Warner Music: Apple, Google, and Microsoft in "Struggle for Supremacy"

Warner

Warner Music Group is one of the most innovative companies in the industry. So it's not surprising that in an earnings call this morning with WMG chair Edgar Bronfman, investors weren't interested in how much physical sales the business has managed to hang on to--no, that's an industry of the past. Rather, analysts spent the call trying to find out what the company has on the horizon in the digital marketplace, where Bronfman says Apple, Google, and Microsoft are battling for the industry's attention.

After Steve Macri, CFO of WMG, spouted off number after number during his opening remarks (the takeaway: it wasn't a good quarter, but Warner still earned 41% of revenue from digtial music), Bronfman took over and brought up a long-forgotten topic: LimeWire. The P2P file-sharing service that became a haven for pirated music was recently found guilty for copyright infringement, which Bronfman called a "significant victory" for the major record labels (EMI, Sony, Universal). What's more, Bronfman expressed pleasure that LimeWire's founder was found "personally liable" for his actions, a somewhat satisfying and karmic result for someone who has so damaged the industry. It also served as a reminder that the chapter of bootleg music is far from over, with Bronfman saying that litigation is still "sometimes necessary." (Note to self: delete hard drive.)

Next, Goldman Sachs analyst Ingrid Chung, who became known for her "river of nickels" theory, questioned Bronfman about digital game changers, specifically regarding the tentatively-labeled Google Music. The WMG head waffled slightly, explaining that unlike the computer industry which has a well-established order of heavyweights (Apple, Microsoft, etc.), the music business has yet to find an industry leader. That's quite a pointed statement from a company that's earned so much of its revenue from Apple products. After all, Macri attributed most of the industry's worldwide digital revenue growth to strong "international demand for iTunes."

"In the computer world, it's pretty much clear who the winners and losers are," Bronfman said today. "That's not at all true in the mobile, or non-wired world. Companies like Apple, Google, Microsoft, [etc.] all recognize that an economic hierarchy has yet to be established."

"A number of companies are jockeying for position, [and] in their race to establish a position in the hierarchy, we see a great deal of opportunity. Our content is a critical enabler for them to be profitable," he told investors.

Bronfman, who called the battle a "struggle for supremacy," was especially optimistic about opportunities likely to occur over the next 12-24 months--obviously, quite a wide time frame. He also wouldn't speak specifically about the so-called Google Music service, saying that Google has "yet to make any announcements for its music plans" and that he didn't want to "preempt" anything.

Still, Bronfman was willing to admit where one company had gained a significant advantage in the digital realm. "The iPad is a game changer," he said. "There's no question that video content is becoming more important, [and the iPad] puts more emphasis on video content, rather than just audio content."

"We're in a good position to capitalize on that growth," concluded Bronfman.

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