24/7 Wall St.

Being a record label, or now a music label, is not what it once was.  Not even close.  Just ask Death Row Records and former owner Suge Knight.  In an odd twist of fate, Warner Music Group Corp. (NYSE: WMG) may be bidding for assets of Death Row, which is bankruptcy proceedings.

What is not known is just how aggressive Warner Music will be.  Fromwhat we have read, what is up for grabs besides the actual cataloglibrary of Death Row are unreleased songs from Snoop Dogg and the lateTupac Shakur.

There have been too many allegationsto count in the case. Some of which are threats and the claim of "personalownership" regardless of what law dictates.  In the world that Death Row’s music covers, contracts may be more what rivalstake out on each other.

Warner Music may join others who have tried to buy the catalog.  We donot know if Mr. Bronfman and friends are trying to see if they can get these assets on thecheap.  It is always possible that they will not even participate.  There have been questions in the Death Row case about "assethiding" and "perceived ownership rights" that have gotten in the wayand which have kept normal bankruptcy proceedings from going smoothly. 

Warner has many problems of its own with or without Death Row, even ifit can bring Tupac back from the dead yet one more time.  The companyis projected to lose money in 2009 and 2010.  As of its last balancesheet, it has almost $800 million in liquidity.  It also has over$2.2 billion in long-term debt and its near-term operating liabilitieslook like they outweigh the entire company’s liquid and tangibleassets.  At least the goodwill and intangibles for an owner of manymusic catalogs like Warner has can be counted for more than elsewhere,but the company is leveraged nonetheless.

Maybe troubled companies like having headaches.

Jon C. Ogg
January 14, 2009