Citing improved digital sales and the integration of BMG Music Publishing and Sanctuary, Vivendi announced Universal Music Group's Q1 2008 earnings today. (Read PDF of earnings release.) Revenue increased 0.6% to €1,033 million (6.8% at constant currency) and operating profit increased 94.7% % to €111 million (the increase was 111.1% at constant currency).
Vivendi cited improved margins relating to a shift to owned product and away from licensed product.

While Q1 was an improvement, revenues were below the €1,027 million recorded in Q1 2006, and operating income lagged behind the €141 million achieved in Q1 2006. Keep in mind that UMG has made a number of acquisitions in the last two years that have helped bolster falling top line numbers.

Digital sales increased 33% year over year. As a comparison, UMG's digital sales increased 51% in fiscal 2007 (and represented 14% of total revenues) and were up 54% year over year in 2007 Q1. The rate of growth is slowing considerably, which is very unfortunate since the rate of the CD's decline has been accelerating over the last two years.

Posted by Glenn at 7:48 PM | Link
|Earnings Releases||Universal Music Group|

Sony Corp released its earnings today. Sony BMG revenues dropped 4% while operating profit jumped 90%. (Info is on slide #4 and #18 of the earnings presentation .) No results with constant currency were given. The reason given for the drop in revenues was the standard one: declines in sales of physical products are not being offset by the growth in digital.

Music publishing is part of an "other" category that had a 7.6% increase in revenues. Sony/ATV's acquisition of Famous Music was a factor in that increase.

You can read a PDF of the consolidated financial results here.

Posted by Glenn at 4:42 PM | Link
|Earnings Releases||Sony BMG|

Entertainment retailer Hastings reported improved Q4 earnings and slightly lower revenue for fiscal 2007. (Read 10-K filing.) Comp-store music revenue was down 15.3% in fiscal 2007 (compared to a 9.3% decline in fiscal 2006 and 2.9% decline is fiscal 2005). In fact, music was the only one of the top eight product categories to decline in fiscal 2007.

The bad news for labels is that falling CD sales will result in fewer titles being stocked -- a painful double whammy -- that will result in even lower CD sales. For fiscal 2008, the company has budgeted $5.3 million to reformat 35 stores to reduce the retail space dedicated to music by 15-20%.

Posted by Glenn at 6:11 AM | Link
|Brick-And-Mortor Retail||Earnings Releases|

Bertelsmann reported its 2007 earnings yesterday. For the year, BMG revenues declined by 27.8% to €1.5 billion and operating EBITA (basically operating profit) dropped 46% to €93 million. Physical revenues dropped 17% while digital increased 40%. Digital accounted for 17% of BMG's revenue (up from 12% in 2006). BMG's revenue from Germany dropped 19.2% to €130 million.

The earnings release and annual report emphasize the emergence of 360 deals (called "partnerships" and "partnerships" in the annual report) BMG signed during the year, as well as the company's expansion into artist management, concert promotion and merchandising. Those new facets certainly added some revenues during the year. The company lost a good deal of revenue in 2007 when it sold its publishing division to Universal Music Group.

The annual report laid out BMG's revenue, operating EBIT and number of employees for the last five years. Revenues, from 2003 to 2007, were €2.712 billion, €2.547 billion, €2.128 billion, 2.017 billion and €1.456 billion. Operating EBIT for those years was €54 million, €162 million, €177 million, €173 million and €93 million. Number of Sony BMG employees (total for the joint venture) from 2003 through 2007 was 4880, 4259, 3597, 3009 and 2851.

Put another way, BMG's revenue has dropped 46.3% over the last five years and at a cumulative annual rate of 11.7%. The number of Sony BMG employees has dropped 41.6% over the last five years and at a cumulative annual rate of 10.2%.

And there is continued talk about Bertelsmann's possible sale of BMG. From the Times Online: "Thomas Rabe, chief financial officer, said: 'What we will do depends on price. Of course, the EMI price is a good price for a seller, but we would not be interested in selling if we were offered a figure based on the current valuation of Warner Music. The market is undervaluing music assets.'"

Since Bertelsmann has been looking for somebody to take its half of the joint venture, one would expect Rabe to insist the market has undervalued music assets.

Helpful links:

• 2007 Annual Report (8.1MB PDF)
• Investor Conference Call Presentation (PDF)

Posted by Glenn at 2:49 PM | Link
|Earnings Releases||Sony BMG|

The old way of selling CDs looks to be dying faster than overall CD sales. Trans World's fourth quarter revenue dropped a whopping 23% and 2007 sales revenue dropped 14% (read press release and 8-K, which has a transcript of the conference call). Net loss for fiscal 2007 was $99.4 million. Comp store sales dropped 8% on the year.

In the conference call, President and COO Jim Litwak said Trans World's comp store music sales dropped 28% in Q4, the top 50 titles 35% in Q4 and the top 50 video titles were down 12%. For the year, comp store music sales dropped 23%.

