Revamped WMG Posts First-Half Gains

Warner Music Group says it swung to a first-half profit of $21 million, reversing a $36 million loss in the same period a year ago.

Warner Music Group says it swung to a first-half profit of $21 million, reversing a $36 million loss in the same period a year ago.

Total revenues for the six-month period, which ended June 30, were flat at $1.5 billion. The struggling recorded music division saw sales decline 3% to $1.22 billion; that downturn was partially offset by a 16% increase in music publishing revenue to $286 million.

Improved efficiencies drove a rise in earnings before interest, taxes, depreciation and amortization (EBITDA) in the first six months of the year. Pro forma EBITDA increased 17% to $135 million.

Meanwhile, the company reports cash flow from operations of $340 million, and cash on hand was $421 million.

First-half highlights included releases by Josh Groban, Twista, Alanis Morissette, Eric Clapton, Jet and the Darkness. However, WMG says it had more multi-platinum and platinum albums a year ago -- including Linkin Park's "Meteora," Madonna's "American Life" and Kid Rock's "Cocky."

WMG posted similar results for the second quarter, which ended May 31; however, revenue declines were sharper.

Operating-income profit for the quarter was $16 million, vs. a pro forma loss of $3 million in the same time frame a year ago. Overall second-quarter revenue declined 10% to $717 million. Recorded music revenue fell 14% to $591 million; WMG attributes the drop to the merger of its Atlantic and Elektra labels, which resulted in fewer artists and delayed releases. Music publishing revenue increased 11% to $129 million.

WMG is calling for improved recorded-music revenues in 2005 as its release schedule is "normalized."

The overall improved bottom line for WMG comes in the face of a massive restructuring of the company in the wake of its sale by Time Warner to a private investor group led by Edgar Bronfman Jr., who now serves as WMG chairman/CEO, and private equity firm Thomas H. Lee.

The company claims that it has achieved more than $225 million in annual cost savings by merging Atlantic and Elektra, reducing headcount and trimming the artist roster. WMG says it expects "significantly higher" cost savings for 2004 than the $60 million estimated in its offering memorandum to bondholders. It is anticipating recurring savings of more than $250 million by the end of the restructuring.

The company also says it expects one-time costs associated with the restructuring plan to come in below the original estimate of $310 million.
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