Business 2.0 has a nice, if not glowing, profile on Warner Music and its bid to remake itself by being at the forefront of the shift of music consumption to digital formats.  There are some anecdotes their adoption of digital marketing and tactics such as the use of  pre-release ringtones to stoke demand for the Madonna record, and bundling extras to increase the sale of digital albums.  So, while Warner has about 17% of the CD market in the US, it has a 23% share of the digital album market.  Moreover, Warner is well on its way to transforming itself from a record label to a "music-based content company" -- the concept of horizontal integration that I've written about before.  I see this shift as being one of the inevitable by-products of the digital consumption of music -- recordings become less important and so labels will need to adapt.

Time Warner sold WMG for $2.6 B, which, given their $3.3 B market cap, seems to have been a steal.  The stock is just off its 52-week high but I'm still looking at going long on them -- if the worse days of the labels are behind them, maybe it's a good bet to make.

The article notes the sentiment by many that WMG will merge with someone like an EMI to bulk up and protect itself from disintermediation by "web-empowered" artists.  I don't buy it.  Yes, economies of scale could be wrung out of such a marriage (if the antitrust bodies blessed it), but I don't see how that protects you from being distermediated.   Yes, some artists will go direct to consumer, and will be able to make a decent living out of it.  But, at the end of the day, the fundamental value-add of a label music-based content company, will be to find talent (so the consumer doesn't have to), and market it so it rises above the noise.  As consumers have even more entertainment options going forward, I see these functions being more not less important over time.

[Cross-posted from www.ragsgupta.com]