Store closings and one less week in Q4 definitely affected sales, and the company admitted that its "transition to a full entertainment retailer is taking longer than expected."

Posted by Glenn at 11:50 PM | Link
|Brick-And-Mortor Retail||Earnings Releases|

Vivendi announced its 2007 earnings last week (download PDF of earnings release). Yeah, I'm a bit late on this one. EBITA dropped 16.1% (12.9% at constant currency). Digital sales increased 51% (at constant currency).

These slight revenue drops are par for today's course, but they don't tell the entire story. It's important to keep in mind that UMG and the other majors are acquiring quite a bit of revenue. It's one thing to grow revenue organically and another to buy revenue. The only organic growth, digital, isn't enough to offset losses related to CD sales. Music companies have always been active acquirers, though, so there's no reason to look for any red flags that aren't already visible -- M&A happens in both good and bad years.

UMG's 2007 revenue most likely includes partial-year revenue from two main acquisitions, BMG's music publishing (bid in late 2006, got E.U. approval in May 2007, had 2006 revenues of €362 million but divested some publishing assets to gain E.U. approval) and Sanctuary Music Group (acquired in July 2007 and good for about £150 million in annual revenue). In 2008, UMG will add to its top line the revenues of Univision's recorded music and publishing divisions.

Posted by Glenn at 2:24 PM | Link
|Earnings Releases||Universal Music Group|

Warner Music Group reported its Q1 earnings today. Revenues were up 7% year over year, but operating income was down 45% and EPS was -$0.11.

What is one to think about these most recent earnings? It depends. You could view it as a solid performance in the industry's most difficult stretch in almost 30 years. Recorded music and publishing revenues were both up. Compared to its peer group, WMG is doing just fine ("given industry doldrums this is pretty good," said Silicon Alley Insider of recorded music revenue) and some like to assess performance relative to a company's competitors. On the other hand, you could look at the lower operating income, the negative cash flow and general gloomy industry outlook and have a different opinion. WMG, like the other majors, requires a lot of patience right now. "Today’s recorded music business is challenged and it may take some time before it returns to growth," said CFO Michael Fleisher.

The market was not very optimistic. Investors probably felt last week's run up, caused by a Merrill Lynch "buy" rating, was too much. (Update: Or, as one knowledgeable reader said, information could have leaked that ran up the price.) The stock dropped 19% to $7.06 this morning and now sits at $7.16. (around where it was five days ago).

Silicon Alley Insider and paidContent have very good recaps of the conference call (with tornado sirens going off until 2:30am this morning, I opted to sleep in).

The company declared a normal dividend of $0.13 per share. Pali Research's Richard Greenfield had warned that a dividend cut was likely.

Final note: Contrary to my opinions expressed here, WMG does not think the 2008 release schedule will be any better or worse than that of 2007. Hard to believe, but it may be true.

(Full disclosure: I was employed by WMG last summer)

Posted by Glenn at 11:35 AM | Link
|Earnings Releases||Warner Music Group|

Sony Corp released its Q3 earnings today (download PDF of full release here). Sony BMG's Q3 sales were flat at $1.47 billion and net income dropped 12% to $208 million from $236 million last year. That figure includes income from a legal settlement and $13 million of restructuring charges.

Posted by Glenn at 8:22 AM | Link
|Earnings Releases||Sony BMG|

Vivendi, parent company of Universal Music Group, released its earnings for fiscal 2007 today. (Download PDF of full press release here.)

UMG's revenues dipped 1.7% to €4.87 billion for the year and dropped 3.1% to €1.6 billion in Q4. Excluding revenue from acquisitions (BMG Music Publishing and Sanctuary) revenues were down 7.2% for the year 10.2% in Q4.

For the year, digital sales rose 51% to €676 million and represent 14% of total revenues. For Q4, digital sales rose 54% (at constant currency).

Nutshell: UMG increased its market share in a shrinking market and revenue was helped by acquisitions. The outlook for '08 is gloomy, but there a couple encouraging things that make the continued fall of the CD a slight bit less grim. One is the speed with which the company is now changing -- or at the very least trying to change -- adapt to current realities. The other is 2007's release schedule, which was pretty miserable. It would be hard for all labels to collectively put out fewer big name albums than they did last year...although it's not totally out of the question (especially if EMI vigorously prunes its label rosters).

Posted by Glenn at 6:42 PM | Link
|Earnings Releases||Universal Music Group|

Warner Music Group released its Q4 and annual earnings yesterday (read 10-K, read 8-K) beating estimates by $0.01 per share while showing mixed results. Q4 revenues increased 2%, publishing revenues increased 7 percent to $137 million and digital music sales increased 9% sequentially and 25% year-over-year.

Annual revenues dropped 4% to $3.385 million, recorded music revenue dropped 6%, digital revenue increased 30%, publishing rose 6%, U.S. revenue dropped 2% and international revenue dropped 4%.

