Music GroupsWarner Music Group and Qtrax, the worst fake-P2P music service this side of iMesh, have inked a deal that covers WMG's catalog.
Here is today's press release. Here's a press release from September 2006, the first time WMG licensed its catalog to Qtrax.
The difference? In 2006, WMG called Qtrax "innovative." This year's press release could muster only the words "unique" and "legal." It's like Qtrax gave WMG a pair of socks for Christmas.
Warner Music Group eked out a slight profit in Q1 ending 12/31/08 even though revenue dropped by 11% and operating income fell 34%.
It wasn't improved cost management that allowed WMG to eke out a slight profit of $23 million on revenue of $878 million. Cost of sales was flat at 51.5% of revenue, and SG&A was basically flat at 33.6% of revenue (versus 33.5% of revenue last year).
Selling its stake in Front Line Management was the difference between last year's net loss of $16 million on the recent gain of $24 million was non-operational. The $36-million gain from the sale of WMG's share of Front Line Management (sold to Live Nation) and a $9-million gain on foreign currency transaction (the result of the settlement of a short-term foreign-denominated loan relating to its sale of Front Line equity) were the difference between the red and the black.
Digital revenue was $171 million (19% of total Q1 revenue). That was up 2% sequentially from $167 million in the Q4 2008 and up 20% from $142 million from Q1 2008.
The success of Josh Groban in the 2007 holiday season took much of the blame for WMG's 18.8% drop in U.S. revenue. International revenue declined 4.9% but improved 5.1% on a constant-currency basis.
Recorded music: Revenue dropped 11.9% (7.4% on a constant-currency basis) to $749 million. Digital music accounted for 20.8% of global recorded music revenue and 31.4% of U.S. recorded music revenue.
Publishing: Revenue dropped 6.9% (increased .8% on a constant-currency basis) to $134 million. Mechanical revenue dropped 16.4%, synchronization revenue increased 10%, performance revenue rose 4.3% and digital revenue jumped 66.7%.
Below are notes I took from the Q&A part of the earnings call.
• On debt covenants: "We can and will meet our covenants."
• Josh Grobin was responsible for the big Q4 year-over-year drop in operating margin
• Outside consultants reviewed A&R spending, and it was concluded they are "very strong" and "probably the strongest in the industry." A&R spending has been constant for two or three years and will remain constant in 2009. They found a formula for strong A&R returns.
• Mobile deals in the U.S. Introduction of OTA downloads will show a "significant increase" in consumers accessing downloads in that manner. Apple iPhone OTA agreement will be the first impetus for mobile growth in the U.S>
• Music industry will "unquestionably become a growth industry," but there are questions about when that will happen and from what base. Multi-rights deals will impact that change, mobile will impact that change.
• Bronfman believes digital business will lead to higher margins -- even for mobile and digital subscriptions.
• On physical retail: WMG had limited exposure to Circuit City and other troubled retailers through inventory management.
• Live Nation-Ticketmaster impact: No comment on rumors.
• Are there pieces of the music business that would be required to offer artists a more meaningful package? Bronfman does not believe WMG needs additional infrastructure to do so. WMG will either involve itself in revenue streams or simply share in those streams. Would rather stick with a variable-cost structure than take on additional pieces to a 360-degree service.
• Almost all senior executives had been recently signed, so Bronfman does not expect losses in management team.
• No shift between new releases and catalog due to reductions in shelf space. Drops in floor space has impact WMG's business "very little" and mainly the slow-moving titles.
• There will be competition for Apple. Apple continues to grow WMG's business. As long as Apple innovates and allows WMG to innovate, WMG sounds content with iTunes' market dominance.
• Cash balance is stronger, no great desire to buy back bonds.
• Performance royalties legislation introduced yesterday: Bronfman mentioned the countries that do not pay sound recording owners (China, Iran, Rwanda, etc). Not much of a comment about the income impact.
• WMG comment on a possible no-returns policy at retail: Not much of a comment.
• Market share gains in recorded music in historical context: WMG's historic market share high is about the same as where it is now. In the past, there were six majors and many stronger indies. Bronfman believes WMG will be able to gain more U.S. market share.
• What role WMG plays in convergence of landscape and multi-rights deals in light of disbursement of Front Line: "We are more in the venture capital business. We are not so much in the business of renewing or partnering with artists when they are at a mature level in their careers." WMG believes the highest-margin opportunity is to partner with artists early in their career. The infrastructure of other companies are focused more on mature artists.
• Impact of iTunes' three-tier pricing: Dropping DRM has not changed piracy activity. It's too early to predict what will happen with variable pricing or predict what songs will end up at what price points and for how long. WMG is hopeful for a better consumer experience and an improved position for the entire industry.
Seymour Stein, VP at Warner Music Group and founder of Sire Records, as quoted by the Globe and Mail:
We blew it. The first major music labels were all phonograph manufacturers, but by the time the Beatles came along, most companies were no longer involved in the hardware. Had we remained in control of the hardware, we wouldn't be hurting as much as we are now. And the iPod would be ours.
This is a joke, right? I get his attempt at logic, but the argument is not only quite a stretch, it is a sad combination of wishful thinking and Monday morning quarterbacking.
More realistic would be something like, "We should have got into management, ticketing, e-commerce and merchandise when we had the chance."
Either way, such exercises are moot. No point talking about what could have been. Just worry about what is possible.
Here are some notes from the Q&A portion of yesterday's WMG earnings call. Two things stodd out. First, WMG said weakness in sales has not been due to reductions in floor space. Second, CEO Edgar Bronfman was almost as cautious as Vivendi's CFO was last week in answering analyst questions about mobile growth. (Updated: Here's the transcript of the earnings call at Seeking Alpha.)
Overall economy and decline in CD sales: The weakness seen is not due to reduction in floor space but to lower traffic on the floor. WMG is happy with product it has in the marketplace and has met its ship goals for its releases. There will be opportunities for further cost reductions if it sees weaker sales. (Coolfer note: Get ready for a miserable holiday season. The wild card is how many iTunes gift cards will be gifted and what share of purchases a music company can get from them. WMG may lag because of its relatively weak release schedule through March 2009.)
Music publishing: A mix of growing businesses (performing, sync) and declining (mechanical). Mechanicals represent about 40% of revenue. WMG releases represent about 15% of Warner/Chappell releases.
Windowing strategy: Continued success across the board with bundling strategies, not just in one genre.
Retail: WMG is very confident about Wal-Mart's creditworthiness but continue to deal with challenges of creditworthiness of some smaller retailers. Has not taken any big losses and does not expect it will. Post-holiday returns are not expected to be a problem due to proactive inventory management and not over-shipping. (Coolfer note: He didn't come out and say it, but I get the feeling some retailers may be on restrictive shipping and/or credit terms due to late payments. That's a standard way to get product into stores while minimizing exposure.)
Variable pricing: iTunes has "continued to be a strong partner" with bundling, but no comment on variable pricing at iTunes. Bronfman believes it is appropriate for digital content, that not all songs are worth the same amount, that record companies should have the right to experiment with pricing. Long term, Bronfman hopes there will be more variable pricing in the industry.
Mobile: Growth of improved handset devices will bring increased consumption (both download sales and subscription revenues). Sales through iPhones is sometimes 10x or 20x higher than sales through other handsets. Bronfman called Comes With Music-type plans a "very attractive consumer offer" that device manufacturers should like as well.
Reaching a 50% digital share is music's equivalent to breaking the four-minute mile (though sustained profitability would be nice, too). And according to this IHT article, Atlantic Records claims over half its revenues now comes from digital. In contrast, parent company Warner Music Group's digital share in its most recent quarter was 27%.
Julie Greenwald, president of Atlantic Records, explained how the label did it. "It used to be that you could connect five dots and sell a million records. Now there are 20 dots you can connect to sell a million records."
Atlantic's digital revenues come from album and track downloads, ring tones, ring backs, satellite radio and subscription services.
I would have though Kid Rock's digital abstinence (which ended recently, though his catalog will be available only through Rhapsody through February) would have killed the label's digital share, but the label does have digital-friendly Death Cab for Cutie, and T.I.'s last album did well at digital and probably does great ring tone and ring back business. And there's a strong catalog that has a fading reach at brick-and-mortar retail but plenty of viability online.
Warner Music Group's Q4 and fiscal 2008 results show a company doing its best to move forward until its strategy pays off. For the most part, the story line hasn't changed: recorded music down and tenuous, publishing up and healthy, digital improved but growth slowing. Shares of WMG were up as much as 22.5% (to $3.43) before plunging into negative territory then rising to close up 4.3% (at $2.92)
For Q4, revenue dipped 1.5% to $854 million, operating income from continuing operations dropped 20% and net income rose one tick to $6 million. For the year, revenue was up 3% and net loss more than doubled to $56 million.
For the fiscal year, digital revenue rose 38.6% year to $639 million -- with a 65% domestic to 35% international split. Digital now accounts for 18% of total revenue. In the recorded music division, digital revenue grew 38% to $599 million and represented 20.7% of recorded music revenue (28.1% in the U.S.). During the fourth quarter ending September 30, 2008, recorded music digital revenues increased 25.8% to $99 million while total digital revenues rose 28% versus 2007 and were flat sequentially.
Unlike EMI, WMG has not undergone radical internal or structural changes. There has been a relatively drama-free attitude there. The company has patiently cut costs, pushed digital initiatives, acquired companies, invested in start-ups and restrained itself from overpaying to keep some aged superstars.
All good moves if they work out, but at the end of the day WMG is still moving backwards. Expenses were up across the board -- selling & marketing, general & administrative, A&R, distribution. There may be some light at the end of the tunnel. For the year, digital recorded music gains (up 38%) made up for physical recorded music losses (down 5.4%), and licensing had a small bump upward. The caveat is that Q4's physical recorded music loss (down 9.7%) was greater than digital recorded music's gain (up 25.8%). The holiday season is not shaping up well for the CD format, and WMG admits its holiday release schedule is not exceptionally strong. Next quarter's physical drop could be large.
Aside from market forces, WMG has financial issues arising next year. Today, a Citi analyst lowered the target price on WMG to $1 because of a belief the company risks violating debt covenants in December.
The 10-Q filed with the SEC is here.
(From top to bottom: September 2008, first half of 2008 and first half of 2007)
Warner Music Group had a good September -- even though overall sales were atrocious compared to both September 2007 and the entirety of 2008. So good, actually, that WMG overtook Sony BMG for #2 in album market share. WMG shot up to 24.7% and Sony BMG dropped to 21.6%. Universal Music Group still dominates with 32.4%. EMI had 9.4% (the same share it had in the first half of 2008) and all others split up the 11.9% remainder.
September marked the latest phase in Sony BMG's fading market share. WMG had 20.8% in the first half of 2008 and 20% in the first half of 2007. Sony BMG had 24.8% of album sales in the first half of 2008 and 25.3% in the first half of 2007. (Ed Christman's July 2 article at Billboard.biz has the stats. Here's a link to a spreadsheet with the numbers.) At the time of the merger, Sony and BMG had a combined 29.78% album market share.
Of course the entire market is falling, but there's a big difference between losing sales and losing market share. The latter can be controlled by any one company -- they either take it or cede it to competitors. The former, a falling album market, is less influenced by any one company. In 2008, each percentage point of album market share lost is equal to about 3.8 million units. At an average wholesale cost of $9 per unit, that's about $34 million in revenue.
Warner Music Group announced today it has created new management positions "to focus on growth opportunites." The company has promoted Lyor Cohen to Vice Chairman, Warner Music Group and Chairman and chief executive officer, Recorded Music - Americas and the U.K. Cohen was reupped for five years in March of 2008. In addition, WMG promoted Michael Fleisher to Vice Chairman, Strategy and Operations. The pair of chairmen will work toward "the unified strategy, transformation and operations of the company." Fleisher had been EVP and CFO since joining WMG in 2005. Steven Macri, WMG's SVP and Global Controller since 2005, has been named EVP and CFO.
WMG's International unit gets a bit of a shake up and has been reorganized into three regions: Warner Music Americas and the U.K.; Warner Music Asia Pacific; and Warner Music Continental Europe. WMI Chairman and CEO Patrick Vien will leave WMG.
A few weeks ago I was thinking to myself, When is a major going to get rid of its physical distribution and outsource most functions or partner with another company? An indication came sooner than I expected. Today it was announced that Warner Music Group will distribution and market physical product for EMI in Southeast Asia. The companies have had a similar arrangement for India, the Middle East and North Africa since 2005. I was wondering about North America, not smaller and developing markets, but I think such partnerships here are inevitable. A permanent reduction in distribution workforce would have considerable cost savings. Since the number of labels and the number of titles released are not growing, physical distribution needs to be rightsized.
It makes perfect sense. First the majors got out of the manufacturing business. There has been some consolidation of sales and marketing for indies and majors (as in the case with EMM and Caroline). As both physical sales and the number of music retail sites drop, the logical step is to partner with another company to reduce the cost of physical distribution. Even the New York Times is doing it.
The nuts and bolts of Warner Music Group's Q3 2008 earnings release are below.
The conference call (notes below) was as informative as any I can recall hearing -- that's what Live Nation and yesterday's Sony BMG deal will do to analyst inquisitiveness. We got comments on the Nokia deal ("The economics are extremely favorable to us"), Amazon.com's MP3 store (Amazon.com is "attacking a different customer base," sales are "incremental"), video games (Bronfman called the per-song licensing fees "paltry") and the state of wholesale prices (WMG does not believe lower prices drive increased consumer demand). For additional notes, go to Alley Insider's notes on the call.
About the best a music company can do right now is have some positive developments while holding losses to a minimum. WMG did just that. While net loss for the quarter improved to $9 million, operating incomes were up, net cash improved (M&A activity was down) and WMG showed strong digital gains. Recorded music digital revenue grew at 39.3%. That is better than the market will do this year, an increase I project will be about 30% over 2007 digital revenues. That's great for WMG's bottom line as digital margins are improving.
• Net loss improved 47% to $9 million
• Revenues increased 5% to $848 million (declined 1% on a constant-currency basis).
• Recorded music revenue increased 5.1% to $686 million.
• Recorded music digital revenue of $156 million grew 39.3% and represented 22.7% of total recorded music revenue.
• Publishing revenue in the quarter increased 7.0% to $168 million. Mechanical revenue dropped 14.3%.
• Operating income from continuing operations improved 7% to $116 million.
• Publishing operating income held steady at $33 million.
• Free cash flow increased to $93 million from 57 million.
• Unlevered (before debt) after-tax cash flow improved to $140 million from $105 million.
Notes from the Q&A:
Performance royalties: This will be an issue under the next Congress.
Catalog business: "Continued to perform well." Has not been a dramatic change between mix of new release and catalog, either in physical or digital. Retailers are showing "greater thoughtfulness" in managing inventory. The titles that actually sell will have higher velocity.
Music video games: Bronfman says there is "enormous opportunity." But recorded music and publishing should not allow for an ecosystem to occur "where we are not properly compensated." Referred to early deal with MTV in which labels were not paid for plays of promotional videos. That's the state industry is in with Activision and Harmonix. "The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small." The industry needs to participate in more of a partnership kind of way. If that does not become the case, WMG will not license to those games. Bronfman called the per-song licensing fee "paltry" and "far below what their true value is."
A&R: The analyst referred to EMI cutting A&R "to the bone" and wanted to know if WMG was reducing spending on A&R (he misheard an earlier comment about reduced M&A). CFO Michael Fleischer said WMG is "extremely bullish" about the process and the people they have in place.
Nokia deal: "The economics, I think, are extremely favorable to us and to the industry generally." The potential is quite large given the number of handsets Nokia sells. Music will be "available on the device as they are purchased" (not sure if that's going to be the case, but what Bronfman said implies a pre-loaded device). "Significant margins." Will have to wait for a year or two to see if the promise proves itself.
Valuation: Sony BMG was a private transaction. Nobody outside of the company knows the value of what was paid or received. From WMG's knowledge of the transaction, the analysis done and the resulting multiples are "well below" the actual multiples paid and if they were correct they ague for an improved valuation of WMG. (Translation: We don't agree with analysts who say Sony's acquisition price has negative implications on our value.)
Amazon.com: It's early, but it's encouraging. It appears Amazon.com is "attacking a different customer base," sales are "incremental" and skew more toward the album than does iTunes.
Margin growth in recorded music: International had better performance, digital business continues to grow and it is more profitable on a dollar basis, and the company has strong cost management.
Roadrunner and Sinatra: Loss of Nickelback has no effect on the investment. And Warner Chappel has the band's songs. The company has a high hurdle rate because two-thirds of the company is owned by private equity, and both deals are going to pass their hurdle rates.
Cash on balance sheet: WMG has a capital structure in which cash accrues to its equity holders, unless it sees an opportunity to increase equity value. Reducing net debt will be a strong focus for the "foreseeable future."
Word on the street: Music industry has not been as reactive to changes in economic environment as other industries, and WMG feels digital will support that trend.
Non-traditional deals: Short term or long-term phenomenon? What does it mean to developing new artists? Bronfman thinks artists have become too expensive. "We don't pay retail" and he sees no reason to change that model. Likened its model to a VC that makes a cheaper deal in a band's early stage. When it comes time to renew, it will pass if the economic burden is too great. (Translation: We would not have received an adequate return on investment had we re-signed Madonna and Nickelback.)
Retail health: The weak music-only players were pushed out of the business long ago. Creditworthiness of existing retailers is good. No collection issues, no credit issues that would limit retailers' ability to buy.
Upcoming releases: Had Josh Groban last year and did really well in last two quarters. "Very strong" release schedule in 2009. Still in the process of budgeting, so it can't break out what is coming out when. "Feel good" about its release schedule.
Pricing: Wholesale pricing is under constant pressure and WMG "continue to hold the line." Do not believe lower prices drive increased consumer demand. As digital grows, retailers should see a "marginally lower" wholesale price along with higher profitability and downward pressure on revenue. (Translation: We're doing what we can with some retailers' demands for huge cuts in wholesale CD prices.)
Pali Research, says this lengthy and worth-reading blog post at the Wall Street Journal's Deal Journal, suggested that EMI purchase Warner Chappel Music Publishing from Warner Music Group. The odds of that happening are slim to none, as Deal Journal explained.
The sale would allow for WMG to pay down its debt, but that's important only if servicing its debt is a problem. Right now, and especially after WMG suspended its dividend, this isn't a burning issue. The Goldman Sachs analyst who downgraded WMG the other day admitted the company appears able to meet its debt obligations.
For EMI to try to integrate Warner Chappel before the smoke clears on Terra Firma's reorganization would bring unnecessary stress to an already stressful turnaround attempt. Why bother?
Financing such a deal would be difficult in today's climate. Pali estimates Warner Chappel could sell for $1.95 billion. Publishing sits in a more favorable light than does recorded music, but if I was a bank I'd sit this one out and let Terra Firma get EMI on the right path.
Would regulators deny such a purchase? EMI has the largest music publishing market share, but publishing is more fragmented than recorded music (read about 2007 market shares here). If regulators could permit Sony BMG to exist, they could live with an EMI purchase of Warner Chappel.
But I don't see it happening. WMG doesn't need to sell right now, and EMI should focus on its own transformation.
