Robert Kyncl
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New Warner Music Group (WMG) CEO Robert Kyncl didn’t take much time to make an imprint on the company. On Wednesday (March 29), fewer than three months into Kyncl’s tenure, WMG announced it would lay off 270 employees, or 4% of its workforce.
The layoffs will save the company $22 million in fiscal year 2023 ending Sept. 30, 2023, and “$50 million on an annualized run-rate basis in fiscal year 2024,” according to an SEC filing released Wednesday. That’s equal to 4.2% of WMG’s adjusted earnings before interest, taxes, depreciation and amortization in the fiscal year ended Sept. 30, 2022.
Like many other companies, WMG is becoming more mindful of its resources as the music industry tries to extend an eight-year growth spurt. Prior to announcing the layoffs, WMG said a “financial transformation program,” to roll out in fiscal 2024, is expected to produce annual savings of “$35 million to $40 million once fully implemented,” CFO Eric Levin said on the company’s Feb. 9 earnings call. Universal Music Group’s Motown Records announced layoffs in February as the label was reintegrated under Capitol Music Group. Downtown Music Holdings, Spotify and SoundCloud have also reduced their headcounts in recent months.
WMG had “to make some hard choices in order to evolve” and position the company for “long-term success,” Kyncl wrote in a memo to employees. The cuts were thoughtful and purposeful, he added, not a “blanket cost-cutting exercise.” The layoffs “should be substantially completed by the end of the next fiscal quarter” ending June 30 and will result in cash expenditures of about $46 million by the end of fiscal 2024, according to the filing.
News of WMG’s layoffs didn’t sway investors, however. WMG’s share price rose just 0.6% to $32.63 on Wednesday despite the restructuring’s ability to improve its bottom line. Year-to-date, WMG’s share price has fallen 6.8% while overall stocks have broadly rebounded from a dismal 2022. The S&P 500 is up 4.9% and the tech-heavy Nasdaq composite is up 13.9%. The New York Stock Exchange composite is down 0.4%.
While WMG will reduce headcount in some areas, the company is also building for the future — with an eye on tech. Kyncl, who quickly hired ex-YouTube executive Ariel Bardin for the newly created role of president of technology, said in his memo that WMG would be “reallocating resources towards new skills for artist and songwriter development and new tech initiatives.”
WMG expects to expand its gross margin by 50 to 100 basis points — equal to one-half to one percentage point — in fiscal year 2023. Aside from cost cuts, the nature of the changing music business helps the bottom line. WMG’s margins improve as it sells less of “margin-declining” physical product and “high-margin growing” digital business accounts for a larger share of its total revenue, Levin said at the Deutsche Bank 31st Annual Media, Internet & Telecom Conference on Feb. 28.
“We still see solid margin growth in 2023” despite declining ad-supported streaming revenues, Levin added. “When we see ad-supported start to stabilize and hopefully rebound and grow, it may create an environment for very favorable margins.”
Newly minted Warner Music CEO Robert Kyncl and his wife, psychotherapist Luz Avila Kyncl, have signed on for another five years of scholarship support for select computer science and engineering students at their alma mater, SUNY New Paltz.
The five-year-old Robert Kyncl ’95 and Luz Avila Kyncl ’96 Computer Science & Engineering Scholarship Fund is designed to benefit underrepresented students, especially women and minorities, seeking careers in STEM. Each year, at least six new transfer students or current Hawks will be selected for the scholarship, which offsets tuition costs.
The success of the scholarship has led to the creation of a group of alumni called the Kyncl Scholars.
“State education provided us with great opportunities, both professionally and personally, and we want to help more students access those same benefits,” said the Kyncls in a joint statement. “In turn, this talented next generation will help drive change and contribute to a more representative workforce in dynamic industries.”
The Kyncls’ most recent gift also supports the Fund for New Paltz and the AMP/CSTEP (AC²) Program Fund, which provides economic support for a number of traditionally underrepresented students who earn degrees in STEM fields and certain other majors such as Psychology.
