Entertainment Industry

Category: Warner Music Group

Warner's Bronfman vows to 'fight' EMI sale to Universal and Sony

Edgar Bronfman Jr.

Edgar Bronfman Jr., Warner Music Group's former chief executive and outgoing chairman, said his company would oppose the sale of EMI Group to Warner's two biggest rivals, saying the deals would reduce competition.

Bronfman himself had vied to buy EMI's recorded music business last year, but was outbid by Universal Music Group's $1.9-billion cash offer. EMI at the same time also agreed to sell its music publishing operation for $2.2 billion to a consortium of investors led by Sony ATV, a division of Sony Corp.

In a parting shot, Bronfman on Tuesday, his last day as chairman of Warner, told an audience at a media conference in Dana Point that EMI's sale was "dangerous" because the concentration of market share would stifle innovation and reduce payments to musicians they represent. Bronfman said Warner would "fight tooth and nail" to convince antitrust regulators to stop the deals.

A Warner spokesman confirmed Bronfman's comments, made at the D: Dive Into Media conference hosted by the Wall Street Journal, but declined to elaborate on how the company will work to thwart the sale of EMI. Sony also declined to comment on Bronfman's remarks, and messages to Universal were not immediately returned.

The deal, which would reduce the number of major record labels from four to three and the number of big publishing companies from five to four, is currently wending its way through regulatory scrutiny in both Europe and the U.S.

Regulators so far have not raised any antitrust concerns, but aren't expected to make a determination for at least several more months.

Bronfman also took a swipe at Google Music, calling the digital music store an "oxymoron." Warner is the only major label to abstain from selling its music on Google's online store, launched in November. It's unclear how he felt Google's efforts into music were contradictory, but Bronfman followed up his comment by suggesting that the Silicon Valley search giant places more value on the platform delivering content more than the content itself.

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 — Alex Pham

 Photo: Edgar Bronfman Jr. Credit: Chip Somodevilla / Getty Images.

 

EMI sale talks heat up as Citigroup plays bidders off each other

Norah Jones

Negotiations are heating up between Citigroup, the bank that owns EMI Group, and the companies that want to buy the music giant's assets, which include a catalog of 1.4 million songs and recording contracts with a number of chart-topping bands.

The bidders -- Sony Corp., BMG Chrysalis, Universal Music Group and Warner Music Group -- are positioning their best offers in what appears to be the final rounds of negotiations, according to several executives familiar with the talks.

Like a high-stakes game of musical chairs, the four companies are warily eyeing one another as they circle around the two major components of EMI that are up for sale: the recorded music division that represents major artists such as Coldplay and Norah Jones, and the less glamorous but more profitable publishing division.

Squaring up for the recorded music assets are Universal and Warner. Sony and BMG are vying for EMI's publishing business. In total, EMI could fetch more than $3 billion.

But a number of factors have held up the deal since bidders were asked to put in their proposals on Oct. 5. The biggest snag involves EMI's pension fund obligations to its 21,000 employees, the vast majority of whom work on the recorded music side of the business.

In particular, Citigroup and potential buyers have disagreed over how much money would be required to fulfill the company's pension obligations. Estimates differ dramatically, between $200 million to $600 million, according to several executives who declined to be named, citing the confidentiality of the discussions.

Universal Music, which bid $1.2 billion in cash for EMI's recorded music division, has proposed that the bank shoulder at least some of the costs for the pension. Warner Music offered to take full responsibility for the pension but would give Citigroup less cash -- about $1 billion, according to people knowledgeable about the talks.

Meanwhile, the sale of EMI's publishing business is also heating up. Earlier talks about Sony's difficulties securing $2 billion in financing appear to be exaggerated, as the Japanese media giant is now in deep discussions with Citigroup. BMG, once assumed to be the winner, is also in active negotiations. Each has bid about $2 billion.

Although EMI’s two divisions are to be sold separately, the pension fund covers both entities, and Citigroup wants it to be resolved before either part can change hands.

The New York bank could still decide at the last moment to pull EMI off the auction block or declare a rest interval if it can't whip deals into place, several people cautioned.

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-- Alex Pham

Photo: Norah Jones, an EMI artist, in 2007. Credit: Wally Skalij / Los Angeles Times

Jockeying goes on as Citigroup renews EMI talks with Universal

Coldplay

With negotiations for the sale of EMI Group dragging on longer than a Wagnerian opera, owner Citigroup Inc. has invited Universal Music Group back to the negotiating table this week after failing to break a logjam with the previous high bidder, Warner Music Group.

