Warner Music Group profits fall off

Warner Music Group Corp. (NYSE: WMG) announced today a $5 million net profit in the last quarter, compared to $12 million at this time last year. Continued growth in digital sales over sales of physical albums (CDs) is cited as the reason for this drop. There is good news out of that growth as digital sales for WMG rose 25% during the quarter, but according to Billboard this could not make up for CD sales. Across the board, the report indicates that album sales in the United States were down 14% in the last year. Fans are using digital stores like Apple Inc. (NASDAQ: AAPL)'s iTunes store to buy tracks in greater quantities than full albums.

In mid-October, WMG lost a major artist when Madonna opted to sign a new contract with tour promoter Live Nation (NYSE: LYV). For years, WMG had also been mentioned as a possible buyer of London-based EMI Group, but the seven-year rumor ended when Terra Firma bought the music company and took it private. Billboard indicates that WMG is attempting to create new business relationships with the company's roster of artists, much like the other major record companies. This new business model would include "new digital services as well as a share of image rights, advertising, touring and management revenue."

WMG's profit decline is certainly not unexpected, and it is another indication that the digital market is the one these companies should be focusing their attention. As movies and television shows are indicating, the internet and online stores are providing new outlets for material to be tested and offered to fans. It would be prudent to test similar measures and see what the results might be. Clearly, interest would be maintained as fans are already buying more material through online stores versus strolling through retailers looking for CDs.