Warner offer aims to strike the right note

NEW YORK - Warner Music Group will find out this week if investors are singing its tune as the world's fourth-largest music company tries to woo them with a US$750 million ($1.02 billion) initial public offering.

Warner, home to recording artists including Madonna and Green Day, is making the offer just over a year after Time Warner sold the music company to a group of private equity partners led by media mogul Edgar Bronfman Jnr for US$2.6 billion.

The music industry is trying to bounce back from several years of plummeting sales, hurt by CD piracy, illegal downloads and competition from video games and DVDs.

Warner Music is enjoying a profitability spurt after cutting its work force by 28 per cent. It posted a fourth-quarter profit of US$36 million, but revenue fell 7.6 per cent to US$1.09 billion compared with a year earlier.

Warner has filed for a 32.6 million share IPO, with a target price of US$22 to US$24 a share.

Priced in the middle of its estimated range, the company would have a market value of US$3.3 billion.

The IPO would allow Warner to raise money to reduce its debt, which totals about US$2.5 billion.

But there are numerous struggles on the horizon.

Warner is in a dispute with one of its more successful acts, rap metal band Linkin Park. In addition, New York Attorney-General Eliot Spitzer is investigating the music industry's practice of paying independent promoters millions of dollars a year to help secure valuable radio air time for songs.

Fulcrum Global Partners analyst Richard Greenfield, citing a recent downturn in US album sales, said pricing Warner at US$22 to US$24 was too high.

"While the music industry has finally begun to embrace the digital opportunity ... we are unclear as to how soon the benefits of new technologies will take hold and, more importantly, how quickly the industry can alter its cost structure to take advantage of new economic models," Greenfield said.

- REUTERS