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The Warner Music Group Reinvention Continues.....But is Time Running Out??

Warner Music Group is continuing to dial back towards its content and marketing roots, a shift reiterated Friday by Atlantic Records GM & Executive Vice President of Marketing and Creative Media Livia Tortella. "We're an entertainment company, we're about music. We're not a technology company," Tortella commented during a keynote interview at the Bandwidth Conference in San Francisco on Friday. That falls in line with an earlier shift by Warner away from investments in companies like Lala and Imeem, both of which resulted in serious write-downs.

Actually, at least one Wall Street analyst responded well to the dial-downs, simply because it represented a tilt towards more core competencies. "Based on the write-downs... we believe management has shifted into debt reduction mode and will no longer be allocating capital outside its core competencies," analyst Richard Greenfield of Pali Capital stated in May, part of a sudden reversal in sentiment.

More recently, Warner expanded its outsourced technology relationship with Cisco, a partnership that revolves around the Eos platform for creating artist sites, as well as networking and ecommerce functionality. On that point, Tortella noted that anytime an artist jumps onto the Eos platform, traffic soon triples.

So what is happening here? Most agree that without great music, labels have little to offer, though serious questions surround the ability to profit from even the greatest, hippest, and most scene-connected artists. That has forced Warner - and other majors - to undergo some identity struggles and transitions, particularly given the massive thrust of music-related technology over the past ten years. "The approach is not technology per se, but really figuring out how it relates to the artist point of view," Tortella continued.

According to Tortella, that means flowing with the widely-varying demands of the artist - whether Death Cab for Cutie or Kid Rock - a stance that makes normalization and uniformed processing extremely difficult. Indeed, artists are often very strong-willed, and Rock was catered to from the beginning - regardless of profit or loss. "He was very single-minded about his records not being available a-la-carte, that meant a lot to him," Tortella indicated. "We leave money on the table all the time, depending on whether or not the artist is comfortable with the position."

Tortella seemed rather relaxed given the significant - and potentially life-threatening - financial challenges currently faced by WMG. And sections of the interview were more spin than substance; fantasy rather than financial reality. But some positives - however painful - are happening, and Tortella noted that CD sales declines are forcing labels to diversify, something they should have been doing all along. "What the erosion of the CD has done, is actually stripped down what our function is. [Which is], we're here as artist branders, we're here to market the experience, whether the experience is a CD, a digital experience, or a t-shirt," Tortella explained. "The CD had to fall apart in order for people to really realize what labels are supposed to do."

That means 360-degree deals, something labels are almost exclusively brokering on newer acts. But roping premium artists into an all-encompassing deal remains a tough proposition, simply because artists are reluctant (smartly) to surrender a wider swath of rights. Meanwhile, more established acts continue to go direct-to-fan, despite the huge initial investments by majors. That was where Tortella started spinning heavily, pointing to a "great" and "healthy" level of freedom for artists - despite a swinging exit door that is draining MVPs.

So, can developing acts and remaining superstars save the ship, or is time running out on this gamble? Tortella etched a vision that focused on career-building, and tapped into marketing competencies. The rest would require outsourcing, non-core expertise, and the hiring of experts to transition the company effectively - either for technology or for a variety of 360-degree disciplines. "We're going to be here... to develop careers, and not sell records. There's going to be a lot of pain to get there, and we'll have to bring in a lot of knowledge from outside our world to understand it better."

Report by publisher Paul Resnikoff in San Francisco.

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