According to a Billboard article published Wednesday, Neilsen Soundscan has reported an 11% decline in album sales during the first half of 2008, compared to the same period in 2007. Consumers purchased 204.6 million albums between January and June, over 25 million less than a year ago, but luckily not as sharp a decline as the 15.1% that occurred in the first half of 2007 as compared to 2006. Nielsen Soundscan told Billboard that the "drop is fueled largely by the 16.3% decrease in CD sales" despite digital album sales rising 34.4& to account for 15.4% of sales (31.6 million units).

Digital growth is still a productive and lucrative spot for the music industry, with single track downloads growing 30% to 532.7 million units in the first half of the year over first half sales in 2007 of 417.3 million units. Universal Music Group is still the most dominating music company, despite dropping .3% to 31.2% in sales. Sony BMG Music Entertainment and EMI Group also fell, with Sony BMG dropping .5% to 24.8% and EMI dropping 1% to 9.4%. The only major music company to gain any ground was Warner Music Group Corp. (NYSE: WMG), rising .8% to 20.8%. Independent music companies also rose in the first six months of 2008, capturing 13.9% of the market -- up 1%.

Declines in album sales are a constant trend in the music industry, so an 11% drop is no real surprise but the lowered decline over one year ago should cause some relaxation. The only problem with the drop in decline is that album sales are still falling off. Even though Nielsen Soundscan and Billboard both commented on the hope provided by single track downloads, the industry still looks to album sales to justify the recording and marketing of music. If that trend would change, single track downloads would make an obvious market to rely on. Instead, reports about declining album sales will still continue while single track downloads continue to grow.

The world's third largest music company, Warner Music Group Corp. (NYSE: WMG), reported this morning a wider second quarter loss and suspended a quarterly dividend to strengthen its balance sheet.

Warner Music posted a quarterly loss of $37 million, dragged down by higher costs and lower compact disc sales. Analysts had expected a loss of 12 cents per share, and were disappointed to see the company report a loss of 25 cents per share.

Warner's quarterly revenue rose only 2% to $800 million compared with $784 million a year ago. The company attributed the revenue decline to its recorded-music segment whose sales climbed only 0.6% due to consumers' preferences for digital music. However, the drop in revenue could have been even worse if the recording company hadn't benefited from the weak dollar, Warner stated. Analysts expected revenue of $780 million, according to Thomson Reuters.

Bloomberg reported Thursday that News Corp.'s (NYSE: NWS) MySpace asset wants to leverage its mindshare to sell music. Not a huge leap of logic there -- MySpace is a touchstone for the online-savvy youth, a group that enjoys consuming songs and going to shows. Only problem is, the MySpace generation also intersects with another club -- the iPod generation -- and going against Apple (NASDAQ: AAPL) won't be a simple task for Rupert Murdoch and his social-networking empire.

Bloomberg points out an another interesting issue for MySpace -- its buzz appears to be weakening somewhat. I found it very interesting that Facebook is challenging MySpace's dominance in terms of user growth, and that Google (NASDAQ: GOOG) may not be doing as well with its MySpace deal as perhaps it theoretically should be.

This music initiative, called MySpace Music, is intended to aid top-line sales expansion. Remember the days when MySpace was the undisputed god of the web? Hey, it's still a major online brand, no question, but I find it funny how, in certain respects, MySpace just isn't the untouchable social network that it once was. It definitely calls to mind the axiom dictating that the hot domain one year might not be quite the zeitgeist the next; I've certainly been hearing more and more about Facebook than I have about MySpace these days.

According to the BBC this morning, Irish rock band U2 have signed a 12-year deal with Live Nation, Inc. (NYSE: LYV) on top of the band's deal with Vivendi's Universal Music Group. The deal will see the band consolidate previous arrangements and connections with Live Nation and includes merchandising, digital, and branding rights. U2 follows Madonna into an extensive contract with Live Nation, although record releases were included for Madonna.

Financial arrangements between U2 and Live Nation have not been disclosed, but it would not be surprising to see the band enjoy a similar deal to Madonna, who reportedly signed for $120 million over 10 years. Both deals are part of a larger trend of so-called "360 degree deals", according to the BBC, where artists "combine their recording, publishing and touring revenues." U2's lead singer Bono told the BBC as well that U2 and Live Nation had been in a "relationship for 20 years" so the new deal has been a long time coming.

