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Warner Music Group generated $92 million from “emerging platforms” in the calendar quarter — and other takeaways from Steve Cooper’s latest earnings call with WMG

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

WMG achieved sales of $1.5 billion for the three months to the end of September (to 16% YoY at constant currency), with Adjusted EBITDA also up by 16% YoY.

As a result, the price of the WMG share flew up fifteen% yesterday when Bank of America upgraded the company’s stock.

Fittingly, this blistering quarterly earnings announcement was the last of Steve Cooper’s 11-year tenure as WMG’s chief executive; Cooper will succeed YouTube’s chief business officer, Robert Kyncyl, in the new year.

Cooper spoke about Kyncl on Tuesday’s WMG conference call, calling him “a pioneer of the creator economy whose mastery of technology will enable us to unlock new possibilities for our company, our artists and our songwriters.”

Cooper added of his 11-year tenure as Warner CEO, “It has been incredibly fun, incredibly interesting and one of the greatest experiences of my working life.

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

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

Steve Cooper, WMG

Cooper’s parting words weren’t the only interesting revelations from Warner’s third-quarter (fiscal quarter) earnings call.

There were, of course, the raw numbers to chew on: WMG’s recorded music revenue soared 13.1% YoY at constant quarterly exchange rates, with recorded music stream revenue increases 4.7% YoY; Music publishing revenues increased 32.3% YoY.

But perhaps the most telling news to emerge from the Warner calendar’s Q3 results came from Cooper himself — and WMG CFO Eric Levin — as analysts summed it up.

MBW delved deeply into a particularly important data point discussed by Cooper on the conference call through here.

But a few other things stood out too…

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1. “Emerging Platforms” now generate approximately $92 million in revenue per quarter for WMG

Warner Music Group categorizes revenue from a range of social, gaming and video streaming platforms — including Facebook/Instagram, TikTok, Snapchat and Roblox — as “alternative” or “emerging” platforms.

You may recall in September 2021, Steve Cooper stated that Warner Music Group was messing around $273 million annually from these platforms (on a run-rate basis) via music recordings and music releases.

A year later, that number has increased significantly – with an increase of around +100 million dollars a year from then to now.

“Including our recent deal with Meta, our annualized sales of [’emerging platforms’] reached $370 million in the quarter.”

Steve Cooper, WMG

Cooper confirmed Tuesday, “Including our recent deal with Meta, our annualized revenue of [’emerging platforms’] reached $370 million this quarter.”

This is “annualized” because Cooper is extrapolating over the next 12 months. This extrapolation suggests that Warner generated approximately $92.5 million from emerging platforms in the quarter ended September this year.

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

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

(Also worth noting: At Warner’s previous quarterly earnings call in August (for calendar Q2 / fiscal Q3), WMG’s CFO Eric Levin said that “company-wide streaming revenue from emerging platforms… $345 million on an annual basis”. That number increased by around 25 million dollars in calendar Q3.)

2. Warner’s streaming earnings in Q3 of the calendar were boosted by Meta

Warner Music Group’s pre-recorded music streaming revenue has been difficult to report lately, all because of a deal the company inked with a certain licensing partner in the summer of 2021.

In that deal, with an unnamed digital partner, Warner essentially agreed to a less affordable rate than it used to be paid by that platform.

As a result, music streaming numbers as recorded by Warner are down year over year for the four quarters ended September 2022.

Example: WMG has booked in calendar Q3 $774 million in streaming revenue from recorded music 4.5% YoY with constant currency.

However, if you’re considering the implications of this “new deal with one of [our] digital partners” – as Warner puts it – the company says its streaming revenue from pre-recorded music has increased 10.5% YoY in the Q3 2022 calendar.

Warner hasn’t confirmed who this streaming partner is, but sources tell MBW it is is not Spotify.

“WMG’s Quarterly Streaming Revenue Up 5% [in calendar Q3]reflecting continued growth in subscription streaming and a recent deal with Meta…partially offset by the market-driven slowdown in ad-supported revenue.”

Steve Cooper, WMG

Regardless, here’s something we do know for sure: Warner’s $774 million Recorded music streaming revenue received a strong monetary boost in the three months to September Metaparent company of Facebook.

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

Eric Levin confirmed Tuesday that WMG’s quarterly streaming numbers in the calendar’s third quarter were boosted by “the benefits of contract renewals for new streaming platforms.”

With whom were these renewals? Steve Cooper dropped the big name.

“[WMG’s recorded music] Streaming revenue up 5% [in calendar Q3]’ said Cooper, ‘reflecting continued growth in subscription streaming and a new deal with Meta [which] partially offset by the market-driven slowdown in ad-supported revenue.”

Credit: QuiteSimplyStock/Shutterstock

3. WMG’s ad-supported streaming revenue declined 5% to 10% year over year for the calendar quarter

That was one of the few negatives in WMG’s quarterly earnings — and it’s one that the broader music business should watch out for and watch out for.

We’ve known for some time that ad-supported streaming revenue growth at major music companies is likely to slow in the second half of 2022 due to the macroeconomic impact of a recession on overall B2C digital ad spend.

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

CFO Eric Levin announced on Tuesday that WMG’s ad-supported streaming revenue “experienced increasing pressure and declined in the high single digits” during the quarter (i.e. between… 5% and 10% YoY).

“When macro environments get tough, one of the first things we’ve consistently negatively impacted is ad-supported. We saw it when COVID 2020 hit and we are seeing it now.”

Eric Levin, WMG

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

(This may explain why Universal Music Group was able to 5.2% YoY Increase in non-subscription streaming revenue in Q3 of the calendar.)

Some context: This single-digit decline in Warner’s ad-supported streaming revenue for the quarter occurred in the same three months that YouTube saw its ad revenue decline 1.9% YoY to $7.07 billion.

Levin noted that “ad-supported was more of a challenge [than subscription] in the short term” and acknowledged that “the ad-supported market is declining”.

He added: “Although the consumption of products [has gone] above, monetization [via ads] has fallen in the short term. When macro environments get tough, one of the first things we’ve consistently negatively impacted is ad-supported. We saw it when COVID 2020 hit and we are seeing it now.”

However, he urged analysts to remember that “before that, the macro environment was so challenging, ad-supported [revenues] would grow fairly consistently at double digits with subscriptions.”

Levin added: “As the macro environment starts to improve and economies start to improve, we would expect … ad-supported [streaming revenues] to recover strongly and grow again.”music business worldwide

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