Yesterday marked the official closing of Time Warner's (NYSE:TWX) sale of Warner Music -- the Warner Bros., Atlantic, and Elektra labels, and Warner/Chappell publishing -- to a group including former Seagram big shot Edgar Bronfman Jr. It also appears to have marked the end of the road for many of the Warner Music employees expected to fall victim to cost-cutting measures, according to a report first published in yesterday's New York Post.
Such cuts, should they happen, were widely expected as far back as late November when the deal was first announced. Several key Warner Music executives were reportedly quick to step down upon the deal's closing, and Bronfman's team is not expected to waste time in cutting as much as 20% of its new company's workforce in trying to generate as much as $300 million in cost savings.
The line on the music business tends to incorporate themes like "bloated" and "dinosaur," as applied to everything from CD prices to marketing budgets to organizational structure to the handling of digital music and on and on and on. (The standard comeback seems to deal primarily with illegal musical file swapping as having decimated the industry.) If you believe that, then you've gotta believe Bronfman is on the right track here -- artistic concerns notwithstanding.
I'd tend to agree. The number of major labels is potentially poised to shrink further. A deal between Sony's (NYSE:SNE) music division and Bertelsmann's BMG, for example, is currently under review by European regulators. So, there may be an advantage to getting an updated organizational structure in place quickly. (European regulators, it must be noted, have nixed deals before: Efforts to merge EMI and Warner, as well as EMI and BMG, have fallen by the wayside on concerns about the effects collusion and reduced competition might have on the marketplace.)
This uncertainty buys Bronfman time, though one wonders what may be brewing in the boardrooms of Vivendi Universal (NYSE:V) and EMI -- the latter which was close to linking with Warner just before the AOL-Time Warner deal hit.
There doesn't seem to be much more room for major consolidation, though Comcast's (NASDAQ:CMCSA) bid for Disney (NYSE:DIS) has some market watchers predicting renewed merger and acquisition interest in and by content companies. Worth watching in the meantime, however, is the interesting potential impact on smaller, independent labels: The creation of leaner, more profitable major labels might stand to reenergize interest in partnerships with smaller talent collectors -- or labels may instead focus on heavily promoting fewer projects. Music buffs are watching closely.
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Fool contributor Dave Marino-Nachison doesn't own any of the companies in this article, though he does own all of Lamb's albums. He can be reached via email.
