Warner Music Group Gets a New Boss

He replaces Edgar Bronfman Jr., who has run Warner Music Group since 2004, but will remain with the company as chairman of its board.

The company also announced that it is bringing Thomas Lee back to the company’s board. Lee had previously served as a board member from 2004 through this year, when his private equity company held a large stake in the music label. His reappointment does not mean he’ll be reinvesting in the company, I’m told.

People inside the company hold out the possibility that Bronfman could return to day-to-day leadership of the company if it succeeds in buying EMI Music, a longtime would-be merger partner currently owned by Citigroup. But even if Warner wins that bidding round, regulatory approval could take a year or more, so it’s not realistic to expect him back sooner than that, if ever.

Here’s Bronfman’s internal note to his employees, followed by the press release announcing the moves.

Dear Colleagues:

As Warner Music Group begins its next chapter, well-positioned for some truly exciting and unprecedented opportunities, I am pleased to announce we are adding a new member to our management team: Steve Cooper. Effective today, Steve will be serving as WMG’s Chief Executive Officer, working out of our New York office and I will serve as Chairman of the Board of WMG, continuing to work out of both our New York and London offices. Lyor and Cameron will remain in their positions, heading up Recorded Music and Music Publishing respectively, reporting directly to Steve.

I’d like to take a moment to explain to you the rationale behind this change:

Capitalizing on the opportunities before us will require an intensive and all-consuming effort from a broad and deep management team. For this reason, following the close of the sale and the transition of WMG from a public company to a subsidiary of Access Industries, in several discussions with Len and the Access team, I conveyed my strong conviction that my energies on behalf of the company would best be directed toward transformative transactions and long-term strategy. Len was supportive of my wishes provided we could identify the executive to whom I could hand off day-to-day management responsibilities. Fortunately, in Steve Cooper we have that executive.

Steve has a long and distinguished career of service to many companies. Having worked very closely with him over the past several months, I can tell you that he is a highly effective operator who brings a wide range of skills and experience to WMG, most recently, of course, as WMG’s Chairman. And, as a longtime partner to Len, Steve knows the Access team well and will be an effective liaison between them and WMG. More information about Steve’s background can be found in the press release we are issuing today.

Now, a few thank yous are in order. First of all, I want to thank Len and Access for being amenable to my kicking myself upstairs and understanding that I came to WMG as both an investor and operator—a dual role in which I have served throughout my career. After leading the acquisition from Time Warner, transforming the company, and selling it to Access, I believe I can add greater value by addressing the challenges WMG faces on a macro scale, while handing over the day-to-day reins to Steve.

Second, I want to thank Steve for being willing to swap roles with me. After collaborating so well with him, and sensing the energy and enthusiasm he brings to operating a company, I had no doubt that Steve was serving in the role that was more natural for me at this stage in my WMG tenure, while I was in the role in which Steve could bring to bear his many talents.

But the biggest thank you I’ve saved for last. And that’s to all our amazing employees around the world. Thank you. In transforming WMG, together we’ve performed something of a miracle. Despite the industry’s complex transition and the global economic downturn, we have grown profitability, improved our competitive position, and developed new business models, all while continuing to focus intensely on our core mission: artist development. A company’s true value is the quality of its employees, and you are the finest group of employees with whom I have ever worked. None of what we have accomplished could have happened without the extraordinary talent that is the WMG team.

I’m excited for what the next chapter holds. And I look forward to writing that chapter with all of you.

Please join me in welcoming Steve to the team. As always, please email me any questions or comments you may have.

