Sony

Description

Sony and Bertelsmann might soon be seeking music to mend a broken merger. The future of Sony BMG Music Entertainment, a 50-50 joint venture between Sony Corporation of America and Bertelsmann, is uncertain after a European court annulled the European Union's approval of the merger that created the company. The #2 record company in the world (behind Universal Music Group), Sony BMG operates primarily through its stable of recording labels, such as Columbia, Epic, and RCA, and boasts an artist roster that includes Aerosmith, OutKast, and Britney Spears. The court's surprise 2006 decision could force the company, formed through the 2004 merger of Sony Music Entertainment and BMG Entertainment, to be unwound.

While the mega-sized merger was able to catapult Sony and BMG (previously the third- and fifth-largest record companies, respectively) past EMI and into the #2 spot, the deal came as somewhat of a surprise given the industry's three-year-long slide in album sales. The delicate act of combining former rivals was achieved by stitching together a management team that gave equal representation to both Bertelsmann and Sony. That balance was upset by internal squabbling and the departure of COO Michael Smellie at the end of 2005. The following year CEO Andrew Lack stepped down to become chairman of the joint venture and former BMG chief Rolf Schmidt-Holtz, who had been chairman, took over as CEO.

Sony BMG's sales have increased from its involvement with the hit TV show American Idol, courtesy of music impresario and Arista Records founder Clive Davis. Winners Ruben Studdard and Fantasia Barrino have produced top selling albums for Davis' J Records, while first-season winner Kelly Clarkson has shown some staying power recording for RCA.

Both Sony and Bertelsmann held onto the manufacturing and fulfillment arms as well as the music publishing operations that had been part of Sony Music and BMG. (However, Bertelsmann is selling its BMG Music Publishing.)

In late 2006 the company agreed to pay nearly $6 million as well as customer refunds to settle several lawsuits over antipiracy programs on music CDs. The hidden antipiracy program opened consumers' computers to possible security problems and in some cases damaged computers when consumers tried to remove it.

While Bertelsmann scrambled for cash in order to subsidize its 2006 buyout of Groupe Bruxelles Lambert's stake in the media giant, Bertelsmann announced that it has no intentions of selling its 50% stake in Sony BMG. (In mid-2006 Bruxelles announced plans to pursue a Bertelsmann IPO, and the Mohn family scraped up $5.7 billion to instead buy out the investment firm's interest. The Mohns now own 23% of Bertelsmann, with the Bertelsmann Foundation owning the rest.)

Microsoft

Description

Microsoft's ambitions are anything but small. The world's #1 software company provides a variety of products and services, including its Windows operating systems and Office software suite. The company has expanded into markets such as video game consoles, interactive television, and Internet access. With its core markets maturing, Microsoft is targeting services for growth, looking to transform its software applications into Web-based services for enterprises and consumers. Microsoft has reached settlements to end a slew of antitrust investigations and lawsuits, including agreeing to uniformly license its operating systems and allowing manufacturers to include competing software with Windows.

While desktop applications and platforms remain the cornerstone of its operations, Microsoft has inexorably expanded its product lines, which include video game consoles, enterprise software, computer peripherals, software development tools, and Internet access services. In 2006 the company launched its Zune brand of digital entertainment products and services. The first Zune product, a 30GB digital media player, will compete directly against Apple's iPod.

Microsoft has also reached major settlement agreements with Netscape (paying the company about $750 million); Sun Microsystems ($1.6 billion in addition to royalty payments on certain technologies); Novell ($536 million to settle a suit tied to Novell's NetWare software; Gateway ($150 million); IBM ($775 million and extending $75 million in credit towards Microsoft software deployment); RealNetworks ($761 million in cash and promotions); and Daum Communications ($30 million in cash, advertising, and other terms).

In early 2007 the company was ordered to pay Alcatel-Lucent about $1.5 billion as part of a patent dispute between the two companies over digital music technology.

Despite the litigation that has plagued it in recent years, the company has continued to forge ahead in its strategy to extend its core software products into Web-based services for businesses and consumers. By transforming itself from a traditional software provider to a broader technology services and media company, Microsoft hopes to position its operating systems, software, and services as a de facto standard for accessing, communicating, and doing business over the Internet. The company also operates in the Web search space, directly challenging incumbents such as Yahoo! and Google. It has also partnered with mobile devices makers such as Hewlett-Packard and Motorola to develop handheld computers and mobile phones that utilize Microsoft Windows Mobile and Windows Media software.

Microsoft has used selective acquisitions (including the purchases of Navision and Great Plains Software) to expand its enterprise software offerings, which include applications for customer relationship management and accounting. Along with rival enterprise software providers such as SAP and PeopleSoft, Microsoft is increasingly targeting small and midsized businesses.

In 2005 it acquired collaboration software maker Groove Networks (founded by Lotus Notes developer Ray Ozzie), anti-virus security provider Sybari Software, email security developer FrontBridge Technologies, and identity management software provider Alacris. Microsoft also bought file synchronization specialist FolderShare, and media-streams.com, a developer of VoIP technology.

Early in 2006 Microsoft acquired Apptimum, a developer of software used to transfer data between computers, and Onfolio, an Internet content collection and organization technology provider. In 2007 the company agreed to pay up to $800 million to acquire Tellme Networks, a provider of speech-recognition software..

Chairman Bill Gates owns about 10% of Microsoft; CEO Steve Ballmer owns nearly 4%. Gates stepped down from his role as chief software architect in June 2006 to concentrate on his charitable work through the Bill & Melinda Gates Foundation.