Warner is singing the blues after posting weak quarterly sales on Tuesday Warner Music’s shares closed down another 1.4 percent on Wednesday meaning it’s shares have dropped some 11 percent since Monday. As if that wasn’t enough concern, the heavily leveraged No.3 music company was given a heads-up that its debt is about to be downgraded. Ratings agency Moody’s placed ratings for Warner Music Group’s BA3 debt on review for ”possible downgrade” which usually is as good as definite .

Warner Music Chief Executive Edgar Bronfman tried to put a positive spin on his company’s unimpressive quarterly performance, in an admittedly very tough environment for all music companies.  But even Bronfman, in a conference call with analysts, seemed slightly exasperated with the rate of decline and slowing digital growth, in a quarter which saw rivals grab market share from Warner Music:

“We think the business is extremely competitive all of the time, regardless of the overall environment, which is one of decline, currently. So, we battle for market share, but as I’ve always said, we also battle for margin share. So, we try very hard to be very focused on our margins. Having said that, we had a lot of releases in the December quarter and, by and large, they did not do as well as we expected them to do versus, obviously, other companies.

It’s hard to ascribe that we lost as a result of better releases from other companies, or maybe our releases simply didn’t meet the expectations of their consumers. We don’t know that much that quickly, but we don’t like to see ourselves losing share, and that happened to us in the December quarter. But, as I motioned, we’re very optimistic for the rest of the fiscal year and are seeing progress both in our release schedule and in our actual releases.”

Long-time Warner Music bear BTIG analyst Richard Greenfield today advised his investorsto short Warner Music making the point that even Warner Music’s normally ’steady as she goes’ song publishing unit Warner/Chappell is beginning to suffer from the fallout in recorded music. (Requires registration):

“Following fiscal Q1 results, we are increasingly confident with our WMG fiscal (Sept) 2011 estimates which call for a 10% drop in revenues and a 9% drop in EBITDA (including the annually reoccurring restructuring charges) and believe it could be worse as WMG is clearly struggling to hit their forecasts.”

Maybe Warner Music’s problems can be solved with it’s long expected combination in some form with EMI?  Maybe a more solid push into online music sales can help?

Huge news out of MacWorld, beginning this week, three of the four major music labels - Sony Music Entertainment, Universal Music Group and Warner Music Group - will begin selling music through iTunes without digital rights management software, or D.R.M., which controls the copying and use of digital files. The fourth, EMI, was already doing so.

In return, Apple, whose dominance in online music sales gives it powerful leverage, agreed to a longstanding demand of the music labels and said it would move away from its insistence on pricing all individual song downloads on iTunes at 99 cents.

Instead, the majority of songs will drop to 69 cents beginning in April, while the biggest hits and newest songs will go for $1.29. Others that are moderately popular will remain at 99 cents.

Big stuff coming from the music industry today, News Corp’s MySpace, the world’s largest social network Web site, has formed a joint venture with three major music companies called MySpace Music, it said on Thursday, in a challenge to Apple Inc’s dominant iTunes Music store.  The joint venture includes Vivendi’s Universal Music Group, Sony BMG Music Entertainment and Warner Music Group as minority stake holders in the new company.

MySpace Music will offer free music audio and video streaming supported by advertising, paid-for MP3 downloads, ringtones, artist ticket sales and merchandise. Chris De Wolfe, chief executive of MySpace, described the launch date of the new service as “fluid” with commercial features being added to the site over the coming months. He said MySpace is in talks with more music industry partners to offer their services on MySpace Music.

MySpace said the new product will integrate its existing 5 million artist profile pages with the range of new commercial services in a “360-degree” offering that will be available to its 30 million-strong music fan base.

MySpace Music is seen as a potential rival to Apple Inc’s iTunes Music Store, which takes more than 70 percent of digital download sales and is the No. 2 music retailer in the United States behind Wal-Mart Stores Inc. The music industry has been concerned about a lack of competition for iTunes in the digital music market.

The music industry, fearful of Apple’s outsized influence over its business, sees another competitor in the song downloads business as a crucial element. “This gives a great new lease of life for the download market,” said Thomas Hesse, Sony BMG president of global digital business.

Financial terms of the new partnership were not disclosed.  But you can expect this one to be lucrative for both players. The deal went through late on Wednesday after Universal Music agreed to settle a 2006 copyright infringement lawsuit against MySpace. A source familiar with the negotiations said MySpace had agreed to pay Universal as much as $100 million to settle. EMI, the fourth big music company, was not part of the initial deal. MySpace’s De Wolfe said his company is talking to all music partners but would not comment on EMI.

Apple. has begun selling downloads of tracks from 16 of John Lennon’s post-Beatles albums, including “Working Class Hero” and “John Lennon/Plastic Ono Band,” on iTunes, the company said Tuesday.  The albums represent Lennon’s recording output while he was with Capitol Records, a unit of Britain’s EMI Group PLC.

While many of the late singer-songwriter’s solo recordings have been available for download commercially elsewhere, this marks the first time they have been available on Apple’s market-leading online music service. Songs on two albums — “Lennon Legend” and “Acoustic” — were being made available for download exclusively on iTunes, the company said.

Video content was also being included with the purchase of some of the albums for a limited time. The Lennon tracks will also be available without copy-protection restrictions and in higher-quality audio for $1.29 each. Regular versions are priced at 99 cents each.

“John would have loved the fact that his music will now be available in a format suited to a new generation of listeners,” Lennon’s widow, Yoko Ono, said in a statement released by Apple.  I would have to agree, John is probably very happy if he is watching down on us.