Fox News' Roger Friedman has an article this morning that has a few items of note. The key items, in light of the recent departure of chairman Michael Cohl at Live Nation and the reasons behind his departure (a desire to sign many, expensive deals with superstar artists) have to do with two artists Friedman claims are being pursued by Live Nation. Sources have told him Live Nation is "on the brink of cutting a similar deal" with Nickelback (similar to the multi-rights deal signed by Madonna) and "is rumored to be making deals with" Shakira for "concerts and CDs" (no digital or mobile downloads or merchandise?).
The other part of the article is about how Friedman feels Warner Music Group is sitting on its hands rather than promote Madonna's latest album (and last studio album for WMG before she records for Live Nation). There has been all sorts of promotion before and after album the came out, so I wouldn't say WMG has done "little to nothing," as he wrote. Less-than-stellar sales for a 50-year-old singer's latest album just isn't a shock in a youth-driven record industry. But nobody expected WMG to pull out all the stops for an artist that left for a multi-rights deal with Live Nation. (The $120 million price tag should have WMG thankful it didn't win the bid.)
Friedman also wrote that WMG "has been on a tear planting negative stories" about Live Nation, though he didn't offer an example. No matter. Live Nation's poor stock performance -- a vote of little confidence in the company's strategy -- and the departure of Cohl are two very public negative stories that speak loudly.
After all the online uproar about Warner Music Group pulling its music from last.fm, reading the comments of Jupiter's Mark Mulligan showed at least one person understands how companies negotiate. As opposed to Mashable, whose Paul Glazowski wrote "Warner has lost its senses" in an incredible, overreaction of a post. As opposed to a blog post that claimed "Warner’s (sic) are putting themselves in a dangerous position, one where the music of their artists is in danger of not being heard."
I share Mulligans opinion and couldn't have written it better. A sample:
This growing trend is not just about labels wanting to increase revenue and share in the success of new emerging platforms. (Nor is it new, taking equity stakes was standard practice for EMI in the pre-historic days of digital music). It is, perhaps most importantly, about the labels trying to secure their future.These equity stakes are investments in all possible future scenarios, to ensure the labels have money in the game for each. It is possible that the online music market will be dominated by consumption based models such as Last.FM rather than transaction based distribution solutions such as downloads. In such a scenario, particularly if it precipitates a broader shift away from transaction based distribution, the labels will feel that they need to own some of the game to retain their margins. So, much as the labels may be licensing to new, edgier services, they’re not by any means taking uncalculated risks."
It used to be called "playing hardball," and Warner didn't invent the practice. When negotiating long-term deals for an unproven business model, it only makes sense for a company to hold out rather than cave or rush. A likely scenario -- not just a worst-case scenario, but a likely scenario -- is that last.fm will for many users become a substitution for buying music. Content owners need to negotiate rates with that in mind.
This whole thing begs the question, Do labels need to make deals with every Tom, Dick and Harry? If a service cannot afford the requested rates or match those paid by its competitors, is it wrong to deny one's catalog to that service?
Ignore the early days when labels wouldn't license to much of anybody, and ignore the high cost of acquiring catalogs and assume it's just a cost of doing business right now. What I'm talking about is the "obligation" some people think labels have to sign deals with whatever service comes down the pike. It makes for good debate fodder. I know many people would love to see labels license their catalogs with fewer stipulations and lower (or no) cost to stimulate ideas in the marketplace. If that's the next step in the evolution of online services, the current way of doing things is going to have to first fail miserably.
You know that ol' saying, "Your failed business model is not my problem"? It was first directed at record labels, but ironically it's going to apply to some music services as well. Because it simply exists, because CBS bought it for $280 million, does not confirm last.fm's business model, nor does it guarantee that last.fm will or should survive.
• S&P reaffirmed Warner Music Group's BB- debt rating and said it expects the company will be able to meet its financial covenants in the near term. There was actually a rare bit of optimism in the analysis. "Our continuing concerns about Warner Music's profitability as it transitions to a digital business model are somewhat tempered by the termination of its dividend and its focus on significantly reducing acquisitions," S&P said. (Thomson Financial)
• Universal Music Group will partner with Qualcomm to expand its direct-to-consumer mobile offerings. (Press release)
• Sony BMG's promotion department plays musical chairs and retains all staffers. (Music Row)
• An article on HMV's music strategy: fewer CDs, more vinyl and in-store downloads and the lure of free wifi. "Whether young people will choose to meet in an HMV store at the weekends has yet to be seen, but the retailer hopes it is a step in the right direction." (The Times)
• A profile on Sony's Iron Collectibles, a small company that was founded to sell art-quality reproductions of photos from Columbia Records' archives. “We’re looking to take advantage of all the assets of the company, not just the audio recordings,” said John Ingrassia, president of Sony BMG Music Entertainment’s commercial music group." An executive at Warner Music Group's Rhino Records said the label is looking at ways to turn Warner's archive into a business. Be sure to check out the article's slideshow. (New York Times)
• Music for airports: EMI has licensed its catalog for sale at MEDIAnywhere's download kiosks. (Music Week)
• Live Nation is (still) considering a Pittsburgh-area location for a 5,000-seat amphitheater. (Pittsburgh Tribune-Review)
• The IFPI's Recording Industry in Numbers 2008 is available for pre-order. (IFPI)
Warner Music Group filed an 8-K with the SEC this morning with details on the company's employment agreement with Edgar Bronfman, Jr., the Chairman of the Board and CEO. As of March 15, Bronfman's contract was extended to March 15, 2013 with one-year extensions beyond that date.
Check out this article on Warner Music Group's Edgar Bronfman, Jr. written by the New York Times' Andrew Ross Sorkin. The piece tries to dismiss Bronfman's popular reputation, which Sorkin calls "undeserved." He adds that Bronfman's peer group is having a to go of it these days as well, and that "Bronfman has done a good job running Warner Music: the company is more profitable than it has been in years."
Individual investors shouldn't kick themselves for owning WMG stock specifically. They should have understood the risks involved in investing in a pure play music company. As Guy Hands has found at at EMI, a turnaround is more challenging than most thought it would be.
Warner Music Group reported its Q1 earnings today. Revenues were up 7% year over year, but operating income was down 45% and EPS was -$0.11.
What is one to think about these most recent earnings? It depends. You could view it as a solid performance in the industry's most difficult stretch in almost 30 years. Recorded music and publishing revenues were both up. Compared to its peer group, WMG is doing just fine ("given industry doldrums this is pretty good," said Silicon Alley Insider of recorded music revenue) and some like to assess performance relative to a company's competitors. On the other hand, you could look at the lower operating income, the negative cash flow and general gloomy industry outlook and have a different opinion. WMG, like the other majors, requires a lot of patience right now. "Today’s recorded music business is challenged and it may take some time before it returns to growth," said CFO Michael Fleisher.
The market was not very optimistic. Investors probably felt last week's run up, caused by a Merrill Lynch "buy" rating, was too much. (Update: Or, as one knowledgeable reader said, information could have leaked that ran up the price.) The stock dropped 19% to $7.06 this morning and now sits at $7.16. (around where it was five days ago).
Silicon Alley Insider and paidContent have very good recaps of the conference call (with tornado sirens going off until 2:30am this morning, I opted to sleep in).
The company declared a normal dividend of $0.13 per share. Pali Research's Richard Greenfield had warned that a dividend cut was likely.
Final note: Contrary to my opinions expressed here, WMG does not think the 2008 release schedule will be any better or worse than that of 2007. Hard to believe, but it may be true.
(Full disclosure: I was employed by WMG last summer)
• There are rumors that EMI has made an offer for Chrysalis, one of the few remaining independent music publishers in the UK. (BBC News)
• Reuters just reported that Warner Music Group has also bid on Chrysalis. (Reuters)
• FCC commissioner Michael Copps cautions against media companies being taken over by private equity groups and has urged the FCC to launch an investigation. His main complaint is the structure of these companies, which he argues may render the FCC unable to take action in the event something goes wrong. (Dow Jones)
• Alltell Wireless and mSpot have announced a new service called Music powered by Celltop, which allows users to access the DRM-free music collection on their PCs over the Alltell network. The service costs $3.99 per month of $9.99 for three months. (Press release)
• Spotted in a post about how MySpace is still killing Facebook in terms of traffic: "I spent some time on MySpace last night, exploring the profile pages of family and friends and was shocked to see that all the music players on the site are now sponsored by Zune. It was news to me but I'm told it's been that way for weeks. I haven't been able to find a single shred of coverage of that deal on any of the top tech blogs - but I would assume it's helping sell more Zunes than ever." I've looked at a dozen or so mainstream pop artists' MySpace pages and haven't seen anything sponsored by Zune. (ReadWriteWeb, via Techmeme)
• Physical music sales in France fell 17.1% in 2007. (Billboard.biz)
• An article about Indiedrive, an online music store that offers music only on 1GB USB flash drives. The flash drives, which cost on average $20 apiece, contain MP3 files, videos, pictures, artwork and anything else the artist wants to include. (Shakopee Valley News)
• With so much attention being put on Terra Firma's cost-cutting plans for EMI, things are getting a little absurd. Check this quote from an article at The Telegraph: "EMI's new owner, Terra Firma, has told managers at the music company to only ship CDs they expect to sell after discovering millions of pounds were being lost annually because of returns." Maybe Guy Hands is really that green, but somebody should tell him that offering retailers a returns guarantee allows EMI to get titles stocked. Take away that returns allowance and add more risk than a retailer is willing to carry alone. If Hands & Company has a better idea, especially on how one could convince a retailer to • stock a developing artist, please share. (The Telegraph)
• The promo departments of Roadrunner and Atlantic will be merged. Current Lava VP or promo Mike Easterlin will replace Dave Loncao as Roadrunner's SVP or promo. (Billboard.biz)
• More layoffs: Island Def Jam laid off a dozen workers last Friday. (Silicon Alley Insider)
• West Babylon, New York indie store Looney Toons reopened after the owner decided to rebuild and improve the store after a devastating fire. Inventory grew by 30% and an in-store stage was added for performances. (Newsday)
• This article is a good overview of the proposed legislation in France that will punish its citizens who engage in illegal file sharing. One tidbit I did not know: French music legend Johnny Hallyday endorsed Nicolas Sarkozy. (International Herald Tribune)
• The Digital Pricing Conundrum Part IV: The Loss of Resale. "On average, you'd pay $10.19 for one of the top-10 titles in iTunes, as opposed $11.49 for the equivalent CD. But you could, on average, net $6.23 for subsequently selling your CD. So the mean potential 'loss of resale' premium for these iTunes albums was $4.93." Read this Coolfer post about the value in the choice to resell a CD. (Digital Audio Insider)
• Greg Kot interviews Paul McCartney. Kot asks the (sadly) predictable question, Are record labels done? McCartney responds, "No. It's not final. I feel like I made the right decision, because right after I left, EMI got sold, so obviously something was wrong. They are now in new hands and are applying themselves and they're going to bring themselves into the modern world." (Chicago Tribune)
• Coolfer has a Facebook page. Sure, why not? So many people use Facebook these days, it's the best place to keep in contact. Feel free to befriend me. (Coolfer on Facebook)
• Arguments for dropping DRM: Getting rid DRM is bad only for the most risk-averse and pessimistic in the industry. Without DRM, entrepreneurship will flourish and labels can enter a new era of marketing. Whatever increases in piracy result will be overshadowed by the gains from a growing digital market. The bottom line is the bottom line: A net gain. Not a silver bullet, but a net gain. (Big Red Horseshoe)
Warner Music Group released its Q4 and annual earnings yesterday (read 10-K, read 8-K) beating estimates by $0.01 per share while showing mixed results. Q4 revenues increased 2%, publishing revenues increased 7 percent to $137 million and digital music sales increased 9% sequentially and 25% year-over-year.
Annual revenues dropped 4% to $3.385 million, recorded music revenue dropped 6%, digital revenue increased 30%, publishing rose 6%, U.S. revenue dropped 2% and international revenue dropped 4%.
Since cash is king, let's take a look at what happened to cash during the year. During Q4, cash decreased by $63 million. During the year, cash decreased $267 million, due greatly to acquisitions. (Ending cash and cash equivalents balance was $288 million.)
The stock rose 8.1% to $7.73 yesterday. That's higher than the $7.50 target set by Pali Research's Richard Greenfield four weeks ago. With a current share price of $7.38, it looks like the market has judged his most recent target of $5 to be too pessimistic.
As points of comparison, Universal Music Group's Q2 revenues were down 0.8% and first half revenues were down 4.9%. In its last earnings release as a public company, EMI reported a £263.3 million loss and a decrease in revenues of 15.8%.
Others on WMG's earnings:
• Silicon Alley Insider: "Warner Music doesn't formally offer guidance to Wall Street. But read between the lines from its just-concluded Q4 earnings call and it's pretty clear that WMG is going to have a lousy 2008." I haven't heard the conference call replay yet (the link isn't working) so I can't speak for Peter Kafka's interpretation. I will say that during this transitional period, and given competitors' performance, I wouldn't use the word "lousy" to describe a modest or slight profit.
• New York Post: " Warner CEO Edgar Bronfman Jr. said in a call with analysts that both the company and industry remain in transition, with digital remaining a sticking point. 'Digital growth, and particularly mobile, have been on a slower trajectory than initial expectations,' he said. That is putting increasing pressure on the company to find alternative sources of revenue."
• Roadrunner Records and music exec Tom Lipsky, formerly the CEO and president of Sanctuary Music Group's North American operations, have formed a joint venture that will release music by classic rock artists. Almost three-quarters of Roadrunner Music Group, the parent company of Roadrunner Records, was purchased by Warner Music Group in January 2007. (Billboard.biz)
• Last week Borders released its Q3 2007 earnings. Same store music sales were down 13.1% over Q3 2006. That's a big drop but not as bad as Trans World's Q3 music sales decrease (21%), and not as bad as the overall CD (about 20%) and album decrease (about 14%) in 2007. (Borders Earnings Release)
• Ben Sisario has an article on the growing number of Western acts performing in China. It's a well-rounded look at an emerging market that may offer clues of the future of the music business (the ubiquity of corporate sponsorships, for example, and labels' acceptance of piracy). (New York Times)
• A profile of Koch Distribution. (Newsday)
• The Winnipeg Sun started a four-part series on the changing music industry. The first installment looks at CD sales in Canada. CD sales dropped 19% from January to August of this year. The cause of that decline is definitely up for debate, and the article examines a few possibilities: piracy, the "today's music is no good" explanation and a consumer backlash against "overpriced" CDs. To no surprise, the article didn't even mention 2007's extremely thin release schedule. Whether compromised of future classics or pop fluff, a busy release schedule would have helped sales this year. (Winnipeg Sun)
• Although there is much debate over file-sharing's impact on sales in Canada, the Canadian Recording Industry Association is not happy with the country's digital laws and wants new laws to encourage investment and improve consumer education. (London Free Press)
• A profile of legendary music exec Frank Dileo, who moved to Music Row in January 2007 and is now starting a management company and plans to launch a publishing company. (Nashville Scene)
• The New York Post got its hands on a confidential investor presentation in which EMI owner Terra Firma outlines its plans to improve its position in the music company. Highlights: Terra Firma is looking for $223 million in fixed costs savings (mostly in recorded music); it plans to cut $31 million from sales and distribution; it expects to save $58 million in A&R costs by utilizing social networking websites to find and promote artists; and it hopes to improve cash flows by 766% over five years by taking advantage of improved digital and mobile margins. In addition, Terra Firm has set aside $100 million for acquisitions of smaller indie labels. That's quite a wish list. (New York Post)
• The new Microsoft Zune devices officially launch today, but there was a lot of coverage yesterday. Engadget compiles some (positive) reviews of the updated portable media player. As always, most of the fun is in the comments. (Engadget)
• Silicon Valley Insider wonders how low Warner Music Group's stock can drop. Pali Research's Richard Greenfield, who just helped prompt a drop to his target price of $7.50, has now set a target at $5.00. Greenfield is worried about the loss of CD shelf space after Christmas. Is that really the only reason for the lower target price? That should have been built in a while ago since we've known for a while -- and has been speculated for eons -- that labels are going to get less love from the mass merchants and chains after the Christmas selling season. No secret there. (Silicon Valley Insider)
• Music-oriented social networking are the new social networking sites, which were the new coffee houses, which were the new bagel shops, which were the new video arcade/ice cream parlor. Here's an article on Cyloop.com, which has deals with Warner Music Group and The Orchard and plans to wrap up Sony BMG and Universal Music Group by the end of the year. Unlike most social networking site,s Cyloop has a niche: the Hispanic market. (Miami Herald)
• Warner Music Group chief executive, Edgar Bronfman Jr., is warning mobile operators to improve their music offerings or lose ground to the likes of Apple and Google. "With Apple's iPhone innovation and Google coming in, if the mobile phone industry doesn't respond with highly competitive offerings, they're going to watch their share of the opportunity diminish," he said. And as operators' share of the opportunity wanes, so do labels' fortunes. (Financial Times)
• For you lawyer types or those simply interested in RIAA lawsuits: "Examining Hard Drives During Discovery." Here's a sample: "The right to examine the contents of an opponent's computer hard drive has been categorized as unusual relief, yet can prove valuable during the discovery process. Nonetheless, under the federal rules, courts will not, as a matter of course, grant a party's demand routinely. Rather, imaging is generally permitted when there is a finding that an adversary's document production has been inadequate and that a hard drive examination could uncover omitted, relevant materials. In the absence of such a strong showing, courts can be reluctant to allow an examination, particularly given that hard-drive imaging can be a costly procedure that adds to the litigation expenses of all parties." (Law.com)
• Optimal's VinylDisc, one side vinyl and the other side CD, will be chart-eligible in the U.K. (mi2n.com)
• The infrastructure for the 360-degree deal continues to develop. Warner Music U.K. will bring in the B-Unique label and create a management division with the British label. Financial terms of the deal were not disclosed. The B-Unique label includes Primal Scream, Aqualung and the Kaiser Chiefs. (Billboard.biz)
• Singer Kyle Minogue has launched a mobile phone social networking site. KylieKonnect.com was designed by New Visions Mobile and is said to be a first for a pop star. "The whole thing is set up so that Kylie can update her blog and have a closer connection with fans," said a New Visions executive. (Reuters)
• The Nashville Songwriters Association International will buy the legendary Nashville venue Bluebird Cafe to use as a songwriters' venue. (CMT.com)
• News Corp has lifted it ban on using Universal Music Group music in its productions. Thought to be a retaliation for UMG's lawsuit against News Corp-owned MySpace, the eight-month ban prevented UMG music from being heard in shows and movies by Twentieth Century Fox television shows like "My Name Is Earl" and "Bones." (Wall Street Journal)
• A transcript of RealNetworks' Q3 earnings call. (Seeking Alpha)
• CMT will debut in spring 2008 a new music reality series called "Can You Duet?" While the producers are looking for a label to partner with for "Duet"-related releases, the show's producer, FreemantleMedia, is 90% owned by Sony BMG. (Variety)
• In this article about California music chain Amoeba Music, there's info on Amoeba Records' Flying Burrito Brothers album (a two-CD set of two 1969 concerts at which the Flying Burrito Brothers opened for the Grateful Dead) and Amoeba's planned music download store (which co-founder David Prinz says is about a year away from launch). (San Francisco Chronicle)
• The new Zune website is fun. (Zune Journey)
• Kenny Chesney's summer tour attracted over 1.2 million fans at an average ticket price of $61.82. Not too shabby. (Music Row)
Warner Music Group CEO and chairman Edgar Bronfman Jr.'s interview at the Goldman Sachs Communacopia is worth a listen (if you have 40 minutes or so to spend with it). In the interview with a Goldmann Sachs analyst, Bronfman gave insight into WMG's strategy and priorities. (Click here for webast page at WMG investor relations page.)
