WALL STREET JOURNAL THE LATEST TO DISPARAGE WARNER MUSIC IPO

The latest entity to hammer Warner Music Group in the days leading up to its IPO is The Wall Street Journal. A story in this morning’s edition titled “Warner Music Readies for IPO, But Pricing Draws Critics' Eyes” points to Edgar Bronfman Jr.’s abiding faith in new delivery methods like cellphones to bring WMG and the music industry in general out of the doldrums, thus providing a rationale for its hoped-for post-IPO valuation of $3.4 billion. But staff reporter Ethan Smith writes that there’s growing “dissonance” as the IPO draws nearer, not all of it generated by Linkin Park’s assertion last week that WMG’s hierarchy is focused on short-term gains rather than the long-term well-being of its acts.

“U.S. music sales are down almost 8% this year,” Smith writes, “but Warner Music's owners are bringing their company to the public markets in a deal that suggests the company's value has ballooned 30% in the past 14 months [boldface ours]. Meanwhile, sales via the Internet and cellphones amounted to just 2% of overall sales last year, according to various industry reports.”

The story then points out that analysts from Sanford Bernstein and Fulcrum Global Partners have criticized the target share price of $22 to $24 as “too rich for a company doing business in a sinking industry,” quoting Sanford Bernstein analyst Michael Nathanson’s dismissal— “The valuation of this IPO looks utterly out of line with reality”—and the cautionary remarks from Fulcrum’s Richard Greenfield, who declared, “we do not suggest participating in the IPO at that level."

The story weighs the fact that WMG is having some success with albums from Rob Thomas and Mike Jones with what it suggests is a possible smokescreen intended to disguise last year's financial results. Smith points out that the company “recently shifted its financial-reporting calendar by two months, making it more difficult to compare results from 2004 with those for previous years.” Rather than reporting full-year results for 2004, WMG has reported results for the 10 months ending last September; just before music sales for the year went down the toilet. Smith points out that WMG “could benefit from such confusion if, as many industry observers expect, it were to move to strike a deal with competitor EMI Group PLC after the IPO.”

Taking a direct hit from the esteemed financial publication a day before the expected IPO is hardly the most desirable setup for Bronfman and WMG.