Post EMI Auction Round Up
WMG CEO downplays EMI loss
As was expected by many observers, Edgar Bronfman Jr. announced early last week that he was going to be stepping down as chairman of Warner Music Group, presumably as part of the aftereffects of a failed EMI acquisition. Last week also saw the disclosure of WMG’s recent quarterly report, which showed sizable losses even with continuing growth in digital revenues, along with comments from new CEO Stephen Cooper that the major was not willing to pay a price “that would not have provided an adequate return on our investment,” in addressing the failed attempt to purchase EMI’s recorded music business. Cooper also denied that Warner-Chappell Music, among other assets, are being primed for a sale, contrary to rumors that the new owners of the Bunny are having buyers remorse. Ironically, some are now drawing comparisons between the current situation and position of WMG with that of EMI when it was purchased by Guy Hands and Terra Firma back in 2007. Assuming the regulatory process allows Universal Music Group and Sony Music to take their respective parts of EMI, Warner Music will be significantly smaller than its rivals, and facing increased pressure as both UMG and Sony stockpile executive and artist talent. Others are recalling the mid-90’s action at Warner, when “non-music” executives were brought into the company, amid ongoing changes and power struggles among top executives, though new CEO Cooper is known as a corporate ‘turn around specialist’… The other losing bidder in the EMI sale, BMG Rights Management, continues to put together its creative executive force in the U.S., while chatter persists that co-backer KKR might soon be getting out of the JV with Bertelsmann, whose new CEO Thomas Rabe will take the reins on January 1st… Meanwhile, on the winning side, Sony/ATV head Marty Bandier revealed last week that EMI’s pubco would retain its name, and that it would be controlled as a separate company owned by the investment group that Sony Corp. was a part of. Further details about the new structure haven’t been revealed, but Sony CFO Rob Wiesenthal acknowledged at a global media conference that he sees a focus on music publishing as the real future for record companies, saying the publishing business is “immunized from piracy” – though it should be noted that the company does not wholly own either of its music pubcos. Lots more action is expected, including the fate of current EMI and Sony publishing executives – Bandier and Sony/ATV co-prexy Jody Gerson are both very familiar with the company, having previously held long executive stints at EMI Music Publishing.
12.1.11Round Up: Grooveshark bites itself, Spotify announces apps, major label moves & more…
Grooveshark emails have bite
Catching up after a turkey hangover, some of what’s happening around the biz… Things are looking messy for Grooveshark, who is facing aggressive legal action from Universal Music Group, with the surfacing of some incriminating internal emails… After teasing a big announcement and “new direction” for Spotify, the streaming-music service unveiled the news in New York City yesterday of a new platform with integrated apps from a variety of third party developers including Rolling Stone, Songkick, Pitchfork and others… According to CNET, it seems the rift between Vevo and MTV may soon be ending, with word that the two parties are negotiating a deal which would give MTV’s online properties access to Vevo’s music videos… Prior to the holiday weekend, Warner Bros. Records announced a three-year global partnership with Vice Music. Those keeping score note that the deal was originally spear-headed by now departed Warner Bros. A&R executive Steve McDonald, who also currently plays in OFF!, one of the bands on Vice’s roster… Dizzee Rascal is taking his label Dirtee Stank to Universal in a deal that will see the major distributing and marketing releases from the UK indie… Elsewhere, more changes within the ranks of Sony Music emerged this week, with further reporting of Sony’s top digital executive Thomas Hesse departing for Bertelsmann, while Tricky Stewart and Mark Shimmel are expected to be announced as part of the continuing executive selections at Epic Records under L.A. Reid… Meanwhile, the New York Posts‘ Page Six reports today that Drake has parted ways with both his management firm, Hip Hop Since 1978 and his agency, ICM, in favor of William Morris Endeavor… And top-notch writer/producer and former member of Whiskeytown, Mike Daly, has taken a new position doing A&R at Walt Disney Records.
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And then there were 3… EMI split, where does it lead?
Universal Music Group and Sony Music continue to dominate the music biz storylines this year with the unpredictable conclusion of the EMI auction, which saw the two industry leaders beating out the long-expected winning bidders in Warner Music and BMG Rights Management. It might be too soon to call it the era of the ‘big three,’ with the regulatory process expected to last well into 2012 after Citigroup’s auction split EMI into two – the recorded music going to UMG while EMI Music Publishing is set to fall under the ownership of an investment consortium including Sony Music, the estate of Michael Jackson, music mogul David Geffen and others – but however you slice it, the trend of contraction continues. And for all the growth and ‘turning point’ talk, including from the CEO of UMG parent company Vivendi, in the wake of an increase in music sales over last year, the revenue from those sales is still in decline due to the lowering of prices, as pointed out in a Bloomberg article this week… So where do things go from here?
