Time Warner Sees Declines: Music Group, Columbia House Bring Losses

NEW YORK-Warner Music Group's revenue and profit declined in the first quarter as its domestic market share fell.
In addition, parent company Time Warner says it booked a $220 million write-down of its 50% investment in record and video club Columbia House in the quarter because of that unit's decline. The charge resulted in a net loss of $96 million for Time Warner.
For the three months that ended March 31, the music group's revenue fell 2% to $917 million from $936 million in the same period a year ago. Music cash flow (earnings before interest, taxes, and amortization) declined 10.1% to $80 million from $89 million.
Warner Music's domestic sluggishness is shown in its market share figures for the quarter (see story, page 57). SoundScan reports that Warner's U.S. market share of total albums fell to 15% in the first three months of this year from 17% a year ago, while its share of current albums dropped to 12.3% from 15.2%.
During the quarter, Warner Music's top-selling albums were by such acts as Kid Rock, Red Hot Chili Peppers, and AC/DC.
The large write-down of Columbia House's asset value did not affect the music unit's results because Time Warner had reclassified the unit, moving it out of the music division, and restated music numbers to reflect that change.
In its financial statement, Time Warner says it took the write-down because it concluded that "the decline in Columbia House's business is going to continue through the near term." It adds that it is "continuing to evaluate strategic alternatives ... including online initiatives, joint ventures, and other strategic actions."
In March, a proposed merger of Columbia House with online retailer CDnow was terminated. CDnow charged at the time that Columbia House's results were not strong enough to sustain the retailer's operations.
Meanwhile, Time Warner says it is on track to close its proposed merger with America Online in the fall. As for the proposed merger of Warner Music Group with EMI Music, Time Warner chairman/CEO Gerald Levin told analysts, "We're shooting for a year-end close."
Cash flow from Time Warner's filmed entertainment unit, Warner Bros. Pictures, increased 21.2%, to $194 million from $160 million, excluding a $215 million pretax gain last year on the termination of a home video distribution deal with Metro-Goldwyn-Mayer. Film revenue rose 10.8%, to $1.88 billion from $1.69 billion.
The company cites improvements in home video and television operations, which offset lower results from consumer products. DVD revenue was up 75% on hits like "The Matrix," "Eyes Wide Shut," and "Pok mon." At the box office, the top film was "The Green Mile."
Overall, New York-based Time Warner reports a 7.5% rise in revenue, to $6.5 billion from $6.1 billion a year ago. The $96 million net loss compares with net income of $138 million last year.
Time Warner's stock fell $5.75, or 6%, in New York Stock Exchange trading the day the results were announced and closed at $90.