Last month Pali analyst Rich Greenfield raised a stink about Bulldog Entertainment Group, a concert promoter he was convinced that Warner Music Group had bought without ever telling anyone. Rich was right! WMG now says it bought Bulldog last May — and that it’s since bailed out of the company and is taking an $18 million charge on the venture.
That writedown, disclosed in Warner’s Q1 earnings release this morning, translates to 12 cents per share — and WMG ended up losing 11 cents per share this quarter. Without the charge, WMG would have notched 1 cent EPS — 9 cents below consensus. Yikes.
Revenue: $989 million, up 7% y/y, beating $949 million consensus. By crummy industry standards, not bad. Alas, this is mostly due to the weak dollar. In constant currency, up just 1%.
Operating Income: $44 million, down 45% y/y. $18M of that decrease from Bulldog writedown.
OIBDA: $129 million, down 8% y/y. Blames “tough comparisons” from last year.
EPS: Loss of 11 cents, down from 12 cent gain last year. Without Bulldog write down, would have recorded 1 cent EPS, 9 cents below Street consensus
Free Cash Flow: Negative $150 million. Excluding interest payments, negative $104 million. Worrisome given $2.1 billion net debt.
Recorded Music: $850 million, up 6.3% y/y. Again, given industry doldrums this is pretty good. But operating income was down 28.3%; OIBDA down 3.5%; OIBDA margin dropped 1.6%.
Publishing: $144 million, up 8.3%. Revenue related to CD sales down single digits, but sales related to digital sales, and “sync rights” (selling song rights to movies, ads,etc) up 42.9%. Would have been higher but writers strike hurt: No production = no one buying song rights.
Digital revenue: $141 million, up 41% y/y and 9% sequentially. Digital now 14% of total revenue. Down from 15% in past two quarters, because so many people are buying Josh Groban CDs. U.S. accounts for 65% of digital. Worldwide mobile accounts for 40% of digital, but mobile business still not growing fast enough.
Frank Sinatra: Invested $50 million in JV with Sinatra estate, previously announced last November.
Edgar, reading from script: Industry under pressure, mobile still growing slower than they’d like. But we outperformed peers, and we’re positioned to grow.
Still making “strategic investments” (more on that later), we gained U.S. market share, now at more than 20%. Increased total unit (physical and digital) sales last year – only label to do so. Talking up Paramour – a band WMG signed to a “360 deal” last year.
On Bulldog: “Obviously disappointed” but we’re going to keep making deals and investing – better than standing still.
Man do we love Josh Groban! Sold 3.9 million units of Christmas album last year, which also helped push catalogue sales up 30%.
On RIAA-sponsored campaign to get terrestrial radio to pay “performance royalties”: U.S. one of 5 countries that doesn’t insist on them. Others are China, Rwanda, North Korea, Iran. Nice.
M&A for this year? Maybe, but playing down chance of big, Sinatra-sized deals this year. A few opportunities this year, some of which we’ve seen in the papers (Stones? Chrysalis?), others that papers may write about later.
2008 release schedule “won’t move the needle” up or down from last year. “A neutral factor” for the year — this may bum out the Street: Merrill Lynch, among others, had cited big slate of records this year as reason to buy stock.
iPod sales were only up 5% 4Q. Is that a leading indicator of diminished digital music appetite? No, says Edgar, because iPhone sales up, and we’re counting on those, other mobile sales, to bump up sales (one day).
How much of rev growth organic vs. M&A driven? Won’t break it out. But we would have clearly outperformed market even if you take M&A revenues out.
How much did Warner publishing pay for Led Zeppelin deal? Won’t say.
Investments: Excited about deals with Lala.com, imeem.com.
We don’t giant falloff:digital sale has better margin than physical sale. We continue to see pricing pressure everywhere, and we continue to hold the line. We don’t think that dropping price increases sale, so we continue to keep our pricing relatively high, on both physical and digital. Edgar: We think bundling on iTunes has increased our margins by 25%.
See Also: Greenfield: WMG Bought A Dud Concert Business
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