The Tycoon Report

Meet the music industry's latest version of the Good, the Bad and the Ugly.

Three things happened in the music industry this week that will have serious implications for both investors and music lovers for a very long time.

Meet the music industry's latest version of the Good, the Bad and the Ugly.

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WHAT A DIFFERENCE A BEAR MAKES.

Just six short years ago I remember watching an episode of 60 Minutes where Morley Safer followed the hot-shot founders of web design firm Razorfish (SYM: DEFUNCT) as they gave the keynote address to the Freshman class at Harvard.

The image of the Harvard faculty standing there with their jaws dropped never left my mind. Why was the faculty so suprised? Because the Razorfish founders got up on stage and proudly told the students that they were wasting both their time and their money going to school.

They would all be better served, they argued, if the students just dropped out right then and there and quickly became internet billionaires just like they did. Boy has the world changed since then.

(Last I heard, the Razorfish duo was competing against Milli Vanilli to land the last two slots on next seasons the "Surreal Life." This, only after Harvard rejected their applications.) What does a story about greed, materialism and ignorance six years ago have to do with the news of today you ask? Plenty.

You see, around the same time as our hereos upstairs were giving their Internet version of the "Greed if Good" speech, decisions were being made that were, remarkably, brought to a resolution this very week.

And, not suprisingly, they were all intertwined in a way. So with no further ado, let's start with a name you probably haven't heard since hand puppets on television were trying to get you to buy dog food on the internet:

Edgar Bronfman Jr. ("THE BAD")

You remember him don't you?

The alcohol impresario who inherited the billion dollar Seagram Liquor Empire from his parents and was so bored with the consistent cash flow of the liquor business that he decided to try his hand with the risky internet business.

The very same man who took a page from the Gerry Levin playbook and traded billions of dollars in the hard assets of the Seagram empire for billions of dollars in the looseleaf paper of the web.

Well, Edgar Bronfman Jr. is back! But while Jerry Levin is still too ashamed to show his face in public, Bronfman - who by some estimates cost his family close to $8 billion in cash - is fighting hard to be invited back home for Thanksgiving.

And by all standards it seems like he's off to a good start. Bronfman and his friends bought the Warner Music Group (SYM: WMG) from Time Warner (SYM: TWX) a mere 18 months ago and already made $1 billion in profit. That means one of two things:

1. The Folks at Time Warner Are so stupid that they robbed their shareholders of a billion cash.

2. Bronfman is so savvy that he actually learned from his past mistakes.

Let's say a little bit of both. But, for all of you people asking my opinion on Warner Music Group's stock - I would avoid it like the plague. Bronfman and Company took most of their original investment out of the company already and are just letting their profits ride. Plus the music business has way too much uncertainty.

Final opinion for all you folks playing at home: Wait until Warner Music stock hits the single digits: You probably won't have to wait long.

And now on to the next event of the week: Yahoo's (SYM: YHOO) announcement that they were going head to head with Apple (SYM: AAPL) by selling music online. Very savvy move by Yahoo (THE GOOD) indeed. Not suprisingly, Apple didn't have an official comment.

But it doesn't take a rocket scientist to see that Yahoo, with over 100 MILLION VISITORS PER MONTH, isn't going to have a hard time selling users a $6.99 subscription to 1 million songs! Great work guys - you're service is gonna be big.

So big that I would stop reading this right now and sell any stock I had left in Real Networks (SYM: RNWK). Why? Because Apple VS Yahoo has the makings of a real fight. But Yahoo VS Real is kind of like Michael Jordan playing basketball with a midget. If Real had it hard before they're gonna hate life now.

And last but not least, another company joins the list for what it did not say this week as much as for what it did:

America Online (THE UGLY).

Yes, the former internet superstar owned by Time Warner (EVEN UGLIER) is, once again, left in the dark. It's shocking when you think about it. The company that brought the internet to millions of Americans cant seem to fight its way out of a plastic bag these days. That's why I want to change their slogan

FROM: "So easy to use no wonder it's number one."

TO: "So slow on their feet management must be dumb."

Why? Because AOL is letting Yahoo and Apple steal all the headlines (and customers) by offering services such as downloaded music. In other words Yahoo and Apple are way ahead of the curve. They're doing what AOL used to do - define it. But now what does AOL do? The announce that they're giving away free email! Free email? Are you kidding me? That might have been cool in 1997, but this is 2005. Free email comes with a latte at Starbucks (SYM: SBUX).

But I'm not done yet. I have something for my friends at Time Warner (you know who I'm talking to): Some of you should fall on a corporate sword right now. That's right - stop playing politics and start playing business. Wake up! You used to own Warner Music. Instead of selling it cheap, wouldn't it have been a smarter idea to have AOL start a music site - just like Yahoo or Apple has!

But instead of paying for the music, AOL could have used your existing library! That means that AOL would have been able to sell music at a fraction of the cost that Apple and Yahoo sell it for. That means more profits. Which means higher stock prices. Come on guys, get it together.

Here are 4 ideas you need to listen to right now:

1. Stop thinking of the next deal or the next dinner at Elaines. Act like you're in business not in government.

2. Play as hard as Bronfman did when he played you. Maybe you need to pretend you'll never see the family for Thanksgiving again unless you win back your fortune.

3. Consider hiring Steve Case back for something: I know, I know - you could never do that. But let's set the record straight for a change. First of all, he was smart enough to snooker you out of your company.

And secondly - all of you were senior managers when it happened.

4. Subscribe to Fallen Angel Stocks: You'll benefit more from reading our reports than we'll benefit from selling you a subscription.

Remember, you are what you read.