Digital download sales now make up 20% of Warner Music’s total revenue

“Warner Music Group Corp.’s fiscal third-quarter net loss narrowed despite continued struggles with the consumer shift toward digital music,” Shara Tibken reports for The Wall Street Journal.

“The record company reported a net loss of $9 million, or six cents a share, for the period ended June 30, compared with a net loss of $17 million, or 12 cents a share, a year earlier,” Tibken reports. “Revenue rose 5.5% to $848 million, but declined 1.1% in constant currency. Domestic revenue fell 6.5%, while international revenue increased 17%, or 3.6% on a constant-currency basis.”

“Within the recorded-music segment, digital revenue — which now makes up 23% of segment revenue and 20% of total revenue — jumped 39%,” Tibken reports.

“In an effort to adapt with consumers’ shift to digital music from physical CDs and better compete with Apple Inc.’s iTunes — which in April became the nation’s No.1 retailer of music, Warner and two other music-recording companies formed a partnership in April with News Corp.’s MySpace to offer the social-networking giant’s members a range of new music-listening and merchandising features,” Tibken reports.

Full article here.

[Thanks to MacDailyNews Reader “Chuckles the Microsoft CEO” for the heads up.]

Why does Warner feel the need to “compete” with Apple’s iTunes Store when Apple’s iTunes Store sells Warner music already? Abject fear. The headline says it all. Apple’s iTunes Store is responsible for at least 19.5% of that 20% of Warner’s total revenue. Steve Jobs is playing these fools like the fools they are. And, Edgar, from now on, don’t you call Steve anymore. Steve will call you when he wants something done.

20 Comments

  1. so, i am not a big shot CEO or anything, but here is a little thought i had….

    distribution cost on digital stores vs physical stores. i am betting the online stores cost less. unless they are having their music delivered by Ted Stevens tiny digital trucks….

    reasons people don’t buy from online stores seem pretty much to be one or more of three things. price, selection, or don’t have one of them there new fangled electric type writers what plugs into the phone (i’m looking at you McCain)

    while you can’t do anything about potential presidential candidates, releasing all your music as higher rate encodings for the same under a dollar price should increase sales of something that costs you very little.

    meanwhile, spending money to make a new partnership and music store every nine months or so seems like a waste. iTunes, amazon, whoever. just take the 3 biggest names you can find, give them all your tunes, and sit back and watch the money roll in. how hard is this people?

  2. What are they spending so much money on that they’re making losses? I know there are development costs – not all artists become successful – there’s promotion and so on, artists get paid, but still. Even with piracy reducing the volume of sales, and even if those legitimate sales they’re making are of lower value, there must be some serious waste going on there. They should worry less about trying to steal business from the companies that are selling their wares and sort out the rest of their business.

  3. @shen:

    You make too much sense. That is why your ideas will not be adopted. You have to be a little insane with an order of magnitude of an ego for people to pick up on your idea.

  4. Just to add to the chorus here: Warner’s efforts to ‘compete’ with Apple are utter nonsense. They would be competing if Apple were another label, attracting and signing artists. They would need a reason to be worried in such a case, since Apple would possibly poach Warner’s artists from them, etc.

    Apple is Warner’s biggest single distributor. No other distributor has been selling more of Warner’s (or anyone else’s) product than Apple. Yesterday, they were very careful not to offend Wal-Mart, since it was the single biggest distributor of their CDs. But today, instead of being careful not to bite the hand that feeds them, Warner (and others) continue to desperately try to cut that revenue stream.

    It is amazing how much personal egos can affect proper business decision-making and reasoning…

  5. I still don’t understand why the record companies just don’t start their own online store with DRM-free music. They are selling it on Amazon, why not do it themselves and keep ALLLL of the profit?

    Without having to worry about DRM they could be completely free of Apple, Microsoft, Amazon, etc. etc. They could set their own price structure, bit-rates, offer 5.1 surround versions for premium pricing, sell music videos, etc. etc.

    Is setting up an online storefront that hard?

    Sheesh. I guess that’s too logical.

  6. Any guesses as to how long before the storage capacity on even the most basic digital music player is so vast that we won’t need compression any more?

    If the music cartels were smart – and as the above posters have mentioned, they aren’t – they would be drooling over that next wave the way the movie cartels, some of which happen to be the same crummy organizations, are drooling over blue-ray. I’m not looking forward to paying AGAIN for digital music I’ve already bought at lower bit rates, but I probably would be willing to for some of it. These dolts should recognize that Apple, with 70% or more of the digital music player market, is going to be the only way to get there.

  7. The Old Historic Record Company Morons need to go. The Recording industry needs some serious new blood. I’m not talking about another old moron with the same ideas, I’m talking a fresh idea person from outside the label business.

