Warner Music Has Surprising 4Q Loss

Warner Music Group Corp., one of the nation's largest record companies, posted an unexpected loss in the fourth quarter as severance costs weighed on results despite a strong slate of music releases from artists including Jay-Z, Madonna, Michael Buble, Muse and Paramore, as well as Japanese artists Ayaka, Kobukuro and Superfly.

Sales of digital copies of music grew faster than CD sales, and international sales far outpaced domestic business. Digital music sales in piracy-loving Sweden have soared this year. The music industry says that it's all about tough new laws and court prosecutions, but some major labels are seeing worldwide increases. But Warner, based in New York, said strong music releases were dampened by weak economic conditions and an industry shift from CD to digital music sales.

Could this be a telltale sign of things to come in the "new" model of the music business? With a number of major companies turning to digital sales over cd sales as early as 2005, with Warner Music Group leading the way, with it's launch of "Digital Music Labels", this could be part of an unforeseen trend for revenue loss over a long period of time.

It seems that a switch to digital only sales platforms may be a dead end street. With so many consumers now illegally down loading copies of leaked albums, such as the "Before I Self Destruct " release of 50 Cent, I can understand them wanting to try to compete with the downloading of digital content, but do they really think changing over to digital sales wholly, will curtail piracy?

Warner Music reported a fourth-quarter loss of $18 million, or 12 cents per share, compared with net income of $6 million, or 4 cents per share a year ago. The quarter included $14 million in severance costs as the company shifted resources from promoting CDs to generating revenue from digital music.

In the quarter, U.S. sales fell by 7.4 percent while international sales rose by 8.8 percent, or 17.8 percent excluding the impact of foreign currency fluctuations.

Digital revenue was up 10 percent to $184 million, or 11.5 percent on a constant-currency basis. Digital sales made up 21.4 percent of total revenue in the quarter, up from 19.6 percent a year earlier.

Warner reported a loss of $100 million, or 67 cents per share, compared with a loss of $56 million, or 38 cents. Revenue fell 9 percent to $3.18 billion.