Digital revenues not enough to counter Warner Music's slide

By Ed Oswald, BetaNews

February 6, 2008, 12:51 PM

While digital revenues were up 41 percent from last year, Warner Music's overall profits dropped 45 percent and revenues remained stagnant.

Digital music now accounts for 14% of Warner Music Group's total revenue, showing the continuing move by consumers from physical to digital formats. However, this also means the company is making far less money selling music.

Warner by all measurements is still quite healthy financially. But Wednesday's results highlight the issues the labels face as the industry moves further into the digital age. Total revenue stood at $989 million, up seven percent year over year.

Net loss for the quarter stood at $16 million, versus a $18 million profit a year earlier.

Free cash flow, typically a good barometer of the overall health of a corporation, also swung negative in the final quarter of 2007. It posted a $155 million deficit there, versus a $16 million positive number a year ago.

Essentially, what that says is the company cannot spend on future initiatives without adding to its debt, or without spending money intended to maintain its currently existing resources.

"2007 was a challenging year for the recorded music industry," chairman and CEO Edgar Bronfman conceded. However he highlighted that Warner is leading in album share in the US and digital versus physical share, and is near the top in US market share overall.

"We recognize that there remains much to be accomplished and are working towards translating these gains into enhanced value for shareholders," he concluded.

In related news, in the overall market physical sales dropped 9.5% in 2007. However, digital music sales increased 45% during the same period.