BMG Buys Zomba Music for $3 Billion

By | June 12, 2002 at 12:00 AM

BMG, the music division of German media conglomerate Bertelsmann AG, announced yesterday that it has agreed to take control of Zomba Music Group, the record label that revived the teen pop genre with the likes of Britney Spears and ‘N Sync.

The deal, which is estimated to be worth $3 billion, will end Zomba’s status as the world’s largest independent label. It will also provide a huge payday to Zomba founder, Clive Calder, who industry insiders credit with being out in front of some of the biggest trends, including teen pop, rap and Christian rock.

Spears and ‘N Sync have proved to be worldwide phenomena; together they have sold more than 50 million records to date. Also, Calder signed Will Smith to his first major contract in the early 1980s.

Calder “is an extremely astute analyst of what will be the next musical trend,” said Danny Goldberg, chief executive of Artemis Records.

The deal’s size shows that the music industry, despite sagging sales and Internet piracy, still generates significant revenue. Despite “the technical issues and the see-saw of sales, the recording industry is still really valuable,” Goldberg said.

Music industry revenue declined 7 percent last year, a drop that some attribute to the growth of Internet technology that allows users around the world to trade copies of songs without paying, despite the shutdown of file-sharing giant Napster.

The deal is the result of Calder’s decision to require BMG to exercise its option to buy the interest in Zomba that it does not already own. In 1991, BMG acquired a 25 percent stake in Zomba’s music-publishing business. In 1996, it bought a 20 percent stake in its record division. BMG’s option on both units was to expire in December.

“While the exercise of this option will undoubtedly be a surprise to many in the music industry, this is a natural culmination of many years of close business ties and a complex series of agreements negotiated 12 years ago,” Calder said in a statement released yesterday.

The deal comes as Bertelsmann prepares to go public within the next two years. While expensive, acquiring Zomba could help Bertelsmann move up from last place among the world’s five major record companies. Bertelsmann’s previous effort to merge with EMI Group PLC, another large European media company, was blocked by regulators.

“We are very excited about its future prospects and it will definitely strengthen our music business,” Bertelsmann Chairman Thomas Middelhoff said in a statement.

While some industry executives say that the teen pop genre led by Spears and others has peaked, it continues to produce revenue. “The artists are still popular and there are new ones,” said Hilary B. Rosen, chief executive of the Recording Industry Association of America. Rosen noted that global stars such as Spears are generating new profits through the sale of video games, television shows, clothing and other merchandise.

Last month, Bertelsmann announced that it had acquired Napster Inc., which once distributed the most popular music-sharing software. Bertelsmann, which had already invested $80 million in Napster, paid $8 million for the title to the company. Napster filed for bankruptcy protection after the deal was announced.

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