Warner Music (WMG) Results Actually OK: Digital Up 29%

Edgar Bronfman, Tom Lee, Bain Capital and every other Warner Music shareholder will likely want to send a thank you note to EMI Music Group today, for making it look like a winner. Warner’s Q3 wasn’t stellar — revenues down 2% to $802 million (5% in constant currency), while earnings dropped to a loss of $0.12 from $0.10 — but it looks like a world-beater compared to the stink-bomb EMI set off yesterday.  Importantly, operating income increased nicely year-over-year–to $45 million from $28 million.  The net income loss was largely the result of interest payments.


Encouragingly for Warner, which has been beating the digital-will-save-us drum very loudly since its IPO, digital revenues were up 29% to $119 million and now account for 15% of total revenue. Publishing was also OK–up 1% to $157 million–though not as good as at EMI.

One important question as the industry transitions to digital is whether digital music profitability per dollar of sales is as high as physical profitability.  Warner’s results suggests the the profit margins are similar.  Despite the shift in the recorded music revenue mix toward digital, the division’s operating margin held approximately steady (with the small gain coming from unrelated benefits).

Adjusted to exclude Non-Recurring Items, Recorded Music OIBDA was essentially flat year-over-year at $93 million. Recorded Music OIBDA margin was 14.2%, up 0.6 percentage points from the prior-year quarter. The OIBDA margin and operating margin improvements in the quarter reflected continued cost-containment efforts and temporary benefits as we continue to make investments in conjunction with our previously announced realignment plan.

Within digital, management doesn’t always break out online vs. mobile, but we’re going to guess that a good chunk of that digital revenue came from mobile sales, which tends to skew heavily to product released by urban artists. This means that Warner can specifically thank hiphop act T.I., for helping save the quarter. T.I.’s “T.I. VS T.I.P” album, released in July, is one of the year’s best-selling discs, even if professional angry guys like Bob Lefsetz don’t know who he is. Release.

See Also: EMI Results Awful: Digital Up But Not Enough.