On WMG's broader artist contracts that deal with multiple revenue streams: "The one place the strategy has evolved is essentially broadening our revenue stream beyond just a recorded music business into a broader music business. ... We're adding to that the notion of partnering with our artists from day one. We want to partner with our artists in all the revenue streams that are derived from that brand over time. Merchanise. Touring. Management.
How long until these initiatives make an impact on margins and the bottom line? WMG is buying and building those components, Bronfman said, though he didn't want to predict when the changes would hit the bottom line.
About the competitive response to WMG's moves, he said WMG willl do what they will do. Bronfman again emphasized that WMG will not stock its portfolio with only recorded music. LiveNation and Ticketmaster are theoretically competitors, but if WMG adopts the new model it can adapt to the new competitive threat. (One feels he was referring to the reported offer LiveNation has made to current WMG aritst Madonna.)
Bronfman was asked about artist reactions to 360 contracts. "I think it's a mix," he said. "We're focused more on the newer artists and mid-tier artist roster, not so much on the top tier artist roster," at which point WMG would be paying "market rates" and would have lower margins.
One thing that stood out to me was that Bronfman singled out Lala.com as a bright spot for the future of digital music. (Universal has SpiralFrog, EMI went DRM-free with iTunes and WMG is in Lala.com's corner. Funny how everybody puts their weight behind different companies.) WMG is the only major to license its content to Lala.com, and WMG artist James Blunt is now selling an iPod-compatible album download at his MySpace page via a Lala.com widget.
paidContent has more on the interview and emphasizes Bronfman's comments on needing an equity stake in the "MTV of the Internet."
Billboard's Ed Christman has a very good recap of the interview.
• On the strength of Kanye West and 50 Cent, album sales rose 25% last week...but were still 9% lower than last year. For the year, album sales are down 14%. Sales of digital tracks rose 1% and were only 22% higher than the same week last year. For the year, digital track sales are up 46%.
• Warner Music Group has acquired a 70% stake in Taisuke, a leading artist services company in Japan. Taisuke has management, recorded music and copyright administration aspects and will add to WMG's ability to offer services outside of the traditional recorded music and music publishing areas. (Press release)
• In South Africa, a dispute over ringtone royalties has a pot of money sitting in a trust account. Retailers are refusing to pay more than 5% to composers while the National Organisation for Reproduction Rights in Music in Southern Africa is demanding a new, set amount of 7.5% (which last year replaced a sliding scale royalty last). (Mail & Guardian)
• Commentary on SpiralFrog has been very mixed and mostly negative (no official sample here, just going from the gut) but there may be one definite bright spot to the launch: the quality of its advertisers. AdAge reports that Colgate and Discover Card, and Ad-Supported Music Central noted ads from the Army (I saw plenty of those during my beta tests), Burger Kings and Johnson & Johnson's Acuvue. (AdAge, via Ad-Supported Music Central)
• Interesting ticket news for you: A Massachusetts judge upheld the state's anti-scalping law (people cannot re-sell a ticket for more than a few dollars over the face value). But just as the rest of the country has eased up on scalping, a state legislature has drafted a bill that would eliminate all restrictions on the resale of tickets by either brokers or individuals. (Ticket News)
• News.com has a Q&A with Pandora founder Tim Westergren. "You can be completely unknown, but because we know what you sound like and do some music analysis on you we can make sure you are heard by people who are likely to enjoy your music. And when we get big enough, we can do it to a large enough audience with the prospect that they can essentially support you. For most bands it's a lot if they can get a 100,000 people to like their music. We can probably find 100,000." (News.com)
• Cal Turner III has bought out the shares of Dualtone Music Group partners Dan Herrington and Scott Robinson. (Music Row)
• FoC Ben Sisario of the New York Times has an article titled "Making a Career After a Monster Hit" that's about James Blunt's attempt to ward off the ol' sophomore slump. "Mr. Blunt made an appeal to Lyor Cohen, the domestic chairman of Atlantic’s parent company, the Warner Music Group, asking him to avoid pushing any single too hard and to emphasize the new album as a whole. Mr. Cohen was sympathetic, but only to a point. 'Ultimately we’re not as romantic,' he said. 'You need to get the impressions at radio to bring attention to it.'" (New York Times)
The launch of James Blunt's new album, All The Lost Souls, has some new wrinkles. The Financial Times reported that Blunt's MySpace page will sell iPod-compatible downloads, bundled with a CD, for $9.99 via a Lala.com-powered widget. Blunt is signed to Warner Music Group.
The download-and-CD bundle has been seen at AnywhereCD, which, until September 30, is selling bundles of MP3s-and-CD bundles of some WMG artists. WMG's use of Lala.com for a download-and-CD bundle -- an experiment to be sure -- is noteworthy for three reasons. Lala.com is getting in on Snocap's MySpace turf. Working with Lala.com will allow WMG to reach iPod owners while insisting upon the use of DRM. And it shows WMG is consistent in its willingness to license a bundle but not a DRM-free album download. WMG and AnywhereCD traded lawsuits over its bundling strategy before agreeing to the September 30 termination date.
According to an unrelated Reuters article yesterday, WMG is the only one of the four majors with which Lala.com has a deal.
paidContent has some notes from Edgar Bronfman, Jr.'s speech at the Convergence 2.0 conference, as well as a link to the PDF of his speech's text. The chairman and CEO of Warner Music Group downplayed doomsday predictions for the music industry and insisted that there is opportunity in products other than just recorded music (fan clubs, management, concert tickets). The main themes of the speech were optimism and opportunity. Lots of optimism.
Tomorrow Bronfman's keynote at the Goldman Sachs Communacopia XVI Conference will be webcast (link at WMG site) live starting at 1:20PM E.T.
• Due in part to amounts paid related to Napster lawsuits, Bertelsmann reported a net loss of €50.9 million ($69 million) for the first half of 2007. Sales were 2% lower after the company sold its BMG Music Publishing division to rival Universal Music Group last year. Sony BMG, Bertlelsmann's music joint venture with Sony, posted an operating loss of €2 million ($2.7 million) compared to an operating gain of €3 million ($4.07 million) last year. (Bloomberg)
• BMI posted record revenue and royalty distributions for its 2006-2007 fiscal year. The performing rights society recorded revenues of over $839 million and will distribute over $732 million to its artists. (Press release)
• LiveNation has release Stuart Galbraith, its U.K. managing director, due to a "breach of contract." (Billboard.biz)
• Warner Music Group announces a quarterly cash dividend of $19.4 million, or $0.13 per share of common stock. (Press release)
• A good article on how Saddle Creek Records has helped transform downtown Omaha. The label owns an entire city block and recently opened a 470-capacity venue called Slowdown. A coffee shop and Urban Outfitters rent space on the block. (Beatrice Daily Sun)
I found this commentary on 360-degree artist contracts, and other new strategies, in Fitch Ratings' press release about its ratings on Warner Music Group debt:
"While Fitch would expect margins to continue to improve, as digital makes up a greater percentage of total revenue (currently 15% of total revenue), Fitch believes WMG's new initiatives in emerging areas such as artist management, video content and ad sales will offset some of those gains over the short-term. Fitch believes WMG's push into video content and advertising sales is prudent as legitimate outlets for music video content continue to increase and business models for monetizing such content continue to gain traction. Risks related to increases in up-front royalty payments to artists in management 360-degree relationships is somewhat mitigated by Fitch's belief that recording companies such as WMG will have significant leverage regarding deal terms with new artists. Given the limited number of major recording companies, Fitch does not believe there is additional risk related to A&R strategy in the evolving landscape of label and artist relationships."
• Missy Elliot's Doritos campaign looks like the future of hip hop: A multi-platform campaign (including an exclusive track) created by Goodby, Silverstein & Partners and managed by Violator Management. In June, Warner Music Group created a joint venture with Violator called the Brand Asset Group. Hip hop may still have some pop culture influence -- less than a few years ago, I believe -- but sales are falling faster than pop, rock and country. Touring isn't much of an option, so corporate advertisers are looking very attractive. This kind of campaign is the best way to extract value from artists. (Billboard.biz)
• Wal-Mart's download store may have cheap MP3s, but it's still an inconvenient way to get music onto an iPod. (The Macalope)
• U.K. venture capital firm Ingenious Media is backing albums by heritage artists like UB40, Peter Gabriel and Travis. The firm has raised $79 million in part by attracting investors with tax benefits. U.K. tax law allows the fund not to pay taxes on any profits. Ingenious receives an annual fee for managing the fund plus 20% of any profits. (Wall Street Journal)
• Just as NBA star Ron Artest did when he was suspended, NFL star Adam "Pacman" Jones is promoting an upcoming release on his record label. National Street League will release Posterboyz's album on Tuesday. Posterboyz consists of Jones and producer Spoaty. (NewsChannel5.com)
• Oops. The headline of this Forbes article says, "Sony BMG Spent $240M Lobbying in 2007." The correct number, $240,000, is given in the body of the article. (Forbes.com)
Today YouTube will start placing advertisements into video clips (read Times Online article). Warner Music Group is one of the first group of 1,000 "content partners" whose videos will get advertisements.
Pictured is an advertisement placed on a video for "What I've Done" (YouTube link) by WMG's Linkin Park.
The initial cost for advertisers will be $20 per 1,000 views (whether or not the user clicks on the ad). Revenue will be split between the website and the content provider. The pictured Linkin Park video has been viewed over 19 million times. At $20 per 1,000 views, WMG's share would be just over $190,000.
For a major artist on a major label, that's a fair amount of money. Across a large video catalog, though, that revenue will sum to a considerable amount. For the labels, this is basically found money. YouTube videos do not cannibalize music sales in the same way downloading does. These ads mark the dawn of the new, ad-supported era. Rather than collect money from an end sale, other levels of consumer participation matter. Now there is a way to properly monetize the curious, the mildly interested and the more frequent viewers.
Claims of effectiveness are in this Telegraph article:
"YouTube claims the new advertising method is five to ten times more effective than any other display advertising.A spokesman for YouTube said the group had been trialling various different ideas for weeks, revealing that video abandonment skyrockets as pre-roll adverts get longer in length, making it clear that they have a 'detrimental impact on users'."
"In its test, Google said the ads got click rates of 1-2 percent, with 75 percent of clickers watching the message all the way through. In shunning pre-rolls for targeted ad invitations, Google is borrowing a page from several startups, including VideoEgg and ScanScout, which have tried overlay video ad features."
The AP article mentions the new ads' effectiveness:
"Shiva Rajaraman, product manager for YouTube, said internal tests show more than 70 percent of people give up when they see a pre-roll. By contrast, less than 10 percent decide to close an overlay, which they can exit by clicking on an "X" in a corner. The overlay format also gives advertisers more flexibility, he said, because they aren't constrained to keeping a video ad at 15 or 30 seconds to avoid defection."
• The New York Post reported former EMI exec Jim Fifield is still working on a deal to buy the company despite his backer, Corvus Capital, pulling out. Fifield, the article said, wants to run the recorded music division and sell the music publishing division to record exec Charles Koppelman and private equity firm GTCR Golder Rauner. (New York Post)
• IFPI scare tactics are working. Ars Technica finds that some sellers of allofmp3.com gift certificates are getting out of the business after one London-based seller was arrested. (Ars Technica, via Billboard.biz)
• Ad-supported online music service Ruckus, the most miserable music service I have ever seen, has landed $10 million in funding. Well...it obviously needs it. (Reuters)
• Downloads are hurting the venerable CD single in the UK. Supermarket chain ASDA, one of the top music sellers in Britain, is going to stop selling CD singles. (Related: Handleman UK and ASDA have terminated their music supply agreement.) At the same time, indie stores are seeing a resurgance in the 7" vinyl single. Said one indie retailer, "We find customers like to have a more aesthetically pleasing physical product as a collectable item, rather than a throw away mass-produced CD single." (Manchester Evening News)
The Financial Times reported today that Warner Music Group is just now starting its due diligence and is in talks with private equity groups, including Terra Firma, about acquiring EMI's recorded music division once EMI's sale is complete.
Some believe WMG's efforts to acquire EMI are being hampered by the EU's decision to take another look at the Sony BMG merger. A sale to Terra Firma would give cash to EMI shareholders in a short period of time while a sale to WMG could result in uncertain regulatory scrutiny.
Just yesterday, the EU approved the sale of BMG Music Publishing to Universal Music Group. UMG agreed to rid itself of some publishing assets to help gain approval. Similarly, WMG might be better off waiting to buy just a piece of EMI from a private equity firm.
• Warner Music Group's Rhino Records has laid off 15 employees as a part of WMG's greater restructuring plans. (Billboard.biz)
• Multimedia retailer Hastings Entertainment, Inc. reported improved net income on slightly lower revenues for Q1 2007. Overall it was a good quarter that showed the company is properly retooling its product mix. Net income increased 29% to $2.5 million year over year while revenues dropped to $128 million from $131 million. Cost of revenues decreased to 62.7% from 64.5% last year. Comp store revenues dropped 3.9%. Music sales were down 13% while electronics rose 17.5%. (Press release)
• Paul McCartney''s solo and Wings catalog made its herladed debut on online stores and services yesterday...but for whatever reason it wasn't on iTunes. (PC World)
• Pandora, the online music recommendation engine, will be available through Spint Power Vision phones (for $2.99 per month) as well as Sonos home audio systems (as 32 different Pandora radio stations). (MP3.com)
• PassAlong Networks is powering a music download store by MP3Car.com, which offers an in-dash application to discover and purchase songs. (Press release)
• Joost announced a deal with Creative Artists Agency. (Press release)
• Virgin Entertainment will close two stores (Chicago and Salt Lake City) and open a store at the Hollywood Bowl. (Billboard.biz)
• Warner Music Group cut 15 positions in the U.K. as a part of its "ongoing transformation." (Hollywood Reporter)
• Newsweek has an article on celebrity blogger Perez Hilton. The article looks at the impact Hilton can have even -- though he is not a music blogger per se. "When Perez Hilton talks music," says the title, "people listen." It says he hopes to start a record label and launch a "Perez Hilton"-braded tour. (Newsweek)
• A profile of San Francisco-based indie label Six Degrees Records. Said co-founder Bob Duskis: "We said to ourselves that we could piss and moan about how the business was changing, or we could look ahead to new opportunities, embrace them and try to be one step ahead." (San Francisco Chronicle)
• The Independent has an (often unbearably long) article on The Minpins and how they are at the forefront of a changing, decentralized, Internet-heavy music industry. Looks like the band doesn't use MySpace much -- they've got only 307 friends and 4,634 profile views. (The Independent)
• Indie musicians like Ben Gibbard (Death Cab For Cutie) and James Mercer (The Shin) talk about the mainstreaming of indie rock. (Denver Post)
• The Wall Street Journal's Jason Fry has a lengthy write-up on Yahoo! Music's new Gracenote-powered music lyric service --- and he's got a beef with it. Because the lyrics cannot be copied and pasted (into the MP3's metadata, for example), Fry is all but writing off the new business. "When an interesting new service arrives hamstrung, positions get hardened in the undeclared war between the music industry and its customers." Easy. It's too early to predict a file-sharing-like dust-up between industry and consumers. (Wall Street Journal)
The Times Online reported today Warner Music Group is prepared to up its bid by £100 million ($197 million).
"The size of the payment reflects the confidence of Edgar Bronfman, Warner’s chairman, that a £4.6 billion merger with EMI will now be approved by competition regulators. He is prepared to offer investors a financial inducement to weaken EMI’s argument that they should accept a lower offer from private equity."
Just yesterday, The Times Online reported that WMG would be "unlikely" to increase its previous bid of 260p per share. That article claimed WMG had emerged as the most likely winner of the four companies interested in EMI (WMG and three private equity groups).
In recent weeks, there have been reports that the EU would probably approve a WMG acquistion of EMI. What I'm wondering is what this would do to EMI's foray into sales of unprotected downloads. WMG and the other majors do not see eye to eye (or say they say publicly) with EMI on the matter of DRM.
• Warner Music has sued social networking site imeem for copyright infringement. According to the lawsuit, "Imeem itself directly engages in much of the infringing conduct by duplicating, adapting, distributing and performing plaintiff's works through Imeem's own servers." Indeed. Take a look at the top songs at imeem and count the number that have the proper license for on-demand streaming (somewhere around zero I would imagine). (Wall Street Journal)
• The UK Parliament Committee has called for an extension on copyrights on sound recordings from 70 years from the existing 50 years. (BBC News)
• The Los Angeles Times' Jon Healey was a good article on the sometimes perplexing variation of CD price points. A theme of the article echoes some of my recent arguments about differences in price elasticities, that "there are two price thresholds: one for fans and one for the merely curious." (Los Angeles Times)
• Motorola has inked a partnership with Napster to provide subscription services to the handset manufacturer. The Motorola ROKR and Z6m will be the first phones able to download and play tracks from the $14.95-per-month Napster To Go service. Motorola buyers will be offered the first month at no charge. (PC Pro)
• Great marketing: Blue Note will sponsor an air-conditioned jazz tent at this summer's Bonnaroo Music Festival. Blue Note artists such as Ravi Coltrane and Stefon Harris will perform. (AP)
Fox News' Roger Friedman has some info about a 2004 failed attempt to merger Warner Music Group and EMI. (read article here, scroll down.) The details have surfaced as exhibits in a lawsuit brought against WMG's Edgar Bronfman by Richard Snyder. Documents offer insight on a proposal for WMG's recorded music group and part of its publishing group. That letter, sent by EMI chairman Eric Nicoli on Feb 9, 2004, was sent to WMG and Scott Sperling of Thomas H. Lee Partners, the firm that financed Bronfman's acquisition of WMG from Time Warner.
Nicoli proposed a merger with WMG for $1.6 billion in cash and a structure with Bronfman as CEO of the "enlarged EMI group," Alain Levy as CEO of the music group and Martin Bandier as the CEO of the publishing group.
The thrust of the article is a belief that this merger should have gone through and that Bronfman missed a golden opportunity to save the industry. His opinion should not be taken too seriously; Friedman is not a business writer or analyst. He is a connected, gossipy entertainment journalist. ("There might be a record business now," he confidently wrote at the beginning of the piece.) "It's that simple," wrote Friedman. "All Nicoli asks is that his EMI executives remain in place through the new company." That simple? Maybe Friedman should look at the Sony BMG culture wars as a case study of muddy executive leadership when entertainment companies on opposite sides of the Atlantic merge.
• WEA, the major label distribution arm of Warner Music Group, plans to cut 70 jobs. Some of those jobs will be replaced in an effort to improve digital distribution. (Billboard.biz)
• Def Jam is rumored to have cut about 40 jobs yesterday...which seems about right given its recent track record. (Jossip, via Idolator)
• It certainly is not about just selling CDs any more: WMG has hired Peter Scherr, formerly of Jet Blue, as its VP of Interactive Marketing. On his job description will be mobile marketing, e-commerce and search engine marketing and web site optimization. (Press release)
• Thanks to David from Digital Audio Insider for pointing me toward his coverage of Digital NARM. Read his posts on subscription services. indie retail and digital downloads and major labels and DRM.
