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 1990ís 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 AOLís 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?