Warner Music ends dividend

Warner Music (WMG) is suspending its dividend to conserve cash as physical sales of music continue to decline. The New York-based company lost $34 million, or 23 cents a share, from continuing operations for the second quarter ended March 31, compared with a year-ago loss of $27 million, or 19 cents a share. Revenue rose just 2% from a year ago to $800 million. The company said the 13-cent quarterly dividend it declared in February would be its last.

“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,” said finance chief Michael Fleisher. “This action will give us the freedom to maintain our level of [artists and repetoire] investment, while enhancing shareholder returns over time.”

Warner said domestic revenue fell 14% from a year ago in the first quarter, while international revenue rose 20%, bolstered by a decline in the value of the dollar. Recorded music revenue rose 0.6% to $652 million, despite a 48% surge in digital music revenue to $155 million. Digital sales accounted for a third of domestic music sales for the quarter, Warner said. “Digital sales strength was primarily driven by growth in global online downloads,” the company said, “and to a lesser extent mobile.”

The struggles of the big music labels are well documented. Warner and EMI repeatedly discussed merging in 2006 and 2007 before breaking off talks. Since then, Warner shares have lost nearly half their value, as the industry struggles to devise a more lucrative alternative to Apple’s (AAPL) iTunes. While it seems clear that the labels will have to reinvent themselves, the right mix remains elusive.