We may never know whether Warner Music Group (NYSE:WMG) and EMI (NASDAQ:EMIPY) are capable of making beautiful music together. Earlier today, the European Court of First Instance took a look back at the 2004 union of Sony (NYSE:SNE) and BMG and found that the usually thorough and stingy European Commission erred in allowing two of the five major music labels to form a strategic alliance.
The ramifications of the court's findings on the existing combination of Sony and BMG aren't as clear as what this means for the potential of a merger between Warner and EMI: It's just not likely to happen at this point.
The two labels have spent the last two months volleying buyout offers back and forth. When the head of digital strategy at EMI supposedly stepped down earlier this week, it seemed as if a hookup was in the cards, given Warner's mastery of digital distribution. Even if selfish pride was driving competing bids higher, the two seemed all but certain to pair up. With that possibility looking less likely, both companies saw their shares slip today.
A consortium of independent record labels championed the cause to derail the mergers between their larger rivals. Viewing consolidation among the major labels as a bullying tactic is awfully myopic, though. CD sales have fallen in all but one year on this side of the millennium. If anything, the emergence of digital distribution and the Internet as a source to break new bands has been making the smaller indies more powerful and the majors less relevant.
As it stands, the five largest music companies have broad geographic diversification. France-based Vivendi (NYSE:V) owns Universal Music. Sony is clearly Japanese. BMG is German. EMI is headquartered in the United Kingdom. Warner Music is the lone stateside purist.
Arguing that the pairing of desperate labels will stifle competition is just naive. The playing field has moved on. These days, it seems as if more music careers are being launched on American Idol or through News Corp.'s (NYSE:NWS) MySpace Music than through the traditional label-fueled channels.
Denying dinosaurs the right to huddle together, at least until they fully embrace the advantages of digital distribution as a lifeboat rather than a threat, is just wrong. Let Sony and BMG be, Europe. If EMI and Warner want a room, give them the key.
Longtime Fool contributor Rick Munarriz once had his band signed to Sony's Columbia Records label. It didn't exactly pan out. He does not own shares in any of the companies in this story. T he Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
