Magazine article Variety

Tempo Changes for Warner Music

Magazine article Variety

Tempo Changes for Warner Music

Article excerpt

Shrinking major frets over next step

When Edgar Bronfman, Jr., ankles the executive suite at Warner Music Group on Jan. 31, he will leave behind a company much different than the one he came to in 2004, when he spearheaded the purchase of WMG from Time Warner.

Music industry observers will be closely following the post-Bronfman fortunes of WMG, whose new owner and chief executive are confronting a contracting business that may soon comprise three major companies rather than four.

Bronfman will remain on the WMG board, but his exit as chairman - a role he took in an exchange of jobs last August with current CEO Stephen F. Cooper - was announced in early December. He had taken the dual role of chairman and CEO of WMG after he led a consortium of private equity firms in the acquisition of the company.

Momentous events shook WMG last year. In July, the $3.3 billion sale of the company to Access Industries, a diversified company operated by former WMG board member and petrochemical billionaire Len Blavatnik, was finalized. Soon thereafter, Cooper, a close associate of Blavatnik, joined the board as chairman; Bronfman retained the CEO title.

The purchase of WMG paid off handsomely for Bronfman and his equity partners, who controlled 56% of the company's stock. Blavatnik's Access Industries paid out $700 nullion more than the 2004 purchase price of $2.6 billion.

In August, as an auction of EMI Music's assets by Citigroup heated up, Bronfman swapped jobs with Cooper to focus on "growth opportunities." It was universally assumed that Bronfman, whose interest in EM dated back to his tenure at Universal Music Group in the late '90s, was moving to splice WMG and the British major.

But then the unthinkable happened: In November, WMG backed away from the auction after bidding a reported $1.5 billion for EMI's label holdings. EMI was split up among the successful bidders, with industry leader Universal taking the label side for $1.9 billion and No. 2 Sony Music I^tertainment purchasing its publishing business for $2.2 billion. Regulatory approval is pending.

In a December earnings call, Cooper's first with analysts, the new CEO said in a prepared statement: "As disciplined investors, we were not willing to pay a price for EMI that would not have provided an adequate return on our investment. Access has indicated that acquiring WMG has always been viewed as a stand-alone independent transaction, and was never made on the basis that there would be a subsequent acquisition of EMI."

"Edgar Bronfman did a very admirable job with Warner Music, from the company he got to the company he was forced to sell," says Bishop Cheen, a Wells Fargo Securities analyst who follows WMG closely, says. ... "Bronfman didn't control Warner Music - the equity sponsors controlled it. They wanted out. They already made all their money."

The privatization of WMG and its status as a distant third among the three major music firms if the sale of EMI is completed raises questions about the company's future amid a still uncertain music biz climate.

Veteran music journalist Fred Goodman, whose 2010 book "Fortune's Fool" took a sympathetic in-depth look at Seagram distilling heir Bronfman's adventures in the music business, raises rhetorical questions of his own.

Goodman says, "Is it a transition? How long is Blavatnik there? What will they do? Are just going to manage it down and sell it, and then somebody can manage it from a different asset side? Only the future can say. But you're certainly not looking at a team that's going to approach this company the way Bronfman did."

One longtime staffer calls WMG a company in transition. "We used to be one of the biggest cogs in the business - we used to be the biggest cog. And now we're not." The source adds: "It's one thing to be in transition when business is great - Everything has been exacerbated by business conditions."

On its balance sheet, WMG has seen a recent decline in its operating income before depreciation and amortization - OIBDA, a key metric that WMG uses in parsing corporate performance. …

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