Linkin, Warner Feud Rages

Who's being greedier, the rock band or the record company?

BILL WERDEPosted Jun 02, 2005 12:00 AM

It's been a tough month for the Warner Music Group. Two weeks after the record label -- home to Rob Thomas, Green Day and Metallica -- initiated its public stock offering, prices hovered at sixteen dollars per share, about one-third less than company executives had hoped for. At the same time, the label is locked in a high-visibility battle with Linkin Park, one of its biggest bands.

The fight with Linkin Park became public on May 2nd via a press release from the group, demanding to be released from its contract. As the label was trying to persuade investors to pay twenty-two to twenty-four dollars per share for WMG stock, the band claimed that cost-cutting measures had left the label "unable to compete in today's global music marketplace, resulting in a failure to live up to WMG's fiduciary responsibility to market and promote Linkin Park." The implied boogeyman was Seagram's heir Edgar Bronfman Jr. and his group of investors, who purchased WMG from Time Warner in March 2004, then cut thirty percent of the artist roster and more than 1,000 employees worldwide.

Linkin Park also noted that Warner expected to raise $750 million from the IPO (the label ultimately raised about $550 million). "Linkin Park, their biggest act, will get nothing," read the release. "Only about $7 million will be put toward the company's own operations, with no money going to WMG artists." The Bronfman group repaid its own initial cash outlay of $1.2 billion and rewarded top executives handsomely; in December, credit-rating firm Standard and Poor's lowered Warner's outlook from "stable" to "negative" because these rewards led to company debt.

Sources at Warner say that Linkin Park were merely trying to extort money from the label. They claim that the group has sold fewer albums with each release since its 10-million-plus-selling Hybrid Theory, from 2000, yet wants a $60 million advance for its next record. Warner countered with an offer of $15 million and a fifty-fifty profit split for five albums, which the band rejected. "It was 'Here's what we want or we're going to issue this press release to screw your IPO,'" says a source familiar with communications between the group and the label, noting that the band's management sent the press release to WMG nine days before issuing it to the press. (Linkin Park management declined repeated interview requests to discuss their negotiations with WMG.)

Managers for seven different groups on Warner labels painted a picture of life at the company that differed from Linkin Park's assessment. Some offered criticism of the label's cost-cutting, but most gave a generally positive account of Bronfman's reign. "I haven't seen a difference at the label over the last few years," says Scott Booker, manager for the Flaming Lips, who have been signed to Warner Bros. since 1991. "The label gave us money to make our Christmas on Mars movie. You would think that would be one of the first projects they would say no to if they were really tightening the screws."

Warner executives are betting that growing digital sales will eventually offset the past four years' losses. But for now, investors aren't thrilled with WMG's prospects. "If Warner is unsuccessful, people will say it's because they cut too much," says Laura Martin, a media financial analyst with Soleil/Media Metrics. "Time will tell."


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