Warner Music Group
In a switch from last quarter, Warner Music reported a first-quarter profit of $69 million, or $0.46 per share -- nearly twice its year-ago numbers. On the other hand, overall revenue decreased by 4% to $1.04 billion, due to exchange-rate fluctuations and the sale of the company's sheet-music business. If you back out those effects, Warner Music's sales were flat year over year.
Warner Music has digital downloads, especially those from Apple's
Indeed, Warner Music's results roughly matched recent industry data showing a slowing of CD sales and a spike in digital delivery of tunes. Warner Music's $69 million in Q1 digital revenue represented a 176% increase year over year. That's especially significant to Warner's bottom line, since digital music yields higher margins than old-school physical media.
In the company's conference call, Warner Music executives highlighted the success of big-name artists like Madonna, who began releasing her entire catalog via iTunes last September. Despite recording industry executives' reported unhappiness with Steve Jobs' pricing of their music, right now they still owe a heck of a lot to the popularity of iPods and iTunes.
For all the bright spots in Warner Music's announcement, it's still part of a troubled industry with very little sympathy from the listening public. Digital downloads' increasing success hasn't eliminated the music industry's problems with piracy. In addition, Warner Music also disclosed that it has received yet another subpoena from the New York attorney general's office related to a price-fixing probe.
As music distribution undergoes radical changes, the recording industry faces disruption on many fronts. For example, MySpace, a music-centric social networking site acquired by Rupert Murdoch's News Corp.
In my opinion, Warner Music's still got a lot to prove as it grapples with its changing industry. There are still plenty of reasons for investors to be wary.
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Alyce Lomax does not own shares of any of the companies mentioned.