Music to their ears

WMG revs jump 4% in first quarter

With rumors of a sale swirling around it, Warner Music Group is showing why it’s the apple of EMI’s eye.

WMG saw revenues jump 4% in the first quarter to beat analysts’ expectations — even as it lost $7 million in the frame.

EMI offered last week to buy the company for $4.2 billion. WMG quickly rejected the offer and is thought to be holding out for a better deal, likely for about $5 billion. The favorable earnings announcement may show in retrospect why WMG was so quick to dismiss the proposal.

WMG also disclosed that it is the subject of 14 class-action lawsuits over pricing of digital music. News amplifies troubles that began several months ago, when it was disclosed that New York state Attorney General Eliot Spitzer had subpoenaed the company over the issue.

Despite losses and lawsuits, analysts were satisfied with the WMG results. The per-share loss was lower than they had anticipated, and overall revenue of $796 million surpassed their expectation of roughly flat revenues of $770 million.

Analysts also were impressed that WMG had grown digital revenue to the point that it now represents a double-digit percentage of overall revenue.

And they took heart from the fact that recorded music — lately a drag on many diskeries’ bottom lines — turned a profit, with losses coming from the publishing division.

Investors pushed the stock up 2% Friday to $29.40. Earlier in the day, the company topped $30 for the first time in its one-year history as a public company.

Still, analysts noted the stock price is being driven by an acquisition instead of by business fundamentals. And if digital-music sales continue to attract legal scrutiny, company’s Wall Street image could continue to suffer. WMG last year settled with Spitzer over a payola investigation to avoid that fate.

In a conference call, WMG chief Edgar Bronfman Jr. was vague about an acquisition by EMI. But the earnings announcement could force a higher offer from EMI.

EMI has already been forced into a weaker negotiation position because of the perception that WMG is thriving while EMI is struggling.

News could encourage a merger since one of EMI’s perceived strengths is its publishing division.

But the earnings also may embolden WMG go at it alone. At a Thursday talk in Gotham, Bronfman, in either a tactical or candid comment, answered a question about the merger by saying, “We’re trying to run our own race.”

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