• Robbins Entertainment, known best for dance hits by DJ Sammy and its club-oriented dance compilations, has launched Robbins Nashville and has hired Phyllis Stark as VP of A&R. (Country Standard Time)
• Last.fm has added videos to its service. (Press release)
• ArkivMusic has reached a deal to release out-of-print albums from EMI Classics. Long tail indeed. (Press release)
• Digital Music News reported the names of some Warner Music execs who have or will leave their posts: Nikke Slight, Atlantic SVP of New Media, and Robin Bechtel, head of new media at Warner Bros. Records. Those departures have led to the entry of Jack Isquith, formerly with AOL Music. Isquith will report directly to Warner Bros. chief executive Tom Whalley. (Digital Music News)
• PassAlong Networks announced version 2.0 of freedomMP3. The new version adds track-based rules that allow rightsholders to predetermine how many times the song can be moved off a PC. (Press release)
• EMI Music UK announced a strategic partnership with TLC Marketing to launch a download royalty card that will be used in third-party promotions. TLC has brand partnerships with Samsung, First Direct and British Gas. The promotion will allow consumers to download songs from an EMI owned and branded website. (Creative Match)
• With every concert ticket purchased online, Ticketmaster is giving away a free, ten-song digital sampler. Between Memorial Day and Labor Day, each ticket purchased will get one free download at iTunes. (Press release)
• A report by eMarketer finds that the music industry as a whole is "healthy" and "growth in many other areas will more than make up for the shortfall" in falling CD sales. Growth in music publishing and live music will help the industry grow at an average annual rate of 2.8% through 2011. (Press release)
• Guitar Center announced its Q1 2007 results. Net sales increased 13.5% to $534.5 million and earnings rose to $17.2 million. The company opened 12 new stores during the quarter, one being the result of an acquisition of the former Victor's House of Music in Paramus, New Jersey. (Press release)
Warner Music Group announced today its results for Q2 2007 that ended March 31, 2007 (read press release and 10-Q). The numbers were down in every important category except digital sales. The press release and 10-Q mention WMG's restructuring and place on it a price tag of $70 to $80 million (severance-related expenses and related consulting fees and cost of temporary workers).
Total revenue dropped 2% to $784 million and the net loss was $27 million. Revenue from recorded music dropped 4% and digital recorded music revenue increased 22%. Music publishing revenue increased 11%. Through the first two quarters, total revenue dropped to $1.7 billion from $1.84 billion.
Digital revenues now account for 14% of total company revenues.
WMG has started a restructuring plan and incurred $16 million in related expenses in Q2, $15 million of which was in the recorded music division. Resources will be redirected to growth areas in Europe. The press release says the restructuring is so WMG's "continued evolution from a record and songs-based business to a music-based content company and the ongoing management of its cost structure." Billboard.biz has reported that WMG plans to cut 400 jobs, a number that was confirmed in the 10-Q.
The 10-Q mentions the Napster settlement on April 24th, 2007. WMG has received $110 million from Bertelsmann and "will be sharing with its artists and songwriters." No further details were given.
• Country label 903 Music has "ran out of money" and shut its doors. (MusicRow.com)
• The Arctic Monkey's UK chart domination looks like it could have been made possible by an error by iTunes. The store accidentally put up for sale the individual tracks for the band's new album, Favourite Worst Nightmare, before the album itself was available. Fans acquired the album by simply downloading each track. The result was 17 tracks in the UK Top 200 singles chart. (NME.com)
• Flat-fee digital distributor TuneCore announced a strategic partnership with music retailer Guitar Center -- which is a TuneCore investor -- that will promote TuneCore to Guitar Center customers. (Press release)
• Keith Wozencroft, currently president of Capitol Music and Virgin Records UK, has entered into a partnership with EMI that will see him launch a joint-venture label with EMI UK and Ireland. (Billboard.biz)
• The NARM website has a PowerPoint presentation from Nielsen SoundScan that was given at the recent 2007 NARM conference. The slide show has a good amount of information on album and digital track sales for both 2006 and year-to-date 2007. Slide 17 had a statistic I had not seen: In 2006, there were 75,774 new albums released, up from 60,313 the year before. Another good tidbit: In 2006, there were 50% more digital-only albums released than the year prior -- but 95% of those digital albums sold fewer than 100 units each. Slide 47 has some info on ringtone sales, which Nielsen began tracking in September 2006.
• There's a rumor that Atlantic will split with Vice Records and decide which artists it wants to keep. (Hits)
• RealNetworks reported record revenue of $129.4 million in Q1 2007. Music revenue increased 18% year over year. Page six of the statements of operations shows the real story: Less $61 million from the company's anti-trust settlement with Microsoft, adjusted net income was flat at $10.4 million. In Q1 2006, only $40 million in settlement money hit the income statement. This Seattle P-I article says the company now boasts "24.6 million paid subscribers to its music and online radio services." If memory serves, Rhapsody had only 2.4 million a few months ago, so I'd like to see those subscriber numbers broken out. (Press release and PDF of statements of operations)
• Koch has launched a label services division to offer marketing services to labels. (Billboard.biz)
• Warner Music Group will try out a new physical format called MVI -- for Music Video Interactive -- that is a DVD with a variety of digital content. The upcoming Rush album Snakes & Arrows will be available in MVI, and releases by Linkin Park and The Flaming Lips are expected to be available in MVI as well. (Digital Music News)
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• ARTISTdirect.com has a partnership in the UK with T-Mobile and will provide T-Mobile subscribers with exclusive media content like downloads, videos and photos. The deal could get ARTISTdirect "more than $1.0 million for a one-year period." (Press release)
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Warner Music Group artists will be available through Snocaps MyStores (read press release). One important angle that will probably dampen excitement for the new distribution deal is the file format. Downloads will be protected Windows Media, which work with PlaysForSure devices. The widget is very upfront about the restrictions placed on the files (see above).
AnywhereCD filed a lawsuit against Warner Music Group that asks for a declaratory judgment that it is not violating WMG's copyright. The complaint alleges WMG acted in bad faith when it asserted AnywhereCD breeched its licensing agreement and then made "false and damaging statements to the press, where were intended to injure and destroy AnywhereCD's business." Read a PDF of AnywhereCD's complaint here and a blog post about the lawsuit here.
Reuters reported that WMG has filed a suit against AnywhereCD that asks the court to enforce its termination of contract with AnywhereCD.
To be honest, I'm confused by the statements of AnywhereCD founder Michael Robertson. He told Wired's Listening Post blog that the CDs not shipped to consumers would be kept through an audit period and then destroyed. Labels would be better off, he argued, without those CDs hitting the used CD market and cannibalizing new CD sales.
I have spent some time thinking about this from an accounting point of view. AnywhereCD either has its own warehouse or (more likely) has contracted with a distributor for order fulfillment. In either case, unsent CDs would just sit around on the shelves until the end of the audit period, then they would be destroyed. And at some point ownership of those unsent CDs should have transferred to the buyers -- otherwise there would not have been an event to signify the sale and trigger revenue recognition. Without that trigger, as I see it, AnywhereCD would have sold just MP3s and not a CD/MP3 bundle. It would be more than just a bit odd if AnywhereCD could not recognize revenue but was going to pay royalties to WMG for that "sold" CD.
The closest guidance I could find was Statement of Position 00-2, which presented a new method of accounting for the film industry in the digital era. It states that revenue from the sale or licensing of a film should be recognized "when the film is complete and has been delivered or is available for immediate and unconditional delivery." Now, I do not know if this is applicable to a CD (I'm no CPA, nor do I play one on my blog) but there looks to be a parallel to the WMG/AnywhereCD lawsuits.
Revenue recognition is separate from whatever licensing agreement AnythingCD had with WMG. From an outsider's perspective, however, it seems that both accounting and licensing agreements should be more harmonious. If AnythingCD can't put a sale on its books, how can it tell a licensor that a sale ever took place?
• Insiders say Wal-Mart will lower the square feet designated for CDs and replace them with iPod accessories. (Kings of A&R, via Idolator)
• Warner Music Group has settled its years-old claim against Bertelsmann over the latter company's relationship with Napster. The WMG press release is mum on an amount, but an 8-K filed with the SEC says WMG will receive $110 million from Bertlesmann, who admits no liability in the settlement. (Press release)
• Another day, another Amazon.com rumor: Insiders say Amazon.com's digital download store will be integrated into existing the Amazon.com storefront. "It’s going to look just like Amazon does today," said one source. (Digital Music News)
• Gracenote has launched its online lyrics service. Yahoo Music, through a revenue-sharing agreement with Gracenote, will offer the lyrics of hundreds of thousands of songs. More sites will soon offer lyrics through Gracenote as well. (Reuters)
• Indie911, an online social network with music overtones, has partnered with APM Music, a joint venture between EMI Music Publishing and BMG Music Publishing. Indie911 will provide indie and unsigned content to television, film and video game companies. (Billboard.biz)
• An analyst put iTunes' operating profit at as much as 15%. Because Apple has undertaken measures to minimize credit card transaction fees -- something many people mistakenly think eats up all iTunes profit -- each song clears ten cents. (AppleInsider)
• Check out ASCAP's blog for its "I Create Music" ASCAPExpo that ran April 19th to 21st. (EXPO's Vox)
Fortune writer Tim Arango has an article titled "The Record Label As Venture Capital Firm" that looks at the changes occurring in recorded music companies. As music sales decline, companies are looking elsewhere for revenue. Warner Music Group, wrote Arango, is "inching toward a deal to acquire Front Line Management," the nation's largest artist management company. "The deal has been rumored for months within the industry," he added, "but sources tell me that talks have lately gained momentum."
Part of the article questions the practicality of putting record label and management under one roof, thereby eliminating the checks-and-balances that can work in the artist's favor. These days, though, artists may have to consider letting labels in on other revenues to get label contracts. Said attorney Fred Davis, "If the investment required to establish a band is the same, but the rewards to record companies are dwindling, than we have to be willing to explore new economic relationships."
• Conde Nast's recently launched Portfolio has an article on Larry Fink, CEO of BlackRock. The private equity firm is behind Octone Records, which will soon release Maroon 5's sophomore album. (Portfolio)
• Apple's April 12th newsletter confirmed that iTunes will begin to offer DRM-free, 256 Kbps files next month. (Apple eNews, via Digital Audio Insider)
• Artists signed to Atlantic Records UK will use ShoZu-enabled mobile phones to upload videos and photos to the Internet. The first act to use the service will be Funeral For A Friend, which will upload videos to its MySpace page. (Press release)
• The Caroline-to-Fontana migration continues as Eighteenth Street Lounge moves to Universal Music Group's indie distribution division. (Billboard.biz)
• A profile of CMT and its many digital initiatives: CMT.com, CMT Loaded (video on demand), content for mobile phones and a fan-compiled Wreckers video, among others. (The Tennessean)
• Hipsters were quick to digital music but still believe in the quality of vinyl. In Brooklyn, at least six vinyl shops have opened in the last few years. (New York Sun)
• How the "cumulative advantage" impacts the popularity of music. The phrase I tend to use is, "Popularity breeds popularity"...but I've never published research on the topic. (New York Times Magazine, via David Card)
Yesterday I posted about AnywhereCD, a download site launched by entrepreneur Michael Robertson (of MP3.com fame). The site sells Warner Music Group albums in the unprotected MP3 format.
In no time, WMG issued a notice of termination to AnywhereCD. A WMG representative (quoted in this article at Billboard.biz) said, "AnywhereCD is selling Warner Music Group content in a manner that flagrantly violates the terms of our agreement. Accordingly, we have sent them a notice of termination and they are required to immediately remove all of our content from their site."
There seems to be a big difference in the interpretation of AnywhereCD's licensing agreement. Reuters reported "it was acceptable for AnywhereCD to help fans rip CDs into the popular MP3 format." I'm no lawyer, but I certainly know the difference between helping a consumer rip to MP3 and selling an MP3 download.
"My thinking was we should give consumers a reason to buy an album," explained Robertson. "If you buy the album then I'll give MP3 tracks pretty much what you get with CDs anyway."
(See this post for an update on Warner Music Group's involvement with AnywhereCD)
Billboard.biz's Anthony Bruno just dropped this article on AnywhereCD and its licensing deal with Warner Music Group. AnywhereCD, created by MP3.com founder Michael Robertson, sells both MP3 albums and a bundle of CD with the MP3 album (for a few bucks more). Tracks are 192 Kbps MP3, and the site is very no-frills.
As an example, look at The Postal Service's Give Up. The MP3 album costs $11.95 and the CD+MP3 album bundle costs $14.95. Some albums have a standard album price even though they have many tracks. Ramones' Too Tough To Die -- 25 songs including the bonus tracks -- is priced at $9.99.
According to the article, "a variety" of Warner Music Group labels are represented in the store. I spotted a number of Sub Pop albums (Saint Etienne, The Shins, Iron & Wine, Pigeonhed) and some from major labels (current charting albums by Larry the Cable Guy, Static-X, Shadows Fall, Josh Groban and Fountains of Wayne). Negative on Ashley Tisdale and Led Zeppelin.
The AnywhereCD help page has links to YouTube videos that show the purchasing and downloading procedures.
Extra reading: Wired's Listening Post has an article about AnywhereCD.
Retuers has an article on Thomas H. Lee Partners' Scott Sperling that offers some thoughts on EMI from the Warner Music Group shareholder. (Sperling also sits on WMG's Board of Directors.)
"We want to be very realistic about what we would be buying and what we could do with the company, (as) the base level of profitability and the growth becomes increasingly problematic.
"EMI has announced a series of disappointing results and we don't see it turning around."
We have to look for hints about Sperling's feelings on DRM, and this quote leads me to believe piracy is still high on his list of worries: "The fundamental demand for music continues to grow," Sperling said, but whether consumers are "going to pay for it or steal it is the question."
• The Sunday Times reported that Warner Music Group may pursue a merger with EMI by making a direct appeal to its shareholders. The report claimed WMG execs were "astonished" that EMI had moved to drop DRM from downloads while it was a bid target. (Forbes.com)
• Merril Lynch analyst Jessica Reif Cohen warned of more declines this year (no kidding). "With digital growth naturally decelerating over time and the decline in physical sales accelerating, an imminent return to growth for the industry no longer appears likely." She kept a "neutral" on Warner Music Group. If you recall, Reif Cohen caused Merril Lynch to drop out of WMG's IPO and lose millions in underwriting fees after she told the firm it was overvaluing the shares. (Hollywood Reporter)
• It's high time for indie culture to go mainstream: Top indie labels will create a series of compilations, similar to the Now That's What I Call Music series, and partner with MTV2. Distribution will be aimed at mass merchants like Wal-Mart. Vice will release the first volume. Sub Pop and Matador are considering future editions. Said the always quotable Adam Shore of Vice, "We don't really expect indie-rock stores to support this record. It's for the casual fan." (Entertainment Weekly, via Hypebot)
• Sony BMG announced it will release two music titles on Blu-ray this summer: Bruce Springsteen and the E-Sreet Band: Live in Dublin, and Chris Botti Live with Orchestra and Guests. (High-Def Digest)
• Warner Music Group will offer videos through Joost. (Press release)
• Some feedback on download sales at MySpace. In a nutshell, they're quite low thus far. "People don't go to MySpace to buy," one source said. "I just don't think people are going to MySpace to buy stuff," said another. Obviously Snocap and Hooka have to get people to register and become familiar with the process. (Digital Music News)
• A profile of Dennis Mudd, CEO and co-founder of digital music company Slacker. (USA Today)
• Positive comments by analyst Richard Greenfield at Pali Research coincided with Warner Music Group's stock increase of almost 3%. This quote, though very non-committal, is about as positive as it gets for a music company right now. "The key question becomes whether or not the weakness experienced in [the first quarter] will persist throughout the year, and if the industry improves, how much, relative to [the first quarter]," he wrote in a research report." What Mr. Greenfield is getting at is WMG's release schedule, which is all but certain to improve in the second quarter. Frankly, it would be sad if a stock moved because an analyst pointed out the natural ebbs and flows of a music company's release schedule. That should already be priced into the market cap. (New York Business)
• A report says Bertelsmann paid EMI up to $100 million to settle the Napster lawsuit. I'm not playing Mr. Righteous, here, but guess how much EMI artists will get? (Times Online)
• Rap duo Youngbloodz has sued Sony BMG for $50 million. If you guessed royalties, you guessed wisely. (Billboard.biz)
• Jake Paine of AllHipHop.com bemoans the end of underground (backpacker) hip hop...and just as Aesop Rock releases an exclusive track for Nike. (AllHipHop.com)
• Ben Fritz of Variety on the continued campaign -- Pakman and von Lohman are, quite naturally, quoted in the article -- to rid DRM from music. There are always a lot of articles on the subject, but this one has a good variety of viewpoints. That variety is the reason the debate continues and change is rare. eMusic's Pakman has a good proposal: Try ditching DRM on small scale and then measure the results. It's the "Give It A Shot and See If You Like It" pitch. "Our position has always been that they should give us some stuff from the back catalog that isn't selling on iTunes and see if we can create some upside," he said. "We're not asking for Jay-Z, but it doesn't seem that the Clash's second album needs DRM anymore." (Variety)
• The National Association of Broadcasters, writes the WaPost's Sam Diaz, is playing both sides on the XM-Sirius merger debate. On one hand, it says Clear Channel's collection of local radio stations is not in competition with satellite radio. On the other hand, it is trying to convince the FCC that competition with satellite radio should allow radio companies to own more local stations. (Washington Post)
Maybe you too have noticed that the press has been quiet about Warner Music Group and EMI for the last few weeks. Today the New York Post's Peter Laura breaks the silence with a look at how WMG's weakening financial position could be hurting its bid to acquire EMI.
"Warner stock fell to $16.26 yesterday, only 19 cents above its 52-week low it reached on Friday. More important, that's $2.62 below the price on March 2 when EMI's board rejected its takeover bid. Based on Warner's roughly 150 million outstanding shares, that $2.62 per share collapse equates to a paper loss of $393 million.What's more, after Warner posted a 74 percent drop in net income in the fiscal first quarter, analysts are bracing for a similarly dreary second quarter, which will end Friday. But given EMI's own problems - two profit warnings, layoffs and merging of its Capitol and Virgin record labels - Warner's financial difficulties by comparison have gone largely unnoticed."
Last week, the European Union announced it would take longer to approve the Sony BMG merger. Add to that poor market conditions and WMG's worsening financial position and you've got a different outlook at a possible acquisition of EMI.
