Authentik Artists CEO Scott Austin opines on Warner Music Group’s earning report. “Recognizing that things will never be as good as they once were is not only the rational, mature thing to do,” he says. “It’s required if the plan is to regrow the tree, not just keep trimming it indefinitely.

I generally don’t follow the woes and follies of the major music companies anymore. I keep to myself since it’s more efficient (and self-serving) for me to spend my time creating opportunity and revenue for our company and our clients, which are all independent of the traditional system.

But it was Warner Music Group‘s latest earnings report this week that has made me unable to not comment on an affliction that is plaguing the major music companies in a way that clearly indicates why these guys are in the trouble they’re in to begin with. 

The only reason this info even reached my eyeballs was because I have been keeping a curious eye on the Warner share price in the wake of EMI‘s defeat in their case against Citigroup, making their inevitable sale to WMG once again possible, or even likely (yes, I day trade too).

So here I am looking over a document that begins by touting the percentage of digital sales to overall recorded music revenue, now up to 40% in Warner’s case. My first thought is, so what? That’s like saying they reattached my fingers but couldn’t save my arm.

But staying the course of calm and Zen that I’ve come to embrace, I read along, ignoring my own thoughts on the realities of our business until this line from the release:

“The company’s revenue results continue to reflect the transition from physical to digital in the recorded music industry where increases in digital revenue have not yet fully offset the declines in physical revenue.”

The problem with this language isn’t that it’s par for the course to spin what is otherwise dire news into something that sounds a little, well, less dire.  That is Wall Street 101 and even I have to make OK news look great for the investment pool behind our small little company.

What is troubling about this statement is that it is not only misleading the shareholders, it makes the most naïve assumption about these companies imaginable. Why is it that everyone keeps talking about this return to pre-digital sales levels like it’s a given?

Digital revenue will NEVER make up for the losses in physical revenue, at least not in the career lifetime of any of the executives running these companies, and it’s not just because of the mathematical difference between a $.99 download and an $18.99 CD.

There has been a fundamental shift in not only the perceived value of music, but its actual value as well that is irreversible.  This means selling less music by more artists.

The first step in the right direction for music companies in 2011 and beyond is to stop kidding themselves that one day (or quarter) these numbers will balance out neatly, as if there is some return to equilibrium that is guaranteed by nature.

It is not only wishful thinking to subscribe to this idea, it’s offensive to those of us who know better.

Perhaps even more incredulous is how disinformation like this affects the shareholders whose value is being bludgeoned by those executives who continue to suck the last drops of life out of a crippled system, waxing poetic about better days that are sure to never come.

The only way to rebuild the recorded music business is to cut out the stump AND the roots, and rebuild with a multi-rights infrastructure that is centered fully around the publishing assets. Recognizing that things will never be as good as they once were is not only the rational, mature thing to do, it’s required if the plan is to regrow the tree, not just keep trimming it indefinitely.

In full disclosure, yes, I was fired from Warner Bros. Records in 2006 but it’s nothing personal, WMG is the only major record label that is publicly traded in the U.S. for me to pick on.