Little Antlers Think Tank
essentials:
1. Warner responds to profit margin questions with financial reports and actively explores the meta-universe
2. Global's total revenue in the first nine months of last year has surpassed the previous year's full-year revenue, and the total revenue is expected to exceed $10 billion in 2021
3. The total revenue of the three major companies in 2021 may exceed $23 billion
In early February, Sony and Warner successively announced their financial results for the fourth quarter of 2021. Although Universal Music's final quarter earnings report will not be released until early March, with Universal's financial reports for the first nine months, coupled with Warner and Sony's revenue growth as a reference, we can already have a general understanding of the performance of the three major companies in 2021.
Since Sony's quarterly earnings report has been analyzed (review: Adele's new album boosted Sony, record rights and songwriting agency revenue double growth | financial report), in this article, we will focus on Warner's financial report and summarize the overall revenue performance of the three major companies in 2021.
New business revenue growth, cash flow decline,
How does Warner respond to questions with earnings reports?
On February 8, Warner reported its quarterly earnings for the year ended Dec. 31.
Thanks to double-digit growth in the Recorded Music and Copyright Agency divisions, Warner Music Group generated revenue of $1.614 billion in the first fiscal quarter of 2022, an all-time high of 21% year-over-year. Behind this, recorded music revenue increased by 19% year-on-year, and copyright agency revenue increased by 31% year-on-year.
The digital business generated more than $1 billion in revenue in the quarter, up 21% year-over-year and accounting for 62.1% of total revenue in the quarter, compared to 61.8% last year. Among them, the digital revenue of recorded music was $870 million, and the revenue of copyright agency was $133 million.
Total revenue from recording music was $1.386 billion, up 19 percent year-over-year, driven primarily by growth in the digital streaming segment, which posted $836 million in quarterly revenue, up 21 percent year-over-year.
As the vinyl recovery continued, physical revenue also rose 12 percent to $195 million.
Artist services and copyright expansion revenue (mainly peripheral and live performances, ticketing plus artist agency revenue) also increased by 29% to $232 million, which increased confidence in the peripheral revenue and performance market in 2022 due to the inclusion of ticket reservations for shows in 2022.
Copyright licensing revenue rose 11.3 percent to $89 million, which Warner attributed to revenue growth such as studio sync.
As before, Warner Music Group's weakness in music lies in other digital businesses such as downloads, which reduced revenue by 20 percent to $34 million.
Warner Music Group also pointed out that the results of some recorded music revenues are affected by the following two factors: First, compared with the same fiscal quarter last year, this fiscal quarter has an extra week. The second is a new agreement with a digital partner. Excluding the impact of these two factors, adjusted total revenue increased by 17.9% and streaming revenue increased by about 22.8%.
The best-selling artists of the quarter included Ed Sheeran, Coldplay, recent newcomer Dua Lipa and Martian brother Bruno Mars and rapper Anderson. Paak composed of the big hit combination Silk Sonic.
Silk Sonic
In the copyright agency business, Warner/Chappell Music, a Songwriter-owned songwriting agency, increased revenue from $175 million to $229 million, an increase of 31% year-on-year.
Among them, digital revenue increased from $99 million to $133 million, an increase of 34% year-on-year. Due to Hollywood's resurgence, film and television revenue also increased from $33 million to $42 million. Mechanical reclamation royalty revenue increased from $11 million to $14 million due to the recovery of the overall industry and entity revenue. As the impact of the epidemic decreased, bars, restaurants, concerts, live events, etc. continued to recover, and Warner Music Group's performance revenue increased from $30 million to $38 million.
On a profit standpoint, all of these positive metrics helped net income grow from $99 million to $188 million for the quarter, up 90% year-over-year. OIBDA (Operating Income Before Depreciation and Amortization) increased from $267 million to $320 million. Operating income increased from $196 million to $239 million.
"While the low-margin revenue line recovered, we were able to achieve margin growth due to our diverse and strong revenues, combined with efficient operations," said Lou Dickler, Chief Financial Officer of Warner Music.
Not only is this reminiscent of November 2021, when Bank of America analyst Jessica Reif Cohen lowered Warner Music's target share price, but also noted that Warner Music's margin performance will be affected by the increase in low-margin income (such as physical revenue) and the slowdown in streaming growth. Moreover, in order to continue to grow, or increase investment in the next year, such as A&R and Quku investment, this will also significantly reduce the company's book cash flow and reduce the company's turnover capacity.
In terms of profit margins, Warner Music did respond to the question with earnings reports, and in terms of cash flow, according to the quarterly earnings report, Warner Music's operating cash decreased by 24% year-on-year to $129 million, and the eye-catching operating performance was offset by a large number of A&R investments and working capital. Capital expenditures increased to $34 million from $18 million last year. Free cash flow fell 37 percent, from $151 million to $95 million.
In addition, Warner Music Group disclosed for the first time in its quarterly earnings report the value that the new business brings to recording music and copyright agencies. On an annual basis, new businesses including social, gaming, and fitness create $325 million in value for Warner labels and copyright agencies, up from $310 million in the previous quarter.
Despite strong streaming and new business revenue growth, Warner shares were down 8.6 percent on the morning of earnings. Credit Suisse analyst Meghan Durkin lowered warner music group's target share price from $50 to $45. On the 10th, Zacks Investment Research downgraded Warner Music's rating from "Hold" to "Sell".
