Warner Music – Bullish on Downloads, Subscriptions as Digital Revenue Grows

by: Glenn Peoples (@billboardglenn)

SFHH Logo 250X250Warner Music Group believes digital music is helping bring growth back to the music business. The company’s fiscal year-end numbers show it has benefited from the surge in subscription services, growth in Internet radio and the continued rise in digital downloads.

Warner Music’s Revenue, Digital Sales Up in Fiscal Fourth Quarter

Digital revenue in the fiscal year ended Sept. 30, less intersegment deductions, increased $105 million to $925 million from $820 million for the prior fiscal year. Growth in digital revenue more than offset the decline in physical revenue in Warner’s recorded music division. The company’s total revenue for the fiscal year dropped 3% to $2.78 billion from $2.87 billion.

Warner Music Group Reports Mixed Financials in Third Quarter

A strong fiscal helped Warner’s fourth quarter. Digital revenue rose 15% to $241 million. Recorded music digital revenue in the quarter was up 14% to $222 million. Music publishing was up 29% to $22 million.

“All signs continue to indicate the digital is fueling a return to growth in the music industry,” CEO Stephen Cooper said during the earnings call Thursday. “The download business, which was the first wave of the digital music business, continues to expand.”

Warner Music Group Realigns Structure; Cameron Strang Gets Big Boost

Single track downloads are up 5.8% and digital albums are up 14.6% in the U.S. through Dec. 9, according to Nielsen SoundScan, an increase in 20.5 million track-equivalent digital albums.

Warner finally joined Google Play in its fourth quarter — just in time for its expansion to a handful of European countries. Cooper said Warner is “excited” about Google Play because the strong global adoption of the Android mobile operation system means “it is particularly important to have another strong retail player focused on this platform.” In other words, record labels may eventually have a stronger competitor to Apple’s iTunes music store.

Subscriptions are growing “at an even faster rate than downloads,” Cooper said. He was surprisingly bullish on Microsoft’s tepid Xbox Music service and mentioned the progress being made by subscription services Spotify and Deezer. Spotify announced this month it reached five million paying subscribers globally. Deezer had two million paying subscribers when it received $130 million in funding — led by Warner Music owner Access Industries — in October. Paid subscription services “continues to be a very nice model for us” and the ad-supported streaming service “also appears to be a good and growing model,” he said.

But Cooper stressed that the overall framework being provided by companies such as Apple, Google and Amazon are what’s most important: ease of use, convenience and synchronization with multiple devices and affordability. He said Warner believes “this provides tremendous value to consumers” and is “hopeful it will have an impact on piracy.”

Cooper also mentioned the Copyright Alert System (CAS) initiative in the U.S. that will alert broadband customers of copyright infringements. He said Warner is “hopeful” the CAS will educate consumers and lead to a reduction of piracy in the U.S.

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