Earnings: Fifth Of WMG Sales Now Digital, Overall Still Sinking, 'We Don't Want To Dethrone Apple'

This story was written by Robert Andrews.
Warner Music Group (NYSE: WMG) pulled down a whopping $171 million from digital revenue in the three months to December 31 - that's 2.4 percent more than the prior quarter and 20 percent more than the period a year before.

WMG also swung to a $23 million net profit from a $16 million net loss a year ago, thanks to selling its minority stake in Front Line Management. But none of this is enough to halt the overall decline - quarterly group revenue fell 11.2 percent from a year ago to $878 million, reflecting "the shift in consumption patterns from physical sales to new forms of digital music, as well as the impact of the turbulent global economy on retailers"...

Overall music sales dropping, especially at home: Overall revenue in the important recorded music division fell 11.9 percent from last year's quarter to $749 million. Within this, whilst overseas income grew 6.1 percent, the picture is worse in the US, where domestic music revenue slumped 21.3 percent to $315 million, "due to continued contracting demand for physical product by retailers primarily in the US".

Digital growing: Digital music sales contributed 18.2 percent more than last year to the recorded music division at $156 million, now making up 20.8 percent of the division's income. Within this, domestic, US digital sales came in at $99 million, now making up 31.4 percent of the division's income. WMG said all this "was driven by global online downloads as well as mobile".

All in all, digital now makes up 19 percent of total WMG revenue, up two percent from the previous quarter, and the company has $549 million free cashflow. No mention of WMG pulling tracks from YouTube or Last.fm. WMG says it's focused on diversifying in to 360-degree music business areas, but complained it's tough to compare this year with last, which was flattered by strong sales for Josh Grogan's Noel release; this year's successes will be "back-ended" later in the year, it said.

Results | Webcast

From the conference call

Dealing with Apple: Asked how to "wrest control" from iTunes: "I have a lot of heart for the access models that are being developed in the mobile space - increasingly, there will be competition for Apple (NSDQ: AAPL). Having said that, Apple continues to grow its business with us. This notion that somehow we need to dethrone Apple is not a notion we need to spend a lot of time on - so long as they continue to allow us to make the progress we have ... they allow us to innovate ... It's already served as a pretty good model for the industry and will continue to do so."

Apple's DRM-free won't stop piracy: "The industry has lived in many quarters now without DRM. I don't think the piracy aspects have changed. I don't think we'll see any difference in piracy activity with or without DRM on Apple." How will WMG use iTunes' new three-tier pricing structure, coming in April? "It's simply too early to predict what will happen or how many songs will end up at what pricepoints. How many of our songs will be at what price level, for how long or what the consumer reaction will be is yet to be determined. But we are hopeful it will result in a better consumer experience and position for us."

Social media investments: After taking minority stakes in iMeem and LaLa, these sites' contributions aren't recorded in earnings because "their impact is negligible at this stage".

By Robert Andrews