Billboard Global Stock Index
Warner Music Group (WMG) reported earnings on Thursday (Nov. 21), and there was much that its executives wanted to discuss beyond the usual profitability metrics and balance sheet management. On a call with financial analysts, CEO Robert Kyncl discussed Warner’s recent reorganization — how it built a simpler, flatter, faster structure, according to him — as well as why he’s so confident that streaming revenues will continue to deliver strong growth and the company’s M&A and internal investment plans.
Here are some of the highlights.
Bullish on subscription streaming growth
Trending on Billboard
WMG executives said they expect subscription streaming revenue to continue to grow by high single-digit increases, and analysts peppered them with questions about how they will achieve that. WMG CFO Bryan Castellani said that roughly 70% of that growth will come from more people paying for music streaming subscriptions everywhere — from markets like the United States, where many already pay to stream music, to places like India, where far fewer people do so but where there is much room for growth. To bolster his argument, Castellani pointed to the 70 to 80 million new subscribers he says began paying for streaming subscriptions in the past year.
Additionally, WMG gained a greater share of the most streamed songs thanks to popular releases from Rosé, Bruno Mars, Teddy Swims, Benson Boone, Charli XCX, Zach Bryan and others. Kyncl said WMG’s market share of the Spotify 200 has increased by 10 percentage points since he became CEO.
The final reason for their optimism is the various price increases at the DSPs that Kyncl believes his side will benefit from, including things like higher wholesale prices earned off of family plans and other multi-user subscription streaming plans that currently get discounts; higher-priced subscriptions for super fans; and premium audio or further audience segmentation. “Wholesale prices generally go up,” Kyncl said. “It may not have happened that way in music in the past, but it is how it happens in 99% of industries. We are just trying to align with the way the world works.”
Elliot Grainge’s Star Rises Inside and Outside WMG
Kyncl kicked off the call with comments about WMG’s recent restructuring, which included promoting Elliot Grainge, the founder of the independent label 10K Projects and son of Universal Music Group chairman/CEO Lucian Grainge, to lead the renowned Atlantic Records Group. Kyncl described Atlantic and Warner Records as “important twin engines of growth” and said Elliot’s team has “an impressive ability to discover extraordinary talent across multiple genres and find fresh ways [to make them] stand out from the crowd.” Kyncl added that Warner Records, under the leadership of Aaron Bay-Schuck and Tom Corson, is adroit at driving hits and creating superstars.
“I cannot stress enough how exhilarating it is to watch the creative success of both Warner Records and Atlantic are having,” Kyncl said.
An analyst later asked Kyncl what it is about Grainge that worked at 10K and if that will translate to future success at Atlantic, acknowledging that Grainge “has stepped into a much larger, broader and important role.”
Kyncl said 10K has demonstrated “phenomenal growth from top line to bottom line” since Warner began a joint venture with the independent label last year, and he thinks Grainge and his team’s digitally native approach gives Warner an edge for how music is being consumed and shared and how artists are being discovered today.
Kyncl also praised Grainge for his intensity — “I love that about him” — and said he takes strong points of view when making decisions, adding that doing so appeals to talent.
The silver lining of cost cuts
Cutting costs, reducing its headcount and restructuring some label groups saved an estimated $260 million on an annualized basis, WMG said in September — money Kyncl says is now freed up for dealmaking and internal investments.
“Our focus on efficiency has freed up capital, enabling us to increase our investments in growth opportunities,” Kyncl said in prepared remarks.
WMG also increased investment in A&R by around 11%, allowing it to sign more new artists and songwriters and to make more catalog acquisitions.
Additionally, WMG continues to explore companies to acquire that could fill a need within its larger companies — so-called bolt-on acquisitions. Billboard reported in June that WMG is shopping for an alternative distribution company, and it poached Goldman Sachs investment banker Michael Ryan-Southern this summer to lead M&A; WMG’s companies around the globe are now exploring the gaps in their services and looking to Ryan-Southern’s team for suggestions on acquisitions to fit those needs. The company is also exploring the launch, with equity partners and debt facilities, of a catalog acquisition platform and fund for artist advances, sources tell Billboard.
Billionaire hedge funder and Universal Music Group board member Bill Ackman called for UMG to move its stock listing and legal headquarters to the United States from Amsterdam after violent attacks on Israeli soccer fans overnight in the Dutch capital. Amsterdam’s Mayor Femke Halsema said fans of Maccabi Tel Aviv were attacked and “pelted with […]
Stock markets ended the week on a positive note as investors showed optimism believing that Congress can negotiate a deal to increase the nation’s debt limit and avoid a historic default. The S&P 500 increased 1.3% to $4,205.45, up 0.3% on the week, while the Nasdaq composite climbed 2.2% on Friday (May 26) to finish […]
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Pro subscribers automatically receive The Ledger. Sign up here to receive the newsletter without a Pro subscription.
