Despite some “headwinds” including an unusually strong dollar, a lighter-than-usual release schedule and several short-term expenses, Warner Music posted a solid third quarter of 2022, with a strong showing from its publishing division and 12% revenue growth that the company stressed would have been closer to 15% if not for the above factors. The company also announced a new deal with meta (formerly Facebook) and several upcoming legal settlements that it says will bring in $25 million in OBITDA, both of which will have a strong impact on Q4.
“We delivered solid double-digit growth on a constant-currency basis, even against the backdrop of a slowdown in the advertising market and some one-time items affecting year-over-year comparisons,” said Steve Cooper, CEO, Warner Music Group. “In June, we saw the beginning of a new wave of amazing releases and we’re looking forward to a strong end to our fiscal year. Long term, we have the scale to best capitalize on trends in artist development, and the agility and resources to continue to propel the globalization and diversification of our business.”
The company also pointed to forthcoming releases expected from Cardi B, Panic at the Disco, Megan Thee Stallion and Argentine rapper Paulo Londra.
Revenue was up 6.9% (or 12.1% in constant currency), which the company says was driven by continued recovery of recorded-music artist services and expanded-rights revenue, which was impacted by COVID in the prior-year quarter and increased 42.9% (or 55.7% in constant currency).
This was despite streaming revenue growth of just 2.7% (or 6.5% in constant currency), primarily driven by growth in publishing streaming revenue of 29.6% (or 34.6% in constant currency), which includes a benefit of $17 million resulting from a July 1 remand ruling by the Copyright Royalty Board in Phonorecords III upholding higher percentage of revenue U.S. mechanical royalty rates for 2018 to 2022. Streaming revenue continues to be affected by “the impact of a new deal with one of our [unspecified] digital partners affecting recorded music streaming revenue,” as noted in the announcement. During the earnings call, CFO Eric Levin noted in last quarter’s call that “We fully expect to see a normalization in streaming revenue in the first quarter of 2023.”
Recorded music streaming revenue decreased by 1.0% (or increased by 2.7% in constant currency) primarily due to the impact of that deal and an $11 million catch-up payment from one of the Company’s digital partners that benefited the prior-year quarter. Digital revenue represented 65.9% of total revenue in the quarter, compared to 69.3% in the prior-year quarter.
Operating income was $146 million compared to $162 million in the prior-year quarter. OIBDA was $233 million, compared to $241 million in the prior-year quarter, a decrease of 3.3% (or an increase of 2.6% in constant currency), and OIBDA margin decreased 1.7 percentage points to 16.3% from 18.0% in the prior-year quarter.
Recorded Music revenue was up 3.2% (or 8.5% in constant currency) due to artist services and expanded-rights revenue growth of 42.9% (or 55.7% in constant currency), reflecting an increase in concert promotion revenue, which was disrupted by COVID in the prior-year quarter, according to the announcement. Licensing revenue increased 1.4% (or 8.7% in constant currency), mainly due to higher synchronization and other activity, partially offset by the unfavorable impact of exchange rates. Digital revenue was down 1.7% (or up 2.2% in constant currency) and streaming revenue was down 1.0% (or up 2.7% in constant currency).
Recorded Music operating income was $166 million, down from $197 million in the prior-year quarter and operating margin was down 3.1 percentage points to 14.0% versus 17.1% in the prior-year quarter. OIBDA decreased 10.4% to $224 million from $250 million (or 5.5% in constant currency) in the prior-year quarter and OIBDA margin decreased 2.9 percentage points to 18.8%. Adjusted OIBDA decreased 9.1% from $254 million to $231 million (or 4.1% in constant currency) with Adjusted OIBDA margin down 2.6 percentage points to 19.4%.
Music publishing revenue increased 29.6% (or 34.6% in constant currency). The revenue increase was driven by growth in digital, performance and synchronization revenue, partially offset by a decline in mechanical revenue. Digital revenue increased 27.4% (or 32.1% in constant currency) and streaming revenue increased 29.6% (or 34.6% in constant currency), reflecting the continued growth in streaming, the CRB Rate Benefit and timing of new digital deals. Adjusted for the CRB Rate Benefit, streaming revenue increased 13.9% (or 18.3% in constant currency). Digital revenue represented 58.8% of total Music Publishing revenue versus 59.8% in the prior-year quarter. The slight decrease in digital revenue as a percentage of total Music Publishing revenue is due to an increase in performance revenue as bars, restaurants, concerts and live events continued to recover from COVID disruption. Synchronization revenue increased due to higher television and commercial licensing activity. Mechanical revenue decreased primarily due to the unfavorable impact of exchange rates, all according to the announcement. Music publishing operating income was $33 million compared to $21 million in the prior-year quarter, largely driven by increased revenue.
