US recorded music sees first growth for years

By Andrew Edgecliffe-Johnson in New York and Chris Nuttall in San Francisco 05/11/11 The Financial Times

The US recorded music business has seen modest growth since the start of the year, interrupting its long decline as strong album releases from Adele and others coincided with healthier revenues from an increasingly diverse range of digital music services.

Music executives said privately they did not see the figures as evidence of a turnround for the industry, where results often fluctuate with release schedules, but they were heartened by Nielsen SoundScan data showing that US physical and digital music volumes have grown 1.4 per cent in the first 16 weeks of 2011.

Executives attributed the first improvement for at least five years to a combination of factors, led by hits from Adele, Britney Spears, Jennifer Lopez, Bruno Mars, Katy Perry and the cast of Glee, the television series.

Revenues from digital downloads and online streaming services also increased, helped by the blow to file-sharing from last October’s shutdown of LimeWire, a peer-to-peer site, they added, while ebbing ringtone revenues proved less of a drag than in previous quarters.

The tentative growth in the industry’s largest market encouraged some bidders in the auction for Warner Music, which drew an unexpectedly long list of wealthy individuals, private equity firms and industry rivals before Friday’s $3.3bn winning bid from Len Blavatnik’s Access Industries.

The appetite for Warner Music has raised expectations for Citigroup’s ability to sell EMI. Fitch, the rating agency, valued EMI at $2.5bn-$3bn in a report on Tuesday.

Warner Music’s second fiscal quarter results showed revenues grew 2.4 per cent to $682m, driven by a 9 per cent increase in digital sales. The group reported a higher quarterly net loss of $39m, or 25 cents per share, however, compared with $28m, or 17 per cents a year earlier.

Edgar Bronfman Jr, chairman and chief executive, said digital revenue reached 48 per cent of US recorded music sales, and noted 60 per cent of its active global artists had now signed expanded rights deals, including areas such as touring and merchandising, as it sought to diversify away from relying solely on recorded music and publishing revenues.

Warner’s figures came as Google announced the latest entry to the competitive digital music industry, unveiling Google Music Beta before reaching agreement with all the major labels to license their catalogues. The service, available to a limited number of US consumers, will for now only allow users to upload songs from their existing collections to an online library, to be accessed by computer or smartphone.

Google’s service is similar to Amazon Cloud Drive, an unlicensed music service announced by the e-commerce group in March. Both companies are racing Apple to launch licensed services using remote storage in the digital “cloud” that could include digital music stores, music recommendation engines and interactive radio services similar to Pandora.

Jamie Rosenberg, director of digital content for Google’s Android mobile platform, said two of the four large music companies had insisted on “terms that we felt were unreasonable and unsustainable” for Google Music, which could form an important part of Google’s competition with Apple in mobile.

Others in the industry, including independent labels and artists, were “very excited about the possibilities and are engaged with us in very productive discussions,” he said.

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