Warner Music Group reported Thursday morning its revenue grew 2.4 percent to $849 million in the first fiscal quarter ending December 1. Operating income rose nearly tripled to $62 million. Net income was $27 million versus a net loss of $42 million a year earlier.
As has been the case with other earnings results recently, the strong dollar merits the examination of year-to-year operating numbers in local currencies. When foreign currency losses (and a small loss related to financial instruments) are taken into account, quarterly revenue grew 11.1 percent.
Warner appears to be successfully managing the market’s transition from downloads to streaming. CEO Stephen Cooper said during the earnings call subscription revenue “is a major driver of our growth and streaming revenue remains on a trajectory to become our largest revenue source.” Digital revenue across the company grew 18.0 percent, or 25.2 percent at constant currency, and accounted for 41.0 percent of total revenue, up from 35.6 percent a year earlier. U.S. digital revenue accounted for 57.7 percent of recorded music revenue.
The recorded music division was responsible for most of the gains in the quarter. Prior to intersegment eliminations, recorded music revenue grew $23 million and operating income improved $146 million. Physical revenue continued its decline, falling 15 percent, or $45 million, to $248 million. But digital revenue more than made up the difference, rising 18 percent, or $50 million, to $322 million. (At constant currency, digital revenue grew 25 percent.) Warner attributed the gains to strong releases, streaming gains and the recognition of $24 million of the $33 million it received from the SiriusXM Radio settlement over the performance of pre-1972 recordings. Artist services and licensing revenue improved 9 percent and 15 percent, respectively.
The publishing segment’s revenue dropped a slight $3 million but increased 4 percent at constant currency. Again at constant currency, small gains in digital and performance revenue overcame smaller losses in mechanical and revenue in the “other” category. Warner partially attributed the $13 million decline in publishing revenue to expenses related to its settlement in the high-profile lawsuit over the copyright to “Happy Birthday.”