Update on the future of Warner Music Group
The private investor group that is taking over Warner Music Group (Parent: TWX) is expected to move quickly to trim up to $250 million in costs at the struggling music company, say three executives with independent knowledge of the group’s plans.
The group, which includes former Seagram and Universal owner Edgar Bronfman Jr., has hired Boston Consulting Group to help identify areas for cutbacks.
The group is expected to close its $2.6 billion purchase of WMG from Time Warner and take it private this month. WMG ranks as the world’s fourth-largest music company with 2002 sales of $4.2 billion and artists such as Madonna, Missy Elliott, Kid Rock, Michelle Branch and the Red Hot Chili Peppers.
The new owners are considering cost-cutting moves ranging from merging labels and dropping artists to layoffs and closing offices. Both Bronfman and the Boston Consulting Group declined to comment.
The new company will be another example of the music business increasingly coming under the thumb of bottom-line-oriented suits rather than free-spending music impresarios. While Bronfman is the public face of the new ownership team as “senior executive,” for example, he actually reports to Scott Sperling, managing director of Thomas H. Lee Partners, the buyout firm that’s putting up the most cash for the deal. The other buyout firms in the WMG acquisition are Bain Capital and Providence Equity Partners.
WMG has been on a roll lately, scoring 70 nominations for the 46th Grammy Awards, scheduled for Feb. 8.
But on the way to a rebound, possible cost-cutting at WMG might include:
Merging record labels. Sperling and Bronfman might merge some WMG record labels to save costs. They include Warner Bros., Elektra and Atlantic Records.
Dropping acts. In general, the major music companies have been focusing their resources on fewer, bigger-selling artists such as Norah Jones. That would require restructuring the contracts of some lower sellers or dropping them completely. Warner Music International currently has a roster of more than 800 artists performing in 25 languages in 70 countries.
Layoffs and office closings. Layoffs have already become common across the industry during three years of sales declines. But Rohan estimates the new owners might lay off a third of their global workforce of 5,300 employees. That could include closing some of the 68 WMG offices around the world.
Source: Usa Today
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