“Harry Potter” is helping Warner Music buck up its bottom line.
Roughly a quarter of Warner Music Group’s revenue – and likely most of its cash flow – comes from manufacturing DVDs for the company’s film divisions, The Post has learned.
AOL Time Warner, Warner Music’s parent, has always disclosed that fees from producing DVDs are lumped in with music revenue – although it has declined to say how much those fees contribute to overall sales at the division. Analysts, in turn, have griped that they are unable to measure how well the core music business is performing.
Now, a source familiar with the matter tells The Post that about 25 percent of Warner Music’s sales is derived from manufacturing DVDs.
That would amount to roughly $1.05 billion of the company’s 2002 revenue of $4.2 billion.
Perhaps more importantly, analysts say, those fees likely produce most – if not all – of Warner Music’s cash flow.
“That’s probably all their profit,” says Tom Wolzien, an analyst at Bernstein. “It’s masking the real performance of the music business.”
An AOL Time Warner spokesperson explained the company has never broken down its music revenue, and said the company is not misleading anyone.
However, analysts are only now taking notice of the accounting procedure, given that DVD sales have exploded in recent years.
Last week, AOL Time Warner reported a huge year-end loss of close to $100 billion. In that report, the company said cash flow at the music group jumped 25 percent and revenue grew 6 percent in the fourth quarter – numbers that looked decent compared with the headline-grabbing overall loss and a giant writedown of $45.5 billion to account for the declining value of the AOL and cable divisions.
Warner Music, like the rest of the music industry, is going through rough times. Overall, compact disc sales fell about 9 percent last year in the industry, according to Nielsen SoundScan.
The lagging performance of the company’s AOL division has gotten most of the attention, but music produces the least amount of cash for the concern, prompting speculation the company may seek to spin off the unit.
AOL Time Warner CEO Dick Parsons has said publicly that he would be interested in restarting merger talks with EMI, the smallest of the five major record companies, in an effort to cut costs. The two companies had previously flirted with the idea of a merger, but were shot down by the European Commission due to anticompetitive concerns.
Most in the industry expect there to be one less major music company a year from now, with the most likely deal happening between EMI and Bertelsmann’s BMG. Those two companies also had previously tried to merge, and lately have renewed talks, sources say.
DIFFERENT TUNES
Warner Music, home to Madonna and Faith Hill, makes its numbers look better by including revenue from making film DVDs like “Harry Potter.” Details:
* Warner Music’s 2002 revenue was $4.2 billion
* About 25 percent of sales, or $1.05 billion, came from fees making film DVDs.
* Warner Music’s 2002 cash flow was $482 million, most of it from film DVDs.
* The troubled music industry saw CD sales drop 9 percent overall last year.