It’s tough running a major music company today. For starters, you’re reliant on off-the-wall creative types to help you hit your ever-stricter targets.
Then there’s piracy, cost-cutting and that big question mark over whether streaming, in reality, can ever really take this industry back to the promised land.
In fact, you might not realise just how many fears play on the mind of a major label boss every single day.
So we’re here to tell you. It’s 43.
Earlier today, Warner Music Group announced its fiscal results for the last quarter of 2014, recording Q1 net losses of $41m against a 1.7% revenue jump to $829m.
Buried within the company’s investor information lay something rather revealing about its biggest fears for the future: a list of what it deems its ‘risks, uncertainties and other important factors’.
This is the stuff that Warner warns, at any moment, could derail its hopes of hitting its financial forecasts.
Non-fiscal types might find some chuckle-worthy language in there: “Our indebtedness levels, and the fact that we may be able to incur substantially more indebtedness which may increase the risks created by our substantial indebtedness.”
But that doesn’t mean that many of the points below aren’t salient for any big music company in this day and age.
Don’t have nightmares.
- The continued decline in the global recorded music industry and the rate of overall decline in the music industry;
- Downward pressure on our pricing and our profit margins and reductions in shelf space;
- Our ability to identify, sign and retain artists and songwriters and the existence or absence of superstar releases;
- Threats to our business associated with home copying and digital downloading;
- The significant threat posed to our business and the music industry by organized industrial piracy;
- The popular demand for particular recording artists and/or songwriters and albums and the timely completion of albums by major recording artists and/or songwriters;
- The diversity and quality of our portfolio of songwriters;
- The diversity and quality of our album releases;
- The impact of legitimate channels for digital distribution of our creative content;
- Our dependence on a limited number of digital music services, in particular Apple’s iTunes Music Store, for the online sale of our music recordings and their ability to significantly influence the pricing structure for online music stores;
- Our involvement in intellectual property litigation;
- Our ability to continue to enforce our intellectual property rights in digital environments;
- The ability to develop a successful business model applicable to a digital environment and to enter into artist services and expanded-rights deals with recording artists in order to broaden our revenue streams in growing segments of the music business;
- The impact of heightened and intensive competition in the recorded music and music publishing businesses and our inability to execute our business strategy;
- Failure to realize expected cost savings and other synergies and benefits contemplated by the PLG Acquisition;
- Risks associated with our non-U.S. operations, including limited legal protections of our intellectual property rights and restrictions on the repatriation of capital;
- Significant fluctuations in our operations and cash flows from period to period;
- Our inability to compete successfully in the highly competitive markets in which we operate;
- Trends, developments or other events in some foreign countries in which we operate;
- Local economic conditions in the countries in which we operate;
- Our failure to attract and retain our executive officers and other key personnel;
- The impact of rate regulations on our Recorded Music and Music Publishing businesses;
- The impact of rates on other income streams that may be set by arbitration proceedings on our business;
- An impairment in the carrying value of goodwill or other intangible and long-lived assets;
- Unfavorable currency exchange rate fluctuations;
- Our failure to have full control and ability to direct the operations we conduct through joint ventures;
- Legislation limiting the terms by which an individual can be bound under a “personal services” contract;
- A potential loss of catalog if it is determined that recording artists have a right to recapture rights in their recordings under the U.S. Copyright Act;
- Trends that affect the end uses of our musical compositions (which include uses in broadcast radio and television, film and advertising businesses);
- The growth of other products that compete for the disposable income of consumers;
- The impact of, and risks inherent in, acquisitions or business combinations;
- Risks inherent to our outsourcing of IT infrastructure and certain finance and accounting functions;
- Our ability to maintain the security of information relating to our customers, employees and vendors and our music-based content;
- The fact that we have engaged in substantial restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost-savings;
- The impact of our substantial leverage on our ability to raise additional capital to fund our operations, on our ability to react to changes in the economy or our industry and on our ability to meet our obligations under our indebtedness;
- The ability to generate sufficient cash to service all of our indebtedness, and the risk that we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful;
- The fact that our debt agreements contain restrictions that limit our flexibility in operating our business;
- Our indebtedness levels, and the fact that we may be able to incur substantially more indebtedness which may increase the risks created by our substantial indebtedness;
- The significant amount of cash required to service our indebtedness and the ability to generate cash or refinance indebtedness as it becomes due depends on many factors, some of which are beyond our control;
- Risks of downgrade, suspension or withdrawal of the rating assigned by a rating agency to us could impact our cost of capital;
- Risks relating to Access [Industries], which indirectly owns all of our outstanding capital stock, and controls our company and may have conflicts of interest with the holders of our debt or us in the future. Access may also enter into, or cause us to enter into, strategic transactions that could change the nature or structure of our business, capital structure or credit profile;
- Our reliance on one company as the primary supplier for the manufacturing, packaging and physical distribution of our products in the United States and Canada and part of Europe;
- Risks related to evolving regulations concerning data privacy which might result in increased regulation and different industry standards.
Music Business Worldwide