March 29, 2024

Media Decoder Blog: History Shadows an Upbeat Music Sales Forecast

In early 2004, Billboard magazine ran a cover story with a hopeful headline: “Have Sales Finally Hit Bottom?”

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The answer, as anyone who has paid attention to the music industry knows, was a most definite no. Aside from a couple of positive blips along the way, the recorded music business — shaken by digital media, the Internet and the loss of thousands of record stores — has been in precipitous decline for more than a decade.

So for those who have seen the industry’s optimism dashed before, an upbeat report on Tuesday by its global trade body, the International Federation for the Phonographic Industry brought hope and skepticism. According to the report, the trade (or wholesale) value of global recorded music sales in 2012 was $16.5 billion, up 0.3 percent from the year before, the international market’s first year-over-year gain since 1999.

Digital music was responsible for much of that growth, such as it is. In developed markets like the United States, people are buying more digital files and starting to subscribe in significant numbers to streaming services like Spotify. (They are also getting less and less music through unauthorized peer-to-peer networks, according to another report on Tuesday by the NPD Group, a consumer-research firm.) These services are also rapidly spreading overseas. “Major” ones like iTunes, Spotify and Deezer are now available in more than 100 countries, up from 23 just two years ago, according to the I.F.P.I., while some countries, like Kenya and Vietnam, saw their first digital music services open last year.

“Digital is saving music,” said Edgar Berger, Sony Music’s international chief.

Those trends are all positive, and if they continue they could allow the music industry to earn money in areas once thought completely spoiled by piracy. But despite this good news, there are still some possible problems, as well as questions about how the new digital economy will work.

One issue is the future of of CDs, which still represent the majority of sales (and industry revenue) around the world; in Japan, for example, the world’s second-largest music market, CD sales are actually growing. But these are under threat from the loss of stores like the HMV chain in Britain, which recently entered bankruptcy proceedings, and from shrinking shelf space at brick-and-mortar stores everywhere.

And while the I.F.P.I.’s report trumpets Sweden, Norway and India as exemplary digital markets, it is unclear what the rest of the world could learn from them. India’s legitimate music sales are a tiny fraction of its overall entertainment spending, in large part because of piracy, and as Glenn Peoples at Billboard has pointed out, Norway’s population is about the size of Kentucky’s.

The popularity of digital music services itself poses some difficulties. In the United States, rising competition and thin operating margins could force subscription services to reduce their prices from the current standard of about $10 a month; according to some reports, Spotify may already be pushing for this in its latest round of label negotiations. Lower prices could help these services attract millions of new customers, but they would likely also further reduce royalties, an issue that has drawn serious concern among artists and their advocates.

So what does it mean to “save” the music industry? Few expect the business to ever return to the salad days of 1999, when worldwide trade revenue was about $29 billion, and the world had just seen the arrival of the peer-to-peer system Napster. Many artists have long since adapted to the idea that recordings will no longer be their biggest source of income, even if they may be the foundation around which the artists build a more diversified career.

For the record industry, it may be too soon to declare victory. But the I.F.P.I.’s report, along with other data and analysis, make a decent argument that the bleeding has at least been stanched. The industry’s challenge is to expand digital services more quickly and more profitably than the rate at which CD sales die out, and it looks as though that has finally been achieved.

Yet another report on Tuesday gave a glimpse of how success might look. The report, by the British media research firm Enders Analysis, had a rosy title: “U.S. Recorded Music Gets Some Mojo.” It said that music sales “touched bottom” last year and projected that retail sales in the United States, estimated at $5.3 billion last year, would reach $5.7 billion by 2016, a growth of 7.5 percent over four years.

That may be billions less than the industry was making at its peak. But at least it is not less than it makes now.


Ben Sisario writes about the music industry. Follow @sisario on Twitter.

Article source: http://mediadecoder.blogs.nytimes.com/2013/02/27/history-shadows-an-upbeat-music-sales-forecast/?partner=rss&emc=rss

Media Decoder Blog: Publishing Chief at Warner Music Gets Expanded Role

The Warner Music Group, the smallest of the three major record companies, has had several management defections since it was sold a year ago, and now its upper ranks have been reshuffled once again with the departure of one of its top record label chiefs and an expanded brief for the head of its publishing division.