Since cash is king, let's take a look at what happened to cash during the year. During Q4, cash decreased by $63 million. During the year, cash decreased $267 million, due greatly to acquisitions. (Ending cash and cash equivalents balance was $288 million.)

The stock rose 8.1% to $7.73 yesterday. That's higher than the $7.50 target set by Pali Research's Richard Greenfield four weeks ago. With a current share price of $7.38, it looks like the market has judged his most recent target of $5 to be too pessimistic.

As points of comparison, Universal Music Group's Q2 revenues were down 0.8% and first half revenues were down 4.9%. In its last earnings release as a public company, EMI reported a £263.3 million loss and a decrease in revenues of 15.8%.

Others on WMG's earnings:

• Silicon Alley Insider: "Warner Music doesn't formally offer guidance to Wall Street. But read between the lines from its just-concluded Q4 earnings call and it's pretty clear that WMG is going to have a lousy 2008." I haven't heard the conference call replay yet (the link isn't working) so I can't speak for Peter Kafka's interpretation. I will say that during this transitional period, and given competitors' performance, I wouldn't use the word "lousy" to describe a modest or slight profit.
• New York Post: " Warner CEO Edgar Bronfman Jr. said in a call with analysts that both the company and industry remain in transition, with digital remaining a sticking point. 'Digital growth, and particularly mobile, have been on a slower trajectory than initial expectations,' he said. That is putting increasing pressure on the company to find alternative sources of revenue."

Posted by Glenn at 3:27 PM | Link
|Earnings Releases||Warner Music Group|

• Roadrunner Records and music exec Tom Lipsky, formerly the CEO and president of Sanctuary Music Group's North American operations, have formed a joint venture that will release music by classic rock artists. Almost three-quarters of Roadrunner Music Group, the parent company of Roadrunner Records, was purchased by Warner Music Group in January 2007. (Billboard.biz)

• Last week Borders released its Q3 2007 earnings. Same store music sales were down 13.1% over Q3 2006. That's a big drop but not as bad as Trans World's Q3 music sales decrease (21%), and not as bad as the overall CD (about 20%) and album decrease (about 14%) in 2007. (Borders Earnings Release)

• Ben Sisario has an article on the growing number of Western acts performing in China. It's a well-rounded look at an emerging market that may offer clues of the future of the music business (the ubiquity of corporate sponsorships, for example, and labels' acceptance of piracy). (New York Times)

• A profile of Koch Distribution. (Newsday)

• The Winnipeg Sun started a four-part series on the changing music industry. The first installment looks at CD sales in Canada. CD sales dropped 19% from January to August of this year. The cause of that decline is definitely up for debate, and the article examines a few possibilities: piracy, the "today's music is no good" explanation and a consumer backlash against "overpriced" CDs. To no surprise, the article didn't even mention 2007's extremely thin release schedule. Whether compromised of future classics or pop fluff, a busy release schedule would have helped sales this year. (Winnipeg Sun)

• Although there is much debate over file-sharing's impact on sales in Canada, the Canadian Recording Industry Association is not happy with the country's digital laws and wants new laws to encourage investment and improve consumer education. (London Free Press)

• A profile of legendary music exec Frank Dileo, who moved to Music Row in January 2007 and is now starting a management company and plans to launch a publishing company. (Nashville Scene)

Posted by Glenn at 9:28 AM | Link
|Brick-And-Mortor Retail||Earnings Releases||Warner Music Group|

Entertainment retailer Trans World posted a net loss of $14.3 million in the third quarter of 2007. Revenues dropped 12% to $260.6 million from $297.7 million last year. The company operated 13% fewer stores during the quarter, and same store sales were down 4% year over year.

Said Robert Higgins, chairman and CEO, in the press release, "We continued to achieve positive comparable store sales in home video, video games, electronics and boutique during the third quarter, however, these results did not offset the decline in music."

During the conference call (read transcript), president and COO Jim Litwak revealed that same store music sales had declined by 21% (same as the Q1 decline, see below) and that music had comprised 40% of total revenues for the quarter (versus 48% last year). Video game sales increased 29% on a comp basis while home video increased 8%.

Trans World's problems mirror those of the music industry, to which it has tied a great deal of its fortunes over the years. As record labels try to offset the slide of the CD with other revenues, Trans World is shifting its focus to other products and away from the CD. The company's transformation is painful, but at least there are other physical formats to replace the CD.

Earlier this month came news that Trans World had received a buyout offer from its CEO, the company's largest shareholder. The $5 per share offer represented a 29% premium over the price at the time. Trans World closed today at $5.19. Said Sherwood Investments' Julian M. Benscher of that offer, "We are highly confident that an auction of the company would result in a sale in excess of $8 per share." Sherwood owns about 4.3% of Trans World's shares. The market obviously has its doubts that a bid of $8 per share is forthcoming. Some may want to take a lower amount and run. The proper restructuring of Trans World will be a process better suited for the long-term outlook and intestinal fortitude of private ownership.

