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Digital is music to Edgar’s ears

WMG pacts with South Korean music distrib

A week after rejecting a $4 billion bid from EMI, Warner Music chieftain Edgar Bronfman unveiled a project that puts WMG in bed with South Korea’s largest distributor of recorded music — a phone company.

Bronfman’s point was loud and clear: Warner Music Group is affixing itself to digital stars around the globe to sell more content and drive up WMG’s stock price.

Perhaps for the first time since Bronfman entered showbiz, he’s showing vision. Warner Music has been an active digital player among the majors, using the Internet to break bands, pump sales and create nontraditional revenue sources. That the experiments have yielded actual payoffs no doubt thrills his investors.

Digital revenue at WMG in Q2 accounted for 11% ($90 million) of total revenue and 3% of music publishing’s revenue; among all music sold digitally, Warner Music commands an impressive 25% of the marketplace .

EMI has not been as aggressive as WMG in the digital arena, projecting in April that its digital revenue should grow 150% in 2006 to $196 million. That would amount to about half of Warner’s projected digital income.

Furthermore, WMG stock was consistently selling above $28 between May 8 and 12, giving Bronfman no reason to even listen to an offer of less than $30 per share.

If EMI can find a way to pony up $4.5 billion, Bronfman could deliver a significant payday to his key investors, who put up $1.25 billion of the $2.6 billion needed to buy Warner Music from Time Warner. Their return might well be in the $3 billion ballpark.

That would go a long way toward erasing the memory of the billions Bronfman lost in the Seagram-Polygram-Universal-Vivendi transactions.

The question he faces now is whether he still wants to be part of the music business, as he craved to be when he first used Seagram money to buy Universal.

If a sale goes through, Bronfman makes significant profits for his cronies but probably loses his job running a record company. If he flips the merger around and creates a WEMI, he keeps making records but may have some unhappy shareholders.

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