Warner Music Group 1Q Earnings Plummet

By | February 8, 2007 at 7:44 PM

Warner Music Group Corp., home to recording artists such as Red Hot Chili Peppers, James Blunt and Daniel Powter, said Thursday its first-quarter profit fell 74 percent due to fewer albums released during the period and soft domestic and European sales. Its shares fell nearly 5 percent.

The New York-based recording company said net income declined to $18 million, or 12 cents per share, from $69 million, or 46 cents per share, during the same period a year ago.

Total revenue fell 11 percent to $928 million from $1.04 billion during the prior-year period.

Analysts polled by Thomson Financial expected earnings of 24 cents per share on revenue of $944.8 million.

Its shares dropped $1.06, or 4.9 percent, to $20.45 in morning trading on the New York Stock Exchange. They have traded between $19.71 and $31 over the past 52 weeks.

“This was a difficult quarter, in some part because the industry still faces the challenging environment, but almost entirely due to the comparisons to our very strong first quarter last year,” Edgar Bronfman, Jr., Warner Music Group’s chairman and chief executive, said during a conference call with Wall Street analysts.

Three of the company’s top five sellers of 2006, including albums by Madonna and Blunt, had peak unit sales in first quarter of last year.

The company said 2007 results will be weighted to the back end of the year.

Digital revenue of $100 million grew 45 percent from $69 million in the prior-year quarter, but slid 4 percent from $104 million in the fourth quarter of 2006.

Digital revenue was 11 percent of total revenue and 17 percent of total domestic recorded music revenue, the company said.

Revenue for the company’s recorded music business decreased 13 percent to $800 million on softer domestic and European sales. The company said Asia Pacific sales were helped by strength in Japanese local repertoire.

Among the major sellers during the quarter were releases by Josh Groban, My Chemical Romance and Eric Clapton.

Revenue from music publishing rose percent during the quarter to $133 million.

Digital revenue from music publishing was $7 million, representing 5.3 percent of total music publishing revenue in the quarter.

Bronfman also noted that Warner gained market share during the quarter.

The company increased its total U.S. album share in 2006, compared to the same period in 2005, he said.

During the conference call, Bronfman briefly addressed an essay by Apple Inc. CEO Steve Jobs earlier this week, in which Jobs called on record labels to drop their requirement that online music be sold with Digital Rights Management, or DRM – a technology designed to limit unauthorized copying.

“We advocate the continued use of DRM,” Bronfman said, adding that music deserves the same anti-piracy protections as software, TV broadcasts, video games and other forms of intellectual property.

“We will not abandon DRM nor services that are successfully implementing DRM for both content and consumers,” he said.

Songs purchased on iTunes are wrapped in Apple’s proprietary version of DRM technology, known as “FairPlay,” which makes songs purchased from rival online stores that carry different DRM technology incompatible with iPods.

The recording industry has argued that DRM itself is not what makes some songs incompatible with some digital players, but the fact that there are different versions of DRM in use. The record companies have suggested that technological barriers would fall if Apple would license its DRM technology to other music services.

Jobs has said making its technology widely available would make it easier for hackers to figure out how to bypass it.

“The issue is obscured by asserting the DRM and interoperability is the same thing,” Bronfman said. “They are not. To suggest that they cannot coexist is simply incorrect.”

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