Analysis: A Gracenote to the Sony-BMG Deal

Authored by Paul Sweeting on August 5, 2008 - 7:30am.

Sony Corp.'s deal to buy out Bertelsmann's 50% interest in Sony-BMG Music, announced Tuesday, has some numbers crunchers scratching their heads. Apart from the price paid--roughly $1.2 billion once all aspects of the Byzantine deal structure are factored in--there's the basic question of why Sony--or any company for that matter--would pay anything for a record company these days. It's not as if you can point to a lot of good news coming out of the music industry lately. Sony-BMG itself, in fact, just posted a $24 million net loss for the second quarter.

But the deal clearly has a strategic component for Sony as it looks to a future built around connected devices and embedded content. Sony, in fact, tipped its hand back in April, when it paid $250 million to acquire media-identification outfit Gracenote.

Gracenote, which began as a cooperative, not-for-profit venture and later went commercial, controls the world's largest database of CD titles and track lists. Pop a CD into your PC or laptop and Gracenote tells iTunes or Roxio the title of the CD and names of the songs so you don't have to type all that information in yourself. It does it by performing a sort of reverse-lookup, matching the index numbers on the tracks to the titles in its database.

As Media Wonk wrote at the time:
Sony's interest in Gracenote would seem to indicate a keen interest in incorporating similar applications into a wider range of devices than PCs, including devices that will need to ability to exchange the sort of information Gracenote compiles.

Why buy Gracenote instead of simply licensing its database like everyone else? Clearly, Sony sees it as strategic, not merely useful--in other words, as a potential competitive advantage in creating electronics devices with embedded content licenses and applications.

In the press release announcing the BMG deal, Sony chairman/CEO Howard Stringer said, "This acquisition will allow us to achieve a deeper and more robust integration between the wide-ranging global assets of the music company and Sony's products, operating companies and affiliates. Over the past four years, Sony BMG has undertaken a very successful restructuring, streamlined operations and developed innovative digital partnerships that ensure it will continue to be a leader in the creation and distribution of music worldwide."

Poll: Is 50% of Sony BMG worth $1.2 billion?

Paul Sweeting

Paul Sweeting is the Editor of Content Agenda, a business-to-business brand dedicated to the nexus of content, technology and business. This piece was originally published on Paul's blog "Media Wonk" on Content Agenda and is posted on DMW with the author's permission.

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