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Warner Music profit drops, blamed on digital shift

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.



By Electronista Staff
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Comments

  1. BelugaShark

    Fresh-Faced Recruit

    Joined: Aug 2007

    0

    yup

    good riddance! Hopefully they'll shut-down.

  1. dopplerd

    Fresh-Faced Recruit

    Joined: Oct 2007

    0

    Changing "Industry"

    Wasn't Warner found guilty of fixing the price of a CDs in 2002? (the answer is yes) Maybe that has something to do with the decrease in profit. If your illegally inflated profits are suddenly subject to market forces your profit will decline with or without digital downloads.

    Aren't they still making a profit? (yes) Maybe if Warner Music started treating people who want music online as customers instead of criminals (I BUY music online, but still have to deal with DRM BS) they would fare better on the balance sheet.

    The music industry needs to face the music: They are no longer in a product-based industry, they are now supplying services. The music CEOs should look to the Rust Belt of midwest to see what happens when you resist such a change in the market.

  1. UberFu

    Fresh-Faced Recruit

    Joined: Oct 2002

    0

    boo-f******-hoo

    Poor - Poor Warner Music_

    Let's all cry and feel sorry for Warner Music ONLY making $150 million thru music downloads_

    [sarcasm] Damn - I really wish they had made at least $250 million_ [/sarcasm]

  1. slider

    Mac Elite

    Joined: Oct 1999

    0

    Old and top heavy

    Right now there are a lot of companies with aging execs that, try as they might, just don't get technology. This was fine when you could just hire techs to keep up, but when the very paradigm changes and you continue to try and apply the same old strategies b/c in truth you have not idea what you're doing, well, you need to either cut away the old growth or risk rotting out the whole thing. This is a very simple example of a management issue and I'm sure in 5-10 years when we look back it'll be an obvious text book example.

  1. pt123

    Fresh-Faced Recruit

    Joined: Sep 2007

    0

    shut them all down

    Yeah, shut them all down. We don't need no stinking music.

  1. jubaleh

    Fresh-Faced Recruit

    Joined: Sep 2007

    0

    Quality

    It's more than just needing to treat their customers with greater respect or easing up on DRM or embracing new technology. Sure, it's those too, but there's something a h*** of a lot bigger: quality. Most people I talk to about music express one or both of two sentiments: that new, big-label music sucks, and that the best new music out there is coming from independent labels and artists delivering their own music, direct to the customer.

    The big-five labels focus on piracy and the lower profits of digital downloads because they can't bear to face the fact that they don't seem to be any good at attracting or cultivating talent. Maybe they were when they were younger, or maybe the people who could have long since retired, but those who are running things now just can't hack it. Until this changes the big labels are going to remain in trouble.

  1. Tim_s

    Fresh-Faced Recruit

    Joined: Jul 2006

    0

    amen jubaleh

    You've hit it square on the head. The big labels don't want to accept that the independents are regularly releasing a better product, and that's where the customers are going.

    I don't want the majors to completely crumble. I just want them to suffer a great deal. A near death experience will usually bring about change. Let's see what it does to the major labels.

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