Warner Music Reports Strong Quarterly Earnings, With Streaming Revenue Trouncing Physical

Bruno Mars performs during The 59th Grammy Awards at Staples Center on Feb. 12, 2017 in Los Angeles.
Kevin Mazur/Getty Images for NARAS

Bruno Mars performs during The 59th Grammy Awards at Staples Center on Feb. 12, 2017 in Los Angeles.

Warner Music Group enjoyed double-digit growth in total revenue in the second quarter, with the streaming-led digital segment accounting for more than 50 percent of the company's total revenue.

Total revenue at the label group grew 11 percent to $825 million for the three months ended March 31, compared to $745 million in the same period a year ago. Digital revenue skyrocketed 22 percent to $439 million -- more than double that of physical revenue at $142 million -- for the quarter. Artist services and expanded rights generated $81 million and licensing another $63 million for the period -- both of those were basically flat compared to a year earlier -- bringing the total for recorded music to $686 million.

"Our streaming revenue is now double that of physical and triple that of downloads," remarked Steve Cooper, WMG's CEO. "An improved industry environment is helping, but we continue to outperform our competition due to fantastic new music and outstanding execution by our operators around the world."

Recorded music revenue in the U.S., Latin America and Asia territories all grew, but currency-related issued caused a decline in Europe. Big sellers across the label group during the period included Ed Sheeran's ÷ (Atlantic), Bruno Mars' 24K Magic (Atlantic) and Fueled By Ramen's Twenty One Pilots, who scored another hit with "Heathens" off the Suicide Squad soundtrack.

Operating income was $78 million, compared to $52 million in the year's prior quarter. Operating income, excluding non-cash expenses for depreciation and amortization, or OIBDA, rose 11 percent to $141 million from $127 million in Q2 of last year. Net income jumped 67 percent to $20 million, from $12 million for the three month block.

Under music publishing, WMG saw revenue rise 14.2 percent on the strength of performance, digital and synchs, while mechanical revenue was flat. Music publishing operating income was $41 million, compared with $37 million the year prior. OIBDA was $66 million.

The company also noted that operating cash flow was $70 million, down from $111 million in the prior year quarter. "The change was largely a result of working capital use related to higher receivables at quarter-end due to improved operating results, which more than offset the increase in OIBDA," the company explained.

Praising the year-over-year revenue growth, WMG chief financial officer Eric Levin cautioned that results for the rest of the year may not look quite as robust. "Although tough comparisons could make for a more challenging second half, I'm confident we’ll have another great full fiscal year."

For the six month period, WMG reports it has $41 million in net income, on revenues of $1.742 billion, versus $38 million on revenues of $1.59 billion. That represents a 9.3 percent increase in revenue.

Within its overall operations, before $10 million in inter segment sales are eliminated, recorded music accounted for $1.483 million -- $650 million in the U.S. and $833 million outside the U.S.; and publishing produced $269 million -- $127 million in the U.S. and $142 outside the U.S. That means that recorded music grew by 9.2 percent from the $1.358 recorded in the prior mid-year point ended Mar. 31, 2016; while publishing increased by 10.7 percent from the $243 million posted in the earlier period.

Looking at the recorded music division by format, digital music -- streaming and downloads -- totaled $802 million, or 54.1 percent of revenue, while physical accounted for $369 million, or 24.9 percent, ; artist services and expanded rights, $171 million, or 11.5 percent ; and licensing, $141 million, or 9.5 percent. Last year, those percentages were, respectively, 47.9 percent, 29.4 percent, 11.9 percent, and 10.8 percent.

Of the $802 million in digital revenue, streaming comprised $611 million, up 45.8 percent from the $419 million it accounted for in the first half of the prior fiscal year. That means digital downloads and other digital revenue for the quarter was $191 million, which is 17 percent, 3 percent down from the $231 million in the corresponding earlier period.

So of the $802.4 million in digital revenue, or 54.1 percent of total recorded music revenue, streaming accounted for 41.2 percent of total revenue; and downloads 12.9 percent of total revenue. In the prior year, streaming accounted for 30.9 percent of total revenue, while downloads were 17 percent.

Within its Warner Chappell Music publishing operation, performance accounted for $87 million, or 32.3 percent; digital for $96 million, or 32 percent; mechanical for $33 million, or 12.3 percent; synchronization for $58 million, or 21.5 percent, and other, $5 million, or 1.9 percent. The prior year, those percentages were, respectively, 35.8 percent, 24.7 percent, 15.2 percent, 22.6 percent, and 1.6 percent.

This article has been updated.

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