Citigroup's overtures to Universal come two months after the bank initiated a formal auction for EMI, one of the world's oldest and largest music companies, with a roster of well-known artists, including Pink Floyd, Coldplay and the Beatles.

Universal and Warner have been the lead bidders for EMI's recorded music unit. The bank has also fielded separate offers from Sony Corp. and BMG Chrysalis for the company's music publishing business, which itself could fetch as much as $2 billion. But a deal to sell the publishing division hinges on Citigroup being able to first sell the recorded music. 

But those efforts have has been fraught with difficulty, largely over how to deal with EMI's pension fund, which is said to cost as much as $600 million over the lifetime of the plan, according to executives who have knowledge of the discussions.

Officials from Citigroup and the music companies declined to comment.

Citigroup had been trying to work out the details of Warner's bid, said to be valued at more than $1.5 billion, said those executives who did not wish to be named because of the confidentiality of the talks.

Warner, owned by Russian-born industrialist Len Blavatnik, had outbid Universal's $1.2-billion offer, the sources said. But Warner walked away and withdrew its bid after failing to come to terms with Citigroup on the transaction, including how to handle a pension liability for EMI's 21,000 employees.

Warner's offer included an estimate for the pension costs, said people knowledgeable with the terms. As a result, the actual cash amount Warner offered could have been less than $1 billion.

A third bidder, billionaire Ron Perlman, has lobbed a bid valued somewhere between Warner's $1.5 billion and Universal's $1.2 billion offers, said people who have been briefed on the discussions. It's unclear where Perlman's proposal stands as Citigroup attempts to reignite talks with Universal this week.

If Citigroup is able to pull off its auction in the next few weeks, EMI would be the second major music company to be sold this year. In May, Blavatnik's Access Industries bought Warner Music for $3.3 billion in cash and debt.

A sale of EMI's recorded music business to either Warner or Universal would reduce the number of major music companies from four to three -- Universal, Warner and Sony Music Entertainment -- a scenario that could raise regulatory concerns in the U.S. and in the European Union.

But with no clear agreement in the wings, those interested in knowing EMI's fate may have to wait through a few more acts unfolding as Citigroup tries to coax more out of its bidders.

In February, Citigroup seized control of the British record company from former owner Terra Firma Capital Partners, in a debt-for-equity swap. In the same transaction, the bank wrote off two-thirds of EMI's loans, leaving the company with roughly $1.9 billion in debt.

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-- Alex Pham

Photo: Chris Martin, lead singer of Coldplay, represented by EMI. Credit: Myung Chung / Los Angeles Times.

EMI bidders told to make best offer by Oct. 5

EMI Logo EMI Music's owner, Citigroup, has asked a select group of bidders to submit their best offers for the storied British music company by Oct. 5, according to executives familiar with the auction.

The bank, which took over EMI in February and formally put the company up for sale in June, has been entertaining preliminary bids from private equity firms, such as Platinum Equity, as well as other music companies, including Warner Music Group, Sony Corp., BMG Chrysalis and Universal Music Group. 

Some bidders, such as Warner and its new owner, Access Industries, are said to be interested in buying the entire company, but others want only parts of EMI, said people familiar with the process. Sony and BMG, for example, are primarily after EMI's publishing business, which represents songwriters such as Beyoncé, Alicia Keys and Kanye West. Meanwhile, Universal has its eye on EMI's recorded music division, whose labels represent artists including the Beatles, Katy Perry and Coldplay.

Citigroup, seeking to maximize the amount of cash it can get even if that means selling EMI in parts, has encouraged both types of bids.

EMI's publishing unit is smaller, but generally has been more profitable than the recorded music side of the business. EMI publishing accounted for 29% of the company's revenue but 45% of the company's total operating margin in its fiscal year ended March 2010, the last year in which its finances were publicly disclosed.  

Altogether, EMI could fetch well north of $3 billion and could surpass $3.5 billion, said executives familiar with the bids.

EMI, with its sale expected to wrap up before the end of the year, would be the second major music company to be sold this year, following Access Industries' acquisition of Warner in May for $3.3 billion in cash and debt.