Previously: Trans World's Q1 2007 earnings was a $9.1 million loss. "Music sales were down 21% on a comp basis, and the company's top 50 experienced a 32% drop on a comp basis. Music represents 44% of sales, down from 52% last year."

Posted by Glenn at 4:55 PM | Link
|Brick-And-Mortor Retail||Earnings Releases|

Bertelsmann, the parent company of one half half of the Sony BMG joint venture, reported its financial results for the first nine months of its fiscal year. Both revenues and profits were down. Revenue dropped 2% to €13.27 billion while profits dropped 65% to €132 billion. Profits sank so sharply because fiscal 2007 includes a large special expense related to the company's Napster settlement. (The company settled with Warner Music Group and EMI this year, and with Universal Music Group last year). Operating EBIT was actually up almost 5% to €1.03 billion. Bertelsmann sold its BMG music publishing division to Universal last year.

From Bertelsmann's 2006 earnings report: BMG posted revenues of € 2.0 billion (down 5.2% from € 2.1 billion in 2005) and operating earnings (before interest and taxes) of € 173 million (down 2.3% from € 177 million in 2005). The company said the music division's lower 2006 performance "is attributed solely to the recorded music business." But there was (slight) good news as BMG "was able to raise the revenue contribution from digital formats from seven to twelve percent."

Posted by Glenn at 2:30 PM | Link
|Earnings Releases||Sony BMG|

Circuit City's recently filed quarterly report says the national retailer's "comparable store sales of video software and music software declined by double digits." The earnings release, for the quarter ending August 31, 2007, shows a net loss of $62.8 million on revenues of $2.644 billion.

Guitar Center's Ex. 99.1 filing yesterday reported news that the company's merger with Bain Capital Partners, LLC was approved at a special meeting of its stockholders earlier this week. Stockholders will receive $63 cash for each share of common stock held at the merger date. Guitar Center had net sales of $519 million and net income of net income of $9.6 million last quarter.

Posted by Glenn at 1:34 PM | Link
|Earnings Releases|

• Due in part to amounts paid related to Napster lawsuits, Bertelsmann reported a net loss of €50.9 million ($69 million) for the first half of 2007. Sales were 2% lower after the company sold its BMG Music Publishing division to rival Universal Music Group last year. Sony BMG, Bertlelsmann's music joint venture with Sony, posted an operating loss of €2 million ($2.7 million) compared to an operating gain of €3 million ($4.07 million) last year. (Bloomberg)

• BMI posted record revenue and royalty distributions for its 2006-2007 fiscal year. The performing rights society recorded revenues of over $839 million and will distribute over $732 million to its artists. (Press release)

• LiveNation has release Stuart Galbraith, its U.K. managing director, due to a "breach of contract." (Billboard.biz)

• Warner Music Group announces a quarterly cash dividend of $19.4 million, or $0.13 per share of common stock. (Press release)

• A good article on how Saddle Creek Records has helped transform downtown Omaha. The label owns an entire city block and recently opened a 470-capacity venue called Slowdown. A coffee shop and Urban Outfitters rent space on the block. (Beatrice Daily Sun)

Posted by Glenn at 8:40 AM | Link
|Earnings Releases||Sony BMG||Warner Music Group|

Vivendi released its earnings for the first half of 2007 (read PDF of earnings release). Earnings before interest and income taxes (EBITA) and €2,596 million compared to €2,348 million for the first half of 2006, representing an increase of 10.6% (11.9% at constant currency). Wall Street has mixed feelings, though. While revenue and EBITDA were both up, earnings attributable to equity holders dropped almost 49% (due mainly to a 2006 gain from Vivendi's tax dispute settlement).

Universal Music Group EBITA was €220 million ($301.3 million), down €75 million. (It should be noted that UMG's first half 2006 earnings included €50 million recovery of expense related to a legal dispute with TVT.) At €163 million, EBITA in the second quarter was a 7.6% improvement over last year. Digital sales increased about 50%.

Posted by Glenn at 1:11 PM | Link
|Earnings Releases||Universal Music Group|

• In an interim management statement released today, EMI said its first quarter revenues fell 5.1%. Its recorded music segment was down 13.4% while revenues in its publishing division increased 11.9%. Digital revenues increased by 26%. Physical revenues dropped 19.8%. (Press release)

• Music download site Amie Street, which incorporates dynamic pricing, has received funding from Amazon.com. Having such a high profile investor will help put Amie Street on the map. This is good news for the concept of dynamic pricing. For the greater recorded music industry to accept dynamic pricing -- or even to try it out -- would require the presence of a company like Amazon.com. And it would be nice to have more proof that Apple is either right or wrong when it comes to pricing digital music: Do consumers need one standard, simple price? (Digital Music News)

