November 17, 2010 / 9:22 PM / 8 years ago

Warner Music loss widens, signs Spotify Euro deal

NEW YORK (Reuters) - Warner Music Group posted a wider quarterly loss as revenue growth in Britain and Italy was offset by weakness in the United States, Japan and the rest of Europe, sending its shares down 8 percent.

The world’s third-largest music company, said digital revenue grew 7 percent during the fiscal fourth quarter that ended September 30, but it was hurt by the continued precipitous drop in demand for CDs.

Chief Executive Edgar Bronfman said despite the challenges he remains confident that the music industry will turn the corner and soon start to benefit from years of restructuring and cost-cutting.

“Given all the work that we’ve done to both diversify our revenue mix, increase our opportunities for revenue and reduce our fixed costs, the turnaround of our business will be significant and rapid,” Bronfman said on a conference call with analysts.

Bronfman said Warner Music had signed a new European deal with the popular music streaming service Spotify, which has more than 10 million users in Europe.

Spotify is yet to launch in the United States as Warner Music and its rival labels, including Vivendi’s Universal Music Group, Sony Music Entertainment and EMI Group, have worried about whether the free service will convert enough fans to paying customers for the premium service. Executives are also concerned Spotify could potentially cannibalize download sales on services like Apple Inc’s iTunes store.

“The question has always been how to ensure that free-to-consumer models which are generally supported by advertising and offered to attract consumers are effective at converting consumers to paid subscriptions,” said Bronfman.

He said the new Spotify agreement in Europe “more closely aligns out economics with Spotify.”

Strategic changes at Warner Music, to cope with ever-falling CD sales, has led to the company to diversify its revenue streams. It said digital and non-traditional revenue, which includes the company’s concert promotion business, together accounted for nearly 40 percent of total revenue in the last quarter.

For the fiscal fourth quarter, the company posted a loss of 31 cents a share, compared with a loss of 12 cents a share in the year-ago period.

The loss included 23 cents in one-time charges related to severance charges following management changes at its Warner Bros label. Analysts were expecting a loss of 13 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 13 percent to $752 million, but was above market estimates of $731.7 million.

The top sellers in the quarter included Linkin Park, Phil Collins and The Zac Brown Band, in addition to two Japanese artists — Kobukuro and Superfly.

For the full year, major sellers included Michael Buble, Jay-Z, Linkin Park, Muse and the “New Moon” soundtrack album.

Warner Music shares, which have risen about 30 percent since the company’s last quarterly report in August, were down 7.3 percent in afternoon trading to $5.43 on the New York Stock Exchange.

Reporting by Yinka Adegoke; Jennifer Robin Raj in Bangalore; Editing by Anne Pallivathuckal and Tim Dobbyn

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