HITS Daily Double
"The deal with Edgar is, he does a good job or someone else comes in to do a good job."
——Scott Sperling in The N.Y. Times, 11/30/04


The Botched IPO, the Lack of Turnaround and an Out-of-Control Executive Spell Bad News for the Struggling Company
LET THE GAMES BEGIN: As the smoke clears following Warner Music Group's extremely disappointing (some say disastrous) IPO launch, the question naturally arises, what next? Thomas Lee Partners' Scott Sperling, the architect of the deal obviously didn't want to rock the boat before the IPO, but now that the smoke has cleared, is damage control on his mind? That brings us to Edgar Bronfman Jr., who persuaded Sperling to enter into this risky venture, and who has a track record of making big promises that fall well short of his estimates, undermining his industry and Wall Street credibility. Rememberers remembering that, soon after the acquisition in November 2003, Sperling told The New York Times, "The deal with Edgar is, he does a good job or someone else comes in to do a good job." Now, in the wake of a botched IPO and anemic numbers from the company's fiscal Q2, what does Sperling think of the job Edgar has done so far? Moving down the food chain, who might Bronfman preemptively target as the fall guy for the lack of turnaround? WMG U.S. head Lyor Cohen hasn't exactly drawn rave reviews since coming over from IDJ and inserting his own posse of Julie Greenwald and Kevin Liles into the company's chilly East Coast operation, which has been a big bone of contention for Jason Flom, the hypothetical East Coast head. Some believe we may see a Cohen move to try and undermine Bronfman with Sperling and Tommy Lee, as many who have worked with Cohen characterize him as untrustworthy. Moving to another internal problem area, insiders pointing to long-running friction between Cohen and Warner Bros. Records chief Tom Whalley; indeed, Cohen has stated openly that he would've dumped Whalley if the latter hadn't consistently posted WMG's strongest numbers. As it is, the overly aggressive Cohen and the cerebral Whalley are like oil and water, which doesn't bode well for their ability to work together moving forward; e.g., Linkin Park. Along with Cohen’s inability to turn things around, having to this point only cut costs while showing no growth, he has another pair of big problems, as the court continues to actively investigate his contradictory testimony during the TVT trial, while one attorney compares the staggering list of bridges he's burned to the Russian retreat in World War II. The animosity he's generated is making his current taskof trying to get people to turn up for Bronfman's UJA kickoff breakfast that much more difficult , especially when he continues trying to intimidate people who've been talking to the press... But not all the action is taking place inside WMG. Dollying back to take in the big picture, what impact will Wall Street's deafening vote of no confidence have on the possible merger of WMG and EMI? Warner's failure to get within even a billion dollars its hoped-for valuation of $3.4 billion means that EMI's $3.5 billion market cap is now by far the larger of the two, while most knowledgeable people feel that EMI's Alain Levy is more qualified to run a global music operation than Bronfman. And bear in mind that Levy recently brought in former WMG Chairman Roger Ames as a consultant, with some believing the move was made with the prospective merger in mind. It was Ames who tapped Whalley and Flom as his coastal kingpins, inspiring the speculation that, had Ames been retained by Bronfman rather than being replaced with Cohen, he might've been able to make things work... Meanwhile, amazingly, Whalley is in the process of re-signing producer David Foster, who's responsible for close to 20 million units worldwide on Josh Groban and Michael Buble under Whalley's leadership… In a related matter, is Sir Howard Stringer having second thoughts about the discussed possibility of an IPO combining Sony's movie and TV divisions with Sony BMG Music as Wall Street's skepticism about the music industry is ratcheted up?… Finally, how big a blow was Linkin Park's announcement that they wanted off the label the week before the launch? The band, sticking to its assertion that the dramatic move was no negotiating ploy, has hired litigator supremo Larry Stein to sue WMG for breach of fiduciary responsibility… Changing gears to more positive matters, Mariah Carey's dramatic comeback under L.A. Reid's expert guidance, as her new album passes the million-unit mark, indicates how crucial the A&R process continues to be to the bottom line and artist careers. Carey and Warner Bros.’ Green Day are excellent examples of the importance of top-level A&R. … Names in the Rumor Mill: Eliot Spitzer, Craig Kallman, Irving Azoff, Rob Light, Allen Grubman and Irv Gotti.