An EMI sale to another major music company such as Warner, Universal or Sony would reduce the number of big record labels from four to three, down from six in the late 1990s.

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-- Alex Pham

Twitter/ @AlexPham

 

 

Stephen Cooper and Edgar Bronfman switch titles at Warner Music

Edgar Bronfman Jr A round of post-acquisition musical chairs has left Edgar Bronfman Jr. and Stephen Cooper switching roles at Warner Music Group.

Bronfman is stepping down as chief executive two months after the world's third-largest music company was sold to Access Industries. He will assume the chairmanship from Cooper and focus primarily on Warner's bid to acquire EMI Group, which is currently up for auction.

"I conveyed my strong conviction that my energies on behalf of the company would best be directed toward transformative transactions and long-term strategy," Bronfman wrote in a message Friday to Warner employees, a copy of which was obtained by The Times.

In 2004, Bronfman led a private investment group in its acquisition of WMG from Time Warner for $2.6 billion, and, in 2005, led the company's initial public offering on the New York Stock Exchange.

Lyor Cohen, the head of Warner's recorded music business, and Cameron Strang, who runs its publishing arm, Warner Chappell, will now report to Cooper. Cooper has a reputation as a corporate turnaround expert, having been hired in the past to restructure Enron Corp. in 2002, Krispy Kreme Donuts in 2005 and MGM in 2009.

Steve Cooper Warner's new owner -- Access Industries, which is controlled by chief executive Len Blavatnik --  clearly wants someone else in charge of Warner, said Bob Lefsetz, a music industry lawyer and analyst.

"When you buy the car, you're going to want to drive it," Lefsetz said. "And Edgar now gets to ride on the back seat. His days of driving the car are done. Cooper is Blavatnik's man now."

Bronfman, in his email to employees, had a different take of his new role. "I want to thank Len and Access for being amenable to my kicking myself upstairs," he wrote. "After leading the acquisition from Time Warner, transforming the company, and selling it to Access, I believe I can add greater value by addressing the challenges WMG faces on a macro scale, while handing over the day-to-day reins to Steve."

Warner's board also appointed Thomas H. Lee -- a longtime board member whose equity firm, Thomas H. Lee Capital, invested in Warner in 2004 --  as a director.

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-- Alex Pham

Twitter/ @AlexPham

Photos: Edgar Bronfman Jr., top, becomes chairman while Stephen Cooper, bottom left, takes over as CEO of Warner Music Group. Credit: Warner Music Group.

Warner Music chief 'very pleased' with Spotify's U.S. launch

Edgar Bronfman Jr of Warner Music Group Warner Music Group's chief executive, Edgar Bronfman Jr., who once stated that free streaming services were "clearly not (a) net positive for the industry," on Thursday said he was "very pleased" with Spotify's U.S. launch in July.

The Swedish music service garnered more than 10 million users in Europe, the vast majority of whom don't pay, prior to launching in the U.S. last month in a much anticipated arrival.

Only 1.6 million users pay for Spotify's premium service, which lets them use the service on mobile devices and home audio systems such as Sonos. The vast majority of Spotify's users in Europe don't pay, costing the company money each time they listen to a song. And until recently, labels such as Warner weren't happy with the number of free users, either, because they bring in less revenue for music rights holders than those who pay.

Bronfman, in a conference call with Wall Street analysts to discuss Warner's third-quarter financials, said he was happy with Spotify's recent efforts to induce its free users into the premium service.

He predicted that Spotify, which is currently paying more money for music royalties than it makes in subscriptions and advertising, would be profitable if it can continue to induce its free users to spring for the premium service.

"The kinds of levels that Spotify is currently achieving in Europe is also extremely encouraging," Bronfman said. "If that keeps up, they will be a very profitable business themselves."

Warner, three other major record labels and an independent label own a little over 17% of Spotify.

Bronfman's remarks came as Warner reported its first quarterly results after completing its $3.3-billion purchase by Access Industries on July 20. Although privately owned by Access, Warner continues to report its financials because it still has to pay off publicly held bonds.

The New York record company posted a 5% uptick in revenue, to $686 million, in its third quarter ended June 30 as growth in international sales offset a decline in the U.S., where Warner lost market share. It lost $46 million, or 30 cents a share, in the quarter, down from a $55-million loss, or 37 cents a share, a year earlier.

