Bearishness Continues on Warner Music, Downward Pressure Ahead

Warner Music Group continues to suffer on Wall Street, and recovery prospects remain dim.

On Friday, investors left WMG shares at $9.08, another sub-$10 finish for the label group.  The downward action followed news of a licensing dispute involving the UK-based Nokia Music Store, though other negative developments also emerged.

Late last week, noted analyst Richard Greenfield of Pali Research issued an incredibly bearish opinion on Warner.  The analyst changed his recommendation back to sell, and targeted a $7.50 share price.  “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 noted.

The analyst predicted a shift towards advertising-based recorded sales models, but questioned whether major labels could successfully make the transition.  “The music industry is not ready to endorse such a move at this point and even if it was, the economic model transition will be incredibly painful,” Greenfield said.  The researcher also pointed to shrinking big-box floorspace and predicted painful holiday quarter CD sales declines.  Warner will disclose its latest quarterly report on November 29th.