Warner Music (NYSE: WMG) closed at $5.11. WMG August and November option implied volatility of 92 is near its 26-week average of 96, according to Track Data, suggesting non-directional price movement.

Live Nation (NYSE: LYV) a producer of live concerts, closed at $4.70. LYV over all option implied volatility of 77 is below its 26-week average of 109, according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• John Meriwether, whose Long-Term Capital Management lost $4B in 1998, has new troubles with JWN Partners, as his Meriwether's largest hedge fund has fallen 28%, and another market fund is also down. Investors have until Monday to ask to pull out their investment, the Wall Street Journal reported.
• The Wall Street Journal also reported that failed mortgage provider New Century Financial might be able to get back some of its lost funds by suing its auditor KPMG, according to a court appointed investigator who looked at the company's demise.
• After reaching a deal that allows its customers to access many of Universal Music's songs, the Financial Times reported that Nokia Corporation (NYSE: NOK) is in talks with the other three leading record companies - Sony Corporation's (NYSE: SNE) Sony BMG, EMI and Warner Music Group Corp's (NYSE: WMG) - about giving its customers access to their catalogues.

WEB SITES:

• Comscore has released its February "U.S. paid clicks" report, according to a source, which reportedly said Google Inc's (NASDAQ: GOOG) paid clicks in the U.S. during the month increased 3% year-over-year; however, the 'slight, slight improvement' from January may not actually be, the Silicon Alley Insider reported, since Comscore did not adjust for Leap Year. Google's paid clicks in December were up 12% and up 27% in November.

Napster (NASDAQ: NAPS) -- the mother of all file-sharing services that in 10 years' time has found itself one among many digital-music services struggling for its very survival -- is hoping its new move will attract more users. Today, Napster CEO Chris Gorog said the company is shifting to MP3 downloads free of digital-rights-management software [subscription required], or DRM.

The move is expected to occur sometime in the second quarter, but Napster has yet to finalize the arrangements with some of the four major music companies - Sony Corp. (NYSE: SNE), Warner Music Group, EMI Group and Vivendi SA's Universal Music Group. The final three on this list recently began selling MP3s on the download service available through Amazon.com (NASDAQ: AMZN). Sony has yet to report plans to sell its tracks as MP3s, but is reportedly expected to come forward soon.

Today Amazon.com, Inc. (NASDAQ: AMZN) announced an agreement with Warner Music Group Corp. (NYSE: WMG) to distribute music through the Amazon.com digital music store. The key feature to these downloads will be the absence of digital rights management (DRM), meaning that customers who download these songs will not be restricted in their use. They will be able to play them with any music player or computer, unlike Apple, Inc. (NASDAQ: AAPL)'s limited format.

Now, more than 2.9 million titles will be available at Amazon, including those by many well-known artists. Warner Music is added to the line-up, which already included Universal Music Group, EMI Group plc (ADR) (OTC: EMIPY), and thousands of independent labels.

Songs on Amazon cost $0.89 to $0.99, with full albums priced at $5.99 to $9.99. These prices are somewhat comparable to Apple's iTunes, whose individual songs sell for $0.99, with album prices varying.

While some consumers and analysts feel that DRM is necessary to protect the financial interests of the artists and record companies, others think that the lack of DRM will actually benefit them more in the long run. By making the music more accessible and transferable, some people think that consumers will be more likely to buy more music. (I agree!)

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Warner Music Group (NYSE: WMG) could really use some good news. Even after an 8% bump on Thursday resulting from a less bad than expected quarter, the stock's 1-year chart looks like a snapshot of the Titanic as it sank.

Hopefully the Chairman of the Board can turn things around: the company has signed a deal with the family of vocal legend Frank Sinatra to manage the singer's work and likeness.

According (subscription required) to the Wall Street Journal, "Thanks to the iconic status of Mr. Sinatra, who died in 1998, there are a range of potential opportunities, including resorts, Broadway-type revues and others, said Scott Pascucci, president of Warner's Rhino Entertainment, which is overseeing the new venture. "

Sinatra was once synonymous with cool, and clever marketing could lead to a resurgence similar to the one Tony Bennett has enjoyed in recent years. Terms were not disclosed, but this looks like a swing in the right direction for Warner.

