Warner Music Cuts Loss to $30 Million
Warner Music Group narrowed its fiscal fourth-quarter loss by more than $100 million, thanks to a jump in digital downloads and sales from such artists as the group Green Day, Eric Clapton and Faith Hill, the company announced Thursday.
Warner Music’s loss of $30 million, or 21 cents a share, in the period ended Sept. 30 contrasts with a $137-million deficit, or $1.27, a year earlier. Revenue rose 13% to $905 million.
“This is a big victory for Warner,” said Bishop Cheen, an analyst at Wachovia Securities, which owns some of Warner Music’s bonds. “Now comes the tough part of figuring out if digital downloads will offset the market’s overall declines in sales of physical CDs.”
Excluding one-time restructuring and other charges, the company would have posted a profit of $12 million, or 8 cents a share. On that basis, analysts had expected Warner Music to report a loss of 4 cents, according to a Thomson Financial survey.
The news pushed Warner Music’s shares up $1 to $19.05, the company’s highest closing price since its initial public stock offering in May.
In a conference call with analysts, Chief Executive Edgar Bronfman Jr. pointed to the company’s digital growth as evidence of Warner Music’s ability to expand while overall sales were declining.
“We’re taking a unique approach, transforming Warner Music Group from a traditional records and songs based company into a music based content company,” Bronfman said.
Digital revenue was $53 million, Bronfman said, 20% more than the previous quarter and large enough to offset the company’s decline in CD sales.
For the fiscal year, Warner Music had a loss of $169 million as revenue rose 2% from the previous year to $3.5 billion. Revenue from digital downloads was $157 million, a fourfold increase from last year.
Bronfman also said that Warner Music had become focused on urban music, such as rap.
That market is dominated by Universal Music Group, a company Bronfman oversaw while CEO of Seagram Co., Universal’s former parent. Bronfman led a group of private equity investors in the purchase of Warner Music from media-giant Time Warner Inc. in March 2004.
The fourth-quarter results end what had been a difficult year for the nation’s third-largest music company.
Weighed down by $2 billion in buyout debt, Warner had a rocky public offering, with investors forcing the company to cut its offering price by more than 20% to $17.
In August, Warner Music ousted Atlantic Records CEO Jason Flom, costing the company more than $20 million. In November, Warner Music agreed to settle a payola investigation by New York Atty. Gen. Eliot Spitzer by paying $5 million and promising to discontinue certain promotion practices.
But Cheen said the earnings news should raise spirits.
“In 2004, everyone said these guys were fools to buy this company,” Cheen said. “But Edgar has delivered, and then some.”