Third quarter results weren’t as bad as expected for Warner Music Group, as European earnings made up for the U.S., Asia-Pacific and Latin America losses, as the music industry is going through some changes. Madonna, Disturbed, Plies, Luis Miguel and Frank Sinatra have contributed to a 5.1% increase in revenue on a constant-currency basis.

The losses from continuous operations totaled $9 million, or $0.06 per diluted share, which is a big step forward if we look at the $16 million loss, or $0.11 per diluted share, in the same period last year.

Increased sales in the U.K., France and Germany were responsible for a constant-currency growth in International Recorded Music. Local, as well as international releases, together with international touring and management business, have contributed to the gains in international revenue.

International Recorded Music went up 19.2% compared to the same quarter last year, reaching $367 million, while domestic Recorded Music revenue fell 7.5% from the same period a year before to $319 million.

Overall, Warner Music’s revenue grew 5.5% to $848 million from $804 million in the same quarter last year, and fell 1.1% on a constant-currency basis, as a result of the transition the music industry is going through right now, as it passes from physical products to digital music. Canada and Europe had the greatest contributions to these figures.

“This quarter, we continued to outperform our competitors, even in the midst of a challenging recorded music environment,” said Edgar Bronfman Jr., Warner Music Group Chairman and CEO. “As we transform the business to position it for the future growth in an evolving industry, we remain focused on driving profitability and cash flow, while prudently managing capital and costs.”

The company explained the year-over-year revenue differences through the timing of release and declines in the physical business, as the digital music industry begins to take over. Furthermore, domestic retailers have reportedly continued to actively manage their inventory levels as a response to tougher economy and credit market, as well as the changing in demand for the physical recorded music products.

Warner Music Publishing reported the Music Publishing operating income of $15 million, going down 16.7% from the $18 million last year, which led to an operating margin of 8.9%.

Quarterly Recorded Music operated income stayed at a flat $66 million, which led to an operating margin from continuing operations of 9.6% compared to 10.1% the year before. Recorded Music digital revenue, which accounted for 22.7% of the Recorded Music revenue, grew 39.3% compared to last year, to $156 million.

Digital sales were primarily driven by growth in global online downloads, as well as to a lesser extent growth in international mobile.

Michael Fleisher, Warner Music Group’s Executive Vice President and CFO said that the benefits from the steps they’ve taken this year to increase their financial flexibility were evidenced by their building cash balance and riding quarterly year-over-year Free Cash Flow.