• Warner Music Group announced that its head of UK operations, Nick Phillips, has stepped down. A source called it part of the company's "de-layering" effort. (NY Post)
• Ticketmaster has purchased a majority stake in Nashville-based echomusic, an entertainment marketing company. (Billboard.biz)
• Digital Jet International inked a deal to put digital music kiosks in Irish music chain Golden Nuggets, and formet EMI exec Ted Cohen has joined the company's board of directors. (The Post)
• Amazon.com is moving in on the untended classical market left over from Tower Records' closing. To that end, the company has launched its Classical Blowout store, an offering of classical staples at low prices. (New York Times)
• Video site Yebotv, a YouTube imitator that streams online concerts, landed $10 million in funding. (Digital Music News)
• An article, filed from Austin, about the challenges faces by Australian acts in breaking into the U.S. market. The Australian Music Office in Los Angeles works to promote Aussie acts. Said the manager of business development, "Distribution can be considered through television commercials, many channels through the internet, movies or live shows. It's an amazing time because there are not nearly as many gatekeepers." (The Age)
• Vinylmania in New York City has closed its doors. (NY1.com)
• Warner Music Group is ready to go after EMI again, The Wall Street Journal reported. (AFX)
• Country group Lonestar has been dropped by Sony BMG's BNA Records. (CMT.com)
• European Union consumer chief Meglena Kuneva has criticized Apple's combination of iPod and iTunes. "Do you think it's fine that a CD plays in all CD players but that an iTunes song only plays in an iPod?" he asked. "I don't. Something has to change." (Reuters)
• Warner Music Group has added hip hop label Rhymesayers to its Independent Label Group. Rhymesayers was previously distributed by Navarre and will now go through WMG's ADA Distribution. (Billboard.biz)
• Congressman Mike Doyle spoke about mash-ups and mixtapes at last week's "Future of Radio" House Telecom and Internet sub-committee hearing...and name dropped one of his constituents, indie dance artist Girl Talk. Said Doyle, "I hope that everyone involved will take a step back and ask themselves if mash-ups and mixtapes are really different or if it's the same as Paul McCartney admitting that he nicked the Chuck Berry bass-riff and used it on the Beatle's hit 'I Saw Her Standing There.'" (The 463: Inside Tech Policy)
• Warner Bros' expensive mistake of 2006, Paris Hilton's debut album, fared so poorly that Hilton will reportedly be dropped in the coming weeks. (Digital Spy)
Following an EMI statement, Warner Music Group issued a statement this morning about its approach of EMI to acquire the troubled London-based music group. (Read WMG press release) This came before EMI's most recent profit warning and stock slide. What prompted the timing of WMG's approach of EMI? WMG got the support of indie label trade group Independent Music Publishers and Labels Association (IMPALA), which pledged support for an acquisition before the European Commission and other regulatory bodies.
If WMG were to make an offer for EMI, it would do three things. First, it would provide funds for Merlin, the new indie-created global licensing group (read press release). Second, WMG would divest itself of "certain recorded music assets" to protect indie market share. Third, it would pursue "various other behavioral commitments" which would benefit the music market as a whole and, specifically, the indie sector.
EMI's statement (read press release) "There is, however, no proposal currently for the EMI Board to consider," the company said.
WMG's approach of EMI was not much by a key EMI shareholder. "As far we are concerned, the takeover approach does not really move the dial a huge distance. If it progresses to a more formal offer, we will judge it on the basis of the offer."
• Entertainment One Income Fund sold its investments -- which include Koch Entertainment Distribution -- to Marwyn Investment Management for approximately US $161 million. (Video Business)
• More Koch: The company announced the formation of Koch Records Jazz/Adult Division. Chuck Mitchell, former head of Verve Records, will head the new operation. (Jazz News)
• Warner Music Group announced a partnership with Norway-based mobile operator Telenor that originally covers nine of Telenor's mobile operators. (Press release)
• Nic Feldes has a good recap of EMI's current situation. (The Independent)
• Read the text of Edgar Bronfman's keynote at the 3GSM Conference in Barcelona. Here's a sample of the frank commentary: "Actually, it’s amazing that we’ve generated as much revenue as we have through mobile music, given how cumbersome the consumer experience can be." (Download PDF)
• Actor Heath Ledger has partnered with musician Ben Harper to start the new Masses Music Co record label. First singing: Australian Grace Woodruffe. (StarPulse)
• MySpace is testing an Audio Magic content filter to block unauthorized videos. (Question: What about homemade videos with copyrighted music playing in the background? Looks like they'll skate through.) Universal Music Group, NBC/Universal and Fox are taking part in the test. (InformationWeek)
• A Goldman Sachs analyst believes XM and Sirius should work together to lower marketing and promotion costs, but not worry about merging for another three to four years. In that time, possible synergies would be able to be realized and regulatory uncertainties may have passed. (Forbes.com)
• The White Stripes are reportedly going to sign with Warner Bros Records. (Billboard.biz)
• Warner Music Group is going full steam ahead with its corporate social responsibility agenda. By the end of March of 2007, all standard CD and DVD products in the U.S. wil use "ecologically-enhanced paper packaging." The company's Grammy party was carbon neutral. A distribution deal with Righteous Babe would fit the strategy, but I won't hold my breath. (Press release)
• Singshot.com, an online kaoroke site that is run by a former Rhapsody exec and has licensed over 3,000 songs, was purchased by Electronic Arts. (Forbes.com)
• Michael Robertson, founder of MP3.com and MP3Tunes, issued his own open letter that challenged Steve Jobs to sell music in open formats, open up the iPod to other software and make an iTunes for Linux. (MichaelRobertson.com, via Wired's Listening Post blog)
In a reaction to Steve Jobs' open letter earlier this week, Warner Music Group Chairman and CEO Edgar Bronfman spoke about DRM in yesterday's conference call. I'll take a quote from Digital Music News' post on it; I haven't had a chance to listen to the call.
"Let me be clear: we advocate the continued use of DRM in the protection of our and of our artists’ intellectual property. The notion that music does not deserve the same protections as software, television, film, video games or other intellectual property simply because there is an unprotected legacy product available in the physical world is completely without logic or merit. We will not abandon DRM, nor will we disadvantage services that are successfully implementing DRM for both content and consumers."
Bronfman isn't about to tell analysts that WMG is going change its strategy in an anti-piracy campaign that Wall Street considers to be necessary for the value of entertainment companies. But...I don't think he was playing the role of pro basketball general manager before draft day. There was no subterfuge in that statement. The only phrase missing was, "Read my lips." He couldn't have been more clear.
I've looked over Warner Music Group's 10-Q filing and a few things stand out.
• SG&A decreased 10% and as a percent of sales were basically even -- maybe a quarter percentage point higher -- with last year. As a gauge of selling efficiency, staying level is a good sign.
• Cost of revenues, as a percentage of total revenues, increased to 55% from 51% last year. That number is going in the wrong direction. This is a time for labels to keep a lid on their wallets as best possible.
• In the risk factors section, WMG admitted that the decline of specialty music retailers "could increase" the negotiating leverage of large retailers like Wal-Mart, Target and iTunes. That's pretty much guaranteed. Also, WMG noted as a risk factor its dependence on a "limited number of online music stores." Those few stores, WMG insists, "are able to significantly influence the pricing structure for online music stores." That's the ol' variable pricing beef.
Today Warner Music Group announced its earnings for the first quarter ending December 31, 2006. (Read press release.) Results were not positive, but unlike some of its competitors, WMG is not losing money. Total revenue was down 11% to $928 million. Net income dropped to $18 million from $69 million.
Broken up by division: Recorded music revenues dropped 13% year over year. Digital revenue was 12% of recorded music -- 17% in the U.S. Music publishing revenue increased 2% year over year. Digital accounted for 5.3% of publishing revenue -- up 40%. For the entire company, digital accounted for 11% of revenue. That was a 45% increase year over year and a 4% drop from the previous quarter.
• As reported recently by the New York Post, Jermaine Dupri will be named president of Island Urban later today. (Billboard.biz)
• Even more changes at EMI. Chris Ancliff has been upped to General Counsel. He replaced Charles Ashcroft, who leaves for health reasons. (Variety)
• Helio announces a mobile download store, and all four majors are on board. Over-the-air downloads go for $1.99. Tracks downloaded to PC cost half that. (InformationWeek)
• Viacom is considering selling its music publishing division, Famous Music, the home of Eminem and Shakira. (Reuters)
• Warner Music Group and Last.fm, the music-centered social networking site, announced a partnership that will offer WMG's catalog over multiple services, one of which will be a premium, subscription-based interactive radio. Currently, Last.fm streams songs on a non-interactive basis. (Press release)
• Reggae label VP Records signed a digital and mobile distribution deal with Universal Music Group that excludes North America, Japan and the Caribbean. (Tropicalfete)
• British music retailer Music Zone has sold 67 of its 100 stores to competitor Fopp. (Scotsman)
• EMI and AOL Europe will run an ad-supported music video streaming site. (NewMediaAge)
• Rumor: Microsoft is developing a Zune phone. (CrunchGear, via Billboard.biz)
• Just as Norah Jones hit the top of the charts, concerns about the company's debt burden caused Standard & Poor's to downgrade EM's long-term rating to BB- from BB. (Forbes.com)
• Expectations of a weak first quarter earnings -- which will be announced Thursday -- dropped Warner Music Group's stock 3.4% yesterday. (Reuters)
• Columbian music star Juanes, who already has a recording contract with Universal Music Group, has signed on with Universal Music Publishing. (Monsters & Critics)
• Sting on the digital revolution: "I genuinely do not believe that the digital download phenomenon is as big as the websites are suggesting, certainly not in the album market." (The Australian)
• Reminder: The 2007 Plug: Independent Music Awards, which celebrate independent artists, are this Saturday at New York City's Webster Hall. (PlugAwards.com)
• Sony BMG and Warner Music Group announced an investment in ACCESS China Media Solutions, a mobile music provider. The two companies are attracted to the security offered by purchasing via mobile phone, as opposed to physical product. (Read press release)
• Ruckus, which targets the college market for its legal P2P service, now offers a free, ad-based version of its music download service. Files are protected by Windows Media DRM. The free service is available to anybody with an .edu email address. I have an .edu email so I signed up...and was terribly disappointed by the pedestrian quality of the entire service. I'll gladly pay for a better subscription service. (Read article at Red Herring)
• Even though one online store's digital shelf space is just as abundant as another's, look for niche download stores to flourish this year. Indie retail store Other Music (which has very few square feet) will launch a digital download store in late February 2007. Wired's Eliot Van Buskirk interviewed co-owner Josh Madell about the new site. "The thing about iTunes, which is by far the most successful digital store so far, is that despite the cool factor they have been able to hold onto, they are really closer to Best Buy than Other Music in terms of the shopping experience." (Read article at Wired News)
• The Orchard just signed two deals. One is with Ericsson and will distribute The Orchard's catalog to Ericsson in all major non-U.S. territories. In the other, The Orchard and Muzak announced a licensing and marketing agreement that will expose Muzak's 100 million daily listeners to The Orchard's deep catalog. The Orchard will provide turnkey music licensing, publishing administration, song research, and programming solution to Muzak. (Read Ericsson article and Muzak press release)
• Gracenote is expanding its presence in Europe through its Content Partner Program. (Read press release)
• Digital distributor IODA is launching a European divison. IODA UK comes after the company finalized the acquisition of London-based digital music distributor Uploader. (Read press release)
Warner Music Group has made two digital deals. The first, reported by Billboard.biz, is an acquisition of German-based digital music distributor Zebralution. The company deals with independent labels and operates in numerous regions around the world.
The other, announced via press release, is a strategic content and revenue partnership with Paris-based Dailymotion, the world's second largest video sharing website. The deal has a few facets. First, it allows for Dailymotion users to incorporate WMG's music content in videos they create and upload to the site. Second, WMG will provide video content, including interviews and behind-the-scenes footage, to Dailymotion.
How will WMG get paid? WMG says Dailymotion's "new content fingerprinting system" (due later this year) will identify its content for purposes of calculating royalties. It looks like the artist has approval over use of material at the site. The fingerprinting system, says WMG, can also be used to locate and remove content at the artist's discretion.
One has to imagine if the fingerprinting system will work sufficiently. It's doubtful that WMG would sign off on this deal if the technology was not feasible. Then again, it inked a deal with YouTube with only a promise of such a system. YouTube had pledged to labels a workable content identification and royalty reporting system, but is past its implementation deadline.
An article at The Daily Express article shows how the music industry is tightening its belt. The days of high-maintenance divas, it insists, are over. Said one executive, "The days of record labels indulging artists are pretty much gone now. No more American divas coming in on private planes with teams of stylists, hairdressers, chefs etc." This part is funny.
"One of Warner Music’s biggest mistakes last year was an album released by socialite Paris Hilton. It sold just 13,000 copies, a disaster made worse by the money spent on the heiress and her entourage.One source claims that she brought 14 people with her to the UK including three security guards, two tour managers (despite there being no tour) and three American publicists. A week’s accommodation at the exclusive Metropolitan hotel on London’s Park Lane came to around £160,000. The entourage was flown to Britain in either first or business class."
That was an expensive mistake. Only good things could come from labels behaving like cost-conscious businesses. Unfortunately, the belt should be been tightened years ago, and in ways other than laying off the lower-level jobs that are needed to put in enough the elbow grease necessary to properly work releases.
An AFX report quotes a major EMI shareholder as saying there is an "outside chance" Warner Music Group could increase its bid for faltering EMI. Last year, WMG tendered a bid of 320p (£2.5 billion) back in June, which EMI rejected.
But EMI may be preparing to rebuff all but the most generous offer. Analysts see EMI increasing its debt load. It is said the move is intended to make EMI less attractive to a buyout, and would facilitate a split of the recorded music and publishing divisions. The title of the Financial Times article, "EMI Puts Up To Shut Up Barbarians," indicates the moves are intended to keep away potential acquirers...though it looks a bit like smoke and mirrors at this point.
Standard Life Investments, a 2.6% shareholder, said the market was "skeptical on the ability of the new management to deliver." That would be the latest dig at EMI Group chief Eric Nicoli, who appointed himself chief executive after sacking executives Alain Levy and David Munns on Friday.
Just a few days ago, one investor described a belief that Warner Music Group could be in EMI's future. Taken from a an article by The Times' Paul Durman:
"'Nicoli might have been saved but he shouldn’t get too comfortable — he’s the only constant in this sorry mess. It’s extraordinary but he’s been given another life. I suppose we are waiting for Warner and it’s better to have someone running the company when that deal comes along rather than nobody.'"
• Warner Music announced a deal to offer exclusive Warner Music-branded channels on MobiTV's mobile and broadband platforms. As an example, the press release mentions original video programming directed by Warner artist Link Park. (Read press release)
• I can't decide whether or not this announcement means much. MOD Systems has agreements to sell digital content from the four majors in its in-store kiosks. Music can either be burned to a CD (not that there's much of a demand for that) or transferred to portable players or mobile phones. It's great that labels are licensing content to companies with new ideas, but the press release points to the usual problem: The MOD System 3.0 platform supports Windows Media DRM. There are just so many question marks surrounding in-store kiosks. Luckily, some national chains, such as Trans World, want to give them a shot. (Read press release)
• A report that Microsoft will meet soon with music industry executives and review limitations placed on inter-device Zune transfers. (Read post at Houston Chronicle's TechBlog)
• Rough Trade will license its titles to World's Fair for U.S. release. Billboard's Todd Martens reports that although EMI's Caroline Distribution handles World's Fair releases, no distribution arrangement is yet decided for Rough Trade releases. Coming up from the label: a solo album from Jarvis Cocker (Pulp) and an album from BrakesBrakesBrakes (formerly known just as The Brakes). (Read article at Billboard.biz)
• Trustkill Records has inked a distribution deal with Universal Music Group's Fontana Distribution. Trustkill will use Fontana to access "emerging opportunities across a variety of retail and new media platforms." (Read article at Blabbermouth)
• True to its word, Warner Music Group declared another dividend. This was announced on December 29 and was $0.13 per share, or $19.4 million in total. WMG has said it plans to pay quarterly dividends in an amount not exceeding $80 million per year. (Read press release)
• The on-again, on-again talks of a merger of Sirius and XM was the perfect satellite radio article for January 1st. The story rolls over from 2006 and everybody is still waiting for the two to tie the knot. The New York Times' Eric A. Taub took a look at the two companies and their longing for each other. And why shouldn't they want to hook up? Each is much like the other. One analyst said, "Customers cannot tell the difference between the two services." The other message of the article was the two companies' similar cost structures. "Clearly, a merger makes sense from an investor’s point of view to reduce costs, and to have a better return," said the CFO for Sirius. (Read article at New York Times)
• Maybe it's possible to gauge the health of the P2P market by the number of P2P companies willing to advertise at a P2P-friendly, anti-RIAA website. P2Pnet.net founder Jon Newton wrote the site "is one the verge of going offline" as income as dropped 80% through 2006. In case you haven't read the site -- and I would not recommend it -- P2Pnet.net covers the file-sharing market with little objectivity and much passion. (Read article at P2Pnet.net)
News broke yesterday that Warner Music Group will purchase a 73.5% stake in Roadrunner Records, home of multi-platinum group Nickelback as well as harder bands like Slipknot, Killswitch Engage and Cradle of Filth. The amount of the deal is $73.5 million. In the U.S., the label will reside within Atlantic Records and within Warner Music International in the rest of the world. Roadrunner founder and managing director Cees Wessels will continue to run the label and retain its own sales and marketing staffs.
Two or three years ago, this would have been a far better acquistion. Roadrunner has already sold millions of Nickelback's last two albums. The band cannot keep up its current sales streak -- nobody sells that many albums forever. WMG has missed the Nickelback's glory years. An acquisition isn't based on this year's sales, or last year's sales. It's based on future sales. I think there's a chance WMG entered the stock market near the end of a bull market.
WMG is betting on two things: That Roadrunner has good years ahead, and its catalog can sell well -- especially in the digital age. Unlike hip-hop-driven Bad Boy Entertainment, of which WMG purchased 50% for $30 million, Roadrunner has a catalog -- rock and metal -- that should be able to sell well. Just a greatest hits comp from Nickeback and one from Slipknot would go a long way in making the deal pay off.
This really isn't a bet on Nickelback as much as it is a bet on hard music and Roadrunner's ability to develop new acts. As emo stills rules teenage pop culture, it's an interesting position to take. WMG is practically betting on emo's demise and metal's longevity. With Warner Bros and Atlantic Records, WMG already has the top two hard rock labels in the U.S.
• Drop me a line if you will be today's FCC public hearing on media ownership in Nashville. (PDF of agenda here)
• EMI Music signed a pan-European deal with Yahoo! Music that will allow consumers to stream EMI videos at the portal. (Read article at Billboard.biz)
• An anachronism to many, vinyl singles are at a ten-year high in England. (Read Billboard article)
• Atlantic Records co-founder Ahmet Ertegun is "reportedly very close to death in a New York hospital" and his doctors say it will be a "miracle" if he recovers. (Read article at Hurriyet.com, via The Velvet Rope)
• Melinda Newman asks, Are music sales lower because there are no women in charge of mainstream label A&R departments? Probably not. Sales were great just a few years ago under the same conditions. The mix of genres heard on radio and seen in stores, though, could possibly be different. (Read article at Los Angeles Times)
• As Tower Records goes out of business in the United States, its international franchises are doing well, and because they are independent of the U.S. home office will continue to operate. Even after Tower is gone, though, they are required to pay a percentage of sales. Whoever owns the Tower trademark will be the recipient of franchise royalties. (Read article at Sacramento Bee)
• An interview with Steve Grady, President and COO of RoyaltyShare, a company that manages royalties for online music sales. RoyalShare has deals with Epitaph, Razor & Tie, Koch and Sanctuary. (Read article at socialTech.com)
Warner Music Group wants EMI. Private equity firms want EMI. EMI wants Warner Music Group. Private equity firms already have ownership in WMG. Offers have been made and rejected. Everybody is looking for signs that European regulators will block or allow an acquisition. Any transaction will have a huge impact on the composition of the music industry, artists and employees.
