Pandora shares are down about 11% at mid-day, a little more than a week after the company rallied from its report that sales were stronger than expected in Q1. Investors are anxious following The Wall Street Journal‘s report this morning that Apple agreed over the weekend to let Warner Music’s publishing operation collect 10% of the ad sales from a planned Internet radio service. The amount is twice as much as Pandora shares with publishers and the paper says it could “pave the way for other major publishing deals to follow.” Apple would like to unveil its Web service next week at its annual developer’s conference in San Francisco. Pandora “have traded up significantly” in recent months due in part to Apple’s slow progress in securing the rights for its rival initiative, Wedbush Securities’ Michael Pachter recently noted. Despite the progress with Warner, Apple probably won’t launch its new service unless it can also agree on terms with the publishing units of Universal Music and Sony Music, the paper says.
Warner Music Group continues to sing a sad tune when it comes to its financial performance. It reported today that it had a net loss of $103M in the quarter that ended in September, 124% bigger than its loss in the same period last year, on revenues of $707M, down 6%. The financial report is mostly for bondholders; Russian-born billionaire Len Blavatnik’s Access Industries bought the company in July for $3.3B. Still, it’s a dreary filing for the company, whose roster of hitmakers includes Bruno Mars, Cee Lo Green, Red Hot Chili Peppers, and Jill Scott. Warner says that its recorded music revenues fell 8% to $571M. Although sales from digital distribution were up 6% to $194M, that was “more than offset by contracting demand” for CDs. Meanwhile, revenues at the music publishing operation fell 1% to $141M. Warner says that the quarter’s disappointing results were due to “a light release schedule”; weak sales in the U.S., Japan, and most of Europe; and rising interest payments on the debt Access took on to buy the music company.
Apple made a major improvement to its digital music service today as it introduced iTunes Match. For $24.99 a year, iTunes will scan a user’s mobile gadget or hard drive, identify its recordings — including those copied from a CD — and then make them available on iCloud for streaming to any Web-enabled device running iTunes software. The company says iTunes already has 20M songs, and will upload “only what it can’t match.”
The announcement precedes Google’s expected unveiling tomorrow of its own music store. It will enable buyers to download tunes, and stream them from remote servers. The company also has been lobbying record companies to make it possible for members of the Google+ social network to share tunes with their online friends. EMI has agreed to offer songs from its catalog on the music store, and Vivendi’s Universal Music “may be signed as early as tomorrow,” Bloomberg reports. The other two majors, Sony and Warner Music, are holding back until pricing and privacy concerns are resolved.
What were the folks at Access Industries looking for in a candidate to replace Edgar Bronfman Jr as CEO of Warner Music? Someone who knows the music industry inside out — or who can hob-nob with Warner’s money-makers such as Red Hot Chili Peppers, Missy Elliot, Randy Travis, and Aretha Franklin? Apparently not. The press release about Stephen Cooper’s new gig running Warner Music notes that he is on the board of “one of the world’s largest olefins, polyolefins, chemicals and refining companies” — and has “more than 30 years of experience as a financial advisor.” I suppose Warner didn’t want to come right out and say that Cooper is a turnaround expert who has worked with corporate basket cases including Enron, KrispyKreme Donuts, and most recently MGM as it went through bankruptcy.
Bronfman kept up appearances, saying that Warner Music is “well-positioned for its next exciting chapter.” He’ll switch jobs with Cooper, who had been chairman, to fulfill “my desire to focus on growth opportunities.” Cooper will handle day-to-day operations. Lyor Cohen, who runs the recorded music unit, and Cameron Strang, who’s in charge of publishing operation Warner/Chappell Music, will report to Cooper. He may have to make a lot of big decisions soon: Warner is one of the leading bidders for EMI as the auction, run by Citigroup, enters its home stretch. In addition to the Cooper appointment, Warner added financier Thomas H. Lee to its board, increasing the …
Google has agreed to pay royalties to songwriters repped by the National Music Publishers Assocation when their songs appear in videos on YouTube. The deal, which covers roughly 3,000 mainly indie songwriters, resolves a copyright lawsuit brought by the organization in 2007 and sets up the two sides to share ad revenues generated by videos on YouTube. “We are pleased to have resolved NMPA’s litigation claims and to work with YouTube in providing a new licensing opportunity for songwriters and publishers,” NMPA president and CEO David Israelite said on the group’s website. “This is a positive conclusion for all parties and one that recognizes and compensates the work of songwriters and publishers going forward.” The largest music publishers — EMI Music Group, Universal Music Group, Warner Music Group and Sony Music Entertainment — have their own licensing contracts with YouTube and are not part of this agreement.
