Warner cutting jobs in nod to digital future

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Warner Music on Tuesday said it would cut 400 jobs as it announced a wider loss for the second quarter.

Warner cast the job cuts as a strategic realignment that would allow the fourth-largest music company to shift resources to faster-growing digital opportunities and said that it expected to offset many of the losses with new hiring.

Earlier this week, for example, Warner announced the creation of a new division to produce video for television, the internet and mobile devices as part of a broader goal of transforming itself from a record company to one that sells a variety of music-based content.

For the quarter, Warner lost $27m, or 15 cents per share, compared with the $7m loss, or 5 cents per share, it posted during the same period a year earlier. Meanwhile, revenue dropped 2 per cent to $784m.

Warner has been struggling with the same problem that has afflicted other major music companies. While its digital sales continue to surge at double-digit levels, they have not been sufficient to offset the continued erosion in the compact disc market, which still account for the bulk of the music industry revenues.

Warner, which features such artists as Madonna and the Red Hot Chili Peppers, also suffered because it had a relatively light slate of new releases compared to the same period a year ago.

“The recorded music industry remains challenged by piracy and changing consumption patterns in the shift from physical sales to new forms of digital music,” Warner said in a statement.

The company also noted that it expects to take a one-time charge of $65m to $80m before the end of the year to cover the cost of the restructuring.

“By helping us manage physical costs while redeploying our resources and ongoing investments toward new business initiatives, this realignment will ensure a successful transformation in an evolving music industry,” said Edgar Bronfman, Warner’s chief executive.

For the quarter, Warner’s recorded music division saw revenues decline 4 per cent to $648m, pulled by a weak performance in European markets. At the same time, Warner’s digital sales rose 23 per cent to $111m, accounting for 14 per cent of total revenue during the quarter.

Warner said that about 60 per cent of digital sales were downloads while the remaining 40 per cent were from mobile phones. However, the company predicted that the ratio would invert as sales of next-generation mobile phone handsets increase in the US market.

Mr Bronfman did not address speculation that Warner might renew a bid for EMI, the third-largest music company, which is currently being circled by private equity firms.

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