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"For someone with the right vision, it's probably a very good time to buy a music company, particularly if it’s being discounted."
——Larry Rosin, Edison Media Research

CAN THE MUSIC INDUSTRY
STOP THE BLEEDING?

RIAA Piracy Initiatives, Apple iTunes Brighten Prospects with Several Music Companies in Play
Could the music business be in turnaround?

With this week’s strong RIAA piracy initiatives and continued enthusiasm over Apple’s iTunes online Music Store up and running, bizzers hope the latest uptick in its fortunes has come in time to increase the valuation of in-play entities like Universal Music Group, Warner Music Group and Bertlesmann Music Group.

UMG President/COO Zach Horowitz is "cautiously optimistic," telling Reuters, " There's a lot of good signs that a turnaround is beginning. We're all tremendously pleased by the impact of the Apple service."

The news couldn’t come at a better time, with UMG, home to such acts as Eminem and U2, now being considered for sale as part of an auction of Vivendi Universal's U.S. entertainment assets.

Reports persist that VU, which prefers to sell its entire company, is giving special consideration to the bids that include the Music Group by Seagram’s Edgar Bronfman Jr., oil tycoon Marvin Davis and cable TV magnate John Malone’s Liberty Media Group. The latter reportedly only added UMG to its offer to give it equal footing with its competition. Other prospective buyers include GE and MGM Studios, who have expressed no interest in the company's music holdings.

UMG chief Doug Morris and Universal Studios head Ron Meyer are both reportedly urging the VU board to consider the Bronfman bid, despite the fact their Vivendi stock is virtually worthless after the Canadian liquor heir sold the company to the French water conglom in 2000.

Analysts expect bidders to value Universal’s music business at around $5 billion to $6 billion, just five to six times its 2002 earnings before interest, taxes, depreciation and amortization. That valuation is sharply down from the $10.4 billion Bronfman paid for PolyGram in 1999.

Although it is unclear whether Vivendi will sell, hang on to its music unit or wait for a recovery to lift valuations, any buyer would be getting a company that could be poised for a rebound, analysts said.

Edison Media Research’s Larry Rosin told Reuters: "For someone with the right vision, it's probably a very good time to buy a music company, particularly if it’s being discounted. With all the incredible changes the music industry is going through right now, change implies opportunity for someone who knows how to seize it."

Although Edison’s study found 61% of 12-to-17-year-olds have burned a copy of someone else's CD instead of buying their own, it also discovered. 50% of Americans between 12 and 44 believe downloading for free is morally wrong, up from just 39% in 2002.

The industry's success in the courtroom and its PR campaign are helping. By targeting individuals and offering alternatives like Apple's service on more widely used Windows-based systems later this year, the biz is looking to reverse its fortunes.

"The consumption of music has never been greater. It's just that it's not monetized," Horowitz told Reuters. "I think we will have two or three years of transition, after which, the potential of the Internet will explode and we will have significant revenue, the likes of which we haven't seen in many years now."

From Zach’s mouth to God’s ears. And not by way of KaZaA, either.

Meanwhile, EMI, WMG and BMG have all been involved in on-again, off-again merger talks of their own. Any signs of recovery could affect these companies’ valuations and any potential deals on the table.

Sony Corp.U.S. chief Howard Stringer struck an optimistic tone earlier in the week, when he told a symposium: "The music business invariably has been up and down and come back. There is no question the way the music companies are attacking the problem shows the first glimmers of hope."

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