Warner Music is a step closer to becoming a division of Access Industries, the privately held chemical, natural resource, and real estate company controlled by Russian-born industrialist Len Blavatnik. Shareholders in the music company this morning overwhelmingly approved Blavatnik’s $3.3 billion takeover offer. The deal, which pays investors $8.25 a share, is expected to close in the third quarter. Investors also approved, on an advisory basis, the controversial “golden parachute” package that guarantees about $16.9 million in equity to CEO Edgar Bronfman Jr and $10 million to Lyor Cohen, the CEO of recorded music. Although they’re expected to stay at the company, they can cash in even if they leave.
Citigroup hung a “for sale” sign on EMI Group today, saying that it has “initiated a process to explore and evaluate potential strategic alternatives” that could include a sale, recapitalization or a public offering. The home of hitmakers including Katy Perry, Lady Antebellum, Nora Jones and Coldplay is in better shape financially than it was in February, when Guy Hands’ Terra Firma defaulted on its debt to Citigroup. The bank accepted a controlling equity stake in EMI and forgave about 65% of the music company’s debt. But Citigroup is into money, not music. Don’t be surprised if the bank considers splitting EMI’s recorded music operation from its crown jewel — the music publishing business, which includes the rights to standards including New York, New York; Ain’t No Mountain High Enough; Over The Rainbow; and Singin’ In The Rain. Access Industry’s Len Blavatnik, who’s in the process of buying Warner Music, also is probably salivating over the possibility of merging that company with EMI. Edgar Bronfman Jr. had the same dream before last month, when he accepted Blavatnik’s $3.3 billion offer for Warner Music. Citigroup says that “there can be no assurance” that its review will lead to a deal. The bank adds that it “does not intend to disclose developments” until the process is over, expected toward the end of this year.
Even though Warner Music Group’s net losses grew in the quarter that ended in March, CEO Edgar Bronfman Jr. could take comfort from the fact that Wall Street analysts expected worse. The company reported a net loss of $38 million, up from a $25 million loss in the same period last year, on revenues of $682 million, up 2%. The 25 cent-per-share loss in the company’s fiscal second quarter contrasts with the 28 cent loss expected by analysts who follow the company. Warner Music says that Bruno Mars, R.E.M, Wiz Khalifa, Cee Lo Green and Lupe Fiasco were among its top-selling performers. Bronfman says that he is “excited to see our digital revenue approach the 50% milestone for U.S. recorded music and to see 60% of our active global artist roster signed to expanded rights deals.” Last week, Warner Music said it has agreed to sell itself to Russian-born industrialist Len Blavatnik’s Access Industries for $3.3 billion.
Ukrainian-born billionaire industrialist Len Blavatnik has kicked the tires of many movie companies in recent years. His privately held U.S.-based Access Industries was the backer of Stewart Till’s 2009 purchase of Icon UK film and entertainment business from then owners Mel Gibson and Bruce Davey. You also may recall that ”The Russian” (though his flack Mike Sitrick hates it when I refer to the Harvard-educated naturalized American citizen as such) was one of the bidders for MGM but only wanted to make a recapitalization/restructuring offer, meaning that it wasn’t an all-cash offer as requested by the investment bankers. Then again, Blavatnik loves a distressed property he can own or invest in at a bargain, which is how he amassed his global conglomerate of industrial, chemical, real estate, and media properties. He already was an investor in Warner Music Group and you can’t get more distressed than the recording industry these days. Now his Access will buy Warner Music for $8.25 a share in a transaction valued at $3.3 billion. The deal includes Warner’s entire recorded music and music publishing businesses. The purchase is expected to close in the third quarter.
