phase in our future and will keep you updated."

The heads of both patrent companies chimed in with their own Takes on the reality of the joint venture that wasn’t.

Letter From Bertie Chairman Hartmut Ostrowski:
“After four years of successful partnership with Sony, Bertelsmann is selling its 50-percent stake in the Sony BMG joint venture. Subject to antitrust approval, Sony Corporation of America will be the sole owner of the music company established in August 2004, which will do business as Sony Music Entertainment in future. Bertelsmann will retain the BMG brand along with select music catalogs in countries including Germany, the U.K., France and Italy, which will form the basis for reentry into the music rights business.

“The joint-venture contracts with Sony originally stipulated a partnership that was initially planned for five years. We have now mutually agreed that given the changes in the music market, a quick decision about the shareholder structure would be better - for the company, artists, and employees alike. Bertelsmann believes that Sony's portfolio makes it the ideal shareholder for Sony Music Entertainment's future development. Sony unites a creative approach to entertainment media with technical entertainment electronics expertise.

“Sony and Bertelsmann likewise agree that the establishment of our joint venture, the long struggle to get it approved by the antitrust authorities, and our efforts for a smooth integration of the two companies were all well worth it. Under Rolf Schmidt-Holtz's management, Sony BMG was able to at least cushion the decline in the worldwide music industry by establishing innovative business approaches, as well as through continual reorganization. Today, the company is in far better shape than most of its competitors and more rigorously prepared for the digital future.

“Four years ago, dear colleagues, there was no alternative to the establishment of Sony BMG. On their own, both partners would today be in a much more difficult situation than side by side. Take, for instance, the case of Bertelsmann at the time: BMG was the smallest major, the world's number five, faced with an overpowering global market leader and more powerful rivals.

“After 50 years in the music business, of course parting ways with Sony BMG is not an easy step for Bertelsmann. It means parting with strong labels and fascinating markets, and above all saying goodbye to longtime colleagues and artists, friends and companions.

“And yet this step also means new chances and a new beginning for us. Small beginnings in the music business, to be sure, but on a larger, strategic scale for Bertelsmann as a whole: the proceeds from the sale of our stake in Sony BMG create new latitude for us to make targeted investments and grow again, including and especially in North America, the world's most important media market. So the sale of Sony BMG feeds into the focus on our growth businesses, and our new strategic course that demands this clear focus on investments and efforts for growth and value creation.

“I would like to take this opportunity to say a heartfelt thank-you to all Sony BMG employees, on behalf of the Executive Board and all colleagues—on behalf of all Bertelsmann, in short—for your achievements in the past years and decades. Our best and sincerest wishes accompany you into the future, even if that future is no longer at Bertelsmann.”

Message from Sony Chairman/CEO Howard Stringer:
“I am very pleased to inform you that Sony Corporation has reached an agreement with Bertelsmann AG under which Sony will purchase Bertelsmann’s 50% stake in Sony BMG, and Sony BMG will become a wholly-owned subsidiary of Sony Corporation of America.  The company will be renamed Sony Music Entertainment Inc., and will be fully integrated into the Sony family.  We expect this transaction to be completed by the early fall pending certain regulatory approvals.

“When Sony Music and BMG merged in 2004, we created a dynamic and diverse music joint venture, with operations in 46 countries worldwide and an unparalleled roster of both local artists and international superstars. The company is home to some of the most important recordings in music history. 

“There is no question that there have been significant changes in the music industry over the past few years. Since the 2004 merger, Sony BMG has undertaken considerable restructuring. It now generates sound profits, maintains its consistent number two ranking in the global marketplace, and is positioned for growth in the digital arena. 

“The music company’s strong management team has worked diligently to ensure that it is well equipped to succeed in the new digital realities of today’s marketplace. The company now delivers multiple products over a wide range of distribution channels and is firmly embracing new technologies as evidenced by its recent deals with Yahoo!, MySpace, Nokia and Mozes, with more to come.

“Sony is one of the most trusted brands in the world.  This acquisition will enable us to provide a deeper integration between the music company and Sony’s products, operating companies and affiliates, and offer a total entertainment experience to consumers.

“I am delighted with today’s announcement, and want to welcome Sony Music Entertainment Inc. back into the Sony family.”

GRUBMAN & BRANCA
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