Music companies across the board grew revenues in 2022, fueled by global streaming growth and the return of live music. Their stock prices went in a different direction, though.
The Billboard Global Music Index, a group of 20 music-focused companies listed in five countries, declined 36.4% in 2022.
The index aggregates the market capitalizations of 20 music companies spanning record labels, music publishing, live music, streaming and broadcasting. Each company’s float — the outstanding shares — has been adjusted to remove corporate owners, executives, directors and other long-term shareholders.
Music companies weren’t the only stock losers of 2022. Markets were down across the board as interest rates rose, inflation soared and investors placed greater value on profits than growth potential. The index’s deficit was slightly bigger than that of the tech-heavy Nasdaq composite and almost double the 19.4% decline of the S&P 500. The Dow Jones Industrial Average, a collection of 30 blue-chip companies such as Johnson & Johnson and Home Depot, fell just 8.8%.
The two largest companies in the index, Universal Music Group and Warner Music Group, fared relatively well. UMG’s share price fell 9.2% and WMG’s declined 18.9%. Another label group, South Korea’s SM Entertainment, improved 3.4% — one of only two companies in the index whose share prices rose in 2022. As a group, however, record labels and publishers’ adjusted float declined 23.1%. The largest deficit of the group was 50.3% by South Korea’s HYBE, whose main artist, BTS, sent the stock spiraling by announcing a hiatus in June.
The six streaming companies’ index value declined 54.9%, the worst of the index’s four sectors. Spotify’s share price dropped 66.3% and the company dropped to the fourth-largest contributor to index value, after finishing as the top contributor at the end of 2021. The dramatic downturn wasn’t surprising given what was happening in the broader marketplace. Streaming stocks generally benefited from the early days of the pandemic as consumers listened to and viewed more content online and subscriptions spiked. But investors fled many pandemic darlings in 2022: Netflix shares fell 51.1% and Disney shares dropped 43.9%.
With a 20.9% gain in 2022, Tencent Music Entertainment was the rare company in positive territory — not that it isn’t well below its all-time high. While Spotify and other stocks started to drop in mid-December 2021 after the Federal Reserve announced it would raise interest rates in 2022, Tencent Music’s share price had nowhere to go but up. In March 2021, after Chinese regulators cracked down on Tencent Music’s exclusive licensing contracts — many other Chinese companies also came under fire for various reasons — the share price fell 58.5% over three days and another 70.9% through Dec. 20, 2021.
The smaller streaming companies, on average, fared worse than their larger competitors. Abu Dhabi-based Anghami declined 84.3% and French streamer Deezer dropped 51.4%. Both companies went public in 2022 via reverse mergers with publicly traded blank check companies (SPACs), so their annual performance is calculated using the Dec. 31, 2021, share price of the public companies they merged with. Shares of LiveOne fell 49.7%.
Streaming companies’ declines mirrored the losses of some high-profile tech stocks. Amazon, another high-flying pandemic stock, fell 49.6%. Meta sank 64.2% as the company put billions of dollars into building a metaverse that few people seemingly want to visit. Tesla fared even worse by slipping 65% as investors appeared worried that CEO Elon Musk was spending too much time mismanaging his latest acquisition, Twitter, and hurting the brand’s value amongst liberal consumers.
The index value of live music companies — Live Nation, CTS Eventim and MSG Entertainment — declined 35.9%. Even though Live Nation posted record revenues in the second and third quarters as the touring business recovered from pandemic-era lows, the company’s index value dropped 41.7% in 2022. Live Nation’s shares stumbled 10.9% over two days in November after the problematic pre-sale for Taylor Swift’s Eras Tour enraged consumers and brought the possibility of regulatory action (about half of that loss was recovered by the end of December). MSG Entertainment shares fell 36.6% while German promoter CTS Eventim fell just 7.4%.
Broadcasters’ index value declined 33.3%. Even though shares of satellite radio company SiriusXM, the largest broadcaster by market capitalization, declined just 8.0%, the two terrestrial broadcasters in the index fared much worse. IHeartMedia shares fell 70.9% and Cumulus Media dropped 44.8%.
The relatively good performance of labels and publishers — especially the larger ones — brought those eight companies’ share of the index’s value to 49.2%, up from 40.7% at the end of 2021. The six streaming companies’ share of the index value declined to 22.1% from 31.1%.
U.S.-listed companies improved their share of the index to 58.9%, up from 49.9% at the end of 2021. Some of the change can be attributed to the growth in the dollar, which reduces the value of foreign-listed companies when adjusted market capitalizations are converted to U.S. dollars. Compared to the dollar, the euro was down 5.5%, the pound sterling was down 10.4%, the Korean won was down 5.8% and the Hong Kong dollar was down 0.2% in 2022.
-
Pages