U2's move is quite unsurprising given the latest trends for artists, but it should be noted that record label Universal retained a relationship with the band. As previously stated, Madonna's deal included Live Nation taking charge from Warner Music Group (NYSE: WMG) to release her new albums (after the upcoming release). The fact that Universal was able to keep U2 in some degree means that either a larger deal for the release of albums was already in place, or the record labels are seeing the shift and making amends to keep artists in traditional outlets.

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.

Billboard reported Wednesday that Warner Music Group (NYSE: WMG) suffered a $16 million loss during the first fiscal quarter of this year, which ended on December 31, 2007. This is the result of shutting down a concert promotion company, and the loss also contrasts with the $18 million income the company enjoyed in the same period a year ago.

Despite this loss, the music giant still managed to increase domestic sales up 10.5% in the face of album sales dropping 14.6%, and international sales also increased by 2.7%. The company told Billboard that the growth was due to labels Warner Bros. Records and Atlantic Records "capturing the No. 1 and No.2 rankings in U.S. market share and to a strong showing in digital revenue." According to the same piece, the revenue from digital sales was 14% of all revenue, but still not a significant increase over past figures.

Rumors now frequently circulate about massive music acts leaving their long-term record labels. Last spring Paul McCartney defected from EMI after 45 years to join Starbucks' (NASDAQ: SBUX) Hear Music label. Madonna left Warner Music Group (NYSE: WMG) last fall. Other artists have followed suit, while some who are still signed have started speaking out against their labels. In this most recent case, Irish rock band U2 is rumored to be leaving Vivendi's Universal Music Group to sign up with Live Nation (NYSE: LYV).

Although I wouldn't blame the artists for leaving their labels, as long as it is in their best interests and increases fans accessibility to the music, it is certainly going to affect the record industry long-term if the defections continue. At the same time, many critics and bloggers would point out that the acts switching labels are already past their prime -- their big hits and money-making lies with albums that came while they were at the labels. That may be true for acts like McCartney, U2, and Madonna, but the best example of this -- Radiohead -- is hardly through making the huge hits they enjoyed while with a major record label.

Radiohead, if you remember, is that "little" band that caused such a stir last October when it decided to release its new album, In Rainbows, to fans in a pay-what-you-want model. When the album was released on CD earlier this year it hit #1 in numerous charts around the world.

Obviously, none of these acts would have achieved such huge successes without major record labels, and it is impossible to say that the future of the record industry is without music labels. These rumors and the actual occurrences indicate that companies like Live Nation and Starbucks, while not necessarily oriented primarily for music distribution, are making better gains than the labels. This will not be ignored for long so the rumors may cease, and only indicates the movement music acts are making for the time being.

The music catalog of heavy metal band Led Zeppelin will become available in all digital stores on November 13, reports Billboard this morning. Following AC/DC, the band has also entered an exclusive agreement with Verizon (NYSE: VZ), making the mobile music provider the first to offer "full-song over-the-air downloads, ring tones, ringback tones, alert tones and wallpapers."

Warner Music Group (NYSE: WMG) will make the catalog available on the same day that a new career spanning compilation album, Mothership, will be released by Atlantic Records. A week later, a new "remixed and remastered" version of live album The Song Remains the Same will also be released and offer six new songs for the album. Finally, as was previously reported, Led Zeppelin will also play a "one-off" performance at London's O2 Arena on November 26, to honor the memory of Atlantic Records co-founder Ahmet Ertegun.

All told, it seems that November will be a very busy month for the British band. It is quite surprising to see Led Zeppelin have waited so long to offer digital downloads, considering that the remastered versions that will likely be uploaded by Warner Music Group were first released thirteen years ago. The release of the How the West Was Won live album in 2003 seems like a more apt chance to move into the market in retrospect, but here we are four-and-a-half years later.

The only remaining major digital market holdout now is The Beatles, and their move is expected in the new year.

A new report today indicates that Universal Music Group chief Doug Morris is aiming to create an industry-wide competitor to Apple (NASDAQ: AAPL)'s iTunes Store. According to BusinessWeek, Morris has already enlisted Sony BMG, a merger between Sony Entertainment (NYSE: SNE) and Germany's BMG, and is in talks with Warner Music Group (NYSE: WMG). The service Morris intends to create will be called Total Music and "move digital music beyond the iPod-iTunes universe by nurturing the likes of Microsoft (NASDAQ: MSFT)'s Zune media player and Sony's PlayStation and by working with the wireless carriers."

