Warner Music to Negative

Associated Press
S&P cuts outlook on Warner Music to 'negative'
Associated Press, 08.13.10, 12:38 PM EDT


NEW YORK --

Standard & Poor's Ratings Services lowered its outlook on Warner Music Group's rating to "negative" from "stable," citing a continued decline in revenue and profit due to light album releases and ongoing challenges with the music industry's shift to digital distribution.

The company's "BB-" rating is three notches into junk status.

Standard & Poor's said that despite Warner Music Group's vigilant cost-cutting measures, it will be less confident about the company's outlook "until there is an indication that digital sales can resume at healthy growth rates and eventually offset physical CD sales declines."

The ratings agency said that even though Warner Music Group's album release schedule is weighted toward its fiscal fourth quarter, ending Sept. 30, it believes the company's fourth-quarter revenue could decline by a high-single-digit to low-double-digit percentage. It added that visibility into fiscal 2011 is uncertain.

Warner Music last week posted a wider loss as digital download sales growth slowed further in its fiscal third quarter. Revenue from digital sales of recorded music grew just 3.7 percent to $169 million. Sales of downloads from Apple Inc.'s iTunes store are slowing as the market matures, especially in the U.S. Sales of physical CDs and vinyl records declined 25 percent to $350 million.

Warner also suffered from fewer big releases, as its top-seller, the soundtrack to the latest in the "Twilight" movie saga, compared poorly to prior-year releases such as Green Day's "21st Century Breakdown."

Shares of Warner Music Group were down 2 cents at $4.28 on Friday afternoon.