Warner Music: We’re totally screwed

by Mathew on November 29, 2007 · 17 comments

I’m paraphrasing a little, but that seems to be the general thrust of Edgar Bronfman Jr.’s comments about the company’s latest financial results. In a nutshell, Warner — which Edgar Jr. maintains is not a record company at all, but a “music-based content company” — is selling less and less of its bread and butter (i.e., CDs), and not nearly enough new things to make up for the declining sales of old things.

According to a rundown of the news and the related conference call at PaidContent, Warner’s revenue was essentially flat, while earnings fell by almost 60 per cent to just $5-million — and that’s on total sales of almost $900-million, which works out to a profit margin of about .5 per cent. In other words, virtually non-existent. And the near future looks as though it’s likely to be as bad or worse.

Digital revenue climbed by 25 per cent, but at $130-million it is still only about 15 per cent of the company’s business, and that proportion is unchanged from the same quarter last year. Is it any wonder that Edgar Jr. seems to have finally gotten religion about the record industry’s futile war against new business models? It’s just too bad it happened four or five years later than it should have, and Warner is now sliding down the slope of a curve it could have been ahead of.

  • http://www.markevanstech.com Mark Evans

    It's nearly 10 years after Napster emerged yet it's only now that some people within the music industry are getting it. As well, it looks like EMI could be backing away from its support of the RIAA.

  • http://www.mathewingram.com/work mathewi

    Yes, I saw that — another move that comes years too late. Can't put
    Humpty Dumpty back together again.

  • Lewis Salem

    Four of five years? You're being generous! They should of been working harder about nine years ago during the rise of Napster.

  • http://www.mathewingram.com/work mathewi

    You're right, Lewis — I was trying to throw the industry a bone there :-)

  • http://www.mathewingram.com/work mathewi

    You're right, Lewis — I was trying to throw the industry a bone there :-)

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  • http://stuart.blogware.com Stuart MacDonald

    Here's a calculation I'd like to see 'thewie: the $$$ value *protected* by the media companies over the past years by fighting the emergence of “new media.” It'd would be really interesting to see what, if any, money they kept flowing into their coffers by having put so much effort into fighting the emerging onslaught. They could be staring at a black hoel now, but I wonder how much, if any, they kept flowing in the coffers in the meantime?

    - Stuart

    ps: I tried to login to your new comment doo-hickey but don't know if it's worked or not.

  • http://www.mathewingram.com/work mathewi

    If there's a problem, I'll alert the folks in charge of the doo-hickey :-)

    As for the protection of revenue by their litigation efforts, it would
    be pretty hard to show exactly how much money they “protected,” since
    there's no way of knowing for sure what CD sales would have been like
    in the absence of those lawsuits — or how much money the industry
    could have taken in from digital platforms, if they had spent more on
    those types of efforts and less on litigation.

    My suspicion is that they protected exactly nothing, and wasted a lot
    of time and money for little or no return. But what do I know? :-)

  • http://stuart.blogware.com Stuart MacDonald

    I know it's almost unknowable, but it really is the critical piece in measuring whether there was *anything* gained by the massive pushback, from a shareholder, short-term perspective.

  • http://www.mathewingram.com/work mathewi

    Of course, that figure would also have to be balanced against the
    massively negative PR the industry experienced by suing high-school
    kids, World War II veterans, single moms, etc.

  • http://doncrowley.blogspot.com dc crowley

    They can turn it around. Embrace the change. Selling digital and drm free is good. Embrace it. make it a value for money product. Most music is disposable, 1% are classics. If customers can enjoy buying again then they will buy (yeah it used to be fun to go to the record store on a saturday and bring back a few LP's or CD's). A CD costs $1 to produce. So songs can be much cheaper…. the profit margins on downloads should be bigger. Sell the stuff! that is the ONLY reason you guys aree in business. If you don't want to sell at a price we think is value for money… th go and don't come back!

  • http://stuart.blogware.com Stuart MacDonald

    I'm not supporting them. Just saying that if there is *any* positive to be seen from them having pushed back so hard, it is quantified by cash in the door as a result of so doing. And, yes, there are plenty of offsets and they have still ended up in a nasty spot, but given that I have wondered what would have happened in, say, online travel if other players and suppliers had pushed back harder early on, I think that the knowing the bottom line impact here would be a really neat thing, if we ever could.

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  • Anon

    Seems to me that the records companies were damned if they did and damned if they didn't. Their refusal to adopt free music strategies probably delayed the decline of their business by 5 years or so…

  • Anon

    Seems to me that the records companies were damned if they did and damned if they didn't. Their refusal to adopt free music strategies probably delayed the decline of their business by 5 years or so…

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