Opinion and analysis of the day's music news.
WMG, Live Nation Ratings Downgraded
-- Both Warner Music Group and Live Nation have recently had their bond ratings downgraded by Standard & Poor’s Ratings Service. In other words, one of the major ratings agencies has determined that both companies’ financial situations are impacting how it views their credit risks.
Last week S&P downgraded Warner to B+ from BB- while sticking to a “stable” outlook. S&P believes Warner’s business will continue to suffer as digital sales continue to replace CD sales.
This week S&P downgraded Live Nation to stable from positive, saying the company’s most recent quarter underperformed expectations. S&P stuck with its B+ rating, however. Increased debt leverage and a smaller margin of compliance with bank debt covenant levels are also part of S&P’s rating. Live Nation shares closed at $10.76 on Tuesday and were up over 14% in November.
It’s hard to argue with a gloomier forecast for Warner. Recorded music’s downturn will continue to be a drag on the four major music groups into the foreseeable future. But in downgrading Live Nation, S&P shows it has little faith that live entertainment will rebound in 2011. And there is certainly a question mark hanging over the 2011 touring and live events markets. But Live Nation has clearly taken steps to address some of 2010’s issues: it has restructured how it books shows, it has acknowledged the need for lower ticket prices and it has introduced new online marketing tools. The live music business doesn’t have the long development times of other industries. Whereas Ford and GM take years to turn around and develop new products, Live Nation can reinvent itself much more quickly. So it will be very interesting to see if S&P’s pessimism is justified as artists start announcing tours and tickets go on sale. (AP, Dow Jones)
WMG Stock Drop
-- Warner Music Group shares dropped 7.3% on Tuesday and closed at $4.82. It was the first time since October 6 the stock had closed below $5. The S&P 500 was down just 0.61% and the Nasdaq composite dropped only 1.1%. Tuesday’s trading volume was 566,000 shares, far above the daily average of 201,000 and the highest since October 12. Warner closed out the month of November down 18.4% from its monthly high of $5.86.
Should Japan's Biz Reconsider Their DRM Strategy?
-- While U.S. download stores have dropped DRM, the anti-piracy protection is still common in Japan. As the Japan Times explains, many Japanese record labels are withholding their music from Amazon’s new MP3 store because they prefer their music to be protected by DRM. EMI is the only major currently selling its music through Amazon’s download service.
Universal Music Japan’s GM says the company has yet to offer DRM-free MP3s because “mobile phone downloads are still dominant in Japan's digital music market . . . consumers are happy with what is available right now.” Indeed, PC-based downloads are a relatively small part of Japan’s digital market. Whereas over-the-air downloads totaled 98.5 million units in the third quarter, PC-based downloads totaled just 13.4 million units. But maybe labels will reconsider dropping DRM and encouraging Amazon’s growth. Sony Music does not sell music through iTunes. Over-the-air downloads have lost steam, dropping 7% in the third quarter. New sales channels could give download sales some much-needed momentum. (Japan Times)
-- Is vinyl the next format to crash? Digital Music News takes a look at growth rates over the last few years and finds that vinyl’s growth rate has slowed from 90% in 2008 to 33% in 2009 to 9% in the first half of 2010. The second half of the year will be a bit better, however. Through November 28, vinyl sales are up 13.5%, according to Nielsen SoundScan. In terms of units, vinyl sales are up 310,000 units through November 28. That’s half the 620,000-unit gain of the full 2009 year.
There are a few things to consider here. First, a lot of vinyl is sold at concerts and not reported to SoundScan. This is not a new phenomenon, so the amount of under-reported sales could very well be constant over the years. But it’s happening nonetheless. Second, new independent record stores are still opening up all the time – and they sell vinyl. With more retailers in the supply channel, vinyl has a bit more upside. Third, vinyl could have some staying power because it is a tangible product that can be paired with digital downloads. Free or cheap downloads make more business sense when paired with a regular-priced vinyl album. Also, vinyl is still very, very cool. One indie label executive recently told me no bands would consider signing with his label if it wasn’t going to put out the band’s music on vinyl.
Some people – especially journalists – got excited by vinyl’s large growth rates in past years. But unlike the CD, which was carried by far more retailers, and digital formats, which are far more mainstream, there’s only so much upside in vinyl. That’s not to say the vinyl format is doomed for extinction any time soon. But vinyl does have limited upside. It was always a niche product. A great product for more serious music consumers, but still a niche product. (Digital Music News)
Nashville’s Dead Blog Starts Label
-- Yet another blog has started a record label: Nashville’s Dead. The label is putting out two 7” singles that will be limited to 300 copies. The releases will come in a die cut paper sleeve. More singles and LPs are planned for 2011. (Nashville’s Dead, via Nashville Scene)
Opinion and analysis of the day's music news.