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Warner Music Group Corp. (WMG)

F2Q10 (Qtr End 03/31/10) Earnings Call

May 05, 2010 8:30 AM ET

Executives

Jill Krutick - Senior VP, IR

Edgar Bronfman Jr. - Chairman and CEO

Steven Macri - Executive VP and CFO

Michael Fleisher - Vice Chairman, Strategy and Operations

Analysts

Bishop Sheen - Wells Fargo

Laura Martin - Needham

Ingrid Chung - Goldman Sachs

Jason Bazinet - Citigroup

Tuna Amobi - Standard & Poor’s

Richard Greenfield – BTIG Pali Research

Presentation

Operator

Welcome to the Warner Music Group’s fiscal second quarter earnings call for the period ended March 31, 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. As a reminder, there will be question and answer session following today’s presentation (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 Corp. fiscal second 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, Steven 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, believe, 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 album, projected digital sales increases and declines in physical sales, expected expansion of the online marketplace, the success of strategic actions we are taking to accelerate our transformation as we redefine our role in the music industry, the impact of general economic conditions may have on us, market share gains, 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. 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

Thanks Jill. Welcome everyone and thank you everyone for joining us. The second quarter provided another example of our ability to deliver stable results even in the phase of an ongoing reported music industry transition and general economic pressures. We saw only moderate revenue decline while we expanded our OIBDA margins and delivered improved OIBDA. We remained confident that our efforts should drive sustained growth overtime. That confidence is fueled not only by our successful track record which then include shifting our business mix, managing cost, developing new business models and delivering strong returns on our A&R investment, but also by our enhanced digital leadership position. We are fast approaching a key milestone in the evolution of our business. With digital revenue reaching 47% nearly half of our US recorded music revenue this quarter, we are approaching the digital device.

While this number will fluctuate quarter-to-quarter it is indicative of the great strives we’ve been making to create a more digital centric business model. We’ve consistently proven that we can adapt our strategies in order to position ourselves for future growth, while continuing to generate strong free cash flow.

This free cash flow gives us the flexibility to continue to invest in A&R, marketing and promotion activities, the essence of our recorded music and music publishing businesses and also to explore other opportunities that can deliver incremental value to shareholders.

Today, we’ll discuss the company’s quarterly performance in four key areas. First, our A&R marketing and promotional efforts continue to yield results. Second, we sustain our industry leadership in the digital arena with our quarterly digital revenue rising 12% to $199 million on a constant currency basis and as mentioned in the US, digital representing 47% of recorded music revenue as compared to 41% in the prior quarter.

Once again, we sustained our significant digital share advantage of a physical share in the US in the quarter and we have the greatest digital share advantage of any of the major music company. Third, we continue to transform the company by entering into expanded right fields with new recording artists and building our worldwide artist services business. And fourth, we continue to fortify our music publishing business by further strengthening all artist roster business mix and catalogue.

Read the rest of this transcript for free on seekingalpha.com