Who says Spotify doesn’t pay? Warner Music Group is now one of the biggest beneficiaries of a streaming kaboom.
It was a dump-off deal from a financially-strapped media conglomerate. In 2004, Time Warner dropped its failing music label for $2.4 billion. That was the start of an underwhelming decade for Warner Music Group that featured billions in losses and a brutal Wall Street delisting.
Now, that sordid picture is turning sunny. Very sunny. And a huge part of Warner’s newfound cash is coming from streaming. That is, Spotify streaming, of which Warner Music owns a substantial ownership stake.
WMG has craftily negotiated some stunning contract concessions from Spotify. Call that what you want, but WMG is now reaping the financial benefits.
According to just-released financial figures, Warner Music Group earned $917 million in revenues for the fiscal quarter ending June 30th. That’s technically Warner’s third fiscal quarter, which means that overall, year-to-date revenues have now reached $2.66 billion.
Not too bad for a company that sold for less than that in ’04. Actually, Warner’s next buyer — billionaire Len Blavatnik — may have scored a relative steal in 2011 with his $3.3 billion price tag. Accordingly, Warner sales are up 41% since Blavatnik made his acquisition.
And during the current quarter, streaming is powering most of the gains. Indeed, streaming alone contributed $360 million, with Spotify delivering a substantial portion of that. Overall, digital formats accounted for 58% of Warner’s total recorded revenues, with CDs and vinyl claiming most of the rest.
Perhaps the writing’s on the wall for iTunes downloads.
According to Warner’s tallies, downloads tanked 27.3 percent to $88 million. That is, in one year alone. During the previous-year quarter, downloads produced $121 million in revenues, perhaps its last $100 million-plus period for WMG.
All of which fuels rumors of Apple’s pending shutdown of its iTunes download store, at least for music. It’s a rumor Apple vehemently denies.
Overall, this was easily Warner’s best quarter since its divestiture in 2004. Even publishing unit Warner/Chappell tossed a high-performing $150 million into the pot.
Sounds great, though Warner is still struggling a bit on the profit and debt side. Overall, net income was $143 million, a major shift from a $7 million loss during the same period last year. Adjusted net income was $149 million, up from a $16 million loss last year.
Again, not too shabby. But finance types also point to a favorable, $150 million tax credit that otherwise would have rendered WMG in the red. Overall, Warner Music Group pointed to cash holdings of $567 million, with total debt topping $2.797 billion.