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.

DealBook reports that a somewhat surprising cast of characters is arriving at the annual Allen & Co. Sun Valley, media investment conference.

Of all the investment conferences I know, due to its beautiful setting, leading players, and inevitable deal doing, this is the one I most regret not being able to attend. Regrettably, BloggingStocks is not sending me there. (Although to be fair, I never asked because I didn't know about it until today.) However, I can join everyone else in the world and follow along with those who are fortunate enough to attend.

Here's the list of some of the notable characters who have arrived so far:

Terra Firma, a European private equity firm, has again extended a deadline for EMI Group PLC (LSE: EMI) shareholders to accept the nearly two month old offer for the company. The firm is willing to pay 265 pence a share, roughly $5.34, but EMI's shares opened at 268.5 pence, or $5.42, yesterday, according to a Billboard report from London. The new deadline is set for July 12 after the previous deadline passed Wednesday.

The Billboard report indicated that Terra Firma had already received 3.53% of issued shares by the time the offer's deadline on June 28 passed. After two extensions, that amount has increased only 0.03%. The report also maintains that a spokesman indicated the firm would be willing to continue extensions until July 26 and that it is possible many shareholders are waiting for a higher counter bid from Warner Music Group (NYSE: WMG). WMG has been rumored since the Terra Firma buyout announcement was made to be preparing for an offer, even though EMI and WMG have flirted with joining for over seven years.

Stockholders may be hopeful for a bid from WMG, but the combination of these two music labels could be an unwanted and unfortunate move for the record industry. Both labels are committed to different and opposing growth models for the industry -- the most important and largest being the place of Digital Rights Management technology, something WMG is devoted to using. EMI dropped DRM use from its tracks in April and launched Apple Inc. (NASDAQ: AAPL)'s new iTunes Plus in May, the first of numerous DRM-free services.

Billboard reported music sales for the first half of 2007 according to Nielsen SoundScan this morning. To no surprise, physical formats have dropped 15.1% in the period while digital sales have increased 48.5%. Single track downloads, the most popular format of digital sales, are responsible for that boost - 417.3 million tracks were sold in the first half, a significant boost over the 281 million of the first half of 2006. Of course, even with the continued growth of digital sales, the industry is not in good health (this is nothing new).

The report notes that among the labels, Universal Music Group sold the largest share of sales with 31.6% over the 25.2% and 20% of Sony BMG and Warner Music Group (NYSE: WMG) respectively. Independent music labels disconnected from the majors accounted for 12.85%, while EMI Group PLC (LSE: EMI) only maintained a 10.3% share despite the company's introduction of Digital Rights Management technology free tracks midway through the time period.

According to the article, with the combined numbers of physical formats and the translation of digital sales to the corresponding physical value, there is only 9.1% decrease compared to the first half of 2006. Despite the apparent "good" news that the lesser number means, the music industry is still falling apart in all sectors. Digital track sales make it apparent that the album truly is dying and that a new model is needed. The music industry will have to start completely over from scratch because the continued decline makes it obvious that survival is becoming less and less an option.

Billboard released the weekly chart details for last week yesterday and holding tight at number three is Paul McCartney's debut for Starbucks Corp.'s (NASDAQ: SBUX) Hear Music, Memory Almost Full. The nice surprise in the announcement was the news that the Traveling Wilburys reissue set debuted at number nine with over 78,000 copies sold last week. In the United Kingdom, the set debuted at number one in the Albums Chart. The UK charting is much higher than either albums in the set originally achieved upon release in 1988 and 1990 respectively.

I first blogged on BloggingStocks about the Traveling Wilburys set in April, commenting that a nice chart placement for this release might boost Warner Music Group Corp. (NYSE: WMG), but more importantly help revitalize the reissue "series" it is effectively part of: the George Harrison catalog. The debut is higher than last year's Living in the Material World from George Harrison's early solo career, but it does not indicate any growth for Warner Music. The stock closed at $15.05 yesterday after falling from over $15.60 before the reissue came out. The two may not be directly connected, but such a strong debut for a reissue is nice, especially as WMG is rumored to bid for EMI Group PLC (LSE: EMI) soon.

The George Harrison reissue "series" (as I call it, it's not really very organized) remained unavailable on downloading services like Apple Inc.'s (NASDAQ: AAPL) iTunes until the release of the Traveling Wilburys set. With the addition of Ringo Starr's early solo catalog this means that all or portions of three of the four Beatles solo material are available to download: a nice sign for every Beatle fan hoping to download the Fab Four's catalog. Such high placement in the charts for new and reissued albums (Paul McCartney and the Traveling Wilburys) makes it clear that the band is still profitable.

With the constant back and forth about the purchase of England's EMI Group PLC (LSE: EMI), how much does the often rumored and hoped for reissuing of The Beatles catalog factor? Certainly, if Warner Music Group (NYSE: WMG) or a private equity firm ends up the "winner" in the EMI buyout, the gain that the future release will make must be under consideration.

Of course, that could be the very reason the process has sped up and become so intense in the last month. As Paul McCartney's solo catalog went digital from EMI, his newest album was released by Starbucks Corp. (NASDAQ: SBUX) and fared better than any of his recent albums for EMI. Buyers must be thinking about that success for a former Beatle and what it can mean for the pending remastered Beatles albums. The persisting rumors now indicate that a release will occur later this year or in 2008, but will the buyout be finished before then? Warner has pursued EMI for over seven years to no avail because of regulation concerns in the European Union courts.

In any case, EMI is expanding the Digital Rights Management technology deal that the company made with Apple Inc.'s (NASDAQ: AAPL) iTunes Store to other companies. The new deal with PassAlong Networks follows similar agreements with Amazon.com Inc. (NASDAQ: AMZN) and creates new competitors for iTunes, but all three will sale the DRM-free tracks for $1.29. The DRM deal and the buyout signal that EMI is making gains right now, but will The Beatles release be a part of this growth or the products these developments are intended to benefit?