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Media Money
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There's no question that the music labels missed out on the digital music revolution and the real money is in concerts (see my prior blog).
So where does that leave the music labels?
CD sales continue to decline and thanks to losses to piracy, digital revenues won't fully replace their old packaged music business. It's time for the labels to find a new model and now we're getting some insight into some of the non-public music labels are faring.
EMI's recorded music division managed a sharp increase in earnings thanks to some dramatic cost cutting but its parent company also wrote off half its $2.6 billion euro investment in the company. Terra Firma, a European private equity group bought EMI in August 2007, released an annual report detailing the performance of the company. Its music publishing division yielded 91 million British pounds in earnings, up from 81 million in the year ago quarter, but revenues were down. The company derives half its revenues from just 200 of its 14,000 artists, so the company says it plans to be "more selective" in artist deals.
EMI faces real challenges — fewer CDs are sold every year and the average price of CDs are declining. TNS reports that CDs were 25 percent cheaper in 2008 than they were in 2000. But while EMI's recorded music division is particularly hurting from the industry shifts the company's music publishing division is profitable, cashing in on ringtone sales. The music industry didn't anticipate that ringtones would be such a cash cow, but they're certainly trying to build on it now.
Meanwhile Vivendi, France's media conglomerate, reported the performance of its subsidiary, Universal Music group. The message there was similar — there is money to be made from music, but not from the recorded music business. CD sales dropped nearly five percent but a 31 percent jump in digital sales helped compensate. The real growth came from music publishing and earnings from the likes of ringtones.
The music labels are downsizing, they know that their business model just doesn't justify the infrastructure it once did. The music labels need to jump on the ringtone trend -- the fact that they get paid everytime a teenager downloads a new ringtone is gravy. But they also need to figure out what the next ringtone-type business is. Sure, the companies, including public Warner Music Group [WMG
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] need to try to tap into online music sales as much as they can. But that can't drive future growth.
If they want to stick around they have to find the next ringtone business.
Questions? Comments?
Data is a real-time snapshot *Data is delayed at least 15 minutes