Warner Music Group Corp. (NYSE: WMG) announced today a $5 million net profit in the last quarter, compared to $12 million at this time last year. Continued growth in digital sales over sales of physical albums (CDs) is cited as the reason for this drop. There is good news out of that growth as digital sales for WMG rose 25% during the quarter, but according to Billboard this could not make up for CD sales. Across the board, the report indicates that album sales in the United States were down 14% in the last year. Fans are using digital stores like Apple Inc. (NASDAQ: AAPL)'s iTunes store to buy tracks in greater quantities than full albums.

In mid-October, WMG lost a major artist when Madonna opted to sign a new contract with tour promoter Live Nation (NYSE: LYV). For years, WMG had also been mentioned as a possible buyer of London-based EMI Group, but the seven-year rumor ended when Terra Firma bought the music company and took it private. Billboard indicates that WMG is attempting to create new business relationships with the company's roster of artists, much like the other major record companies. This new business model would include "new digital services as well as a share of image rights, advertising, touring and management revenue."

WMG's profit decline is certainly not unexpected, and it is another indication that the digital market is the one these companies should be focusing their attention. As movies and television shows are indicating, the internet and online stores are providing new outlets for material to be tested and offered to fans. It would be prudent to test similar measures and see what the results might be. Clearly, interest would be maintained as fans are already buying more material through online stores versus strolling through retailers looking for CDs.

MAJOR PAPERS:

• In an interview with the Financial Times (subscription required), Carl Icahn said of Motorola (NYSE: MOT): "There is value there, and if that value doesn't manifest itself, I as an activist, would think very seriously about coming back."

OTHER PAPERS:

• Universal Music is in talks with Sony Corporation's (NYSE: SNE) Sony BMG and Warner Music Group (NYSE: WMG) over launching a music subscription service to be called Total Music, which would be free on certain devices, reported the Telegraph.
• While Emerging Memory Technologies CEO Sreedhar Natarajan would not confirm the deal, stating "I'm under a non-disclosure agreement," it is clear that EMT has been acquired by Taiwan Semiconductor Manufacturing Company (NYSE: TSM), the Ottawa Citizen reported.
• Lehman Brothers analyst Douglas Anmuth believes Google (NASDAQ: GOOG) will launch a mobile phone similar to that of Apple's (NASDAQ: AAPL) iPhone in February, reported the Independent.
• The Associated Press reported that Nomura Holdings (NYSE: NMR) announced that it will close its mortgage-backed securities business in the U.S., and expects a group pretax loss of between $240M and $510M for the quarter ended in September.

WEBSITES:

• According to Unstrung.com's sources in the finance community, Cisco Systems (NASDAQ: CSCO) is expected to enter the WiMax arena before the end of the month, and Navini Networks is Cisco's preferred target.

MAJOR PAPERS:

• The Wall Street Journal's "Ahead of the Tape" focused on the upcoming earnings report from American International Group Inc (NYSE: AIG) after the close today, as a fresh barometer to gauge the subprime market -- AIG has exposure as a lender, insurer, and investor.
• With uncertainty in the debt markets, Virgin Media Inc's (NASDAQ: VMED) plans to sell itself were put off until conditions improve, reported the Wall Street Journal.
• The Financial Times reported that Oleg Deripaska, the owner of Russia's biggest aluminum maker, has acquired a stake in General Motors Corporation (NYSE: GM) of just under 5%, say two people with direct knowledge of the matter.

OTHER PAPERS:

• The Chinese government, which holds $1.33 trillion in foreign reserves, has made economic threats against the U.S., saying it may liquidate its holdings in U.S. Treasury bonds if the U.S. imposes trade sanctions to force a yuan revaluation, reported the Telegraph.
• The New York Post has learned that Warner Music Group Corp (NYSE: WMG) may go private due to its plummeting stock price and negative investor sentiment towards the music industry in general.

The four largest handset manufacturers in the world are setting up a music service with major music publishers. They hope to use the new product to compete with key features of the Apple (NASDAQ: AAPL) iPhone. According to the FT, Nokia (NYSE: NOK), Motorola (NYSE: MOT), Samsung, and Sony Ericsson will offer a flat-fee music service in Europe and Asia.

The new initiative will take music from Warner Music Group (NYSE: WMG), Universal Music, EMI, and BMG.

Although the service will not begin in the US, there is every reason to think that it will head here. The new "MusicStation" service will be preloaded onto phones.

