Warner Music Group's Losses Shrink, Revenue Up 14 Percent

Courtesy Warner Music Group
Steve Cooper 

“Five years after Access Industries’ acquisition of Warner Music Group, the company is growing revenue, OIBDA and market share,” Stephen Cooper, Warner Music Group’s CEO says of the company's third quarter earnings report, released this morning. “Our results underscore this momentum, driven by exceptional music from our artists and songwriters, our expanded global reach and strong leadership from our team around the world. With our recorded music streaming revenue now approaching double the size of our download revenue, and still growing fast, we are on course for another excellent year.”  

During a conference call with Wall Street, Cooper added that the revenue results during the quarter represented "our largest third-quarter revenue since Access' ownership began."

The company posted a $9 million loss on revenues of $811 million for the quarter ended June 30, a vast improvement over the $44 million loss it reported in the corresponding quarter last year, when revenues totaled $710 million. This represents a 14 percent growth in revenue, which it attributed to increases in digital and physical revenue, artist services and expanded rights. 

Operating income before depreciation and amortization, interest and taxes (OIBDA) totaled $120 million, a 20 percent increase over the $100 million the company produced in the quarter ended June 30, 2015. 

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Warner Music's recorded music arm accounted for $680 million, 83 percent of total revenues, with digital making up 51.2 percent, $348 million of the total. Record label operations posted $64 million in OIBDA, up 48.8 percent from the $43 million it recorded in the corresponding year-earlier period. Major sellers over the quarter included Renaud, Twenty One Pilots, Red Hot Chili Peppers and Coldplay

Digital recorded revenues grew 21.3 percent and made up 47 percent of overall revenue. While Warner doesn’t break out download and streaming numbers, Billboard estimates that streaming totaled roughly $230 million and downloads produced about $115 million during the quarter.

"Since Q3 2011, we've grown our recorded music revenue at a CAGR [compound annual growth rate] of 5 percent, and our OIBDA at a CAGR of 9 percent," Cooper told analysts this morning. "Meanwhile, for calendar year 2011 through 2015, the recorded music industry stayed relatively flat at a CAGR of 0.1 percent a very positive [sign] that we have been outpacing the industry."

Warner has made a habit out of speculative tech investments (like MQA) and unique partnerships in search of new revenue streams. Cooper says the company continues to experiment with video, licensing its music for the lip synch app Musical.ly, and striking a deal with Vevo, signed this week after years and back and forth.

"We're also exploring new digital experiences such as Virtual and Augmented Reality, having recently signed a deal with effects company Digital Domain to create concert packages for fans in Greater China" he added.

Moreover, he pointed to Nielsen Music market share data that shows Warner Music Group has grown its U.S. market share to 21.86 percent, up from 19.11 percent. That growth is "more than any other major," Cooper said during the conference call. "Other countries show a similar story including the UK, where we've moved up to the No. 2 spot in artist album share, and Germany, where our year-to-date album market share is at an all-time high." 

Music publishing revenue grew to $134 million, up from $123 million, a nearly 9 percent increase. By segment, that breaks down as such: performance licensing, $138 million (36.6 percent); digital, $94 million (24.9 percent); mechanical, $56 million (14.9 percent); synchs, $82 million (21.8 percent); and other, $7 million (1.9 percent).

Through this year, ending June 30, WMG posted net income of $29 million on revenue of $2.405 billion, an improvement on the $68 million loss it reported in the first three quarters of 2015. Outside the U.S., recorded music generated $1.21 billion and publishing $213 million (after inter-segment business is eliminated). The company pointed out that revenue grew in the U.S. Europe, Asia and Latin America.

"Our third-quarter results were strong across the globe, in both established and emerging markets, but we saw especially bright spots in emerging territories such as Russia and Latin America, where our operators grew revenue by 40 percent," Cooper added during the conference call.

Warner Music Group Revenue Up Big, Streaming Hits Milestone

Total debt came in a $2.91 billion, thought the company reported a cash balance of $345 million. Shareholder equity stood at $232 million at the end of the quarter.

On July 1, the company redeemed $100 million of its 13.75 percent notes, using cash. With that redemption, “we have continued to make strides optimizing our capital structure, paying down $175 million in debt so far this year and successfully refinancing a portion of our term loan,” WMG CFO Eric Levin said in a statement.