• Universal Music Group is said to be in the market for Chrysalis's music publishing. (This Is Money)

• John Wenzel of the Denver Post attributes the success of rock band The Fray to MySpace...even though airplay and exposure on "Grey's Anatomy," "Scrubs" and "One Tree Hill" is what drove people to the band's MySpace page. (Denver Post)

• The Times Online looks at the fundraising models of Sellaband.com and Slicethepie.com and theorizes that they could act as a scouting mechansim for majors. "If Sellaband and Slicethepie can unearth credible acts with such committed fans, the big bucks – and all their media buying power – may come calling." I think the touring circuit will continue to be a better place to find potential. (Times Online)

Posted by Glenn at 8:06 AM | Link
|EMI||Earnings Releases||Universal Music Group||Venture Capital|

I browsed through Vivendi's second quarter earnings release (read PDF) this morning. Things look good for Vivendi, but not so good for its Universal Music Group division.

Vivendi's second quarter revenues were up 6.4% to 5.2 million, while its first half revenues rose 7.4% to 10.22 million.

Universal Music Group's second quarter revenues dropped 0.8% in the second quarter while revenues sank 4.9% in the first half of 2007. The flat second quarter is practically a big win for a music company these days. Let's use the term "relatively optimistic," shall we?

Second quarter digital revenues rose 49% year over year and were up 51% at the year's midpoint.

Driven by the success of World of Warcraft, Vivendi Games' revenues was up 68.9% in the first half of the year. That's a good way for entertainment companies to have a balanced portfolio...have a games division to offset the lagging music division.

Additional reading:

• Vivendi's Q1 2007 earnings release. UMG's Q1 revenues were down 8.7 year over year. Digital sales were up 54% and represented 15.7% of revenues.
• Vivendi's 2006 earnings report. UMG's 2006 revenues were up 1.3%. Publishing grew 3.3%. Digital sales were up 84% and represented 9.6% of 2006 revenues.

Posted by Glenn at 12:51 PM | Link
|Earnings Releases||Universal Music Group|

• Terra Firma, the private equity firm that has placed a bid on EMI, is reportedly going to extend its deadline by which investors must accept its offer. The bid stands at $4.79 billion. (Reuters)

• Those DRM-free EMI downloads with user information embedded within? Privatunes has free software that will render those files anonymous. (Privatunes , via Slashdot)

• Guitar Center has agreed to be acquired by Bain Capital Partners for about $1.9 billion. The music equipment retailer's sales have nearly doubled in the last four five years. Net income rose from 2002 to 2005 and dropped in 2006 only because of an extraordinary charge related to a goodwill impairment. (Billboard.biz)

• Digital Music Group has inked distribution deals with Mush Records, Joyful Noise Recordings and Clockwize Online. (Press release)

• Ringtone sales are flat. Said one executive, "I think the ringtone business is in peril now because the operators have allowed into the market mobile phones which can sideload MP3s and use them as ringtones." What to do about it? "...innovative products are being introduced: EMI, for instance, has just unveiled a remixable realtone for the hip hop artist MIMS, while independent labels such as Ninja Tune are using them as freebie promotional tools. What is certain is that prices cannot remain static. And as with moves to incorporate VoIP services and flat-rate data charges, it is innovation that will move the market forward, rather than the protection of any perceived golden goose." (The Guardian)

• paidContent just posted a video segment of a panel discussion on social media and the music industry that was recorded at its EconSM Conference in late April. On the panel are Josh Deutsch (CEO, Downtown Records), Courtney Holt (EVP, Digital Music and Media, MTV), and Hadi Partovi (President and COO, iLike). (paidContent)

• Merrill Lynch loves Sirius whether or not it hooks up with XM: "We continue to believe the shares have upside potential using our reasonable, and often conservative, assumptions, including: 1) 80-85% of long-term gross adds are from auto 2) declining ARPU (ignores data impact), 3) combined 40mm subscribers in 2014 – comments by both Sirius and XM suggest this level in 2010, and 4) annual FCF exceeds $1bb in 2016." (Radio Ink)

• British music retailer HMV posted a slightly lower annual profit and announced a DRM-free download store that will launch in September. EMI is the only major on board for the download store. (Billboard.biz)

• The question of the '00's: To give away or not to give away? David at Digital Audio Insider lists his pros and cons of giving away his band's upcoming album. "If we're primarily doing all of this for the enjoyment of the creative process -- and we're not making much money from it -- would we be better off giving the music away?"(Digital Audio Insider)

Posted by Glenn at 6:45 AM | Link
|Digital Distribution||EMI||Earnings Releases||M&A||Sirius|

Entertainment retailer Trans World filed its 10-Q yesterday, which show its 2007 Q1 earnings. (Download PDF.) Those figures were released last month, and the new filing offers some information that was in the Q1 earnings conference call.

