Large global music publisher EMI, owned by private equity firm Terra Firma, will be cutting 2,000 of its 5,500 jobs according to The Sunday Telegraph. The company will cut out duplication among the back offices of its several record labels.

Shareholders of Warner Music Group (NYSE: WMG) are certainly looking on. The publisher's stock has fallen from about $30 in mid-2006 to just over $5 last week. The digital download business and piracy has undercut critical revenue from CDs and that is not likely to end.

Apple Inc. (NASDAQ: AAPL) now controls most digital music pricing through iTunes. Music publishers have no large alternative means of marketing artists. CD sales are never likely to reverse their sales slide.

Warner is probably left with little other than to make huge cost cuts of its own. In the last quarter it had very modest operating income of $142 million on revenue of almost $3.4 billion. But, interest expense on the company's debt was over $180 million for the period.

Mass lay-offs will not solve WMG problems long term, but they may be essential for the company to make it through the next couple of years.

Douglas A. McIntyre is an editor at 247wallst.com.

In a news piece that is gaining more and more momentum, Rolling Stone issued an article on Friday featuring an interview with hip hop artist Nas about his new album and Universal Music Group's decision to back his choice for title. Meanwhile, New York area legislators are demanding the State Comptroller withdraw a pension fund from UMG unless the title is changed, arguing that UMG and Nas are "profiting from a racial slur that has been used to dehumanize people of color for centuries."

Nas can certainly feel confident with his title choice, as the record label has backed him and offered no comment for the piece. According to the rapper, the controversy surrounding the album "is like talking to your children about sex. It's hard, but it's important." Despite the difficulties that may raise among whoever talks about the album, as Nas also states it is "just an album." Listeners and fans will decide to buy the album presumably on their like or dislike of Nas's past work and if reviews are positive for this album.

Of course, listeners may be enticed to purchase the album strictly for the title, or they may be turned away. No matter the controversy surrounding the decision, or the decision itself, in the end it appears like any other marketing stunt. Universal Music certainly has nothing to lose in the venture; the company's share in the music industry is around 30% and they have a wide lead over the next competitor, Warner Music Group (NYSE: WMG), at 25%. In any case, in a month we can see if the controversy amounts to anything and what kind of reception the album will have.

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.

MOST NOTEWORTHY: Lululemon (LULU) and Worthington (WOR) were today's noteworthy initiations:

• RBC Capital views Lululemon (NASDAQ: LULU), which IPO'd today, as unique opportunity to participate in an early stage, retail growth story, starting shares with an Outperform rating and $23 target.

• Worthington (NYSE: WOR) is likely to continue to have headwinds in the near-term, according to CIBC; They believe shares could be a takeover target, initiating shares with a Sector Performer rating and $24 target...

OTHER INITIATIONS:

• Bon-Ton Stores (NASDAQ: BONT) was initiated with a Neutral at First Albany.

• William Blair started shares of Capella Education (NASDAQ: CPLA) with an Outperform rating.

• Warner Music Group (NYSE: WMG) was reinstated with a Neutral rating at Goldman Sachs.

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

Following Tuesday's announcement that Warner Music Group (NYSE: WMG) had dropped its plans to make a bid for London-based EMI Group PLC (LSE: EMI), Billboard.com reported yesterday that former EMI CEO Jim Fifield and Bidco, a firm backing any potential offer by him, had also dropped plans to acquire the English music giant. Like WMG, they still retain a six month window to make an offer.

EMI has reportedly contacted shareholders and reaffirmed the board member's commitments to the May offer from European private equity firm Terra Firma for 265 pence per share. That bid now sits higher than the closing price of EMI shares yesterday, 261.75 pence, five pence below Tuesday's closing price. Between July 5 and 12, EMI had enjoyed a boost rising well into the 270s, but the stock fell after a third deadline announcement by Terra Firma. Announcements by Warner and Fifield about dropped plans to counterbid for the company have obviously hurt the stock even more.

In addition to stock deceleration, another report on by Billboard.com yesterday indicated that in physical and digital sales of music last year, EMI accounted for only 12.8% of combined sales. WMG accounted for 13.8% which means a combined WMG-EMI company only a 0.9% lead over industry leader Universal Music Group's 25.7%, and just 0.1% over all independent music labels. One has to wonder if EMI's large steps this year into the digital world will make any lasting dent in the company's sales.

