Aug. 7 (Bloomberg) -- Warner Music Group Corp., the recording company of Madonna and Metallica, posted a wider third- quarter loss because of expenses tied to job cuts and a drop in compact disc sales. The shares closed at a record low.

The net loss of $17 million, or 12 cents a share, expanded from $14 million, or 10 cents, a year earlier, New York-based Warner Music said today in a statement. Revenue fell 2.2 percent to $804 million, missing the average $842.7 million of three analysts' estimates compiled by Bloomberg. The loss excluding some costs and gains also trailed projections.

Revenue from recorded music fell 3.7 percent in the quarter as albums by Linkin Park and Michael Buble didn't drive sales as much as new releases from Red Hot Chili Peppers, James Blunt and T.I. a year earlier. Increased sales of downloaded music and mobile-phone ringtones failed to make up for the decline in CDs.

``The international recorded music decline was worse than we expected,'' Tuna Amobi, an equity analyst at Standard & Poor's in New York, said in an interview. He has a ``neutral'' rating on the shares and doesn't own them.

Shares of Warner Music fell $1.14, or 10 percent, to $9.89 at 4:01 p.m. in New York Stock Exchange composite trading, also the biggest decline in more than a year. They have tumbled 57 percent this year.

Missing Estimates

The net loss for the quarter ended June 30 included a $52 million gain from a legal settlement with Bertelsmann AG over that company's investment in Napster Inc. in 2000 and 2001, and $38 million in costs for a previously announced restructuring that eliminated 400 jobs. Warner also booked $8 million in costs related to a possible bid for rival music company EMI Group Plc.

Excluding those items, the loss was 20 cents a share, missing the 9-cent loss estimated by analysts.

Warner Chief Executive Officer Edgar Bronfman Jr. decided against making a counteroffer for London-based EMI in July after indicating earlier that he might do so. Private equity firm Terra Firma Capital Partners Ltd. agreed earlier that month to purchase EMI for about $4.9 billion.

``The market expected a price from us we could not justify,'' Bronfman said on a conference call today.

Analysts such as Amobi and Laura Martin of Soleil Securities have said Warner may seek to buy EMI's recorded music unit from Terra Firma. Bronfman declined to comment on the speculation.

Warner Music's revenue from CDs and digital recordings fell to $653 million in the quarter, hurt by a 7 percent drop in international recorded music.

Digital Revenue

Digital revenue alone gained 29 percent to $119 million, accounting for 15 percent of total sales compared with 11 percent a year earlier.

To build digital sales, Warner made deals during the quarter with companies such as Joost.com and Snocap Inc. to put videos online and sell downloads. It created a unit, Den of Thieves, to make original music programming to promote artists on TV and the Internet and on mobile devices.

Warner also said it made a $110 million investment in Frontline Management, a talent agency run by Irving Azoff, in order to diversify its revenue.

Sales from Warner/Chappell, the music publishing unit, rose 4.7 percent to $157 million. Warner has reinvested in the unit, which collects royalties when songs are played on radio and TV and in video games and commercials. Revenue from downloads and mobile ringtones, as well as from music used in films, TV and ads, increased in the quarter.

Warner reiterated that total restructuring charges this fiscal year will be between $65 million and $80 million. Most of the job cuts had to do with the manufacture and sale of CDs.

In the current quarter, Warner has new releases from artists including the White Stripes and T.I. Its labels include Warner Bros., Atlantic and Nonesuch.

(The company held a conference call at 8:30 a.m. New York time. For a replay, dial +1-800-873-2151 or +1-203-369-3570.)

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net

Last Updated: August 7, 2007 16:22 EDT