Linkin Park protests Warner Music’s scheduled IPO
Sex, drugs and IPOs? Initial public offerings are hardly on the short list of things rock ‘n’ roll bands concern themselves with. That changed Monday after the popular band Linkin Park all but threatened to stop making music for its label, Warner Music, in protest of the company’s IPO next week.
Upset that just $7 million of the IPO’s $600 million in estimated proceeds will go to the company and its artists, Linkin Park demanded in a statement to be released from its contract to deliver seven albums to Warner. The band, popular for albums that meld rock, rap and electronica, declined comment.
Linkin Park’s move is potentially significant because it is an embarrassing public airing of unhappiness by a Warner artist, says Melanie Hase, analyst at IPO tracker Renaissance Capital. Linkin Park said that it accounts for 10% of Warner’s revenue and that it was scheduled to release its newest album next year. Nielsen SoundScan data, though, show the band accounted for less than 3% of shipments so far this year and since 2000.
Revenue questions aside, Hase says the band’s displeasure is understandable. A vast majority of the IPO proceeds are being used to pay back debt incurred when management, including music industry vet Edgar Bronfman Jr., bought the unit from Time Warner in March 2004. By the time of the IPO, company insiders and executives will have received more than $800 million in bonuses and dividends, while the company will still have $2.2 billion in debt, Hase says.
Still, unless other artists join in, it’s questionable whether Linkin Park will have enough clout to make Warner rethink its strategy or for investors to reconsider the IPO, says Brian Garrity, business editor at Billboard magazine. “The track record of bands going up against labels like this isn’t very favorable,” he says.
Garrity says Linkin Park is renegotiating its contract with Warner, and he figures the band is using the IPO as a bargaining chip. “This is a nice piece of leverage for them to try to get a better deal with Warner,” he says.
Warner says Linkin Park has been paid fairly. “They have always been compensated generously for their outstanding worldwide success,” spokesman Will Tanous said in an e-mailed comment.
If anything sours investors, though, it will be the IPO’s questionable terms, not Linkin Park, says Francis Gaskins, president of IPOdesktop.com. Gaskins says Warner is just the latest in a flurry of IPOs in which investors, having bought a company by using heavy debt, look to cash in and pay down the debt. Investors have been lukewarm on such deals. “This is a serious bailout, and that’s why people don’t like it,” he says.
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