Record labels seeking profits in T-shirts, tours

Thu Dec 17, 2009 5:43pm EST
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By Yinka Adegoke

NEW YORK (Reuters) - Ravaged by dwindling music sales and rampant piracy, major music companies are bulking up expertise in an area of the business they used to ignore: T-shirts, baseball caps and other artist merchandise.

EMI Music said this week it is buying, a music merchandise distributor, for an undisclosed sum. The move comes after larger rival Vivendi's Universal Music Group spent the last year expanding its Bravado merchandising unit globally.

"Merchandising is a no-brainer because the labels have been supporting it for decades," said Bishop Cheen, an analyst at Wachovia.

Beyond merchandise, music labels have been seeking revenue in sectors like concerts, management and brand licensing rights.

It's called a 360-degree approach. Warner Music Group Chief Executive Edgar Bronfman has complained that labels spend millions of dollars to develop and market artists, but then when the artists become successful, the labels do not share in the ancillary revenue beyond music and publishing.

Warner Music now has half of its active artist roster signed up to 360-degree deals sharing in royalties and licensing rights with acts like Paramore.

"Royalties and licensing rights are really the future of today's music company because investors like sustainable, long-term and predictable revenue streams," said Cheen.

It can be profitable too. Wachovia points out that 8 percent of Warner Music's recorded music revenue came from licensing last quarter but it accounted for an impressive 43 percent of earnings before interest, taxes, depreciation and amortization (EBITDA).   Continued...