City news anyone? Well, analysis published last week from three different investment firms on the future of the music industry did not make happy reading, with predictions on the future profitability of the major music companies ranging from cautious to pessimistic.
London based Citigroup were positive about the biggest major record company, Universal, and said that both EMI and Warners might prove to be good buys if any merger between the two were to take place. However the company noted: "We take a more cautious view of the music industry than we have historically. We believe that satellite radio in US, and other services which compete for consumer spending, are hurting industry growth. We continue to expect the digital growth to drive margins and cash generation, but are less convinced that music is a growth industry."
The UK division of Morgan Stanley was even more pessimistic. Concentrating mainly on the fortunes of London based EMI, it said that the major record company's recent share price revival was actually unjustified given the group's growth potential. It said it was now cautious regarding EMI's trading potential, and regarding any EMI Warners merger, adding that its previous growth predictions for the company in 2006 and 2007 now "look vulnerable."
Meanwhile in the US a more general report from Fulcrum Global Partners was also pessimistic. It said that while the investment community was excited by the relatively fast growth in digital music, investors had to remember that physical CD sales were still the main revenue streams for music business, and that they must take a more holistic approach when assessing the short term potential of the sector. Stating that "the key driver of music industry stocks over the next 12 to 24 months will be the health of overall music industry sales", the report was noting that the Recording Industry Association Of America has reported a 3% decline in physical CD sales in recent times.
All of which makes great reading for a Monday morning.