Warner Music Group Corp. today announced its first-quarter financial results for the period ended December 31, 2024.
Robert Kyncl, CEO of Warner Music Group said: “This quarter, we saw success with new stars, global superstars, longtime legends, and irreplaceable catalog. In our ongoing effort to both grow the pie and grow our share of the pie, we are increasing our A&R spend, acquiring valuable catalogs, and striking important agreements with streaming services. As we drive efficiencies, we will enhance our virtuous cycle of reinvestment, creating new opportunities for talent, long-term growth, and shareholder value.”
Bryan Castellani, CFO of Warner Music Group added: “While temporary macro conditions created some pressure this quarter, the engine of our business is strong. Our results were underpinned by the performance of our new releases and catalog, as well as healthy global subscriber trends. We are confident in our outlook, especially as our industry continues to evolve monetization models, which will help fuel our future growth.”
TOTAL
Revenue was down 4.7% (or 3.6% in constant currency). Recorded Music revenue growth was impacted by a licensing agreement extension for an artist’s catalog (the “Licensing Extension”), which resulted in $75 million of licensing revenue in the prior-year quarter (the same in constant currency). In addition, Recorded Music growth was impacted by the termination of the distribution agreement with BMG (the “BMG Termination”), which resulted in $32 million less Recorded Music revenue compared to the prior-year quarter (the same in constant currency), of which $16 million impacted streaming revenue and $16 million impacted physical revenue, and a renewal with one of the Company’s digital partners (the “Digital License Renewal”), which resulted in $30 million of Recorded Music streaming revenue in the prior-year quarter (or $26 million in constant currency). Excluding the Licensing Extension, the BMG Termination and the Digital License Renewal, total revenue was up 3.4% (or 4.4% in constant currency).
Digital revenue decreased 2.0% (or 0.7% in constant currency) and streaming revenue decreased 1.9% (or 0.7% in constant currency). Recorded Music streaming revenue decreased 3.7% (or 2.3% in constant currency); however, excluding the impact of the BMG Termination of $16 million (the same in constant currency) and the Digital License Renewal of $30 million (or $26 million in constant currency), Recorded Music streaming revenue was up 1.5% (or 2.6% in constant currency). Music Publishing streaming revenue increased 6.2% (or 6.8% in constant currency). The decrease in total revenue is also driven by decreases across Recorded Music licensing revenue due to the Licensing Extension, artist services and expanded-rights revenue and Music Publishing mechanical revenue, partially offset by increases in Recorded Music physical revenue and Music Publishing performance revenue.
Operating income decreased 39.5% (or 38.5% in constant currency) to $214 million from $354 million primarily due to the factors affecting Adjusted OIBDA discussed below, as well as restructuring and impairment charges of $27 million in the quarter which includes severance costs related to the Strategic Restructuring Plan and impairment losses related to the write-off of certain long-form audiovisual production assets and lease termination costs for office closures in connection with the Strategic Restructuring Plan, a $17 million decrease in net gain on divestitures related to a divestiture of certain sound recording rights in the prior-year quarter and higher non-cash stock-based compensation of $5 million in the quarter.
Adjusted OIBDA decreased 19.5% (or 18.4% in constant currency) to $363 million from $451 million and Adjusted OIBDA margin decreased 4.0 percentage points to 21.8% from 25.8% in the prior-year quarter (or decreased 3.9 percentage points to 21.8% from 25.7% in constant currency). The decreases in Adjusted OIBDA and Adjusted OIBDA margin were primarily driven by the $74 million impact of the Licensing Extension (the same in constant currency) and the $12 million impact of the Digital License Renewal in the prior-year quarter (or $10 million in constant currency). The Adjusted OIBDA impact from the BMG Termination was immaterial in the quarter. Excluding these items, Adjusted OIBDA decreased 0.3% (or increased 0.8% in constant currency) and Adjusted OIBDA margin decreased 0.8 percentage point to 21.8% from 22.6% (the same in constant currency). The decrease in Adjusted OIBDA margin is largely due to revenue mix and the unfavorable impact of movements in currency exchange rates of approximately $36 million compared to the prior-year quarter, partially offset by savings from the Strategic Restructuring Plan, a portion of which has been reinvested in the Company’s business.