Independent music company coalition IMPALA began saber rattling prior to the announcement of the EMI auction winners, and were quick to make public their intentions to block the acquisitions by both groups following the announcements on Friday. Industry insiders however are questioning the association’s ability to ultimately triumph in stopping the completion of either deal. Universal Music is expected to dispose of a certain amount of assets, particularly in European territories where they would now hold a market share well over 50%, and their key argument for approval will be that the music industry is in a much different place even from just a few years ago, and that they like others are at the mercy of technology companies like Apple in this new digital age. How well that justification will fare remains to be seen, as there are seemingly plenty of holes. One could easily look to how long it took Spotify to launch in the U.S. due to the process of acquiring licenses from the four major label groups, and further, that they negotiated equity stakes in the service in order to allow a launch in America… It will also be interesting to see how well Google does with the launch of a new music store, expected to be this week, with only two major labels onboard, Universal and EMI (coincidence?)… And while iTunes Match is expected to succeed, it’s clear that Apple feels comfortable with their current position and power in the music space, as they continue to expand their sites in new areas of media and content domination… And as far as the EMI publishing spoils go, many see the creation of the investment entity, of which Sony only holds a minority stake, as making the approval process easier.
Some of the other big questions being asked by observers this week include, what is the fate of EMI Group CEO Roger Faxon? A role within Universal Music on the recording side seems unlikely, and while EMI’s pubco is expected to remain its own entity with Sony/ATV in a management and administration role, will there be room for Faxon to reunite with his former EMI publishing co-CEO Marty Bandier, and more importantly would he take a reduced-role? How does this play for current Sony Pub players Jody Gerson and Danny Strick? Will Warner Music be first in line to snatch up EMI recorded assets in European territories from Universal, particularly in light of their recognized weakness abroad and the shake-up among its international management structure announced by Lyor Cohen just last week? Will Edgar Bronfman Jr. now exit WMG completely as expected? Contrary to public comments from BMG Rights Management CEO Hartwig Masuch today that the EMI publishing purchase was not “necessary” for the company, those in the know believe that it was indeed a crucial acquisition for the KKR and Bertelsmann backed venture, and having failed to secure it, are wondering if KKR will now get out? Insiders share that the Germans are considering buying out KKR’s stake. And having purchased most of the mid-level music publishing business over the last couple years, including Bug Music during the EMI auction, will BMG now shift focus to unifying its management structure and operation?
Plenty more action to come…
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EMI Derby Ramps Up As It Winds Down
EMI auction nears finish line
Numerous recent reports have Citigroup closing a deal (or two) for the sale of EMI by the end of this week, including a New York Post piece today claiming that a fight for the recorded music arm is down to billionaires Len Blavatnik, whose Access Industries now owns Warner Music Group, and MacAndrews & Forbes Worldwide chairman Rob Perelman. On the publishing side, KKR and Bertelsmann-backed BMG Rights Management is being called the clear frontrunner, though Sony still isn’t being completely counted out. New Bertelsmann CEO Thomas Rabe who is said to be making the rounds in New York this week, is very familiar with EMI, previously serving as Bertelsmann CFO since 2006 until his recent promotion, where he kicked the tires on the music group prior to Terra Firma’s acquisition of the company in 2007 and then again at EMI Music Publishing in 2009, in discussions that likely included Citi as well… As we mentioned back at the outset of summer, Warner Music and BMG all along have been the favorites to end up with EMI’s recorded music and publishing arms, though many other suitors entered the bidding fray as expected as well. Among the many questions we are hearing with regard to the likely new owners of EMI, is the fate of current executives on both sides following a deal – including EMI Group CEO Roger Faxon, WMG’s Edgar Bronfman Jr., Capitol & Virgin NA label prexy Dan McCarroll, EMI Music Publishing’s Big Jon Platt, BMG’s Hartwig Masuch and Laurent Hubert and many others… Stay tuned.
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Bits & Pieces: BMG Rights Management buy Bug Music, EMI auction slows & EU extends life of music copyright
Following reports last week that Spectrum Equity and Crossroads Media, owners of Bug Music, were accepting second round bids for the publishing company, came the news yesterday that KKR-backed BMG Rights Management has snapped up the independent pubco, for a price that is being rumored at $300 million. The acquisition, which is expected to be closed by October, will essentially double the catalog size of the KKR and Bertelsmann joint venture. Bug Music CEO John Rudolph is also reportedly suing the owners of the pubco, over a 2% equity stake in the company which he was promised… Of course, BMG RM is also currently bidding in the EMI auction, with its sights set on the publishing arm. An article in This Is Money over the weekend stated that bidders in the EMI auction are frustrated by Citigroup’s slow-pace in the process, and believe it is in an effort to give private equity parties enough time to raise cash to remain as contenders given the troubled financial markets… Good news for those vying for EMI, as well as many other record companies, is the decision by the European Union to extend the copyright term on sound recordings from 50 to 70 years. Many point to the mass of popular recordings from the 1960’s by numerous British artists including the Beatles, the Rolling Stones and many others that would begin to come up on term within only a few years, as being a primary reason behind the ruling. While the announcement was made as being a major boon to artists, in protecting works, others see the move as furthering what has been a negative situation for the many older artists and performers in the new digital age. The storyline also parallels that of the current copyright termination issue going on in the U.S., though there is no such reversion clause in the European law.
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Bits & Pieces: BMG Bids, Warner to Unload Weight & New Motown/Island Def Jam Takes Shape
Transitions to IDJ Group
The New York Post reported this week that KKR and Bertelsmann-backed BMG Rights Management, as expected, submitted their bid for EMI last Friday, while the other favorite Warner Music is believed to be submitting this week ahead of a July 28 deadline. The Post also reported that new Warner owner, Access Industries, is preparing for cutbacks in the WMG workforce up to 5%, primarily outside of the U.S. – reductions that are believed to be directly related to a possible EMI acquisition. Others are noting the dramatic uphill climb the new Warner Music owners face in an industry that reported growth of just 1.6% this year, the first time in 7 years, with album sales still in decline. Is a successful EMI merger the only way for Len Blavatnik to avoid ending up as the next Guy Hands?… Meanwhile, as first reported by The Wrap, Universal Music is preparing to install Universal Music Publishing Group executive Ethiopia Habtemariam as head of Motown, as the label transitions into the Island Def Jam Group. At least one veteran IDJ A&R executive is said to be heading back to Universal in the new Motown/IDJ group after previously departing under CEO L.A. Reid, who is now chairman of Epic Records.
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Bits & Pieces: Bug Music For Sale Again, First Round Deadline for EMI Bids Set & more…
The owners of Bug Music are once again shopping for a buyer according to a report by Bloomberg this morning, with a target price of between $330 and $400 million for the publishing company. Acquired by a group of investors led by Spectrum Equity in 2006, the pubco was on the block as recently as last year, and while a sale was never completed, presumably due to lack of a high enough bid, insiders share that BMG Rights Management came close to completing a deal. It’s likely that they’ll be among bidders again this time, along with the 30 interested companies, according to the report, including Sony/ATV, which signed NDA’s to receive an offering book for Bug… Of course a higher profile auction is Citigroup’s unloading of EMI, which has an early August deadline for first round bids now expected, according to reports today. Warner Music has been the front-runner in early EMI sale talks, along with the KKR/Bertelsmann-backed BMG (read our pt.1 and pt.2 posts on that scenario), though a New York Post piece yesterday has Warner’s debt impeding a successful acquisition, and in speaking with the Financial Times over the weekend, Bertelsmann CEO Hartmut Ostrowski cautioned his company wouldn’t get involved in a bidding war for EMI and is only interested in offering a reasonable price. Those in the know still expect both companies to be on the shortlist over the coming weeks… In related news, it was announced today that Access Industries officially completed their acquisition of WMG… And elsewhere, charter sponsors for the U.S. unveiling of Spotify, including Chrysler, Coke, and News Corp’s The Daily, reportedly paid $1 million each to be included in the launch, with their branding prominently displayed in the service, and each getting 10,000 membership codes to giveaway as well.
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BMG Rights Management + EMI & the ‘Big Three’ Era… Pt. 2
EMI; another brick in the wall?
