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Bronfman’s failure to make a deal with Bandier marks the latest misstep in what is shaping up as an extremely rocky year for WMG.
I.B. BAD ON THE LATEST ROUND OF MERGER-OLA
An All-New Episode Featuring Your Favorite Characters: Edgar, Lyor, Tom, Rick, Jimmy, Marty and More
One of the more bizarre occurrences of recent weeks was the endorsement of a Warner Music-EMI combination on the part of international indie trade association IMPALA, whose complaints about the Sony BMG merger led to the EC’s reexamination of the arrangement—the irony being that WMG and EMI called off their previous negotiations as a direct result of IMPALA’s actions. Stunned by the news of this unlikely marriage, British indie labels Ministry of Sound and Gut resigned in protest from IMPALA’s U.K. affiliate, AIM, with the former demanding answers in a Feb. 28 letter to the London-based trade group. Among other things, MoS wants to know why IMPALA chose to go against the fundamental interests of the labels it represents, and why the decision to endorse the merger was made without the knowledge or involvement of its membership; additionally, it has asked to see all documents and correspondence generated by the negotiations between IMPALA and WMG. The letter also asserts that damages to the indies resulting from a WMG-EMI hook-up would exceed $100 million. While many remained stunned by this union of previously hostile parties, others are giving credit to WMG for pulling off a very slick move indeed. Everyone in Britain now wants to know which functionary at WMG U.K. came up with the idea and what really went down, with many theorizing that IMPALA and Chairman Martin Mills fell for empty promises. And in yet another irony, releases from Mills’ Beggars Group of labels are distributed in the U.S. by WMG’s own ADAEdgar Bronfman Jr. has been rebuffed yet again in his latest approach to EMI. But some see the overture, in which WMG floated the notion of a $4.1 billion bid, as little more than another short-term ploy to keep Warner Music stock from falling further. WMG is now five months into its fiscal year, which began on an ice-cold note in the fourth quarter of 2006 and shows no signs of warming up in the coming months. Scott Sperling and company have already wrung practically all the possible cost savings out of WMG, so it appears Junior may be running out of moves in his last-ditch attempt to salvage what most industry observers now view as a fundamentally flawed business architecture… In that regard, one of Bronfman’s most critical issues is what to do about Lyor Cohen, who appears to be miscast in his role as WMG’s North American head. Once celebrated as the king of hip-hop, a.k.a. “Lansky,” Cohen is gradually slipping behind the curve, as the genre’s commercial potency wanes, with rap accounting for just one of 2006’s Top 20 albums. In addition, Diddy’s Bad Boy, picked up by Cohen last year for mega-dollars, is hemorrhaging red ink, and the rapper’s Press Play has sold only 500k… Another problem is the strained relationship between Cohen and Warner Bros. Records head Tom Whalley, who have been like oil and water from the getgo. The ongoing head-butting between the two executives has been exacerbated by Rick Rubin’s decision to move from WB to the Columbia co-chairmanship, leading to much finger pointing, with Cohen blaming Whalley for the American deal being so unproductive, while Whalley blames Cohen for foisting the arrangement on him in the first place. Cohen has supposedly confided to some that he’d gone as far as offering Rubin Whalley’s job in an attempt to keep him at WMG. But Cohen may himself turn out to be a casualty by the time the conflict plays out, with the more well-rounded Whalley conceivably winding up as the victor rather than the victim in the next round of bloodletting… Sony/ATV grabbed a headline Bronfman wanted for himself by announcing the appointment of publishing legend Marty Bandier as its new chief. This was a move Bronfman had desperately tried to make in order to solve his company’s publishing problems, and it marks the latest misstep in what is shaping up as an extremely rocky year for WMG... Many in the industry were taken aback by the news that Octone Records had moved from the RCA Music Group to Interscope Geffen A&M, which established the Octone/A&M label, installing Octone founder James Diener as President of the new entity. Adding the storied A&M name to Octone was Jimmy Iovine’s way of advancing the perception of Octone as an integral part of the IGA family while giving Diener instant status within the organization —and with former A&M head Ron Fair now heading Geffen, the A&M logo was essentially up for grabs... Octone was launched with money procured by Diener from longtime Blackstone exec Howard Lipson and Blackstone alumnus Larry Fink, and he then made a joint venture agreement with Clive Davis’ newly formed J Records that included a buy/sell mechanism. The deal’s expiration triggered the buy/sell, with Octone asking for a payout said to be just south of $40 million. When RMG rejected that proposal, Octone then opted to bet on the come, buying out RMG and making the deal with IGA.UMG was willing to shell out the $40m not only because of Maroon 5 (whose 2002 debut LP, Songs About Jane, sold 4.3 million in the U.S.) and Flyleaf (500k+), but also because the powers that be see Diener as a valuable addition to the IGA executive team. Octone/A&M, whose executive team includes longtime Octone GM David Boxenbaum and EVP/promotion head Ben Berkman, also gives IGA an East Coast presence. So it appears that Iovine and Doug Morris are rolling the dice with Diener and Maroon 5 in hopes of a big upside for both… Diener is a second-generation mogul; father Steve Diener was the President of ABC Records in the mid-'70s, a run that ended in 1979 when the American Broadcasting Co. sold the label to MCA, which then dissolved it… Names in the Rumor Mill: David Hockman, Rob Wiesenthal, Ron Laffitte and Craig Kallman.

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