Japan's JVC Kenwood Holdings, Inc. is in talks with Konami Corp over the possible sale of its music subsidiary Victor Entertainment Inc, sources said.

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 say the realignment of the music industry is likely to pick up speed as conventional sales continue to plunge and the distribution of music through the Internet expands.

JVC Kenwood, which was established by Victor and Kenwood in October 2008 after they merged, is negotiating with Konami over the sale of a majority of stake in Victor Entertainment.

JVC Kenwood also is believed to have 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 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 and groups 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 per cent, well behind rivals Universal Music, with 16 per cent, and Avex Group Holdings Inc and Sony Music Entertainment (Japan) Inc, both with 15 per cent.

JVC Kenwood's business performance is faltering due to the recession that started in autumn 2008. Though the company expects consolidated sales of 430 billion yen (US$4.75 billion) for the business year ending March 2010, its profit forecast for the same period is a 20 billion yen ($221.9 million) 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 ($6.7 billion) in 1998, have fallen for 10 consecutive years since then, plunging to 361.7 billion yen ($3.9 billion) 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.

Online music distribution services, which enable consumers to buy individual tracks instead of entire albums, have become popular for their convenience, but have driven down CD sales and forced a fall in the price of CDs.

The number of million-sellers has also declined with people's tastes diversifying as the conventional music industry model approaches an apparent dead-end, according to analysts.

The domestic industry is undergoing a rapid reorganisation. Nippon Columbia Co. went under the umbrella of a US investment fund in 2001, while Sony completed the acquisition of German media giant Bertelsmann AG's 50 per cent stake in their Sony BMG joint venture in 2008.

"Only a few domestic (music) companies are going to survive," an industry source said.