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WSA Media Panelists: Industry at a Crossroads

In assigning blame for the media and entertainment industry’s current economic woes, Warner Music CFO Helen Murphy spared no one. She blasted her competitors, the press, her customers- and even her fellow panelists. The upside? “It’s an exciting time to be in media,” she told an audience of job-hungry students at the Dynamic Women in Business Conference on January 26th.

Murphy described how during the Internet boom of the late 1990’s, the major music labels invested millions of dollars developing digital infrastructures in the hopes that revenues would follow. “Fast forward to 2001 and margins have eroded by 5%, while revenues are flat,” she said. “Media margins are under incredible pressure.”

Not surprisingly, Murphy’s harshest words were aimed at Napster, which she said, “legitimized stealing intellectual property.” The effects of customers getting their music free online have been devastating on industry economics, as three of five major labels lost money last year, according to Murphy.

Although she said the press was guilty of convincing the public that music companies were wrong to fight Napster, she did not absolve her industry colleagues. “The industry has failed to educate the consumer.” By accepting the freeloading, Murphy said, “We’ve trained consumers in miscellaneous theft.”

Describing Warner Music as a wholesaler, she also took a shot at her retailer customers. “In 2001, eight of our top 25 customers went bankrupt, including Kmart.” Murphy said that while music wholesalers wanted to boost sales by shaking up the channels, retailers resisted, protecting their existing business. As a result, Murphy said, “Retail has had no innovation in music.”

Finally, Murphy griped about how expensive it has become to promote artists. “The cost of marketing has gone up thanks to my fellow panelists, the New York Times Company and Viacom.”

Ann Sarnoff, the chief operating officer of Viacom’s VH1 and Country Music Television, responded by calling her stations “the Switzerland” of the music industry, a neutral place where all music labels get equal treatment. She emphasized that media companies need a healthy “tension between synergy and creativity.” She said “Those companies who succeed will incubate creativity.” She used VH1’s Behind the Music series as an example of compelling television. “Even if you don’t have their albums, you watch [the show about] Donnie & Marie, because it’s a compelling story-the phobias, the rise, the fall, the redemption.”
While Murphy dwelled on costs and Sarnoff on operations, Catherine Levene, the vice president of strategy for New York Times Digital, focused on raising revenues. She said newspaper companies like hers faced the particular challenge of bolstering their classified business, which is “under attack from Internet pure plays.” But Levene said “The Internet will be supported by advertising in the long run,” and that new technology will be key. “In some geographic areas, broadband is finally here. It’s going to give companies like the New York Times a new way to get content out to the customer.”
T
heir differing perspectives aside, all three panelists shared Murphy’s view that “We are at a crossroads. Media will be transformed over the next three to five years.”

February 4, 2002
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