Warner Music Group (NYSE: WMG) is making a $33 million writedown against its investments in web music service Lala and cash-strapped social net Imeem. WMG, whose roster includes Linkin Park, had invested $20 million and $15 million in the sites respectively.
As part of the writedown, WMG, in its earnings for the first three months of this calendar year, also says it’s writing off an expectation that it would receive $4 million from Imeem specifically. The bottom line – just as counterparts like Last.fm and YouTube are struggling to profit in the social music space, neither Imeem nor Lala are making the label anything like it expected. In WMG’s February earnings call, CEO Edgar Bronfman Jr said the company doesn’t record earnings from the two companies as “their impact is negligible at this stage”. The write-offs mean WMG’s Q1 losses doubled to $68 million from $34 million in the same period last year.
In the earnings themselves, though, operating income also fell 46 percent to $15 million on 17 percent lower revenue of $668 million (or, 10 percent lower at constant currency rates). Digital music income crept up just one percent from the previous quarter (three percent at constant rates) to $173 million, six percent better than the year before (10 percent at constant rates) – it now makes up 26 percent of WMG income.
– Music sales still sliding: The company blames “a light release schedule and the turbulent global economy“, saying better releases are coming toward year’s end. Like all labels, the real belligerent was again the recorded music division, where income was down 17.6 percent from last year (down 11.4 at constant currencies) to $537 million, reflecting “continued contracting global demand for physical product”.
– Downloads up, royalties down: Digital income in the division was up 7.1 percent on last year to $166 million, making 31 percent of divisional income, driven by global online downloads. In the music publishing division, digital revenue was actually $2 million lower at $7 million, thanks to timing of releases and lack of “cash received” (perhaps from royalty payments lost from YouTube et al?).
Cash reserves: It’s not all bad – the company is now sitting on $658 million in free cash, a fifth more than it had in the previous quarter – in days of yore, it might have used it to invest in online businesses; but, given today’s news, it may now be more cautious.
(Photo: Norrel Blair, some rights reserved)