The nuts and bolts of Warner Music Group's Q3 2008 earnings release are below.

The conference call (notes below) was as informative as any I can recall hearing -- that's what Live Nation and yesterday's Sony BMG deal will do to analyst inquisitiveness. We got comments on the Nokia deal ("The economics are extremely favorable to us"), Amazon.com's MP3 store (Amazon.com is "attacking a different customer base," sales are "incremental"), video games (Bronfman called the per-song licensing fees "paltry") and the state of wholesale prices (WMG does not believe lower prices drive increased consumer demand). For additional notes, go to Alley Insider's notes on the call.

About the best a music company can do right now is have some positive developments while holding losses to a minimum. WMG did just that. While net loss for the quarter improved to $9 million, operating incomes were up, net cash improved (M&A activity was down) and WMG showed strong digital gains. Recorded music digital revenue grew at 39.3%. That is better than the market will do this year, an increase I project will be about 30% over 2007 digital revenues. That's great for WMG's bottom line as digital margins are improving.

• Net loss improved 47% to $9 million
• Revenues increased 5% to $848 million (declined 1% on a constant-currency basis).
• Recorded music revenue increased 5.1% to $686 million.
• Recorded music digital revenue of $156 million grew 39.3% and represented 22.7% of total recorded music revenue.
• Publishing revenue in the quarter increased 7.0% to $168 million. Mechanical revenue dropped 14.3%.
• Operating income from continuing operations improved 7% to $116 million.
• Publishing operating income held steady at $33 million.
• Free cash flow increased to $93 million from 57 million.
• Unlevered (before debt) after-tax cash flow improved to $140 million from $105 million.

Notes from the Q&A:

Performance royalties: This will be an issue under the next Congress.

Catalog business: "Continued to perform well." Has not been a dramatic change between mix of new release and catalog, either in physical or digital. Retailers are showing "greater thoughtfulness" in managing inventory. The titles that actually sell will have higher velocity.

Music video games: Bronfman says there is "enormous opportunity." But recorded music and publishing should not allow for an ecosystem to occur "where we are not properly compensated." Referred to early deal with MTV in which labels were not paid for plays of promotional videos. That's the state industry is in with Activision and Harmonix. "The amount being paid to the music industry, even though their games are entirely dependent on the content we own and control, is far too small." The industry needs to participate in more of a partnership kind of way. If that does not become the case, WMG will not license to those games. Bronfman called the per-song licensing fee "paltry" and "far below what their true value is."

A&R: The analyst referred to EMI cutting A&R "to the bone" and wanted to know if WMG was reducing spending on A&R (he misheard an earlier comment about reduced M&A). CFO Michael Fleischer said WMG is "extremely bullish" about the process and the people they have in place.

Nokia deal: "The economics, I think, are extremely favorable to us and to the industry generally." The potential is quite large given the number of handsets Nokia sells. Music will be "available on the device as they are purchased" (not sure if that's going to be the case, but what Bronfman said implies a pre-loaded device). "Significant margins." Will have to wait for a year or two to see if the promise proves itself.

Valuation: Sony BMG was a private transaction. Nobody outside of the company knows the value of what was paid or received. From WMG's knowledge of the transaction, the analysis done and the resulting multiples are "well below" the actual multiples paid and if they were correct they ague for an improved valuation of WMG. (Translation: We don't agree with analysts who say Sony's acquisition price has negative implications on our value.)

Amazon.com: It's early, but it's encouraging. It appears Amazon.com is "attacking a different customer base," sales are "incremental" and skew more toward the album than does iTunes.

Margin growth in recorded music: International had better performance, digital business continues to grow and it is more profitable on a dollar basis, and the company has strong cost management.

Roadrunner and Sinatra: Loss of Nickelback has no effect on the investment. And Warner Chappel has the band's songs. The company has a high hurdle rate because two-thirds of the company is owned by private equity, and both deals are going to pass their hurdle rates.

Cash on balance sheet: WMG has a capital structure in which cash accrues to its equity holders, unless it sees an opportunity to increase equity value. Reducing net debt will be a strong focus for the "foreseeable future."

Word on the street: Music industry has not been as reactive to changes in economic environment as other industries, and WMG feels digital will support that trend.

Non-traditional deals: Short term or long-term phenomenon? What does it mean to developing new artists? Bronfman thinks artists have become too expensive. "We don't pay retail" and he sees no reason to change that model. Likened its model to a VC that makes a cheaper deal in a band's early stage. When it comes time to renew, it will pass if the economic burden is too great. (Translation: We would not have received an adequate return on investment had we re-signed Madonna and Nickelback.)

Retail health: The weak music-only players were pushed out of the business long ago. Creditworthiness of existing retailers is good. No collection issues, no credit issues that would limit retailers' ability to buy.

Upcoming releases: Had Josh Groban last year and did really well in last two quarters. "Very strong" release schedule in 2009. Still in the process of budgeting, so it can't break out what is coming out when. "Feel good" about its release schedule.

Pricing: Wholesale pricing is under constant pressure and WMG "continue to hold the line." Do not believe lower prices drive increased consumer demand. As digital grows, retailers should see a "marginally lower" wholesale price along with higher profitability and downward pressure on revenue. (Translation: We're doing what we can with some retailers' demands for huge cuts in wholesale CD prices.)