It ended the quarter with $290 million in cash, down from $439 million a year ago. The company, however, warned that that figure has since declined because it had to dip into its cash pile in order to pay for expenses associated with its deal with Access.

Company executives did not address how it would finance a possible purchase of EMI Group, which has been put up for sale by Citigroup. Warner is among four music companies said to be interested in buying EMI, which could fetch more than $2 billion in a sale.

-- Alex Pham

Photo: Edgar Bronfman Jr. Credit: Mark Lennihan / Associated Press

 

 

 

 

 

Baidu strikes licensing deal with music labels

Baidu Baidu, China's largest search engine, has struck a deal to license songs from three major record labels, giving music companies a rare victory against piracy in the world's most populous country.

Terms of the multi-year deal, announced Tuesday, call for Baidu to pay Warner Music Group, Universal Music Group and Sony Music Entertainment for every song download or stream served up by Baidu's new ad-supported social network, dubbed Ting.

Baidu also agreed to pay the labels for songs delivered through its MP3 Search service. Terms of the license were not disclosed.

The labels sued Baidu in 2008, claiming that the Chinese company violated copyright laws by serving up links to pirated music. The music companies lost the case in 2010, but pursued an appeal in a higher Chinese court. Baidu's agreement to now pay for licenses effectively settled that lawsuit.

The Obama administration, through the Office of the U.S. Trade Representative, has been pressuring China and other "notorious markets" to rein in piracy, counterfeiting and other copyright infringements. The U.S.T.R., in a report last year, cited Baidu for providing "deep links" to sites that let users directly download pirated content.

The Chinese market, with 477 million Internet users, has been particularly nettlesome to content providers as they seek ways to build businesses there. Downloading music is the second most popular Internet activity in China, according to the China Internet Network Information Center. But the amount of revenue from digital music in China, estimated to be $175 million last year, is a fraction of the $7.2 billion worldwide, according to PriceWaterhouseCoopers.

Agreements with major players in China such as Baidu, which reported $534.1 million in profit on $1.2 billion in revenue in 2010, is seen as key to establishing a beachhead in that market for legitimate music providers.

-- Alex Pham

Twitter/ @AlexPham

 

 

Spotify buttons up deals with Warner Music, launches music service in the U.S.

Spotify, a popular European music service with ambitions to dominate the U.S. digital music market, said it has buttoned up the necessary licenses with major record labels to launch its service in America on Thursday.  

Spotify Logo The news has long been anticipated, since the company announced more than a year ago its plans to cross the Atlantic. But its entry has been bogged down by negotiations with music labels that have been cautious about opening up the world's largest and most lucrative music market to the young start-up. Spotify inked its last deal, with Warner Music Group, just this week.

Spotify's offerings will be largely similar to what it has in Europe, namely a free service supported by advertising and two premium tiers that let users listen without ads on computers and on mobile devices. 

The free tier will let new users listen to the company's catalog of more than 15 million songs from a computer connection for six months. After that, users will be capped at 10 hours a month and up to five spins for any particular song.

"You can still discover as much music as you want up to your heart’s content" even with the limits, said Ken Parks, Spotify's chief content officer and managing director of the company's North American business.

Subscribers who pay $4.99 a month can access the service without ads or limitations from a computer connection. A $9.99 tier also lets users listen to the service from a smart phone such as an iPhone, Android, Palm or Windows 7 device.

Spotify's service differs from online radio services such as Pandora in that it lets users pick exactly what they want to listen to, on demand. Pandora, by contrast, serves up songs that are similar to what users say they like, occasionally sprinkling in the exact artists that listeners want.

In that sense, Spotify's service is more akin to Rdio, MOG, Rhapsody, Slacker, Napster, Qriocity and other on-demand services that already operate in the U.S. But Spotify has been seen as a potentially disruptive competitor because its free offering is uniquely generous, giving users broad access where similar services offer only free trials lasting days or, at most, weeks.

Spotify also boasts one of the largest catalogs, with more than 15 million tracks from Universal Music Group, Warner Music Group, EMI Group, Sony Music Entertainment and Merlin, an organization that represents thousands of independent labels and artists, including Vampire Weekend, Adele and Arcade Fire. Competing services have anywhere between 8 million and 12 million songs.

"For the first time, American consumers are going to have access to a truly comprehensive repertoire of music," said Charles Caldas, chief executive of Merlin. "That’s been one of Spotify’s key factors in their success. They’ve been very diligent in ensuring their users have access to all of the music from all of the labels."

