Warner Music Group (WMG) reported earnings on Thursday (Nov. 21), and its executives wanted to discuss a lot beyond the usual profitability metrics and balance sheet management. In a call with financial analysts, CEO Robert Kyncl discussed Warner's recent reorganization — how it built a simpler, flatter, faster structure, he says — as well as why he's so confident streaming revenue will continue to deliver strong growth and its M&A and internal investment plans company.
Here are some of the highlights.
Upward growth in subscription flow
WMG executives said they expect streaming subscription revenue to continue growing in the high single digits, and analysts have questioned how they will achieve that. CFO of WMG Brian Castellani he said about 70% of that growth will come from more people paying for music streaming subscriptions everywhere — from markets like the United States, where many already pay to stream music, to places like India, where far fewer people do this, but where there is a lot of room for growth. To bolster his argument, Castellani pointed to the 70 to 80 million new subscribers he says started paying for streaming subscriptions in the past year.
In addition, WMG earned a larger share of the most streamed songs thanks to popular releases from Rosé, Bruno Mars, Teddy Swims, Benson Boone, Charli XCX, Zach Bryan and more. Kyncl said WMG's Spotify 200 market share has grown 10 percentage points since he became CEO.
The final reason for their optimism is the various DSP price increases that Kyncl believes will benefit its side, including higher wholesale prices earned from family plans and other multi-user subscription streaming plans that are currently on sale . subscriptions at higher prices for super fans. and premium audio or further audience segmentation. “Wholesale prices are generally going up,” Kyncl said. “It might not have been like that in music in the past, but it's like that in 99% of industries. We're just trying to align with the way the world works.”
Elliot Grainge's Star Rises Inside and Outside WMG
Kyncl opened the call with comments on WMG's recent restructuring, which included the promotion Eliot Grangefounder of the independent company 10K Projects and son of the chairman/CEO of Universal Music Group Lucian Graingeto lead the famed Atlantic Records Group. Kyncl described Atlantic and Warner Records as “major twin growth engines” and said Elliot's team has “an impressive ability to discover great talent across multiple genres and find new ways [to make them] stand out from the crowd.” Kyncl added that Warner Records, under his leadership Aaron Bay-Schuck and Tom Corsonhe is adept at driving hits and creating superstars.
“I cannot stress enough how exciting it is to witness the creative success of both Warner Records and Atlantic,” said Kyncl.
An analyst later asked Kyncl what it was about Grainge working on 10K and whether it would translate to future success at Atlantic, acknowledging that Grainge “has stepped into a much bigger, broader and important role.”
Kyncl said 10K has shown “phenomenal top-to-bottom growth” since Warner began a joint venture with the indie label last year, and he believes Grainge and his team's digitally native approach gives Warner an advantage to the way music is consumed and shared and how artists are discovered today.
Kyncl also praised Grainge for his intensity – “I like that about him” – and said he takes strong opinions when making decisions, adding that's what the talent likes.
The silver lining of cost cutting
Cutting costs, reducing its workforce and restructuring some label groups saved about $260 million annually, WMG said in September — money Kyncl says is now being freed up for trading and internal investment.
“Our focus on efficiency has freed up capital, allowing us to increase our investment in growth opportunities,” Kyncl said in prepared remarks.
WMG also increased investment in A&R by about 11%, allowing it to sign more new artists and songwriters and make more catalog acquisitions.
In addition, WMG continues to explore companies to acquire that could fill a need of its larger companies – so-called bolt-on acquisitions. Bulletin board reported in June that WMG was shopping for an alternative distribution company and poached a Goldman Sachs investment banker Michael Ryan-Southern this summer to lead M&A. WMG companies around the world are now exploring gaps in their services and seeking proposals from the Ryan-Southern team for acquisitions that meet those needs. The company is also exploring launching, with equity partners and loan facilities, a catalog acquisition platform and an artist advance fund, sources say Bulletin board.
