To hear Warner Music Group CEO/chairman Edgar Bronfman Jr. speak during the company's fiscal fourth quarter earnings call on Wednesday, you'd think that 2011 will be the year of the new music model. Two company names stood out during the call: Spotify and Google.

Even though digital growth for its full year was just 6%, Bronfman said WMG can "accelerate the rate of digital growth" through "well crafted business models that cater to consumer demand and fairly compensate content owners." Because WMG is focused on maintaining its margins, he said, "the moment we start to see lower headwinds or a little breeze at our back, our margins and our business should expand very, very quickly." Bronfman doesn't know exactly what quarter that momentum will arrive, but he sees "increasing signs that it's coming."

So which business models will provide the winds for WMG's sails? Bronfman disclosed that in October the company re-upped with Spotify for Europe. "We're pleased with the new agreement because we've long seen great promise in Spotify." Bronfman says the company "sees a number of opportunities" and pointed to "agreements with a number of other companies that we hope will come on line at least in calendar 2011."

Google could also be a major factor, Bronfman said. "We are very hopeful that significant companies -- Google among them -- will introduce services that would create very significant opportunity both for consumers and for the music industry," he said.

It's notable that Bronfman chose the term "significant companies" to describe the type of services WMG hopes to partner with in the near future. Until now, cloud-based models have lacked involvement from the types of established companies that now appear to be near launching services. Spotify is well funded, but it lacks the immediate potential of a service launched by the likes of Google or Apple. There have been a number of innovative entrants in recent years. To be sure, the failure of cloud-based services to catch on with mainstream consumers is not for a lack of trying. The lack of "significant" companies is likely a reason cloud-based services are not more popular.

So if we examine Bronfman's statements, we are lead to believe companies of the caliber of Spotify, Google and Apple (which was not mentioned by name in this context) will drive the acceleration of major labels' digital revenues. Rhapsody, MOG, Rdio, Thumbplay and others have all launched innovative, cloud-based services, but these are not the "significant companies" that are expected to bring digital growth.
Read further between the lines and you could come to the conclusion that services by these companies are expected to launch in the United States by next year. After all, increased growth in digital revenue would require the active participation of the world's largest music market.

The earnings call started with an overview of the company's transition that turned attention away from a weak financial performance. The company has moved away from the CD and diversified its revenue mix, said Bronfman, in order to return to grow (although growth has not been attained). Digital and non-tradition revenue grew to nearly 40% of total revenues in the quarter. Non-traditional revenue was 13% of total revenue for quarter and 10% for the full year. Non-traditional revenue accounts for sources such as sponsorships, ticketing, artist management, fan clubs and merchandise.

Full-year revenues dropped 7% to $2.98 billion and net loss was $145 million on the year and $46 million for the fiscal fourth quarter (the period ended Sept. 30). For the full year, recorded music revenue dropped 9.2% to $2.46 billion, while music publishing revenue dropped 4.5% to $556 million.

Digital business "holds great promise" and is a "top priority," Bronfman said. Digital accounted for 40% of U.S. recorded music revenue, up from 36% last year. But within recorded music revenue, U.S. digital revenues were up only 2% while international was up 19%.

Additional comments from Bronfman:

-- On Viacom, which hopes to sell its Harmonix video game unit: "Neither 'Rock Band' nor 'Guitar Hero' nor others cause much revenue to accrue at Warner Music," so Viacom being in or out of the music business "is not going to move the needle at Warner Music."

-- On the Beatles' arrival to iTunes: "I would say the Beatles are the most iconic band of all time ... I don't know how impactful after 10 or 12 years of digital business their coming online to iTunes will be. But I think it will be helpful in driving more people to iTunes."

-- On WMG's new sync operations in Europe, which pushes songs for which WMG owns both rights: It has been "enormously effective for us."

Questions? Comments? Let us know: @billboardbiz

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