Warner Music Group has today announced a mixed bag of results for its calendar Q2 (fiscal Q3) 2022 results, with one notably positive topline stat: At constant currency, WMG’s company-wide revenues – across recorded music, publishing, and other activities – were up 12.1% YoY in the quarter to $1.43 billion.
That double-digit rise was partly driven by the performance of Warner’s music publishing company, Warner Chappell Music, which saw its calendar Q2 revenues hit $245 million in the quarter (the three months to end of June) – up 34.6% YoY at constant currency.
Another high point for WMG in the quarter was the performance of its ‘artist services and expanded-rights revenue’ (ASER) operation. Sitting within Warner’s recorded music division, ASER includes WMG’s revenues from live music/ticketing and merchandise.
ASER generated $190 million in calendar Q2, reflecting a 55.7% YoY rise (in constant currency) thanks to an increase in concert promotion revenue vs. the Covid lockdown-affected prior-year (calendar Q2 2021).
Calendar Q2 this year was a more complicated story, however, when it came to the lifeblood of Warner’s revenues: Recorded music streaming revenues.
According to Warner’s results, recorded music streaming turnover reached $773 million in calendar Q2, up just 2.7% YoY in constant currency (and down 1.0% YoY in real terms – due to the strength of the US dollar in the period, see end of article).
Warner told investors today that this 2.7% YoY rise wasn’t the full story, and that two important caveats needed to be taken into account.
The first of those caveats was an $11 million one-time “Catch-Up Payment” from an unnamed streaming platform handed to WMG in the prior-year quarter (calendar Q2 2021), which obviously impacted the YoY difference to Q2 2022.
(You may remember that Universal Music Group cited a similar “Catch-Up Payment” from a streaming platform as negatively affecting its own Q2 2022 results.)
The second caveat from WMG, the company said today, was “the impact of a new deal with one of [our] digital partners, consistent with the prior two quarters”. (This is an… interesting one for MBW to explore another time.)
Warner said in its SEC filing today that when the impact of this new digital partner deal is omitted – alongside the impact of that DSP ‘Catch-Up Payment’ from last year – then WMG’s recorded music streaming revenue was up 9.2% YoY in calendar Q2.
(Warner evidently sees that 9.2% YoY rise as the true ‘like-for-like’ streaming figure in calendar Q2 2022. However, we should remember at least one big inorganic factor that would have actually boosted WMG’s streaming revenue vs. the prior-year quarter: its $400 million acquisition of 300 Entertainment in Q4 2021.)
Warner told investors today that it had seen “continued growth in streaming” in the calendar Q2 quarter, but that this had been “affected by market-related slowdown in ad-supported revenue”.
Warner’s overall recorded music revenue in calendar Q2 (including streaming, physical sales, downloads, merch and other non-publishing revenue) was up 8.5% YoY at constant currency to $1.19 billion.
Physical recorded music revenues were up 1.7% YoY at constant currency in the quarter, to $123 million.
Warner said that its major recorded music sellers in calendar Q2 included Ed Sheeran, Dua Lipa, Tatsuro Yamashita, GOT7, Jack Harlow and Gunna.
Warner’s calendar Q2 In summary (% in constant currency):
- Warner Music Group’s overall revenues were up 12.1% YoY to $1.43 billion in calendar Q2;
- Recorded music revenues were up 8.5% YoY to $1.19 billion;
- Within that figure, recorded music streaming revenues were up 2.7% YoY to $773 million – making up 65% of all quarterly recorded music revenues at the company;
- Music publishing revenues – at Warner Chappell Music – were up 34.6% YoY to $245 million.
Warner’s music publishing revenues in calendar Q2 got a boost from an interesting source.
The company confirmed today that Warner Chappell had recorded a one-time windfall of $17 million from the recent ruling from the Copyright Royalty Board regarding Phonorecords III (aka: the rise in mechanical royalty rates as a percentage of DSP revenues, which affects the five-year period from 2018 to 2022).
Warner told investors today that the $17 million was being included in its calendar Q2 (fiscal Q3) results, and reflects “amounts expected to be paid” by DSPs like Spotify and Amazon Music to Warner Chappell as a result of the CRB’s ruling.
“We delivered solid double-digit growth on a constant-currency basis, even against the backdrop of a slowdown in the advertising market and some one-time items affecting year-over-year comparisons.”
Steve Cooper, Warner Music Group
Warner Music Group CEO, Steve Cooper – who recently announced he is to leave the company within the next 18-months – said today: “We delivered solid double-digit growth on a constant-currency basis, even against the backdrop of a slowdown in the advertising market and some one-time items affecting year-over-year comparisons.
“In June, we saw the beginning of a new wave of amazing releases and we’re looking forward to a strong end to our fiscal year. Long term, we have the scale to best capitalize on trends in artist development, and the agility and resources to continue to propel the globalization and diversification of our business.”
Eric Levin, CFO, Warner Music Group, added: “Our third-quarter results reflect the inherent resilience of our business that comes from our diverse portfolio of revenue streams.
With significant runway ahead in our core streaming business and new growth vectors constantly emerging, we are incredibly bullish on our growth potential for many years to come.”
WMG: Profitability in calendar Q2
WMG’s net income stood at $125 million in the calendar Q2 quarter, versus $61 million in the prior-year quarter.
The firm’s quarterly adjusted OIBDA increased by 2.4% YoY at constant currency to $255 million.
And its adjusted EBITDA decreased by 6.7% YoY (not constant currency) to $263 million versus $282 million in the prior-year quarter.
WMG: Why constant currency?
All revenue increases/decreases covered in this story are in constant currency, and there’s good reason for that.
The unprecedented strength of the US dollar in the second calendar quarter of 2022 was great news for the corporate HQs of Sony Corp (in Tokyo) and Universal Music Group (in Amsterdam).
That’s because both of these companies got to convert their calendar Q2 sales in the US – the world’s largest music market – back into their corporate home currencies (Yen and Euro, respectively) for their latest earnings results.
In turn, that conversion gave both companies a boost in terms of the financial numbers they report to investors.
For Warner Music Group, which is HQ’d in New York, the opposite was true: The strength of the US dollar in calendar Q2 hurt the currency conversion of WMG’s sales abroad (into USD), while the company also didn’t get a currency benefit from sales in its home nation.
To properly judge the performances of the majors on a like-for-like basis, then, we need to use a constant-currency yardstick, as MBW always does for these things.
For example, you may have read elsewhere that Sony’s music division saw a 27% YoY rise in recorded music streaming revenues in calendar Q2 2022. Technically, that’s true… in Yen (thanks to the strength of that US dollar).
Yet as calculated by MBW – and confirmed by Sony CFO Hiroki Totoki to investors last month – in US dollar-based constant currency, that figure was actually up by ≈8% YoY.
That’s all vital context to understand Warner Music Group’s Q2 calendar (fiscal Q3) results, and the underlying performance of the company. Particularly in a quarter where WMG’s constant currency performance was typically up YoY, but the real-terms dollars reported in certain business lines may have been down YoY.Music Business Worldwide