Warner Music Group's Revenues Up Slightly While Net Losses Nearly Double

Warner Music Group's red ink doubled in its latest quarterly earnings as the company posted a $63 million net loss on revenues of $663 million for the fiscal quarter ended June 30, 2013. That compares with the $32 million in net loss accumulated in the corresponding period last year when total revenues were $651 million.

But within the red ink, there was positive signs of as sales increased 1.8% while operating income before depreciation and amortizing also showed a slight improvement to $69 million from the $66 million produced in the corresponding period last year, which represents a 4.5% increase.

The company said that the increase in net loss was due to an increase in tax expense, which was partially offset by a decline in interest expense on debt.

"Both recorded music and music publishing contributed to an increase in our total digital revenue, and both segments contributed to our improved OIBDA and OIBDA margin this quarter," WMG executive VP  and CFO Brian Roberts said in a statement. "In addition, we paid down $175 million in debt during the quarter."

The company also closed its Parlaphone acquisition on July 1.

Within its overall numbers, the recorded music operation saw sales grow 3.2% to $534 million from $517 million in the corresponding period last year. The company said that digital revenue accounted for 44.4% of sales as sales from that format grew by 8.5% to $236 million from $216 million.

Moving over to OIBDA, the company showed slight improvement to $61 million from the $58 million produced in the corresponding period last year, which represents a 5.2% increase.

The company also broke out sales by geography, noting that U.S. revenue for recorded music remained flat, but added international revenue rose 5.5% to $309 milllion. That growth was led by sales in the U.K., France and Latin America, while revenue in Canada, Central Europe and parts of Asia declined.

During the conference call with Wall Street analysts this morning, CEO Stephen Cooper said the company's integration of Parlophone was proceeding swiftly and when completed would yield $70 million in annual savings. But Cooper noted that the company also had absorbed $7 million integration costs and $5 million in severance costs due to the acquisition.

Noting that WMG had also acquired EMI operating companies in about ten European countries, Cooper said, "We are increasing the size and diversity of European music business at a time when demand for local repertoire has never been so strong." He added that the additions of the Parlophone catalog from artists like Radiohead and Jethro Tull gives WMG the pre-eminent catalog in the industry; and said that the newly acquired EMI Classics and Virgin Classics would be rebranded under Warner Classics.

While Cooper said that industry sales were impacted by a softer release schedule and catalog sales, he noted that digital revenue is getting a boost from the growth of music streaming. He cited streaming’s growth at 24% in the current fiscal quarte, as compared with to the year prior.

"We believe the continued development of streaming holds promise," he said, noting that in some Scandinavian countries streaming penetration was ahead of the U.S., and helped propel overall growth -- unlike in the U.S. where overall market's sales are down slightly this year.  In Sweden, he noted, overall recorded music was up 12%, thanks to a 75% increase in digital volume, of which 94% of that growth came from streaming.

Cooper indicated that he expects to see continued growth from streaming in the U.S., and pointed to Apple’s expected iTunes Radio launch this fall and Google’s U.S. music subscription launch.

In music publishing, revenue declined 2.9% to $134 million from the $138 million produced in the quarter ended June 30, 2012. The drop in publishing revenue was attributed to declines in all major sources of revenue; performance, down $3 million, or 5.6%, to $51 million; mechanical down $1 million, or 2.9% to $33 million; and synchronization, down  $5 million, or 16.1%, to $26 million.

On the other hand, OIBDA increase 16.7% to $28 million for publishing, up from $24 million in the corresponding earlier period. The latter decline was attributed to a $4 million gain through a settlement in the prior year, although details weren't provided.

For the nine-month period, the companies losses continue to widen with the company's red ink this year totaling $141 million on sales of $2.11 billion in the nine-month period ended June 30. In the prior year, the WMG lost $94 million on sales of 2.05 Billion.

Overall, the company reported recorded music has so far accumulated $1.75 billion in revenue in the first nine months, while music publishing revenue totaled $377 million.

As of June 30, 2013, the company reported a cash balance of $102 million, total debt of $2.066 billion and net debt (total debt minus cash) of $1.964 billion. Meanwhile, total equity declined 15.9% to $794 million from the $944 million it stood at on June 30, 2012.

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