The move comes after Morris and UMG declined to renew a multi-year contract with Apple in July because Steve Jobs and company would not "ease stringent terms limiting how record companies market their music." At this time, Universal's music remains available on iTunes on a month-to-month basis. The new subscription-based service would ask "hardware makers and cell phone carriers to absorb the cost of a roughly $5-per-month subscription fee so consumers get a device with all-you-can-eat music that's essentially free." In that model, the music companies would take the fee and the manufacturers and carriers would sell more devices, in theory.

The new service is also attempting to bank on calling music a utility that consumers are entitled to own. BusinessWeek comments that this is a lot like the iTunes model but takes it one step further, and reminds us that the music companies have set up subscription services before and failed to maintain a place in the market. The one question that remains is whether consumers buying the devices and subscribing for $5 will be able to keep the music they download? If this model is based on iTunes, then that would be a resounding yes. Otherwise, it is simply another service that takes the control of music "ownership" out of the consumer's hands. It's hardly a utility if you have to give it back.

With the news this morning that Madonna is potentially leaving Warner Music Group (NYSE: WMG) for tour promoter Live Nation (NYSE: LYV), the future of the record industry is again being questioned. In the wake of English band Radiohead's self-release online of its seventh album, any move away from the record industry is demanding notice. A move to a tour promoter with album and merchandise opportunities only gives artists more control over their product, as opposed to making numerous deals with separate entities.

The Wall Street Journal's article cites that "a range of players in the music business -- labels, concert promoters and even managers and ticketing companies -- are eager to make broad deals that give them a larger piece of the pie by participating in revenue streams such as endorsement deals between artists and advertisers, as well as the sales of concert tickets and merchandise." That very sentiment spells doom for the record industry as the "newer" entities that enter the album-making business make offers that are often better than the deals the record labels offer.

The possibility of Madonna moving from Warner Music is only the most recent in a long line this year of successful artists moving from the big labels, but so far the question has revolved around embracing new technologies like the digital market. Paul McCartney shook up everything back in March when he moved from the Terra Firma-held EMI to Starbucks' (NASDAQ: SBUX) Hear Music, seizing on a market that had primarily been used for selling compilation CDs. McCartney's Memory Almost Full sold extremely well and catapulted him into the digital world. Radiohead's In Rainbows is this year's other strong case, though exact sales numbers are not available yet (however, the album's download site did get overloaded yesterday).

But the problems that face label groups like Warner and EMI are not limited to those companies. The entire business model for the music industry is being redrawn and recreated, but not by the labels. As the cases of Madonna, McCartney, and Radiohead illustrate, the artist is taking control of an industry that has long abused its power.

MAJOR PAPERS:

• Madonna, the original material girl, is signing a 10-year $120M deal with concert promoter Live Nation (NYSE: LYV), leaving Warner Music Group (NYSE: WMG) in her wake, reported the Wall Street Journal.
• According to the Wall Street Journal's "Heard on the Street" column, Progressive Corporation (NYSE: PGR) is struggling due to competitors' pricing, safer cars, and a struggling economy, to name a few factors.
• The Financial Times reported that General Electric Company (NYSE: GE) will decide whether to sell its 80% stake in NBC Universal after the Beijing Olympics in August 2008, according to sources.
• Tenaris (NYSE: TS), the maker of steel pipes for oil and gas exploration, has ruled out any possible sale of itself to ArcelorMittal (NYSE: MT) , the world's biggest steel producer, reported the Financial Times.

OTHER PAPERS:

• The New York Post reported that UBS AG (NYSE: UBS) has fired David Martin, its head of interest-rate trading, and James Stehli, the head of its collateralized debt obligation unit, due to the fallout from the mortgage meltdown.
• BP PLC (NYSE: BP) CEO Tony Hayward will today unveil plans to reduce bureaucracy and duplication of management at the oil giant, reported the Telegraph.

Madonna is on her way out the door at Warner Music Group (NYSE: WMG). She is being drawn away by a $120 million, ten year offer from Live Nation (NYSE: LYV), the large concert promoter.

