News

Warner Music Group Corp. beat Wall Street expectations with its fourth-quarter results Tuesday and announced that digital revenues at its Atlantic Records unit had surpassed compact disc sales for the first time, a major industry milestone.

Digital revenue at the Atlantic label, whose artists include rapper T.I. and Kid Rock, grew to 51 per cent of the total for the year to September, thanks to "a progressive and well-executed digital strategy," said Warner spokesman Will Tanous.

The feat was a first for any major record label and offered a ray of hope for the music industry, buffeted by online piracy and falling CD sales.

Warner Music's overall digital sales grew 28 per cent to $167-million (U.S.) in the quarter that ended Sept. 30, from $131-million in the same period last year. That's about 20 per cent of the group's total revenue, which slipped one per cent to $854-million from $867-million. The company does not disclose revenue by label.

Quarterly earnings climbed to $6-million, or four cents per share, from $5-million, or three cents a share. Income tax expense was nearly halved to $13-million.

The results easily beat the average estimates of analysts polled by Thomson Reuters, who had predicted a loss of two cents per share on sales of $837.6 million. Analysts' estimates typically exclude one-time items.

Warner shares rose 12 cents, or 4.3 per cent, to close at $2.92 Tuesday.

Warner Music Group Corp. chief executive Edgar Bronfman Jr. also said the company was keeping a tight rein on CD shipments ahead of what could be a rocky Christmas season.

"I don't think any of us know what the Christmas shopping season will be," he told analysts on a conference call. "We are managing inventory very, very carefully and we are not over-shipping."

Recorded music revenue dropped nearly four per cent to $707-million, while the unit's digital revenue increased 26 per cent to $156-million. Best sellers included releases from artists such as Metallica, Kid Rock, T.I. and Mariya Takeuchi.

Warner said its investment in signing and developing artists paid off as it increased its U.S. market share by 2.2 percentage points from a year ago to 21 per cent in the year to date. That put it third behind Universal Music Group at 35 per cent and Sony Music Entertainment at 23 per cent, according to Nielsen SoundScan.

Standard & Poor's analyst Tuna Amobi kept a buy rating on the stock.

"Despite piracy, we still view digital revenue as key bright spot, though relatively small, amid (a) continued music CD industry sales decline," he wrote in a research note. "Amid retail shifts, we keep a cautious holiday outlook."

For Warner's music publishing division, revenue climbed 14 per cent to $156-million as digital revenue surged 57 per cent to $11-million.

Warner reported a full-year loss of $56-million, or 38 cents a share, compared with a loss of $21-million, or 14 cents per share, in the prior year. Losses from continuing operations totalled $35-million, or 24 cents a share, compared with a year-ago loss of $8-million, or five cents a share.

Annual sales increased three per cent to $3.49-billion from $3.38-billion.

Looking ahead, chief financial officer Steve Macri cautioned that the company's year-over-year comparisons will look better in the second half of 2009 than the current period, the first half of 2009.

He cited worldwide economic volatility weighing on the current period compared with fiscal 2008. And he said releases likely to sell better are planned for the April-June and July-September quarters of 2009.

Another reason the company faces a tough comparison in the first half of 2009 is that in the first quarter of 2008, it sold five million albums of Josh Groban's Noel, a feat unlikely to be matched this period, he said.