A strange week for Warner Music Group — refusal of a hefty offer from EMI; the extension of set pricing at iTunes, and now a net loss of $7 million that still beats the Street. Both the loss, which compares to a $4 million profit last year, and revenue of $796 million were well ahead of Thomson First Call estimates pegging the expected loss at 16 cents on revenues of $770.6 million. Digital music revenue increased to $90 million, up 157 percent from the same quarter last year and 30 percent from the previous quarter. Digital represented 11 percent of WMG’s total revenue. Digital is helping but isn’t large enough yet to compensate for core business performance.Warner CFO Michael Fleisher wants investors to gauge the company on its 12-month performance as the “best indication” of progress.
— 70 percent of WMG’s digital music revenue originates in the U.S. but international growth is outpacing domestic.
— Digital accounted for 13 percent of total recorded music revenue.
— Digital made up only three percent of Music Publishing’s revenue.
— Chairman & CEO Edgar Bronfman Jr. said digital sales are strong for new releases, as well as catalog.
— Citing confidentiality, Fleisher said he couldn’t discuss details of the Apple pact but stressed that “we don’t set retail pricing, so Apple’s pricing is Apple’s pricing.” As for digital offerings, “I think you’re just going to see our efforts in that area continue to expand across singles, albums and all other kinds of products, giving us — at least from our perspective — the opportunity to differentiate our content.” That strategy includes crafting digital bundles to lure single-download buyers.
— Bronfman on digital growth: “… I think it was less from new channel development than it was just from comparable growth.” He attributed some of the growth to release schedule.” WMG is beginning to see a different timing pattern in sales for digital compared to physical, with gift cards and new devices fueling digital in the last and first quarters.
— AP: WMG is a defendant in 14 class-action suits in different courts over allegations that major labels are price fixing. Those cases likely will be consolidated into one.
EMI: Bronfman resisted discussion of the EMI bid during the conference call but Reuters reports that the night before he told an audience in New York: “I think consolidation for consolidation’s sake doesn’t make a lot of sense. Ours is not a business that requires scale economics.”
Earnings release | Webcast (replay) | Transcript (SeekingAlpha.com)
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