Warner Music Ad Streaming Revenue Rising as COVID-19 Impact Wanes

It's a “robust time of growth for the music business,” said Warner Music Group Chief Financial Officer Eric Levin on a Monday investor call, saying that the company's advertising streaming platforms business is “starting to reach renewed growth similar to subscription streaming” following negative impact from COVID-19. Streaming is close to 60% of company revenue, he said.

Streaming service price increases, or decreases, will have an impact on digital revenue, said Levin, responding to a question about price increases at Spotify. “Pricing is starting to show signs that we are really highly supportive of, and have been vocal about for years.” Warner Music lacks visibility into whether other services will raise prices, said Levin. But when “the largest player” in Spotify starts raising prices and shows no “negative impact on subscriber growth and churn,” he said, that should “give confidence to other players that that is a real opportunity in the market.” Warner Music hopes “others take that very seriously and follow suit,” he said.

On recent introductions of hi-res music from Apple and Amazon -- adding lossless tracks with no premium for the higher quality versions -- Levin said Warner Music’s belief is that “the most important product is the main product,” referencing the standard $9.99 subscription. Adding value to the primary subscription tier is key, he said. For hi-res tiers with low penetration, “if that product is being folded into the main product and adding value -- and over time that’s one of the things that allows the main product to be increased in price -- we think that’s a net win.”

Warner Music is also aiming to grow fledgling areas for audio including emerging markets, social, gaming and fitness, the CFO said. Emerging market streaming music penetration, “still in its infancy,” is in the low single digits, said Levin, who suggested growth of “multiples.” Developed market penetration is about 30% with lots of room to grow, he said. The highest penetrated markets, where music streaming initially launched, are at just a 50% adoption rate “and still growing,” he said. That there's “significant competition” with global and local streaming players creates an “aggressive push to sign up subs to get share locally in each market,” which Levin called “constructive” to the growth of the industry.

Performance revenue, Warner Music’s second largest revenue producer behind digital in the Music Publishing category, “took a hit” because of COVID-19, said Levin. Bars, restaurants and live performances, “all significant contributors to the segment, … went on hiatus” during the pandemic, he said. Performance revenues were $35 million for the quarter ended March 31 vs. $41 million in the 2020 quarter and $43 million in 2019. The company expects performance revenue to “recover steadily over time.”