Warner Music Revenue Takes a Hit in Pandemic-Impacted Quarter as Streaming Sees 9% Growth

Dua Lipa
Hugo Comte

Dua Lipa

Warner Music Group posted a $74 million net loss on revenues of $1.071 billion for the three-month period ended March 31, versus a net income of $67 million on $1.09 billion in corresponding year-earlier quarter. That represents a net income decline of $141 million and a 1.7% drop in revenue.

The company attributed the less than stellar comparative results to a preceding strong second quarter in 2019, which was boosted by a surge in revenue from a settlement with SiriusXM; as well as in the just-completed quarter, a $19 million impact of the COVID-19 pandemic in foreign territories where the virus spread earlier than the U.S. and a lighter release schedule.

Also in the recent quarter, net income was impacted by a $169 million charge due to its management variable incentive income plan, versus $5 million in the year-earlier period; and by $4 million in expenses related to the now-delayed planned initial public offering.

All of those moves helped reduce operating income before depreciation and amortization to $12 million for the company’s fiscal second quarter, versus $191 million in the year earlier period. When depreciation and amortization are subtracted, that leaves an operating loss of $49 million versus operating income of $122 million for 2019’s first three month.

On the other hand, the company touted the growth of recorded music streaming revenue, which jumped 9.1% (11% in constant currency) to $586 million during the second quarter, from the $537 million in the year-earlier corresponding period. WMG’s streaming success was aided by new releases from Dua Lipa, along with carryover hits from Ed Sheehan, Roddy Ricch and Tones and I.

"We had a tough comparison with an especially strong Q2 in 2019, so I'm pleased that we've matched our excellent performance in the prior-year quarter, due in large part to an 11% increase [in constant currency] in Recorded Music streaming revenue and a 17% increase in Music Publishing digital revenue," WMG CEO Steve Cooper said in a statement. "That's a tremendous achievement, especially coming on the heels of Q1, when we achieved the highest quarterly revenue in our sixteen-year history as a standalone company."

Cooper added, "In these unprecedented times, we're determined to protect the livelihoods of our artists, our songwriters and our people. We're confident that our distinctive combination of creative innovation and financial discipline will help us weather this storm and emerge stronger, better and more agile than ever."

Within total revenue, the recorded music operations generated $907 million in revenue in its fiscal second quarter, a 2.8% decrease from 2019's second quarter when revenue totaled $933 million, due to being buttressed by the Sirius settlement.

Second quarter 2020 revenue was also impacted by declining revenue from physical formats and artists services and expanded rights, and by a lighter release schedule, some pandemic related business disruptions and unfavorable foreign exchange rates.

Meanwhile publishing produced $166 million in revenue, a 5.1% increase over the $158 million that division garnered in 2019's fiscal quarter.

For the six month period ending March 31, 2020, the company remains profitable — although again off the performance of the prior year. In the first half of the year, the company generated net income of $46 million on revenues of $2.327 billion, versus the prior year when net income was $153 million on revenues of $2.293 billion.

That represents a 70% drop in net income while revenue rose 1.5% in the half year just completed versus the six months in 2019.

For the period, the company produced operating income before depreciation and amortization of $248 million, versus $406 million in the first six months of fiscal 2019. That means OIBDA margin -- or as a percentage of revenue -- fell to 10.7% in the first half of 2020 from 17.7% in the first half of 2019. When depreciation and amortization are subtracted, that leaves an operating income of $116 million versus operating income of $269 million for 2019’s first six month.

For the six month period, recorded music produced revenue of $1.991 billion, a 0.9% increase over the $1.974 billion garnered in the first half of WMG's fiscal 2019; while publishing revenue totaled $339 million, versus $323 million, or a 5% increase.

Within recorded music, streaming totaled $1.175 billion for the six-month period -- a 13.1% increase from the $1.04 billion tallied in the first half of fiscal 2019. But downloads fell 30.6% to $84 million from $121 million, while physical fell 30.6% to $278 million from $361 million.

Artist services and expanded rights were up slightly to $303 million from $300 million in the first six months of 2019, while licensing and other activities were down slightly to $151 million from $153 million.

As a percentage of revenue, streaming comprised 59% while downloads were 4.2%. That means digital accounts for 63.2% of recorded music revenue; physical produced 13.9%% of revenue; artists services and expanded rights tallied 15.2% of revenue; while licensing and other scored the remainder 7.7%.

Looking at publishing, performance revenue fell 12.1% to $87 million from $99 million, but digital rose 13.1% to $147 million from $130 million and synch jumped 16.7% to $70 million from $60 million, with other revenue falling $1 million to $5 million. As a percentage of revenue, that breaks out to performance royalties accounting for 25.7% of revenue; digital for 43.4%; synch for 20.6%; mechanical for 8.8%; and other 1.5%.

In moving over to the balance sheet, the company reported long term debt from bonds of $2.983 billion but with $484 million in cash on hand; that leaves net debt at $2.499 billion. Moreover, the company reported that it had expanded its revolving credit facility to $300 million from $180 million through an amended agreement.

During a conference call with Wall Street analysts, WMG executive vp/CFO Eric Levin said in the last five years the company has never drawn down any funds from the revolver but added that the increase in liquidity gives comfort during these uncertain times. He also noted that the expansion of the facility represents a show of confidence in the company by the financial sector.

"For the rest of the fiscal year, we’re focused on delivering robust results and managing our costs carefully," Levin said in a statement. "Our cash position is robust, and our goal now is to come out the other side of the COVID-19 pandemic stronger than ever."

Due to the now-apparently delayed stock offering, the company is still in a quiet period and didn’t take any questions during its conference call as it usually does after the prepared remarks.

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