Warner Music Revenues Up 10 Percent in 2017, Second Straight Profitable Year

Owen Sweeney/Invision/AP
Ed Sheeran performs in concert during his "The รท Tour" at The Wells Fargo Center on July 11, 2017 in Philadelphia.

The good times continue to roll for Warner Music Group as it posts full-year revenues of $3.576 billion, up 10.2 percent from 2016. It was also a second-straight year of profits for the label giant, posting net income totaling $149 million, up from $30 million in the prior year.

WMG showed improvement across nearly every metric, with operating income up slightly at $222 million, versus $214 million. That said, operating income before interest, taxes, depreciation and amortization (OIBDA) was actually down at $473 million, versus $507 million the prior year. Free Cash Flow was $409 million, compared to $334 million in the prior year. 

Moreover, if it wasn’t for a tax benefit of $151 million, the company would have posted a net loss of $2 million for the year. 

The recorded music segment grew over 10.38 percent to $3.02 billion in revenue, up from $2.7 billion the year prior. More than half of that ($1.69 billion) came from digital, which includes streaming, an increase of 24 percent versus 2016. Physical revenue for the year totaled $667 million, down from $726 million. Meanwhile, artist services and expanded rights totaled $385 million, from $368 million, and licensing and other income streams were down slightly at $276 million, from $278 million.

Major sellers during the year included Ed Sheeran, Bruno Mars, Twenty One Pilots, the Hamilton original Broadway cast album and Clean Bandit.

In addition to revenue growth, profitability also improved within the recorded music division, with operating income growing 4.6 percent to $283 million from $247 million in the prior fiscal year. But total costs grew faster than revenue growth, up 13.14 percent to $2.6 billion, with artist and repertoire costs have the biggest growth of all the expense categories as it jumped 19 percent to $964 million, up from $810 million last year.

Publishing saw revenue growth of 9.2 percent, to $572 million from $524 million in the prior year. Publishing operating income was $81 million, up 19.1 percent from $68 million the prior year. OIBDA rose 10.1 percent to $152 million from $138 million in the prior year. At $187 million, digital revenue represented 32.7 percent of total publishing revenue versus 26.9 percent in the prior year. Elsewhere within publishing, performance revenue was $197 million, up from $193 million in the prior year; synchronization at $112 million, up slightly from $110 million; and mechanical fell to $65 million, from last year's $70 million.

Overall, Warner/Chappel Music, the publishing company, posted operating income of $81 million, up 19.1 percent from the $68 million in operating income in the prior fiscal year. That growth was aided by a reduction in selling, general and administrative costs to $71 million from $76 million in the prior quarter. Meanwhile, its net publishers’ share, or gross profit, grew to $217 million, after $355 million in artist and repertoire costs are subtracted from revenue. In the prior fiscal year, NPS was $207 million, while A&R costs totaled $317 million. 

"We've now had five consecutive years of global revenue growth in constant currency, and the last two were up double digits," said Steve Cooper, Warner Music Group's CEO. "Our momentum reflects the tremendous talent and appeal of our artists and songwriters, and the strength of our worldwide operating team. Investing to maintain our growth will remain a priority into 2018 and beyond."

As for fourth quarter results, revenue grew 9 percent to $917 million, from $841 million from the corresponding earlier quarter in 2016. Digital revenue saw huge gains, at 19.8 percent, totaling $491 million, from $410 million in 2016 Q4. The company posted $60 million in operating income before interest, taxes, depreciation and amortization, or OIBDA, which was down from the prior quarter’s $123 million in OIBDA. There was an operating loss of $1 million, down from the $55 million recorded in the year earlier quarter. Net loss was $38 million compared to a net loss of $3 million in the prior-year quarter, a result of higher expenses and losses on the company's Euo-denominated debt due to exchange rates. The loss for the quarter ended a 3 quarter streak of positive net income for the first nine-months of the company’s fiscal year.

Music publishing revenue for the quarter was $153 million, up 4 percent from the prior year's quarter. Digital revenue made up a third of that tally, $51 million. Operating income in the publishing sector was down 5 percent for the quarter, at $36 percent versus $38 million.

Executive vp/CFO Eric Levin noted that the company ended the year with $647 million in cash on the balance sheet -- "the highest level ever in our history of being a standalone company."

The company carried $2.81 billion in debt, due to the leveraged buyout by Access Industries in 2011. But earnings before interest taxes depreciation and amortization, as defined by the company’s debt covenants totaled $604 million in the year just ended, giving it a debt-to-EBITDA ratio of 3.41 to 1. But more importantly, as the company’s interested totaled $151 million last year, that means its EBITDA to interest is a very healthy 4 to 1 ratio.

While its total debt went up slightly from $2.78 billion in the prior year, during the year just ended, the board of directors approved and paid out $84 million in dividends to the equity owners, mainly Access Industries, which is controlled by Len Blavatnik, who holds the title of vice chairman of WMG. The company also paid $9 million to Access as a management fee.

In its 10-k filing,the company also noted that it has completed its divestitures related to its Parlophone acquisition, selling off assets worth a total of $73 million in the just completed year. Sales of the assets began in 2014.