Warner Music Group‘s earnings name on Tuesday (November 22) ended on an upbeat be aware – and it’s straightforward to see why.
WMG posted revenues of $1.5 billion for the three months to finish of September (up 16% YoY at fixed foreign money), with adjusted EBITDA additionally up by 16% YoY.
Consequently, WMG’s share value flew upward by 15% yesterday, as Financial institution Of America upgraded the agency’s inventory.
Fittingly, this glowing quarterly earnings announcement was the final in Steve Cooper‘s 11-year tenure as Chief Government of WMG; Cooper will likely be succeeded within the position within the New Yr by YouTube‘s Chief Enterprise Officer, Robert Kyncyl.
Cooper spoke extremely of Kyncl on WMG’s earnings name on Tuesday, calling him “a pioneer of the creator economic system, whose command of expertise will allow us to unlock new alternatives for our firm, our artists, and our songwriters”.
Added Cooper of his 11-year run as Warner CEO: “It’s actually been simply an unlimited quantity of enjoyable, extremely attention-grabbing, and one of many biggest experiences of my working life.
“I’m actually honored to have been a small a part of the unimaginable Warner Music Group journey.”
“I’m actually honoured to have been a small a part of the unimaginable Warner Music Group journey.”
Steve Cooper, WMG
Cooper’s valedictory remarks weren’t the one attention-grabbing revelations from Warner’s calendar Q3 (fiscal This autumn) earnings name.
There have been, naturally, the uncooked numbers to chew over: WMG’s recorded music revenues had been up 13.1% YoY at fixed foreign money within the quarter, with recorded music streaming revenues up 4.7% YoY; music publishing revenues had been up 32.3% YoY.
But maybe probably the most illuminating information to tumble out of Warner’s calendar Q3 earnings got here from Cooper himself – and WMG CFO Eric Levin – after they had been placed on the spot by analysts.
MBW has delved deep into one notably necessary information level mentioned by Cooper on the decision by way of right here.
However a handful of different issues stood out, too…
1. ‘Rising platforms’ are actually producing revenues of round $92 million 1 / 4 for WMG
You would possibly recall that in September 2021, Steve Cooper indicated that Warner Music Group was producing round $273 million yearly from these platforms (on a run-rate foundation) throughout recorded music and music publishing mixed.
A yr on, that determine has bounced up significantly – with a rise of round +$100 million a yr from then to now.
“Together with our current cope with Meta, our annualized income from [’emerging platforms’] reached $370 million this quarter.”
Steve Cooper, WMG
Cooper confirmed on Tuesday: “Together with our current cope with Meta, our annualized income from [’emerging platforms’] reached $370 million this quarter.”
That’s “annualized” as a result of Cooper is extrapolating throughout the 12 months forward. That extrapolation suggests Warner generated round $92.5 million from rising platforms within the quarter to finish of September this yr.
Cooper informed analysts on Tuesday that “the income progress curve of rising [platforms] continues to outpace extra established codecs”.
“These new platforms are all closely reliant on music,” he added. “And as engagement continues to develop, we count on monetization to comply with go well with.”
(Additionally value noting: On Warner’s earlier quarterly earnings name in August (overlaying calendar Q2 / fiscal Q3), WMG CFO Eric Levin stated that “companywide streaming income from rising platforms was… $345 million on an annualized foundation”. This determine subsequently climbed by round $25 million in calendar Q3.)
2. Warner’s streaming revenues in calendar Q3 acquired a lift from Meta
Warner Music Group’s recorded music streaming revenues have been a difficult factor to report of late, all due to a deal the corporate struck with a sure licensing companion in summer season 2021.
That deal, with an unnamed digital companion, primarily noticed Warner comply with a much less favorable fee than it used to receives a commission by stated platform.
Due to this, Warner’s recorded music streaming numbers within the 4 quarters to finish of September 2022 have a year-on-year drag-back.
Instance: In calendar Q3, WMG posted $774 million in recorded music streaming revenues, up 4.5% YoY at fixed foreign money.
But if you happen to omit the affect of this “new cope with one in every of [our] digital companions” – as Warner places it – the corporate says its recorded music streaming revenues would have climbed 10.5% YoY in calendar Q3 2022.
Warner hasn’t confirmed who this streaming companion is, however sources inform MBW that it isn’t Spotify.
“WMG’s quarterly streaming income elevated 5% [in calendar Q3], reflecting continued progress in subscription streaming and a current cope with Meta… which partially offset by the market-related slowdown in ad-supported income.”
Steve Cooper, WMG
Regardless, right here’s one thing we do know for certain: Warner’s $774 million in recorded music streaming income within the three months to September acquired a hefty financial enhance from Meta, father or mother firm of Fb.
That hefty enhance possible took the type of an advance fee from Meta together with Warner’s new licensing deal with the agency, which can see advert income on Fb shared with WMG. (Common Music Group introduced the same cope with Meta final quarter.)
Eric Levin confirmed on Tuesday that WMG’s quarterly streaming figures in calendar Q3 had been boosted by “the profit from rising streaming platform deal renewals”.
Who had been these renewals with? Steve Cooper dropped the large title.
“[WMG’s recorded music] streaming income elevated 5% [in calendar Q3],” stated Cooper, “reflecting continued progress in subscription streaming and a current cope with Meta [which] partially offset by the market-related slowdown in ad-supported income”.
3. WMG’s ad-supported streaming revenues declined by between 5% and 10% YoY in calendar Q3
This was one of many few unfavourable factors in WMG’s quarterly earnings – and it’s one for the broader music enterprise to sit down up and take note of.
We’ve identified for a while that ad-supported streaming income progress was prone to decelerate at giant music corporations within the second half of 2022, because of the macroeconomic affect of a recession on basic B2C digital advert spending.
However in calendar Q3 at Warner Music Group, that deceleration grew to become a downturn.
CFO Eric Levin revealed on Tuesday that WMG’s ad-supported streaming income within the quarter noticed “rising stress and declined by excessive single digits” (i.e between 5% and 10% YoY).
“When macro environments get troublesome, one of many first issues that we’ve seen persistently will get affected negatively is ad-supported. We noticed it when COVID hit in 2020, and we’re seeing it now.”
Eric Levin, WMG
Levin clarified that WMG didn’t “embrace income from rising streaming platforms” on this calculation. In different phrases, we’re speaking about ad-supported revenues from the likes of Spotify and YouTube’s ‘free’ tiers… however not TikTok and Meta.
(This would possibly clarify why Common Music Group was capable of put up a 5.2% YoY rise in non-subscription streaming income in calendar Q3.)
Some context: this single-digit drop in Warner’s ad-supported streaming income within the quarter passed off in the identical three months that YouTube noticed its promoting revenues slip 1.9% YoY to $7.07 billion.
Levin famous that “ad-supported has been more difficult [than subscription] within the quick time period” and acknowledged that “the ad-supported market is in decline”.
He added: “Though consumption of merchandise [has gone] up, monetization [via ads] has gone down within the quick time period. When macro environments get troublesome, one of many first issues that we’ve seen persistently will get affected negatively is ad-supported. We noticed it when COVID hit in 2020, and we’re seeing it now.”
He urged analysts to recollect, nonetheless, that “earlier than the macro surroundings was so difficult, ad-supported [revenues] would develop in line double digits fairly persistently with subscriptions”.
Added Levin: “When the macro surroundings begins to enhance and economies begin to enhance, we might count on… ad-supported [streaming revenues] to rebound strongly and return to progress.”Music Enterprise Worldwide