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 forex), with adjusted EBITDA additionally up by 16% YoY.
In consequence, WMG’s share worth 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 Govt of WMG; Cooper will likely be succeeded within the function 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 truthfully been simply an infinite quantity of enjoyable, extremely fascinating, 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 fascinating 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 forex 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 – once 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 through here.
However a handful of different issues stood out, too…
1. ‘Rising platforms’ at the moment are producing revenues of round $92 million 1 / 4 for WMG
Warner Music Group categorizes income from a bunch of social, gaming, and video streaming platforms – Facebook/Instagram, TikTok, Snapchat, and Roblox amongst them – as “different” or “rising” platforms.
You may 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 12 months on, that determine has bounced up significantly – with a rise of round +$100 million a 12 months from then to now.
“Together with our latest take care of Meta, our annualized income from [’emerging platforms’] reached $370 million this quarter.”
Steve Cooper, WMG
Cooper confirmed on Tuesday: “Together with our recent deal 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 12 months.
Cooper instructed 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 anticipate monetization to observe swimsuit.”
(Additionally value noting: On Warner’s earlier quarterly earnings name in August (protecting calendar Q2 / fiscal Q3), WMG CFO Eric Levin said that “companywide streaming income from rising platforms was… $345 million on an annualized foundation”. This determine due to this fact climbed by round $25 million in calendar Q3.)
2. Warner’s streaming revenues in calendar Q3 received a lift from Meta
Warner Music Group’s recorded music streaming revenues have been a tough factor to report of late, all due to a deal the corporate struck with a sure licensing associate in summer time 2021.
That deal, with an unnamed digital associate, basically noticed Warner conform to a much less favorable charge than it used to receives a commission by mentioned 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 forex.
But when you omit the affect of this “new take care of one among [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 associate 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 latest take care of 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 received a hefty financial enhance from Meta, dad or mum firm of Fb.
That hefty enhance doubtless took the type of an advance fee from Meta along with Warner’s new licensing deal with the agency, which is able to see advert income on Fb shared with WMG. (Universal Music Group introduced the same take care of 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 identify.
“[WMG’s recorded music] streaming income elevated 5% [in calendar Q3],” mentioned Cooper, “reflecting continued progress in subscription streaming and a latest take care of 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 detrimental 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 more likely 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 turned 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 constantly 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 may clarify why Common Music Group was able to post 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 came about 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 brief time period” and acknowledged that “the ad-supported market is in decline”.
He added: “Despite the fact that consumption of merchandise [has gone] up, monetization [via ads] has gone down within the brief time period. When macro environments get troublesome, one of many first issues that we’ve seen constantly 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, nevertheless, that “earlier than the macro setting was so difficult, ad-supported [revenues] would develop in line double digits fairly constantly with subscriptions”.
Added Levin: “When the macro setting begins to enhance and economies begin to enhance, we might anticipate… ad-supported [streaming revenues] to rebound strongly and return to progress.”Music Enterprise Worldwide