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Warner Music Group Third-Quarter Loss Widens

Warner Music Group, one of the world's largest recording companies, said Tuesday its fiscal third-quarter loss widened as more people bought digital music, rather than CDs.

The loss for the quarter ended in June was $17 million, or 12 cents per share, versus a prior-year loss of $14 million, or 10 cents per share. Excluding nonrecurring items related to a corporate restructuring and settlement, the loss in the 2007 quarter was $29 million, or 20 cents per share.

Revenue declined 2% year over year to $804 million from $822 million. On a constant-currency basis, revenue fell 5%.

On average, analysts surveyed by Thomson Financial forecast a quarterly loss of 14 cents per share on revenue of $836 million.

Shares fell 68 cents, more than 6%, to $10.35 at the open of trading Tuesday.

"This proved to be a more challenging quarter industrywide, as the difficult global music environment persisted," Edgar Bronfman Jr., WMG's chairman and chief executive, said during a conference call with Wall Street analysts.

The New York-based company said digital revenue increased to $119 million, or 15% of total revenue, in the quarter. That is up 29% from $92 million in the prior-year quarter and up 7% sequentially from $111 million in the second quarter of fiscal 2007.

Revenue from recorded music overall fell 4% to $653 million. The decline was driven primarily by softer sales in Britain, France and Canada, but were partially offset by stronger sales in Japan and Spain.

Domestic recorded music sales declined 1% to $345 million, while international recorded music sales fell 7% to $308 million.

Albums by Linkin Park, Michael Buble, T.I., The Traveling Wilburys and The White Stripes were among Warner's biggest sellers during the quarter.

Management said it is seeing soft sales of CDs on new releases in the first week and steeper sales declines in following weeks.

The industry needs to introduce a new platform that delivers higher quality and more value to consumers than the compact disc, Bronfman said.

Digital recorded music sales, including online downloads and mobile music, totaled $112 million, up 27% from a year ago and represented 17% of total recorded music revenue.

Music publishing revenue rose 5% to $157 million, with the segment benefiting primarily from improved digital and music synchronization sales.

Total digital revenue from music publishing was $8 million.

Bronfman said the company will accelerate and broaden efforts to strike deals with artists and other industry players that will give Warner a piece of revenue from other segments of the music industry, such as merchandising and touring. Those segments are faring better than recorded music sales.

"The economic model for making the investment in artists' career is no longer sufficient if our return comes only from the recorded music business" Bronfman said.

Meanwhile, Bronfman said the company backed away from a bidding war for Britain's EMI Group PLC because the market has created expectations for a price that "we couldn't justify."

"In order for us to succeed as a company, it is essential that we maintain our financial discipline," he said. "Accordingly we elected not to make an offer."

Private equity firm Terra Firma Capital Partners acquired EMI last week for $4.9 billion.

For the nine-month period ended in June, Warner Music posted a net loss of $26 million, or 18 cents per share, compared to net income of $48 million, or 34 cents per share, in the prior-year period.

Total revenue for the nine-month period fell 5% to $2.51 billion, compared to $2.66 billion.

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