Warner Music’s Publishing Posts Strong Results in Otherwise Bumpy Quarter, CEO Sees Potential in AI and Streaming Price Increases

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New Warner Music CEO Robert Kyncl faced a light release schedule during his first two quarters in office and has promised not to candy-coat the results. Although the company’s revenue was up 4% and its publishing division posted a strong quarter, the company is just beginning to emerge from that thin stretch of releases with strong performances from three recent albums from its Atlantic Records division, from Ed Sheeran, Jack Harlow and Tiesto.

As he did in his first earnings call, Kyncl nodded to that situation and then looked ahead to a robust release schedule for the remainder of 2023, with upcoming releases from Dua Lipa, David Guetta, Lil Uzi Vert, Burna Boy, Kelly Clarkson, Tiago PZK, Bailey Zimmerman, and others. “I’m very confident in the path forward, as we combine creative and marketing excellence with tech innovation to propel our growth,” he said.

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He also spoke of two areas of controversy during his comments, particularly AI and certain streaming services’ refusal to raise subscription prices, which is frequently cited as the quickest short-term fix for the low revenue streaming generates for artists and the services themselves. Apple Music, Amazon and Deezer have all raised their subscription prices in recent months, but Spotify has not, pointing to vaguely defined negotiations with their label partners as a primary reason.

When asked, Kyncl declined to get into the specifics of those negotiations but did point to the fact that profit-challenged Spotify, which is the largest paid subscription service in the world, would generate $1 billion in revenue by raising its monthly U.S. subscription fee by $1.

“Recent price increases have been successful and are a move in the right direction, but this should be just the first step,” he said. “Those subscription services which have raised prices have done the fiscally prudent thing – for themselves, their shareholders, and the creative community and there is no sign that they are seeing elevated churn.”

He also said AI can be a partner rather than a foe, as it is frequently depicted. “When it comes to generative AI, it needs to be put into proper context: Framing it only as a threat is inaccurate,” he said. “Our first priority is to vigorously enforce our copyrights and our rights in name, image, likeness, and voice, to defend the originality of our artists and songwriters.”

However, he continued, “We must also see and seize the massive opportunity that generative AI will also be. Consider this, User Generated Content containing copyrighted material was originally viewed as a big threat by media companies.  From my personal experience at YouTube…when I arrived in 2010, we were fighting many lawsuits around the world and were generating low tens of millions of dollars from UGC.  We turned that liability into a billion-dollar opportunity in a handful of years and multibillion-dollar revenue stream over time.  In 2022, YouTube announced that it paid out over $2 billion from UGC to music rightsholders alone and far more across all content industries.

A.I. is just like any emerging technology: there will be challenges and opportunities.  With the proper expertise, it will be a powerful tool for the music industry, and we intend to be at the forefront of how to best deploy it.”

Looking at the earnings, Warner’s quarterly revenues grew 4.6% over the same previous-year period to $1.39 billion in the first three months of 2023, which were also Kyncl’s first three months as CEO. In recorded music, it was up just 2.2% to $1.14 billion, with streaming revenues up 2.2% to $773 million.

However, Warner Chappell, the company’s publishing division run by co-chairmen Guy Moot and Carianne Marshall, had a booming quarter, with revenue up 14.7% to $257 million driven by “growth in digital, performance and mechanical revenue.” Publishing’s streaming revenue was up 18.3% to $142 million.

Operating income was down to $124 million from $166 million year over year, while OIBDA was down almost 19% to $207 million from $255 million. The decreases were “primarily due to $41 million in severance costs related to the restructuring plan announced in the quarter,” the company said, reflecting the layoffs of 4% of its workforce – around 270 people – in March, as well as the “non-cash stock-based compensation and other related expenses primarily related to the departure of our previous CEO,” Steve Cooper, and the upcoming departure of Levin.

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