Warner Music’s Earnings Nearly Double

Despite slipping revenue, Warner Music Group Corp.’s profit nearly doubled in its fiscal first quarter thanks to cost cutting and growth in digital downloads.

The New York music company, home to Madonna, Green Day and Eric Clapton, said Tuesday that earnings jumped 92% to $69 million, or 46 cents a share, in the three months ended Dec. 31.

Sales fell 4% to $1.04 billion. Warner Music attributed the drop to the divestiture of its sheet music business in May and to the strengthening U.S. dollar, which depressed the value of revenue collected in foreign markets.

Wall Street had a mixed view of the results -- pleased with the earnings surge but concerned that the fall in sales was another signal of the music industry’s malaise.

Although the per-share profit exceeded analysts’ expectations of 40 cents a share, according to a Thomson Financial survey, revenue was short of the $1.09 billion they expected.

“The shift to digital revenue streams is happening faster than previously thought,” said Richard Greenfield, an analyst at Pali Capital Inc. “But the key question remains: How well can digital revenues compensate for declines in physical sales?”

The news failed to bolster Warner Music’s stock, which closed Tuesday at $20.43, down 37 cents.

The company also disclosed Tuesday that it had received a second subpoena from New York state Atty. Gen. Eliot Spitzer as part of an investigation of alleged price fixing by digital music services. Warner Music, which disclosed its first subpoena in December, did not elaborate.

In a conference call with analysts, Chief Executive Edgar Bronfman Jr. attributed the company’s profit increase to a continuing rise in digital sales, which grew 30% from the previous quarter, to $69 million, nearly triple the year-earlier figure. The CEO singled out a mobile phone marketing campaign as having driven digital sales of Madonna’s latest album, “Confessions on a Dance Floor.”

“We’ve expanded our digital leadership position,” he said.

The music industry is benefiting from increased digital sales. Nearly 20 million songs -- a record -- were downloaded by U.S. listeners during the last two weeks of 2005, according to Nielsen SoundScan. Worldwide, more than 420 million tracks were downloaded last year.

By contrast, U.S. sales of music albums fell 7% last year, to 618.9 million units, according to Nielsen SoundScan.

The financial results came as Warner Music continued to remake itself.

Warner Music has been slashing costs, including trimming expenses to find and market new bands and cutting the costs of shipping CDs to retailers. It also has eliminated more than 1,000 jobs in the last two years.

Bronfman led a group of private equity investors in the purchase of Warner Music from media giant Time Warner Inc. in March 2004.

Since then, the company has been shuffling its executive ranks. This week Bronfman named Patrick Vien to oversee Warner Music’s international unit, replacing Paul-Rene Albertini, who had held the post more than three years.