Warner Music Group simply bucked the pattern of streaming income progress slowdowns. How?

“Nicely, I’m glad that we’re all of the sudden not frightened concerning the music business imploding.”

A jovial textual content from a outstanding music business investor despatched to MBW yesterday afternoon, shortly after Warner Music Group‘s calendar Q2 earnings announcement.

The phrasing was tongue in cheek, the underlying message a bit extra severe.

After Common Music Group and Sony each reported streaming income progress slowdowns within the three months to the top of June, collywobbles about music’s long-term progress story had crept into Wall Avenue workplaces.

Business observers had begun to fret; business analysts had began to frown. That Goldman Sachs chart displaying 1.2 billion+ music streaming subscribers by 2030 all of the sudden felt a bit much less convincing.

Then Warner Music Group modified the narrative.

WMG’s newest quarterly outcomes, delivered yesterday (August 7) by CEO Robert Kyncl, had one key stat at their coronary heart: Warner’s recorded music streaming revenues (throughout ad-funded and subscription) climbed 10.2% YoY on a continuing foreign money and like-for-like foundation.

The agency’s recorded music subscription streaming revenues, particularly, did even higher – up 13.7% YoY on the identical foundation.

Wall Avenue’s reduction was rapidly written everywhere in the inventory market: In the wake of WMG’s outcomes yesterday, Warner and Common Music Group’s share costs rose 1.9% and 6.5%, respectively.

Implosion averted!

But with Common Music Group’s recorded music streaming revenues up 4.1% YoY in calendar Q2, and Sony’s up 5-6% YoY, how did Warner buck the pattern to such a dramatic diploma with its personal double-digit progress within the quarter?

Robert Kyncl and his WMG administration group revealed just a few key causes on WMG’s earnings name yesterday (August 7). 

Listed below are three of them…

1) Hits! Keep in mind them?!

Business leaders like Robert Kyncl rightly spend a very good chunk of their time as of late speaking concerning the ‘portfolio impact’ of controlling hundreds of thousands of songs and recordings in a streaming world — a world the place listening, throughout a mess of worldwide markets, is much less targeting the largest US blockbuster hits than ever earlier than and the place the so-called “center class” of impartial artists retains on gaining market share.

That every one being true, Warner loved some major-league frontline hits on the high of the charts in calendar Q2.

In keeping with Luminate, Warner labels distributed 4 of the High 10 greatest audio streaming songs within the US within the first half of 2024, together with the whole high three: Benson Boone’s Stunning Issues, Zach Bryan & Kacey Musgraves’ I Keep in mind All the pieces, and Teddy Swims’ Lose Management. (All three have been launched by Warner Information.)

Not solely did this enhance Warner’s efficiency within the quarter, WMG’s comparative YoY progress was additionally helped by a comparatively weak hit/blockbuster launch slate within the prior-year quarter (calendar Q2 2023).

“Up to now, in 2024, WMG has extra new artists debuting on the Spotify International High 10 than some other music firm.”

Robert Kyncl, WMG

Stated Kyncl on WMG’s Q2 earnings: “The great thing about streaming is that newly launched hits have a halo impact on the remainder of an artist catalog. As we assist artists develop loyal fan bases, every new hit drives an uptick of their catalog. And after we amplify and lengthen that halo impact, it builds the stickiness that transforms hits into evergreen deep catalog.”

Kyncl famous that “thus far, in 2024, WMG has extra new artists debuting on the Spotify International High 10 than some other music firm”.

He gave shout-outs to profitable WMG artist tasks that had impacted the quarter together with Benson Boone, Zach Bryan, Dua Lipa, Twenty One Pilots, Artemas, Teddy Swims, Megan Thee Stallion, Gunna, Charli XCX, Burna Boy, and Myke Towers.

Kyncl additionally revealed that Warner has new frontline releases coming from Coldplay, David Guetta, Benson Boone, Myke Towers, Cher, Fred Once more, and Diljit Dosanjh within the second half of 2024.

Talking on the earnings name, Warner EVP/CFO, Bryan Castellani, confirmed: “[A] variety of new releases and carryover from prior ones {that a} robust slate gave us momentum on this quarter.”

2) Warner noticed robust subscriber progress at its DSP companions within the month  (and, in line with Kyncl, didn’t see the identical points that Common did in Q2 from sure streaming providers)

If you wish to learn all about why MBW believes that Spotify grew its ‘market share’ of Common Music Group’s revenues in calendar Q2, do this in-depth evaluation.

