An investor group led by Seagrams heir Edgar Bronfman Jr. is buying Warner Music for $2.6 billion, a cash deal that propels Bronfman back into the forefront of the entertainment business and gives Time Warner the cash it needs to begin growing again.
In an interview, Bronfman said he will play an active, day-to-day role in running Warner Music. Even though he anticipates cost cutting will be necessary in the short run, as the music industry struggles with free online music swapping and piracy, he is optimistic about future prospects.
"We don't believe the music industry is going away forever," Bronfman said. "The industry has, and always will, find new means of distributing its content. Whether that takes a short time, or a long time, which is what we are planning for, we think we know how to run this business."
Bronfman said Roger Ames, the chairman and chief executive officer of Warner Music, will continue to play a senior leadership role. He also said that he will be a hands-on investor.
"I expect to be here full time and devoting all my energies to working with Roger," Bronfman said. "Roger and I have had many good conversations and are looking forward to working with each other."
For Bronfman, the deal marks a fresh chance for success as a music mogul. His stewardship of Universal Records ended with the sale of that business for stock to Vivendi, a French firm which has teetered near bankruptcy under the weight of too much debt and other problems.
Time Warner CEO Richard Parsons said in an interview that the sale of Warner Music will give the world's biggest media company enough cash to begin investing in the growth of Time Warner Cable and other divisions that are growing, rather than sticking with the music business, which has been contracting for several years due to free online music swapping and falling CD sales.
Parsons said Time Warner is about one year ahead of schedule in reducing its debt to target levels, which was its top priority, and will shift its focus to growth once the sale closes within 60 days.
"We will be looking to maximize the value of this flexibility for our shareholders and that probably will entail investment inside and outside the company, and possibly doing other things," Parsons said. "Cable is one."
The deal, announced this morning, gives Time Warner the right to buy back 15 percent to 19.9 percent of Warner Music over the next three years, which Parsons said would give Time Warner the ability to participate in future growth if there is a turnaround in the music business.
The transaction includes not only Warner Music's stable of more than 800 artists -- including Linkin Park, Sean Paul, Madonna, Metallica, R.E.M. and Kid Rock -- but also its highly profitable music publishing arm, Warner/Chapell Music, which owns more than one million copyrights.
"I am very, very happy," Bronfman said.
