Executives at Warner Music Group are hoping its planned Wall Street IPO today hits the right note with investors as they seek to shed the company's privately owned status by becoming a public entity.
The music industry has been plagued by widespread pirating of compact discs in recent years, but Warner Music is hoping to put such troubles behind in entering what it hopes will be a new profitable chapter.
Warner's Initial Public Offering (IPO) share price was due to be announced to the market late yesterday, according to sources. Its initial share price is expected to be fixed between US$22 and US$24 ahead of its first full day of trading on Wall Street today.
Too ambitious
Warner Music, run during the past year by Canadian Edgar Bronfman Jr, announced its IPO ambitions in March, forecasting that such a debut would establish its market worth at US$750 million.
However, this figure was considered a little too ambitious by some on Wall Street, including big investment funds, who expect the group will have to trim back its financial assumptions.
"The IPO will enable its financial backers to liquidate a portion of their holdings and generate US$581 million in proceeds for the company, which it will use to repay debt," specialist Internet site ipohome.com said.
Warner Music, which generates some 83 percent of revenues from production and distribution of recorded music, and some 17 percent from publishing rights, is one of the four "majors" in the world music industry ranked alongside Universal Music, Sony-BMG and EMI.
Overseeing well-known artists of the likes of Madonna, Metallica and P. Diddy, Warner controls about 15 percent of the US compact disc market, according to analysts.
Globally, it is estimated to be the third biggest player in this market.
Challenges
But Warner is still facing big challenges in an industry driven by new technologies, particularly the growth of swapping music for free over the Internet.
It is also facing competition from rival companies that have entered the music world, such as Apple, which is behind iTunes, which allows consumers to download selected songs and tunes from its Web site to order.
And in the current year, the trend for CD and DVD sales does not look too rosy: Sales of such "physical" music have fallen 10 percent in the first few months of this year compared with last year, according to Fulcrum Global Partners.
Fulcrum for one believes the pricing of Warner's IPO may be too high.
"We believe the pricing of WMG at 22 to 24 [US dollars] is too high and we do not suggest participating in the IPO at that level," said Richard Greenfield, an analyst at Fulcrum.
According to Greenfield, "US$20 or less" would be a more realistic price benchmark.
going Digital
He cited "the inherent risks in estimating music industry revenues at this point in the digital transformation cycle."
Industry groups also point out that the people who sell bootleg CDs and DVDs on street corners, some not far from the New York Stock Exchange where Warner will be debuting today, still present an ongoing threat to the industry.
The group's stock will be traded under the symbol "WMG" on the NYSE.
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