Warner Music 3rd-qtr loss widens, shares drop

By Yinka Adegoke
Reuters
Tuesday, August 7, 2007; 11:56 AM

NEW YORK (Reuters) - Warner Music Group Corp. (WMG.N) posted a wider-than-expected quarterly loss on Tuesday as growth in digital revenue failed to make up for declining CD sales, sending shares down as much as 10 percent.

Warner Music, the only publicly listed major music company in the United States, said its net loss widened to $17 million, or 12 cents per share, in its fiscal third quarter, from a loss of $14 million, or 10 cents per share, a year ago.

Excluding nonrecurring items, the loss was 20 cents per share, wider than Wall Street's average forecast of 13 cents a share, according to Reuters Estimates.

Revenue fell 2 percent to $804 million, also short of the average analyst expectation of $832.2 million.

"This (revenue) decline was driven by a challenging recorded music industry environment as the shift in consumption patterns from physical sales to new forms of digital music continues," Warner Music said in a statement.

Warner Music has seen its share price fall more than 50 percent this year as retail sales data showed physical recorded music sales struggling versus digital music and piracy.

The stock was down 3 percent at $10.69 on the New York Stock Exchange, after hitting a record low of $9.83 earlier in the session.

Chief Executive Edgar Bronfman told analysts on a conference call that his company's share price did not reflect the value of its publishing assets after recent acquisitions.

"There is a significant gap between the actual value of our assets and our share price, the gap has widened in recent months," he said.

Bronfman said Warner Music continued to diversify to be less reliant on recorded music sales, such as an increased investment of up to $110 million in Front Line Management, an artist management company whose clients include Neil Diamond and Jimmy Buffett.

Recorded music sales fell 4 percent in the quarter, hurt by softer demand in Britain, France and Canada. Major sellers in the quarter included titles from Linkin Park, Michael Buble, T.I., The Traveling Wilburys and The White Stripes.

Revenue at the Warner/Chappell music publishing unit rose 5 percent to $157 million, but the rise was only 1 percent after excluding the impact of foreign exchange movements.

The music publishing business overall is less vulnerable to the current troubles and whims of the recorded music industry, encouraging Warner and its counterpart music companies to invest in publishing assets.

Warner Music said digital music revenue rose 29 percent to $119 million, accounting for 15 percent of total revenue.