Net income increased 24.9% to $241 million from $193 million. The increase in net income was primarily due to the factors described above, and the impact of exchange rates on the Company’s Euro-denominated debt resulting in a $61 million gain in the quarter compared to a $39 million loss in the prior-year quarter, realized and unrealized gains on hedging activity of $15 million in the quarter compared to losses of $6 million in the prior-year quarter, and a realized gain on the sale of an investment of $29 million in the quarter. This is partially offset by a $17 million increase in income tax expense due to higher pre-tax income in the quarter and higher U.S. state and local taxes.
Basic and Diluted earnings per share were $0.45 for both the Class A and Class B shareholders due to the net income attributable to the Company in the quarter of $241 million.
As of December 31, 2024, the Company reported a cash balance of $802 million, total debt of $3.955 billion and net debt (defined as total debt, net of deferred financing costs, premiums and discounts, minus cash and equivalents) of $3.153 billion.
Cash provided by operating activities increased 13% to $332 million in the quarter compared to $293 million in the prior-year quarter. The increase was largely a result of movements in deferred revenue due to timing of digital advances and other movements within working capital. Capital expenditures increased 24% to $36 million from $29 million in the prior-year quarter driven by investment in technology. Free Cash Flow, as defined below, increased 12% to $296 million from $264 million in the prior-year quarter, primarily due to the factors affecting cash provided by operating activities described above.
RECORDED MUSIC
Recorded Music revenue was down 6.9% (or 5.9% in constant currency) driven by decreases across digital, licensing, and artist services and expanded-rights revenues, partially offset by growth in physical revenue. Excluding the impact from the Licensing Extension of $75 million (the same in constant currency), the BMG Termination of $32 million (the same in constant currency) and the Digital License Renewal of $30 million (or $26 million in constant currency), Recorded Music revenue increased 2.8% (or 3.8% in constant currency). Digital revenue was down 3.9% (or 2.5% in constant currency) and streaming revenue was down 3.7% (or 2.3% in constant currency). Adjusted for the impact of the BMG Termination of $16 million (the same in constant currency) and the Digital License Renewal of $30 million (or $26 million in constant currency), Recorded Music streaming revenue was up 1.5% (or 2.6% in constant currency). Streaming revenue reflects a decline in subscription revenue of 2.0% (or 0.3% in constant currency) and a decline in ad-supported revenue of 8.2% (or 7.5% in constant currency). Adjusted for the impact of the BMG Termination of $15 million (the same in constant currency) and the impact of the Digital License Renewal of $30 million (or $26 million in constant currency), subscription revenue increased 5.3% (or 6.6% in constant currency), reflecting continued market growth and price increases, which also impacted the prior-year quarter. Adjusted for the impact of the BMG Termination of $1 million (the same in constant currency), ad-supported revenue decreased 7.9% (or 7.1% in constant currency) driven by the timing of deal renewals and content delivery with certain emerging streaming platforms in the prior-year quarter. Licensing revenue decreased 38.5% (the same in constant currency), driven by the impact of the Licensing Extension. Artist services and expanded-rights revenue decreased 3.9% (or 3.0% in constant currency) due to lower concert promotion revenue primarily in France, and a decrease in revenue related to the exit of the Company’s owned and operated media properties announced as part of the Strategic Restructuring Plan. Physical revenue increased 7.8% (or 8.5% in constant currency). Adjusted for the impact of the BMG Termination of $16 million, physical revenue increased 20.3% (or 21.2% in constant currency), driven by strong releases in the quarter, primarily in the U.S. and Japan. Major sellers included Linkin Park, Charli XCX, Teddy Swims, Mariya Takeuchi and Benson Boone.
Recorded Music operating income decreased 36.4% (or 35.5% in constant currency) to $238 million from $374 million in the prior-year quarter, and operating margin was down 8.2 percentage points to 17.7% versus 25.9% in the prior-year quarter. The decrease in operating income was primarily due to the factors affecting Adjusted OIBDA discussed below, as well as $28 million of restructuring and impairment charges in the quarter which includes severance costs related to the Strategic Restructuring Plan and impairment losses related to the write-off of certain long-form audiovisual production assets and lease termination costs for office closures in connection with the Strategic Restructuring Plan. The decrease was also driven by a $17 million decrease in net gain on divestitures related to a divestiture of certain sound recording rights in the prior-year quarter and higher depreciation expenses of $2 million in the quarter due to technology assets being placed into service, partially offset by lower amortization expenses of $4 million compared to the prior-year quarter due to certain intangible assets becoming fully amortized.
