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Warner Music's losses widen even as digital sales grow

Warner's earnings offer more proof that digital music continues to grow but it won't be as profitable for music labels. The labels now appear to have accepted that.

Greg Sandoval/CNET

The music industry is supposed to be showing signs of renewed vigor, but just try finding signs of a turnaround in Warner Music Group's fourth-quarter earnings report.

Warner, home to such acts as Bruno Mars and the Red Hot Chili Peppers, today reported a net loss of $103 million in the quarter ending September 30, compared with a $46 million loss in the same period a year ago. For the fiscal year ending the same day, the record label saw a $205 million loss.

Total revenue for the fourth quarter was down 7 percent to $707 million and for the full year fell 4 percent to $2.8 billion.

The company said the losses reflect the industry's ongoing transition from CD sales to digital downloads and online subscription services. The digital side, however, just isn't producing the same kind of money. Warner noted other contributing factors for the losses, such as costs associated with the acquisition of the company by Access Industries as well as a "light release schedule," which means the label released fewer albums during the period.

For the full fiscal year, digital revenue was $820 million, up from $759 million in the year-ago period. Digital sales this year represented 28.6 percent of total revenue, up from 25.4 percent during the same period a year earlier.

Overall music sales in the recording industry have not grown for a full year since 2004 and retailers have said, since reporting a minor uptick in sales for the first six months of the year, that they were hoping 2011 would end the slump. They could be in for disappointment.

Some of the top players in recorded music don't appear to be in the best shape. EMI, the smallest of the four major record companies, was just absorbed into Universal Music Group, the largest label. EMI's publishing division was acquired by a group led by Sony Corp.

We're down to three labels and Warner continues to struggle, although we shouldn't be surprised.

The industry is comparing itself to the days when it banked nearly $15 billion a year in revenue. Those were the days when music buyers had to pay $15 for a CD to acquire the one or two songs they wanted. Sales have decreased ever since online music sharing became widespread but also since iTunes gave consumers the ability to pick and choose which songs they wanted. In 2010, overall music sales were down to $7 billion.

We're not going back, according to Sony Corp. of America CFO Robert Wiesenthal.

"It's no longer the days of 1995 CDs and the packaging 10 to 12 songs," Wiesenthal said Tuesday during a presentation at the UBS Media conference. "Those days are over. The consumer has chosen and they want to pick what they want."