Is There Still a Music Business?

Warner Music Group was trading at $27 per share a year ago. Since then, it’s been all slide, until Friday, when it closed at $8.08, after having scraped $7.25. Fox News’ Roger Friedman said Friday the stock had “collapsed,” a colorful description that got picked up all over the Internet.

What’s wrong with Warner Music Group? It’s not downloading. It’s lack of music, no artists, no signings, no development of new artists, as well as wildly overpaid executives and bad business deals.

For example, a $30 million investment in Sean “Diddy” Combs’ Bad Boy Entertainment has turned up nothing of value. And another multimillion dollar investment, in a private luxury concert business this summer in the Hamptons, was a bust.

At the same time, WMG has been hit by defections. Madonna has left for Live Nation after 25 years with WMG. The company could no longer afford her. The Eagles, whose entire career was spent with the old Warner Music, now have their own label with Wal-Mart. They sold 711,000 copies of their new album this year.

Warner also passed on the “Hairspray” soundtrack, which turned out to be a hit for New Line Cinema. And those are just the big public embarrassments. The smaller ones, the ones we don’t know about, are probably even more alarming.

For pop music fans of a certain age, the struggles of the company that once housed Warner Bros. Record and Reprise, the affiliated labels are another reminder of how much water has flowed under that proverbial bridge. Warner/Reprise used to be bursting with genre-defining musicians, from Frank Sinatra to Jimi Hendrix, from Peter, Paul and Mary to the Ramones.

To lose the marketing war with foolish, customer-alienating moves in the face of a wave of downloads puts the company on the same level as the entire industry. But to lose out artistically? Obviously, Warner Music is nothing like the company it once was.

The kinds of challenging artists that used to gravitate to Warner/Reprise are increasingly experimenting with completely different distribution channels, from Joni Mitchell and Paul McCartney’s affiliation with Starbucks to Radiohead’s offering their new music online for download for “whatever you want to pay” which, for 62 percent of fans meant “nothing,” according to the Internet market research firm comScore.

Depending on your perspective, the Radiohead experiment was a brilliant success or an utter failure. Justin Moresco of Red Herring talks to an analyst who believes the large number of customers who chose to pay Radiohead nothing is symptomatic of the overall downward price pressure on downloadable tracks:

About 17 percent offered between a penny and $4, far below the $12 and $15 retail price of the CD. Only 4 percent of fans were generous enough to pay $12 or more.

“Distributing one more digital track costs basically nothing,” said Pacific Crest Securities analyst Evan Wilson. “Consumers want the price to match that cost.”

Because of declining CD sales, record labels have had no choice but to bend to consumers’ demands, said Mr. Wilson. Digital tracks on average cost $1.29 to download in April, but today—just 7 months later—they are averaging 89 cents, according to Pacific Crest estimates.

That’s some serious price compression that has bruised the music industry’s earnings. The sector generated revenue of $14.3 billion in 2000, according to the Recording Industry Association of America. This year, it’s expected to report revenue of $10.3 billion, a 28 percent decline.

Unsurprisingly, analyst reports have continued to be gloomy about the industry’s prospects. Since the release of the reports, Warner Music shares have been straddling $9, reinforcing their dramatic fall from a high of $27 a year ago.

Mr. Wilson said the record labels can’t do much about the declining price of music. In the past, the big four labels—Universal, Sony, EMI, and Warner—could control prices. But now that there are accessible free music options across the web, consumers won’t accept high prices, he said.

Wilson predicts it will take two more years of torture before music company executives come up with a creative solution.

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One Comment on “Is There Still a Music Business?”


  1. Warner Bros. and other labels are missing the boat because they will not invest in FREE places for musicians to play…..where they can play their own music…instead of covers….COME TO BALTIMORE….INVEST IN VENUES….Everybody don’t drink….Some don’t dance…Some do….Invest in “Action” right now…live…small names….for a year……and watch ……watch…..the turn around……we need places to play without the hassle of having to buy drinks….buy…buy…..buy….

    WARNER BROS…..YOU DID GOOD….NOW GIVE BACK….The Musicians here need places to play….play….play……BUILD UP OUR OWN SIGNIFICANT SOUND…THE BALTIMORE SOUND….

    DO YOU KNOW HOW MANY MUSICIANS ARE PLUCKED OUT OF THIS TOWN BY BIG NAME ARTISTS…..

    INVEST IN THE “FREE PLACES” WHERE PEOPLE CAN COME AND HERE US PLAY WITHOUT THE PRESSURE OF MONEY….AND YOU WILL MAKE MONEY…


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