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While net income was down due to year-earlier gains from sales of Spotify stock, Warner Music Group nevertheless posted a 11.7% increase in revenue during the fiscal year period ended Sept. 30 — amounting to $4.475 billion compared with $4.005 billion in 2018.
During a conference call with Wall Street analysts, WMG CEO Steve Cooper said revenue was boosted by music from Ed Sheeran, Lizzo, Cardi B, Meek Mill, A Boogie wit da Hoodie, Mac Miller, Dan + Shay and Johnny Hallyday, and Japanese stars TWICE and Aimyon, among other artists.
Additionally, the label group's turnover received a $146 million boost in revenue due to a full-year of ownership of EMP Merchandising, which it acquired just before the close of the prior fiscal year. Without that acquisition, WGM would have still enjoyed a 8.1% revenue bump.
As mentioned, net income fell to $258 million from $312 million, a 17.3% decline due to "other" income — not recorded music or publishing revenue falling to $60 million without the sale of Spotify stock, which boosted that category to $394 million in the prior 12-month period, and that helped the bottom line for that year.
The company said that operating income before depreciation and amortization (OIBDA) improved to $625 million, up 30.8% from the $478 million in the prior year.
Overall, operating income for the just-completed fiscal year was up 64% to $356 million from $217 million in the year earlier period. That means operating margin improved, partially driven by a change in accounting for revenue recognition, to 8% of revenue from 5.4%.
Thanks to that improvement and revenue growth, WMG was able to achieve greater economies of scale with selling, general, and administrative expenses comprising 33.74% for the year, down from 35.23%.
For the fiscal fourth quarter, the company reported net income of $91 million, versus a year-earlier loss of $13 million; while revenues grew 8.1% to $1.124 billion from $1.039 billion.
Breaking out revenue, the company's recorded music division produced $3.84 billion in revenue in the year ended Sept. 30, a 14.2% increase over the $3.36 million tallied in the corresponding year-earlier period.
Moreover, the recorded music division showed improved profitability with operating income growing 43% to $439 million from $307 million in the prior year. And when depreciation and amortization are added back in operating income before depreciation and amortization totaled $623 million, a 29.8% increase over the $480 million the recorded music operation produced in the prior year. That means OIBDA margin improved to 16.2% from 14.3%.
Within recorded music, digital accounted for $2.343 billion, a 16% increase over the $2.02 billion that format garnered in the year earlier period. Of that, $2.129 million was from streaming, representing a 22.85% increase over the year-earlier period when that channel attributed $1.733 billion in revenue, while downloads and other digital fell 25.6% to $214 million from $286 million.
Elsewhere, physical fell 11.75% to $559 million from $630 million; and artists services and expanded rights turned in $629 million, up 61.7% from the prior year total of $389 million, probably due to the addition of EMP; with licensing falling slightly to $309 million from $322 million.
That breaks out to digital accounting for 61% of revenue, of which 55.4% was from streaming and 5.6% from downloads, while physical was 14.6%; artist services and expanded rights 16.4% and licensing 8%. In the prior year, those percentages were digital 60%, of which streaming was 51.6% while downloads were 8.5%; physical, 18.8%; artist services and expanded rights, 11.6%; and licensing 9.6%.
Meanwhile music publishing revenue at Warner Chappell Music dropped to $643 million from $653 million, because of the accounting change related to the way it books and revenue; and mainly due to losing the administration contract on the Disney motion picture catalog and to a lesser decree because due to a few defecting songwriters tied to the departure of Jon Platt who had been chairman but left after the end of fiscal 2018 to head up Sony/ATV Music Publishing.
While that accounts for the larger than expected decline in performance revenue, it didn’t impact profitability at the publishing company that much because those were administration contracts, which are much lower margin deals than full publishing contracts. For example, the company reported that Warner Chappell Music’s operating income in the just completed fiscal year totaled $92 million, a 9.5% increase over the prior year’s operating income of $84 million.
Picking up the slack going forward are deals to serve as administrator with Round Hill Music and film company Annapurna Pictures. He also noted that the company had acquired the Gene Autry Music Group.
During the conference call Cooper said the Warner Chappell operation was reinvigorated by the new management team of Carianne Marshall and Guy Moot, co-chairmen; and he cited the success of such songwriters as Tayla Parx, Tay Keith, Swae Lee and Carter Lang, among others. Further, he noted that Warner Chappell Nashville won publisher of the year for each of the big three U.S. performance rights organizations, ASCAP, BMI and SESAC.
Looking at music publishing by licensing, performance fell 13.7% to $183 million from $212 million; while digital grew 14.3% to $271 million from $237 million; mechanical fell 27.8% to $55 million from $72 million; while both synchronization and other grew slightly to $120 million and $14 million, respectively from $119 million and $13 million.
Looking ahead, Cooper said that the red hot Atlantic Records remains on track to continue its hold as the No. 1 record label in the world. He said the label had once again shown its ability to discover and develop talent, pointing to the success of Lizzo. He also noted a revitalized Warner Records, under new leadership, that continues to further the careers of established acts like Dua Lipa and Gary Clark Jr., while breaking new acts like Ali Gatie and Saweetie.
He also noted that the company’s strategy of relaunching Elektra Music as a standalone company in the U.S. had produced hits from Tones & I, The Highwomen and Twenty One Pilots; while noting overseas Parlophone, under new leadershiop, had seen U.K. success with Coldplay and Stereophonics.
Also outside the U.S., Cooper said the company had established a new affiliate in Peru, launched an urban imprint at Warner Music Japan, acquired Finnish hip-hop label Monsp and Slovakian Music Publishing company, Forza.
Another acquisition noted during the conference call was buying musical theatre label First Night; while also highlighting "creative partnerships" with such brands as Sesame Street and deals with indies labels like R&R Records, Producer Entertainment Group, Q&A and Chocolate City.
For the holiday selling season, he said the company has new music from Coldplay, Blake Shelton, Stormzy, Carlie Hanson, James Blunt, Tones & I and Ali Gatie.
"As we look to the future, we've had a busy and productive year positioning ourselves for growth in 2020 and beyond," Cooper said during the conference call. "We continue to invest in a consistent flow of great new music. This great music, in conjunction with the expansion of our global reach and local expertise, has allowed us to grow our year-over-year revenue consistently for each of the past 7 years."
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