Friday, January 23, 2004

According to Bernhard Warner, the global music industry has only lawsuits, lay-offs, and laziness planned for the year ahead.

* They plan more P2P lawsuits: "a zero tolerance philosophy against online piracy will see the industry take its legal clampdown on individual song Europe and elsewhere"

* With or without consolidation, lay-offs are the only plan to improve margins: "Cash-strapped music companies have vowed to continue cutting staff and B-list artists"

* The laziness is apparent in their "growth" strategy: "The record labels are betting on first-half releases from reliable chart-toppers U2, George Michael and Norah Jones"

Bernhard also reports token nods to online stores ("The "fight-back" campaign also calls for a massive roll-out of new online music stores"), new artist development ("are promising to promote more guitar-edged rockers to boost sales"), and optimism ("There are high expectation that iTunes and Roxio's Napster (news - web sites), which are expected to launch in Europe by summer, can turn music downloads into a vibrant international business").

Wednesday, January 21, 2004

I'm not sure if the record labels should be happy or not that they can continue their strategy of suing "egregious" file sharers. At the end of last year, ISP's won the privacy of P2P users on their networks. Today the RIAA issued 532 "John Doe" lawsuits where the accused are only identified by IP addresses. Previously, the RIAA claimed a right to get the names of ISP customers before filing the lawsuits. Now they will subpoena the names from the ISPs after filing the lawsuit. This is a much more expensive route to take and I worry (if this wasn't true before), that the RIAA is spending way more on the prosecution of these cases than they can hope to receive in settlement/decision money and increased sales. According to Pew half as many people are downloading music now, but the NDP report showing increased activity clearly indicates that the trend is far more complex than the RIAA thinks. A portion of the much-touted drop might be attributed to kids going home for the summer and coming back to school networks that prohibit P2P usage - an effect that would disappear as soon as kids managed to arrange a private ISPs. Also, the people who stopped file sharing didn't start buying CDs again. Yes the drop in CD sales was smaller than in past years, but not in proportion to the reduction in file sharing. Instead of looking at the nuances of their situation, the RIAA has adopted a potentially costly ideology - file sharing is bad and lawsuits can stop it, period, no matter what the statistics say.

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.