The sale of EMI Music Publishing to BMG Rights Management would be by far the largest investment for the Bertelsmann and KKR-backed venture, and would more than triple the current catalog of over 300,000 copyrights. It’s a catalog the JV has amassed in less than two years, through a series of acquisitions that include Cherry Lane Music, Adage IV, Stage Three Music, Evergreen Copyrights and Chrysalis Music, along with a handful of other international catalogs and pubcos. The speed in which BMG RM has climbed to the spot of fifth largest publisher in the world is striking, but only part of the story when looking at their catalog purchases. What’s more interesting to some insiders are the subplots and what they could signal for the future. Let’s step back and take a closer look… One of the most impressive and significant music publishing constructions in recent decades was that of Dreamworks Music Publishing, a catalog that was assembled under the guidance of veteran publisher Chuck Kaye. It included works from artists such as The Byrds, John Denver, Jimmy Eat World and Lifehouse among others, along with hit titles like “Disco Inferno” and “Take Me Home, Country Roads”. The catalog journeyed from one home to another throughout the 2000’s following the sale of the Dreamworks recorded music division to Universal Music in 2003. The catalog was first sold for $50 million to Dimensional Music Publishing in 2004, a newly created arm of JDS Capitol Management (who also owns eMusic and The Orchard), in a deal which is seen as seminal in the recent trend of venture capital investments in music publishing assets. However, Dimensional publishing’s run was short-lived, selling its assets less than three years later to First State Media Group, a new fund whose publishing entity operated as S1 Songs. Then again in under three years time, in early 2010 - after its own stint on the block almost being bought by then EMI owner Terra Firma – Chrysalis Music acquired First State Media and S1 Songs for $16.5 million, in a deal that included the Wind-Up catalog and of course the original 25,000 Dreamworks copyrights. And in November of last year, less than one year later, Chrysalis announced it was being bought by BMG RM, adding another 100,000 works to the JV’s catalog, in a deal valued at $169 million… So with a major addition like EMI’s publishing assets, what would the future hold? Particularly taking into account the consolidation happening within the ranks of the companies they’ve already acquired. On track to double their revenues by 2015, will the trend continue, with EMI (which has undergone significant cost-cutting of its own recently) as the final piece in a KKR and Bertelsmann plan to build the world’s largest publishing company and flip it? The common belief in many circles is that the industry is headed to a new era of the ‘Big Three’, and as such, none of the majors left will be able to afford leaving such valuable publishing assets outside of their control. It’s going to get interesting… Tune in tomorrow as we break a new big publishing deal currently in play.
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Wednesday Bits & Pieces: BMG Buys Chrysalis, Myspace on the Block & more…
BMG buys Chrysalis
Heading out of the holiday weekend, industry chatter continues over the acquisition of Chrysalis by BMG Rights Management. One of the world’s largest independent publishers, Chrysalis publicly announced that it was in early-stage talks for a potential sale or merger just less than one month ago. Others bidders said to have been in serious talks include Imagem and Bug Music, though BMG RM came in with the winning offer at just over $168million. The purchase is the latest in a series this year from the joint-venture backed by Bertelsmann and private equity firm KKR – who is being seen as the driving force behind the publisher’s aggressive acquisitions – which also includes Cherry Lane, Adage IV and Stage 3. Following the acquisition, CEO Hartwig Masuch made comments indicating that he believes BMG is now the world’s largest independent music publisher, and is just behind the top four major music publishers. EMI Music Publishing continues to be another likely target in the event of its break up, which would easily make BMG a rival for the top spot… Following the quick deflation of any excitement over the relaunched Myspace last month, comments by News Corp. COO on Monday seem to all but spell out the likelihood of a sale for the beleaguered social network. Though Myspace did release a new mobile site and iPhone app this week, a direction some see as the most sensible one for the site who has seen its numbers drop even more drastically over the past year. Likely bidders for the site being mentioned include the usual digital media giants like Yahoo and AOL, though others see Google (who is also in the midst of discussions to acquire the red hot startup Groupon) as an interesting candidate as well… Elsewhere, the L.A. Times takes a look at the recently overhauled MTV and its focus back on music… Sony Music mistakenly takes action to pull songs offline from Bradford Cox, whose musical projects include Deerhunter and Atlas Sound… And PC Magazine has responded to the letter it received from a group of industry executives last week, which included signees from organizations such as the RIAA, Harry Fox Agency, Sound Exchange, ASCAP, BMI and SESAC, criticizing the publication for a recent article naming file-sharing service alternatives in the wake of LimeWire shutting down…
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BMG Rights Management to Launch Operation Down Under – Another U.S. Acquisition Still Imminent
According to a story in Billboard this morning, BMG Rights Management intends to launch operations in Australia in early 2011. Former Albert Music CEO Tim Prescott, who stepped down from the post earlier this year, is said to be assisting in the company in their plans to expand into Australia and New Zealand, though his relationship with the Berlin-based publishing company is unclear. Prescott was previously a VP at Sony BMG Music, leaving for Albert Music in 2007 prior to the Sony – BMG split… For now the plans for the operation down-under are murky, but the Bertelsmann and KKR-backed venture has made no bones about its desire to compete with the big four publishers world-wide, and has been heavy focused on acquisitions over the last year. Some are watching BMG RM’s current sub-publishing partner in the region, Mushroom Music, as well as Albert, which represents the entire AC/DC catalogue… Still expected before the end of the year is another significant U.S. acquisition, with a number of independent pubcos rumored to be in play. Last month they announced the purchase of Evergreen Copyrights after previously obtaining catalogues from Cherry Lane and Adage IV. Stay tuned…
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