Edgar

WARNER MUSIC GROUP’S BOARD OF DIRECTORS ELECTS
EDGAR BRONFMAN, JR. AS CHAIRMAN TO FOCUS ON STRATEGY AND GROWTH OPPORTUNITIES
NEW YORK, August 19, 2011 – Warner Music Group Corp. (WMG) today announced that Edgar Bronfman, Jr., who had been serving as the company’s Chief Executive Officer, has been appointed to the position of Chairman of the company’s Board of Directors and Stephen F. Cooper, who had been serving as Chairman, has been elected to serve as WMG’s Chief Executive Officer. Bronfman will focus on the company’s strategy and growth opportunities while Cooper will be responsible for the company’s day-to-day operations. Cooper will continue to serve on the company’s Board of Directors.
Lyor Cohen, Chairman and CEO, Recorded Music and Cameron Strang, Chairman and CEO of Warner/Chappell Music, will remain in their positions, reporting directly to Cooper.
Thomas H. Lee, the Chairman and CEO of Thomas H. Lee Capital, LLC, who served as a member of WMG’s Board from March 2004 through July 2011, has been elected as a new Director of WMG. With the appointment of Lee, the size of WMG’s Board has increased from nine to 10 members.
Bronfman said, “With the Access Industries transaction closed and WMG well-positioned for its next exciting chapter, it was clear that in order to best seize the strategic opportunities before us, we needed to deploy our team in the most effective and imaginative manner possible. Given my desire to focus on growth opportunities and Steve’s extensive background in management across a wide array of companies and industries, I am grateful that Steve accepted the offer to change roles and to serve as our CEO. I look forward to continuing our successful partnership.”
Bronfman added, “I’m pleased to welcome Tom Lee to our Board. Tom and I previously served together on WMG’s Board, and his contributions were invaluable. We’re fortunate that going forward we’ll be able to benefit from his insight and his history with the company.”
In addition to his role with WMG, Cooper is a member of the Supervisory Board for LyondellBasell Industries N.V., one of the world’s largest olefins, polyolefins, chemicals and refining companies. Cooper is an advisor at Zolfo Cooper, a leading financial advisory and interim management firm, of which he was a co-founder and former Chairman. Cooper is also Managing Partner of Cooper Investment Partners, a private equity firm. He has more than 30 years of experience as a financial advisor, and has served as chairman or chief executive officer of various businesses, including Vice Chairman and member of the office of Chief Executive Officer of Metro-Goldwyn-Mayer, Inc. and Chief Executive Officer of Hawaiian Telcom. Cooper received a B.A. from Occidental College and an M.B.A. from the University of Pennsylvania Wharton School of Business.

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Selling Music vs Selling Music as Experience

Several days ago, Indonesia’s Minister for Communication and Information announced that he was going to block 4shared along with the 20 other sites that have been shortlisted for access restriction across the country due to various copyright violations.

Additionally, the Minister also said that the cost of a downloaded song should not be too expensive, citing a range between Rp 500 and Rp 1000, adding that rights owners and publishers need to make a profit to sustain their businesses and creative ventures.

According to the Minister, people would not mind paying that amount to acquire music legally from the internet and that the payment method could be through credit cards or prepaid phone credits.

Shutting down illegal file sharing sites is one thing but taking away legitimate music distribution channels is a completely different matter and suggesting that a song is worth no more than Rp 1000 is as irresponsible as it is naive.

Rama already wrote about the 4shared issue a few days ago so I won’t get into it further. What I want to bring up, which apparently many others had not, is the cost of music.

Cost of music
The Rp 1000 cost per song that the Minister brought up clearly ignored the economics of the music industry and the cost of music in other medium. The proceeds from a song or an album purchase are distributed among several parties which are the retailer, publisher, and the artist. The artist, who, despite getting the smallest share, will still need to split with the managers, lawyers, producer, and if it’s a band, other members of the band.

Given that the cost of a domestic album on a CD is between Rp 35,000 to 75,000 depending on the artist, packaging, and additional content, selling songs at Rp 1000 a pop will net a single album only Rp 10-12 thousand, less than half the cost of the cheapest domestic album.

Compare this to the ringback tone business in which a single snippet of a song will cost consumers upwards of Rp 7000 and the track will last no more than a month before it stops playing on their phones. While RBTs serve a completely different purpose from full length music tracks, it illustrates the cost of music to consumers and how much they are willing to spend on a single track.

In countries where the music store component of Apple’s iTunes is available, songs cost between $0.69 and $1.29 though playbacks are largely limited to Apple’s own products which include the iPods, iPhones and iPads as well as any computer running iTunes.

Though limited to Apple’s devices, iPods are the dominant portable digital music player in the world in just about every country, and almost any Mac or Windows computer can run iTunes, making the “limitation” idea far less restrictive that it may sound.

Online music
In Asia however, iTunes Music Store does not exist except in Japan. The process to buy digital music online is far from painless. Consumers largely have to deal with highly restrictive DRM, impractical payment systems, limited music library, and severely limited playback options.

A number of startups and services are trying to deliver songs in a different way from what Apple and Amazon are doing though the majority are still tied to the existing market model of selling songs per track or album.

