Consumers choose digital music over CDs

Warner Music Group said Tuesday its fiscal third-quarter loss widened as more people bought digital music, rather than CDs.

The loss for the quarter ended in June was $17 million, versus a prior-year loss of $14 million. Excluding nonrecurring items related to a corporate restructuring and settlement, the loss in the 2007 quarter was $29 million.

Revenue declined 2% year over year to $804 million from $822 million. On a constant-currency basis, revenue fell 5%.

“This proved to be a more challenging quarter industrywide, as the difficult global music environment persisted,” Edgar Bronfman Jr., WMG’s chairman and chief executive, said during a conference call with Wall Street analysts.

The New York-based company said digital revenue increased to $119 million, or 15% of total revenue, in the quarter. That is up 29% from $92 million in the prior-year quarter and up 7% sequentially from $111 million in the second quarter of fiscal 2007.

Revenue from recorded music overall fell 4% to $653 million. The decline was driven primarily by softer sales in Britain, France and Canada, but were partially offset by stronger sales in Japan and Spain.

Domestic recorded music sales declined 1% to $345 million, while international recorded music sales fell 7% to $308 million.

Albums by Linkin Park, Michael Buble, T.I., The Traveling Wilburys and The White Stripes were among Warner’s biggest sellers during the quarter.

Management said it is seeing soft sales of CDs on new releases in the first week and steeper sales declines in following weeks.

Music publishing revenue rose 5% to $157 million, with the segment benefiting primarily from improved digital and music synchronization sales.

Bronfman said the company will accelerate and broaden efforts to strike deals with artists and other industry players that will give Warner a piece of revenue from other segments of the music industry, such as merchandising and touring. Those segments are faring better than recorded music sales.

“The economic model for making the investment in artists’ career is no longer sufficient if our return comes only from the recorded music business,” Bronfman said.

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