Earnings: WMG: Wider Loss; Digital Revenue Up 29 Percent — Now 15 Percent Of Revenue

The shift to digital continues to have an impact on the Warner Music Group (NYSE: WMG) bottom line, contributing negatively to lower sales in the spring quarter and positively to the company’s growth. Revenues dipped 2 percent to $804 million from $822 million in the same period last year, with declines in physical sales only partly offset by growth in digital recorded music growth and music publishing. Domestic revenue dropped 1 percent while international was down 4 percent. The net loss was $17 million compared with $14 million in the same 2006 quarter, widening to $29 million if non-recurring items (realignment charges, Bertelsmann settlement, etc.) are excluded.

Digital accounted for $119 million — 15 percent — of WMG’s overall revenue. Digital revenue was up 29 percent over $92 million in the same quarter in 2006 and up 7 percent from the previous quarter. Total digital revenues, excluding eliminations, were comprised of U.S. revenues of $82 million, or 68 perecent of total digital revenues, and international revenues of $38 million, or 32 percent.

Recorded Music: A microcosm of the overall picture: revenue decreased 4 percent to $653 million while digital revenue rose 27 percent to $112 million and 17 percent of division revenue. Domestic digital revenue accounted for $77 million, 22 percent of total domestic recorded music revenue.

Music Publishing: Revenue was up 5 percent, to $157 million, with digital revenue contributing 5 percent or $8 million.

EMI: The EMI non-acquisition cost $8 million during the quarter.

Earnings release | Webcast

Update: From the earnings call transcript (via SeekingAlpha): Chairman and CEO Edgar Bronfman Jr. said Terra Ferma’s offer for EMI “created market expectations for a price from us that we could not justify.” Instead, WMG will focus on its own transition from a traditional music company to a “music-based content company.”

— Bronfman highlighted deals with Imeem, LaLa and Russia JV Digital Access as examples of that transition.

— Worldwide digital revenue is about 60 percent online and 40 percent mobile. Online is larger than mobile in the U.S. while the reverse holds internationally. CFO Michael Fleisher: “Logically, as the penetration of U.S. music-enabled handsets improves the mobile contribution to digital revenue should grow.” Mobile was weak domestically because of the release schedule.

— Asked about acquisitions, Bronfman gave the usual no comment on specifics but provided some perimeters: “We look at businesses in recorded music and we are increasingly looking at businesses throughout the music value chain, whether that’s physical businesses, whether it is management businesses or potentially even digital distribution businesses.”

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