Our take...
Sony BMG was formed in 2004 with the merger of Sony Music Entertainment and the Bertelsmann Music Group (BMG) as a 50:50 JV between the two parents. However, in keeping with the rest of the record industry it has faced a declining market as physical sales fall and has yet to be offset by digital. In the US, physical sales volumes fell by almost 18 per cent in 2007, as have been falling almost every year since 2000, a slump that shows little sign of abating. Consequently the Major labels en masse are looking at alternative revenue streams and exploring so called '360 degree' strategies including music licensing, ticketing and merchandise.

There is some evidence that this strategy is working, at least in part. Up to the end of 2007, as with the other Major Labels that report, Sony BMG had managed to hold its revenue broadly flat for the past three years. Despite a significant decline in sales the company's revenue in 2007 was $4.06bn only slightly down on $4.07bn in 2006 and up on $3.48bn in 2005. Over the same period Warner Music has consistently delivered revenues of around $3.4bn while the largest major, Universal, has seen them floating around EUR 4.9bn (but due to the variance of the exchange rate this corresponds to a growth from $6.1bn in 2005 to $6.7bn in 2007).

However, in 2008 the picture changed for Sony BMG, in Q2 it reported revenues of $820m - a decrease of almost 20 per cent compared with the same quarter three years ago. Screen Digest does not believe that this decline is responsible for Bertlesmann's decision to sell its stake – the company has been widely reported to be looking at selling up for some time, and is strategically looking to focus on its core areas – but it is reflected in the German company's low valuation of its share, roughly 22 per cent of annual revenue, for 50 percent of the company. For Sony it is a relatively low cost acquisition of a company with a somewhat uncertain time ahead. Where online sales should help to stabilise the decline of physical sales in Western markets by 2012, for the companies that currently make money selling music to flourish again will require at best a few more years of experimentation as they adjust to digital business models and at worst a significant rethink of their role in the broader music industry, moving away from controlled distribution and towards providing a rich portfolio of artist support services.