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The elation expressed by many in the industry who see the current WMG hierarchy as carpetbaggers looking to make a killing at the expense of the storied company was tempered by its context: Reif Cohen's dubious opinion of the music business as a whole.
I.B. BAD: MORE WALL STREET WOES FOR WARNER MUSIC
Merrill’s One-Woman Lynch Mob, the Bustling Adult Market, Korn’s Growing Industry Cachet and Sanctuary’s Uncertain Future
Just as Warner Music Chairman Edgar Bronfman Jr. was starting to breathe easier after spending weeks in the line of fire, the shell-shocked company took two more direct hits, even as shares languished in the $16 range. First, last Sunday (6/19), the entire music biz was buzzing about the New York Times article recounting Merrill Lynch's pullout as an underwriter of the WMG IPO after a damning assessment by its star media analyst Jessica Reif Cohen. This revelation was followed on Monday morning (6/20) by Reif Cohen's 30-page note, prepared post-IPO, in which she painstakingly explained her "sell" rating. In the critique, Reif Cohen expressed grave concerns about the new Warner regime's lack of commitment to developing artists, citing an $80 million cut in A&R spending through the first half of 2005, a $155 million planned expenditure for recorded music this year (less than half of EMI's projection and less than a third of Sony BMG's anticipated $500 million) and the likelihood that "investors will question whether the long-term growth of the business will be the primary goal of management." That broadside was hardly neutralized by the lukewarm opinions from Goldman Sachs ("in-line/neutral") and Morgan Stanley ("equal weight"), with the lone "buy" rating from Bank of America. All three firms were underwriters of the IPO—picking up the big fees that Merrill had passed on—which didn't enhance the credibility of their ratings. The elation expressed by many in the industry who see the current WMG hierarchy as carpetbaggers looking to make a killing at the expense of the storied company was tempered by its context: Reif Cohen's dubious opinion of the music business as a whole. While she expressed confidence that the digital music market will grow significantly in the next five years, "the benefits to record company revenues and profits seem less certain," she wrote… Celebrators celebrating the huge first week experienced by RMG's Foo Fighters, whose 320k tally was far in excess of the veteran band's best opening until now—120k on the last outing—beefing up popmeister Clive Davis’ stable of major-league acts. As with Beck, Coldplay, Audioslave and Alanis Morissette (who sold 61k in her Starbucks-exclusive debut), the Foo Fighters' big numbers testify to the ever-growing power of the burgeoning adult rock market. The significant sales being generated by adult rock acts—coupled with the clout of mainstream adult artists like Josh Groban, Michael Buble, Joss Stone and Norah Jones—leading some to ask whether labels are morphing their rosters in reaction to what increasingly appears to be a seismic shift in the marketplace… Said shift toward affluent adults has continually been manifested in recent years by the touring industry, and this summer is going gangbusters, as U2, the Eagles, Coldplay, Green Day, Kenny Chesney, Reba McEntire, Tim McGraw, Paul McCartney and the Stones are all doing huge business despite triple-digit ticket prices for most. Meanwhile, the youth-skewing Eminem/50 Cent package, with its $1 million-a-night guarantees, is struggling to fill 20,000-seat sheds, and Destiny's Child sales are even slower. Two non-adult tours doing well are the reliable Ozzfest and Warped… Rap/metal veterans Korn, out of their Sony deal for some time now, have an album finished, and those few who have heard it say that it's great. A new deal said to be imminent as the band focuses on innovative types of arrangements emphasizing new media initiatives. Inside bettors have EMI as the early favorite, based on the precedent set by Robbie Williams' groundbreaking non-traditional deal. Sony, which could put a hefty offer on the table, benefits from having the Korn catalog. But don't count out Jordan Schur, who's close to both the band and its manager… The smoke signals coming from London strongly suggesting a deal is being discussed between Sanctuary Group and either EMI or WMG, even as the consistently profitable company has issued a dire profit warning projecting a 40% drop in profits. Along with the high regard in which CEO Merck Mercuriadis is held throughout the industry, Sanctuary's appeal to prospective buyers lies less in its record division than in the diversified company's array of globally competitive units, including booking, management, publishing and merch. But if either EMI (a seemingly natural fit) or WMG were to acquire Sanctuary, how would the EU view the vertical integration of the combined company?... Names in the Rumor Mill: Al Cafaro, Bruce Tyler, John Silva, Tamara Conniff, Johnny Barbis and Gary Stiffelman.

 

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