DIGITAL DRIVES WMG'S FISCAL Q3
Warner Music Group CEO Steve Cooper found silver linings in the financial results for the quarter that ended 6/30: Streaming and the power of new artists.
“Streaming revenue grew double digits and our digital transformation continues,” Cooper said. “Our commitment to new artist development is illustrated by the fact that four out of our top five best-sellers this quarter were from artists releasing debut or sophomore albums.”
Streaming revenue was up 9% to $589m in WMG’s fiscal Q3 vs. the same period in 2019. Digital revenue grew 11.1% to $720m, and represented 71.3% of total revenue, compared to 61.2% in the prior-year quarter. The top-selling artists were Dua Lipa, Roddy Ricch, Lil Uzi Vert and Tones And I.
Revenue was down 4.5% (or 3.1% in constant currency) to $1.01b. The company attributed the revenue decline to COVID-related business disruption and the unfavorable impact from foreign currency exchange rates. Recorded Music revenue was down 5.7% to $861m; Publishing was up a percentage point to $149m.
“These results are slightly better than our expectations, given the sustained effect that COVID has had on certain aspects of our business,” added Eric Levin, WMG’s Executive Vice President and CFO.
Noting how WMG is financially prudent, Cooper said, “We are not allowing COVID to screw up our brains and make us lose our wraparound, which is financial discipline.”
In the first quarterly conference call since becoming a publicly traded company, Cooper and Levin spoke at length about the company’s focus and challenges. Cooper expects all areas of the company that saw dips in the quarter will recover over time except for physical sales, the decline of which was accelerated due to COVID-19.
He predicted that artists will be able to return to audio and video studios over the next three to 12 months.
Cooper also said the coronoavirus has led to WMG “taking more risks” to connect with fans. The lack of touring, for example, “provided us an opportunity to pivot and move quickly into livestreaming and virtual concerts. We’ve been experimenting [and now are] talking meaningful steps to support artist’s loss of revenue.
“This has hastened our move into live streaming and virtual concerts and in the future our activity in those areas will expand.”
Cooper said the shutdown of live venues has also shown the importance for artists to “have a consistent engagement with their fan base with existing music and new music.”
Much of that engagement, obviously is through platforms such as Spotify and Apple Music and he is encouraged by new ventures from Facebook and Snapchat. He said it’s important for WMG to support new models in the short term.
“We’re taking the posture that we’re sharing in their success,” he says. “The expectation is that these alternative. Distribution paths and social platforms will be significant revenue contributors.”
TikTok, on the other hand, “is an app where the audience is the creators and the creators are the audience. It’s a source of discovery, new music and A&R…. In the short term, it will not have an immediate impact on revenue.”
Cooper was bullish on Spotify’s continued drive in podcasting, believing that the music and podcast audiences will both grow and overlap. WMG is not about to dive into podcasting beyond any projects its artists may be involved with; “while we are prowling around that space we haven’t found anything that has really caught our eye,” he said.
More importantly, on a global basis, is the “very robust growth” coming from emerging markets where the transition is from piracy rather than downloads or physical. “Streaming has had a meaningful reduction in piracy,” Cooper said. “The growth is converting people out of piracy into something that ultimately become premium utilization.”