Said to be worth in excess of $7 billion, Blavatnik managed to fly largely under the media radar until his involvement with Hollywood’s MGM and Icon UK. Founded by Blavatnik in 1986, Access Industries’ other media holdings include majority stakes in Perform Group (the online sports broadcaster), TopUpTV (a UK-based digital terrestrial TV service provider), and Amedia (an entertainment TV content developer and producer in Russia) together with minority stakes in RGE Group (an Israeli TV production company). At a company conference in 2005, he reportedly told senior execs: “Basically the idea is we buy low and sell high. We are here to make money.” Here’s the news release:
EXCLUSIVE: This is exactly the kind of information that shareholders of Big Media need to know but rarely see. It’s considered a red flag when any public company pays one of its bigwigs – usually the CEO – three times more than the average for the four other top executives which the SEC requires them to list. So I’ve taken proxy statements and done the computations and discovered that at least 16 of 35 companies failed that test. Often miserably. Nearly half of the media company compensation packages disclosed so far for 2010 show a startling degree of hero-worship as boards of directors pay their top dogs sums that far exceed what the pay was for other top execs in the company.
Stock grants accounted for big chunks of the compensation for those who top this list, including Discovery Communications CEO David Zaslav, Viacom CEO Philippe Dauman, DirecTV CEO Michael White, Nielsen CEO David Calhoun, and CBS chief Les Moonves. Radio station owner Entercom was off the charts: CEO David Field’s $9.1 million compensation was modest by media company standards but still 25.4 times bigger than average for the company’s other four executives. It includes $7.9 million from stock grants that only pay off if Entercom shares rise to hit certain target prices.
Still, corporate governance experts who focus on what’s often called “CEO centrality” say that an out-of-whack pay package is bad news for shareholders. It indicates that the board of directors may be in the pocket of a CEO – or believes he or she has near super-human power to help the company succeed. In either case, the board is likely to give the CEO all the credit when things go well, and blame others when they go badly. Research shows that usually hurts the stock price over time.
I’ll track this and other measures of lop-sided pay as other media companies release information for 2010. But there are a few things to keep in mind: The SEC reporting rules only cover the top-paid executives of publicly traded U.S. companies. That means we probably won’t know how much privately held Hearst pays CEO Frank Bennack, or how much Japan’s Sony pays CEO Howard Stringer. It also means that we’ll miss a lot of highly paid people who work at subsidiaries of a big company; Universal Studios’ Ron Meyer may be a big deal in Hollywood, but he was a relatively small fish last year at parent company General Electric.
To make comparisons in our list here as fair as possible, we looked at the compensation for the five most highly paid employees for 2010. Sometimes companies report the pay for more than five people — for example, when a top executive is replaced during the year a corporation will include the incoming and outgoing person’s compensation. And the pay data given the SEC can spike in a year when an executive cashes in stock or collects deferred compensation. So here’s how the companies stack up, with the top paid executive’s 2010 reported compensation and comparison to the average (median) pay for the four other highest-paid honchos:
1. Entercom: David Field. The son of company founder Joseph Field became CEO in 2002, about 15 years after leaving his job as an investment banker at Goldman Sachs. Field made $9.1 million last year – the total of his $791,723 salary, $444,308 bonus, $7.9 million in stock, and $28,000 in other perks including medical insurance premiums. That’s a 348% raise in a year when company shares appreciated 53.2%. Though considered a strong operating executive, his salary stands out because it’s 25.4 times higher than the $358,692 average for the four other top executives listed in Entercom’s proxy statement. Field’s salary and the $3.9 million paid to CFO Stephen Fisher accounted for 93% of the $14 million that Entercom paid to its top five executives.