Adjusted OIBDA decreased 21.6% (or 20.6% in constant currency) to $323 million from $412 million and Adjusted OIBDA margin decreased 4.5 percentage points to 24.0% from 28.5% in the prior-year quarter (the same in constant currency). The decreases in Adjusted OIBDA and Adjusted OIBDA margin were primarily driven by the $74 million impact of the Licensing Extension (the same in constant currency) and the $12 million impact of the Digital License Renewal in the prior-year quarter (or $10 million in constant currency). The Adjusted OIBDA impact from the BMG Termination was immaterial in the quarter. Excluding these items, Adjusted OIBDA decreased 0.6% (or increased 0.3% in constant currency) and Adjusted OIBDA margin decreased 0.8 percentage point to 24.0% from 24.8% (the same in constant currency) due to revenue mix and the unfavorable impact of movements in currency exchange rates of approximately $27 million compared to the prior-year quarter, partially offset by savings from the Strategic Restructuring Plan, of which a portion has been reinvested in the Company’s business.
MUSIC PUBLISHING
Music Publishing revenue increased 6.3% (or 7.0% in constant currency). The increase was driven by growth across digital, performance and other revenue, partially offset by lower mechanical revenue. Synchronization revenue was flat compared to the prior-year quarter. Digital revenue increased 5.6% (or 6.2% in constant currency) and streaming revenue increased 6.2% (or 6.8% in constant currency), reflecting continued market and catalog growth. Performance revenue increased 9.8% (or 12.0% in constant currency) due to an increase in touring activity outside the U.S. and higher U.S. radio activity. Mechanical revenue decreased 6.7% (the same in constant currency).
Music Publishing operating income decreased 12.7% (or 11.3% in constant currency) to $55 million from $63 million in the prior-year quarter and operating margin decreased 3.7 percentage points to 17.0% from 20.7% in the prior-year quarter. The decrease in operating income was primarily driven by the same factors affecting Adjusted OIBDA discussed below, as well as an increase in amortization expenses of $5 million related to various music publishing copyright acquisitions.
Music Publishing Adjusted OIBDA decreased 3.5% (or 2.4% in constant currency) to $83 million from $86 million in the prior-year quarter. Adjusted OIBDA margin decreased 2.6 percentage points to 25.7% from 28.3% in the prior-year quarter (or decreased 2.4 percentage points to 25.7% from 28.1% in constant currency). The decreases in Adjusted OIBDA and Adjusted OIBDA margin were primarily driven by revenue mix and the unfavorable impact of movements in currency exchange rates of approximately $9 million compared to the prior-year quarter.
Recent Announcements
The Company and Spotify today announced an agreement, covering recorded music and music publishing, to shape the future of audio-visual streaming and enhance the value of music. The new deal will help deliver new fan experiences, a deeper music and video catalog, further paid subscription tiers, and differentiated content bundles. The agreement also builds on the companies’ existing alignment around ‘artist centric’ royalty models that reward and protect the power of artists to attract and engage audiences. Importantly, the new publishing agreement introduces a direct licensing model with Warner Chappell Music in several additional countries including the U.S., reinforcing songwriters’ benefit in this evolving ecosystem.
Earlier today, the Company announced that it has acquired a controlling stake in Tempo Music Investments (“Tempo”), an investment platform for premium music rights, from Providence Equity Partners (“Providence”). Providence will remain a minority investor in Tempo and continue to work with the Company in an advisory capacity. Providing the Company with additional revenue at a high margin, this investment will also become more accretive over time, as rights revert to Tempo, and expand the scope of the Company’s administration and distribution.
Financial details for the quarter can be found in the Company’s current Quarterly Report on Form 10-Q for the period ended December 31, 2024, which will be filed this morning with the Securities and Exchange Commission.
