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Warner Music Group swung to a $7m loss for the fiscal second quarter, although its revenues climbed and its digital music sales surged.

The performance, which beat Wall Street expectations, is likely to be seized on by the company’s management to demand a higher offer from rival music group EMI, which made an unsuccessful $4.2bn bid for Warner this week.

In a conference call on Friday, Edgar Bronfman Jr, Warner’s chief executive, declined to discuss the EMI offer. Instead, he urged analysts and investors to focus on the company’s results.

For the quarter, Warner’s revenues grew 4 per cent to $796m. The biggest contributor was digital sales, which grew 157 per cent to $90m, accounting for an industry-leading 11 per cent of total revenues.

“The momentum of digital sales activity remains very encouraging,” said Mr Bronfman, who also cited the company’s market share gains in a variety of genres.

Although Warner, whose roster of artists includes James Blunt and Madonna, recorded a $4m profit in the second quarter last year, those results included a $39m unrealised gain on warrants issued to former parent, Time Warner.

Those warrants were subsequently repurchased when Warner went public last May.

The weak link for Warner in the most recent quarter continued to be its music publishing business, where revenues fell 16 per cent. The company also revealed that 14 lawsuits have been filed against it related to digital pricing.

The lawsuits are believed to have grown out of an ongoing probe by Eliot Spitzer, the New York attorney general, into possible price fixing for online music sales.

A Warner-EMI combination is considered inevitable by many in the music industry because of the resulting cost-savings and the added bulk that the new company would have to compete with the industry leaders, Universal Music and Sony-BMG.

Earlier this week, Warner’s board this week rejected an EMI offer of $28.50 per share, saying it was not in the best interest of shareholders.

Privately, people familiar with Warner’s deliberations believe that its progress in digital distribution underlines its viability as an independent company, and should give it more leverage in discussions with EMI.

Copyright The Financial Times Limited 2017. All rights reserved.
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