UPDATED: In its earnings report released Monday morning, Warner Music Group reported 10.7% total revenue growth and 21.9% digital revenue growth in its second quarter, which ended March 31, 2017. Net income was $20 million, compared to $12 million in the same period last year, while operating income before depreciation and amortization (OIBDA) was $141 million, compared to $127 million last year.
The company noted that this was the first quarter in which digital revenue accounted for more than half of its total revenue: 53.2%, up from 48.3% in same quarter last year.
“Our streaming revenue is now double that of physical and triple that of downloads,” said Warner Music Group CEO Steve Cooper. “An improved industry environment is helping, but we continue to outperform our competition due to fantastic new music and outstanding execution by our operators around the world.”
“This was a very strong quarter, marking the seventh consecutive quarter of year-over-year revenue growth,” added Eric Levin, Warner Music Group’s Executive Vice President and CFO. “Although tough comparisons could make for a more challenging second half, I’m confident we’ll have another great full fiscal year.”
In a conference call to discuss the earnings on Monday morning, Cooper singled out Atlantic artists Ed Sheeran (pictured), Bruno Mars, Coldplay, Twenty One Pilots and Gucci Mane as key revenue drivers, and Warner/Chappell publishing writers Beyonce and Jay Z and Atlantic Grammy winners Sturgill Simpson and Twenty One Pilots for awards recognition. Warner Bros. artists were not mentioned. He also singled out two executives, newly appointed CEO for recorded music Max Lousada (who assumes that role on Oct. 1 while continuing as chairman & CEO of Warner Music UK) and Warner/Chappell chairman CEO Jon Platt.
Compared with the same quarter in 2016, total revenue climbed to $825 million from $745 million, digital revenue was up to $439 million from $360 million, and operating income rose to $78 million from $52 million. OIBDA was up 54% to $83 million from $54 million, and adjusted OIBDA was up 13% to $146 million from $129 million.
In the report, the company noted that growth in many areas was offset by the continuing drop in physical-product revenue. It also said that recorded music licensing and music publishing mechanical revenue were both flat.
Citing “confidential deal terms,” Cooper and Levin declined to answer questions about the company’s extension of its recorded-music and publishing deals with YouTube, which were revealed to the press via a leaked internal document late Friday — in which Cooper quite clearly expressed dissatisfaction with the deal terms. Cooper essentially repeated his comments in the memo, saying that the company “negotiated for an extended period of time, we fought for and got the best possible deal given the current environment,” and said they “strongly believe in the need for legislated involving user-uploaded video services, meaning that they can no longer take advantage of safe-habor laws.”
Like most of the music industry, Warner faces serious challenges from safe-harbor protections for user-upload video platforms, particularly YouTube. In the memo, he said “There’s no getting around the fact that, even if YouTube doesn’t have licenses, our music will still be available but not monetized at all. Under those circumstances, there can be no free-market ‘willing buyer, willing seller’ negotiation.”