Warner Music Posts Massive Revenues From Streaming
Warner Music Group Corp. recently announced its second quarter, financial results for the period ended March 31, 2017. Contrary to what many artist’s believe, streaming has made up most of the industry’s revenue in recent years.
“We had another excellent quarter, with double-digit growth in both the current and prior-year quarters,” said Steve Cooper, Warner Music Group’s CEO. “Our streaming revenue is now double that of physical product and triple that of downloads. An improved industry environment is helping, but we continue to outperform our competition due to fantastic new music and outstanding execution by our operators around the world.” Eric Levin, Warner Music Group’s Executive Vice President and CFO added, “This was a very strong quarter, marking the 7th consecutive quarter of year-over-year revenue growth.
Warner Q1 2017 recorded music revenues
Although tough comparisons could make for a more challenging second half, I’m confident we’ll have another great, full fiscal year.” It should be noted that this level of revenue was conspicuously absent through the early 2000’s, vindicating the popular opinion that suggested record labels had been missing the boat and were becoming irrelevant in a burgeoning internet marketplace.
Since the rise of the internet, digital and physical music sales have dropped with most of that decline caused by unauthorized reproduction, or use of digital copyrighted material, or piracy. In fact in 1999 the sales of both digital and physical copies was $14.5 billion and in 2008, that number dropped to $8.5 billion. The idea of making profits in music was almost lost completely in 2009 when the sobering statistics came to light stating that 95% of all digital music had been illegally downloaded. However, since 2008 companies that offered streaming services started to gain traction and have become ever more popular in recent years. Companies like Spotify stepped up to bat against the piracy problem.
Rather than get paid per download, artists would receive a royalty payment for every play, which was funded by advertisements run in Spotify’s free version, and Spotify’s ad-free Premium subscription service. The music industry needed to change the way we do things in order to combat the shrinking revenues and in 2013 we saw tech giants like Google and Amazon launch their own music streaming services. We then saw Apple retaliate through the launch of its own Music streaming service in 2015. Jay-Z also joined the fray, coming at things from a slightly different perspective with his high quality streaming service Tidal. According to documents filed with the SEC, Warner’s recorded music division generated $300m
from streaming services in the quarter (calendar Q1, but Warner’s fiscal Q2). That was up 45%, or $93m, on the $207m the company generated from streaming in the same period of 2016. This means that the revenue lost with digital and physical sales shifted to 39 percent streaming; 28.5 percent for physical; 11.5 percent downloads; 11.3 percent for artist and expanded rights and 9.8 percent for licensing. In the year prior, those totals were: $212 million, or 28.8 percent for streaming; $110 million, or 14.9 percent for downloads; $248 million, or 33.6 percent for physical; $83 million, 11.3 percent for artist services and expanded rights; and $85 million, or 11.4 percent for licensing.
• Total revenue grew 10.7% or was up 12.7% in constant currency
• Digital revenue grew 21.9% or was up 23.3% in constant currency
• Net income was $20 million versus $12 million in the prior-year quarter
• OIBDA was $141 million versus $127 million in the prior-year quarter
Even though these revenues seem to counter the dispossession caused by piracy, some artists have boycotted these new music industry distribution methods by refusing to release their albums for streaming. We watched as Adele took a stand against the streaming giants when she released her record-breaking album, ’25’, which was not available through any of the plethora of known streaming companies. It was only available for purchase on iTunes. Many have followed Adele and Taylor Swift’s lead by not allowing their music on streaming services. Other artists are taking a stand by only showing support to specific music distribution methods and forging exclusive partnership deals. Although many artists are not presently available for streaming services, it’s clear that this type of distribution is bringing staggering revenues, allowing users to pay monthly for access to the music they want and, even without full ownership it’s still the most attractive method for most.