The report on Warner Music Group’s earnings is typical doom-and-gloom for the most part, even though there is hope amongst the negativity. WMG beat Wall Street expectations and actually increased net profits to $6 million in the fourth fiscal quarter of this year, up from $5 million the year before. Ringtone sales are weak (boy, that fad dried up pretty quickly everywhere), digital sales are steady, and CD sales are down. Things don’t look that great on the face of it, but there is that increase in net profits that’s rather curious.

What no article I read on the subject seems to address is whether or not the move to digital sales drives down operating costs. Just once, I want to see how much the removal of the costly manufacturing process affects labels’ bottom line. My guess is it’s been a boon for them, but they are too wedded to the physical-product model to admit as much. Which makes sense in a way: Digital music sales still only make up 20 percent of Warner Music Group’s revenue, and even then, they are only holding steady. They increase as a portion of the earnings because CD sales have gone down, not necessarily because digital sales have increased.

On the other hand, any hope that “the new model” of digital presents will probably only prolong the magic for a few more years. Manufacturing costs would most likely be plowed back into marketing, as record labels try to steer customers toward iTunes or Amazon or Rhapsody or whatever ridiculous in-house venture they come up with in the future, missing the fact that a whole generation of kids is being raised not knowing that music is a thing one should buy. Still, a little transparency here would be nice. How much are labels saving on manufacturing costs as CDs join 8-tracks and DATs in Format Heaven? My feeling, as someone who is still amazed at how much CDs cost to make, is that it’s not a small amount.

Of course, what do I know? I made a “C” in Introduction to Macroeconomics in college because class was at the same time as All My Children. A man’s gotta draw the line somewhere.

Warner Music results beat expectations [Reuters]