Billboard noted that Warner's growth figures are noteworthy, with the fiscal quarter being 14 weeks, compared to 13 weeks in the same period last year. On a pro-rata basis, the week's additional revenue was about $115 million, and if this extra week is excluded, the quarterly revenue increased by 12% year-on-year, instead of the 21% reported in the earnings report.
According to Nasdaq, Warner Music Group's shares also fell below the 200-day moving average entry level of $39.98, at one point to $37.70. Shares of Warner Music Group Corp are currently down about 6.2 percent. The chart below shows the one-year performance of WMG stock compared to the 200-day moving average:
Nevertheless, overall, in the context of the overall market downturn, Warner's stock price performance has been excellent among many music companies. Over the past year, high-starter Global shares have fallen 24 percent, Spotify is down 54.2 percent, Believe is down 11.17 percent, and Warner is up 3.68 percent.
Previously, some media mentioned that the relevant information of "Web3" or "NFT" was not mentioned in the earnings report, but Stephen Cooper said in the conference call that the company is strongly promoting meta-universe-related exploration.
In fact, among the big record labels, Warner has borne the brunt of its exploration and investment in metaverses and Web3, partnering with a number of new generations of startups, including one of environmentally friendly NFT manufacturing platforms, genies, virtual human technology companies, and immersive technology startup Wave. Not only that, Warner was also involved in the early investment of NFT unicorn Dapper Labs, the developer of the blockbuster NBA Top Shot, which completed a $250 million funding round last September, with a valuation of $7.6 billion.
Max Lousada, CEO of Warner Music Group's recorded music business, also said in an interview that although he does not know what kind of results these innovations will produce, he promises that Warner Music Group will try and enjoy them, "we see this as a growth point after streaming."
The three major wild earners 23 billion,
Global is expected to exceed 10 billion for the first time
Warner Music Group will have global copyright agency and recorded music revenues of $5.58 billion in 2021 calendar year. Sony's global copyright agency and recorded music revenue reached $7.49 billion in 2021 calendar year. Universal Music Group has not yet released its fourth-quarter 2021 financial report, and if you only look at the copyright agency and recorded music revenue for the first 9 months, it also reached $7.21 billion.
That is to say, not counting Global's revenue in the fourth quarter of 2021, the three majors also generated revenue of $20.28 billion in 2021.
Based on Universal Music Group's performance in the first few quarters of 2021 (and the relative performance of Sony and Warner in the final quarter of 2021), MBW expects Universal Music Group's total revenue in the fourth quarter to be between $2.5 billion and $3 billion.
In this way, the three major companies will generate $23 billion in revenue in 2021 through recorded music and copyright agents, or $2.6 million per hour.
In addition to the warner mentioned above, here is a summary of the revenue position of the other two major record labels last year:
Sony
Sony Music Entertainment (Sony Music Group plus its music company in Japan) generated a combined revenue of $7.49 billion through recorded music and copyright agencies in 2021, an increase of $1.44 billion compared to 2020 and a year-on-year increase of 23.9%.
Sony Entertainment's global recorded music revenue for 2021 was $5.77 billion, an increase of $1.16 billion from 2020, an increase of 25.2% year-on-year.
Among them, Sony Entertainment's recorded music streaming revenue reached $3.94 billion, an increase of $978 million compared with 2020, an increase of 33% year-on-year.
Sony Entertainment's global music copyright agency revenue also ushered in a new glory: in 2021, the company generated revenue of $1.72 billion, an increase of $284 million compared with 2020, an increase of 19.7% year-on-year.
Global
As mentioned above, we don't yet know Universal Music's revenue for the last quarter of 2021 calendar year, but we already know that Universal Music's total revenue was $7.21 billion in the first three quarters of 2021, and the revenue in the first three quarters of 2021 has exceeded the total revenue in 2020.
In 2020, Global reported total revenue of $5.91 billion. Even comparing Universal Music's revenue for the first nine months of 2021 to total revenue in 2020, it increased by $1.3 billion, or 21.9% year-over-year.
Universal Music recorded music revenue of $6.1 billion in the first nine months, up 23.2% year-over-year, and music copyright agency revenue of $1.11 billion, up $1.43 billion, compared to the same period in 2020.
Conservatively calculated, if Global can achieve the third quarter results in the fourth quarter, then the total revenue for the whole year of 2021 will reach $9.77 billion.
The conservative calculation is because both Sony and Warner far exceeded the third quarter of 2021, with Sony's record and copyright agency revenue up 13.9% year-over-year.
If the same is true for Universal Music, then 2021 has a good chance of becoming the first annual in Universal Music Group history to generate $10 billion in revenue.
Overall, the three major revenues achieved positive growth in the year through digital revenue. With the diversification of new music scenes such as games and short videos, the value of music copyrights still has room to grow, which may be the reason why the three major companies have continued to increase the acquisition of copyrights in recent years.
concentrate:
In this article, Warner Music Group's 2021 revenue is in U.S. dollars and 2020 figures are in constant exchange rate currencies; Sony's revenue is calculated based on the current quarterly exchange rate of the yen to the U.S. dollar published in Sony's investor documents; and Universal Music's revenue is calculated based on the euro-dollar quarterly exchange rate published in Vivendi investor documents (including the third quarter of 2021).
reference:
《Warner Music Group (Wmg) Shares Cross Below 200 Dma》
《Confirmed: The 3 Major Music Companies Jointly Generated Over $20bn Last Year (That’s Over $2m Per Hour)》
《Warner Music Group Generated Nearly $1bn From Streaming Last Quarter》
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