SUNY New Paltz is a short drive north of New York City in Ulster County. As the name of the scholarship suggests, Robert graduated in 1995 (International Relations) and Luz a year later (Psychology).
“The Kyncls’ generosity in this area sends an important message to prospective and current students that people in leadership positions believe in their ability to succeed,” said Erica Marks, vice president for development & alumni relations and executive director of the SUNY New Paltz Foundation. “The University is continually evolving to remain competitive in offering high-quality computer science and engineering education that prepares students for their future. Each year, a powerful new cohort of Kyncl Scholars will be equipped with the training to be effective and collaborative contributors in the community.”
Robert Kyncl joined WMG on Jan. 1 after a decade as chief business officer at YouTube and seven years as vp of content acquisitions at Netflix. Read his first interview as CEO here. Luz Kyncl is a longtime licensed psychotherapist, and a certified health coach and mindfulness teacher. She is also the author of Liberate Yourself.
New Warner Music Group CEO Robert Kyncl addressed investors for the first time since taking over the company at the top of the year, acknowledging the “tough quarter” for the major label while also laying out a vision for how he sees the music industry’s present and future.
The company posted revenues of $1.48 billion for the quarter that ended Dec. 31, 2022, down 8% from the same period the year before, which the company noted contained an extra week, skewing comparisons slightly. Growth came from the publishing sector, which saw revenues up 9.2%, or 14.2% in constant currency, while recorded music revenue fell 10.6%, or 5.6% in constant currency, with recorded streaming revenue down an 6.7%, though the company said that streaming revenue was up half a percentage point when adjusted for the extra week, with a lighter release schedule and falling ad-supported streaming revenue the causes.
That led to Kyncl’s acknowledgement that WMG had a tough quarter, noting that, “like most companies, WMG has been dealing with macroeconomic headwinds and the impact of currency exchange rates.” He added that WMG’s release schedule for this year is weighted toward the second half of the year, with releases from Ed Sheeran, Cardi B, David Guetta, Aya Nakamura and Bebe Rexha on the horizon.
Kyncl then spoke about both his decision to join Warner after 12 years at YouTube and seven at Netflix, as well as his vision for growth for the music industry and the effects of artificial intelligence and TikTok on how that future will look, both creatively and monetarily.
“This industry has achieved something rare: It’s built mutually beneficial, long-term partnerships with many of the world’s biggest companies — Amazon, Apple, Google, Meta, Spotify and Tencent among them,” he said. “As successful as music has become, there’s still meaningful upside ahead for three reasons. One, as technology opens up emerging economies, the industry’s addressable market will continue to expand even further. Two, innovation is constantly creating new use cases for music, giving us the opportunity to diversify our revenue sources. Three, music is still undervalued, especially when compared to other forms of entertainment, like video.”
On the last point, Kyncl pointed out that Netflix’s subscription price has roughly doubled since 2011, the year that Spotify debuted in the U.S., while the price of a music subscription has remained largely flat, even though music subscriptions contain access to a wide swath of the world’s available music, whereas video streamers — of which nearly 80% of U.S. households subscribe to three — are segmented.
He also spoke about his vision for WMG’s role in that future, noting that he hired two former YouTube employees in his first five weeks — Tim Matusch as executive vp of strategy and operations, and Ariel Bardin as president of technology — which should “tell you something about our priorities” in the future.
“We will continue to invest in new artists and songwriters, our catalog and our global expansion,” he said. “At the same time, we plan to thoughtfully reallocate some resources to accelerate how we use technology and data to empower artists and songwriters, as well as drive greater efficiency in our business.” That, he added later in the Q&A section of the call, will come “with continued focus on financial discipline and cost containment.”
