Organic Industry News: Warner Music Group’s Unusual Quarter

Last quarter, Warner Music Group experienced a decline in global streaming revenues by 2.6% year over year, which is unusual for the music industry's primary growth engine. The company's total revenue also decreased by 7.8%, as losses in recorded music's physical and digital revenues offset publishing gains. This decline in streaming revenue, which is typically a dependable bright spot in any earnings report, is concerning given that streaming is driving growth at labels and contributing to the rise in music catalog valuations.

Compared to other companies that released earnings for the same quarter, Sony Music Entertainment posted strong growth, with streaming revenue improving by 33.2% in its recorded music division and 59.8% in its publishing division. Reservoir Media also didn't show any streaming softness, with digital revenues in its recorded music and publishing divisions rising by 17% and 29%, respectively.

Several factors contributed to Warner Music Group's weak streaming revenue. One was a shorter quarter, as WMG's last quarter had one fewer week than the prior-year quarter, making the basis for comparison tough even before other factors were considered. Adjusting for that, WMG streaming revenues would have been up by 5% year over year. Another factor was the stronger dollar, as WMG's financial statements are reported in dollars, while Sony reports in yen and Universal Music Group in euros.

Furthermore, WMG blamed the soft streaming numbers on a new release line-up that was largely U.S.-based and a dislocated ad market, which is getting more pronounced. The decline in ad-supported streaming revenue is not surprising, given the slowing ad market, rising inflation, and economic uncertainties affecting brands' spending. Subscription services have fared better than ad-supported streaming, as consumers are less likely to cancel entertainment subscriptions than brands are to pull back on ad spending. WMG's subscription streaming grew by high single digits, but this was partially offset by a drop in ad-supported revenue in the mid-teens. The slowdown in brands' spending has also created a somewhat softer market for synch.

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