WMG's Bronfman: MySpace Music 'Disappointing,' Vevo Must Charge Users, No More Online Investment
This story was written by Robert Andrews.
Warner Music Group (NYSE: WMG) won't be buying stakes in more web music services any time soon, after it wrote off $33 million on Thursday against its investments in Lala and Imeem. CEO Edgar Bronfman Jr. told analysts on the earning's call: "We do not intend to make more digital venture capital investments. The intention was to (invest in) young companies pursuing innovative business models. Some of these digital venture capital investments have not met expectations. It makes sense to recognize the very different valuations these companies are receiving in the current economic environment."
WMG had invested $20 million in Lala and $15 million in Imeem, but is also writing off an expectation that it would receive $4 million from Imeem specifically. The write-offs doubled WMG's Q1 losses from last year to $68 million. "This takes essentially all of the digital investments off our balance sheet," Bronfman said. "It is prudent in these times to focus on one's core strengths."
That includes improving WMG's artist roster, which includes R.E.M. and Madonna, upping the number of expanded-rights deals it has with artists and growing its Warner Chappell publishing division. Bronfman also lauded artists heavy on digital sales like rapper T.I.
MySpace Music: "We continue to hold out a good deal of hope and potential - but, without putting too fine a point on it, it has disappointed us so far. MySpace Music has been slow to create monetization tools and to be able to impact in a revenue-generating way the massive audience that they have been able to attract. That needs to change, quite frankly - for MySpace, for the music business and for Warner Music Group. But I'm hopeful that the new management team there and the new senior management focusfrom News Corp (NYSE: NWS) and (appointing) Owen Van Nettathat we'll be able to make that (turn around)."
Vevo et al must add charging: "Vevo is a very positive direction from the music industry; creating a premium environment for advertising is important. But I would also point out that advertising alone simply is not going to be enough. The online advertising industry is really quite small - Yahoo (NSDQ: YHOO) has about 40 percent, so that which is available to everyone else in the United States is very modest. So any premium video model is going to have to include very significant monetization opportunities above and beyond advertising in order to be effective."
Digital normalizing: Bronfman acknowledged falls in recorded music sales are "not yet being offset by digital growth" but the "digital performance continues to see solid growth": "As digital becomes a larger share of our business, it is becoming increasingly driven by our overall release schedule. As our release schedule is backend-weighted, there has been more moderate digital growth in the quarter."
iTunes variable pricing: After Apple's April 7 price restructure: "Although we priced down a far greater number of tracks that we priced up, early results show a net positive result on our digital (sales). Variable pricing will be even more positive for us as we shift more to digital."
Mobile included in digital: CFO Steven Macri: "The lines between online and mobile revenues are becoming more and more blurred - Apple (NSDQ: AAPL) does not distinguish ... when carriers report on dual-download (PC and mobile), the carrier does not identify whether a second download has been delivered."
By Robert Andrews