Warner Music falls to loss, but beats Street

Singer Michael Buble performs at the Juno Awards, the Canadian Music Awards, in Calgary, April 6, 2008.

NEW YORK (Reuters) - Warner Music Group posted a narrower-than-expected loss on Tuesday as strong sales in Britain and France helped overcome declining demand for traditional music discs in the United States and Japan.

But the No. 3 music company, whose top selling artists include Michael Buble and Enya, continues to face a shrinking market for compact discs and international licensing revenue.

Chief Executive Edgar Bronfman said the company continued to perform strongly in digital music sales, which accounted for 35 percent of all sales in the quarter.

Like its bigger peers Vivendi SA's Universal Music Group and Sony Corp's Sony Music Entertainment, Warner Music is struggling with declining sales of recorded music as fewer fans buy albums on CDs.

The shift to downloaded music has led to a slump in revenue as fans increasingly buy lower-priced individual songs from Web retailers like Apple Inc's iTunes Music Store.

Bronfman said that a recent introduction of variable-priced songs on iTunes had been a net positive for Warner Music's digital revenue.

Digital music sales rose 8 percent from a year ago to $184 million. But the sales were flat from the fiscal fourth quarter, which ended in September.

According to tracking firm Nielsen SoundScan, U.S. album sales in 2009 tumbled for the eighth time in nine years as the rate of growth in legal digital downloads slid in a turnaround from recent years.

"These numbers are encouraging relative to the industry-wide numbers," said Standard & Poor's analyst Tuna Amobi. "There's no getting away from the challenging environment for CD sales."

Warner expects its biggest hits to be released near the latter part of the fiscal year, similar to its fiscal year 2009.

New York-based Warner Music is widely expected to be interested in buying the recorded music assets of debt-laden EMI Music which is currently going through a legal dispute with Citigroup.

Bronfman declined to comment directly on EMI, the fourth- largest music company, on a conference call with analysts but said he did not see any regulatory barriers to consolidation.

"I think from a regulatory standpoint, further consolidation in the recorded music industry is possible," said Bronfman.

BEATING FORECAST

Net loss for the fiscal first quarter ended in December was $17 million, or 11 cents a share, compared with profit of $23 million, or 15 cents a share, a year earlier.

Wall Street analysts has expected a loss of 14 cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 3 percent to $918 million and outpaced estimates of $872 million, including a 12 percent jump in international recorded music revenue. Excluding the effect of the weak dollar, sales fell 2 percent.

Shares of Warner Music were up 21 cents at $5 on the New York Stock Exchange. Although the shares have fallen about 15 percent so far in 2010, they have nearly doubled in the past year.

(Reporting by Franklin Paul; editing by John Wallace, Derek Caney and Gunna Dickson)