Is new Warner Music buyer a sucker or savant?
LOS ANGELES (AP) - Billionaire Len Blavatnik is spending $1.3 billion to buy Warner Music Group Corp. a decade into a steep decline in CD sales for the music industry.
That could make him a sucker in line for many more years of slashing staff, or a savant for buying the company at the start of a digital music revolution.
The deal values Warner Music at $3 billion including debt and cash _ even higher than the $2.6 billion it sold for in 2004 when the music industry was twice as big.
Warner Music was formed in 1929 as a way for Warner Bros. Pictures to acquire the copyrights of music for films. Warner Bros. Records was created in 1958 to distribute movie soundtracks and went on to discover such artists as Neil Young and Grateful Dead.
Today, the company is home to Faith Hill, Red Hot Chili Peppers, Linkin Park and Josh Groban.
A decade-long battle with online piracy has devastated the industry. Although Warner is believed to have coped with it better than other recording companies, some industry analysts praised Warner’s sellers for cashing out.
Standard & Poor’s equity analyst Tuna Amobi calls it “one of the best deals in the music space of all time” _ at least for the sellers.
His opinion of the buyer wasn’t so rosy.
“Any time you have deep-pocketed investors in some glamor business, anything can happen,” Amobi said.
It’s possible Blavatnik’s purchase, through the Access Industries company he controls, could turn out to be wise.
He’s essentially buying into an industry that can’t get much worse. And he’ll be able to reap benefits from cutting duplicate jobs if he successfully bids for Britain’s EMI Group Ltd., which Citibank is expected to sell soon.
Meanwhile, digital innovations could be preparing the industry for a revival.
Recent sales figures suggest the deal is well timed.
Sales of albums in the United States increased 1.4 percent in the first four months of the year to 146 million, according to Nielsen SoundScan. Although U.S. sales of CDs fell by 9 percent during the same period, that’s less than the 20 percent drop in 2010.
If the gains continue, it could mark the first time that album unit sales, helped by digital downloads, have grown since 2004.