Warner Music Group’s revenue was up 14% (or 10% in constant currency) and digital revenue was up 20% (or 17%) in its first-quarter financial results for the period ended December 31, 2017. Streaming represented 51% of total revenue, compared with 48.4% in the prior-year quarter.
“2018 is off to a great start. For three years running, we have grown revenue by double digits in the first quarter, a great testament to the sustainability of our success,” said Steve Cooper, Warner Music Group’s CEO. “Streaming is driving the industry and we continue to outperform thanks to fantastic new music and the strength of our worldwide operating team.”
“This marks the first time in over 10 years that our quarterly revenue has exceeded a billion dollars”, added Eric Levin, Warner Music Group’s Executive Vice President and CFO. “Our cash flow is strong and we are committed to maintaining our momentum.”
In a conference call on Friday morning, Cooper pointed to the company’s success at the Grammy Awards on Sunday — where Bruno Mars swept the top categories and Ed Sheeran won two trophies, and Warner/Chappell writers Kendrick Lamar and Chris Stapleton had strong showings — and its recent successes in the U.K. with Liam Gallagher and Dua Lipa.
In terms of future growth, he pointed to the signings of Kenny Chesney in Nashville and popular grime artist Stormzy in the U.K. Levin pointed to the Pandora settlement regarding pre-1972 copyrights as impacting growth by 2% in the quarter.
According to a company statement, operating income was $90 million compared to $94 million in the prior-year quarter. OIBDA declined 1.3% to $155 million from $157 million in the prior-year quarter and OIBDA margin declined 2.3 percentage points to 14.8% from 17.1% in the prior-year quarter. The decline in operating income and OIBDA was largely the result of higher variable compensation expense, related to the Company’s deferred compensation plan, increased investment in A&R, the impact of a legal settlement in the prior-year quarter, costs associated with management changes and restructuring, and an increase in facilities costs due to overlap in rent associated with the Company’s Los Angeles headquarters consolidation.
Net income was $5 million compared to net income of $24 million in the prior-year quarter and Adjusted net income was $18 million, compared to net income of $28 million in the prior-year quarter. The decline was primarily attributable to a $27 million non-cash tax expense related to the new U.S. tax legislation which resulted in a reduction of our net U.S. deferred tax assets, and lower other income mainly due to the impact of Euro debt revaluation. These factors more than offset the higher loss on extinguishment of debt in the prior-year quarter.
Recorded Music revenue grew 13.4% (or 9.6% in constant currency). Growth in digital, licensing and artist services and expanded-rights revenue was partially offset by a decline in physical revenue. Recorded Music operating income was $129 million up from $123 million in the prior-year quarter and operating margin was down 1.1 percentage points to 14.3% versus 15.4% in the prior-year quarter.
Music publishing revenue rose 15.3% (or 11.7% in constant currency).