Warner Gets A Quarter of Digital Revenue From Streaming
Warner Music Group is getting good growth from streaming services, which now account for 25% of its recorded music digital revenue. The other important news in the company's Thursday earnings call is the recorded music segment's digital growth offset its decline in physical sales. That merits a trumpet sound or two.
If there's a problem, it's that the recorded music division is not getting much help outside of downloads and streaming. Artist services and revenue expanded rights contracts -- which are included in the recorded music segment -- were a drag on revenue, falling 25% to $58 million in the quarter. Performance royalties fell 8% and sync royalties grew 1%, so neither helped Warner gain ground.
Warner did not break out the revenues generated by its artists' expanded rights contracts, but based on information in the earnings call I estimate expanded rights revenue in the quarter totaled $18 million (artist services revenue was another $40 million). In other words, 360 contracts are not providing big revenue or growth. Those numbers are hardly disappointing -- that's an annualized $72 million that didn't exist before 360 deals become the norm. But it goes to show 360 deals are still a small piece of the puzzle.
There's more good news inside Warner's digital revenue. Subscription and streaming services accounted for 25% of the recorded music division's digital revenue in the quarter (which works out to $54 million) and grew at a "significantly higher rate" than download revenue, which is not surprising given the relative maturity of the download market. Subscription and streaming revenue for the music publishing division were characterized as "strong" but no more information was given.
MediaMemo's Peter Kafka called it the Spotify Effect, but one could just as easily call it the Pandora Effect or the YouTube Effect. Included in that $54 million are royalties from on-demand audio services (Spotify, Rhapsody, Muve Music and others), non-interactive digital transmissions (SiriusXM, Pandora and other webcasters) and on-demand video streaming from the likes of YouTube.
But even that good news about streaming seems a little empty. Streaming is still a small part of Warner's recorded music revenue -- just 10.3% -- and can make up for only so much hemorrhaging. Downloads, streaming and expanded rights revenue are doing the heavy lifting. It would be great to see growth in other areas.
A few years ago, then-CEO Edgar Bronfman, Jr. would have been talking about the number of artists Warner has signed to expanded rights contracts, or 360 deals, in order to show how the company was diversifying its business model and adjusting for the future. Streaming is a better story now and that's why it was highlighted during Thursday's earnings call. It will continue to be a good story as long as the bottom doesn't drop out of CD sales and download sales continue on their current trajectory. And it's likely to get better as services get into the hands of more consumers.
Hadopi Takes Another Step Closer To The Edge
The music industry's greatest legislative triumph against piracy this century is looking even more threatened. The former television executive heading an overview of Hadopi, France's antipiracy agency, says its problem "was to focus on the penalty" and "if one starts from the penalty, it will fail." Pierre Lescure, former head of Vivendi-owned Canal Plus, is echoing comments by French culture minister Aurélie Filippetti and a campaign pledge by current French president Francois Hollande.
Given the precarious state of Hadopi, it was a bit odd for Warner Music Group to provide the fast-growing Swedish music market as a case study for the carrot-and-stick approach to building digital markets. Streaming is doing extremely well in Sweden -- the home of Spotify -- but there doesn't seem to be much evidence the country's anti-piracy efforts have had much of an impact. Since the country's 2009 IPRED law, reports and studies have indicated consumers' illegal file sharing activity has remained unchanged save a dip due to greater awareness from the implementation of IPRED. In Sweden, file sharing and legal streaming go hand in hand. That's probably not a model record labels want to duplicate elsewhere. ( The Register)
International Effort Shuts Down BitTorren Track Demonoid
Whether or not anti-piracy measures are having an impact on piracy, rights owners continue to go after the sites that enable large-scale piracy. The latest win for the music industry is the closing of BitTorrent tracker Demonoid. According to the IFPI's press release, the Ukraine-based website was the subject of an international effort between the IFPI, Interpol, the Division of Economic Crimes (DEC) within the Ukrainian police and the investigative arm of the Attorney General of Mexico. "The operation to close Demonoid was a great example of international cooperation to tackle a service that was facilitating the illegal distribution of music on a vast scale," Jeremy Banks, director, anti-piracy, IFPI, said in a statement. ( IFPI press release)