Warner Music: The Pillaging Of A Once Great Record Company
A couple of weeks ago Warner Music held its annual earnings conference call and I was very critical of some of Junior’s statements and his overall performance as CEO. I caught a little heat from some quarters over that, saying they thought that I was a little harsh. Some asked why was I being so hard on them. Well, it’s because they deserve it. I figured that I would paint the picture for everybody so they can judge for themselves.
My crack research team went through all of the proxy statements and annual reports WMG has filed with the SEC and released to the public. I don’t know about you, but after I looked at all of the data, I found the results to be rather eye-popping.
I’m certainly no financial expert so I kept it really simple and prepared a couple of charts that should be very easy to understand. We looked at the overall stock performance since 2005 as compared to The New York Stock Exchange index and a Peer Group Index consisting of similar media companies.
The graphic I use is exactly the same as the graphic Warner Music included in its filings. According to the company, the graph assumes $100 invested on Sept. 30, 2005 with the dividend reinvested. However, I went just one step further. I superimposed a graphic showing the combined total compensation given to two of Warner Music’s top executives: Junior and Lyor Cohen.
As you can see, it’s ugly and has a pretty depressing trend–downward. Except for the executives’ compensation.
But wait! There’s more.
As with any commercial concern, it all boils down to how much money you make. So I went back and totaled up all of the yearly profits and losses, and then compared that with Junior and Lyor’s total compensation. Here’s what it looks like:
Just in case you may think that your eyes are deceiving you, Warner Music has posted $429 million in total losses since 2005, while Junior and Lyor, just the two of them and not including several other multi-million dollar execs, pulled down $83.8 million. These guys’ take is equal to around 20% of the total losses of the company!
So who’s paying for this? Well, Junior and the rest of the private equity investors who originally bought WMG in November of 2003 for $2.6 billion. Two years later they went public, but right before the offering they got all of their original investment out! Since then they’ve been playing with the house’s money and that means that the shareholders are footing the bill.
Junior is a guy worth billions and as we all know by now, Lyor doesn’t exactly skimp when it comes to weekending in the Hamptons, but how many people had to lose their jobs so these guys could get bonuses forlosing $429 million?
Now you’ll hear all kinds of arguments why this is all BS. You’ll hear “It’s all about OIBDA and that’s been fine” or “We go out of our way to provide compensation that’s comparable to other media companies” or “We had to revise our bonus structure in order to keep key executives”. I have absolutely no problem with Junior making a $1 million salary, but to be rewarded with millions more in bonuses for losing money is insanity, and that’s the bottom line. If he makes the company money, then fine, but that’s clearly not the case.
To be fair, Junior and Lyor didn’t do this on their own. They had help from the entire board of directors. These are the same guys who originally put up the cash to buy the company and got it all back less than 24 months later. As one CFO told me, “Companies pull this crap all the time. It’s just what they do”.
Now you may ask yourself why am I so pissed off about all of this? It’s very simple. I’m jealous that it’s not me. I could lose $429 million just as easily and I would do it for half of what Junior gets paid.
As Robin would say , “Holy Enron, Batman!”