Earnings: Warner Music Profit Down 58 Percent; Digital Grows 25 Percent, Hits $130 Million

As expected, the Warner Music Group (NYSE: WMG) quarter ending Sept. 30 proved to be a challenge: The company booked revenue of $869 million, up 2 percent from last year’s $854 million, although on a constant-currency basis, revenue would have declined by 2 percent. Net income slid to $5 million ($.03 per share) during the company’s fiscal Q4, from $12 million ($.08) in the year-ago period. Digital helped make up for weakness in physical sales, as revenue hit $130 million, up 25 percent from last year’s $104 million, and 9 percent higher than the previous quarter. Digital accounts for 15 percent of the company’s total revenue, which is roughly where it stood last quarter.

— Recorded music sales grew by .7 percent to $736, though again, there would have been a slight decline if not for currency effects. Domestic recorded music revenue grew by 7.6 percent, while international slipped 6.3 percent. This was the same story as last quarter, but the company says this isn’t a trend, but rather a matter relating to the timing of albums of certain popular artists in each region. In other words, last year’s lineup of releases was particularly weak in the US.

— Music publishing revenue grew by 7 percent to $137 million, although most of this was due to currency. Digital publishing revenue came to $7 million.

— Results included $9 million in restructuring charges and a $12 million gain from the Bertelsmann/Napster (NSDQ: NAPS) settlement.

Release | Webcast

Conference Call: The theme of the call: Warner Music is not a record label, but, as they’ve been saying for some time, a “music-based content company”, even if current results don’t actually reflect that yet. Still, said CEO Edgar Bronfman, Jr., “We have the right strategy in place to effectively navigate in these trying times.” The company remains committed to “nurturing all facets of artists’ careers,” including artist management, touring and merchandise. In fact, the belief is that the role of the label music-based content company will expand, as the overall consumption of music expands. In the meantime, the company is disappointed with the pace of digital growth, particularly mobile, though there’s hope that this will improve. Bronfman cited the iPhone (and new competing devices) as a positive for mobile music.

Ancillary revenue: Already, non-music sales (merchandise, touring) represent 5 -15 percent of music revenues in some Asian markets, although the company isn’t giving any indication of where this is expected to grow to, or what the breakdown will look like in the US. Bronfman insisted that these shouldn’t be called ancillary businesses, as they’re core to the WMG model.

Industry fees: The company obviously won’t comment directly on reports that EMI is interested in in cutting its fees to industry groups, but Bronfman offered some vague comments on WMG’s own plans: “We constantly evaluate our contribution to the trade organizations… there will be discussion around IFPI and RIAA.” “We continue to evaluate that situation.” For now, though, the company likes the work that RIAA and IFPI do.

Relationships with artists: An analyst asked what WMG has to offer established, mainstream artists that presumably don’t need a label keep their profile high. Not much of an answer to this, except that WMG can help them with all aspects of their career. See: Led Zeppelin, Sinatra, Grateful Dead. As for Madonna: just too expensive to keep her.