Len Blavatnik just enjoyed his biggest year as Warner Music Group owner – by some distance.
According to SEC filings released today, WMG saw total revenue of $3.25bn in the 12 months to end of September – increasing 9.4%, or 13.1% at constant currency.
That’s Warner’s highest revenue figure for eight years, and by far the largest since Blavatnik’s Access Industries acquired the company for $3bn in 2011.
Considering the global recorded music business is expected to post (constant currency) revenue growth of around 5% this calendar year, these figures suggest a significant market share rise is in store for WMG.
The company’s operating income in the 12 months was $214 million – up 69% from $127 million posted in the prior year.
WMG primarily judges its performance on OIBDA (operating income before depreciation and amortization) which stood at $507m in FY 2016 – its highest for a decade.
You already know what’s fuelling such financial progress…
Warner doesn’t break out streaming revenue specifically in its results, but we can take a good stab at making an estimate.
WMG posted $2.74bn total recorded music revenues in the 12 months, up 9% on FY 2015.
Of that cash, $726m was from physical sources (-5%) and $1.36bn was from digital sources (+19%). (The rest came from licensing, ‘artist services’ and expanded rights.)
WMG CEO Stephen Cooper told investors today that annual streaming income “is approaching $1 billion, which is more than double our download revenue and over $100 million more than our physical revenue”.
“Now that streaming is firmly established as our largest revenue source, we’re focused on finding ways to turbocharge mainstream adoption and improve monetization.”
Steve Cooper, WMG
That definitely puts the company’s FY 2016 recorded music streaming revenue – which grew 55% year-on-year – somewhere above $900m.
Or to give it that extra wow factor, around $2.5m every single day.
Added Cooper: “Now that streaming is firmly established as our largest revenue source, we’re focused on finding ways to turbocharge mainstream adoption and improve monetization.
“First, we’re enhancing our playlisting activity by growing our in-house expertise as well as through acquisitions, such as X5. Second, we’re enabling greater consumer choice, by supporting tiered subscription offerings from iHeartMusic, Pandora and Amazon.
“Third,we are a very active part of the music community’s continuing efforts to close the value gap for user-uploaded services.”
The company’s two biggest albums of its Q4 (three months to end of September) were Twenty One Pilots’ Blurryface and the Hamilton soundtrack – both of which are also published by Warner/Chappell Music. Cooper noted the “ongoing evidence of the deep collaboration between our Recorded Music and Publishing businesses”.
A sure-fire signal of WMG’s banner year: for the first time since Access’s takeover, it has decided to issue an annual dividend – announcing that it will hand out $54m to shareholders in January 2017.
Speaking to the investment community today, the company said that it wouldn’t have taken this decision if it hadn’t also been able to significantly raise its A&R spend in the year.
WMG spent $1.1bn on A&R in FY 2016, up 14% on the prior 12 months (note: this ‘A&R’ figure includes both signing and development spend as well as artist royalty payments).
WMG CFO Eric Levin commented: “Importantly, our philosophy with respect to dividends requires that operating cash flow is more than sufficient to serve our continued investment in our artists, our songwriters and our company. We are also committed to continued debt pay-down. To be clear, we only plan to consider future dividends after first achieving these priorities.”
“While it is clear that we are benefiting from the macro effect of strong subscription revenue growth, we are also consistently outperforming the industry. ”
Added a confident Cooper: “While it is clear that we are benefiting from the macro effect of strong subscription revenue growth, we are also consistently outperforming the industry.
“Following calendar 2015, when we scored the largest global recorded music market share gain of any major music company, we’ve continued to see the results of our strategic focus in 2016.
“For the first half of calendar 2016, our 2.5 percentage point jump in U.S. recorded music market share was the greatest of any major. During the same time period, the U.S. recorded music industry grew about 6% at wholesale, while our U.S. Recorded Music business grew at more than double that rate.
“We expect our revenue over-performance to be further highlighted by market share gains when full-year figures are available both for the US and on a global basis.”
WMG became a bit more US-driven in the year, with US revenues making up 41.7% of sales compared to 39.3% in FY 2015.
It also, unusually, turned an annual net profit of $30m – compared to a loss of $88m in the prior year.
This was helped by sales related to its acquisition of Parlophone Label Group, including the divestment of the Chrysalis catalogue.
As for Warner/Chappell, music publishing revenue rose 8.7% (or 13.4% in constant currency) to $524m in FY 2016.
Growth in digital revenue, performance revenue and synchronization revenue at Chappell was partially offset by declines in mechanical revenue.
Digital revenue represented 26.9% of total Music Publishing revenue versus 20.5% in the prior year.
Music Publishing operating income was $68m – down 11.7% from $77 million in the prior year.
Music Business Worldwide