Music GroupsWarner 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)