On page 18 we see that music represented 44% of sales in 2007 Q1, as opposed to 52% in 2006 Q1. Music sales dropped 16.7% and sales of the CD format dropped 20.8%. (In the conference call, the COO said comp music sales were down 21%.) Comparable store sales (total) were down a whopping 10.1%. Any way you slice it, Trans World's music story is a bad one.

The company operates over 800 stores under the brands f.y.e., Coconuts and Wherehouse Music.

Posted by Glenn at 10:54 AM | Link
|Brick-And-Mortor Retail||Earnings Releases|

• Universal Music Group's $87 million bid for Sanctuary Group was approved by the Sanctuary board of directors. (Reuters)

• musicFIRST, a coaltion of labels, industry groups and recording artists, has been formed to lobby for terrestrial broadcasters to pay performance royalties. Currently, only songwriters are paid when a song is broadcast on terrestrial radio. (AP)

• Sony BMG and Nickelodeon have a four-year agreement to produce and finance music-themed television shows. (Variety)

• Billboard's Brian Garrity has an article on labels' push for more environmentally friendly products. Some are being helped by the Natural Resources Defense Council. (Billboard.biz)

• Labor intensive cease-and-desist letters have moved music blog Idolator to cease posting leaded MP3s unless they come with the label's blessing. (Idolator)

• Navarre filed its annual report yesterday. Good reading if you have a ton of free time. In fiscal 2006, Best Buy and Wal-Mart/Sam's Club accounted for 23% and 11% of Navarre's billing, respectively.

• Seems like everybody is moving to Nashville these days. USA Today looks at Bon Jovi's rock-to-country transformation as well as the many other older rock artists who are growing roots in Music Row. Two things I didn't know until today: Darius Rucker (Hootie and the Blowfish) signed to Capital Nashville, and Jewel has been shopping an album produced by Big & Rich's John Rich. (USA Today)

Posted by Glenn at 7:58 AM | Link
|Earnings Releases||Sony BMG||Weblogs|

Borders announced its Q1 2007 results yesterday (read press release or 8-K). Losses deepened, music sales were down and gross margin dropped. The company reported a 2% increase in consolidated sales and a loss of $35.9 million (compared to a loss of $20.2 million last year).

Comp Borders Superstores sales were down 1.9%. DVD sales were flat and music sales declined (no figures were given for either segment).

The fact that Borders' music sales dropped comes as no surprise. National chains such as Borders and Barnes & Noble have been suffering through slumping sales and a tepid new release schedule. There was no mention yesterday of the company's plans for the music segment, although CDs are generally expected to be playing a lesser role in the chain's plans. In March, Borders issued a press release about its strategy and said it will be incorporating digital centers that will emphasize digital content and hardware.

Posted by Glenn at 8:28 PM | Link
|Brick-And-Mortor Retail||Earnings Releases|

Entertainment retailer Trans World reported Q1 2007 earnings today (read press release). Total sales dropped 1% to $286.3 million and net loss increased to $9.1 million from $7.1 million last year. Comp store sales dropped 10%. Said chairman and CEO Robert J. Higgins, "Our first quarter sales remained difficult, while positive comparable store sales in DVD, electronics, accessories and boutique could not offset worsening music results."

Improved margins on music and movies resulted in improved gross margin (36.5% versus 34.8%), but sales of both were down. Music was way down and other segments are being given more emphasis to make up for the decline.

A transcript of this morning's conference call offers some insight into the company's results and strategy.

• Music sales were down 21% on a comp basis, and the company's top 50 experienced a 32% drop on a comp basis. Music represents 44% of sales, down from 52% last year.
• DVD sales dipped 6% on a comp basis and now represent 38% of total sales, up from 31% last year.
• Games dropped 12% on a comp basis and represent 7% of sales, the same as last year.
• The company has expanded space for DVDs, electronics, accessories, boutique and games. It has implemented measures aimed at improving customer service.
• The in-store, mix-and-burn digital kiosk testing has offered "promising, but still inconclusive results." Said president Jim Litwak, "...we want to have the stores increase where they are at right now by about 25 to 30% what they are burning currently."
• The re-branding of f.y.e. stores is on schedule and will be completed in Q2.

A few analyst noted that executive compensation seemed high relative to company performance. The message was pretty clear: Investors want to see the executive team lead by example and keep costs down.

Trans World operates almost 972 retail stores under the names f.y.e., Coconuts Music and Movies, Strawberries Music, Wherehouse, Sam Goody and Spec’s.

