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A FIRST FOR WMG: $1B IN A QUARTER

Warner Music Group’s Recorded Music revenue hit $1b for the quarter that ended 12/31, a first for the Max Lousada-run division.

WMG’s revenue for the first quarter of fiscal 2019 topped $1.2b of which Recorded Music represented $1.04b, a 15% increase over fiscal 2018. Nearly half the spike in profits owed to the acquisition of EMP, which brought in $76m.

Digital revenue was up 17% to $563m of which $502m was from streaming, up $98m (20%) from the previous quarter.  Music Publishing revenue was up 15% to $165m.

“Our first-quarter results are evidence that our long-term strategy is paying off,” said Eric Levin, Warner Music Group’s Executive Vice President and CFO. 

The company has adopted new accounting measures that Levin said could reflect some “lumpiness” in the coming year. The dominant impact will be in Music Publishing moving to an accrual basis from a from cash basis, which will result in revenue rising in the first and third quarters and dropping in the second and fourth.

During a conference call, CEO Steve Cooper and Levin touted the rebirth of Warner Bros. Records, ADA’s success with Eric Clapton and Anderson .Paak, and the changing of the guard at Warner/Chappell under Carianne Marshall and, come spring, Guy Moot, plus recent signings such as Matthew Ramsey.

While Cooper and Levin gave broad answers to potential M&A activity in the coming year, Cooper did directly say WMG would continue to be “committed to enhancing” the value offered by streaming services by “reversing the trend” of lower Returns Per User. He also gave a big sky projection of labels vs. streaming services.

“As these streaming services evolve, we should expect to see that they will utilize sources of music outside of the majors in hopes of lowering their margins,” Cooper said. “It’s also likely they will continue to look to direct sign artists—you can imagine them taking another step or two. It’s important to remember they are not organized to create value for artists, not organized to create an artist’s career.

“Our A&R, marketing and promotion [spending] is a meaningful, high nine- or low 10-figure number. We do that not to promote the track—we do that to build careers. I would expect that we’ll see snipping around the fringes and we’ll continue to see streaming services try to move to lower margin products. Most importantly, our focus is on artists and their music and not distribution and other products like podcasts and TV shows. I think we can continue to compete effectively in the environment long term, regardless of the left and right terms the streaming services chose to make.”

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