Now we know why it’s taking Warner so long to sell $200m+ in assets to the indies: MBW has learnt that over 140 independent businesses have made bids for more than 11,000 artists/catalogues from the major in the wake of its buyout of Parlophone Label Group.
And this huge influx of offers has, according to Warner, left it “50 times oversubscribed”.
It’s been more than two years since Warner announced that it had agreed to divest a “significant portion” of PLG assets (or their equivalent in other WMG-owned catalogues), to non-major music companies.
According to a leaked email sent to IMPALA and Merlin reps on Christmas Eve 2014 and obtained by MBW, a senior Warner exec admits: “I realise that there is a good deal of frustration at how long the process has taken so far. That goes for us as well as you.”
However, there is a light at the end of the tunnel.
In the email, Warner anticipates that it can possibly get the deals done and dusted by the end of this summer, something which sources close to the company suggest remains a realistic proposition.
Obviously, Warner is as keen to get the deal done as anyone: the company stands to make back around 30% of the £487m (€675m; $723m) it paid for Parlophone Label Group, money which it will likely reinvest into signing new talent.
Warner agreed with IMPALA to pass assets to indie companies through sale, licensing or distribution deals. These can either come from what was previously Parlophone Label Group (PLG), or from other Warner catalogues of similar value.
Whispers suggest that many independent bids are from managers or label owners looking to be ‘reunited’ with elements of catalogue that they have signed in the past.
Warner’s obligation to ‘support and strengthen the independent music community’ means that a straightforward sale of, say, three big chunks of assets to the three biggest indies likely isn’t an option – the divestments should benefit a range of businesses.
You can read the email, dated 24/12/2014, below.
Thank you for coming in last week. I thought it was a really useful and thoughtful meeting. As I did when we met, I just wanted to reaffirm Warner’s commitment to the divestment process that we all agreed.
We are focused on fulfilling our obligations, as you are on yours, and I know we both continue to believe that this is a process that will benefit Warner and the independent community.
I realise that there is a good deal of frustration at how long the process has taken so far. That goes for us as well as you. We all want to reach the goals we agreed as soon as possible.
“I realise there is a good deal of frustration at how long the process has taken so far.”
I would like to set out again the reasons from our perspective why we are not further along than we are at present. First, as you know, we had a huge response to the initial call for divestment bids – over 140 independent businesses made bids for more than 11,000 artists and catalogues. Effectively we were 50 times oversubscribed.
Coming up with revenue figures and valuation ranges for such a large number of artists and catalogues was an enormous task. Coupled to that is the need for us to carry out at least basic due diligence on the respective artist and catalogue agreements to check for issues of transferability.
Also as you know, we spent several months discussing with you and John the appropriate mechanics for valuing assets. At the same time we were engaged in negotiations with your legal team on the draft template Asset Purchase Agreement and Licence Agreement. For various reasons, all of these items took longer than expected.
We are now making good progress, working with our various repertoire owners around the Warner group, to review John’s extensive counter proposals to our own submission. I am optimistic that we will complete that process by the end of January and – assuming that our pragmatic and constructive dialogue with John continues– we will have agreed the overall package of divestments by the end of February.
We will then need to undertake a detailed review of the relevant artists agreements and begin the process of assembling the assets (masters, artwork etc) that will need to be transferred to successful bidders.
“In mid-to-late summer 2015, we should be in a position to conclude the agreements.”
Clearly we will have a lot of work to do in order to get agreements with all successful bidders in place as well as conclude all the necessary discussions with artists or their representatives. I anticipate – again, with John’s cooperation – that that process will take around 3-6 months so that in mid/late Summer of 2015 we should be in a position to conclude the agreements and transfer the assets to your members.
Again, it is unfortunate that this process is taking longer than any of us would like despite a great deal of work on both sides but we remain very committed to completing the divestment process. I will of course keep you updated as we move forward in the next weeks and months and am happy to meet with you both on this and other issues of common interest to Warner and your membership.
Best wishes for Christmas and the New Year.Music Business Worldwide