CRITICS INFLUENCE WARNER MUSIC IPO INVESTORS' REACTION TO SHOW WHETHER COMPANY'S BUSINESS MODEL IS SOUND.

Byline: Evan Pondel Staff Writer

The price range of Warner Music Group's initial public offering may not be as robust as investors had previously anticipated after criticism influenced the company to scale back its valuation, analysts said Tuesday.

The New York-based company is poised to begin trading today under the symbol WMG. An institutional investor said the company planned to trim the number of shares it will sell to the public to about 27.2 million from 32.6 million by eliminating shares being sold by current owners, according to The Associated Press. At the same time, the price range for the deal has been lowered to $19 to $20 a share from $22 to $24 a share.

Phone calls seeking comment from Warner Music Group were not returned. The offering was scheduled to price Tuesday night.

Since the company announced its plans to go public earlier this year, investors and even one of the label's leading artists have criticized Warner's attempt to make money in an industry hampered by piracy and consolidation. Linkin Park alternative rockers, based in Los Angeles, said last week they wanted to end their contract with Warner because of the company's supposed focus on investors, not music listeners.

Others have criticized the salaries of Warner's top-level executives, claiming the public offering would do more for their pocket books than for the company's bottom line. The salary of the company's chairman and chief executive officer, Edgar Bronfman Jr., totaled $1 million for the 10-month fiscal year ended Sept. 30, 2004. His bonus for the same period totaled $5.3 million, according to documents filed with the Securities and Exchange Commission. Lyor Cohen, chairman and chief executive officer of U.S. recorded music at Warner, saw a salary of $1 million and a bonus of $5.2 million during the same period.

``The real issue is whether the price they (Warner) are asking is justified by a sound business model,'' said David Stewart, the Brooker Professor of Marketing at the University of Southern California. ``And investors' nerves are coming from a number of places. It doesn't look like very much of the money raised from the IPO will support the business.''

The owner of publishing rights to songs including ``Happy Birthday,'' Warner initially planned to raise at least $750 million in its initial public offering. The original terms of the deal also called for $7 million of the money raised in the IPO to go to the company's coffers. ``Shareholders get anxious if you are paying a big premium and it's not going back into the business,'' said Stewart, also noting that the IPO market is no longer supporting the ``irrational exuberance'' of the late 1990s. ``Today's investors are looking for a good business model.''

Working in Warner's favor, the company posted a net income of $36 million in the quarter ended Dec. 31. In the same period a year earlier, Warner recorded a net loss of $1.15 billion.

Despite a profitable quarter, obstacles at Warner include $700 million of debt and increasing competition from the Universal and Sony BMG recorded music duopoly, company officials said in the SEC filing.

Among potential boons to business: Warner's vast catalog of music filled with songs from legendary bands like Led Zepplin. The company also has a musical roster of more than 38,000 artists spanning all genres, with recent success coming from bands including Simple Plan, Jet, Michelle Branch and Sean Paul.

``In many ways this deal is a public bet on the future of the music business,'' said Gigi Johnson, executive director of the Entertainment and Media Management Institute of the Anderson School of Management at the University of California, Los Angeles.

Traditionally, ``music has been a very nice cash cow. But this isn't the same music industry right now,'' said Johnson, alluding to the digitization of the industry and profits to be had online.

Evan Pondel, [phone]

evan.pondel(at)dailynews.com