updated 03:45 pm EST, Thu November 29, 2007
Warner Music Profit Drop
Warner Music Group on Thursday reported a major drop in profits for its last financial quarter that it largely attributes to online music. Although the company noted that its purely download-based music income increased by 25 percent to $130 million, the company's overall profit dropped about 58 percent and resulted in just $5 million versus $12 million the year before. This income would have been worse still had the company not taken advantage of a settlement with Bertelsmann over a Napster legal dispute.
This is largely due to the changing business model that Warner needs not just to sell music online but to maintain its artists, the company notes. Musicians now often need to consider digital rights and are being offered deals that extend beyond just publishing, such as sharing ad and image revenue. Major artists like Madonna have also left to pursue what they see as better deals while others sign on.
Bootleg file trading has not been mentioned as a direct cause of the drop but is believed to be a factor as some turn to illegal downloads as an alternative to relatively expensive CDs or copy-protected online music.
Warner's slimming profit margins reflect a wider trend across the major labels as a whole. One of its chief competitors, EMI, is today rumored to be withdrawing its funding for the IFPI and RIAA out of an attempt to trim costs and maintain its income level despite fears of increased piracy.