Warner Music Group Corp. Digital Revenue Up 13%
Warner Music Group Corp. announced its fiscal third quarter financial results for the period ended June 30, 2012.
“There were several bright spots in our results for the quarter,” said Stephen Cooper, Warner Music Group’s CEO. “In our Music Publishing business, we grew OIBDA, OIBDA margin and constant-currency revenue. In our Recorded Music business, strong growth in digital revenue more than offset the decline in physical revenue on a constant-currency basis, showing the promise of the industry’s transformation. We look forward to the fourth quarter and the next fiscal year, as we work to accelerate our progress.”
“Our Unlevered After-Tax Cash Flow was strong,” said Warner Music Group Executive Vice President and CFO Brian Roberts, adding, “The decline in total cash balance was expected, due to our semi-annual cash interest payment this quarter.”
Recorded Music Summary Results
Recorded Music revenue declined 5.3%, largely related to the unfavorable impact of foreign currency exchange rates. On a constant-currency basis, Recorded Music revenue declined 1.9%. The increase in Recorded Music digital revenue more than offset the decline in physical revenue on a constant-currency basis. However, artist services and expanded rights revenue was lower due to concert promotion revenue declines as compared to the results from the prior-year quarter’s strong touring schedule in France. Recorded Music digital revenue grew, up 12.6%, or 15.0% on a constant-currency basis, as global download and subscription/streaming revenue were both strong. Recorded Music digital revenue represented 41.5% of total Recorded Music revenue, compared to 34.9% in the prior-year quarter. Domestic Recorded Music digital revenue was $121 million, or 53.8% of total domestic Recorded Music revenue, compared to 47.6% in the prior-year quarter. Major sellers included Linkin Park, Jason Mraz, Germany’s Die Toten Hosen, FUN and B.O.B. Linkin Park’s new album “Living Things” debuted at No. 1 on the Billboard 200 in June. “Living Things” became Linkin Park’s fifth No. 1 album since 2000, the most No. 1 albums for any group since 2000 according to Billboard.
Recorded Music operating margin contracted 4.0 percentage points to 3.3% from 7.3% in the prior-year quarter. Recorded Music OIBDA margin contracted 4.6 percentage points to 10.8% from 15.4% in the prior-year quarter. Operating income and OIBDA reflect the impact of the Quarterly Severance Charges and the LimeWire Settlement. Excluding these items, operating income grew 6.5% to $33 million from $31 million, OIBDA declined 4.0% to $72 million from $75 million and OIBDA margin expanded 0.2 percentage points to 13.9%. The decline in OIBDA was primarily due to the decline in revenue.
Music Publishing Summary Results
Music Publishing revenue declined 4.1%, but grew 0.7% on a constant-currency basis. The company’s Music Publishing business experienced 6.7% growth in digital revenue, on both a reported and constant-currency basis, as download and subscription/streaming revenue were strong. Synchronization revenue grew 3.3%, on both a reported and constant-currency basis, due to the timing of collections. Performance revenue declined 8.5%, or 1.8% on a constant-currency basis, partially due to an industry-wide reduction in U.S. radio license fees as mentioned last quarter. Mechanical revenue declined 10.5%, or 5.6% on a constant-currency basis, reflecting the ongoing transition in the recorded music industry. The company recently acquired the masters and publishing rights for all film music owned and controlled by Miramax, boosting the offerings of the company’s Music Publishing synchronization and performance businesses.
The company’s Music Publishing OIBDA and OIBDA margin increased largely as a result of the successful execution of an improved A&R investment and acquisition strategy focused on higher-margin assets. Music Publishing operating margin expanded 5.7 percentage points to 7.1% from 1.4% in the prior-year quarter. Music Publishing OIBDA margin expanded 3.5 percentage points to 18.6% from 15.1%. Operating income and OIBDA reflect the impact of the Quarterly Severance Charges.