Radiohead's Web Venture Spooks Wall Street
November 7, 2007 7:48 AM PST


The below article has been lifted from a news blog, and
its several points made within it are strikng, particularly,
when you review the incredible decline of Warner Music's
current stock worth compared to approximately a year
ago.

Upon conclusion of your review, please sign on to the
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"The B# Newsletter"
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_____________________________________________

[---ARTICLE---]

Radiohead's Web Venture Spooks Wall Street
Wall Street is taking record labels to task for lackluster
Web sales, spiraling CD revenue, and the defections of
marquee acts such as Madonna and Radiohead.

Two analysts downgraded Warner Music Group last
week, leading to a sharp drop in the company's stock
price. One of the analysts, Richard Greenfield of
Pali Research, penned a gloomy report about why he
thinks the sector is headed for even greater losses.

"No matter how many people the RIAA sues, no matter
how many times music executives point to the growth
of digital music, we believe an increasing majority of
worldwide consumers simply view recorded music as
free," Greenfield wrote.

Proof of this was provided last month by Radiohead
fans. The British supergroup offered the digital version
of In Rainbows, the band's latest album, for whatever
fans wanted to pay. According to research firm
ComScore, which conducted a study of the
groundbreaking promotion,
62 percent of those who downloaded the album paid
nothing.

To Greenfield, what's more disturbing is that Radiohead
and a growing number of top acts perceive the Internet
as an attractive alternative to record labels. Nine Inch
Nails front man Trent Reznor has indicated that he plans
to distribute his music online. Madonna announced last
month that she was leaving Warner Music for Live Nation,
a music promotion company.

"The paradigm in the music business has shifted,"
Madonna said in a statement announcing the switch.
"For the first time in my career, the way that my music
can reach my fans is unlimited."

Like Greenfield, Merrill Lynch analyst Jessica Cohen
downgraded Warner Music's stock from "neutral" to
"sell." Both also reduced next year's earnings estimates
for the company.

Following the reports, Warner Music's stock hit a
52-week low ($8.78) on Friday. The company's shares,
which were trading above $27 a year ago, closed
Tuesday at $9.50.

What could be unsettling to those in the music business
is that Warner Music was supposed to be faring better
than the other three majors--Universal Music Group,
Sony BMG Music Entertainment and EMI Group--
according to Greenfield. Earlier in the year, his view on
the stock was slightly rosier.

"Over the past couple of years," Greenfield wrote in his
report, "(Warner Music) has done an impressive job,
outperforming the industry weakness."

The main cause for concern continues to be spiraling
CD sales. Download revenues are growing--but not fast
enough to ease the pain. Greenfield expects CD revenue
to drop 22 percent in the fourth quarter of 2007. He said
retailers such as Wal-Mart Stores, Target, and Best Buy
are rapidly reducing the floor space dedicated to discs.

How vulnerable is the music industry?

Consider that the sector generated revenues of $14.3
billion in 2000, according to the Recording Industry
Association of America, or RIAA. This year, it's
expected to report revenue of $10.3 billion. Had sales
growth only kept pace with the U.S. economy, it now
would be worth $17 billion, Greenfield wrote.

This illustrates "how dramatically the music industry is
continuing to underperform," Greenfield said in the report.

Greenfield urges music executives to embrace a new
ad-supported business model, one that dramatically
scales back the size of record companies and
doesn't saddle songs with digital rights management.
He doubts that this will happen any time soon.

The industry is "not ready to endorse such a move at
this point" Greenfield wrote. "Even if it was, the...
transition will be incredibly painful."