Vivendi's Universal Music, the world's largest seller of recorded music, is vaulting to the top spot in music publishing too after agreeing to buy BMG Music Publishing for 1.63 billion euros ($2.1 billion).
German media conglomerate Bertelsmann AG, BMG Music Publishing's parent company, also said on Wednesday it would pay Vivendi $60 million to settle litigation related to its ties to the file-sharing service Napster.
Vivendi, the French media and telecoms group, topped offers from six other bidders for BMG Music Publishing, which owns the rights to thousands of songs, including ones by Coldplay, Christina Aguilera and Barry Manilow.
Publishers have been increasingly coveted because they are shielded by some of the piracy issues that have rattled the music industry. In addition to generating revenue when CDs or downloads are sold, publishers make money by licensing songs to be performed live and for use in films and television shows.
BMG, the world's third-largest music publishing company, had 2005 revenue of 371 million euros, accounting for about 2 percent of Bertelsmann's total. Bertelsmann is selling the business to help buy back a stake in the company.
The deal price represents about a 9.6 multiple on BMG's net publishers share (NPS) of 170 million euros. NPS, which measures the amount of royalties retained by a publisher, is the sector's most closely watched cashflow figure.
The multiple is lower than has been paid for other music publishers, although previous deals have been for much smaller companies such as Acuff-Rose and DreamWorks. Also, under copyright laws more songs are reverting back to songwriters or their heirs, reducing the future earnings of many catalogues.
The BMG deal has been approved by the boards of both companies and is likely to be reviewed by competition authorities in both the United States and Europe.
Meanwhile, the Napster settlement ends one piece of three-year-old litigation against Bertelsmann, which is being sued by various music companies for allegedly contributing to copyright infringements by granting loans to Napster, thus enabling it to survive longer than it otherwise would have.
After it launched in 1999 and became the first widely used peer-to-peer service, Napster almost single-handedly forced the music industry to revamp its business model when millions of consumers started swapping songs instead of paying for them.
It was eventually shut down by the courts, but was later reborn as a legal music service as the industry began to embrace the file-sharing technology behind Napster and others. Bertelsmann said it was not admitting any liability as part of the settlement.
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