Since yesterday there have been some new developments:
• Today the New York Post reported Warner Music Group has resumed merger talks with EMI. Though WMG's Edgar Bronfman said just days ago that talks were off until European Union regulators shows their hand, those within WMG are predicting a smooth regulatory road. "From our perspective, we're not sure the regulatory issues are a show-stopper," a source told the Post. The article points out that even if private equity takes EMI, WMG could still go after EMI's recorded music business. (Read article at New York Post).
• The head of investment at Insight Investment, which owns six percent of EMI's shares, told The Times the an acceptable price is 400 pence per share, or about £3.2 billion ($6.26 million). WMG's rejected bid earlier this year was 320 pence per share. "This is an exciting business, because of the potential for consolidation if the regulators allow it to happen." (Read article at Times Online)
• Regulations will soon shed some light on whether or not they would allow an EMI/Warner Music Group merger. Yesterday, EU officials launched an antitrust probe and announced a decision on a Universal Music Group purchase of BMG Publishing would be handed down by April 27, 2007. An approval would combine the numbers three and four music publishing companies. Impala, the coalition of independent record labels, opposes the merger and believes it would be harmful. An EU ruling, expected this summer, on the annulled Sony BMG merger would offer a better indication of regulatory hurdles EMI and WMG could face. (Read AP article)
• Sony Urban will be folded in Columbia, and Lisa Ellis was named Executive Vice President, Sony Music Label Group. Hits has the full text of an email accouncement from Howard Stringer. (Read article at Hits or this one at Billboard.biz)
• Phil Quartararo, EVP of EMI Music North America, is leaving to start his own strategic marketing company. (Read article at Variety)
• Sevendust and its label, 7Bros, have partnered with Warner Music Group's Asylum Records. Alpha is slotted for a March 6, 2007 release date. Asylum, along with Cordless and East West, is part of WMG's Independent Label Group. Much ado has been made about WMG's digital gains, but one of the real successes has been Atlantic's deals with a few indies. Downtown and Eleven Seven each had a big year, thanks to Gnarls Barkley and Buckcherry, respectively. And Cordless looks to be establishing its identity. (Read article at IGN.com)
• Snocap hired two execs, Bruce Taylor and Karin Visnick. Taylor will be the VP of marketing while Visnick will be VP of Product Management. (Read press release)
• A bold prediction: XM Satellite Radio Chairman Gary Parsons said regulations would have no reason to think a merger with Sirius would harm compeition. "We are operating in a much larger marketplace than satellite radio ... The competition is predominantly terrestrial radio," he said. (Read article at MarketWatch)
• It's that time of the year: The Hollywood Reporter laid off eight employees, including music editor Chris Morris. The publication is owned by VNU. (Read post at Variety)
• Want to hear "Thinking About You," the Norah Jones track that Yahoo! Music will sell in MP3 format? Click for your choice of WM, RA or Quicktime and prepare to get mellow.
• American Scientist has a review of Chris Anderson's "The Long Tail." Classic first line: "If a book about the demise of the best seller becomes a best seller, does that undermine the book's credibility?" After reviewer Brian Hayes ran through some of Anderson's examples, he came in with some feedback. "Unfortunately, quantitative evidence supporting this proposition is hard to come by," he wrote. In the end, Hayes was disappointed by the lack of "forensic economics" but thinks "Anderson may well be right about the waning influence of the hit parade and the greater scope for ideas without mass-market appeal." (Read article at American Scientist)
• Warer Music Group's Edgar Bronfman on mobile music: "I do think that frankly, at least as important as finding the right retail price point for consumers, is for the telephone companies and handset manufacturers to create a seamless, easy user interface. Until that happens, frankly I don't think we can tap the dramatic potential that exists ... I think that's coming, and coming rapidly, but it can never be too soon." Such is the record label's lament. It can license music but somebody else has to sell the music. (Read Reuters article)
• EMI inked a deal with BT Group that will make its videos available on the upcoming BT Vision, a digital TV service that carries no mandatory subscription fees are charges customers for what they watch. BT Vision will carry digital radio with branded channels by Mojo, Kerrang!, Q, Virgin Radio and others. (Read article at Reuters UK)
• The Chicago Symphony Orchestra announced last week that it is launching its own record label. CSO Sound's first offering will be a recording of Mahler’s Symphony No. 3 and will be available as a CD and digital download. The CSO plans about two CDs per year and an additional three to four digital-only releases. (Read article at Playbill)
• The HD Radio Alliance will increase to $250 million its advertising commitment to broadcasters. Campaigns support retail, receiver and automotive partners. Over 1,000 U.S. stations currently broadcast in HD. (Read article at Radio Ink)
• Brooklyn metal screamer Purple Pam signed with Universal. Her song "Take Me Away" is on the soundtrack to the Universal movie "Disorder." (Read her MySpace blog post about the signing, via a thread at the Velvet Rope)
• Scott Weiland (Stone Temple Pilots, Velvet Revolver) has started a record label, Softdrive Records. It will be distribute by RED Distribution. (Read Billboard article)
This morning Warner Music Group reported results for the year and quarter ending September 30, 2006 (view press release, download PDF of 10-K) Full-year revenue increased a mere 0.4% to $3.516 billion. Though a very small improvement, WMG showed its recorded music segment is keeping its head above water, and that's a very good sign. Digital revenues are healthy but growing at a much slower rate. And look, it's money from the Kazaa settlement.
CEO Edgar Bronfman put a cheery face on the results. "The increase in our digital Recorded Music revenue for the fiscal year more than offset declines in our physical Recorded Music revenue," he said. It's true. Revenue from recorded music rose 2.8% for the year to $3.005 billion, which offset a disappointing 11.4% decrease in publishing revenue, though it wasn't really that bad. Excluding revenue from the sale of a sheet music business in 2005, publishing revenue dropped only 6.1%.
For the quarter, sales of recorded music were down 5.7% rom the prior year. Music publishing revenue dropped 6.6% for the quarter.
For the quarter, digital sales were up 96% from the same quarter last year but only 13% over the previous quarter. Digital accounted for 12.2% of revenues in the fourth quarter; digital accounts for 5.5% of publishing revenues. For the year, digital accounted for 11.1% of recorded music revenues and 3.7% of publishing revenues.
Money from the Kazaa settlement finally hit the books and helped operating income balloon even though revenue fell 5.6%. In the fourth quarter, WMG reported $13 million of income related to the Kazaa settlement. That amount was an estimate of amounts it expects to receive net royalties due to its artists.
Another nonrecurring item was a $7 million expense for restructuring charges related to rolling Lava Records into Atlantic Records as well as a $24 million expense "related to the departure of an Atlantic executive and the expensing of certain other amounts."
• The Motley Fool continues its love affair with Edgar Bronfman and Warner Music Group (which has an earnings release tomorrow.) On the company's last conference call: "Bronfman didn't spend any time complaining about music piracy hurting his business, outside of the Russian and Chinese markets. That's a small but refreshing attitude shift, and it shows that Warner -- like Disney before it -- may have started to see piracy as a form of competition that should be fought with the tools of the free market, not with lawsuits and witch hunts." Not a Doug Morris fan from way back? And when did corporations stop using lawsuits as a tool of the trade? Believe me, WMG is going to love that Kazaa settlement money when it comes out of escrow. (Read article at The Motley Fool)
• A Georgia man claims he is the son of Nashville music legend Buddy Lee. Quite a story. (Read article at Nashville Scene)
• Our friend Alec Hanley Bemis cites anedotal evidence of indie rock's downturn. "Anecdotal evidence suggests we’re entering the tail end of the recent indie-rock boom," he wrote at the LA Weekly. "Reports from the (Sub Pop) showcase at the CMJ Festival earlier this month were distinctly underwhelming." Want more evidence? Stereogum is cited, though Nick Denton's entrance to the market was not. (Read at LA Weekly)
• Soundscan unveils its mastertone sales data this week. Edna Gunderson has an article on a global market that is projected by one firm to gross $6.8 billion by 2010; U.S. sales are projected to be over $600 million in 2006. How are sales right now? Recently, an average of 4.6 million ringtones have been sold per week at an average cost of $2.40. (Read article at USA Today)
• Columbia Records has named Michael Caplan as its new Senior VP of A&R. Previously he held the same title for the Sony Music Label Group. (Read article at Hits)
• Here comes the video revenue streams (one day): Warner Music International has launched a new video content division called Warner Music Entertainment (Read article at Variety)
• House of Blues is considering building a 7,000-seat music venue at the Great America theme park in Santa Clara, CA. The site is adjacent to the site the San Francisco 49ers are considering for a new stadium. (Read article at Inside Bay Area)
• Not that it matters much to Americans, but Charlotte Church has parted ways with Sony BMG to concentrate on her TV talk show. Check out her theme song and her infamous cover of "Beat It" with an incapacitated Amy Winehouse. (Read article at Metro)
• A report of healthy HD radio sales. (Read article at Radio Ink)
• Bad news for The Beatles, good news for suporters of free culture: the UK will not extend copyright on sound recordings to 95 years from the current period of 50 years. The Beatles' earliest recordings are from 1963, which means in 2013 they will become part of the public domain. (Read article at BBC News)
• Warner Music Group will announce earnings on Friday. Wall Street expects less than a penny a share for the quarter. Should be interesting. WMG hasn't been tearing up the charts in the latter half of 2006. TI has sold well, and James Blunt is still hanging around. Digital revenues were flat last quarter, so I'm curious to see where they'll be this time. At the very least, WMG will be back in the news. Its competitors have been making all the noise lately, and Edgar Bronfman looks to have put his personal publicity campaign on hold.
• Virgin wishes it had a revenue sharing deal with this band: the Rolling Stones eased the pain by grossing $437 million in ticket sales since the fall of 2005. That was tops in the industry. (Read article at Billboard.com)
• Mel Karmazin, CEO of Sirius Satellite Radio, is up for a merger with competitor XM Satellite Radio and does not think regulators would get in the way. His prediction for future revenues: "By 2010 we will have $3 billion in revenue and $1 billion in free cash flow." (Read article at SmartMoney, via paidContent)
• Norteño singer Valentin Elizalde was shot to death in the border town of Reynosa, Mexico. Reports indicate it was a gang-related attack. (Read article at Los Angeles Times)
• Robert Hilburn has a good and lengthy article on Jimmy Iovine. (Read article at Los Angeles Times)
• Sony BMG fired the president of its classical music division, Gilbert Hetherwick, and six other staffers at Sony BMG Masterworks. The Masterworks label is being folded into Sony BMG Music Entertainment Commercial Music Group to make it (quoting from a statement) "eaner, more responsive and more effective in adapting to the new realities of reaching the classical music consumer." (Read article at Playbill)
• Rhino Records, the venerable catalog label owned by Warner Music Group, has a deal with Verizon Wireless that will allow V CAST customers to purchase ring tones and ringback tones of classic songs from the Rhino Catalog. The songs will be released in a series called "Songs You Know." Each volume is a bundle of tones and songs (that will be downloaded to the PC) and have a price tag of $9.99. Artists on the first volume include Otis Redding, Mr. Big, Devo and Skid Row. Volume Two includes songs by Dio, Brandy, The Ramones and En Vogue. I can't speak for all consumers, but I think these are pretty terrible mixes of artists and genres. This would be fine unbundled, but bundling Dio and Brandy doesn't make sense. (Read press release)
• Warner Music International has partnered with social network elHood.com. The deal will put WMI content in the music-focused, Latin-targeted social networking site. (Read article at elHood.com)
• A country Coachella? Goldenvoice, who puts on the popular Coachella Valley and Arts Festival, is putting together a country version to take place May 5th and 6th, 2007. Artists on the bill so far are Willie Nelson, Lucinda Williams, Kenny Chesney, George Strait, Emmylou Harris, Earl Scruggs and Nickel Creek. (Read article at Pollstar)
• Brooklyn band Mgmt has signed with Columbia. (Read article at Hits)
• SoundExchange, the performance rights organizaion that collects digital royalties, released the results of a study it funded that was done by Dr. Yoram Wind, a marketing professor at the Wharton School of Business. Its finding: "Music is key to survival of satellite radio." In terms of dollars and cents, the study found subscribers would be willing to pay only $6.15 per month for a satellite service without music, as opposed to the current $12.99 per month. The study's point is clear by the end of the press release. SoundExchange wants at least ten percent of satellite radio revenues. CRB, XM and Sirius, it says, have proposed a rate of less than one percent of their total revenues for the next six years. (Read press release)
• Bids for Clear Channel Communications are reportedly due in the coming days. The country's largest radio company is considering plans to be taken off the market and has hired Goldman Sachs to help look at its options. (Read Reuters article)
• An article on All Angels, the "world's first female classical supergroup." Universal signed the group -- made up of four teenage girls -- to a £1 million, five-album deal. Their debut album comes out next week in the UK. (Read article at The Scotsman)
• Warner Bros. Nashville will sign the winner of "Nashville Star 5." The lastest season of the country "American Idol" starts January 11th. (Read article at Reality TV Magazine)
• Hypebot interviews a Tarek Al-Hamdouni of J Records to find out about the label's online marketing efforts. Read parts one and two.
• RIP Gerald Levert. (Read AP article)
Financial Times has a story about Warner Music punked Universal Music Group by signing a licensing deal with YouTube days before UMG filed an infringement lawsuit against YouTube. Had the lawsuit been filed, YouTube may not have been acquired by Google.
"Fortunately for YouTube, another music company came to the rescue. Warner Music, led by its young digital chief, Alex Zubillaga, swept in days before the suit was to be filed and clinched a deal with YouTube to distribute its music videos on the site in exchange for a licensing fee and a share of advertising. In so doing, Warner upstaged a rival, and appears to have given YouTube breathing room to become legitimate."
Don't look now, but WMG may have helped shape the near future of online media. Since WMG is signing a deal with everybody, its effectively marking its territory and encouraging its competitors to join in the deal-making. At the same time, this maneuvering shows how the majors differ in their digital strategies.
Not all media companies are lining up to sign with YouTube. Bob Wright, chairman of NBC Universal, underscored the importance of copyright to the company's future. Viacom has an agreement with Google but not with YouTube, and last week the media company ordered YouTube to pull clips of Jon Stewart.
• Entercom, which owns over 100 radio stations, reported its results for the quarter ending September 30. Net revenues dropped 1% to $114.3 million. Same station net revenues decreased 2%. (Read SEC filing)
• A Spanish judge has ruled that file-sharing for personal use is permissable. The judge said a guilty verdict would criminalize what has become a "socially accepted and widely practiced behavior." The Spanish music trade group is expected to appeal the decision. (Read AP article, via Digital Music News)
• Legendary record exec Ahmet Ertegun, co-founder of Atlantic Records, was seriously injured after slipping and hitting his head while backstage at a Rolling Stones concert. (Read aritcle at This Is London)
• Will the European Union approve Universal Music Group's purchase of BMG Music Publishing? We'll know on December 8th. (Read AP article)
• Ticketmaster contests a Wall Street Journal op-ed (which I somehow missed) written by a Wharton School professor. Kent Smetters wrote that Ticketmaster is lobbying for legislation that would eliminate secondary ticketing. Ticketmaster denies the charges and company president Sean Moriarty gave his side of the story. (Read article at Pollstar)
• Wind-Up Records act Seether is now managed by The Firm. (Via Kings of A&R)
• Warner Music Group will conduct an earnings call on December 1st. The company will report for the fourth quarter and the fiscal year ending September 20th. (Read press release)
• EMI Music Publishing has been acquiring positions in Broadway musicals. Chairman Martin Bandier explained that investing in the musicals -- and thus getting a share of all revenues -- is better than being limited to a licensing fee. There's more risk, too. (Read article at New York Post)
• Sales of 7" singles are exptected to top 1.5 million in the UK this year. That's up from 178,000 in 2001. Why the increase? "CDs and downloads are great for mainstream sales, but vinyl still represents the very essence of music," said a spokesman for HMV. "It has a mystique all of its own and is part of the mythology of rock 'n' roll." (Read article at The Mirror)
• Need to brush up on Brightcove, the online video company that just signed a deal with Warner Music Group? Here's an article. Forrester Research analyst Josh Bernoff said the company's plans "knocked my socks off." (Read article at USA Today)
• Pop-laden emo band Sherwood says it will sign with MySpace Records. (Read post at Punknews.org)
• R.E.M. and Van Halen will be on the next ballot for the Rock and Roll Hall of Fame. (Read article at Cleveland Plain Dealer)
• "The CD is dead," said EMI chairmand and CEO Alain Levy to an audience at the London Business School. What he meant is the plain CD is no longer viable. "By the beginning of next year, none of our content will come without any additional material." Here's a good question: What makes CDs more attractive, a lower price or more content? Hard to say, honestly. If EMI is going to jazz up CD content, it's going to need more than a few videos and a screensaver. (Read article at Marketwatch)
• Just when Andy Slater's A&R efforts come into doubt, Capitol Records goes and signs Roxette for the U.S. Kings of A&R posted this, then I found an article with more details. A new album will be released on December 26th....gift certificate season.
• There's been talk on The Velvet Rope about layoffs at Sony BMG. Tower's demise means fewer employees on the payroll. Best of luck, Eddie. (Read thread at The Velvet Rope)
• Chalk up another advertising revenue-sharing agreement: Warner Music Group signed a deal with Internet TV provider Brightcove that will provide video content through ad-supported video players. The Brightcove video player requires no download. Fans will be able to put the player on websites and blogs and, I assume, MySpace pages. (Read press release)
• Music blogs are business: Word is out about Stereogum's investment deal with the Pilot Group. Financial terms are not out, but it's said that blog founder Scott Lapatine will retain creative control. Naturally. (Read post at paidContent.org)
• Through September, 2006 touring dollars are up 10.5% over last year. Attendance figures were down 1.2%. (Read article at Billboard.biz)
• For you Long Tail fans: Harvard's Working Knowledge on video sales: "Consumers can find videos online that they can't find anywhere else. And yes, there is a shift in sales to the tail—but there is also an increasing number of titles that do not sell at all." (Read post at Working Knowledge, via Digital Audio Insider)
• An interview with Steve Kaneko, Design Director, Entertainment and Devices Division for Microsoft's Zune. (Read post at Zune Insider)
• A judge dismissed Hawthorne Heights' suit against Victory Records and called the band's claim to terminate its agreement "absurd." (Read Hits post at The Velvet Rope)
• Super distributor Handleman hired Robert E. Kirby to be its new president and CEO. (Read press release)
• Former Village Voice critic Robert Christgau has joined NPR's All Things Considered. Yesterday he reviewed the new album by The Hold Steady.