Posted by Glenn at 4:37 PM | Link
|Brick-And-Mortor Retail||Earnings Releases|

• Warner Music Group's Rhino Records has laid off 15 employees as a part of WMG's greater restructuring plans. (Billboard.biz)

• Multimedia retailer Hastings Entertainment, Inc. reported improved net income on slightly lower revenues for Q1 2007. Overall it was a good quarter that showed the company is properly retooling its product mix. Net income increased 29% to $2.5 million year over year while revenues dropped to $128 million from $131 million. Cost of revenues decreased to 62.7% from 64.5% last year. Comp store revenues dropped 3.9%. Music sales were down 13% while electronics rose 17.5%. (Press release)

• Paul McCartney''s solo and Wings catalog made its herladed debut on online stores and services yesterday...but for whatever reason it wasn't on iTunes. (PC World)

• Pandora, the online music recommendation engine, will be available through Spint Power Vision phones (for $2.99 per month) as well as Sonos home audio systems (as 32 different Pandora radio stations). (MP3.com)

• PassAlong Networks is powering a music download store by MP3Car.com, which offers an in-dash application to discover and purchase songs. (Press release)

• Joost announced a deal with Creative Artists Agency. (Press release)

Posted by Glenn at 12:40 PM | Link
|Brick-And-Mortor Retail||Earnings Releases||Firings||Online Stores/Services||Warner Music Group||iTunes|

On the same day it announced a winning takeover bid, EMI announced its results for the fiscal year ending March 31, 2007. Revenue dropped 15.8% (12.1% on constant currency) and a £118.1 million gain in fiscal 2006 turned into a £263.3 million loss in 2007.

Included in operating profit are an exceptional gain of £50.2 million (sale and leasebacks of offices in Tokyo and Los Angeles, plus Bertelsmann settlement money) and an exceptional costs of £191.5 million (restructuring charges) and £164 million (balance sheet review).

Key items:

• Total cash from operations was a paltry £7.3 million (versus £188.3 million last year).
• Gross margin dropped to 34.9% from 37.2%.
• EMI has suspended dividend payments (this was announced on April 18th) and an interim dividend of 2p per share has been paid.
• Recorded music sales dropped by 15%. Digital represented 10.4% of recorded music and 9.4% of total company revenues.
• By region: North American dropped 7.7% (digital up 80.1%); UK & Ireland dropped 11.8% (digital up 79.7%); and Japan dropped 2.4% (digital up 69%).
• Publishing operating profits increased 4.2% (at constant currency) while revenue, dragged down by lower physical sales, dipped 0.9%.
• Publishing revenues related to digital music increased 35.5%, although "growth in digital revenues in music publishing continues to lag the recorded music industry."
• Performance revenue increased by 10.1% and synchronization revenue increased 5.6%.
• EMI's interest coverage ratio dropped to 1.9 as EBITDA decreased to £174 million from £275.8 million.

Conclusion: Extraordinary events killed operating profit and restructuring charges were a big hit to cash flows from operations. Publishing shows potential and is the company's current strength. Sync and performance revenues are up. Digital revenues are up big. The problem remains: Nothing can overcome the drop in revenue from falling CD sales. EMI was smart to begin a restructuring program, but it came too late. Chalk that one up to the slow-to-react leadership of the Munns/Levy era.

Posted by Glenn at 2:09 PM | Link
|EMI||Earnings Releases|

Napster reported its fiscal and Q4 2007 numbers yestserday (read press release). For the year, revenues increased to $110 million from $90 million. Subscribers increased 37% to 830,000. Net loss improved $37 million from $61 million. Gross margin improved to 29.38% from 28.06% in fiscal 2006.

For Q4, revenues mildly improved to $28.9 million versus $26.4 million in Q4 of fiscal 2006.

Looking at a few ratios indicate the company is becoming more efficient in generating sales: Sales & marketing is a percent of revenue decreased to 30.8% in 2007 from 54.6% in 2006. R&D as a percent of revenue improved to 9.9% from 13.9%. G&A as a percent of revenue, though, was basically flat: 21.8% in 2007 versus 22% in 2006. For a company that requires scale for profitability, these ratios are encouraging.

Napster has been a whirlwind of business development recently -- some look good, some look questionable. The joint marketing agreement with Motorola and its partnership with AT&T will test the potential of subscription services via mobile handsets. The deal with Circuit City seems years late and uninspired.

Posted by Glenn at 5:28 PM | Link
|Earnings Releases||Napster|

Vivendi reported its 2007 Q1 earnings yesterday (read PDF of Vivendi's release or Reuters' article). Driven by its pay-TV and video game segments, the French company reported a profit of €1.3 billion. The story from its music division mirrored recent earnings results from other major music groups: It wasn't good.

Universal Music Group's revenue declined 8.7% to €1.027 million (4.2% on a constant currency basis). While sales were strong in the UK, weak sales in the US, Japan and France pulled down the division. Earnings before interest, taxes and amortization fell €84 to €57. (Last year's figure included an extraordinary item, the recovery of €50 from the company's lawsuit with TVT.) UMG said the downturn was "due in part to the timing of international and domestic releases in a difficult recorded music market and unfavorable currency movements."

