"We're going to continue to take an aggressive approach to A&R": WMG recorded music revenues hit $3 billion

The latest set of results for Warner Music Group reveals the full extent of the turnaround in the global music market in the last few years.

The major’s recorded music revenue for the full year ending September 30 hit $3.02 billion (£2.25 billion), an annual increase of 10%. Warner Music has not managed those kinds of figures since 2006 (when physical sales brought in a massive $2.5 billion) and it gives new recorded music CEO Max Lousada a strong base on which to build.

The surge in streaming meant digital revenue in recorded music increased by 24% for the year to $1.69 billion (£1.26 billion), which was partially offset by a decline in physical revenue.

Major sellers for the fourth quarter (to September 30) included Ed Sheeran, Bruno Mars, Clean Bandit, Migos and Linkin Park. Albums by Sheeran, Mars and Clean Bandit also sold strongly throughout the year, along with releases by Twenty One Pilots and the Hamilton cast album.

“We’ve now had five consecutive years of global revenue growth in constant currency, and the last two were up double digits,” said Steve Cooper, Warner Music Group’s CEO. “Our momentum reflects the tremendous talent and appeal of our artists and songwriters, and the strength of our worldwide operating team. Investing to maintain our growth will remain a priority into 2018 and beyond.”

On the earnings call today, Cooper said: “We are outperforming the industry in an environment where the music business is returning to health.” 

Streaming revenue was up 51% and now represents 44% of recorded music revenue, Cooper added.

He also noted the company’s massive $1.3 billion (£969m) investment in A&R this year - more than a third of global revenue - which partly explained a quarterly net loss of $38m (£28.3m). “We’re going to continue to take an aggressive approach to A&R,” he added. 

Noting the global music industry’s return to growth since 2015, he said the signs for the overall market in 2017 were encouraging.

“2017 is likely to see the strongest year-over-year growth in almost 20 years,” said Cooper. He singled out Warner releases from Kelly Clarkson, Sia and Liam Gallagher as making a strong start to the major’s fiscal 2018. 

He also said there was “tremendous room for growth” in streaming given that only 2% of the world’s population are paying subscribers, while admitting that the increases in streaming revenue from Europe (and particularly the Nordic countries) may begin to tail off.

“Our momentum is solid and sustainable,” added Eric Levin, Warner Music Group’s EVP and CFO. “We continue to drive revenue growth, and turn it into cash, ending the year with $647 million on the balance sheet – the highest level ever in our history of being a standalone company.”

Levin said the completion of the Warner/Parlophone divestment process had a 2% hit on WMG revenue for the year and that the future impact would be modest.

Warner Music Group’s overall revenue for the year was up 10.2% (11.5% in constant currency) to $3.58 billion (£2.67 billion).

Operating income was $222m (£165.5m), up from $214m (£159.52m) in 2016. OIBDA was $473m (£352.6m), down 6.7%. Net income was $149m (£111.1m) compared to $30m (£22.4m) in 2016.  

For the quarter, recorded music revenue grew 9.9% (8.5% at constant currency). Over the 12 months, recorded music digital revenue represented 56% of total recorded music revenue compared to 49.9% in 2016. 

Recorded Music operating income was $283m (£210.9m), up from $247m (£184.1m) in the prior year.

Music publishing revenue increased by 9.2% (10.2% at constant currency) over the 12 months to $572m (£426.3m). Growth in digital revenue from streaming was partially offset by a decline in sync, while mechanical revenue was flat. Digital represented 32.7% of Warner/Chappell publishing revenue compared to 26.9% a year earlier.

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