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.

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.

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…

Doug Morris' "new Jimmy"

In a New York Times feature on Doug Morris yesterday, included among the expected platitudes from the new CEO of Sony Music, like describing his plan for the company as simply “to help create the pre-eminent record company in the world,” was the clever and first official disclosure of a new label deal with producer Dr. Luke, which will see the expansion of his current imprint with Sony, Kemosabe Records. The news, which we exclusively revealed back over the summer (with the New York Post picking up the item shortly after), comes with similar overtones as we initially reported, which is Morris is attempting to recreate his successful investment and development of Interscope Records with Jimmy Iovine at Universal Music Group. The new deal, which has been in negotiation for many months, will put the label on equivalent footing as Epic, Columbia and RCA, and also includes exclusivity at Sony for Dr. Luke’s producer services for five years – a component that smacks of Sony’s soon-to-lapse agreement with Rick Rubin, whose production work outside of their label system has been noted by many as part of the arrangements overall failure.  Also central to the Kemosabe deal is the purchase of a significant stake in Dr. Luke’s publishing by Sony/ATV, a move that will give the pubco an interest in what has been Luke’s highly-successful songwriting operation, which includes a stable of of up-and-coming pop composers with numerous chart-topping credits. Observers are drawing similarities to previous high-dollar publishing investments in hitmakers at their pinnacle, like Kara Dioguardi’s Arthouse Entertainment deal… Meanwhile, Citigroup’s auction of EMI is dragging on longer than the bank would like, with plenty of spin and speculation surrounding the action for the recorded music division. Last week saw the twist of Warner Music Group owner Len Blavatnik, pulling his bid from the table after Citi wanted him to increase the offer, though many see it simply as a negotiating tactic from the Access Industries owner. In turn, Universal Music Group, who previously was thought to be out of the running, is being touted as potentially back in, with the New York Post reporting the two sides are scheduled to meet today, though UMG’s last offer fell below Blavatnik’s. On the EMI Music Publishing side, the deal is still seen as BMG Rights Management’s for the taking…  Elsewhere, in related news, David Bowie is reportedly on the verge of leaving EMI, which would end a 15-year relationship that gave the label rights to a large part of his catalog of classic albums. Discussions are said to be taking place with both Universal and Sony… And South African hip-hop enigma Die Antwoord are leaving Interscope Records, seemingly as abruptly as they were signed to the label in early 2010. The group, who has a publishing deal with Sony/ATV, will soon be releasing their second album via their own new label ZEF RECORDZ.

swimming upstream

An article on Rollingstone.com has been getting passed around this week, as magazine contributor and author of music biz treatise, Appetite for Self-Destruction, Steve Knopper, took a stab at outlining the “new economy” of music sales. Streaming-music services in particular are a hot topic recently among artists, record labels, music-tech start ups and those who observe and comment on all of their goings-on. Among the choice quotes from the piece includes one from Jeff Price, founder of TuneCore, who commented on the confusing nature of streaming royalty rates, saying “It is beyond complicated. It took me literally three months to understand this thing,” while MOG founder David Hyman chimed in on the record labels distribution of streaming royalties to artists, “Once they get that wad of money, how do they distribute it internally? I have no idea”… The biography of Steve Jobs and its contents has been another widely discussed subject recently, with various story lines that cross into the music industry sector as well, including the Jobs experiences dealing with major labels. A New York Post item today points to Apple’s iTunes negotiation with former Sony Music boss Andy Lack, as particularly difficult, with Lack asking for royalties on each iPod sold, and Jobs criticizing him for not understanding his own business. Meanwhile, other more obvious iTunes related revelations are made, such as the reason that The Beatles only recently appeared in the digital marketplace was due to ongoing and unresolved contractual issues between the group and EMI… Elsewhere, Twitter has made its first specialized music hiring, in former Disney Music Group marketing manager Tatiana Simonian… AOL SVP of business development Jared Grusd is reportedly heading to Spotify… In a surprising move, Coldplay has opted to not make their new album Mylo Xyloto (pronounced “@&*%^$”) available on streaming services like Spotify, Rdio, MOG, Rhapsody and others, in what could be seen as a stance similar to holdout artists whose material still isn’t available on iTunes and other digital retailers… And more clues about Google’s upcoming launch of a music store comes this week with evidence of an expanded Android mobile landing page for the new Google Music service.