Even though Warner Music Group's revenues dropped 14% in its last quarter, chairman and CEO Edgar Bronfman Jr. used the company's Tuesday earnings call to express hope for diversified revenue and new cloud-based music services.
"We expect digital revenue to accelerate once again as new business models are rolled out on a global basis and as device capabilities and network technologies advance," Bronfman said. January's Consumer Electronics Show reaffirmed Warner's belief that digital innovation will evolve rapidly, he added.
Some of that digital growth is expected to come from services like Spotify. Bronfman did not have an update on a Warner U.S. licensing deal with the company- Goldman Sach's Ingrid Chung asked the question on everyone's mind - but he did say that Warner is seeing "very real growth from Spotify." And although streaming revenues are not yet "significant," Bronfman predicted Spotify and services like it will be "ever more meaningful" in the company's financial results and will make in impact in its fiscal 2011 earnings.
But optimism has been a familiar refrain in Warner's earnings calls. With no bottom in site, the focus tends to be placed on an uncertain future. "It seems like the industry has always been two to three years away from returning to growth, and it seems like it's been that way for four or five years" commented Doug Mitchelson from Deutsche Bank during the Q&A portion of the call.
Another part in Warner's long-term plan is to diversify its revenue. That is happening slowly as multi-rights deals mature and artists reach their earnings potential. About 55% of Warner's active global artist roster is now signed to such deals, Bronfman said, up from none in 2005. Multi-rights deals include recorded music as well as such non-traditional revenue as sponsorships, fan clubs, websites, merchandise, touring and ticketing.
As those contracts are not yet in their prime years, non-traditional revenue grew only 3% compared to the same period in 2010. In the most recent quarter, non-traditional revenue made up 12% of recorded music revenue, or $80.8 million. In the prior-year period, non-traditional revenue made up 10% of recorded music revenue, or $78.3 million.
Warner's bullishness on the cloud and non-traditional gains contrasted with the dour numbers in the company's earnings for its fiscal first quarter ended December 31. Revenues were down 14% from the prior-year quarter. Operating income before depreciation and amortization was down 19.6% to $90 from $112 million in the same quarter last year. Net loss widened to $18 million from $16 million.
On the recorded music side of the business, revenue fell 14% to $673 million. Domestic was down 9.5% to $257 million while international was down 16.6% to $416 million.
Publishing revenue fell 14.9% to $120 million. Both domestic and international revenue were down 14.9%. Many components of publishing revenue dropped. Performance royalties fell to $44 million from $50 million. Mechanical royalties dropped to $39 million from $47 million. Sync revenue fell to $24 million from $25 million. Digital revenue sank to $11 million from $15 million.
Not even digital growth was terribly positive. Digital revenue was up only 1.6% over the prior-year period. The $187 million of digital revenue last quarter was actually down 5.1% sequentially from the quarter ending September 30, 2010. Growth in digital downloads and streaming was partially offset by a decline in ringtone sales, the company said.