1319161--11/29/2007--Warner_Music_Group

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Risks Related to our Business The recorded music industry has been declining and may continue to decline, which may adversely affect our prospects and our results of operations. There may be downward pressure on our pricing and our profit margins. Our prospects and financial results may be adversely affected if we fail to identify, sign and retain artists and songwriters and by the existence or absence of superstar releases and by local economic conditions in the countries in which we operate. We may have difficulty addressing the threats to our business associated with home copying and Internet downloading. Organized industrial piracy may lead to decreased sales. Our involvement in intellectual property litigation could adversely affect our business. Due to the nature of our business, our results of operations and cash flows may fluctuate significantly from period to period. Our operating results fluctuate on a seasonal and quarterly basis, and, in the event we do not generate sufficient net sales in our first fiscal quarter and subsequent quarters, we may not be able to meet our debt service and other obligations. We may be unable to compete successfully in the highly competitive markets in which we operate and we may suffer reduced profits as a result. Our business operations in some countries subject us to trends, developments or other events in foreign countries which may affect us adversely. Our business may be adversely affected by competitive market conditions and we may not be able to execute our business strategy. Our ability to operate effectively could be impaired if we fail to attract and retain our executive officers. Legitimate channels for digital distribution of our creative content are a recent development, and their impact on our business is unclear and may be adverse. We are substantially dependent on a limited number of online music stores, in particular Apple iTunes Music Store, for the online sale of our music recordings and they are able to significantly influence the pricing structure for online music stores. A significant portion of our music publishing revenues is subject to rate regulation either by government entities or by local third-party collection societies throughout the world and rates on other income streams may be set by arbitration proceedings, which may limit our profitability. Unfavorable currency exchange rate fluctuations could adversely affect our results of operations. We may not have full control and ability to direct the operations we conduct through joint ventures and we do not control minority (equity method) investments. The enactment of legislation limiting the terms by which an individual can be bound under a personal services contract could impair our ability to retain the services of key artists. We face a potential loss of catalog if it is determined that recording artists have a right to recapture rights in their recordings under the U.S. Copyright Act. If we acquire or invest in other businesses, we will face certain risks inherent in such transactions. Our realignment plan may not be successful and may adversely affect our business. We are controlled by entities that may have conflicts of interest with us. Our reliance on one company for the manufacturing, packaging and physical distribution of our products in North America and Europe could have an adverse impact on our ability to meet our manufacturing, packaging and physical distribution requirements. We may be materially and adversely affected by the formation of Sony BMG Music Entertainment. Risks Related to our Leverage Our substantial leverage on a consolidated basis could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our obligations under our indebtedness. We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our debt agreements contain restrictions that limit our flexibility in operating our business. Risks Related to our Common Stock We are a controlled company within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. Future sales of our shares could depress the market price of our common stock. The market price of our common stock may be volatile, which could cause the value of your investment to decline. Provisions in our Charter and amended and restated bylaws and Delaware law may discourage a takeover attempt.

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1319161--11/29/2007--Warner_Music_Group_Corp.