After a not-as-bad-as-it-could-be quarter, Warner Music hosts its last conference call of a miserable 2007. Beyond the standard financial reporting, interested to hear WMG execs discuss a FT report that says they had tried to go to credit market for additional financing but have been rebuffed. Also aftereffect of Madonna’s decision to jump ship.
Edgar Bronfman Jr: Industry difficult, challenging, etc. Digital growth has been slower than expected. But still hope for music business. Record companies becoming “music-based content companies”. Want to participate in revenue streams beyond music business — standard discussion here. Talking up Asia investments, mobile hopes. Talking about “windowing” music releases — not just selling one album per artist every couple years, but a series of products sold digitally. Psyched about Led Zeppelin, Frank Sinatra. Lousy international performance, particularly in UK. Predicting rebound 2008, which they will need when US stores cut back their music sales next year.
Financials, via CFO Mike Fleisher: Digital breakdown: In US: Online sales more than mobile. Internationally, 50/50 split. Overall, “Mobile weaker than we’d like to see, as ringtones as have lost their luster” and new products not catching on.
Q&A after jump…
More colour on “360” deals and ancillary deals please. They’re 5 to 15% of recorded music in Asia: What do you see overall? “We no longer see these streams as ancillary.” We’re a broad-based music company. But no specifics.
What does cost structure look like for worst-case scenario (i.e. U.S. sales really, really tanking) next year? We’re constantly monitoring cash structure day to day. Also we will regularly look at costs as a whole, and think about restructuring. No plans to do that right now, though.
What about mobile subscription deals? Nokia could be a big player, but we don’t have a deal with them. Generally big opportunity mobile. iPhone “has shown industry how to create a device that’s enormously attractive and enormously easy to use… that’s been lacking in mobile industry.” Music is #2 priority for mobile business – #1 is micropayments. That prioritizing just fine w/Edgar.
So no predictions about subscription via purchase-to-own via mobile? Nope.
Please make the case for “360” deals for artists who are already established. Why would they cut WMG on their revenue streams? (For instance, WMG owns Eagles catalogue, but Eagles not working with WMG). For starters, the new artists we’re signing to these deals to day will be established artists in 5 years. Anyway, with established artists, some of them will work with us, some won’t. Madonna /LiveNation deal didn’t make sense for us.
WMG bear Jessica Reif Cohen wants to know about $110 million investment in Irving Azoff’s Front Line management group. What do they get for that? Not disclosing details.
Will they follow EMI’s lead and stop paying dues to trade orgs? Non-answer.
What about 2008 pricing for physical and digital? We’ve held our pricing so far and I see no reason for that to change in 2008. We anticipate that there will be some reduction in retail shelf space, consistent with decline in physical sales. So if physical sales dropping in mid-teens, shelf space will decline accordingly. And some retailers more committed to music sales than others.
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