Warner Music Group sells final Spotify equity stake as digital revenue soars

Warner Music Group sells final Spotify equity stake as digital revenue soars

New results from Warner Music Group reveal that an estimated $126 million will be credited to its artists as a result of the sale of its Spotify equity. 

"During this last quarter, we sold our entire stake in Spotify, realizing $504 million in proceeds," said Steve Cooper, Warner Music Group’s CEO on today's earnings call.

"In February 2016, we were the first major to announce a policy to share proceeds from equity in streaming services with artists. I’m pleased to say that, in connection with the sale of our Spotify equity, an estimated $126 million will be credited to artist accounts on their June 30 royalty statements which are issued around the world in August and September. As such, we took the P&L expense in the quarter."

The group revealed it had sold 75% of its stake three months ago, and Cooper noted that the sale of the remaining equity does not reflect a lack of confidence in Spotify.

“Just so there won’t be any misinterpretation about the rationale for our decision to sell, let me be clear: we’re a music company, and not, by our nature, long-term holders of publicly traded equity,” he said. “This sale has nothing to do with our view of Spotify’s future. 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.”

Cooper also said that increasing competition among digital companies including Spotify, Apple, Amazon and YouTube is "good news for our business".

Accounts also show another big jump in digital revenue as the streaming boom continues.

Total revenue grew 4.5%, or 1.9% in constant currency, as the group competed with Ed Sheeran’s mega-selling ÷ album this time last year. But digital revenue spiked 16.1%, or 14.1% at constant currency.

“Amazing new music from our artists and songwriters and great execution from our global operators have driven our year-to-date revenue up 12%, or 7% in constant currency,” said Cooper. “While streaming continues to fuel our growth, we are exploring a wide array of creative and commercial opportunities in order to position ourselves for long-term success.”

“We are pleased with our revenue growth in the context of a very difficult prior-year comparison,” added Eric Levin, Warner Music Group’s executive vice-president and CFO. “The health of our business is evidenced by our very strong cash generation.” 

Total revenue for the three months ended June 30 was $958 million, with digital contributing $576m, 60.1% (up from 54.1% the previous year). Revenue from physical music sales and mechanical revenue continued to decline.

Revenues in the US, Asia and Latin America grew, while Europe declined due to a drop in physical sales and the release slate compared to 2017.

Warner’s operating income was $28m, compared with $51m the previous year. OIBDA (Operating Income Before Depreciation And Amortisation) declined 13.9% to $99m and the OIBDA margin dropped to 10.3% from 12.5% in Q3 2017. OIBDA included a $16m advance recovery related to the sale of Warner’s Spotify equity stake.

Net income hit $321m compared to $143m last year. That increase was largely attributed to the sale of the company’s Spotify shares, and foreign currency gains.

Recorded music revenue grew 4.2% (1.5% in constant currency). Music publishing revenue outpaced that, rising 6% (3.9%).

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