EMI and Time Warner

The merger between EMI and Time Warner makes them number one in the global market position. Their strategic merger was timely--right in the middle of the music breakthrough into the Internet. A Deutsche Bank report on the merger states that "the deal should accelerate Internet initiatives in the music industry in terms of developing digital downloading technology standards and copyright protection." The merger also makes sense because the companies are diversifying their risk in two ways. First, their risk is lowered in any Internet initiatives that could go wrong; therefore, they can take more chances. Secondly, the replacement cycle of CDs for LPs and cassettes in the early 1990’s represents the last and highest historical revenue growth rate of 8%. With the end of this replacement cycle, the music industry has been in a lull, and, as a result, the music majors have been competing for market share. By merging, EMI and Time Warner will diversify their risk of losing or gaining in such a volatile market as well as make their earnings stream smooth. Deutsche Bank also emphasizes that "the merger provides vertical integration in what will be a key e-commerce consumer product--where music can be exploited through AOL’s 22 million customer franchise base." The question remains whether these viable strategies will appeal to other music majors in the future. Will the Big Six become even smaller? Who will win in the new Internet market?