Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Warner's Broken Record

My walls are closing in
Without a sense of confidence, I'm convinced there's just too much pressure to take
I've felt this way before, so insecure

-- "Crawling" by Linkin Park

I know I wasn't the only one surprised to see Warner Music Group (NYSE: WMG  ) file to go public in March. Hoping to price its freshly minted shares as high as $24 each, it would have priced the company at a significant premium to the $2.6 billion paid to Time Warner (NYSE: TWX  ) to acquire the struggling unit just last year.

The prerecorded-music industry hadn't improved that much since then, and there had to be a reason why Time Warner was so anxious to ditch its music label. That deal came shortly after Vivendi (NYSE: V  ) had no problem finding suitors for most of its entertainment properties but was compelled to keep its Universal Music Group division when the offers for that entity ran dry.

So perhaps that's why the stock will make its debut today on a bit of a down note. The company was forced to price its IPO down to $17 a stub. That's where supply and demand were able to come to a firm handshake.

It was a rocky deal even before its rock artists started rocking the boat . Linkin Park, one of Warner's top acts in recent years, blasted the upcoming IPO and demanded to be released from its contract. Whether the band wanted a piece of the action or to simply gain some negotiating leverage, the outburst certainly didn't help Warner's cause. While the company had made the most of its celebrity status -- even P. Diddy attended and represented the company at an investor show in Manhattan -- it's clear that music is still a tough business.

Sure, portable-music devices are all the rage, and online subscription services are providing legal alternatives to the piracy that was crippling the industry. But that's not enough to make fossil fuel out of these dinosaurs. Digital-music sales are still a drop in the bucket compared with what the record companies used to make on CD sales. When the market peaked in 2000, 942 million CDs were sold stateside, ringing up $13.2 billion in sales.

You also have satellite-radio companies like Sirius (Nasdaq: SIRI  ) and XM Satellite Radio (Nasdaq: XMSR  ) energizing music fans by providing them a wider range of music genres. But that hasn't translated into a mother lode of CD sales.

Yes, digital music offers some significant advantages over the traditional disc format for the record labels. No inventory. No pressing costs. No cutout returns. Yet despite painful layoffs, the major music companies still need to get leaner. The amount of distribution that's now virtual is leveling the marketing playing field, too. That may very well be giving musical acts -- like Linkin Park -- the motivation to cut the labels out completely and deal directly with the consumer.

That's why investors have every right to be tenuous when it comes to buying into the music industry these days. In the words of Warner recording artist Kid Rock, "I was born at night, but not last night, baby."

Some more words to live by:

Longtime Fool contributor Rick Munarriz thinks that we are living in a material world and Warner Music Group is a material girl. Yes, Madonna is also part of the Warner Music family. He does not own shares in any of the companies mentioned in this story.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 492090, ~/Articles/ArticleHandler.aspx, 10/26/2016 12:40:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,169.27 -53.76 -0.30%
S&P 500 2,143.16 -8.17 -0.38%
NASD 5,283.40 -26.43 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 4:00 PM
SIRI $4.19 Up +0.01 +0.24%
Sirius XM Radio CAPS Rating: **
TWX $87.16 Up +0.42 +0.48%
Time Warner CAPS Rating: ***
V $82.03 Down -1.14 -1.37%
Visa CAPS Rating: *****
WMG.DL $0.00 Down +0.00 +0.00%
Warner Music Group… CAPS Rating: *
XMSR.DL $0.00 Down +0.00%
XM Satellite Radio CAPS Rating: No stars