Warner Music Group continues to post revenue growth and black ink, posting $143 million in net income on revenues of $917 million in the quarter ended June 30, 2017. Contrast that figure to a $7 million loss on revenues of $811 million in the corresponding earlier quarter in 2016.
The company’s revenue growth represented an increase of 13.1 percent, but in constant currency that amounted to a 15.5 percent growth. While WMG’s net income was way up, that was due to a tax benefit of $152 million. Otherwise, the company would have posted a $9 million loss for the quarter.
For the quarter, the company posted $115 million in operating income before interest, taxes, depreciation and amortization, or OIBDA, which was down slightly from the prior quarter’s $120 million in OIBDA in the prior corresponding quarter. But after adjustments of $6 million for non-recurring expense in this quarter and $9 million in the prior quarter, OIBDA totaled $121 million in the just completed quarter, versus $111 million in the prior year earlier period.
Meanwhile, operating income totaled $51 million, up 13.3 percent from the $45 million recorded in the year earlier quarter, and after adjustments operating income in the most recent quarter was $47 million.
"Our momentum continues with our eighth consecutive quarter of revenue growth -- the last seven of which were up double digits," WMG's CEO Steve Cooper said in a statement. "Our artists and songwriters are creating great music and our team is outperforming in a growing industry."
According to the company, top sellers included Ed Sheeran's Divide, with 1.9 million album consumption units; Bruno Mars' 24K Magic, with 1.25 million units; Gorillaz's Humanz, with 297,000 units in the U.S.
Within revenue, recorded music grew 13.2 percent to $770 million, up from $680 million in the corresponding earlier period; while publishing grew 11.4 percent to $150 million from $134 million.
The recorded music division produced adjusted OIBDA of $125 million for the quarter, up 13.6 percent from the $110 million in the year-earlier period; while adjusted operating income was up 49.1 percent to $82 million from $55 million in the prior time period.
Breaking out recorded music, downloads fell 27.3 percent to $88 million from $121 million, while streaming grew 58.6 percent to $360 million, up from $227 million. Physical declined slightly by 8.4 percent to $163 million from $178 million artist services and expanded rights was up slightly to $93 million from $92 million, while licensing and other revenues also grew slightly to $66 million from $62 million.
As a percentage of revenue, streaming accounted for 46.8 percent, physical 21.2 percent, downloads 11.4 percent, artist services and expanded rights 12.1 percent, and licensing and other for 8.6 percent. Last year, those percentages were 33.4 percent for digital, 26.2 percent for physical, 17.8 percent for downloads, 13.5 percent for artist services and expanded rights, and 9.1 percent for licensing and other.
For the quarter, publishing grew 11.9 percent to $150 million, up from $134 million in the third fiscal quarter of 2016. On that revenue, Warner/Chappell produced $23 million in OIBDA, the same as the prior year while after depreciation and amortization, operating income was $6 million, again the same as the corresponding period in the prior year.
Within publishing revenue, performance revenue was up slightly to $52 million from $51 million, while digital grew 47.1 percent to $50 million from $34 million. Mechanical was down slightly to $18 million from $19 million, while synch and other incomes streams stood at $27 million and $3 million, respectively, for both quarters.
Breaking out revenue another way, the U.S. generated $407 million, while international accounted for $513 million, minus $3 million in intersegment revenues.
Looking at the nine-month period, the company posted $187 million in net income on revenue that grew 10.6 percent to $2.66 billion from the $2.4 billion in the first three fiscal quarters in 2016 when net income was $33 million. Without the income tax benefit, net income would have grown $45 million, or up 33 percent.
OIBDA totaled $413 million, up 7.6 percent from $384 million while operating income totaled $237 million, up 56 percent from $152 million.
Breaking out revenue by operation, recorded music accounted for $2.25 billion while publishing generated $419 million. Or breaking out revenue by territory, the U.S. accounted for $1.184 billion, while international tallied $1.488 million; minus inter-segment revenues of $13 million.
Moving over to recorded music, revenue grew 10.5 percent to $2.25 billion from $2.04 billion in the prior quarter of 2016. After subtracting A&R, product and selling general and administration costs, the company produced operating income before interest, taxes, depreciation and amortization of $397 million, a 9.1 percent increase over the $364 million produced in the first nine months of the prior fiscal year. Within that artist and repertoire costs were up 16.6 percent to $710 million from $609 million in the prior period. After subtracting out depreciation and amortization, the recorded music group produced $269 million in operating income, up 34.5 percent from the $200 million in operating income generated in the corresponding earlier period.
Breaking out revenue by format streaming grew 43.1 percent to $971 million from $646 million in the prior period; while downloads fell 20.7 percent to $279 million fro $352 million; physical fell 7.8 percent to $532 million from $577 million; artist services and expanded rites grew 3.9 percent to $264 million from $254 million; and licensing and other fell 1 percent to $207 million from $209 million.
As a percentage of revenue, streaming accounted for 43.1 percent, as opposed 31.7 percent in the prior period; physical was 23.6 percent, down from 28.3 percent; downloads was 12.4 percent, down from 17.3 percent; artist services and rights fell to 11.7 percent from 12.5 percent of revenue; and licensing and others fell to 9.2 percent from 10.3 percent.
Breaking out recorded revenue by territory, the U.S. produced $991 million while international garnered $1.262 billion.
Moving over to Warner/Chappell Music, revenue grew to $419 million up 11.1 percent from $377 million. Of those totals, the company generated $97 million in OIBDA, up 18.3 percent from $82 million in the prior period; while after depreciation and amortization, operating income was $45 million, up 50 percent from the $30 million produced in the year earlier corresponding period.
Within publishing revenue, performance licensing was $139 million, up slightly from $138 million in the prior quarter in the year earlier period; digital totaled $136 million, up 44.7 percent from $94 million; while mechanical fell to $51 million, a drop of 8.9 percent from $56 million; synch was up slightly to $85 million from $82 million; and other revenue up slightly to $8 million from $7 million.
As a percentage of revenue, in the current quarter performance was 33.2 percent; digital was 32.5 percent; mechanical was 12.2 percent; synch was 20.3 percent; and other was 1.9 percent. That compares with the breakout of revenue in the corresponding quarter in the year earlier period when performance was 36.6 percent; digital was 24.9 percent; mechanical was 14.9 percent; synch, 21.8 percent and other 1.9 percent.
Looking at music publishing by territory, the U.S. accounted for $193 million, up 17.7 percent from the $164 million it had in the first nine-months of the prior fiscal year; while international grew 6.1 percent to $226 million from $213 million.
Finally, looking at debt, the company carried $2.8 billion, with interest payments so far this year totaling $112 million. In order to comply with financial covenants, the company calculated that its pro-forma earnings before interest, taxes, depreciation and amortization for the 12-month running, ended June 30, 2017 at $611 million. Thanks to the company's performance , shareholder equity improved to $325 million from $210 million at the end of the last fiscal year.
Reflecting on the upward growth trend enjoyed by the company over the last two years, Cooper told Wall Street analysts during a conference call this morning, "We think this growth is sustainable. We think we are still in the early ages of the industry’s recovery with revenue only at half of what it was" back at the peak at the turn of the century.
Furthermore, he pointed out that throughout history, music has been universally embraced by everybody on the planet. "Technology is making music more available than at anytime in history," he said. "Consumption is exploding."
This article has been updated.