Facing The Digital Music
In his latest role as CEO of Warner Music Group (WMG ), Edgar Bronfman Jr., onetime heir to the Seagram liquor fortune, is winning good reviews. After cutting costs, slashing artist rosters, and recruiting new management to the former Time Warner (TWX ) unit, Bronfman, 50, a songwriter himself, quickly embraced selling digital music.
Shareholders are upbeat: Warner Music's stock is up 70% since last May's initial public offering priced at $17 per share. Now Warner is being pursued by EMI Group PLC, whose $4.2 billion buyout offer Bronfman and fellow board members rejected on May 2. Bronfman spoke with BusinessWeek Editor-in-Chief Stephen J. Adler on May 4 as part of the Captains of Industry series at New York's 92nd Street Y. Edited excerpts follow:
So what about this takeover bid by EMI? Your board turned it down. Is that the end of it, or is there more action here?
There is really nothing I can add, given SEC and other requirements. The board made a clear, concise, and emphatic statement.
Do you think the music industry is ripe for consolidation?
Consolidation for [its own] sake does not make a lot of sense. Ours is not a business that requires scale economics. Music companies have two areas where they add value. One is the editorial side of the business -- finding and nurturing talent. The second is the marketing of those artists, bringing them through a massive number of different channels and promoting their music. Warner Music is large enough to do both and to continue to grow.
You've had some tough treatment in the press. Do you read it? Do you care?
Some of that is to be expected because I'm a lucky guy. I was born into a great family, lucky enough to be able to run a great company. My view is you've got to take the bad with the good. I have so much good fortune in my life that I think if I were a journalist I wouldn't give me a break either. I don't really worry about it.
Why did the deal to sell Seagram to Vivendi, creating Vivendi Universal, work out so badly for your family?
The family sold a lot of its stock and made a lot of money. But we also held on to stock, which is something we had done for generations at Seagram.
That, in retrospect, proved a poor decision. I should have sold all our stock when we sold the company. We had a CEO [Jean-Marie Messier] who was not up to the task. The assets at Vivendi were very strong assets, including Universal Music, a company I constructed. But when you have a CEO whose eyes are bigger than his stomach, he runs the company into a lot of trouble.
The most widely reported numbers said the family fortune went from $6.5 billion to $3 billion as a result of the Vivendi transaction. Could you talk a little bit about those numbers?
No. What I will say is that the press began its excoriation back when we sold DuPont (DD ) in 1995 and went into the entertainment business. If you go back and look at DuPont as an investment from April, 1995, to, say, April, 2006, the decision to sell DuPont proves to be a wise one. All of the incremental value created was in the entertainment business and in the sale to Vivendi.
We still made a lot of money, and the piece of it I wish the press would tell is the money I made [from entertainment], not the money that was already there. The implication is the family had all this wealth and I somehow squandered it. But the truth is that I made the family all this incremental wealth and then I squandered it [laughter].
With Apple (AAPL ), everything is pretty much 99 cents a tune. You've talked about variable pricing. Why is that important?
The issue is not what's the proper price for a song. People have often interpreted our wish for variable pricing as a way to increase prices. Variable pricing means that some prices would fall, some would stay the same, and probably very few would rise.
My concern is that when everything is the same price, it becomes commodity-like. So while tracks remain on iTunes at 99 cents, I think you'll see tracks with lyrics, tracks with videos, all kinds of things where that pricing will move. There will be experimentation while the price of a single track remains at 99 cents.
If your turnaround efforts at Warner were a song, what would be the title?
Gosh, how about Hang On, Sloopy? [laughter]. Or We've Only Just Begun. That is probably better.