Labels, which have been concerned that Spotify's free service would lead consumers to stop spending money for music, have pressured the company to boost its number of paying subscribers, either by capping the free service or making its premium services more attractive. Spotify said a combination of changes to its service has helped boost the number of paying customers in Europe to 1.6 million, out of 10 million registered users.

Music labels have an interest in seeing Spotify succeed in the U.S. The five music groups that have licensed with Spotify own a combined 17% share in Spotify.

Spotify plans to open the doors to its service at 5 a.m. Thursday. Free users will need an invitation from the company (you can enter your email on the company's website to receive an invitation). Paying subscribers will not need an invitation to start using the service.

-- Alex Pham

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Spotify coming 'soon' to U.S., albeit no deal (yet) with Warner Music

Spotify_Coming_Soon[1]The Swedish are coming! Spotify, the much-touted European digital music service, released a teaser on its website Wednesday saying it will "soon be landing on U.S. shores."

The message, which triggered waves of media coverage across the Web, didn't exactly tell the world anything it didn't already know.

But the move was surprising because Spotify does not yet have the necessary licenses to play songs from Warner Music Group's extensive catalog, according to industry sources knowledgeable with the negotiations. Spotify has secured agreements with the other three major record labels -- Universal Music Group, EMI Group and Sony Music Entertainment.

Warner, which declined to comment, sits on a treasure trove of music from Bruno Mars, Green Day, Led Zeppelin, Cole Porter and Eric Clapton, to name a few.

While nothing stops Spotify from launching without a deal from Warner, it would be hard-pressed to compete against other music services already in the U.S. market with such a gaping hole in its offerings.

Spotify's entry into the U.S. has been much anticipated, largely because the service is so popular in Europe. The Swedish company claims 10 million registered users, including 1 million subscribers who pay a monthly fee for its premium service.

Its popularity partly stems from its easy-to-use interface, which lets people sample millions of songs from their mobile phones or on their computers. Some would argue, however, that Spotify's success with consumers is also due to its generous free offerings, with lets users listen to the ad-supported service for free, albeit with some limitations.

Spotify has not said whether it will offer the same level of free access to consumers in the U.S. 

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-- Alex Pham

Photo courtesy of Spotify

Universal Music Group expected to bid for EMI Group

EMI logo Universal Music Group is expected to be among the bidders for EMI Group, according to a person close to the label.

EMI's owner, Citigroup Inc., formally put the 114-year-old music company up for sale Thursday, opening a bidding process that's likely to take months.  

Universal, the largest of the four major record companies, avoided making a serious run at Warner Music Group when it was up for auction earlier this year, primarily because a merger of the two companies would have had trouble clearing antitrust hurdles in Europe and in the U.S., where Warner and Universal each have a double-digit market share.

But EMI is a different story. So far this year, its share of the U.S. recorded music market has been just under 9%, according to Nielsen Soundscan. Universal has had just under 30% of the market, while Warner's share has been 19%.

The thinking is that a Universal-EMI mashup would be an easier sell to regulators than a Universal-Warner deal, according to the knowledgeable person.

Will regulators necessarily agree? Looked at globally, EMI is not that far apart from Warner. EMI's worldwide market share hovers just under 10% while Warner is around 12%. And anytime the dominant player in the market makes a move, it's likely to be put under a microscope. 

That said, Universal could take a gamble, as it did when it purchased BMG's publishing business in 2006 for $2.1 billion and assumed most of the risk of making sure the deal passes regulatory muster.

This time, Universal is most interested in EMI's recorded music business, with a talent roster that includes Katy Perry, Beastie Boys and Lady Antebellum. But Universal could bid for the entire company, including EMI's publishing unit, which handles the songwriting rights for artists such as Jay-Z, Snoop Dogg and Gorillaz.

As with Warner, which fetched $3.3 billion from oil baron Len Blavatnik, EMI could attract similarly priced bids. EMI posted $2.6 billion in revenue in its fiscal year ended March 2010, according to its most recent publicly reported earnings release. Warner had just under $3 billion in annual revenue in its 2010 fiscal year ended in September.

Warner is also expected to make a bid for EMI once its own deal is complete sometime this summer.

EMI, Universal and Warner declined to comment on their plans.

-- Alex Pham

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