WMG: How Low Can It Go? Will EMI Buy?

Perhaps emboldened by his last call on Warner Music Group, Pali's Rich Greenfield has issued his second downgrade (reg. required) on WMG this month. He just whacked WMG to $5; this follows his Nov. 1 cut from $10 to $7.50 (as of 2:30pm, shares were hovering around $8.20).

Rich is specifically worried about retailers cutting back on floorspace for CDs next year; he thinks big boxes may claw back more than 30% of the space they dedicate to music in 2008, which is in line with what we've heard. And the present tense is already awful -- industrywide, domestic CD sales in Q4 are already down 22% to 24% y/y, depending on how you count them.

Rumor du jour has EMI and new owners Terra Firma waiting for WMG to fall even further, then trying to finally combine the two companies once and for all. (Terra Firma's plan circulated to prospective investors, reported by the NY Post Tuesday, will only fuel these rumors) We understand that there are cost-savings to extract between the two, and that both have attractive catalogs and publishing operations. But we're not convinced that doubling down on a major label bet is the best call at this point.

Related: Terra Firma's Secret EMI Plan: Cuts, Hope
WMG: Crushed
Music Decline To Accelerate In 2008 With Retailer Cutbacks