Warner’s Middlebronfman sees strong growth from iTunes Store sales

“At a recent conference in New York City, Warner Music Group CEO Edgar Bronfman said he wanted to lead the music industry with ‘innovation, not litigation.’ It was litigation, though, that led to the fourth-quarter profit his company reported Friday,” Nat Worden reports for TheStreet.com.

Worden reports, “Thanks to a $13 million gain from a lawsuit against online file-sharing service Kazaa, Warner Music was able to record a profit of $12 million, or 8 cents a share, for the period ending Sept. 30. That marks a reversal from last year’s loss of $30 million, or 21 cents a share.”

“Excluding the settlement, the music company recorded a loss of a penny a share, missing Wall Street’s expectations for a break-even performance on this basis, according to reported by Thomson First Call,” Worden reports.

“On the top line, Warner’s fourth-quarter revenue dropped 5.6% from a year ago to $854 million. Analysts were looking for revenue of $893 million. Once again, the company showed strong growth in digital music sales, which comes mostly from online downloading services like Apple’s iTunes. Warner’s digital revenue rose 13% from the third quarter and 96% from last year to $102 million, but that segment makes up only 12% of total revenue,” Worden reports.

Worden reports, “Digital sales growth reflects Warner’s ongoing efforts to shift its business model to fit the changes in music consumption around the world that is being wrought by the Internet… music companies like Warner are wrestling with the threat to their longtime marketing practice of bundling music content into albums.”

Worden reports, “By selling entire albums, record labels could extract more money from consumers who wanted to own a single song from an album. ‘Typically, consumers are really only interested in owning one or two tracks from any particular CD,’ says Phil Leigh, senior analyst with Inside Digital Media. ‘So, in actuality, they were spending $10 to $15 for just a couple of songs.’ On music downloading sites, like iTunes, consumers can now buy single tracks at a time for $1. ‘The major recording companies are terrified of what this will do to their revenue,’ says Leigh.”

Full article here.
We wonder if Middlebronfman still dreams of a slice of revenue from each iPod, regardless of whether the iPod plays Warner content or not? You can guess the answer to that one: the music labels never met a revenue stream, real or imagined, that they didn’t love with every ounce of their shriveled, black hearts. Middlebronfman probably salivates every time he reads about Microsoft’s capitulation to Universal with their ill-conceived Zune (even though a cut of each Zune sold won’t amount to a hill of beans). As we’re fond of saying, “Eliminate the middlebronfman!” Apple isn’t the problem. Apple is the solution.

Related articles:
Warner’s Middlebronfman: ‘We sell our songs through iPods, but we don’t have share of iPod revenue’ – October 05, 2005
Warner CEO Bronfman: Apple iTunes Music Store’s 99-cent-per-song model unfair – September 23, 2005
Music managers unhappy with Apple over artist’s royalty payments – October 03, 2005

21 Comments

  1. ” ‘Typically, consumers are really only interested in owning one or two tracks from any particular CD,’ says Phil Leigh, senior analyst with Inside Digital Media. ‘So, in actuality, they were spending $10 to $15 for just a couple of songs.’ On music downloading sites, like iTunes, consumers can now buy single tracks at a time for $1. ‘The major recording companies are terrified of what this will do to their revenue,’ says Leigh.”

    Bingo.

  2. Sorry for the duplicate post, but I must nail Zune-Tang!

    Although appearing as deceptions to the Western public, the descriptions uttered by the <strike>Iraqi information minister</strike> Zune Tang reflected what <strike>Saddam Hussein</strike> Steve Ballmer and his inner circle believed, and were well received in parts of the <strike>Arab</strike> IT world most fiercely opposed to the <strike>war</strike> iPod.

  3. From today’s “Radio and Records,” an industry trade pub:

    Record labels are asking a panel of copyright judges to lower the rate they pay music publishers and songwriters for the use of the lyrics and melodies with which they create sound recordings. The current rate is out of touch with reality, the RIAA argued.

  4. So, in actuality, they were spending $10 to $15 for just a couple of songs

    Mm.. brilliant. unless they were aware of file-sharing. It’s worth it to buy an album on iTunes for 10 bucks. If it’s a band you really like, you won’t mind paying.

    One hit wonder crap is perfect for Acquisition et al.

  5. What about the consumers that KNOW they only like 1 or 2 songs from an album, and for that reason never buy it. Now at least the labels are getting their 1 or 2 bucks… personally, i’d rather pay .99 for a song on itunes than go through the pain of trying to find it on limewire or something else

  6. I think the problem facing music companies is that Apple and iTunes could actually replace them! If Apple makes nice with Apple and we get a Beatles deal, Apple could actually start promoting and distributing individual artists music. Why sign with a record company when you can get Apple to distribute your music for you?

  7. Gee, thanks Suggestion King. I actually did read the related articles. Did you? Had you read them in detail, you’d find no mention or suggestion by Bronfman that Apple should have to give them a piece of the profit for every iPod sold. The three articles touched on 2 points: Bronfman thinks that Apple should vary the selling price of each song, and Bronfman is concerned about how to “monetize our content”. In neither article does it state that he has suggested that Apple share the profits. I believe that the MDN take suggested that based on what he said, but he did not actually say that in the article. Here’s what the article said. Please read closely:

    “Bronfman would like to change the balance of what the music labels get paid for and what they give away. He says that 20 years ago the industry gave music to MTV and made that business successful, and that has more recently been the case where iPods are concerned. ‘We’re selling our songs through iPods, but we don’t have a share of iPods’ revenue,’ he said. ‘We have to keep thinking about how to monetize our content for our shareholders where we’ve been creating value for so many other streams.'”

    At no point does he say that. So, Suggestion King, here’s my suggestion. Don’t be an asshole with half-assed advice on a Friday. Oh, and never get involved in a land war in Asia.

  8. Does anybody know how what proportion of current iTunes sales are albums ?

    In the early days of iTMS, it was widely reported that half the sales were albums. I haven’t noticed recent figures so don’t know what’s happening these days.

    If a substantial proportion of sales are still albums, the labels haven’t got much to worry about. On the other hand, if most users only buy one or two tracks, what does that tell the labels about what the customers think of the other tracks on the album ?

  9. The most salient point is that for Warner Music 12 % of all revenue is coming from digital downloads. That’s a big increase from 1-2 years ago when it was around 1 %.

    This means that iTS could have contributed to about 8-10 % of Warner Music’s revenue. That’s significant and shows the power the Apple could have over these guys and probably why they are worried.

    Once iTS provides 30 % of the revenues you can bet Steveo will start demanding better deals.

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