Warner Music Group's Q4 and fiscal 2008 results show a company doing its best to move forward until its strategy pays off. For the most part, the story line hasn't changed: recorded music down and tenuous, publishing up and healthy, digital improved but growth slowing. Shares of WMG were up as much as 22.5% (to $3.43) before plunging into negative territory then rising to close up 4.3% (at $2.92)

For Q4, revenue dipped 1.5% to $854 million, operating income from continuing operations dropped 20% and net income rose one tick to $6 million. For the year, revenue was up 3% and net loss more than doubled to $56 million.

For the fiscal year, digital revenue rose 38.6% year to $639 million -- with a 65% domestic to 35% international split. Digital now accounts for 18% of total revenue. In the recorded music division, digital revenue grew 38% to $599 million and represented 20.7% of recorded music revenue (28.1% in the U.S.). During the fourth quarter ending September 30, 2008, recorded music digital revenues increased 25.8% to $99 million while total digital revenues rose 28% versus 2007 and were flat sequentially.

Unlike EMI, WMG has not undergone radical internal or structural changes. There has been a relatively drama-free attitude there. The company has patiently cut costs, pushed digital initiatives, acquired companies, invested in start-ups and restrained itself from overpaying to keep some aged superstars.

All good moves if they work out, but at the end of the day WMG is still moving backwards. Expenses were up across the board -- selling & marketing, general & administrative, A&R, distribution. There may be some light at the end of the tunnel. For the year, digital recorded music gains (up 38%) made up for physical recorded music losses (down 5.4%), and licensing had a small bump upward. The caveat is that Q4's physical recorded music loss (down 9.7%) was greater than digital recorded music's gain (up 25.8%). The holiday season is not shaping up well for the CD format, and WMG admits its holiday release schedule is not exceptionally strong. Next quarter's physical drop could be large.

Aside from market forces, WMG has financial issues arising next year. Today, a Citi analyst lowered the target price on WMG to $1 because of a belief the company risks violating debt covenants in December.

The 10-Q filed with the SEC is here.