The winning bidder for Warner Music Group (NYSE: WMG) (WMG) is part-shareholder Access Industries, the diversified group owned by Russian-American industrialist Len Blavatnik, whose offer of $3.3 billion in cash (at $8.25 per share, a 34.4 percent premium over WMG’s average half-year price of $6.14) has been approved by WMG directors and recommended to shareholders.
The company will remain named and located as is, but Access will take WMG off the stock market. The companies’ announcement does not state whether CEO Edgar Bronfman Jr. will stay aboard.
He led the $2.6 billion investor buy-out from Time Warner (NYSE: TWX) in 2004 – now he and the investors Thomas H. Lee Partners and Bain Capital, who together own 56 percent 56 percent of the company, “have agreed to vote their shares in favor of the merger”, the announcement says.
What does this mean for WMG?
In digital right now, Warner is at once both innovative and conservative. On the one hand, its technology teams have overhauled the way the label approaches online artist marketing, for instance by transitioning to the free Drupal content management system.
But WMG also plays hard ball in licensing digital services. It refused to renew Last.fm’s license to use its music, has still not permitted Vevo to use its artists’ music videos, has decided not to license purely free ad-supported digital distributors and, during the heyday of the music video game boom, chastised game publishers for paying too little in royalties.
These insistences, which come straight from the top and Bronfman Jr., have made it amongst the most invisible of the four majors on such third-party online services. On the face of it, the ownership change may do little to change that, if the leadership does not change.
But tea leaves which can be read in the announcement suggest all sides are cognisant of need for step-change…
- WMG CEO CEO, Edgar Bronfman, Jr: “(Access) are supportive of the company’s vision, growth strategy and artists, while bringing a fresh entrepreneurial perspective and expertise in technology and media.”
- Access’ media head Jord Mohaupt: “The music industry is at an inflection point where digital adoption is rapidly gaining momentum. Warner Music, as one of the most progressive forces in the music business, is well positioned to capture this opportunity for music creation and distribution.”
Bronfman Jr. has spoken frequently of his fondness for emergent new music consumption models like unlimited subscription access and mobile, with several new players arriving that may reduce iTunes Store’s dominance of the space and, therefore, labels’ dependence on Apple.
Last month, former WMG technology chief Ethan Kaplan wrote that labels should now abandon physical formats, on which they still rely for the majority of their revenue. In WMG’s case, its global digital revenue hit 24 percent of its total in the holiday season quarter. But, in the U.S., the trade value of recorded digital music sales last year tied with physical, according to IFPI, and was set to exceed it this year, suggesting a big domestic tipping point.
Access Industries brings certain new expertise. It last month sold part of its stake in the well-thought-of online sports rightsholder Perform Group in a London IPO to raise £67.5 million, and it variously owns Russia’s largest TV show producer, an Indian public WiFi operator and a minor UK pay-TV provider.
NYT: “Many consider Mr. Blavatnik’s next step to be an attempt to combine Warner Music’s record-music arm with that of the EMI Group, which Citigroup currently owns after foreclosing on its previous owner.”
Billboard: “In winning the auction, Access outbid at least 10 other suitors, including billionaires like Ron Burkle and his Yucaipa Companies and MacAndrews & Forbes’ Ron Perelman.”