The thing about useful stuff is: Weak dollar keeps Warner Music afloat

Weak dollar keeps Warner Music afloat Friday, November 30, 2007

If it weren't for a weak dollar, Warner Music result for the quarter to Sept 30 would have been even more uncomfortable. As it was the translation of overseas earnings into dollar equivalents was flattered by the decline in the value of the dollar, allowing them to report that £1 of sales was worth more in dollars than in the previous period.

PaidContent has the following report

As expected, the Warner Music Group (NYSE: WMG) quarter ending Sept. 30 proved to be a challenge: The company booked revenue of $869 million, up 2 percent from last year’s $854 million, although on a constant-currency basis, revenue would have declined by 2 percent. Net income slid to $5 million ($.03 per share) during the company’s fiscal Q4, from $12 million ($.08) in the year-ago period. Digital helped make up for weakness in physical sales, as revenue hit $130 million, up 25 percent from last year’s $104 million, and 9 percent higher than the previous quarter. Digital accounts for 15 percent of the company’s total revenue, which is roughly where it stood last quarter.

-- Recorded music sales grew by .7 percent to $736, though again, there would have been a slight decline if not for currency effects. Domestic recorded music revenue grew by 7.6 percent, while international slipped 6.3 percent. This was the same story as last quarter, but the company says this isn’t a trend, but rather a matter relating to the timing of albums of certain popular artists in each region. In other words, last year’s lineup of releases was particularly weak in the US.

-- Music publishing revenue grew by 7 percent to $137 million, although most of this was due to currency. Digital publishing revenue came to $7 million.

-- Results included $9 million in restructuring charges and a $12 million gain from the Bertelsmann/Napster (NSDQ: NAPS) settlement.

The full company release is here.

Bottom line is $5m on revenues of $869m i.e 0.6% margin after tax (big jump in tax charge relative to previous period). And people look at me with surprise when I suggest shorting the stock, perhaps because they can't believe it can get worse. I can.

One interesting snippet from PaidContent conference call was that already, non-music sales (merchandise, touring) represent 5 -15 percent of music revenues in some Asian markets, although the company isn’t giving any indication of where this is expected to grow to, or what the breakdown will look like in the US. CEO Edgar Bronfman Jnr insisted that these shouldn’t be called ancillary businesses, as they’re core to the WMG model.

Labels: music