Bertelsmann looks to get out of Sony BMG a year early

An agreement first signed in 2004 called for Sony and Bertelsmann music groups to continue their joint venture Sony BMG through 2009. Now media reports indicate Bertelsmann is ready to exit early.

Indications that the German publishing giant was about to sell first appeared in The New York Times a week ago. Another report appeared in the German paper Frankfurter Allgemeine Zeitung (FAZ) on Tuesday, citing unnamed sources. This morning, German broadcaster Deutsche Welle reported Bertelsmann's interest in a sale as a verified fact.

Sony BMG has an extensive list of top artists, including Sean Kingston, Avril Lavigne, Neil Diamond, and Alicia Keys. It also owns record labels such as Columbia, Epic, RCA, RCA Victor, J, Arista, and Sony Masterworks. Sony and Bertelsmann are 50% stakeholders in the joint venture.

The industry is no longer as profitable as it once was as consumers further eschew physical media. Bertelsmann's own CEO Hartmut Ostrowski has expressed his desire to exit the music business, according to those familiar with the company. Already, it sold its BMG Music Publishing business to Vivendi in September 2006, and in so doing, settled all remaining litigation against it surrounding its former stake in Napster.

That desire may emerge from heavy losses incurred as a result of low CD sales, upon which much of Bertelsmann's publishing business depends. Last March, the company reported €414 million in write-downs for its fiscal year 2007, in expenses for conducting its book club operations. Ostensibly, book clubs are in the business of selling books; but in Bertelsmann's case, its "book clubs" include Columbia House, still one of the US' largest by-mail CD retailers, although that business is dwindling fast.

FAZ reported that a price has not yet been reached, but Sony has the option to buy out Bertelsmann's stake should it exercise its option to exit. A deal could be reached as early as this fall, which is about one year before the August 2009 expiration date of the original agreement.

Assuming his company's exit from the music business proceeds, Ostrowski remains adamant that Bertelsmann overall will remain in the media business. "We are, and will continue to be, a media company," he told The New York Times last week.