Summary:

If analysts on Warner Music Group’s Q4 earnings call were hoping for news of a Spotify deal, they got exactly what they wanted. Edgar Bronfm…

Edgar Bronfman Jr
photo: Corbis

If analysts on Warner Music Group’s Q4 earnings call were hoping for news of a Spotify deal, they got exactly what they wanted. Edgar Bronfman Jr said WMG has signed a new deal with the unlimited-music service – but it’s only a renewed deal, covering Spotify’s existing European markets.

“We’re very comfortable that we finally reached an agreement that aligned our economic interests with those of Spotify, which was a long time coming and not easy for us and not easy for them,” Bronfman Jr said.

“We’re talking to them in the U.S. but recognise that the introduction of Spotify here probably requires the agreement of other music publishing companies and not just Warner and Warner Chappell.”

Bronfman Jr. did not state European terms, nor whether WMG itself has yet licensed Spotify for North America, and it’s not clear how many of Spotify’s other label deals are due for renewal.

What’s different across the pond? For one, in Europe, labels have a greater interest in Spotify’s success as they hold equity in the firm. As well as this, Spotify is now generating significant income for the music industry there, especially in its native Sweden, and its simplicity and catalogue is proving to be a partial foil against piracy, if nothing else.

But, given his clear affection for such new-wave services, whose unlimited-access offerings could restore growth to a digital music sector that’s seen individual downloads plateau in the U.S. despite continuing growth elsewhere, Bronfman Jr. is surely keen, and not reluctant to license the service there.

It’s still dimes-for-dollars time at record labels. Warner Music Group (NYSE: WMG) says digital revenue grew to comprise 40 percent of its U.S. total during its Q4, but: “The overall increase in digital revenue … was more than offset by contracting demand for physical product.”

In recorded music revenue (ie. actual sales of music), digital revenue grew seven percent from last year’s quarter (to $183 million), up to 29.6 percent of all income. But that couldn’t stop another 13.3 percent slip in WMG’s global cross-format recorded music income. Strongest digital growth is now outside the U.S. and digital sales themselves were held back by declining ringtone sales.

The rise of Spotify, Rdio, Rhapsody and others is prompting labels to a contemplate a world in which songs, after so many decades, are no longer priced as individual units – but a world in which labels are fairly recompensed for making music available on-tap could re-ignite the industry’s digital mojo toward sustainability, whilst also reducing its iTunes dependence.

New NPD research suggests nearly as many Americans now stream music as download it, and take-up of the former is growing quicker. Bronfman Jr. has been painted as a Spotify sceptic for criticising purely ad-supported music services as unhelpful, but, as well as an ad-funded service, Spotify has 500,000 paying customers.

We believe we can accelerate the rate of digital growth and see a number of opportunities to do that,” Bronfman Jr told analysts, “- not the least of which is our new agreement with Spotify in Europe and agreements with a number of other companies which we will come on line in calendar year 2011.

Google (NSDQ: GOOG) and other companies will introduce services that would create very significant opportunities, both for consumers and for the music industry. We’re not there yet; it’s premature for us to discuss it further.”

Until then, WMG’s expecting no harm done by the decline of music video games (exhibited by MTV off-loading Harmonix) and, as we wrote Tuesday, Apple’s Beatles deal bringing only a brief fillip to its existing iTunes Store business.

Frankly, it’s not going to move the needle,” Bronfman Jr. said of games. “Even at its peak, the video game industry returned little or no money to the music industry. It was never meaningful to us, unfortunately. Neither Rock band nor Guitar Hero, nor any of the other music-based video games caused much revenue to accrue at WMG.”

“The Beatles are the most iconic band of all time. I don’t know how impactful, after 10 or 12 years of digital business, their coming online to it will be. But it will be helpful in driving more and more people to iTunes. By and large, that’s a positive outcome for the industry.”

Earnings.

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