Warner Music posts smaller loss on European sales

NEW YORK (Reuters) - Warner Music Group Corp posted a smaller-than-expected quarterly loss on Thursday, as improved sales in Europe softened the effects of the slowdown in the global music industry.

Albums from artists like Madonna, Disturbed, Plies and Frank Sinatra helped revenue rise 5 percent at the world's third-largest music company. But without the benefits of the weak dollar, sales would have declined 1.1 percent.

As CD sales continue to fall and digital music fails to make up the difference, music companies like Warner and Vivendi's Universal Music Group are seeking new revenue by diversifying relationships with artists and business partners.

Chief Executive Edgar Bronfman said Warner now had up to one-third of all artists on its roster signed to so-called 360-degree comprehensive contracts covering recording and licensing rights, management and touring.

However, Madonna, rock band Nickelback and other artists recently gave notice that they would leave Warner to sign multimillion-dollar contracts with Live Nation Inc.

Standard & Poor's analyst Tuna Amobi said he viewed the news of Warner doing more 360 contracts favorably.

"The margins on those kind of deals are overall better their traditional recording deals," said Amobi.

Warner shares were down 2 cents at $8.42 in afternoon New York Stock Exchange trade. The stock has risen more than 80 percent from a low in January as investors believed that the music industry might have hit bottom.

MUSIC-BASED VIDEO GAMES

Bronfman also pointed to the video game industry's successful run with music-based titles as an opportunity for companies like Warner.

But he said he was concerned about similarities between the launch of MTV 25 years ago or the iPod five years ago and today's video game companies like Activision Blizzard and Harmonix, a unit of Viacom Inc.

"The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small," Bronfman said.

The music industry has long regretted allowing MTV to build a multibillion-dollar cable empire by providing its music and artists for free or for next to nothing. Executives also regret not negotiating a stake in Apple Inc's iPod and iTunes business at launch.

"I think the industry as a whole needs to take a very different look at this business and participate more fully," said Bronfman. "If that does not become the case, as far as Warner Music is concerned, we will not license to those games."

The company's net loss for the third quarter ended on June 30 narrowed to $9 million, or 6 cents a share, from $17 million, or 12 cents per share, a year earlier.

Wall Street analysts polled by Reuters Estimates had been expecting a loss of 18 cents a share.

Revenue rose to $848 million, compared with analysts' estimates of $766.5 million.

A sale increase of 17.2 percent in Europe and Canada offset a 6.5 percent decline in the United States. On a constant-currency basis, international revenue increased 3.6 percent.

The iTunes Music Store, currently the biggest U.S. retailer of music, accounted for most of Warner's digital revenue, which rose 39 percent from a year earlier to $166 million, but was flat from the previous quarter.

Warner is looking at other digital revenue, including preloading its music on devices such as mobile phones or MP3 players in what it calls an "Access Model." The first major example is a deal with Nokia called "Comes With Music," expected to launch in the second half of the year.

"We have been very focused on reducing the amount of assets devoted to our physical infrastructure," Bronfman said, "while increasing the number of assets devoted to our digital distribution."

(Additional reporting by Franklin Paul; Editing by Derek Caney and Lisa Von Ahn)