Blog Post

Earnings: WMG Revs Up 2 Percent; Loss Deepens; Digital Up 47.6 Percent; Dividend Cancelled

Another challenging quarter for Warner Music Group (NYSE: WMG), which has suspended its dividend in the name of “financial flexibility.” The label announced quarterly revenue of $800 million, up 2 percent from $784 million a year ago, though on a constant currency basis, it would have declined. Losses grew to $34 million ($.23 per share) from $27 million ($.19 per share) on higher costs. Analysts had been looking for a loss of $.12 per share, though revenue surpassed estimates.

Some bright spots: The music business declined by just .6 percent from the prior year. Sure it was helped by currency and strength outside of the US, but it isn’t completely falling off a cliff. And digital revenue was up 47.6 percent to $155 million, representing 23.8 percent of total music revs. What’s more, digital growth accelerated from last quarter, when it was up just 41 percent. Music publishing also continues to hold up, growing 8.4 percent to $155 million.

Update: Following the report, WMG fell 1.77 percent during today’s trading, and has fallen another 3.3 percent after hours.

More from the conference call after the jump…

Release | Webcast (8:30 AM ET)

Conference call: While touting its sales on iTunes, as well as its deal with social net Imeem, Edgar Bronfman, chairman and CEO, reserved greater praise for Amazon’s (NSDQ: AMZN) MP3 sales, and the development of MySpace Music. Citing the breadth of the offerings on both, Bronfman argued that Amazon provides strong opportunities for the sale of full album package. At the same time, executives tried to make the case that its deal with Amazon has not harmed its sales on iTunes.

— Michael Fleisher, CFO/EVP ticked off a series of stats to show the growth and importance of digital to WMG’s bottom line, such as noting that 65 percent of digital sales are in the U.S., 35 percent international; also online makes up 70 percent of U.S. digital revs, with mobile providing 30 percent. Mobile remains soft as ringtone sales fell. Still, ringtones and ringback sales remain too small to impact the business.

— During the Q&A, analyst asked about the company’s decision to cut its dividend. Bronfman said suspending the dividend was one of the best levers available as executives attempt to steer WMG through dismal economic waters.

— Bronfman identified four income streams from digital: purchases, ad-supported streaming, subscription and access. The purchase bucket is going to be the largest, though subscription is gaining tractions. overtime, as we expand partnerships with artists, ticketing and merchandise will offer additional buckets.

— Jessica Reif Cohen asked what benefits WMG expects to receive from MySpace Music. The service is set to launch around September, so Bronfman said he expects some impact in Q4, with the hope for results to build quickly in 2009.