Warner Music Group Corp. Reports Second-Quarter 2008 Results for the Period Ended March 31, 2008

Digital revenue increased 48% year-over-year to $164 million or 21% of total revenue

Company acts to increase financial flexibility

• Total revenue of $800 million increased 2% from $784 million in the prior-year quarter, and declined nearly 4% on a constant-currency basis.

• Digital revenue was $164 million, or 21% of total revenue, up 16% sequentially from $141 million in the first quarter of fiscal 2008 and up 48% from $111 million in the prior-year quarter.

• Operating income from continuing operations increased 47% to $28 million from $19 million in the prior-year quarter. The prior-year quarter included $16 million of restructuring-related charges in connection with the company’s fiscal 2007 realignment initiatives.

• Operating income before depreciation and amortization (OIBDA) from continuing operations grew 20% to $96 million from $80 million in the prior-year quarter, which included the $16 million in restructuring-related charges.

• Loss from continuing operations of $0.23 per diluted share increased from a loss of $0.19 per diluted share in the prior-year quarter.

Warner Music Group Corp. (NYSE: WMG) today announced its second-quarter 2008 financial results for the period ended March 31, 2008 and in an effort to increase its financial flexibility has suspended its previous policy of paying a regular quarterly dividend.

“Warner Music continues to outperform the industry and gain share in key markets, which is a testament to our commitment to investing in A&R and leading the recorded music industry’s transition through innovation and creativity,” said Edgar Bronfman, Jr., Warner Music Group’s Chairman and CEO. “While an uncertain economic backdrop and evolving recorded music industry make a conservative approach to our balance sheet a prudent strategy, we remain excited about the long-term prospects for our business. In particular, we are gratified by WMG’s excellent digital results this quarter, which highlight our leadership position in driving this critical segment of the music business.”

Michael Fleisher, Warner Music Group’s Executive Vice President and CFO, added, “We regularly evaluate our capital deployment strategy. Our Board and our management believe it is sensible to maximize capital flexibility, given the vagaries of both the economy and recorded music market, by suspending our dividend to build cash reserves and reduce net debt. This action will give us the freedom to maintain our level of A&R investment, while enhancing shareholder returns over time.”

Second-Quarter Results
For the second quarter 2008, revenue grew 2.0% to $800 million from $784 million in the prior-year quarter, and fell 3.6% on a constant-currency basis. This performance was tempered by the ongoing transition in the recorded music industry characterized by a shift in consumption patterns from physical sales to new forms of digital music and the continued impact of digital piracy. Domestic revenue declined 13.8% while international revenue grew 19.9%, and grew 6.7% on a constant-currency basis. On a constant-currency basis, revenue grew in Europe, Asia-Pacific, Latin America and Canada.

Operating income from continuing operations grew 47.4% to $28 million from $19 million in the prior-year quarter and operating margin from continuing operations increased 1.1 percentage points to 3.5%. OIBDA from continuing operations increased 20.0% to $96 million from $80 million in the prior-year quarter and OIBDA margin from continuing operations grew 1.8 percentage points to 12.0%. Operating income, OIBDA, operating margin and OIBDA margin for the second quarter of fiscal 2007 reflected $16 million in restructuring-related charges in connection with the company’s fiscal 2007 realignment initiatives.

Loss from continuing operations was $34 million, or $0.23 per diluted share for the quarter. Loss in the prior-year quarter was $27 million, or $0.19 per diluted share.

As of March 31, 2008, the company reported a cash balance of $249 million, total long-term debt of $2.27 billion and net debt (total long-term debt minus cash) of $2.0 billion.

For the quarter, net cash provided by operating activities was $132 million. Free Cash Flow (defined as cash flow from operations less capital expenditures and cash paid for investments) amounted to $99 million, compared to Free Cash Flow of $49 million in the comparable fiscal 2007 quarter. Unlevered After-Tax Cash Flow (defined as Free Cash Flow excluding cash interest paid) was $128 million, compared to Unlevered After-Tax Cash Flow of $73 million in the comparable fiscal 2007 quarter (see below for calculations and reconciliations of Free Cash Flow and Unlevered After-Tax Cash Flow).

Below is the business segment discussion for the quarter.

Recorded Music
Revenue from the company's Recorded Music business increased 0.6% from the prior-year quarter to $652 million, and was down 4.4% on a constant-currency basis. The decline in constant-currency revenue primarily reflected strength in Europe, Asia-Pacific, Latin America and Canada, more than offset by declines in domestic revenue. Year-over-year revenue increased in the international physical Recorded Music business and the global digital Recorded Music business on a constant-currency basis.

