SPOTIFY STOCK SALE, STREAMING RISE DRIVE WMG Q3

Revenue at Warner Music Group grew 1.9% in constant currency during its fiscal third quarter, which ended 6/30. Revenue grew in the U.S., Asia and Latin America but declined in Europe due to a decrease in physical revenue and the impact of stronger releases in the prior-year quarter.

Digital revenue rose 14.1% in constant currency from the prior-year quarter to $576 million. Streaming accounted for $448m of that total, up 22% from $360m in Q3 2017, while downloads dropped to $71m from $88m.

WMG’s streaming tally is at $1.267 billion for the fiscal year; last year at this time, the company had yet to hit a billion dollars. Streaming now accounts for 56% of WMG’s total revenue.

The company grossed $504m from selling 100% of its Spotify shares during the quarter. Of that, $126m—or 25%—will be credited to artists on their 6/30 royalty statements, minus unrecouped balances, while Warner netted $317m from the sale.

“We’re a music company, and not, by our nature, long-term holders of publicly traded equity,” WMG CEO Steve Cooper explained. “We’re hugely optimistic about the growth of subscription streaming; we know it has only just begun to fulfill its potential for global scale. We fully expect Spotify to continue to play a major role in that growth.”

On a related subject, Cooper addressed the potential impact of Spotify offering direct licensing to artists during a conference call with investors and analysts. “My perspective is that, as the digital landscape becomes more crowded, our services are needed more than ever,” he asserted. At the end of the day, it’s a situation we’ll have to deal with over time. It won’t have a negative impact on our business.”

Operating income dropped to $67m, giving WMG an operating margin of 8.4%, a decline of 1.6%. Music publishing revenue rose 3.9% in constant currency to $159m.

“We are pleased with our revenue growth in the context of a very difficult prior-year comparison,” said EVP/CFO Eric Levin. “The health of our business is evidenced by our very strong cash generation.”

WMG announced that it would pay out $500m in dividends on 8/10, which Levin said would be the final large dividend the company pays, as it looks to create a plan to offer a regular quarterly dividend.