Bertelsmann said in a statement on Thursday that its Bertelsmann Music Group (BMG) division and Sony Music would be 50-50 partners in the new venture, dubbed Sony BMG.
The statement said the two companies had signed a "non-binding letter of intent" to that effect.
The New York Times newspaper reporter earlier that a final deal on the merger could probably take months to complete while the companies sought approval from regulators.
Sony Music, the world's second biggest music company, and BMG, ranked number five, have been trying to negotiate a deal since September.
Together with other giants in the trade like Universal Music, Warner Music and EMI, Sony and Bertelsmann account for around 75% of the global music market.