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Merger Pointless?

Penelope Patsuris thinks the EMI-Warner Music Group talks do nothing to deal with the future:

    There is no doubt that if EMI does end up taking a majority stake in Warner Music, the new entity will have money-saving economies of scale and an extensive music library. Warner Music’s troubled parent would drum up approximately $4 billion in cash to help pay off its staggering $26 billion in debt. And since AOL Time Warner needs to raise cash, why not unload a unit that’s in an industry with shrinking margins?

    But while a deal might mop up the past, it does little to call the tune for the challenges that lie ahead. “A merger does nothing to address the industry’s urgent need to come up with a new business model that accounts for the shifting music technology,” says Michael Goodman, a Yankee Group analyst.

    Phil Leigh, a Raymond James analyst, concurs. “The labels are dealing with Tarzan economics,” he says. “They’re trying to go from one vine to another, but before they let go of the first vine they have to make sure the new one is strong enough. The real challenge is for labels to take incremental steps that will deliver a net gain toward a new model.”

    Everyone understands where the music industry will end up some years down the line: selling songs à la carte to consumers with few or no restrictions. “The trouble is that right now no one knows how [the record labels] will get there,” says Leigh.

    “The labels have always been the gatekeepers for the music industry,” says Goodman, “but that’s going to change. The labels will always have a role.”

    Just exactly what role they’ll have is what the labels are now struggling very publicly to determine. [Forbes]

They’re going to have to update that sourcebook, below, quick like a bunny.

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