    Why are the labels in so much pain in the cash flow department?
    I really is simple.
    1) They squeeze as much money out of the artists as they can and charge them for everything. As a result the Artists’ only produce 1 to 3 good songs per album and the rest is filler crap. With Digital Delivery on a per track basis the customer only needs to buy the 1 to 3 good tracks and the filler tracks are then left. So the customer has spends $2.98 and gets the artist’s best work. The Recording industry is built on selling Albums for $14.00 to $20.00. In the olden days artists did make money from selling recorded music. (Real old days gone by, it was a track or two at a time,) In the past a 12 to 14 track album would have just as many really good songs, Artists today have no real incentive to sell recorded music in the form of an album, other then to get the record company’s promotion beasts working for you. The Record Companies today want celebrities not musical talent, (Amy Winehouse, Britney Spears, Paris Hilton, Jay Z, and on and on). The result is you have your stores physical locations and on-line outlets full of second and third rate dribble churned out by no talent, strung-out, burned-out, celebrities more concerned out their image and other Celebrity business ventures then the business of making nothing but great music.
    2) Digital Download issues, depending on where you buy it will effect the quality of downloaded track. DRM is dead (Microsoft and Yahoo pulling the licensing servers and rendering customer a big financial loss, While MS and Yahoo carry some of the blame here it is the Recording Industry who is in the end responsible and it should be the recording labels who should be made to pay the price) the industry needs to get over it and move on. Low quality and poor small rate digital downloads need to go away and it is the labels that need to fix this. The labels need to adopt a standard format for Digital Downloads (FLAC, Apple Losses, OGG, AIFF, WAV) and then adopt a standard method by which to do the encodings so all tracks are of the same high quality and modulation levels. If the industry doesn’t act fast on this short coming their end maybe sooner then most are predicting.
    3) Almost all of the Record Labels are afraid of Apple Inc. iTunes Music Store. Well my advise is embrace the biggest single source of your revenue, In fact promote the crap out of it, If you have an innovative idea convince Apple and let them run the idea first, after all Apple is the recording label’s biggest customer.

  8. hey Ron! i have missed you! i have to derail this thread a bit…..

    so a while ago you made fun of the idea that Obama said we were better off inflating our tires than drilling in ANWAR. haha! what a fool!

    …do you know where he got that from?

    the gas saved from tire inflation is from the whitehouse web site, and the price drop from drilling in ANWAR is from bushes econ. advisor. turns out the tires save around .12 a gallon and the drilling around .06.

    so that means either bush is a liar, or Obama is right. or both. which is it serial moron? just wondering…..

    back to your regularly scheduled thread.

  9. back on topic.

    “I still don’t understand why the record companies just don’t start their own online store with DRM-free music. They are selling it on Amazon, why not do it themselves and keep ALLLL of the profit?

    Without having to worry about DRM they could be completely free of Apple, Microsoft, Amazon, etc. etc. They could set their own price structure, bit-rates, offer 5.1 surround versions for premium pricing, sell music videos, etc. etc.

    Is setting up an online storefront that hard?”

    a couple of things. first, while i don’t know how hard it is to set up, why do it when there are multiple systems already in place? let them have the headache and compete with each other, and they have a bigger draw as well. would you rather go to a store for each label or find all your music in one place?

    second, the DRM worry is key. many of them still don’t get it. they fail to understand that 1) piracy is not any where near as prevalent as they think, 2) the way to fight it is not to lock it down, it will always be possible to break in, the way is to make the sale is cheap and easy enough that there is no reason to break the rules. add value to the sale and only the type of person who would steal a thing that they could get free would bother. 3) DRM is a mere speed bump to those who would steal a song, but it a road block to people who are willing to pay for music but later need to move it to another machine or device.

    if the record companies actually cared about customers and not their bottom lines, they would have healthier bottom lines…..

  10. If they are still losing money, during the transition to digital sales, instead of taking away the towels, like Microsoft did, they should take away the execs coke perks.

    A clear headed management staff is just what Warner needs.

  11. “Is setting up an online storefront that hard?”

    No, but the majors would price their store into irrelevance. They simply cannot help themselves. They want to break iTunes dominance because Apple will not really budge on pricing. Apple’s pricing was the key to consumer acceptance of download stores. While the growth certainly has many components (HD capacity, bandwidth, number of portable players, etc), $0.99/track was the key at the start and is still important to growth.

    The majors would use “creative” pricing schemes. Tracks that no one really wants would be dirt cheap. Everything else would be more than $0.99, with the most popular being considerably more.

    Aside from the majors, there are actually labels that do do something essentially like this. For example, Warp Records has created a store that sells tracks from a compendium of electronic music labels: Bleep.com.

    No DRM. Some tracks available as either .wav or FLAC. Of course, with the tracks cost a little more, but still reasonable. Of course, this only serves on type of music, a genre that has always been progressive technically. That probably leaves the majors with no hope. Even Sony, which in principle should have some sort of technical knowledge (note: sure, they are essentially two distinct companies, so there is a divide there, but still…) could not stay out of their own way and killed their own store.

    Verdict: great idea, but too greedy and stupid to execute

  12. I am 30 year old man. Am I going to buy my music of iTunes or Myspace? Hmmmm. Since MySpace looks and works like it was programmed by a special-ed class of fourth graders, I think I’ll use iTunes.

    I’m a fourteen year old boy. Am I going to by my music off iTunes or Myspace? Hmmmm. To buy off Myspace, I need a credit or debit card, which I don’t have. But I can pay cash for music off iTunes, just by picking up a gift card at wal-mart, target, best buy, or the grocery store. I think I’ll use iTunes.

    There’s no way any online music store is going to be able to compete with Apple’s iPod + iTunes + iTunes Gift Card In Every Goddam Store combination.

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