WMG Sees Pot With Less Money At End Of Digital Rainbow

Michael Bublé

Some encouragement at Warner Music Group (NYSE: WMG), as digital sales have now hit 30.1 percent of total income – but this may also be contributing to an overall sales dip

In WMG’s January-to-March Q2, at constant currencies, digital revenue grew strongly by 11.8 percent from last year‘s period, to $199 million. But group-wide sales for the period dipped by six percent over the year to $662 million.

The company blamed it on “a light release schedule and the effects of the transition from physical sales to digital sales in the recorded music industry”. Digital songs earn labels less than CDs, but there are two reasons for cheer…

— First: at least it’s digital sales, rather than piracy, cannibalising WMG’s CDs.
— Second: at home in the U.S., digital makes up 46.8 percent of the group’s Recorded Music income…

In other words, digital songs will probably make up the majority of WMG’s earnings from actual music sales in America by Christmas – even though it has to shift more downloads than compact discs to get there.

Update: “We are fast approaching a key milestone in the evolution of our business – we are approaching the digital divide,” CEO Edgar Bronfman Jr told analysts (read more). “It is indicative of the great strides we’ve been making to make a more digital-centric business model.”

Here’s that important divisional breakdown…

Recorded Music (ie. actual music sales) down 5.5 percent from last year to $534 million: U.S. sales down 6.7 percent. Global digital sales up 11.2 percent to $189 million (ie. almost all of the group’s digital income). U.S., Asia and Europe weak, but strong UK sales.

Music Publishing (ie. use of songs by other media) down 6.3 percent to $134 million: Would have been lower if not for digital publishing income surging 62.5 percent to $13 million, to represent nearly a tenth of publishing income. To blame – falls in the core mechanical, performance and synchronisation income.

WMG quarterly losses slimmed from $68 million last year to $25 million thanks to higher operating income resulting from cost cuts and a smaller tax bill.

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