Now Warner Music Group and BMG Talking

Dow Jones reports WMG and BMG are the latest majors in merger talks:

AOL Time Warner Inc. and Bertelsmann AG are in active talks to merge their music divisions into an entity that would rival Vivendi Universal SA’s Universal Music Group, the industry leader, and have a roster of artists ranging from Madonna to Christina Aguilera to Led Zeppelin, Monday’s Wall Street Journal reported.

People familiar with the matter said a deal is highly uncertain. Still, the discussions are the latest steps in an elaborate mating dance under way in an industry struggling with a host of problems, including falling album sales, piracy, dwindling shelf space in retail stores and radio consolidation.

The two media behemoths are discussing combining the recorded-music operations of their two businesses, Warner Music Group and BMG, in a transaction that would have each company own 50% of the new entity, the people said. Among the big-name acts in the combined catalog would be Elvis Presley, the Eagles and Aretha Franklin. Both companies’ music-publishing operations likely would be excluded from the merged venture. Last year, Warner Music had revenue of $4.2 billion, while BMG had revenue of 2.7 billion euros ($3.1 billion). (Those figures include music-publishing revenue and, for Warner, revenue from compact-disc and digital-videodisc manufacturing operations.)

It isn’t the first time either company has had merger talks with another music company, as both AOL and Bertelsmann contemplated merging their music divisions with Britain’s EMI Group PLC on different occasions in the past few years. But these latest talks are further advanced than other discussions, according to one person familiar with the situation. The discussions have heated up over the past month, this person said, including talks at the highest levels of AOL and Bertelsmann.

So they cut some overhead and fire a bunch of people – this is a temporary stopgap against the real changes that must be made.