Madonna's latest album sold well, Warner said

Warner, whose artists include Madonna, REM and P Diddy, is to restructure its recorded music business to free up cash for areas such as digital distribution.

The firm blamed piracy and increased downloading of music for its second quarter loss of $27m (�13.5m), against a $7m loss a year ago.

Like other firms, it has suffered as consumers buy fewer CDs.

Warner Music offered to buy British rival EMI earlier this year but was rebuffed.

'Transformation'

Warner's total sales fell 2% to $784m over the latest period although revenues from digital operations rose 23% to $111m.

Warner, one of the industry's "big four" companies, said its restructuring would be completed by the end of 2007 and would cost it up to $80m in one-off charges.

We are in the midst of transforming Warner to a music-based content company Edgar Bronfman, Warner Music chairman

It plans to increase investment in digital platforms and video distribution in Europe, with expenditure on new technology and recruitment absorbing most of the savings generated by the job cuts.

"We are in the midst of transforming Warner to a music-based content company," said chairman Edgar Bronfman.

"Our realignment initiatives are designed to improve our effectiveness, flexibility, structure and performance."

Warner said the global music market remained fragile, with sales down 3% this year. Strong sales in Japan were offset by weakness in the UK, France, Canada and Latin America.

However, returns from Warner's music publishing division rose 11%.

Warner's shares edged up in early trading as investors reacted to the shake-up and the focus on growth areas of the business.