This is not a love song. Even though Warner Music Group
Setbacks in its flagship CD and music-publishing businesses continue to plague the company. Results were worst in the U.S., where a lack of notable releases caused a 9% drop in recorded music sales.
On a more positive note, free cash flow was $62 million for the period, a healthy advance over the $33 million generated in last year's fourth quarter.
If you're still up for some more upbeat music, let's dig into Warner's transformation into a digital heavy. Legal online downloads and ringtones have helped breathe life into the otherwise moribund industry, and Warner is a leader in that welcome revolution. In the fourth quarter, digital revenues rose 96% to top the $100 million mark for the first time at Warner. Over the past year, digital music has grown from 6% of total revenues to a respectable 12% slice.
EMI, Sony (NYSE SNE), and Vivendi's Universal also join Warner in growing their digital reach, though it always seems as if it's Warner landing the breakthrough revenue-sharing deals with companies like Google's
Digital growth is important for the industry, because the margins are high. Distributors like Apple
That's the rub, of course. You have to have acts that music fans are willing to pay up for. In that sense, the song remains the same for the major labels as they sign and nurture their rosters. If the digital revolution gets too far out of hand, artists will begin to doubt the necessity of the major labels, and consider digitally releasing their own music instead. Indeed, too much of a good thing could ultimately be a bad thing.
As I said, this is not a love song.
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Longtime Fool contributor Rick Munarriz once had his band signed to Sony's Columbia Records label. It didn't exactly pan out. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. T he Fool has a disclosure policy.