• Warner Music Group exec on Asia: "At Warner, we consider Asia to be the world's incubator not just for technology but for how people use technology." (Read article at Taipei Times)
• Warner Music Group continues to show its belief in the first-mover advantage. Next licensing deal: muvee, which produces automatic editing software, will enable its users to put WMG videos and tour footage in their homemade movies. muvee charges $39.95 for its software. (Read press release)
• Chicago Tribune music critic Greg Kot got out an article on the Future of Music Summit about a week after it ended. Nice enough piece, but it shows why I tend to groan when music scribes write about business. Kot wrote: "The big labels continue to lose money; record sales are down for the fifth consecutive year." Yes, revenues are down. No, not all labels have a net loss on their financial statements. Another failure of the article: Pointing to a government-subsidized Canadian band (Arcade Fire, in this case) as an example of the kind of mid-level hit that is thought to be the future of the industry. Sorry, but the future will not be subsidized. (Read article at Chicago Tribune)
• EMI announced first-half revenue dropped five percent, but contends its second-half release schedule is strong. (Read press release)
• At least some analysts are bullish on EMI's second-half release schedule. The major is hoping Robbie Williams and Norah Jones hold up a year without a release by Coldplay or Gorillaz. (Read article at This Is Money)
• Kemado Records ends its run with Hollywood, signs with RED Distribution. (Read article highlights at Billboard.biz)
• Billboard's Anthony Bruno wrote about the continued controversy that surrounds digital rights management. (Read article at Reuters)
• The 2006 Global Entertainment and Media Summit (GEMS) is scheduled for December 9 and 10 in New York City. Scheduled guests include MTV co-founder Les Garland and E! Channel co-founder Larry Namer. (More info at the GEMS website)
• RIP Freddy Fender. (Read article at Billboard.com)
• Universal Music Group and Sony BMG signed ad revenue-sharing deals with YouTube. (CBS Corp inked a deal as well.) The article mentions the "new YouTube technology" that will allow companies to find restricted content and remove it, or leave the ad and share ad revenue generated from views of that video. Sony BMG said it will allow users to include some of the music group's catalog songs in their videos...which implies new releases will be forbidden. (Read article at MSN Money)
• More video deals: Sony BMG and Warner Music Group inked an ad revenue-sharing deal with Google. In the near future, the companies' audio-video content will be accessed through Google's Ad-Sense network. (Read article at Forbes.com)
• Brit music magazine NME is working on a greater presence in the U.S. through a US-oriented website (it figures it would be too expensive to launch a print magazine), an American news service and club nights to really hammer the point home (one done in LA, one coming up in NYC). (Read post at paidContent)
• It's not music, but it'll sell: EMI is going to release a limited editiion DVD of Steve (The Crocodile Hunter) Irwin's memorial tribute service. (Read press release)
• A Piper Jaffray survey reveals 79% of U.S. teens own an iPod, up two points in six months. Interest in music-playing mobile phones increased to 74% from 70%. (Read post at Digital Music News)
YouTube has been one of the stories of 2006, but it's been especially interesting since two major music groups have addressed the website. On one hand, Warner Music Group has been lauded for extending a revenue-sharing olive branch to YouTube. Universal Music Group has been widely ridiculed for its insistence that YouTube owes it millions of dollars. (One exec, quoted in a new article at Newsweek, pointed out a problem with WMG's deal: "YouTube has no ad revenue to split.")
It's certainly possible UMG is sending signals to the market. Reports have said UMG is negotiating with YouTube, but UMG chief Doug Morris took a hard-line stance a few weeks ago. EMI and Sony BMG may look to UMG's stance and hold out for a better deal.
The hold out may be a good negotiation tactic, but the remaining three majors really need to consider joining WMG in working with YouTube. It's imperative that the majors embrace experimentation. YouTube is that experiment. It's time to start throwing things against the wall to see what sticks.
If you're to believe Mark Cuban, who thinks YouTube will be sued, and Forrester analyst Josh Bernoff, who guarantees YouTube will be sued and lose, you view YouTube's infringement as analogous to Napster's infringement. In the halls of justice, YouTube might be just as guilty as Napster, but there's a huge difference between the two: YouTube does not offer a near-perfect substitute for anything the labels currently sell. Its videos cannot be downloaded, the video is poor and the audio is regularly out of sync. (Streams of many of the videos on YouTube can be accessed at no charge at the websites of record labels and bands.) In contrast, Napster allowed people to download files that were near-perfect substitutes for commercially available tracks.
Though major labels are hesitant to pass on an opportunity to set a legal precedent, they should view YouTube as a complement rather than a substitute. YouTube videos complement products -- audio, video, ring tones -- sold by labels. YouTube increases awareness of labels’ products and facilitate access to their catalogs. Substitutes should compete against each other. Complements should work together.
• Trans World had bid on troubled retailer Tower Records. Other bidders include Great American Group and real estate development firms. A court-supervised auction will be held this Thursday. (Read article at The Business Review)
• Tower Records founder Russ Solomon did not make a bid on the company before the deadline. (Read article at Los Angeles Business)
• As mentioned here yesterday, a report says Warner Music Group is going back to the DVD album format it attemped with a release by The Sun. The article claims WMG will release multiple DVD albums in 2007. (Read article at Video Business News)
• Jeff Leeds on Clear Channel's Mediabase airplay monitoring service, its chart-oriented advertisements in USA Today and criticism that the ads appear to imply an endorsement by the newspaper. (Read article at NY Times)
• The University of Washington has switched to Cdigix from Napster. Cdigix says it now supplies its online music service to 60 universities, is on pace to have 100 universities by the end of the year, and currently has 100 employees. Chairman and Chief Executive Larry Jacobson says the company plans to compete with MySpace and Facebook. (Read article at Seattle Post-Intelligencer)
• Music retailer Plan 9 plans to open a store in Roanoke. Earlier this year the company purchased five Record Exhange stores. (Read article at Roanoke Times)
• Ministry of Sound, which operates dance clubs in the UK as well as a dance music label, will sell 60,000 DRM-free tracks at its download store. It will not carry major label downloads unless they are sold without restrictions. (Read article at The Times Online)
When the DualDisc was rolled out, major labels had high hopes for the audio-video format. Take the standard audio CD and add value by throwing in video content on the other side. It works on paper, but it's not working in practice. Video Business News has an article on the current state of the DualDisc and asks what went wrong.
"Puncturing industry hopes it would save physical music sales, CD/DVD hybrid product DualDisc is quickly disappearing.Retailers blame high pricing and consumer confusion for contributing to the downfall of the format, which features a CD on one side of a single disc and a DVD on the other. At its May-June 2005 peak, DualDiscs represented 2.1% of all music items sold, the vast majority of which were CDs and two-disc combo CD/DVD albums, according to NPD research. During that same period in 2006, DualDisc’s music share was 0.8%.
MVD Distribution’s wholesale business, which services most record label DVD product, reports that new DualDisc releases slimmed this year by about 80% from 2005. Fifty-seven DualDiscs have streeted since January, versus 274 during the same frame in 2005. Hybrid discs can be priced as much as $4 over the artist’s regular CD, but many said the video content featured on the DualDisc was rarely worth that price difference."
The article goes on mention that Warner Music Group has "plans to introduce a DVD album, according to retail sources who have seen prototypes of the concept." WMG experimented with the DVD album idea with The Sun's Blame It On The Youth. The experiment failed. Miserably. That's not to say it can't work, though. It was ahead of its time. If WMG commits to a full roll-out of the new format and a healthy release schedule of DVD albums, The Sun's failure will have been a valuable learning experience.
• A report that indie label Palm Pictures laid off most of its remaining staff today. Only a few accountants and a few of the marketing staff remain. About 50 employees have been laid off over the last month. (Read post at DubMC)
• BitTorrent currently offers a short documentary by Death Cab For Cutie, and it will soon have content from Fall Out Boy. Legitimate content. The Cardigan's latest video is currently available as well. (Read article at MTV.com)
• MTV2 and Asylum Records will partner for a series of soundtracks based on the network's "My Block" series. The first album will be My Block - Chicago and will have tracks by Common, Lupe Fiasco and Shawna. It will be out October 10th. This is a solid move for Asylum, which is part of Warner Music Group's Independent Label Group (along with Cordless and East West). The re-launched label has been successful developing new hip hop artists within the WMG system. (Read article at Billboard.biz)
Some thought-provoking comments from Hits' I.B. Bad on Warner Music Group's Edgar Bronfman and his rush to wheel and deal with Internet companies.
"Warner Music’s pact with YouTube appears to be yet another ploy on the part of Edgar Bronfman Jr. to be seen as a leader of the digital revolution in the eyes of Wall Street, in an effort to boost WMG stock. Music biz veterans find this self-spinning laughable, asking how an executive with his history of making bad business decisions could lead anyone anywhere. They further note that Bronfman, who was clearly in a big hurry to get a deal done, is taking short money for PR purposes—and possibly mortgaging his company’s future in the process."
Those comments caught my attention because they're so true to life. How many times have business writers called WMG the leader in digital music without giving any solid evidence to back up the tag? (One example. Another example.)
Whether or not a hastily drafted deal with YouTube is a risk to WMG's future would depend on the financial impact of these revenue-sharing deals. Until there's evidence that the checks being written will actually amount to something material, let's just assume they won't either greatly harm nor greatly hurt a label. Collectively, though, a large number of short-sighted deals could certainly jeorpardize a label's health.
• A fascinating article about the nebulous OCD International, marketing company World's Fair and a Dr Octogon album that only loosely meets the definition of an album. Long story short: OCD cobbled together The Return of Dr. Octagon with throwaway Kool Keith tracks and the help of three producers. The album's original producer, Fanatik J, fought the release of the album. Keith signed with OCD "without fully understanding what he was doing." (Read article at East Bay Express)
• Best Buy didn't report last week's sales to SoundScan. Near-chaos ensues while statisticians rework the data. The numbers will be reprocessed tomorrow evening. (Read article at FMBQ, via Hypebot)
• The Wall Street Journal reports today on a tiff about videos, the revenue stream that has been a greater focus in the last year. Universal Music Group pulled its videos from cable channel Fuse, and Warner Music Group pulled its videos from Yahoo. In the Fuse case, the argument is over the value of payments to UMG. In the Yahoo case, WMG felt the Internet company was not going enough to promote its videos.
• Moses Avalon takes a long look at the MySpace user agreement. (Read article at MusicDish)
After the EU shot down the 2004 Sony BMG merger, EMI and Warner Music Group put their merger/acquisitiion plans on ice. Things had been quiet...until The Times Online put out an article an hour ago that claims WMG's Edgar Bronfman is going after EMI shareholders in an attempt to combine the two music groups.
"This month, the boss of the New York-based music group visited London to talk to EMI investors. He is understood to have met Fidelity, a 7 per cent shareholder, and Aberdeen Asset Management, as well as holding a group session with some hedge funds that have shares in EMI. Those approached indicated privately that Mr Bronfman remained surprisingly focused on the possibility of a deal with EMI, which many investors had not expected."
Investors told The Times Online that Bronfman is optimistic about the prospects of getting EU approval on a merger.
One thing the article doesn't mention is the likely outcome -- whether it would be a merger or an outright acquisition of EMI by WMG. The popular theory has been that Bronfman would want to acquire rather than be acquired.
Extra reading: Coolfer's posts on EMI/WMG merger chatter.
• On a panel at the NAB Radio show, Clear Channel CEO Mark Mays predicts a "great renaissance in American radio" and calls for increased consolidation over the next ten years. "We need to be taking content, repurposing it, and giving it to people in a format that they want." (Read article at Radio Ink)
• XM Satellite Radio is in talks with labels over new fees related to downloads and licensing. (Read article at Bloomberg)
• Country star Tim McGraw and producer Byron Gallimore are starting a new label, StyleSonic Records, and will release the soundtrack to McGraw's upcoming movie, Flicka. (Country Weekly)
• Sony BMG expects its European sales to be down 5% for the year; the company's first-half sales were down only 3%. (Read Reuters article)
• IODA has signed up for more labels for digital distribution: Big Daddy Music Distribution Inc, Cargo Records UK, Challenge Records International BV, Select-O-Hits, and Stomp Entertainment. (Read article at Press Release)
• Listen to a webcast of a presentation by Warner Music Group's Edgar Bronfman at Goldman Sachs Communacopia XV Conference. (Hear webcast at WMG Investor Relations)
• The American Music Awards were announced yesterday. (Commence yawning.) Four acts -- Nickelback, Black Eyed Peas, The Red Hot Chili Peppers and Mariah Carey -- received three nominations apiece. Long tail enthusiasts, take note: Because the minimum sales threshold was not met by at least five candidates, no award will be given out for Favorite Female Rap/Hip-Hop Artist. (Article at liveDaily)
• At the Goldman Sachs Communacopia Conference, Warner Music Group chairman and CEO Edgar Bronfman, Jr. said his company's digital growth had exceeded expectations. "Physical has been a little bit weaker than expected, but digital has grown faster," he said. (Editor: WMG's digital growth was flat last quarter.) As for WGM's recent revenue-sharing deal with YouTube, he said he expects it to grow into "big business" over time. (Article at Hollywood Reporter)
• Digital distributor IODA announced this morning that it intends to acquire European digital distributor Uploader. (Read the Press Release)
• Koch Records has joined two majors -- Universal Music Group and EMI -- in licensing its catalog to SpiralFrog, a free, ad-supported P2P network. (Read the Press Release)
• After the death of D12 member Proof, Eminem planned to put out unreleased D12 tracks on a mixtape. Now that mixtape has turned into an official Shady Records compliation titled Eminem Presents: The Re-Up that will be released December 5th. Artists on the comp are 50 Cent, Lloyd Banks, D12, Obie Trice and Akon. (Article at SOHH)
• A profile on Long Island music retailer Looney Tunes. How has the indie store survived when so many others have gone out of business? This will blow your mind: "We have changed with the times," said owner Karl Groeger, Jr. There you have it. Businesses can change. (Article at Newsday)
Just days after YouTube was publicly chastised by Universal Music Group's Doug Morris, Warner Music Group announces a revenue sharing deal with the video website. From the press release:
"In a first-of-its-kind arrangement, YouTube users will be able to incorporate music from WMG's recorded music catalog into the videos they create and upload onto YouTube. WMG thus becomes the first music company to harness YouTube's leading video entertainment service to commercially distribute its music video catalog."
The deal makes sense. WMG could have forced YouTube to police its users and weed out WGM content, or it could find a way to collaborate and build a new revenue stream. (The size and speed of that stream is unknown at this point. YouTube and its peers could eventually be a considerable source of revenue.) In contrast to P2P networks, YouTube's product is not a substitute for music and video sold at online stores such as iTunes. Maybe YouTube views won't result in additional sales, but they're not going to take anything away. WMG's best decision was to get a cut of the ad revenue.
• Hits predicts Justin Timberlake's album should have done about 700,000 in its first week of release. John Mayer, who is getting some unexpected blog love, is looking at 240,000. Bob Segar should come in under 100,000. (Hits Rumor Mill)
• Qtrax continues to get more press than it is likely to get customers: The yet-to-be-released, ad-supported P2P service has inked a licensing deal with Warner Music Group. EMI and TVT are already on board. The iPod and the Zune, however, will not be on board. (Digital Music News)
• Maybe this is old news, but it's the first I saw it: Epic Records has dropped INXS in the U.S. (The Daily Telegraph)
• The biggest part of the news about the Rhapsody/Sandisk partnership that will create a portable music player that will be integrated with the online music service? Rhapsody is ditching Microsoft's PlaysForSure DRM for its own technology. And why not? PlaysForSure doesn't work with the iPod, and it won't work with the Zune. (Press Release)
• Jupiter Research finds that 83% of all iPod owners do not buy digital music at least once a month, and only 5% of the music on the typical iPod came from an online music store. (BBC News)
• Entertainment Weekly lists 25 albums it can't wait to hear. Topping the list is Jay-Z's Kingdom Come. (Entertainment Weekly)
• Universal Music Group and MTV are expected to announce today an agreement that will give MTV a blanket license to use UMG songs and videos in mobile programming. A digital executive at UMG points to exclusive, mobile-only content that he hopes will build awareness for the medium. (LA Times)
• Warner Music Group's Asylum Records signed a marketing and distribution deal with Atlanta-based hip hop label Aphilliates Music Group. Asylum acts as an incubator for WMG and has a good track record with albums by Mike Jones, Bun B, D4L and Cam'Ron. (NewYorkBusiness.com)
• Retailers, find a pen and some paper and start that letter to your Congressman: Transworld stores will be the exclusive retailer of Daryl Hall & John Oates’ Home for Christmas, out October 3rd. (Hits Rumor Mill)
• eMusic, the independent-minded music download service, has officially launched its European service to all 25 member countries of the European Union. (Reuters)
• WEA Corp, Warner Music Group's distribution arm, inked a deal with Latin label Union Records. WEA will "market and distribute select music titles" from the label's roster, which includes Juan Fernando Velasco and Danilo Parra. (Press Release)
• Digital Music Group has acquired the Digital Rights Agency for $3.2 million in cash and 420,000 shares of DMG stock. (Digital Music News)
• EMI and T-Mobile UK are testing an ad-supported music video service for mobile phone subscribers. (Forbes.com)
• Speaking of EMI, Lehman Brothers has downgraded its stock on fears of weak first half sales. (Sharecast)
• Disney's "The Cheetah Girls 2" soundtrack cashes in on the same tweeners that made "High School Musical" such a huge hit. (LA Times)
• The Boston Globe's Joan Anderman highlights four upcoming albums "that -- with a little luck -- could take the world by storm." The four artists are Lupe Fiasco, Sting, Lady Sovereign and missFlag. (Boston Globe)
• A 16-year-old girl has sued Atlantic Records over a sexually explicit video that was taken at a Buckcherry concert in October of 2005. The band wasn't signed to Atlantic until the following May, and the label says it edited the video and took out the underage girl. The Internet being the Internet, versions of the original edit can still be found. (LA Times)
• Where did the payola settlement money go? Some of it ended up funding for summer artst festivals like the Hudson Valley Bluegrass Festival. (Poughkeepsie Journal)
• Newsweek's Joshua Alston writes about a wave of R&B musicians who "who have grown tired of the creative restriction and unpredictable politics at major labels and made the jump to smaller labels" like Stones Throw, Astralwerks and Anti. Nice article, but there's a problem: Most of the artists mentioned -- Dudley Perkins, Georgia Ann Muldrew, Aloe Blacc, Jamie Lidell -- have never been on a major. The thrust of the article rings loud and clear, though. Majors, he argues, can't nuture these creative "indie soul" artists. Nor should they. Leave the niches to the indies. They'll do more with them. (Newsweek)
• A profile of legendary music man Jac Holzman, who heads up Warner Music Group's e-label, Cordless Recordings. (International Herald Tribune)
• John Connolly, president of the American Federal of Television and Radio Artists, spoke against media consolidation at a FCC Town Hall Meeting late last week. (Bilboard.biz)
• More than a quarter of all UK music sales come from supermarkets, up from 15% just fiive years ago. With this trend comes the usual warnings on behalf of independent retail and small labels. (This Is Money)
• The bidding for BMG Music Publishing has narrowed down to 12-15 bidders. Sony Corp is not one of the finalists. EMI, Warner Music Group and Universal Music Group are beilieved to still be in the running. (Billboard.biz)
• The Songwriters Guild of America puts itself on the side of the RIAA in its legal fight with XM Satellite Radio over portable devices that record songs broadcast on XM. (Digital Music News)
• Warner Music Group announced a quarterly cash dividend of $19.3 million, which turns out to be $0.13 per share of common stock. (Press Release)
• Kevin Federline has inked a deal with Sony BMG. His album Playing With Fire will be released on October 31st on his own Federation Records. No, he's not managed by Nettwerk and Terry McBride. (AllHipHop.com)
• WOXY is going off the (Internet) air on September 15th. (WOXY.com)
• Warner Music Group's Kevin Liles on P. Diddy: "Our expectation when we did the deal with Bad Boy was to break one new artist every 18 months and to reintroduce P. Diddy. He's broken three new artists this year so it's over our expectation, but still under what we know he can do." (Reuters)
• Legendary music critic Robert Christgau was among eight Village Voice employees fired yesterday. Gakwer's post has an email from Christgau to friends. (Gawker)
• The Global Media and Entertainment Summit will be held on December 9th and 10th in New York City. (GlobalEntertainmentNetwork.com)
• Given the broader changes in consumption, this isn't a surprise: Almost all the radio formats showing a gain in the spring are adult-oriented. Country is the format share leader by a two-to-one margin. (Radio and Records)
• BusinessWeek.com on the increasingly competitive world of online ticket resellers. (BusinessWeek.com, via Brooklyn Vegan)
• Universal Music Group has licensed its catalog to upstart, ad-supported download site SpiralFrog. According to the company's website, the service will debut this December. (Digital Music News)
• After a successful tenure on the mixtape scene, Brooklyn rapper Papoose finally has a deal. Jive signed him for a reported $1.5 million. (MTV.com)
• Remember, there's no such thing as bad publicity: Warner Music Group was given a Golden Broom Award for being one of the worst places for janitors to work. (Backstage.com)
• Charles Duhigg has an interview with Lyor Cohen of Warner Music Group in today's LA Times. In terms of market share, the company has done well in the last year. Can it be called a turnaround? Let's wait until net income looks a bit rosier. Quote of the article: "Our industry wastes money on hundreds of acts because executives are afraid to cut an artist who might be successful somewhere else." (LA Times)
• Then there's his personal life: Cohen sold over $17 million of company stock to "address financial needs arising from the anticipated divorce settlement" with his current wife of 14 years. (Fox News)
• Clear Channel Radio is cutting some layers of management.
