What Warner Music Sale Means for the Music Business
After three months of bidding, Warner Music was finally sold to Access Industries' Len Blavatnik for $3.3 billion. Blavatnik, a Russian billionaire with a taste for deal-making is paying a premium of about a third over WMG's average share price, which is certainly good for investors.
Why was there so much interest in the music label?Simple: The hope for a merger with debt-laden label EMI, hope for digital growth, and hope that the music publishing business is indeed stable.
So now that the deal is done, what does this mean for the future of the label and the rest of the struggling music industry?
Potential merger —Warner Music could be a good fit for EMI, which struggling with massive debt was taken over by Citi earlier this year. Together the companies would create the world's largest music company. Now they're the third and fourth largest record labels behind Universal Music Group, the largest, and Sony , number two — could find economies of scale. But they'd also face regulatory hurdles and allegations that they're creating a monopoly.
Pieces of WMG for sale —Blavatnik could sell off parts of the label to try to meet anti-trust restrictions. The Warner/Chappell publishing business seems the most likely to hit the auction block, but if Warner Music were to merge with EMI, it could also drop some of the smaller music labels.
Warner will try to reinvent to focus on Digital —There's no question that the music industry is increasingly moving towards digital distribution, and Access Industries has made it clear it'll focus on these new digital opportunities. Jorg Mohaupt, Access' head of media issued a statement saying the music industry's "at an inflection point where digital adoption is rapidly gaining momentum," and that Warner Music is well positioned to benefit from this trend.
Everyone's watching Digital
Where's all this new digital revenue going to come from? Warner Music, along with the rest of the labels, will be looking closely at the reports that Google's launching a music service and Apple's unveiling a subscription plan as European subscription music service Spotify moves to the states. With all these new options, on top of iTunes, artists who don't have a big recording contract are increasingly trying to distribute directly to consumers without a music label. Music Labels bring exposure and marketing, but they're no longer the only way to sell songs. With competition from the democratized internet, we'll have to see what the music labels do to make themselves invaluable in this new digital age.
Questions? Comments? MediaMoney@cnbc.com