NEW YORK (Reuters) – Warner Music Group posted a narrower-than-expected loss on Tuesday as strong sales in the U.K. and France helped overcome declining demand for traditional music discs in the United States and Japan.

But the No. 3 music company, whose top selling artists include Michael Buble and Enya, continues to face a shrinking market for compact discs and international licensing revenue.

Net loss for the fiscal first quarter ended in December was $17 million, or 11 cents a share, compared with profit of $23 million, or 15 cents a share, a year earlier.

Wall Street analysts has expected a loss of 14 cents a share, according to Thomson Reuters I/B/E/S.
Revenue rose 3 percent to $918 million and outpaced estimates of $872 million, including a 12 percent jump in international recorded music revenue. Excluding the effect of the weak dollar, sales fell 2 percent.

Like its bigger peers Vivendi SA’s Universal Music Group and Sony Corp’s Sony Music Entertainment, Warner Music is struggling with declining sales of recorded music as fewer fans buy albums on CDs.
The shift to downloaded music has led to a slump in revenue as fans increasingly buy lower-priced individual songs from Web retailers like Apple Inc’s iTunes Music Store.

Digital music sales rose 8 percent from a year ago to $184 million. But the sales were flat from the fiscal fourth quarter, which ended in September.

According to tracking firm Nielsen SoundScan, U.S. album sales in 2009 tumbled for the eighth time in nine years as the rate of growth in legal digital downloads slid in a turnaround from recent years.
Warner expects its biggest hits to be released near the latter part of the fiscal year, similar to its fiscal year 2009.

Shares of Warner Music were up 22 cents to $5.01 on the New York Stock Exchange. Although the shares have fallen about 15 percent so far in 2010, they have nearly doubled in the past year.

(Reporting by Franklin Paul; editing by John Wallace and Derek Caney)

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