• A profile of indie retailer Boogie Woogie in Hollywood, Florida. Here's something I found surprising: "(The owner) adds that people are becoming more ethical about illegal downloading, and clerks at the store discourage customers from the practice." (Herald Tribune)
• Two Silicon Valley IP lawyers outline pitfalls of and give recommendations about DRM to music companies. (Law.com)
• Ara Guzelimian will be the next dean of the Julliard School next year. (Playbill)
• Graham Nash will host a half-hour show on XM called "SongStories" in which he will interview songwriters about the stories behind their songs. (Radio Ink)
• Artists are using the virtual world to connect with fans and create innovate experiences. For example, Suzanne Vega performed a concert for about 100 fans that took place at an online amphitheater. (Washington Post)
• An article on the closing of Warner Classics and its impact on classical music. One note: The assertion that classical music didn't find an alternative to shuttered deep-catalog retailers is not true. Whether or not iTunes' classical metadata is "sloppily entered," digital sales of classic music have been quite brisk. (Stereophile)
• An article on the growing tween market. Said Geffen's Ron Fair, "“I believe we are creating a model for a unique form of entertainment that raises the bar aesthetically for smart and savvy tweens growing up in the digital age." (Washington Post)
• Between the two of them, XM and Sirius have 11.7 million subscribers and lost almost $1.5 billion last year. There are calls from around the financial world for the two companies to merge and get on the road to profitability. (The Hollywood Reporter)
• Mastodon drummer Bränn Dailor comments on the leaking of his band's Atlantic Records debut by an English journalist. (UltimateGuitar.com)
• If you have noticed, children's music is big, big business. Braincandy, a Seattle-based company that produces DVDs and CDs, has signed a distribution deal with Warner Music Group's Rhino Entertainment. The agreement calls for Rhino to be the exclusive supplier to large retailers like Wal-Mart and Target. (Press Release)
• Absolutely meaningless: iMesh boasts over its re-release of P2P application BearShare, which is now a legal, filtered P2P service that offers a subscription service as well as a la carte downloads. The service's licensed tracks are in PlaysForSure format. (Digital Music News)
• Three 6 Mafia and the group's Hypnotize Minds Productions has inked a deal with Warner Bros. Records, which will market and distribute the label's releases. Three 6 Mafia are to produce current Warner Bros artists like Lil' Scrappy and Mike Jones. (Rap News Network)
• EMI Christian Music Group has extended its relationship with Inpop Records. By the end of the year the label will release new albums by newsboys and Jimmy Needham (CMSpin)
• A few months after the NY Times' Sunday Magazine's surprising profile of doom metal band SunnO))), the AP says "metal gets a makeover" and finds -- somewhat belatedly -- that many metal bands are pushing social causes and making intelligent music. (AP)
• eMusic subscriptions in Europe rise as the company launches a European service. "It appears that current customers will get to keep their old subscription rates, though they'll get socked with the Value Added Tax now that eMusic has an official European presence." (Digital Audio Insider)
• Bryan Leach, who was previously the VP of A&R at super indie TVT, was hired as the Senior VP of Urban at the RCA Music Group in a deal that brings his own Polo Grounds Music to the label. (Billboard Radio Monitor)
• Charles Duhigg profiles Geffen chairman Ron Fair and looks into the age-old question: Is a suit or a musician the better executive? (LA Times)
• This marks the dawn of a new era: The music of Andrew Lloyd Webber will be sold as ringtones thanks to a deal between Universal Music and Lloyd Webber's Really Useful Group. (Times Online)
• Lousiana four-piece Mute Math has ended its lawsuit against its label, Warner Bros. The band's own label, Teleprompt, signed a "new and improved" deal with Warner Bros. The group's next album will be out September 26th. (SoulShine)
• Album sales are down 5% through July. If digital tracks are taken into account (total downloads divided by ten equals an album sale) then album sales are down only 0.9%. Of course, that means nothing to companies like Tower, but it helps some people sleep at night.
• A profile on Summit, NJ-based music chain Scotti's. Its secret to competing with the mass merchants? Lots of vinyl. (NewJersey.com)
• The 21st century jukebox: Rowe's digital NiteStar jukebox with capacity for 300 albums and artwork. (Pollstar)
• New West Records has signed legendary singer-songerwriter Steve Earle. Expect an album in early 2007. Earle's most recent studio albums were released by Artemis and E-Squared. New West released his 2004 album Live From Austin, TX. (JamBase)
• The era of perestroika is back: Warner Music International will license songs from its catalog to Russian mobile carrier VimpelCom Group. It's said to be a first between a capitalist pig major label and a mobile carrier from the evil empire. (AP)
• The Microsoft Zune will be available this fall at $299 and in three colors. Yes on Wi-Fi, but it will have to be connected to a PC to actually purchase music. Interesting: It will compete with Microsoft's own PlaysForSure licenses, which it will support. (Twice, via paidContent)
• EMI Music Publishing named Robert Flax to be its worldwide vice chairman. If that sounds like a made-up title it's because it's a new position. (Billboard.biz)
• An interview with Jim Kelly of mail order/online retailer Parasol. (Digital Audio Insider)
• For some, the long tail model is a work in progress: Digital Music Group had losses of $589,000 on revenues of $840,000 in the second quarter. The company had, on average, 69,700 tracks available for sale. (Sacramento Business Journal)
• Warner Music Group's Independent Label Group has acquired a stake in Ferret Music, a growing metal label that now has on its roster In Flames, Every Time I Die and Boys Night Out. This is a solid investment for WMG that should help Ferret realize the growth and stability in heavy metal. (Press Release)
• Sony BMG's Burgendy Records has signed Donna Summer. (Other Burgendy artists: Aaron Neville, America, Chaka Khan.) The plan is for her to enter the studio this fall. (Press Release)
• Nokia will buy Loudeye for $60 million in an effort to increase its share of the mobile music market. (Press Release)
• Let's see if this works: Yahoo! Music and MasterCard have teamed jump in a buy-one-year-get-one-year-free promotion for Yahoo!'s music subscription service. (Clickz via paidContent)
• Atlantic has named Kevin Weaver its new senior vice president. (Press Release)
• Two news items on online multimedia service Ruckus: Former Napster COO Michael Bebel is now the Ruckus COO (Press Release) and Ruckus landed $137 million in investment capital (paidContent).
• Ghostface, Rhymefest, David Banner, Daz Dillinger and Xzibit will contribute exclusive tracks to an Xbox game from the makers of "Grand Theft Auto." (Baller Status)
• Death From Above 1979 officially calls it quits. Download an MP3 of "Romantic Rights" and pay tribute in your own special way. (The Tripwire)
• Nemesisboy rants about getting another cease and desist notice from Geffen about a Pink Spiders video he made and posted at YouTube (and posts the notice in its entirity.) "All I was trying to do was help the boys out, but I got f*cked by the machine because supposesedly they're really touchy about anyone promoting bands that they have spent in excess of 2 million on but have yet to turn a profit?" Does this seem out of touch and heavy-handed? Yes, absolutely. Is this within Geffen's legal right? Yes again. (Nemesisboy)
• Sub Pop is the first record label in the U.S. to achieve Green-e certification because the company has purchased Green Tags (renewable energy credits) to account for all its energy needs. (Spin.com)
• Kami Knake's podcast, Bands Under the Radar, has Warner Bros artists, she is the new media coordinator for the label and the podcast is hosted on the label's server. But...Knake claims, "My podcast has nothing to do with WBR." Street cred is a tough thing to come by. (Podcasting News)
• Audioslave has released the artwork to its upcoming album on Google Earth -- look at approximately 42' longitude and -137' latitude. (Press Release)
The Wall Street Journal reported today that Warner Music Group will start selling albums on DVD in hopes to breath some life into albums on physical formats. The company, wrote Ethan Smith, "is in the final stages of securing technical licenses that will enable it to sell a bundle of music and extra features on a single DVD."
Each DVD will contain the album in both stereo and surround sound, plus extras such as video footage, remixes, ring tones and photos.
WMG has already experimented with the DVD album. Last year it released Blame It On The Youth by The Sun, which failed to connect with retailers or consumers. Scans to date are a meager 2,700 since its September, 2005 release.
This situation will be different. WMG will have the backing of retailers, and because WMG will throw its weight behind the effort, consumers will not suffer from the confusion they did with The Sun. Smith reports that WGM will encourage retailers to stock its DVD albums along with normal CDs, which will be key in getting consumers used to the idea of buying albums in this new format.
The DVD album's success also depends on their suggested retail price. Coolfer thinks that WMG may use this high-end format as an excuse to prop up list prices above what the market will bear for the CD format. If the same album is also released on CD, this could be a good way of segmenting the market and capitalizing on fans' different levels of commitment...again, if retailers go along and are willing to stock two configurations of the same album.
Warner Music Group announced today its results (read press release) for the third quarter ending June 30th, 2006. Results were mixed.
Interpretation of the results depends upon on how one looks at things. The bottom line, which is really what matters: WMG lost $14 million on revenues of $822 million. There are a few points for optimism: Revenues were up 11% over the previous quarter, and its operating income of $28 million compares nicely to its operating loss of $92 million a year ago. Revenues from recorded music was up 15%. Net cash flow from operating activities was $18 million (versus -$120 million last year).
On the negative side, cost of revenues (the direct costs associated with products sold) rose 12%, music publishing revenue dropped 7% and synchronization revenues were down 36%.
The quarter was an improvement over a year ago, though, when WMG lost $175 million ($73 million of which was an expense related to a cancelled contract).
Digital revenues accounted for 11% of the company's revenues -- up 109% from the previous year. That's great growth and a good number, but digital revenues were also 11% in the prior quarter. (Read that press release here.) Digital revenues from recorded music rose 132% and represented 13% of total revenues. Digital music revenues account for only 3% of music publishing's revenues.
Well, it was quite a dance, but Warner Music Group and EMI have announced they are done courting each other. Impala's successful bid to force the EU to take another look at the Sony BMG merger of 2004 has had a chilling effect on the two smaller majors' aspirations to purchase the other.
From Warner Music Group's press release:
"WMG will monitor the situation carefully, but until matters become clearer, for instance as a result of the re-review of Sony BMG by the European Commission or through an appeal to the European Court of Justice, WMG does not believe that it would be prudent to pursue a combination of WMG and EMI. Accordingly, WMG does not intend to make an offer for EMI at this time."
EMI's press release prefaced by outlining the Sony BMG ruling and its two unsuccessful bids:
"Against this background, the Board of EMI has decided not to pursue a combination with Warner Music for the time being. The Board will review this position in the light of future developments.
Both companies stated that they're leaving the door open to revisit the topic of an acquisition, but for 2006 any further talks look to be completely over. In the short term, both companies can get on with their 2006 release schedules and employees can stop worrying about being caught in the downsizing net.
• It's official: Fat Joe has left Atlantic. His album Me Myself & I will be released independently (through a yet-to-be-named distributor) on October 17th. (Billboard.com)
• The LA Times' Geoff Bucher trumpets last week's album sales slump. It was the worst week since January of 1994, and Januaries tend to be really, really slow. Summers can be slow, too...obviously. (LA Times)
• Reuters picked up Coolfer's post on Snocap's Linx beta. (Reuters)
• Lori Ricscher, who formerly worked in promotion for Arista, Columbia, Island and RCA, has been hired by The Firm for promotion and marketing duties related to its recorded music business and in-house clients. (The Hollywood Reporter)
• Phyllis E. Grann, a senior editor at Doubleday and former CEO and president of Penguin Publishing, was elected to the Warner Music Group board of directors. She will sit on the audit committee. (Press Release)
• EMI chairman and CEO Alain Levy was appointed chairman of the Film Business Academy’s Advisory Board at Cass Business School, London. (4RFV)
• MAMA Group, a UK company that owns music and media businesses, has made an offer for Sanctuary Music Group. (MarketWatch)
• Blue Note Records is releasing ringtones taken from the of the label's classic songs and artists. (All About Jazz)
• ADA's distribution deal with Ultra Records has finally been announced. Ultra will be leaving Caroline Distribution at the end of August. Ultra owner Patrick Moxey gave some details on the new deal. "Our new arrangement will also include Ultra's partnering with WMG's Rhino on brand new remix packages of WMG catalogue artists and other initiatives including DRTV." (Press Release)
• GoDigital and Share Media Licensing have a partnership that will seed P2P networks with Weed files of music by Master P and Lil' Romeo. Weed, created by SML and based on the Windows Media format, allows a song to be listened to up to three times before requiring that it be purchased for further listens. (Press Release)
• Basketball player Ron Artest talks to SoundSlam.com about his upcoming album, My World, and the first single, "Get Lo," which features Mike Jones and Nature. He will be Fat Joe's opening act on an 11-day European tour. (SoundSlam)
• Download store Musica360.com has launched a PR company called Ms. Media PR, which company COO Jenny Garcia calls "a natural progression of the philosophies that led us to create Musica360 in the first place." (mi2n.com)
• Country indie label Playback Records is being revived. (Press Release)
• A look at Nashville's successful pop scene: Mat Kearny, Josh Hoge and Landon Pigg have or will release major label albums this year. Sixpence None the Richer's Leigh Nash is going solo. (Tennessean.com)
The NY Post's Tim Arango today called an EMI/Warner Music Group deal "on ice" a week after a European court overturned an EU decision to approve the 2004 merger of Sony and BMG.
Although EMI chairman Eric Nicoli said last week the Sony BMG decision had no bearing on its efforts to acquire WMG, Arango was told by sources that "Nicoli and those close to him have realized that a deal anytime soon is farfetched" and that talks will not resume until the Sony BMG issue is resolved by the EU.
Yesterday a Hits piece on the merger matter and outlined the time table for a resolution. The review process would not begin until September and would take at least four months, meaning that Sony BMG would not get regulatory approval or denial until early 2007. That means EMI and WMG would postpone talks in earnest until that time.
Today Bertelsmann said it does not expect the sale of its BMG Music Publishing to be affected by by the decision against Sony BMG. Some have been worried that the court's decision was a harbinger of greater scrutiny to come, and that attempts by WMG, Universal Music Group and EMI to increase their publishing businesses would be hampered.
CNNMoney.com writer Paul R. La Monica makes a case against a merger of EMI and Warner Music Group. His rationale: Greater consolidation would result in a greater likelihood of higher digital prices, and the financial fundamentals just aren't there.
Coolfer's thoughts: First, I do not believe there's great risk in prices rising much higher on the typical digital album. Look at iTunes this very second. As of the time of this writing, 18 of the top 100 titles were above $9.99 and there's hardly a consumer backlash. The trend in recent years has been toward lower prices. If prices stay constant or rise slightly there will probably be additional content bundled with the album.
Second, La Monica is right about the financials. Neither company is burning up with revenue growth, and rising stock prices is due to pre-merger speculation.
• This just in: A European Union Court has annulled the European Commission's decision that allowed for the merger of Sony and BMG. The Commission will re-examine the case. From the court's decision: "The Commission did not demonstrate to the requisite legal standard either the non-existence of a collective dominant position before the concentration or the absence of a risk that such a position would be created as a result of the concentration." (Billboard.biz)
• The commission's decision burst a bubble for investors: EMI's share fell more than 8% after the court's decision due to worries that it could prevent a merger of EMI and Warner Music Group. (Irish Examiner)
• WMG shares fell more than 12% in early trading. (Reuters)
• The prognosticators at Hits are saying Now 22 could do 400,000 in its first week. That will be miles ahead of Pimp C and Thom Yorke, who are looking at the 100,000 range. (Hits Rumor Mill)
• Bad news for Digital Music Group: co-founder Peter Koulouris resigned to "pursue new opportunities." (Sacramento Business Journal)
• The payola settlements from Eilot Spitzer's investigations are making their way out of New York state's music funds. Almost 100 New York City programs have received millions of dollars. Two, Brooklyn Academy of Music and Carnegie Hall, received $750,000 each. (NewYorkBusiness.com)
• A profile on new Kansas City indie labels Wheatfield Group, Drama Club Records, Minnow Records, Curb Appeal Records, OxBlood Records and Range Life Records. Wheatfield is distributed in the U.S. by Fontana. (Kansas City Star)
• Capitol Records has entered a partnership with apparel company Sub-Urban Brands to help promote its urban artists. (Rap News Network)
• Lil' Flip is putting on a public relations campaign to say how angry he is that his album was leaked by Sony (he alleges) after his label let him go...unless the timing of this press release and this article in the Daily News is just a coincidence. For a few weeks the word has been that Lil' Flip has hooked up with Warner Music Group, though nothing has been confirmed yet.
• EMI and Snoop Dogg have both filed lawsuits over Snoop's claim that he could exit a contract with the music group. (SOHH)
• Perfect for a global industry: A new system called Voxonic, can replicate a voice in any language. Voxonic has a partner in Andre Harrel, founder of Uptown Records. An unnamed major label, says Harrel, is going to use the technology for ringtones sold in other countries. (Bloomberg.com)
• RIP Syd Barret. (Scotsman.com)
• RIP Milan Williams of the Commodores. (Billboard.com)