Recorded Music digital revenue of $155 million grew 47.6% over the prior-year quarter and represented 23.8% of total Recorded Music revenue. Domestic Recorded Music digital revenue amounted to $101 million or 34.0% of total domestic Recorded Music revenue. Digital sales strength was primarily driven by growth in global online downloads, and to a lesser extent mobile.

Major sellers in the quarter included titles from R.E.M., Simple Plan, Kobukuro, Nickelback and the Juno soundtrack. International Recorded Music revenue surged 22.4% from the prior-year quarter to $355 million, and rose 9.6% on a constant-currency basis, while domestic Recorded Music revenue slid 17.0% from the prior-year quarter to $297 million.

The constant-currency growth in international Recorded Music revenue in the quarter was the result of increases in the U.K., Germany, France and Japan. Gains in international revenue were attributable to improved local repertoire and international releases as compared to the prior-year quarter and a contribution from international touring and management businesses.

Year-over-year differences in the domestic Recorded Music business were due to the timing of releases and declines in the physical business, which are not currently being fully offset by growth in the digital business, though digital performance was quite strong. Retailers are more actively managing their inventory levels in response to the tougher economy and credit markets as well as the changing underlying demand for physical recorded music product.

Recorded Music operating income from continuing operations totaled $22 million in the quarter, up 69.2% from $13 million in the prior-year quarter, resulting in an operating margin from continuing operations of 3.4% compared to 2.0% in the prior-year quarter. Recorded Music OIBDA from continuing operations rose 27.3% to $70 million for the quarter, compared to $55 million in the prior-year quarter. Recorded Music OIBDA margin from continuing operations expanded 2.2 percentage points to 10.7% from the prior-year quarter. Recorded Music operating income, OIBDA, operating margin and OIBDA margin for the second quarter of fiscal 2007 reflected $15 million in Recorded Music restructuring-related charges in connection with the company’s fiscal 2007 realignment initiatives.

Music Publishing
Music Publishing revenue in the quarter increased by 8.4% from the prior-year quarter to $155 million, and was flat on a constant-currency basis. Music Publishing revenue grew 4.9% domestically over the prior-year quarter, and grew 11.0% internationally, but declined 3.2% internationally on a constant-currency basis. Digital revenue from Music Publishing amounted to $9 million, representing 5.8% of total Music Publishing revenue for the quarter.

On a constant-currency basis, declines in mechanical revenue of 9.5% and in synchronization revenue of 4.5% were offset by a 50.0% increase in digital revenue and a 3.4% increase in performance revenue. Mechanical revenue weakness reflected the industry-wide decline in physical record sales. Synchronization revenue was negatively impacted by the Writers Guild of America strike.

Music Publishing operating income amounted to $36 million, down 5.3% from $38 million in the prior-year quarter, resulting in an operating margin of 23.2% down 3.3 percentage points from the prior-year quarter. Music Publishing OIBDA increased 1.9% to $54 million for the quarter, compared to $53 million in the prior-year quarter. Music Publishing OIBDA and OIBDA margin were flat year-over-year, excluding a $1 million favorable impact of foreign currency exchange rates.

Quarterly Dividend
The company today announced that it has discontinued its previous policy of paying a regular quarterly dividend. On February 29, 2008, the company paid its final quarterly dividend of $0.13 per share. The company currently intends to retain future earnings to build cash on the balance sheet and continue its successful A&R investment track record. Any future determination to pay dividends will be at the discretion of the company’s Board of Directors and will depend on, among other things, the company’s results of operations, cash requirements, financial condition, contractual restrictions and other factors the Board of Directors may deem relevant.

Financial details for the second fiscal quarter can be found in the company’s current Form 10-Q, filed today with the Securities and Exchange Commission.

This morning, management will be hosting a conference call to discuss the results at 8:30 A.M. EST. The call will be webcast on www.wmg.com [ http://www.wmg.com/ ].

About Warner Music Group
Warner Music Group became the only stand-alone music company to be publicly traded in the United States in May 2005. With its broad roster of new stars and legendary artists, Warner Music Group is home to a collection of the best-known record labels in the music industry including Asylum, Atlantic, Bad Boy, Cordless, East West, Elektra, Lava, Nonesuch, Reprise, Rhino, Roadrunner, Rykodisc, Sire, Warner Bros. and Word. Warner Music International, a leading company in national and international repertoire, operates through numerous international affiliates and licensees in more than 50 countries. Warner Music Group also includes Warner/Chappell Music, one of the world's leading music publishers, with a catalog of more than one million copyrights worldwide.