COVID Is Taking a Toll on Major Label Balance Sheets: WMG, Sony Report Dips

Warner Music
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Warner Music
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Photo Credit: Unsplash

In addition to having a significant financial impact on artists and music industry professionals, the COVID-19 pandemic is taking a toll on major record labels’ balance sheets, including those of Warner Music and Sony Music.

Big Three label Warner Music Group (WMG) revealed its third-quarter FY 2020 performance this morning, and Sony Corporation disclosed the Q1 FY 2020 financial specifics of Sony Music Entertainment (SME) as part of a broader earnings report.

Predictably, given the far-reaching effects of the coronavirus crisis, both entities witnessed a revenue decline between the start of April and the end of June. However, streaming’s resilience proved a relative bright spot for each company, and it appears that Sony Corporation largely managed to offset its music division losses with a substantial uptick in video game sales.

Warner Music Group reported Q3 FY 2020 revenue of $1.01 billion, representing a roughly 4.5 percent year-over-year decrease from the $1.058 billion that the same period delivered in 2019. Moreover, the brand’s operating losses swelled to $433 million (from a $14 million profit during Q3 FY 2019), though the earnings report attributed these heightened losses “to a higher non-cash stock-based compensation expense of $426 million” relating to a “long-term incentive plan,” as well as a once-off payment of $86 million stemming from WMG’s Wall Street IPO, which officially launched in May.

Warner Music’s recorded music revenue experienced a year-over-year drop of about six percent, from $913 million to $861 million, through the three-month period. And despite a predictable falloff in physical recorded music sales, digital recorded music earnings hiked eight percent, touching $630 million mainly due to “continued growth in streaming.” On the publishing side, Warner Chappell garnered $149 million during the quarter – compared to $147 million in Q3 FY 2019 – with 38 percent year-over-year digital-publishing earnings growth offsetting COVID-prompted drops “in performance, synchronization and mechanical revenue.”

At the time of this writing, Warner Music Group’s per-share stock price was hovering around $28.60 – about 4.3 percent below yesterday’s closing value.

Sony Music, for its part, suffered a more than 13 percent year-over-year drop in quarterly revenue, which totaled approximately $1.64 billion (¥173.74 billion). This and other earnings figures reflect the current yen-USD exchange rate.

Notwithstanding this dip – due specifically to lessened physical sales, performance payments, and publishing income – SME’s year-over-year streaming growth approached six percent, with revenue crossing the $650 million mark (¥68.9 billion). Furthermore, the aforementioned coronavirus-fueled gaming boom brought with it a nearly $1.69 billion (¥178.67 billion) jump in software sales, which contributed to a total Q1 FY 2020 profit fall of just one percent.