KYNCL IN CHARGE: WMG CEO TALKS SHOP WITH INVESTORS

Warner Music Group’s new CEO, Robert Kyncl, used his first earnings call with analysts and investors to spell out the reasons behind his move into the music business, his broad plan for WMG and the role technology will play under his leadership.

“Music’s global appeal is matched by its ubiquity,” he said, explaining his leap into the music biz. “As successful as music has become, there’s still meaningful upside ahead for three reasons. One, as technology opens up emerging economies, the industry’s addressable market will continue to expand even further. Two, innovation is constantly creating new use cases for music, giving us the opportunity to diversify our revenue sources. Three, music is still undervalued, especially when compared to other forms of entertainment, like video.”

He compared video subscriptions to music services, noting that almost 80% of U.S. households subscribe to at least three streaming-video services while most have only one music-service subscription. And while video services have nearly doubled in price over the last decade, music-subscription prices have largely stayed the same. “Against this backdrop, it’s encouraging that we’re seeing first steps in the right direction by Apple, Deezer and Amazon,” he said.

As to “why WMG?,” Kyncl noted that the company is “big enough to drive meaningful change in the industry but small enough to have plenty of room for growth.” He spoke of WMG’s “well-timed moves” in China and the Middle East and singled out a broad range of stars, from Lizzo to John Coltrane, driving WMG’s success.

In his first five weeks, he made "two significant appointments"—Tim Matusch as EVP of Strategy and Operations and Ariel Bardin as president of Technology—"both of which tell you something about our priorities going forward.”

The new WMG topper also discussed the “tough quarter” that closed out calendar 2022.

Music Publishing and Recorded Music streaming revenue were the bright spots. Recorded Music streaming revenue was up 4.8% in constant currency despite an additional week in the prior-year quarter, which affected the results for the three-month period that ended 12/31.

After removing the extra week, WMG revenue grew 2%—to $1.49b—and streaming was up 5%. Exchange rates on the company’s Euro-denominated debt and a lighter release schedule also had an effect on the results.

Recorded Music operating income was up 3% to $283m. Operating margin was up 2.9 percentage points to 22.8%.

Music Publishing revenue increased 14.2% in constant currency to $250m. The increase was driven by growth in digital and performance revenue. Digital revenue increased 15.5% in constant currency to $149m, with streaming revenue up 13.2%, a reflection of the timing of new digital deals and the growth in streaming.

“Our results reflect our resilience and operational discipline in the face of macroeconomic headwinds, as well as the impact of the extra week in the prior-year quarter,” WMG CFO Eric Levin said, noting that ad-supported streaming is decelerating and the decline is getting more pronounced. “Our continued focus on efficiency enabled us to deliver strong operating and free cash flow growth even as certain revenue lines came under pressure. We are enthusiastic about our release schedule for the second half of the fiscal year," which includes new music from, among others, Ed Sheeran, Cardi B, David Guetta, Aya Nakamura and Bebe Rexha.