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Warner Music Group Inc. Q2 2010 Earnings Call Transcript

Warner Music Group Inc. Q2 2010 Earnings Call Transcript

Warner Music Group Inc. (WMG)

Q2 2010 Earnings Call

August 05, 2010 08:00 am ET


Jill Krutick - SVP, IR

Edgar Bronfman, Jr. - Chairman and CEO

Steve Macri - EVP and CFO

Michael Fleisher - Vice Chairman, Strategy and Operations


Bishop Sheen - Wells Fargo

Marla Backer - Hudson Square

Ingrid Chung - Goldman Sachs

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Welcome to the Warner Music Group’s Fiscal Third Quarter Earnings Call for the period ended June 30th, 2010. At the request of Warner Music Group, today’s call is being recorded for replay purposes and if you object, you may disconnect at any time. (Operator Instructions). Now I would like to turn today’s call over to your host, Ms. Jill Krutick, Senior Vice President of Investor Relations and Corporate Development. You may begin.

Jill Krutick

Thank you very much. Good morning, everyone. Welcome to Warner Music Group’s fiscal third quarter 2010 conference call. Both our earnings press release and the Form 10-Q we filed this morning are available on our website. Today Chairman and CEO Edgar Bronfman, Jr.

will update you on our business performance and strategy. Executive Vice President and CFO, Steve Macri, will discuss our quarterly financial results and then Edgar, Steve, and Michael Fleisher, our Vice Chairman, Strategy and Operations, will take your questions.

Before Edgar’s comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. Words such as estimates, expects, plans, intends, beliefs, should and will, and variations of such words or similar expressions that predict or indicate future events or trends, or do not relate to historical matters, identify forward-looking statements.

Such statements include but are not limited to estimates of our future performance, such as the success of future albums, projected digital sales increases and declines in physical sales, expected expansion of the digital music business, success of strategic actions we are taking to accelerate our transformation as we redefine our role in the music industry, the impact general economic conditions may have on us, market share fluctuation, and our intentions to deploy our capital, including the level and effectiveness of future A&R investments.

All forward-looking statements are made as of today and we disclaim any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, and projections will result or be achieved.

Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our earnings press release and Form 10-Q and other SEC filings.

We plan to present certain non-GAAP results during this conference call. All of the revenue data we will provide on today's call will be on constant currency basis. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website.

With that, let me turn it over to Edgar. Thank you.

Edgar Bronfman Jr.

Welcome everyone and thanks for joining us. This quarter we continue to focus on our core strength of A&R and the development of new business models to both speed our digital transition and to diversify our revenue mix. All these activities has occurred while we remain sharply focused on managing costs and generating significant free cash flow. This quarter's anticipated decline in both revenue and OIBDA reflect our very late release schedule as well as the ongoing effects of the Recorded Music industry's transition.

With over half of our active global roster of artist signed to expanded rights deals. Releasing the right content at the right time in order to maximize profit potential and artist career development has become even more central to our strategy. I like to discuss the company's quarterly performance in four key areas. First our A&R marketing and promotional efforts continue to yield success.

Second, we sustained our industry leadership in the digital arena by maintaining a significant digital share advantage over physical share in the US, greatest of any of major music companies. Third, we continue to transform the company by entering into expanded rights field with new recording artists and building our worldwide artist services business. And fourth, we continue to invest in our Music Publishing business by further strengthening our artist roster business mix and catalogue.

Now let's look at the quarter's results more closely. As expected given our light release schedule and the challenging industry backdrop, Recorded Music revenue which was primarily driven by carryover releases declined both domestically and internationally of 13% and 22% respectively. Still there are notable bright spots this quarter. For example or US share held flat to 21% and grew sequentially by two percentage points. Our disciplined A&R investment strategy continues to yield high returns on capital.

Recorded Music results benefited from the soundtrack of the motion picture Eclipse, the third installment from hugely popular Twilight series. Atlantic Records leveraged the movie's promotion and the established Twilight fan base to maximize soundtrack revenue and raise visibility for all our artists such as Muse, The Black Keys, the Dead Weather and Cee-Lo and (inaudible).

In addition, as our policy now requires for all major releases, offered a deluxe digital version of the soundtrack as an iTunes exclusive preorder priced at $14.99. Reinforcing the price and elasticity of demand for must-have

premium product and consistent with past experience, 96% of the soundtrack preorders were for deluxe version.

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