Under the terms of the deal, according to The Wall Street Journal, Madonna will make three albums with the concert promoter. Live Nation will also promote merchandise and the licensing of her name.

Several industry observers say that Live Nation cannot make its money back on album sales. It would require close to 50 million units. But, by making money on other lines of business, like sponsorship of tours, the company may well be able to make a profit.

Warmer Music Group probably decided that the deal did not make economic sense and let Madonna go. But, that would be short-sighted. With CD sales falling and more revenue coming from digital downloads, WMG shares have lost almost two-thirds of their value in a little over a year. The stock now trades just above $11.

Digital sales do not yield music publishers as much per song as CDs do. Warner has to come up with some other way to make money. Taking a chance on Madonna's concert sales and sponsorships would have been a good first step out of a hole for Warner. But, they did not take it.

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

If you haven't read or seen anything about the album cover the English band Hard-Fi created for their most recent album, you might be interested simply for the novelty of the approach. Once Upon a Time in the West was released last week (next week in the U.S.) with the band's name, the album title and the words "No Cover Art." larger than both as the cover image (or non-image).

The band has stated that they wished to "break the rules" of an increasingly digital market where album covers did not matter by simply not having any artwork. The accompanying artwork for the first single from the album tells the listener that an "expensive black and white photo of band" is not available in a more overt statement about the decline in importance for artwork to accompany an album. The band also told NME that "it gets harder to do something really interesting because of the size of CDs" and that they have been told that this move makes the album "the white album" for this generation. (8/18/2007, p.21) Of course, when the "white album" was released in 1968 it hardly mattered that the sleeve was white as much as it mattered that The Beatles were putting out a new album.

On the whole, the scheme seems like a fairly interesting marketing campaign. Reports indicate that Warner Music Group (NYSE: WMG) label executives were against the move, which has sparked harsh criticism from fans on the band's message boards. Despite these backlash, the lack of artwork and surrounding media coverage brought this potential listener to their website and clips of their songs which seems a successful ploy to bring in new listeners. It may only be a novelty bid in a saturated market but "no cover art" may just succeed and allow the band to reinsert the importance of music in selling music in the record industry.

It must be that Steve Jobs got the top job at Wal-Mart (NYSE: WMT). He has been crying for the music industry to offer music without copyright protection, and the world's largest retailer has just become his best friend.

Wall-Mart's large online music store will begin to offer songs that can be played anywhere - transferred from device to device. The songs will be sold for 94 cents per track and, according to Reuters, "the new format let customers play music on almost any device, including iPod, phones and Microsoft Corps's Zune portable media player."

The announcement may be bad news for two large music companies that have not already decided to move full-speed into DRM-free downloads, Sony BMG and Warner Music Group (NYSE: WMG). They fear that if music can be moved anywhere and shared, that it will cut into units sales from customers who cannot now get songs from friends and neighbors. Champions of open downloads like Mr. Jobs say that CDs are already routinely ripped so that most digital music is not protected anyway.

Music publishers continue to be pounded by the industry's new model. They earn less on downloads from services like Apple (NASDAQ: AAPL) iTunes than they do from CDs, but sales of the physical discs are falling fast as consumers move away from the format.

Good for Apple and bad from companies like Warner.

Douglas A. McIntyre

Warner Music Group Inc. (NYSE: WMG), whose roster of artists includes Madonna, the White Stripes and the Red Hot Chili Peppers, today reported that its third quarter net loss widened as sales continued to shift away from CDs to digital sales.

The company lost $17 million, or 12 cents per share, compared with $14 million, or 10 cents, the New York-based company said in a press release. Revenue fell 2% to $804 million. Excluding one-time items, profit was 20 cents. Wall Street analysts, who excluded these types of charges, expected a loss of 14 cents on revenue of $836 million.

Digital revenue was a bright spot, rising 29% to $119 million. The company's recorded music, however, performed poorly, dropping 4% to $653 million.

Shares of Warner Music Group have dropped almost 52% this year, even though Wall Street cheered the company's decision not to bid for EMI Group Plc. The shares, though, have recently rebounded and were poised to open higher today as investors expressed confidence that Warner Music will be able to survive the upheaval caused by the digital music revolution.