As the world's music giants face up to the prospect of another year of sliding sales, rumors have been swirling through the industry once again of a possible merger between two of the big five in the business.
Consolidation among the five largest recorded music groups -- Universal, Sony, EMI, Warner and BMG in descending order -- is seen by many analysts as the next logical step for an industry trimming the fat in response to falling revenues.
"I think it's fairly clear that there have been discussions ongoing between various parties on and off," said SG Securities analyst Anthony de Larrinaga.
"The larger music groups have cut about as much cost as they probably can as they stand, so any further significant cost reduction has to be done through consolidation," he said.
Worldwide sales of recorded music fell by seven percent in value and by eight percent in units last year, according to the International Federation of the Phonographic Industry, which represents 1,500 record companies.
Britain's EMI warned last month that the recorded music market was set to shrink again this year, albeit at a slower rate than previously.
But while the rationale for a merger is obvious, say analysts, whether regulators would allow any tie-up is less clear.
EMI abandoned two previous merger attempts, first with Warner Music -- now part of AOL Time Warner -- in 2000, and then with BMG -- owned by German media giant Bertelsmann -- in 2001.
On both occasions EMI blamed the regulatory environment for the failure of talks.
Analysts say that Europe's competition watchdogs might be more sympathetic to any new proposal given the overturning of some past rulings and the continued difficulties of the industry.
But there is still thought to be a good chance that regulators would thwart any planned marriage.
The latest pair to be singled out in the US media as potential dancing partners are Warner Music and BMG, which has long been Bertelsmann's problem child.
AOL Time Warner is trying to turn around its fortunes after seeing its share price slide by about 80 percent since the 2001 merger, and after plunging to a record loss of nearly US$100 billion last year.
Japanese giant Sony and Vivendi Universal have also fallen on hard times of late, though any restructuring of their music arms may not be a priority, analysts say.
EMI, the only one of the big five not part of a larger corporation, is also under pressure from shareholders not to miss the party.
Yet while the industry blames piracy such as illegal downloads from the Internet for its woes, analysts say this is only one of a range of the problems that the music majors have been slow to identify.
"They failed to appreciate that the competition for the money that the key single buyers -- ie the people usually aged between about 10 and 21 -- is now more than it ever has been," said Forrester Research analyst Rebecca Jennings.
Games consoles such as the Sony PlayStation, DVDs and mobile phones and accessories are all now going head-to-head with music singles and albums.
"Insisting that illegal digital downloads were the problem was putting their head in the sand about the other problems that they have to address," said Jennings.
The music giants are also nursing a hangover from the good times of the 1980s and early 1990s, when labels used the advent of the compact disc to persuade consumers to go out and buy their whole music collection again.
"It's more a case of being realistic about growth patterns," said Jennings. "There was no way growth could continue because it was artificial growth, it was a change in technology."
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