Access to iTunes is one of the major selling features of the iPhone. The large handset companies have good reasons to want to make the iPhone less attractive. If its sells well in the US, it will almost certainly be offered overseas, and the big phone manufacturers will be waiting with features to keep its sales low.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MAJOR PAPERS:

• Barron's Online's (subscription required) "Inside Scoop" section reported that Thomas Everist, an MDU Resources Group (NYSE: MDU) board member since 1995, has sold a total of 742K shares for a total of $22.6M in MDU stock since May 2, according SEC data.
• The Wall Street Journal (subscription required) reported that EMI Group (OTC: EMIPY), the third largest music company by sales agreed to sell to Terra Firma Capital Partners for $4.74B, possibly ending its seven year battle with Warner Music Group Corp (NYSE: WMG).

OTHER PAPERS:

• According to the New York Post, citing people familiar with the situation, the weakening housing market and other issues are making it difficult for Home Depot Inc (NYSE: HD) to sell its professional supply business.
• Discovery Communications is in talks with CBS Corporation (NYSE: CBS) to sell half its Discovery Times channel and form a joint-venture partnership, according to sources close with the situation, reported the Washington Post.

WEBSITES:

• According to an NDP Group report, April sales of Nintendo's (OTC: NTDOY) Wii consoles were almost 3.5 times higher than Sony Corporation's (NYSE: SNE) PlayStation 3, reported DigiTimes.com.

MOST NOTEWORTHY: ValueClick, Inc (VCLK), aQuantive, Inc (AQNT), Cigna Corp (CI), Warner Music Group (WMG), Clear Channel Communications, Inc (CCU) and Medtronic, Inc (MDT) were today's more notable downgrades:

• Baird cut ValueClick Inc (NASDAQ: VCLK) to Neutral from Outperform, citing the FTC inquiry.

• aQuantive (NASDAQ: AQNT) was downgraded to Sell from Buy after the company was acquired by Microsoft (MSFT) and because aQuantive no longer trades on fundamentals. Kaufman and Gabelli also cut aQuantive to Hold from Buy.

• Cigna (NYSE: CI) was downgraded at Prudential to Neutral from Overweight on valuation.

• Warner Music Group's (NYSE: WMG) downgrade to Sell from Neutral at Pali Research was based on the lower industry outlook, which Pali believes revenues are likely to fall at least 10% for the industry in 2007, along with the company's release schedule.

• Bear Stearns downgraded Clear Channel Communications (NYSE: CCU) to Peer Perform from Outperform on the acceptance of the higher bid.

• Medtronic Inc (NYSE: MDT) was downgraded to Underweight from Equal Weight at Morgan Stanley...

OTHER DOWNGRADES:

• Georgia Gulf Corp (NYSE: GGC) was downgraded to Sell from Hold at Matrix USA.

• Stifel cut Core Laboratories (NYSE: CLB) to Hold from Buy.

• UBS downgraded Intuit Inc (NASDAQ: INTU) to Neutral from Buy.

• Occidental Petroleum Corp (NYSE: OXY) was removed from Goldman's Conviction Buy list.

• Friedman Billings downgraded downgraded CapitalSource, Inc (NYSE: CSE) and Countrywide Financial Corp (NYSE: CFC) to Market Perform from Outperform.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

MAJOR PAPERS:

• Google Inc (NASDAQ: GOOG) and online services company Salesforce.com Inc (NYSE: CRM) may form a partnership to better compete with Microsoft Corporation (NASDAQ: MSFT), reported the Wall Street Journal (subscription required).
  

OTHER PAPERS:

• The U.K. Times reported that Warner Music Group Corporation (NYSE: WMG) is expected to offer EMI Group (OTC: EMIPY) a "£100 million sweetener" to try and keep the company from accepting an offer from private equity.
• According to The Observer, Royal Bank of Scotland (OTC: RBSPY), along with its partners Fortis and Banco Santander Central Hispano (NYSE: STD), hope to "table" a £47 billion offer for ABN Amro Holdings (NYSE: ABN) this week.
• The Observer reported that a private equity consortium is considering a $15 billion offer for Virgin Media Inc (NASDAQ: VMED).
• Cadbury Schweppes ADS (NYSE: CSG) is planning to return £5 billion to shareholders through a special dividend or share buyback, according to The Observer.
• The Sunday Telegraph reported that UBS AG (NYSE: UBS) will offer to buy out the pension schemes of some of the leading FTSE100 companies next week.
• Yahoo! Inc (NASDAQ: YHOO) may be looking to acquire British social networking site Bebo, the Sunday Telegraph reported.
• The Bollywood film producer, Eros International, is expected to announce a partnership with Google Inc's (NASDAQ: GOOG) YouTube, the Sunday Telegraph reported.
• Teva Pharmaceutical Industries Limited's (NASDAQ: TEVA) Copaxone will face generic competition for the first time, but will not see an impact immediately, Ha'aretz reported.

