Warner Music Group Corp, the world’s third-largest music company, on Thursday posted a 58 percent drop in quarterly profit, hurt by an industry-wide slump in CD sales, as more fans bought songs online. Although Warner’s revenue rose 2 percent to $869 million in its fiscal fourth quarter, it declined 2 percent when taking out the impact of the weaker dollar. The company also posted weaker international sales, particularly in the United Kingdom.
Digital music revenue was up 25 percent at $130 million during the quarter, but this could not make up for the short-fall in compact disc sales.
U.S. album sales fell 14 percent year on year, according to data from Nielsen SoundScan, as more fans bought individual songs through online stores such as Apple Inc’s iTunes, or used free file-sharing services to get music.
Warner’s net profit was $5 million, or 3 cents a share, in its fiscal fourth quarter, which benefited from a $12 million settlement from Bertelsmann AG regarding music downloading service Napster that was partly offset by $9 million in restructuring expenses.
The results compared with Warner’s year-earlier profit of $12 million or 8 cents per share.
Two analysts polled by Reuters Estimates were looking for revenue of $869.5 million and a net loss per share of 10 cents excluding special items.
Warner’s stock price is down nearly 70 percent since the start of the year as evidence of a faster-than-expected deterioration in music sales became more clear to investors.
The shares were up 16 cents at $7.31 in midday trading.
Executives said their business is restructuring to cope with the rapidly changing economics of the music industry.
Like other major music companies, Warner is trying to realign its business toward a more comprehensive relationship with its artists beyond recording and publishing, to include new digital services as well as share in image rights, advertising, touring and management revenue.
Chief Executive Edgar Bronfman accepted that not all of Warner’s artists would agree to new relationships.
“I think you’ll see us coming to agreements with a number of existing artists and I think you’ll see us not coming to agreement with a number of existing artists,” he said on a conference call with analysts.
Last month, Madonna, one of the world’s top-selling artists, said she would leave Warner Music to sign with concert promoter Live Nation Inc. Warner retains the rights to all of Madonna’s recordings to date and her publishing rights.
“There will be some agreements that existing artists sign with others, as has been the case with Madonna, where it was in our view economically imprudent to do that deal,” Bronfman said.
On Wednesday, Warner said it formed a joint partnership with the estate of Frank Sinatra to manage all music, film and stage rights of the late iconic singer as well as administer all licenses for the Sinatra name and likeness.
Warner is now the only major record and publishing music company still publicly traded after London-based EMI Group was taken private by leveraged buyout firm Terra Firma this year.