The quick model: UMG execs stated final month that, whereas they’d been happy with Spotify and YouTube Music‘s progress in calendar Q2, they’d been let down by a “slowdown in new subscriber additions” at different “massive streaming companions”. That actually has to imply Apple Music and Amazon Music. 

Warner Music Group doesn’t seem to have noticed the identical pattern, or at the least to not the identical diploma.

Stated Kyncl yesterday: “Now we have all the time cautioned the monetary group to just remember to don’t look to only one firm, Spotify particularly, because the proxy for the whole business as a result of it’s rather more diversified. We’re not seeing any change in our income combine [between streaming partners].”

Bryan Castellani then reiterated: “We proceed to see fairly constant progress throughout our handful of high DSPs, led by subscriber progress and that rising tide, however [also] value to a lesser extent.”

“I be aware that the investor consideration has not too long ago been targeted on the dynamics between the labels and the DSPs with some speculating that have been adversaries enjoying a zero-sum recreation. That’s merely not the case… [there is] loads of headroom for subscriber progress in each established and rising markets throughout a number of companions.”

Robert Kyncl, WMG

In calendar Q2 particularly, stated Castellani, Warner’s efficiency was “underpinned by subs progress, which, once more, we proceed to see fairly constant throughout the highest DSPs”.

As well as, stated the CFO, Warner’s calendar Q2 outcomes additionally loved a YoY profit from Spotify’s landmark value rise in July final 12 months.

Nonetheless, Castellani confirmed that WMG not sees a YoY profit from YouTube Music’s 2023 value rise.

Apparently, Robert Kyncl took a second to inform the assembled analysts listening to WMG’s earnings name: “I be aware that the investor consideration has not too long ago been targeted on the dynamics between the labels and the DSPs with some speculating that have been adversaries enjoying a zero-sum recreation. That’s merely not the case. We’re actively engaged with our companions round methods to drive progress for all of us.”

Added Kyncl: “Streaming dynamics stay wholesome with loads of headroom for subscriber progress in each established and rising markets throughout a number of companions.”

3) Not like Common, Warner didn’t get clobbered by Meta’s video shocker in calendar Q2… however it can subsequent quarter.

Talking on yesterday’s earnings name, Warner Music Group EVP/CFO, Bryan Castellani, slipped out fairly the revelation in his synopsis of Warner’s quarterly fiscal efficiency.

Castellani warned that in fiscal This fall (calendar Q3), Warner will see a adverse affect of roughly $10 million per quarter going ahead — throughout recorded music and publishing — from Meta’s determination to not license (and make obtainable on its platforms) premium music movies.

That’s a $40 million nosedive throughout the 12 months for WMG vs. the prior 12 months.

As a result of this affect received’t hit WMG till its subsequent quarter (calendar Q3), it clearly didn’t have an effect on the agency’s streaming (particularly: ad-funded streaming) figures in calendar Q2.

“As we method the 2-year anniversary of our current Meta deal, we wish to flag that they may not be making obtainable premium music movies to their customers. This variation to Meta’s providing will lead to a income affect of roughly $10 million per quarter throughout each Recorded Music and Music Publishing.”

Bryan Castellani, Warner Music Group

That wasn’t the case for Common: On UMG’s calendar Q2 earnings name final month, the agency defined that Meta’s abandonment of premium music movies was a major driver in UMG’s ad-funded streaming revenues declining 3.9% YoY within the quarter, which in flip dragged down UMG’s general streaming progress story.

A reminder: in line with Music & Copyright, Warner Music Group’s recorded music division had a 16.8% world market share of digital music business revenues in 2023. Common was almost double that dimension, at 32.4%.

It’s presumably a good assumption, due to this fact, that the amount of cash Meta used to pay Common for premium music movies is a major chunk bigger than the $40 million annual fee that Bryan Castellani implied the Fb firm has been paying WMG for premium vids over the previous 12 months.

With regards to Meta, UMG’s EVP/CFO, Boyd Muir, informed Common’s buyers final month: “Meta had beforehand provided premium music movies on Fb. This product providing was much less widespread with Fb’s person base than different music merchandise. And consequently, Meta is not licensing premium music movies from us as of Might this 12 months.”

Muir added: “Meta is now focusing as an alternative on different areas involving music content material, and we’re working collectively to broaden these areas as a part of a multifaceted renewal.”Music Enterprise Worldwide