Here's the ol' digital silver lining: Digital revenues were up 54% and accounted for €161 of revenues. Digital now accounts for 15.7% of UMG's revenues, up from 9.9% last year.

Posted by Glenn at 1:07 AM | Link
|Earnings Releases||Universal Music Group|

Warner Music Group announced today its results for Q2 2007 that ended March 31, 2007 (read press release and 10-Q). The numbers were down in every important category except digital sales. The press release and 10-Q mention WMG's restructuring and place on it a price tag of $70 to $80 million (severance-related expenses and related consulting fees and cost of temporary workers).

Total revenue dropped 2% to $784 million and the net loss was $27 million. Revenue from recorded music dropped 4% and digital recorded music revenue increased 22%. Music publishing revenue increased 11%. Through the first two quarters, total revenue dropped to $1.7 billion from $1.84 billion.

Digital revenues now account for 14% of total company revenues.

WMG has started a restructuring plan and incurred $16 million in related expenses in Q2, $15 million of which was in the recorded music division. Resources will be redirected to growth areas in Europe. The press release says the restructuring is so WMG's "continued evolution from a record and songs-based business to a music-based content company and the ongoing management of its cost structure." Billboard.biz has reported that WMG plans to cut 400 jobs, a number that was confirmed in the 10-Q.

The 10-Q mentions the Napster settlement on April 24th, 2007. WMG has received $110 million from Bertelsmann and "will be sharing with its artists and songwriters." No further details were given.

Posted by Glenn at 9:53 AM | Link
|Earnings Releases||Warner Music Group|

• Muzak reported a 3.0% increase in fourth quarter revenue and a 0.7% increase in annual revenues. Net losses improved to $39.2 million from $48.6 million. CEO Stephen Villa called the turnaround a "dramatic improvement." (Press release)

• Pump Audio and Snocap have entered into a client-sharing agreement. (Digital Music News)

• The only places in Greenwich, CT where you can find a CD is the public library and Starbucks. (Greenwich Time)

• The lesson here is, Music fans shouldn't live in Greenwich. In Seattle, Silver Platters is showing the CD is still a viable format. The indie retailer recently added 42,000 square feet. (Seattle Times)

• San Francisco area indie retailers are surviving in their respective niches. Mod Lang moved to El Cerrito and has found it "liberating" to no longer cater to university students. Aquarius Records uses its exhaustive staff reviews to attract sales. Amoeba is Amoeba. (San Francisco Chronicle)

• In England, Rough Trade is expected to soon open Britain's biggest music-only store -- a 5,000 square foot store in London's East End that will "reflect the public appetite for exciting new music." (The Independent)

Posted by Glenn at 9:00 AM | Link
|Brick-And-Mortor Retail||Earnings Releases||Snocap|

• XM narrowed its loss to $260 million on revenues of $257 million. Subscribers increased 29% for the year to 7.6 million. (Forbes.com)

• Guitar Center reported a fourth quarter net loss of $40 million (which included special items) on sales of $628.5 million. Sales were up 11.7% year over year. (Press release)

• Ministry of Sound has accused indie label trade associations Impala and AIM of "a complete departure from the stated constitutional aims of both companies." (Billboard.biz)

• Coming to a Jetta commercial near you... Universal Music Publishing Group inked a worldwide arrangement to administer Joy Division's catalog. The company says it will "aggressively promote" the post-punk band's song for sync licensing in film, television and advertising. (Billboard.biz)

• Kalefa Sanneh discovers that "rappers are learning to consider Koch a second home, or even a first one." This line ties in perfect with my posts about rap's continued sales decline: "As record sales keep sliding, the rise of Koch coincides with the lowering of rappers’ expectations." Good article. (New York Times)

• Watch out, Warner, Universal Music Group is stepping up the eco-pressure. The company is a sponsor of a Honda Formula One car that replaced its corporate logos with a picture of the earth. (Stuff.nz)

Posted by Glenn at 1:51 PM | Link
|Earnings Releases||Indies||Publishing||XM|

Univision Communications reported its third quarter results (PDF of press release). The Univision Music Group division posted a loss of $1.7 million (before depreciation and amortization) on revenues that decreased 42% year over year. For the nine months ending September 30, 2006, music division revenues were down 34%.

Univision Music Group had 33 of the top 100 Latin albums sold in the quarter but blamed its poor performance on "underperforming releases, slippage in the release schedule and a continued high level of returns compounded by political and economic factors impacting music sales in the industry." The label has on its roster such artists as Los Tucanes de Tijuana and El Papa de los Pollitos.

Posted by Glenn at 5:37 AM | Link
|Earnings Releases|

I've looked over Warner Music Group's 10-Q filing and a few things stand out.

• SG&A decreased 10% and as a percent of sales were basically even -- maybe a quarter percentage point higher -- with last year. As a gauge of selling efficiency, staying level is a good sign.
• Cost of revenues, as a percentage of total revenues, increased to 55% from 5