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Warner Music Group’s Revenue Is Showing Signs of a

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Warner Music Group raised eyebrows the past two quarters by posting low- to mid-single digit growth rates when many public music companies are still enjoying double-digit growth. But a new release by Ed Sheeran out last Friday anchors a slate of upcoming releases by prominent artists that could help WMG make up lost ground over the next two quarters.

A soft release schedule helps explain why WMG’s recorded music revenue increased 2.5%, and streaming revenue grew just 2.2%, in the fiscal quarter ended March 31. During Tuesday’s earnings call, CEO Robert Kyncl said an ad-supported revenue decline in “the mid-teens” partially offset subscription growth in the mid-single digits. While the advertising slowdown is a market-wide phenomenon that has hurt streaming platforms, other online advertising and broadcast radio companies, Kyncl, who took over as CEO on Feb. 1, said WMG has experienced “two consecutive quarters where our release schedule was less robust than normal.”

While WMG’s publishing has excelled — Warner Chappell Music’s revenue grew 12% last quarter — its recorded music growth has been relatively low among public music companies. Universal Music Group’s recorded music revenue last quarter increased 11.7% from the prior-year period and the division’s streaming revenue rose nearly 10% year over year. Spotify’s subscription revenue rose 14% last quarter. (The company’s advertising revenue, which includes money from podcast ads that is not shared with record labels, climbed 17%). Believe’s first-quarter revenue grew 22.6%, although some of that improvement can be attributed to acquisitions rather than organic growth.

In WMG’s last two earnings calls, executives told investors that they expect to recover some lost ground in the second half the company’s fiscal year. On Tuesday, Kyncl touted “promising” early results from Sheeran, Jack Harlow and Tiësto albums. “We absolutely expect this to improve our results in recorded music streaming in the second half of the year,” CFO Eric Levin added, “and this would likely create uplift in both streaming and physical.”

There’s already some evidence that WMG’s market share is improving. WMG’s U.S. market share of current releases (younger than 18 months) in the first quarter of calendar 2023 – the company’s second fiscal quarter – was 16.4%, according to Luminate. (That measures WMG’s share of streaming and sales of digital downloads, CDs and LPs.) By May 4 – just five weeks after the end of the first quarter – WMG’s current market share had increased to 17.5%. WMG’s on-demand audio market share increased from 17.1% at the end of the first quarter to 17.8% by May 4. Additionally, WMG’s share of current CD sales increased from 11.4% to 14.6% and its current LP sales improved from 18.2% to 18.6% over the same period.

Among the key releases helping WMG gain market share was Harlow’s new album, Jackman. on Generation Now/Atlantic Records. Jackman debuted at No. 8 on the latest Billboard 200 albums chart, and Harlow stands to benefit from his co-starring role in the remake of White Men Can’t Jump being released on video streaming platform Hulu on May 19. The track “La Bebe” by Warner Latina’s Yng Lvcas with Peso Pluma currently sits at No. 12 on the Hot 100. “Rock and a Hard Place” by Warner Music Nashville’s Bailey Zimmerman is at No. 16 on the Hot 100 after 47 weeks on the chart. “Cupid” by K-pop group Fifty Fifty, released by ATTRAKT and Warner Music Korea, rose from No. 41 to No. 19 on the Hot 100 and landed inside the top 10 on the Official U.K. Singles Chart.

This increase in current market share helped lift WMG’s overall market share — a mix of current and catalog releases — from 18.4% to 18.9% in the period from March 30 to May 4. While it’s hard to know the exact effects of this, in 2022, each percentage point of the overall market share was worth $155 million (of retail value). Billboard calculated that amount using the RIAA’s $15.87 billion value of the U.S. recorded music market in 2022 minus $383 million of synchronization royalties unrelated to Luminate’s sales and streaming tracking.

The company’s first-half release schedule hasn’t gone unnoticed by Wall Street. After WMG’s share price dropped nearly 10% after Tuesday’s earnings release, J.P. Morgan analysts wrote in an investor note on Wednesday that the sell-off was due to “lighter-than-expected” streaming revenue and WMG’s expectation for a “gradual recovery” in recorded music streaming revenues in the second half of the year – WMG’s use of the word “gradual” suggested to JP Morgan that analysts’ “estimates [for recorded music streaming revenue] are too high.” Through Thursday, WMG’s share price is down 26.2% year to date. Prior to Tuesday’s 10% decline, WMG’s 18.6% year-to-date deficit was close to UMG’s 14.7% decline over the same period. Judging from the amount of time executives have dedicated to artificial intelligence in recent earnings calls, investors’ concerns about AI could have contributed to both companies’ recent slip in share price.

Looking forward, WMG is expecting big things from Sheeran’s album – (Subtract), released on May 5 by Asylum Records and Atlantic Records imprints. The single “Eyes Closed” peaked at No. 26 on the Billboard Hot 100. But as Billboard’s The Contenders column noted on Wednesday, strong sales will be necessary for – (Subtract) to overtake Morgan Wallen’s One Thing at a Time at No. 1 on the Billboard 200 albums chart. Asylum/Atlantic are making the Sheeran title available in both a standard 14-track edition and an expanded 18-track edition on digital download services, and there are vinyl variants exclusive to Amazon, Barnes & Noble, Target, Urban Outfitters, Walmart and independent record stores.

Sheeran could provide a much-needed boost to Atlantic Records, which ranked No. 2 in U.S. market share in calendar 2022 with a 9.2% share, according to Luminate, close behind the 10.4% of the top label, Universal Music Group’s Republic Records. The label is currently at a low point in the regular ebbs and flows of popular music: Atlantic’s 7.4% current market share in the first quarter of calendar 2023 (which is WMG’s fiscal second quarter) and 6.8% share through May 4 were both below the 8.5% and 8.1% it achieved in calendar 2021 and 2022, respectively. If Sheeran connects with listeners, Atlantic’s market share could easily revert to the mean.

Other prominent releases set for the second half of WMG’s fiscal year include new music by David Guetta, whose latest single from Warner Music UK/What A DJ, “Baby Don’t Hurt Me” debuted at No. 8 on the Hot Dance/Electronic Songs chart in April, and Warner Records’ Bebe Rexha. Warner Bros. Discovery’s WaterTower Music will release the soundtrack to Greta Gerwig’s live-action film Barbie starring Margot Robbie (as Barbie) and Ryan Gosling (as Ken). Dua Lipa, signed to WMG’s Warner Records, has reportedly recorded the Barbie theme song and also has a role in the film.

WMG also has some notable upcoming releases that don’t yet have firm release dates. Cardi B said in December that her next studio album would be released “next year,” although Atlantic Records has not officially announced when. Her latest single, “Hot Shit,” reached No. 13 on the Hot 100. Warner Records’ Zach Bryan could have a new album waiting in the wings as well; the country singer told his fans to expect a new studio album, Writers and Fighters, in February but opted not to release it them (without explanation). A new Bryan studio album could perform well for WMG: his 2022 studio album, American Heartbreak, spent 50 weeks on the Billboard 200 and peaked at No. 5 and his latest single, “Something in the Orange” reached No. 10 on the Hot 100, helping upend the modern stereotype that country music doesn’t stream. And that’s exactly the kind of exceptionalism WMG needs right now.



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