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Sony's music business strikes a sour note

After ruling the music business for years, Japanese electronics an entertainment giant Sony is now struggling to carry a tune. A nasty feud with its European partner is just the latest example of troubles Sony is having.
Dixie Chicks, Emily Robison, Natalie Maines, Martie Maguire
The Dixie Chicks' new hit album, 'Taking the Long Way,' has been a rare bright spot for Sony BMG's joint music venture.Jim Cooper / AP
/ Source: CNBC

After ruling the music business for years, Japanese electronics and entertainment giant Sony is struggling to carry a tune. A nasty feud with its European partner is the latest example of the troubles Sony is having in the entertainment industry.

Ever since they combined their record labels in a joint venture two years ago, Sony and German media giant Bertelsmann have been bickering over who's in charge. The resignations of two top Sony execs last week coincides with reports the two companies are talking about unwinding their partership.

"Essentially what's happening internally is that they're exploring all their options,” said Evan Wilson, an entertianment industry analyst at Pacific Crest Securities. “Whether that means Sony buying BMG's half, BMG selling their half to an external third party or continuing in its current structure, that's not clear.  But changes are coming about."

The world's second-largest music company, Sony BMG has seen its market share slide over the last year. “The Dixie Chicks” are one of only two company acts with a top-ten-selling album.

Sony's digital music service, Connect, has been a bomb, capturing less than 3 percent of the market. And despite inventing the portable music market 20 years ago with the Walkman, Sony has yet to develop an effective competitor to apple's iPod.

"Now that software is the most important piece of music because it's digital and the transmission of the content is digital, Sony has been left behind because its expertise isn't software and other companies like apple have taken the lead," said Wilson.

Sony is also stumbling in Hollywood. Its release of "The DaVinci Code" did well enough, but a recent merger with MGM appears to be in trouble now that MGM has dropped Sony as its home video distributor, handing that business to News Corp.'s Fox studio instead.

“It's another negative for Sony in that this content business which they've been acquiring over the years has continued to not pay the type of dividends that they were hoping it would," said Wilson.

Despite the troubles in its entertainment business, Sony's stock has rallied better than 20 percent in the last 12 months, largely due to a rebound in sales of its flat panel TV sets.

That's probably why Sony chairman Sir Howard Stringer is still enjoying a honeymoon on Wall Street and in the press, with recent glowing profiles in the New York Times and The New Yorker magazine.