Warner Music CEO Sees Growth Left in Streaming, Touts Web3 Initiatives

Warner Music Group CEO Steve Cooper cited the company’s “unique position” in the new era of recorded music on the company’s Q1 FY ’21 earnings call Tuesday. At a time when many in the industry see new models and currencies as roads to democratization for creators, Cooper promoted Warner Music’s experience, financial muscle and strategies for the digital future.

“Music is no longer linear, transactional or limited by format,” Cooper said. “It’s complex, multifaceted and interactive.” The “intersection of virtual social spaces, gaming and music presents enormous opportunities to engage with massive and diverse audiences,” he said. Warner Music is “leaning in and taking control of our future” through partnerships, collaborations and investments, he said. WMG is "well on our way to being an immersive, tech-enabled 21st century digital company,” said Cooper. To get there, “We have to provide our organization with the appropriate tools -- whether it be self-serving, well-organized data oceans, whether it be robotics, whether it be the digitization of processes."

WMG still sees growth in conventional streaming in mature and emerging markets, said Cooper, referencing the number of streaming music subscriptions relative to smart device population: “When you look at the nascent trend of raising prices that are sticking, all of these for us are markers that say these areas will continue to enjoy very, very nice growth for the foreseeable future.” WMG is confident that "long-term sustained growth ... is quite probable" in its traditional streaming music business.

On Web3, which Cooper defined as wrapping in blockchain, cryptocurrencies and NFTs, WMG sees “the beginning of interactive models coming to the surface and beginning to engage fandom around the world.” Cooper envisions “more opportunities than we can even imagine and believes Web3 “will further amplify the importance” of music labels and publishers.

The technology of blockchain, “the perils of navigating crypto,” and the skillsets required to deal with distributed, autonomous organizations, he said, will require companies like WMG “that have the financial resources, the intellectual capital … the specific skill sets and the global footprint” to help artists and songwriters navigate through a “brave new universe." Music labels can advocate for artists and songwriters to “optimize their presence inside the world of Web3 and optimize their revenue options and their revenue alternatives,” he said.

Labels and publishers “will become more important than they are today as the world becomes more and more complex,” Cooper said. He doesn’t believe artists, managers or their agents “will be able to be as successful as they can be unless they navigate these new, but very interesting waters, with Warner Music and others like us.”

Responding in Q&A to a question about Spotify’s standoff with Neil Young -- and the compensation divide between popular podcasters and musicians -- Cooper first reflected on Neil Young’s contribution, including with Crosby, Stills, Nash & Young for over 50 years, to creating “wonderful, wonderful music.” Such “legendary artists" as Young "continue to have an amazing impact on culture,” he said.

Cooper credited Spotify for “responding to this issue in an attempt to resolve it," and said it should be the one to speak about its positions and policies. He noted WMG does business “with hundreds of streaming operations around the world, not only traditional streamers but these new emerging business platforms." The record label and its artists "feel very good about those revenue streams,” many of which are generated “on a consumptive basis,” he said. WMG continues “to fight day and night for our artists and songwriters to ensure that they are compensated for their work in as equitable fashion as possible.”

Asked to elaborate on digital service provider compensation to artists vs. podcasters, Cooper said, “Virtually all of our deals fall within a very tight band of economics.” Spotify, he said, is in the process of building a podcast business, as CEO Daniel Ek has noted for the past several years: “The economics of that business are different than the economic relationship that we have with Spotify on the music side.”

On WMG’s acquisition strategy, Cooper referenced internal financial discipline, but said the company “will continue to look for opportunities," weighing the opportunity with the cost, "the desire to be immediately accretive and our long-term ability to grow those acquisitions.” In looking for acquisition targets, the company will continue to be "quite assertive.” He noted the purchase of independent music company 300 Entertainment in December and a majority stake in Africori last month.

Cooper highlighted WMX, Warner’s service division that launched in November to bring together “a culturally curious audience of music lovers” totaling 249 million monthly unique visitors. The connections are driven by WMG’s media brands Uproxx, live music app Songkick and HipHopDX. He highlighted a January deal with Quincy Jones’ OneOf to create exclusive NFTs for artists in Warner’s music catalog. Cooper called OneOf’s Web3 NFT platform energy-efficient and said it's specifically designed for the music community. Its NFTs include collectible and generative picture for proofs, music royalties and in real life experiences.

The executive also referenced Warner’s collaboration with digital collectibles platform Blockparty (see 2201210025) and a DJ avatar performance on the Roblox platform (see 2202010015) as examples of its Web3 initiatives. In addition, Warner is working with Sandbox on a music-themed experience in a decentralized gaming virtual world, he noted. Fans will be able to connect with artists through virtual experiences and NFTs, he said.

WMG revenue was $1.6 billion for the quarter ended Dec. 31 vs. $1.34 billion in the year-earlier quarter, said the company. It reported double-digit year-on-year growth across all categories. Shares fell 6.9% Tuesday to close at $37.75.