Warner Music Group made $92 million from ‘exploiting platforms’ in Q3 – and other items from Steve Cooper’s latest earnings call with WMG

Warner Music Group’s earnings call on Tuesday (November 22) ended on an upbeat note — and it’s easy to see why.

WMG generated revenue of 1.5 billion dollars for three months until the end of September (up 16% between years in constant currency), with adjusted EBITDA also increasing by 16% YoY.

As a result, WMG’s share price rose 15% yesterday, when Bank Of America upgraded the company’s stock.

Fittingly, this glowing quarterly earnings announcement was the last of Steve Cooper’s 11-year tenure as WMG chief executive; Cooper will take over the role in the new year from YouTube chief commercial officer Robert Kyncyl.

Cooper spoke highly of Kyncl at WMG’s earnings call on Tuesday, calling him “a pioneer of the creative economy, where the power of technology will allow us to unlock new opportunities for our businesses, our artists and our songwriters.”

Cooper added of his 11 years as Warner CEO: “It’s honestly been a lot of fun, incredibly interesting and one of the greatest experiences of my career.

“I am truly proud to have been a small part of Warner Music Group’s incredible journey.”

“I am truly proud to have been a small part of Warner Music Group’s incredible journey.”

Steve Cooper, WMG

Cooper’s coy comments weren’t the only interesting revelations from Warner’s calendar Q3 (fiscal fourth quarter) earnings.

There were, of course, raw numbers to chew over: WMG’s income from recorded music increased 13.1% between years on fixed currency per quarter, with recorded music streaming income up 4.7% between years; Music publishing revenue increased 32.3% between years.

Still, perhaps the most telling news to come out of Warner’s Q3 earnings came from Cooper himself — and WMG CFO Eric Levin — when they were put on the spot by analysts.

MBW has taken a deep dive into one particularly important data point Cooper discussed on the call here through.

But a handful of other things also stood out…

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1. ‘Operating Platforms’ currently generate around $92 million per quarter for WMG revenue

Warner Music Group classifies revenue from a host of social, gaming and streaming platforms – including Facebook/Instagram, TikTok, Snapchat and Roblox – as “alternative” or “emerging” platforms.

You may recall that in September 2021, Steve Cooper hinted that Warner Music Group was creating $273 million annually from these systems (on a per-run basis) across recorded music and music publishing combined.

A year later, this figure has risen considerably – with an increase of +100 million dollars years from that time to now.

“Including our recent deal with Meta, our annual revenue of [’emerging platforms’] hit $370 million this quarter.”

Steve Cooper, WMG

Cooper confirmed on Tuesday: “Including our recent deal with Meta, our annual revenue from [’emerging platforms’] Grace 370 million dollars this quarter.”

It’s “annualized” because Cooper is extrapolating over the next 12 months. This extrapolation suggests that Warner made around $92.5 million from a rising platform in the quarter to the end of September this year.

Cooper told analysts on Tuesday that “the earnings growth curve is emerging.” [platforms] continues to outperform established formats”.

“These new platforms are all very dependent on music,” he added. “And as engagement continues to grow, we expect monetization to follow suit.

(Also worth noting: In Warner’s previous quarterly results in August (covering Q2/Q3), WMG CFO Eric Levin said the company’s “streaming revenue from emerging platforms was… 345 million dollars on an annual basis’. This number therefore increased by approx 25 million dollars in calendar Q3.)

2. Warner’s third calendar quarter streaming revenue got a boost from Meta

Warner Music Group’s revenue from recorded music streaming has been a tricky thing to report of late, all because of a deal the company made with a certain licensing partner in the summer of 2021.

This deal, with an unnamed digital partner, essentially saw Warner agree to a less favorable price than previously paid by the said platform.

As a result, Warner’s music streaming figures for the four quarters to the end of September 2022 have fallen year-on-year.

Example: In calendar Q3, WMG published $774 million in busy music streaming revenue, up 4.5% between years in a fixed currency.

Yet if you leave out the effect of this “new deal with one of [our] digital partners” – as Warner puts it – the company says its revenue from recorded music streaming has increased 10.5% between years in calendar 3rd quarter 2022.

Warner has not confirmed who that streaming partner is, but sources tell MBW that it is is not it Spotify.

“WMG’s quarterly streaming revenue up 5% [in calendar Q3]reflecting continued growth in subscription streams and the recent deal with Meta… partially offset by marketing-related declines in ad-supported revenue.

Steve Cooper, WMG

Anyway, here’s something we do knows for sure: Warner’s $774 million in recorded music streaming revenue in the three months to September received a significant cash boost from AssessFacebook’s parent company.

That big increase was likely in the form of an upfront payment from Meta in connection with Warner’s new licensing deal with the company, which will see Facebook ad revenue shared with WMG. (Universal Music Group announced a similar deal with Meta last quarter.)

Eric Levin confirmed on Tuesday that WMG’s calendar Q3 quarterly streaming numbers were boosted by “benefits from streaming network contract renewals.”

With whom were they renewed? Steve Cooper dropped the big name.

“[WMG’s recorded music] streaming revenue increased by 5% [in calendar Q3]said Cooper, “reflecting continued growth in the subscription stream.” and a recent deal with Meta [which] partially offset by marketing-related declines in ad-supported revenue”.

Credit: QuiteSimplyStock/Shutterstock

3. WMG’s ad-supported streaming revenue declined between 5% and 10% year-over-year in the third quarter

It was one of the few negatives in WMG’s quarterly earnings – and it’s one for the wider music industry to sit up and watch.

We’ve known for some time that ad-supported streaming revenue growth would likely slow for major music companies in the second half of 2022, due to the macroeconomic impact of the downturn on overall B2C digital ad spending.

But in Warner Music Group’s third quarter, that slowdown turned into a downturn.

CFO Eric Levin revealed on Tuesday that WMG’s ad-supported streaming revenue in the quarter came under “increased pressure and was down by the high single digits” (ie, between 5% and 10% between years).

“When the macroeconomic environment gets tough, one of the first things we’ve seen is a consistently negative impact on ad support.” We saw it when COVID hit in 2020 and we’re seeing it now.

Eric Levin, WMG

Levin clarified that WMG did not “include revenue from new streaming platforms” in this calculation. In other words, we’re talking ad-supported revenue from the likes of Spotify and YouTube’s “free” tiers… but note TikTok and Meta.

(This may explain why Universal Music Group was able to insert a 5.2% between years increase in non-subscription streaming revenue in the third quarter.)

Some context: that single-digit drop in Warner’s streaming revenue in the ad-supported quarter came in the same three months that YouTube saw its ad revenue decline. 1.9% between years to $7.07 billion.

Levin noted that “advertising support has been challenging.” [than subscription] in the short term” and admitted that “the ad-supported market is in decline”.

He added: “Even if the consumption of goods [has gone] up, revenue generation [via ads] has decreased in the short term. When the macroeconomic environment gets tough, one of the first things we’ve seen is consistently negatively impact advertising. We saw it when COVID hit in 2020 and we’re seeing it now.

He urged experts to remember though that “before the macroeconomic environment was so challenging, [revenues] would grow in double digits fairly steadily with subscriptions”.

Levin added: “As the macroeconomic environment starts to improve and the economies start to improve, we would expect… [streaming revenues] to recover vigorously and return to growth.”Worldwide music business

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