WMG Q4 profit sinks on decline in CD sales

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Warner Music Group, home to Green Day and Missy Elliott, said Thursday that its fourth-quarter profit slipped 58% amid a softer international market and a decline in compact disc sales, but results topped Wall Street's estimates.

The New York-based company said earnings for the quarter ended Sept. 30 fell to $5 million, or 3 cents per share, from $12 million, or 8 cents per share, in the previous year.

Quarterly results included $9 million in restructuring and implementation expenses and a $12 million benefit for a settlement with Bertelsmann AG related to Napster. The prior-year period included a $13 million gain on a Kazaa online music sharing settlement.

Quarterly revenue climbed 2% to $869 million from $854 million in the year-ago period.

Analysts polled by Thomson Financial expected net income of 2 cents per share on sales of $874.8 million.

Shares fell a penny to $7.14 in early trading.

WMG is one of many recording companies that have struggled amid an industrywide, multiyear decline in album sales. While revenue from online and mobile music sales have helped, they have not offset overall losses from CD sales.

"As expected, this has been a challenging quarter, reflecting the difficulties in any industry transformation of this scale," said Edgar Bronfman Jr., WMG's chairman and chief executive. "But we remain confident for two primary reasons: continued growth in the broader music market that our long-term strategy targets, and the disciplined creative leadership shown by WMG to expand our music business model."

Warner's recorded music revenue edged up 0.7% to $736 million, while music publishing revenue rose 7% to $137 million.

Lower sales overseas, primarily in Britain, France and Canada, were partially offset by stronger domestic sales.

Domestic recorded music sales rose 7.6% to $396 million, while international recorded music sales fell 6.3% to $340 million.

Total revenue from digital music sales was $130 million, or 15% of total revenue.

Revenue from music publishing rose 7% to $137 million, compared with the year-ago quarter. Revenue from performance rights and digital licensing offset declines in mechanical and synchronization revenue, the company said.

To cope with the ongoing downward spiral of CDs, Warner Music has stepped up efforts to find new revenue, focusing in particular on agreements with artists beyond just music sales, so it can take a cut of touring, merchandising, artist management and other sources.

"We're not going to continue signing artists for recorded music revenue only," Bronfman said during a conference call with Wall Street analysts.

The company has also sought to beef up its music licensing business.

This year, Warner became a minority owner in a large artist management firm, part of its strategy to pursue all-encompassing deals with artists. On Wednesday, the company announced it had formed a joint venture with the family of Frank Sinatra to handle management and licensing of a wide-range of products, from music to film.

Looking ahead, Bronfman said he expects retailers will continue to reduce shelf space for CDs in line with declining sales.

For the year, Warner reported a net loss of $21 million, or 14 cents per share, compared with a profit of $60 million, or 40 cents per share, in the 2006 fiscal year.

Full-year results included $63 million in restructuring costs, a $64 million benefit from the Bertelsmann AG settlement and $9 million in expenses related to the proposed acquisition of EMI Group PLC.

Revenue fell 3.7% to $3.38 billion, compared with $3.52 billion a year earlier.
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