According to the Associated Press, Warner Music Group (NYSE: WMG) and former EMI Group PLC (LSE: EMI) CEO Jim Fifield have until Thursday to make an offer for the London-based music company. That date is the most recent extended deadline for a deal between EMI and private equity firm Terra Firma to be completed, and the report indicates that "many analysts believe Warner Music will trump Terra Firma's offer with a higher one."

The Terra Firma offer, set at 265 pence, or roughly $5.30, is significantly lower than a previous WMG offer from over a year ago: 315 pence. Additionally, EMI stock had enjoyed a boost since July 5, but after the announcement that the European Commission had approved the deal, the stock dropped again. Yesterday, EMI stock continued to fall, closing at 266.52 pence, down another 3 pence from Friday. Shareholders hoping WMG might make a counter bid to Terra Firma are certainly seeing their hopes and the price fall back to near the offer price.

If WMG does make an offer like analysts predict, it seems unlikely that it will be as high as 315 pence, but other rumors in the past few months have quoted 285 or 290 as possibilities. The AP reports that both WMG and Fifield will be "excluded from making another approach for six months under stock exchange rules." For WMG and EMI shareholders though, another six months is nothing new compared to the seven years EMI and WMG have played the buyout game.

Over a week ago, the European private equity firm Terra Firma extended the deadline for its offer to buy EMI Group PLC (LSE: EMI) from July 5 to July 12. It was the second extension the firm had made, and this morning a third extension was made until July 19. According to Billboard.com, by 1 p.m. yesterday, just 3.82% of EMI's shares had been sold to Terra Firma. A week ago, that figure was 3.56%.

Yesterday, the European Commission approved the buyout; the regulatory commission found no antitrust issues. At the same time, EMI stocks dropped from the boost they enjoyed last week, falling from 271 pence on Wednesday's closing to close at 268.75 yesterday afternoon. The stock has fared nicely today, but has not risen much more than one pence in trading.

This third extension from Terra Firma comes in the face of continued hopes from EMI shareholders that Warner Music Group (NYSE: WMG) will make a counterbid. Billboard.com has also commented that "WMG is reported to have appointed Alan Mnuchin, of Wall Street investment group AGM Partners, to re-assess how to make another counterbid for EMI."

A merger between EMI and WMG might be beneficial for shareholders, but consumers of music from both companies may not be as happy. EMI dropped the use of Digital Rights Management technology in April, paving the way for higher quality downloads from online stores like Apple Inc. (NASDAQ: AAPL)'s iTunes Store and a future Amazon.com (NASDAQ: AMZN) store. WMG has remained firm in its support for DRM use. A combination of the two may result in the reversal of DRM-free use of EMI's products.

Billboard.com reports today that the European Commission has approved the private equity group Terra Firma's bid to takeover EMI Group PLC (LSE: EMI). The bid, valued at 2.4 billion pounds or $4.8 billion, now faces competition from a most unlikely source: EMI shareholders who hope for a counter bid from Warner Music Group (NYSE: WMG). Terra Firma's bid is 265 pence, or $5.38, while EMI's stock closed at 268.90 pence today.

According to the report, Terra Firma has only secured 3.56% of EMI stocks despite early hopes that EMI shareholders would take the approved and recommended offer by EMI officers. A year ago, WMG offered EMI 315 pence per share, or $6.40, which was rejected according to Billboard due to fears of a Commission rejection. Hopes for a renewed offer from WMG are the latest in the seven years that EMI and WMG have flirted with merging. Terra Firma's bid originally expired on June 28 before being extended to July 5. After that deadline passed, another extension until today (July 12) was announced and plans to wait until July 26 were also mentioned.

In April, EMI announced that it would sell Digital Rights Management technology-free tracks on various digital stores. Apple Inc. (NASDAQ: AAPL)'s iTunes Store became the first in May by opening the iTunes Plus store. Amazon.com (NASDAQ: AMZN) will open a similar store featuring the same tracks from EMI later in the year.

EMI stock had enjoyed a steady rise since last Wednesday, climbing to close at 271 yesterday. The stock opened at 273.23 this morning before falling over 4 pence to close 2 pence lower than yesterday.