Why Warner and EMI Felt the Urge to Merge

  • Share
  • Read Later
Good news for shareholders, a mixed blessing for consumers and artists, and bad news for employees. That's the Cliffs Notes on Monday's merger deal between Time Warner and the British record company EMI, which will, if it is approved by owners and regulators on both sides of the Atlantic, create the world's largest record company. The deal involves Time Warner (TIME Daily's parent company) paying $1 billion to create a $20 billion combined company, Warner EMI Music, whose annual sales are currently at around $8 billion. The deal greatly expands Time Warner's music catalog, which analysts expect in the long run will be distributed primarily via the Internet. The clincher in the deal: Time Warner's recent merger with America Online, which should provide a major new distribution channel. EMI says the deal could cut the companies combined annual overheads by $400 million — part of which may be achieved by cutting up to 3,000 jobs.

The more efficient distribution channels made possible by such mergers may benefit consumers by making more music available to them in cheaper, more convenient formats. Artists may also benefit from an even more powerful global marketing infrastructure. But the merger also continues a trend toward the centralization of media and entertainment products into huge conglomerates, which aren't always open to innovation — and which, in some instances, are more prone to self-censorship because of their vulnerability to consumer pressure in diverse markets. But the hip-hop example shows that entertainment corporations tend to co-opt rather than confront new musical forms, no matter how revolutionary. After all, it's an industry whose profitability lies largely in its ability to turn youthful rebellion into money.