In a $10.6 billion deal that stands to change the face of the music business, the Seagram Company Ltd., which already owns the Universal Music Group, announced Thursday (May 21) that it had purchased one of the world's largest music companies, PolyGram NV, creating a new mega-entertainment company that will shift the decades-long balance of power in the industry.

The deal means that the current group of major music companies, referred to as the "Big Six" for more than 25 years, has now been reduced to the "Big Five." When the deal is complete, Seagram will be the biggest music company in the world.

"Today is a very special day at Universal Studios, for today Universal Studios becomes a global entertainment leader," Universal Studios Chairman and CEO Frank Biondi said during a press conference in New York's City Group Auditorium on Thursday (May 21). Universal Studios and the Universal Music Group were purchased by Seagram Company Ltd. in 1995. "I'm thrilled that by today's announcement we've become the number-one music company in the world with the most impressive music talent ever assembled under one corporate tent."

PolyGram -- whose labels include Polydor, A&M, Capricorn, Def Jam, Hollywood, Island and Mercury Records, representing major artists such as U2, Hanson, Elton John, Bryan Adams, Bon Jovi, Tricky, Public Enemy, Fastball, Sting, Sheryl Crow, as well as the Motown catalog -- was formerly owned by Dutch electronics giant Phillips Electronics NV, which had a 75 percent stake in PolyGram. The label is the world's largest in terms of market share.

Seagram, which currently derives more than 50 percent of its business from the sales of alcohol and other beverages, is parent company to MCA Records, Geffen/DGC, Universal and Interscope. The labels represent such big-name artists as Mary J. Blige, George Strait, No Doubt, Counting Crows, Nine Inch Nails, Live, Erykah Badu, Bush, Sonic Youth, Beck and the Wallflowers. The deal is expected to take four to six months to close and includes a plan to offer public shares of Seagram's Tropicana Products Inc., which would shift the bulk of the company's sales from beverages to entertainment. Representatives for PolyGram and Universal could not be reached for comment at press time.

A Wall Street Journal article reported that Seagram would have close to $17 billion in revenue after the deal, with 70 percent of sales coming from entertainment operations.

On Friday, Jeremy Cohen, spokesman for Philips Electronics in the

Netherlands, described Philips' past relationship with the music business

through PolyGram as "arms-length," noting that the deal will make Seagram the largest music company.

"Obviously that will have its own impact," Cohen said. "Clearly PolyGram is very strong

in this area, and combined with Seagram we expect it to be a very good

business, otherwise we wouldn't have gone ahead with the deal. We think

that PolyGram -- focusing their business away from Philips and not being

part of an electronics conglomerate -- we feel that they're going to be

better and better."

R.E.M. manager Bertis Downs said the deal would seem to make sense for both companies, since Seagram-owned Universal has a strong U.S. presence but is weaker overseas and PolyGram is a dominant force outside the U.S. The PolyGram label is also last in market share in America. "It's just more consolidation, maybe more layoffs," Downs said. R.E.M. is currently signed to Warner Bros. Records. "My gut tells me the more choices the better."

It is possible that the deal could trigger anti-trust scrutiny from federal regulators who blocked a proposed merger between PolyGram and Warner

Music (now a unit of Time Warner Inc.) in the 1980s.

Former A&M Records co-founder Jerry Moss, who now co-heads Almo Sounds, the label to which Garbage are signed, said Wednesday night that he didn't think the deal boded well for indie labels like his, or for artists. Moss said that he had publicly opposed the PolyGram and Warner Music merger attempt. "Look at all the artists signed to those [Universal and PolyGram] companies," Moss said. "They won't all get the attention they deserve."

Reaction to the merger, which had been rumored for weeks, was mixed outside the PolyGram/Universal sphere. Reached just moments before the Thursday press conference, veteran music industry lawyer Don Engel said he felt that the move might make it more difficult for younger bands to get their foot in the door. "It changes the landscape because this has been a business controlled by the six major companies for 30 years," Engel said. "The same six, which is very unusual in American business to have this oligopoly that doesn't change."

The lawyer, who has represented such successful acts as Metallica and Don Henley, said that while he wasn't sure of the deal's long-term impact on the music business, he felt that it might make it more difficult for younger, unproven bands to win major-label contracts. "With corporate people now running the show, the [bands] at the lower level who want to advance will have to play [the corporate] tune unless they go to an indie label," he said.

Bands with core followings that can't yet sell 100,000 copies of their album will likely find themselves at a loss now that there are less labels from which to choose, according to Engel. "I imagine they will consolidate because they can't run that many labels," he said. "It funnels things up to the big bands who can really sell and are part of the current trends."

A similar reaction came from Reprise Records president Howie Klein, who spoke on the subject just a few days before the merger was announced. "I guess one day there will just be one big corporation and we'll all work for it," Klein said. Reprise is owned by Time Warner. "It will be run by power-crazed accountants and their attorney allies. I can't wait. I'm not just talking about the music business. I mean everything. That's the way it seems to be going."

Klein said he suspected that the recent rash of mega-mergers -- which has also affected the telecommunications and automobile industries -- was really about stock prices and not about the products that the companies produce. "It's happening in radio and records, in every industry, and I think it's catastrophic for the economy and all our industries," Klein said.