That doesn’t necessarily mean layoffs, however; he noted that WMG “has actually been much more measured in its headcount growth, for instance, over the last few years than others in the industry who are now undergoing significant layoffs,” and had been addressing financial initiatives even before the recent fluctuations in the market. “But again, I’d like to reiterate that I’ll be focusing on reallocating our internal resources in order to invest in technology and drive not only more tools for our creators, but also greater efficiencies for us,” he added.
On the topic of AI — which he called “probably one of the most transformative things that humanity has ever seen” — Kyncl said that the conversation falls into four buckets in how content owners need to work with AI platforms: “One is the use of existing copyrights to train generative AI. The second is sampling of existing copyrights as the basis for new and remixed AI generated content. The use of AI to help and support creativity — so an assistive way to do that. And most importantly, find ways to protect the craft of artists and songwriters from being diluted or replaced by AI-generated content.”
But he also stressed that the conversation is not just about the future of AI, but about how things can be handled today to prepare for that future — namely, that the processes for identifying and tracking copyrighted material on platforms and making sure they are monetized for the copyright owner need to be better in the present to prepare for what is to come. That’s something Kyncl has plenty of experience with from his time with YouTube, whose ContentID system was overseen by new WMG exec Bardin, and something he says Warner will be focusing on under his purview.
Another benefit from his YouTube days, Kyncl says, is his experience being on the other side of the negotiating table from the major labels when it came to developing YouTube as a partner with and contributor to the music industry. During his tenure, Kyncl helped steer the relationship between YouTube and the labels from one of animosity to one of mutual benefit, which he stressed came from a collaborative approach — one he intends to bring to Warner in its approach to its relationship with TikTok, which is currently in a similar situation to the YouTube of old, in terms of being under fire from the music business for its perceived low payouts and under-valuation of music on its platform. Kyncl described how YouTube’s position changed in answering a question about whether the labels will push for changes with its relationship with TikTok.
“At YouTube, we looked at this problem very closely, and we decided that music was very important to us, and that’s why we did it,” he said, referencing YouTube’s push into subscription streaming, tools like Shorts and improvements to ContentID, among other initiatives. “TikTok needs to do that. It’s the right decision for them to evaluate. And you can see from YouTube’s execution what the results of the finding was for us. But I can’t speak to what TikTok finds. That’s up to them. But my answer is, a holistic relationship is what we’re looking for.”
YouTube executive Tim Matusch has joined Warner Music Group (WMG) as executive vp of strategy & operations. The news was announced in a company memo sent last week by CEO Robert Kyncl, who worked alongside Matusch at YouTube before stepping down as chief business officer at the company to join WMG.
Matusch most recently served as managing director of strategy and business operations at YouTube, a role he held for more than two years. Prior to that, he served in senior consulting roles at Boston Consulting Group and Oliver Wyman, where he spent more than 12 years and eventually rose to partner. He also worked in senior operating roles at AOL, including general manager at AOL.com and AOL Products. He graduated from Eton College in 1996 and earned his master’s at the University of Oxford in 2001.
In the memo sent to WMG staff and obtained by Billboard, Kyncl noted that Matusch will be working closely with the greater WMG leadership team “to help define, facilitate, and execute our 5–10 year vision” while also playing a key part in “evolving” the label’s “cross-company plans, including deploying business intelligence to strengthen our decision-making, developing and tracking a set of critical KPIs, and ensuring everyone is on the same page as we build our future together.”
Acknowledging that strategy & operations is “a new function” at WMG, Kyncl continued that he’s “a firm believer in tapping into, growing, and unleashing the expertise within the company itself. That way, we’re more directly investing in ourselves, and compounding our knowledge and skills over time. It results in well organized, better informed, more realistic plans.”
Kyncl added that he worked with Matusch “across a wide variety of projects” at YouTube and has “been consistently impressed by what his team has delivered and how they did it – in a very collaborative fashion – which is particularly important to me.”
Kyncl officially assumed the role of CEO at WMG on Jan. 1, though he’ll share CEO duties with outgoing chief executive Stephen Cooper for the remainder of the month. Matusch is the first major hire announced under Kyncl’s tenure.