Warner Music profit drops but beats Wall Street view

Warner artist Madonna performs at the Live Earth concert at Wembley Stadium, July 7, 2007. Warner Music Group, the world's third-largest music company, on Thursday posted a 58 percent drop in quarterly profit, hurt by an industry-wide slump in CD sales, as more fans bought songs online.

NEW YORK (Reuters) - Warner Music Group WMG.N, the world's No. 3 music company, on Thursday said profits fell 58 percent as CD sales slipped further, but shares rose as investors hoped the worst of an industry slump was priced into its stock.

Warner Music shares closed up more than 8 percent, as analysts said it beat Wall Street expectations for its fiscal fourth quarter.

"The numbers were better than people thought, they were certainly better than we thought they would be," said Bishop Cheen, analyst at Wachovia. "Clearly the U.S. team is making it happen where they're out-performing the market."

Warner's net profit was $5 million, or 3 cents a share, in the fourth quarter, down from a year-earlier profit of $12 million or 8 cents per share.

The 2007 quarter benefited from a $12 million settlement from Bertelsmann AG over music downloading service Napster, but that was partly offset by $9 million in restructuring costs.

Revenue rose 2 percent to $869 million, but declined 2 percent when taking out the impact of a weaker dollar. Warner's strong sellers included Linkin Park, James Blunt and Michael Buble. But the company also posted weaker international sales, particularly in the United Kingdom.

Analysts polled by Reuters Estimates were looking for revenue of $869.5 million, on average, and a net loss of 10 cents per share.

Album sales in the United States fell 14 percent as of the end of last week from a year ago, according to data from Nielsen SoundScan. More fans bought individual songs through online stores such as Apple Inc's (AAPL.O) iTunes, or used free file-sharing services to get music.

Digital music revenue was up 25 percent at $130 million during the quarter, but this could not make up for a shortfall in compact disc sales

FASTER RATE OF CD DECLINES

Warner's stock price is still down more than 66 percent since the start of the year as evidence that the decline in music sales had accelerated became more clear to investors.

Like other major music companies, Warner is trying to expand ties with its artists beyond recording and publishing, to include new digital services as well as share in image rights, advertising, touring and management revenue.

Chief Executive Edgar Bronfman accepted that not all of Warner's artists would agree to new relationships.

"I think you'll see us coming to agreements with a number of existing artists and I think you'll see us not coming to agreement with a number of existing artists," he said on a conference call with analysts on Thursday.

Last month, Madonna, one of the world's top-selling artists, said she would leave Warner Music to sign with concert promoter Live Nation Inc (LYV.N). Warner retains the rights to all of Madonna's recordings to date and her publishing rights.

"There will be some agreements that existing artists sign with others, as has been the case with Madonna, where it was in our view economically imprudent to do that deal," Bronfman said.

On Wednesday, Warner said it formed a joint partnership with the estate of Frank Sinatra to manage all music, film and stage rights of the late singer as well as administer all licenses for the Sinatra name and likeness.

Warner is now the only major record and publishing music company still publicly traded after London-based EMI Group was taken private by leveraged buyout firm Terra Firma this year.

Shares in Warner Music rose 58 cents, or 8.1 percent, to close at $7.73 at close on Thursday.

(Reporting by Yinka Adegoke; Editing by Gary Hill)