WEBSITES:

• The Orange County Register blog looked at a transcript from IndyMac Bancorp Inc's (NYSE: IMB) first quarter conference call, where the CEO Michael Perry said: "When you see that delinquency number in the press of 13% subprime delinquencies, it's hugely understated. It is absolutely hugely understated. And the prime delinquencies are overstated. The subprime delinquencies are more like 18, 20, 22% delinquencies and that's where I think you're going to see the problems."

Warner Music Group Corp. (NYSE: WMG) reported a $27 million loss in the first three months of 2007, its fiscal second quarter, versus only $7 million in the same period of 2006. An article by the Associated Press reports that the job cuts will not increase profits, as they refer only to physical format positions, or people who sell and package CDs and other related merchandise.

The good news for the company is that despite the loss, the digital sales actually grew from the previous year, but those still only comprised $14 million of total revenue of $784 million. This is an important growth for the company because it may put it in a more prominent position with regard to DRM (digital rights management) technology discussions and negotiations. Perhaps it is a sign that the company will be more flexible in the negotiations over DRM in the future, but it could also mean that the DRM issue is not as large as is being made. All I know is that I make a big deal out of it and think it should be dropped (like EMI has done) across the board.

The company cites slowing sales in other markets such as Europe and South America for the loss, and it is currently placed third in music sales in the United States, behind Universal Music Group and Sony BMG Music Entertainment, neither of which are headquartered in the U.S (via a report the article cites from the end of April). Warner fell $0.16 after the announcement on Tuesday to $17.14. It was a loss of less than 1%, but it negated the gains the company seemed to be making over the last couple of weeks.

Warner Music Group (NYSE: WMG) may be in a lawsuit with online retailer AnywhereCD, but the company is doing something right, and that appears to be their advertising. With the coming summer music season, all of the major albums by big artists are being released. Warner will release Linkin Park's third album Minutes to Midnight on May 15th, a highly anticipated album by the rock sextet.

The company appears to have taken the enormity of that band into their consideration of how to best market the album. The biggest change in album marketing I've noticed is the appearance of TV commercials that feature the new single "What I've Done" over the album art, followed by the release date (I've rarely seen a new album by such a large band marketed this way). Additionally, the album has been available for pre-order on Apple Inc.'s (NASDAQ: AAPL) iTunes Store since mid-April, well before pre-orders are typically made available, and features "secret bonus tracks" that are exclusive to that store. In my local Best Buy (NYSE: BBY) store's weekly ad this morning, the album is also available for pre-order and carries special pre-order offers. The album is still two weeks from being released.

These rather minute advertising successes may not increase album sales, but they certainly increase the awareness listeners will have of the album and the release. That is what makes Warner's success this month vital for the company, especially as their prices slowly rise. Last week alone they increased steadily to gain nearly a $1.

It was twenty years ago today... well not exactly, but it was 1987 and five of the world's most influential musicians came together to record a b-side for George Harrison's "This Is Love" single. Harrison , along with Tom Petty, Bob Dylan, Roy Orbison, and ELO's Jeff Lynne, recorded "Handle with Care" and created supergroup history. You may not remember the Traveling Wilburys, or even have known those artists were involved, but in 1988 their album Traveling Wilburys Vol. 1 reached #3 on the Billboard albums chart and sold more than 2 million copies.

For more than 10 years that album along with the follow-up two years later, have been unavailable. This summer Rhino Records, an imprint of Warner Music Group (NYSE:WMG), will re-release both Traveling Wilburys albums as well as bonus video material in a special reissue set. It's an interesting re-issue for this summer, not because it does not deserve to be re-issued, but because it is part of the re-issuing of George Harrison's post-Beatles career by his estate (here is the press release).

Warner caught a lucky break with these reissues because most of Harrison 's material reverted to EMI (he was originally with the London-based label as a Beatle and a solo artist). It was assumed that these two albums also reverted, but those assumptions were obviously wrong.

This reissue will do quite well because it was a collaboration between five talents and received such high praise upon its initial release. By comparison Harrison's solo material was often hit or miss.