Warner Music's Revenues Rise, Losses Widen in Latest Quarter

The Warner Music group posted a $57 million net loss on revenue of $764 million for the quarter ending Sept. 30. That represented an increase of 4.5% from $731 million in revenue during the corresponding quarter of the prior year, thanks largely to the addition of Parlophone Records.

Without the addition of Parlophone Records in the fourth quarter, revenue would have been about $704 million, which represents a 3.7% decline. During a conference call with investors, WMG executive VP and CFO Brian Roberts attributed the decline to a light release schedule and strong comparable sales in Japan from the prior corresponding period, when the label had albums from three superstar acts in that country. Roberts also said the light release schedule will continue in the first half of the new fiscal year.

The company's net loss widened to $57 million from $18 million in the prior period. However, due to a tax benefit related to deferred tax benefits for higher losses in foreign territories, adjusted net income was $1 million.

For the year, the company posted a net loss of $198 million on revenues of $2.87 billion in revenues as compared with a net loss of $112 million on $.2.78 billion in revenues in the prior year.

Roberts said the company had $39 million in transaction expenses related to the acquisition of Parlophone, including paying $11 million to WMG parent Access Industries for making the acquisition. But he said that due to integration, the company would realize $70 million in cost savings over the next two years.

Within total revenue, recorded music revenue grew to $2.39 billion from $2.28 billion but publishing revenue fell to $503 million from $518 million in the prior year.

Looking at operations, the recorded music operation produced $270 million in operating income before depreciation and amortization, versus $289 million the prior year, while music publishing's OIBDAs increased to $148 million from $146 million. Overall OIBDA fell to $333 million from $353 million, a 6% decline.

During the year, recorded music's digital revenue grew to $997 million from $865 million, an increase of 15.3%. Meanwhile, physical music sales fell 7.2% to $900 million from $970 million.

CEO Stephen Cooper said that digital streaming is growing and its strength is not correlated to download sales slowing. "We see streaming growth as a great opportunity, not a cause of concern," he said, adding that there is a fairly strong conversion rate among consumers after six months from free to paid subscription. Moreover, he said that even the free-to-the-consumer, ad-supported digital services will ultimately generate enough revenue so that it will be indifferent as to whether consumers are getting their music through free or paid subscriptions.

Looking at Warner/Chappell Music, revenue fell 2.7% to $503 million from $518 million in the prior year. Of this year's total revenue, performance revenue was down slightly to $197 million from $200 million in the prior year; mechanical was down to $113 million from $128 million; and synchronization fell to $98 million from $111 million.  However, the publishing's company digital revenue 25.8% to $83 million from $66 million in the prior year, while other publishing revenue was down to 412 million from $13 million in the prior year.

Moving over to the balance sheet, the company listed $2.85 million in long-term debt, up from $2.2 billion posted on Sept. 30, 2012, while equity fell to $743 million from $944 million.Even though debt rose due to the Parlophone acquisition, interest payments fell to $203 million from about $225 million, due to refinancing, Roberts said.

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