HITS Daily Double
Scott Sperling and his fellow owners may be kicking themselves for not jumping on that reported $30 a share deal dangled by EMI 15 months ago. They may also be kicking themselves for not making a change in WMG’s leadership before things got to this point.


A Tale of Two Majors, Each With Its Own Riveting Storyline
Now that Guy HandsTerra Firma is about to become the sole owner of EMI, everyone is wondering what the new boss plans to do with his prize, which will soon be delisted from the London Stock Exchange, with the $4.9 billion distributed to the roughly 18,000 shareholders. Will Hands be hands-on, so to speak, in heading up the company, and will he reward Eric Nicoli, who championed the Terra deal, with a new long-term deal?

In any case, Hands’ arrival makes the executive suite rather crowded, with Nicoli, EMI North America chief Roger Ames and Roger Faxon, who has EMI Music Publishing—the engine that drives the entire company—firing on all cylinders. Under Faxon’s steady leadership, EMP gained 11.9% in revenue during fiscal Q1.

But others see Hands’ agenda as being driven not by retooling EMI but instead by getting the optimum return on his investment, with the breakup value of the company’s assets far greater than its value as a whole.

In either scenario, most expect Hands to roll with Ames’ blueprint for EMI’s U.S. operation, originally formulated during his stint as head of Warner Music and instituted at EMI early this year. That blueprint is predicated on the establishment of multiple promotion departments, thus enabling more records to be pushed through the system, the underlying theory being that adherence to the approach could result in a 5% or greater marketshare.

Jason Flom has done a solid job executing Ames’ plan in his first half year as head of newly formed Capitol Music Group, whose new-release share is closing in on the 5% target at 4.35% year to date. Interestingly, Ames had tapped Flom to play the same role at WMG when both were key players in the prior regime.

As for Warner’s present regime, office pools both inside and outside the company predicated on shares dipping to single digits paid off on Tuesday (8/7), just after the free-falling company released its latest devastating quarterly earnings report, with worse-than-expected losses of $29 million, or 20 cents a share. At the close of trading, WMG shares had plummeted to $9.89, having lost more than a third of their value from the 30-day high of $15.71 set on 7/18, and well over half of the six-month high of $21.51 set on 2/7. A subsequent uptick generated primarily by speculation that ownership may take the company private, a la EMI, appears to have run its course.

On top of that, Madonna appears poised to take her brand to Live Nation in a $100 million-plus deal. Given the current dire situation, there’s a widespread assumption that Scott Sperling and his fellow owners are kicking themselves for not jumping on that reported $30 a share deal dangled by EMI 15 months ago. They may also be kicking themselves for not making a change in Warner’s leadership before things got to this point.

The company’s present predicament tends to support a widespread industry belief that Edgar Bronfman Jr. lacks the ability to run a music company—a perception amplified by a recent head-scratching move. As Fox News columnist Roger Friedman pointed out this week, Bronfman recently initiated a heavy investment in Bulldog Entertainment Group, the company behind those $3k-a-ticket concerts in the Hamptons. Bronfman has micromanaged each of the three shows, says Friedman, adding, “It’s drastically more attention than he’s given WMG in the three years since he bought the company from Time Warner and turned it into a sad loser.”