Warner Music’s Revenue and Future of the Industry


“There are tens of thousands of tracks uploaded daily to streaming services around the world,” Cooper said. Labels like Warner help artists “separate music and career from noise.”

On Warner’s finances, looking at earnings over the past 12 months, excluding the quarterly impact, Warner improved 13.2%. Physical sales returned to normal, dropping from $ 51 million in the pandemic quarter of the previous year to $ 130 million. According to MRC data, this quarter included Record Store Day on June 12, recording a week of record sales in the United States (next quarter revenue was the second highest on July 22). Take advantage of Record Store Day). Streaming revenue growth was close to Universal Music Group’s 23.8% improvement, with 22.5% recorded music being sufficient, but well below Sony’s 60.3% streaming gain Music (recorded music and editing). Total revenue grew 54% (but factor in Sony’s year-over-year weakness).

Warner Music’s stock price rose 1% to $ 37.35 on Tuesday, but fell 2.7% to $ 36.36 on Wednesday, bringing its enterprise value to $ 22.3 billion.

The five important points from the data and the discussion are:

ARPU and Saga subscription price

Streaming fidelity has been the most controversial topic in the music world over the past two decades, with the exception of Apple’s separation of album formats. As a result, Spotify’s decision to grant small price increases to customers in 42 markets was hit with modest applause and financial interest from rights holders and creators. Specifically, Spotify argued that the price increase did not have a noticeable negative impact on customer attrition.

“We have no reason to believe this is completely true,” Levin said.

In fact, Warner has the same conversation with Spotify’s competitors.

“We’ve argued for years that there is an opportunity for real price increases,” Levin said, adding another subscription service to consider “similar steps for the platform.” Very encouraging. “

That’s better news for Warner Music’s revenue-adjusted OIBDA, which is up 52% ​​quarterly and 30% in the past nine months. The adjusted OIBDA margin improved from 19.4% to 22% quarterly and from 20.9% to 22.9% in nine months. Cooper has focused on improving margins for a combination of growth and cost containment, as well as lower margins for low-margin products and concert promotion revenue. This trend is reversed when the tour resumes. However, if the average revenue per user (ARPU) weakens and streaming reaches 58% of total revenue and increases, then it is important to increase subscription prices.

Real money from new digital platforms

Warner receives $ 235 million per year in recorded music usage from development sources such as social platforms such as Facebook and TikTok. Roblox and other games. And fitness platforms like Peloton. This was a huge jump from the annual execution rate of $ 200 million the company revealed just three months ago.

It’s hard to predict which social platforms will be a significant source of loyalty, but it’s safe to assume that social media will play an influential role in the future. Facebook and TikTok are such big platforms that labels and publishers can expect them to be the main payers. Warner Music doesn’t say how much publishers will receive from these developing sources, but Levin said the relationship between publishing royalties and royalties on recorded music is common in music streaming. He said he would follow a ratio of one to five.

Surviving the M&A Arms Race

In the 1970s and 1980s, spending on military technology during the Cold War contributed to the collapse of the Soviet Union. In 2021, music companies will of course feel the need to spend more on their music rights and other assets. But every quarter, Warner Music executives say they won’t be involved in an arms race.

That’s not to say Warner isn’t spending money. On Tuesday, Levin said Warner has invested $ 338 million in recorded music and publishing assets, with an OIBDA run rate of $ 37 million. (In October 2020, a $ 250 million bond sale was announced to fund two private acquisitions.) And Warner, among other tech companies, Roblox, Wave. , invested in Dapper Labs. However, Cooper reiterated that he had become an asset manager and was indifferent to interest rate arbitrage. Instead, Warner supports the traditional approach of being a “proactive music entertainment company” that signs and develops artists and songwriters.

Besides music rights, Warner, as Cooper said, is supportive of investing in technology and investing to “make it available in the future”, both internally and externally. Warner intends to invest in the business and pay dividends, rather than paying off debt, even as the debt-to-EBITDA ratio declines, Cooper said.

Is there a virtual artist here?

Which song best represents a new kind of computer-generated artist? “Nothing Real” by Marvin Gaye and Tammi Terrell or “More Human Than Human” by White Zombie (a reference to the real android from the movie “Blade Runner”)?

We might find it sooner than you think, because majors are one of the investors who give virtual artists the chance to succeed in mainstream audiences. Warner Music Bet is Spirit Bomb, a real label with a roster of virtual artists recorded by real musicians. Cooper called the virtual artist “not an illogical next step” and Warner said, “I am determined to bring these virtual creatures into the world of music.”

Some precedents suggest that virtual artists find welcoming fans, but they are prehistoric. Created by British group Blur’s Damon Albarn and designer Jamie Hewlett, Gorillaz has sold 24 million albums worldwide and 7.3 million albums (on tracks), according to his label Parlophone. (including equivalents) and 3.5 billion on-demand streams according to UK MRC data. And Crazy Frog, a CGI character created in 2003, topped the charts across Europe with “Axel F” (only reached number 50 on the Billboard Hot 100). However, these examples have little in common with the high-resolution animations and music of today’s virtual artists created by artificial intelligence. Now people are living comfortably in the virtual world. Expect other labels to invest in this area as well.

Can the big labels remain relevant?

Investors and analysts must be wondering how Warner (or other big music companies) can attract and retain artists as they have more options to maintain their independence. From funding to digital marketing, a large infrastructure provides artists with the basic functionality of a record label. Can these artists remain independent rather than contracting with a major? Absolutely, and anyone who models a company’s valuation and stock price should take this dynamic into account.

With Vivendi immediately separating from Universal Music Group, more and more people are biting and producing models for major labels. During the call for earnings, Cooper had the opportunity to protect the value of the major label for artists.

“When I saw the established and formidable global superstars, they all had the opportunity to step away from the label, take advantage of the digital tools available and solo. They rotate away from the label. I decided. “

This may be true, but investors and analysts must consider that new tools and services will help give artists ownership of intellectual property, career freedom and agency. Some artists choose it over the world powers.

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