Tuesday, January 20, 2004

Let's put the proposed Warner Music Group (WMG) restructuring in perspective. Warner posted revenues of $4.2 billion in 2002 about 10% of its parent company's (TWX) numbers according to the annual report. Let's assume that the $24 billion cost of revenue is proportional across all segments of TWX. That means WMG would have had approximate costs of 2.5 billion. By this estimate Brofman's task force goal of $225 million is approximately a 10% reduction in costs by the time the deal is closed (60 days). There are about 5000 people working at WMG, so the average per employee reduction is 50K and they claim to have already identified ways to do it. The short term benefit is obvious, WMG will enjoy a 10% increase in profit margins, but I have to wonder if the move will severely curtail their ability to continue producing good product. If the restructuring results in long-term health, I just have to marvel and how much fat the company must have had! Good luck, Edgar.

No comments: