Thursday, May 7, 2020

Warner streaming revenues hit $586m in calendar Q1, but COVID-19 hurt overall performance | Music Business Worldwide

A number of clever people have already hypothesized over whether the COVID-19 pandemic will accelerate the transition of consumers from buying physical media to committing more readily to streaming platforms.

There was no conclusive evidence of that trend in Warner Music Group’s calendar Q1 (fiscal Q2) 2020 numbers, issued today (May 7) – but there was plenty of food for thought.

WMG’s recorded music revenues in the three months to end of March were down 2.8% year-on-year, or down 1.5% at constant currency, to $907m.

Streaming revenues grew 11% YoY to $586m, up by $49m on the equivalent figure from Q1 2019 ($537m).

This streaming growth, though, was not enough to offset revenue declines in other key areas of Warner’s recorded music business.

WMG said the dip in its recorded music revenues was “primarily due a lighter release schedule, some COVID-related business disruption and foreign exchange rates in the current quarter and the one-time impact of a digital streaming license in the prior-year quarter”.

The biggest impact on WMG’s quarter came in terms of physical music sales, which fell by 27.7% – or by $36m – to $94m.

Warner’s biggest recorded music artists in calendar Q1 2020 leaned towards a streaming audience: Roddy Ricch (pictured), Tones And I, Lizzo and Ed Sheeran.

In the prior-year quarter, Warner’s biggest sellers included the likes of The Greatest Showman OST.

This, combined with the closure of physical music retail outlets throughout the world in Q1 due to COVID-19 lockdown, appears to have hurt Warner’s CD and vinyl revenues.

Other areas of decline for Warner in calendar Q1 were downloads/other digital (down by a third, or $20m YoY), and ‘Artist Services And Expanded Rights’.

The latter category includes WMG’s income from live events, ticketing and merch – much of which will also have been wiped out in recent weeks due to Coronavirus-related measures.

‘Artist Services And Expanded Rights’ revenue at Warner was down 14.2% YoY, or by $19m, to $115m in calendar Q1.

In more positive news for WMG, the firm’s recorded music revenues from licensing (including sync and public performance) – which has also been damaged industry-wide by COVID – was flat at $72m.

Warner Music Group’s overall revenues – including recorded music, publishing and other activities – were down 1.7% YoY, but flat at constant currency, in calendar Q1.

The company’s total revenue haul stood at $1.07bn, compared to $1.09bn in the prior year quarter.

WMG posted a company-wide operating loss in calendar Q1 (fiscal Q2) of $49m, compared to an operating income of $122m in calendar Q1 2019.

The firm’s preferred profit metric, OIBDA, stood at $12m in calendar Q1 2020, down from $191m in the prior-year quarter. 

Warner said that these profit decreases were “primarily the result of higher variable compensation expense of $164 million related to [WMG’s] long-term incentive plan, as well as the margin impact of COVID-related business disruption and one-time non-cash charges of $13 million, partially offset by revenue mix”.

Music Publishing revenue at Warner Music Group (i.e. at Warner/Chappell) grew in calendar Q1, up 5.1% (or 7.8% in constant currency) year-on-year.

Warner/Chappell’s performance income fell by $5m YoY, but this was offset by gains in digital, mechanical and sync revenues.

Steve Cooper, Warner Music Group CEO, said: “We had a tough comparison with an especially strong Q2 in 2019, so I’m pleased that we’ve matched our excellent performance in the prior-year quarter, due in large part to an 11% increase in Recorded Music streaming revenue and a 17% increase in Music Publishing digital revenue.

“That’s a tremendous achievement, especially coming on the heels of Q1 [calendar Q4 2019], when we achieved the highest quarterly revenue in our sixteen-year history as a standalone company.

“In these unprecedented times, we’re determined to protect the livelihoods of our artists, our songwriters and our people. We’re confident that our distinctive combination of creative innovation and financial discipline will help us weather this storm and emerge stronger, better and more agile than ever.”

Eric Levin, Warner Music Group’s Executive Vice President and CFO, added: “For the rest of the fiscal year, we’re focused on delivering robust results and managing our costs carefully.

“Our cash position is robust, and our goal now is to come out the other side of the COVID-19 pandemic stronger than ever.” 

As of March 31, 2020, WMG reported a cash balance of $484m, alongside total debt of $2.983bn and net debt – defined as total long-term debt, net of deferred financing costs, minus cash and equivalents – of $2.499bn. 

In March 2020, Warner  declared a regular cash dividend of $37.5m which was paid to stockholders (i.e. WMG owner Access Industries) on April 17, 2020.Music Business Worldwide


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