Warner Music Revenue Takes a Hit From COVID-19

Dua Lipa
Hugo Comte

Dua Lipa

Strong digital growth couldn't offset declines in other recorded music revenue as the company adjusted to a pandemic-altered marketplace.

UPDATE: Warner Music Group shares closed closed at $28.95 Tuesday (Aug. 4), down 3.3%.

Warner Music Group revenue took a hit from COVID-19 in the quarter ended June 30, dropping 5.7%  to $1.010 billion from Q1 and 4.5% from Q2 2019 (3.1% at constant currency), according to the August 4 earnings report. It attributed the revenue decline primarily to the pandemic but CFO Eric Levin called the quarter's results "slightly better than our expectations."

The COVID-19 pandemic hit every part of the company but some more than others. On the recorded music side, ad-supported streaming revenue "clearly was affected" by COVID while additional revenue streams such as merchandise and touring were "dramatically affected," said Levin. In publishing, the virus "clearly had a material impact" and put mechanical, synchronization and performance royalties in negative territory.

Due mainly to non-cash stock-based compensation related to its IPO on June 3, Warner posted a $519 million net loss last quarter compared to net income of $14 million a year earlier. After removing these one-time costs -- such as adjusted EBITDA includes one-time items such as restructuring costs and a loss on the extinguishment of debt -- Warner’s earnings before interest, taxes, amortization and depreciation (EBITDA) was $189 million, an improvement from $159 million in the same quarter last year.

The hit to earnings wasn't a surprise. During its IPO roadshow, Warner warned potential investors about the pending non-cash compensation hit to earnings and did not predict 2020 performance, a source told Billboard. Instead, Warner forecasted $1 billion in EBITDA in 2021. So far, Warner appears to be on pace: over the last four quarters, Warner’s adjusted EBITDA rose 6.8% from $735 million to $785 million.

Recorded music revenue in the quarter declined 5.7% from $913 million to $861 million, or 4.2% at constant currency, in spite of an 7.9% increase in digital revenue, from $584 million to $630 million. Streaming revenue of $589 million rose 9.1%, accounting for 93.5% of the quarter’s digital revenue and 68.4% of total recorded music sales. Digital revenue declined 1.2% over the prior three quarters, from $2.89 billion to $2.85 billion, even though streaming revenue grew 11.7% from $1.58 billion to $1.76 billion.

Streaming revenue was "largely unaffected by COVID," said CEO Stephen Cooper during the earnings call on Tuesday morning. Levin described streaming revenue growth as "consistently double-digit" and "quite stable," adding that he was "extremely kind of pleased" that subscription revenue continued its "strong trends" in the latest quarter.

Warner's publishing revenue grew 2.8% to $149 million in the quarter and climbed 5.6% to $488 million in the previous three quarters. Digital revenue of $90 million was 60.4% of total publishing revenue, up from 44.8% a year ago. The other three publishing categories -- performance, mechanical and synchronization -- collectively tumbled 26.3% to $59 million.

WMG shares rose as high as 1.9% to $30.51 in Tuesday morning trading and fell to $29.55, down 1.8%, at midday.