Thanks to the internet, the distribution of songs has been made much easier but that also means far less control by the record labels and copyright holders. Piracy is more rampant due to this ease of access but iTunes and Amazon have somewhat reduce this rate and convinced many people to go legit in acquiring digital songs.

Though iTunes has managed to become the most successful online music store thanks to its near seamless purchasing experience, this cannot be extended to countries in which credit cards and PayPal are not commonly used by consumers and where record labels are still unwilling to relieve themselves of highly restrictive copy protection.

This creates an opportunity for anyone in those markets to explore other methods in delivering online music to consumers while also creating a new revenue stream for artists.

Perhaps rather than selling individual tracks or albums like the old model, someone could come in and create an affordable, seamless and practical experience to enjoy music in a new way with much more inclusive payment methods.

Clearly artists cannot rely on simply selling songs, so this experience could include various forms of other non-song content such as premium content, concert passes, exclusive access, merchandise, virtual goods, and various other related items that fans would be willing to pay for.

On the other end of the spectrum, something like Spotify or Rdio is much simpler, more accessible, but requires a high speed, stable, internet access, especially on mobile, something that many Asian countries still lack. Additionally, many of those services are still limited to North America and in the case of Spotify, Europe, mostly due to scope of record label jurisdictions.

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Waiting for Startup and Service in Music Segment to Continue Growing

In my opinion, the growth of music industry should be in line with the internet development. Both music and internet have been very close companies for a writer and music listener who always connected to the cyber world. So how to fulfill this two areas of enjoyment at once, especially using Indonesia’s local application and web-based service?

I see that music segment in the internet is still managed by telco – provider – label, focusing in music download and online music store (RBT – full track). On the other hand, there are also some media with music content, including the news of the musicians themselves. Some other segments are supplement for their printed version.

Other than those types may have the amount increased such as startups or another independent media. There are many media outside the mainstream that covers many sidestream music growths such as Musikator, YesNoWave, Deathrockstar, MusicBandung, GeekBible. YesNoWave has become an online music distributor or netlabel. Other examples of netlabel are Invasi Records, Reload Your Stereo, Stone Well Sound Records, Inmyroom Records, Hujan! Rekords, Mindblasting and StoneAgeRecords. This means there are enough recources for music content.

Netlabel for me is quite interesting especially in adding various musical colors. Netlabel provides media for “room” musician, home recording or sidestream musician who need free distribution channel for their music. This type of free download can be an alternative for spreading music and a solution for piracy issue. Some band may provide their music to be consumed for free through free download.

Talking about music will also speak about label and mainstream musician. If it is related with the internet, it obviously has something to do with piracy. Few weeks ago there was movement called Heal Our Music, together with the Ministry of Communication and Information (Depkominfo) in order to block the access to sites that provide pirated mp3 download. Also the government plan to block 4shared for their illegal music download activity. Even though I myself disliking it, the first plan could be a good start as far as they block the right website and no further plan (for the second plan, I totally disagree).

Mainstream industry, business, piracy, they will all connected to the music license. So how can the startups or anyone else develop the music-based service? There are some service have tried to provide this, both for mainstream and sidestream, for example there are ToneHighWay, Gamelan, NyanyiYuk and Musikkamu.com which softlaunched last month. Also there are some other service filling the music segment.

In the overseas area there are Last.fm, TheSixtyOne.com, Spotify or Turntable.com, etc. Some of these application not available in Indonesia.

Music industry needs refreshment as well as their listeners music taste. This can be an opportunity for startup or any other developers to create service, either in website or music mobile application. This off course would not be easy especially to cooperate with music label and music industry. But I see another opportunity such as a music player with sidestream band collection just like ToneHighWay, where in this case we must put more attention on the music or song collection. We can also add some social elements to connect with the other listeners so playing song can be more exciting, or some facilities such as music player for free download music since there are many musicians allow their music to be downloaded freely.

I also think that music industry – the musicians, labels, or another related party – needs some renewal for their business development strategy. Still they have to maintain their music quality and provide spaces for any kind of music.

This may end up like a classic causality dilemma between chicken and egg, who will start first? The labels, musician, developers, startups or the music lovers who want new ways in enjoying music? One thing for sure is that the opportunity in music segment is as popular as the book segment, comics, and social element.

Note: This is not a complete article with detail discussion about music and internet. There are still much additional information about some applicable service that allows combination between music and internet. You may write down your comments on the space below. This article is not about the illegal download and site-blocking. Those issues may be discussed in other articles.

[image source]

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