Music conglom off key in fourth quarter

Warner Music disappointed Wall Street on Friday when it disclosed that revenue had slid in its fiscal fourth quarter, even as the company touted its digital gains.

Revenue dropped 6% in the quarter to $854 million. Company said this year’s release lineup was thinner than that of last year, when Madonna, James Blunt and a number of Atlantic Records artists all had new albums.

Analysts had expected nearly $900 million in revenue for the quarter, and investors dropped the stock 2% to $24.80 on Friday.

For the full fiscal year, Warner Music swung to a profit of $60 million from a loss of $169 million the previous year — further evidence, to some analysts, of the turnaround at the fiEarnrm under new owners and the leadership of topper Edgar Bronfman Jr..

Revenue inched up to $3.52 billion from $3.5 billion.

Execs acknowledged that the fourth quarter was “soft in terms of physical sales” but continued its mantra that digital revenues are growing faster than physical shares are shrinking.

Digital revenue at the company nearly doubled to $102 million for the quarter, though as at other companies, Warner Music’s digital revenue is a small part of overall coin — about 12% of total revenue.

Company’s digital unit is considered one of the industry’s strongest; firm is especially solid in digital albums, which are harder to pull off but more profitable.

WMG saw a profit gain of $12 million for the quarter, fueled by a $13 million settlement in the diskery’s lawsuit against file-sharing service Kazaa.

Up-and-comers including Gnarls Barkley, Muse and Panic! at the Disco — along with established artists such as the Red Hot Chili Peppers and Diddy — led sales in the quarter.

In a call with analysts, Bronfman stressed the company had to be sure not to “overprovide for businesses that are not growing,” referring to physical sales. He said that when it came to digital sales, “there must be additional leverage.”

Company also emphasized its revenue-sharing pact with YouTube, but did not address any possible lawsuits against other social-networking sites; competitor Universal Music has been more litigious, suing MySpace after earlier working out a deal with YouTube.

Analysts also questioned why Warner Music did not purchase BMG’s music-publishing biz, which Universal bought earlier in the year; execs said price and regulatory concerns were among the stumbling blocks in its failed bid, which it described as “aggressive.”

The quarter also saw the release of Microsoft’s Zune player, which some music execs are privately rooting for, because the software giant is seen as more open to negotiation than Apple, particularly on the issue of flexible pricing.

“I believe and hope,” Bronfman said, “that here will be opportunities for more variable models.”

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