That was a surprise to Wall Street. And even if you subtract a one-time gain, the quarterly loss for the only major label based in the US was much smaller than analysts had expected. No doubt NAB President David Rehr will be letting folks on Capitol Hill know that the record companies aren’t in danger of collapse unless they get performance royalties from US radio stations.
Indeed, NAB was quick to take the bait. "We don’t begrudge Warner making a profit, but NAB will strenuously oppose a Congressional bailout of record label conglomerates that will cost radio stations between $2 billion and $7 billion annually and put thousands of radio jobs at risk," said NAB Executive Vice President, Media Relations Dennis Wharton in a statement emailed to RBR/TVBR.
"Though facing difficult economic conditions and tough prior-year comparisons, we executed on our strategy and remain confident in achieving our long-term goals. We continue to develop new music business solutions and maintain our digital leadership position, while managing costs, gaining share and delivering strong returns on A&R investments," said CEO Edgar Bronfman Jr.
Total revenues dropped 11% for the quarter to $878 million and recorded music sales dropped 11.9% to $749 million. Within that, digital revenues grew 18.2% to $156 million.
Net income for the quarter was $23 million, or 15 cents per share, compared to a loss of $16 million, or 11 cents EPS a year earlier. The Thomson/First Call consensus was that WMG would post an EPS loss of 14 cents excluding special items. There was a one-time gain from the sale of Front Line Management to Ticketmaster that tallied 24 cents per share. But without that, the EPS loss of nine cents was still well ahead of expectations.
RBR/TVBR observation: The reason for WMG’s better-than-expected performance is that the company is getting better at selling music online, which now accounts for a fifth of music sales, while cutting fat elsewhere. Selling music digitally, without having to ship a physical product, is obviously more efficient. And if you control costs in the traditional business model as it declines, owning record labels may yet be a viable business. Of course, you sell more digital downloads when a song gets radio airplay, so it’s still pretty stupid to try to bite the hand that feeds you.