The company announced on Thursday that Todd Moscowitz has resigned after two years as co-president and chief executive of Warner Brothers Records, one of its flagship labels. At the same time, Cameron Strang, the chairman of Warner/Chappell, the publishing unit, will take over the company’s West Coast operations, including the Warner Brothers label.

The change is the second promotion in a month for Mr. Strang, who joined Warner only two years ago when the company bought his publishing firm, Southside. (Music publishing concerns the copyrights for songwriting and composition, as opposed to recordings.) He was recently given control over Rhino Entertainment, Warner’s catalog arm, and now he will also have authority over one of the company’s two recorded music divisions.

Rob Cavallo, the chairman of Warner Brothers Records, and Livia Tortella, the label’s co-president and chief operating officer, will report to Mr. Strang. The company did not say whether Mr. Moscowitz will be replaced.

Artists at Warner Brothers and its affiliated labels include stars like Green Day, the Red Hot Chili Peppers and Josh Groban, but it has had few major new successes recently, while Warner’s other group, Atlantic, has had a strong recent run of hits. Both label groups, however, had strong showings in the Grammy Award nominations this week: The band Fun., on Atlantic, and the Black Keys (and its member Dan Auerbach), under Warner Brothers, each had six nominations.

The Warner Music Group was sold for $3.3 billion last year to Access Industries, a holding company controlled by the Russian-born billionaire Len Blavatnik. Since then several top executives at the company have departed, including Lyor Cohen, the chief executive of its recorded music division, and Edgar M. Bronfman Jr., who stepped down as chairman but has a seat on the company’s board.

The most prominent new executive at Warner, the publishing executive Jon Platt, who was the top urban music scout at EMI Music Publishing, was hired by Mr. Strang.


Ben Sisario writes about the music industry. Follow @sisario on Twitter.

Article source: http://mediadecoder.blogs.nytimes.com/2012/12/06/publishing-chief-at-warner-music-gets-expanded-role/?partner=rss&emc=rss

Bids to Buy Citigroup’s EMI Group Are Said to Fall Short of Expectations

But five months later, Citigroup’s sale of the EMI Group, one of the three other companies that dominate the world music market, is drawing less confidence. Turmoil in the financial markets has driven away many potential buyers and reduced the number of banks willing to finance bids. And according to several people involved with the auction, bidding prices have been lower than expected.

EMI, which releases recordings by, among others, the Beatles, Coldplay and Katy Perry and has a music publishing division that controls the copyrights of 1.3 million songs, was seized by Citigroup in February after a disastrous four-year ownership by the private equity firm Terra Firma.

After writing down EMI’s debt by $3.5 billion, Citi put the company on the market in June, with expectations among analysts and potential buyers that it might sell for up to $4 billion.

Of the five parties that have bid on all or parts of EMI, four are other big music companies. Warner — whose new owner is the Russian-born investor Len Blavatnik — and the Universal Music Group have made offers for EMI’s recorded music division, along with MacAndrews Forbes, the holding company controlled by Ronald Perelman. Those bids are said to be from $1 billion to $1.3 billion, according to these people, who spoke on the condition of anonymity because they had signed confidentiality agreements.

EMI’s publishing unit has drawn offers of $1.75 billion to $2 billion from Sony and BMG Rights Management, a joint venture between Kohlberg Kravis Roberts and the German media giant Bertelsmann. In addition, some of these companies have made offers for the entire company, but those bids are said to be lower than what Citi would get by splitting the company up.

Those companies declined to comment, as did Citi.

Many analysts say they believe the auction is simply the victim of bad timing. Tightened credit markets have made it more difficult for potential buyers to finance their offers, and nervous banks have required bidders to put up more equity.

“The global economy is in a different place than it was in February or March,” when the Warner auction began, said Ben Rumley, a media analyst with Enders Analysis in London. “Everything you read in the news indicates that it is difficult to raise financing for any business, let alone music. It’s not the greatest time to be looking for debt financing.”

Bidders have also sought to limit their exposure to EMI’s pension liabilities, which by some estimates could be as high as $600 million.

