Why Is Junior Smiling? Because He Won The Gene Pool Lottery

Spoiled Rich Kid Edgar Bronfman, Jr.

A few short weeks ago, Goldman Sachs analyst Ingrid Chung gave Warner Music some big love. She upgraded her rating of Warner stock, giving it a 14.6% bump in one day, sending shares from an April 13 opening of $3.08 to a close at $3.53. Chung saved some extra big hugs for Junior, saying that Warner Music’s management, led by Edgar Bronfman, has shown “continued superior execution,” resulting in nine consecutive quarters of U.S. album market share gains.

“We believe that Warner Music Group has had the opportunity to buy its own bonds at a significant discount to par in the open market over the last six months,” said  Chung in the client note.

Chung also highlighted the recent introduction of variable pricing for digital songs at Apple Inc’s (AAPL.O) iTunes Store and other retailers as a positive for the future.

“We believe that variable pricing could drive higher volume and higher average revenue per track, although margins may remain at the same levels,” the she said.

Well the WMG share have continued to rally off of Chung’s religious conversion. Until today.

Junior today announced that he has written off $33 million in bad investrments in Imeem and Lala. Lala was a loser play from the beginning and the Bain Capital putz who bought into that shit hole at first should be a new entry in Dickipedia. And Imeem is even more interesting. Not only did Junior write off his $15 million investment in Imeem, but then cried that he was owed another $4 mil from the company that is virtually uncollectible. Now this is after Junior refused to renogiate the Warner streaming deal with Imeem which would have helped the company get a little traction. Sheer genius. Record labels are historically shit business partners. And it looks like a Warner investment is the kiss of death.

And let’s talk about Ingrid’s prognostications regarding the huge revenue bumps that WMG would get from the new iTunes variable pricing. Well, since launch, iTunes sales have steadily declined. You might say “So what? Maybe there ‘s a little less volume but that’s offset by the increased margins. Big deal.” It appears as though the revenues have indeed gone up—up to an overall increase of $14,000 a week. And that’s for all sales, not just Warner’s. So this must net out to Warner an extra $6-$8 K a month?

So this all must really piss off Junior, who has sworn off investments in digital properties (and let’s not forget last year’s $30 million write off of Junior’s investment in a concert production company Bulldog Entertainment). But what really sticks out to me is how much Junior overestimates the value of his content in today’s market.

If you’ll recall a few months ago Warner made a big deal out of yanking its deal with YouTube claiming that they just weren’t making enough money. That makes sense. If you don’t make what you want, just make nothing at all! And of course YouTube could give a shit. They sure don’t need Warner Music. Now the irony comes in. Even though WMG pulled its content, users continue to upload it for everyone to watch. That is until Junior’s genius lawyers start sending YouTube DMCA takedown notices, which of course will actually COST Warner money. So by turning down YouTube’s dough, Junior not only loses that income but goes out of pocket.

And, of course, there’s last week’s brilliant move of sending copyright guru Larry Lessig a DMCA takedown notice over one of lessig’s presentations posted on YouTube. thus giving the fair use doctrine the perverbial finger.

So what does this all mean? Did Ingrid Chung get some great tickets for the Madonna tour? Or a date with Josh Groban? Or has she simply been sniffing glue? Can Junior be as big a dickhead as he’s painted in Steve Knopper’s book “Appetite For Self-Destruction”? So who should really be running Warner Music? Junior or Ingrid Chung?

© 2009, Wayne Rosso. All rights reserved.

Tags: Digital Media, music, record label, Warner Music