Nov. 3, 2009 (The Yomiuri Shimbun) -- JVC Kenwood Holdings, Inc. (OOTC:JVCZF) is in talks with Konami Corp. (NYSE:KNM) over the possible sale of its music subsidiary Victor Entertainment Inc., sources said Tuesday.
JVC Kenwood, the holding company of the Victor Company of Japan Ltd. and Kenwood Corp., and Konami, a major video game software maker, are expected to reach a deal by the end of the month.
Analysts point out that the realignment of the music industry is likely to pick up speed as conventional sales continue to plunge and as distribution of music through the Internet expands.
JVC Kenwood, which was established by Victor and Kenwood in October 2008 after a merger deal, is negotiating with Konami over the sale of a majority of stake in Victor Entertainment.
JVC Kenwood is believed to have also sounded out Universal Music LLC over whether it was willing to buy Victor Entertainment. However, sources say Konami is the most likely buyer.
JVC Kenwood hopes to use the funds generated by the disposal of Victor Entertainment to strengthen its core business, such as its audiovisual products.
Konami, which sells games, movies, and music, some of which it distributes through cell phones, would be able to widen the scope of its operations and gain synergistic benefits from the acquisition.
Victor Entertainment started producing records in 1928 as the music business division of the Victor Talking Machine Company's Japan unit. It was spun off from Victor as a record company in 1972. It has a host of famous artists on its books, including SMAP and the Southern All Stars.
However, the company is languishing in fourth spot in the domestic music industry, with a market share of only 7 percent, well behind rivals Universal Music, with 16 percent, Avex Group Holdings Inc., with 15 percent, and Sony (NYSE:SNE) Music Entertainment (Japan) Inc., with 15 percent.
JVC Kenwood's business performance is faltering due to the economic recession that started in autumn 2008. Though the company expects consolidated sales of 430 billion yen for the business year ending March 2010, its profit forecast for the same period is a 20 billion yen after-tax loss.
Of the group's companies, Victor has been particularly hard hit, with its TV business in Europe shrinking at an alarming pace. Analysts point out that the company is in urgent need of revamping its business structure.
JVC Kenwood apparently believes that the market for recorded music in the form of CDs and DVDs will continue to contract. Its music sales, which reached 607.4 billion yen in 1998, have fallen for 10 consecutive years since then, plunging to 361.7 billion yen in 2008, as the population decreases and the spread of music distribution via the Internet for use on cell phones and portable devices increases dramatically.