Despite the interest in Warner, there are persistent doubts about the health and investment value of large music companies. Among those concerns are the labels’ ability to shoulder the transition from physical to digital sales. New digital services like Spotify, which sell access to music by subscription, have generated excitement but are not profitable.

“The music market is continuing to contract more quickly than record labels’ digital strategies can offset,” said Mark Mulligan, an independent analyst of the music industry. “For a prospective buyer, that brings the serious consideration of waiting until the market bottoms out and getting most value then.”

Since most of the bidders are other major music companies, the auction faces regulatory complications in the United States and Europe. EMI’s record division is the smallest of the four major companies, with about 9 percent market share. But its publishing division — which controls the copyright for the music and the lyrics underlying songs — is one of the largest and most successful, with about 20 percent market share.

Depending on which company or companies win the auction, that could mean that EMI’s recorded music and publishing halves could be further carved up as a pre-emptive move to satisfy antitrust regulators.

The last round of bids for EMI were submitted to Citi earlier this month, but the people involved with the auction said that the bank had not given an indication of when it would make a decision. These people said that it could take weeks, and that there was still the chance that Citi could postpone the auction until market conditions — and bids — improve.

Article source: http://feeds.nytimes.com/click.phdo?i=35f74ec8dd8e8cb79b6dc3e3793ad0df

Media Decoder: A New Suitor Emerges for Warner Music

With a third round of bidding for the Warner Music Group coming to an end this week, another suitor for the music company has emerged, just as some of the leading bidders are considering withdrawing because of worries over Warner’s finances.

D.M.I., or Digital Music Industries, a consortium led by Bernhard Fritsch, a German-born technology entrepreneur, has made an offer for the company, according to a person involved in the private negotiations who spoke on the condition of anonymity. D.M.I. is made up of managers from GMI, Mr. Fritsch’s merchant bank, along with other private equity and banking investors. The size of D.M.I.’s bid was not known.

At the same time, concerns about Warner’s financial health, and about the outlook for the music business in general, have led Bank of America to consider withdrawing its financing from several companies’ bids, according to two people involved in the talks who asked not to be identified because the bidding process was not over. In addition, the Yucaipa Companies, which has been considered one of the top bidders, may pull out of the auction for the same reason, those people said.

In the last round of bidding, completed three weeks ago, top offers amounted to slightly more than $3 billion, according to several people involved in the talks. Other than Yucaipa, which is led by the supermarket magnate Ron Burkle, the leading bidders include Access Industries, led by Len Blavatnik; and Platinum Equity, led by Tom Gores, which is joined in its bid by the Gores Group, led by Mr. Gores’s brother, Alec Gores.

How many others remain in the auction is unclear. When Warner began accepting offers early this year, it told potential buyers it would accept bids for its recorded music division, its publishing division, or both. But at some point Warner said it wanted to sell the company as a whole. So some of the groups that made partial offers have been trying to pair up with others to make complete bids.

The bidding for Warner got off to a robust start with more than 10 potential buyers. But as the field has narrowed and the buyers have completed their due diligence of the company, concerns have arisen about the deal, according to those two people involved in the talks.

Warner, which has a market capitalization of $1.1 billion, carries nearly $2 billion in debt, according to its most recent annual report. It has reported losses for the last eight quarters.

Spokesmen for Warner and Yucaipa declined to comment.
Mr. Fritsch, 49, founded MCY.com, a digital music distribution company, in 1998, and he sold the company in 2001. His next company, GMI, bid on BMG, Bertelsmann’s last major label, before BMG merged with Sony in 2004. Mr. Fritsch is also the chairman of Star Club, a company in Los Angeles that, according to its Web site, “develops and produces music brands within the interactive media space.”

While Mr. Fritsch and his consortium made an early offer for part of the company, their current status in the auction is unknown. A spokesman for Mr. Fritsch declined to comment.


This post has been revised to reflect the following correction:

Correction: April 28, 2011

An earlier version of this post incorrectly stated the age of Bernhard Fritsch, the German-born technology entrepreneur. He is 49, not 46.

Article source: http://feeds.nytimes.com/click.phdo?i=80c5b745dc9dbf6e0ce61e6297c52ebf