WMG's Cooper Hypes Web 3.0; He'll Remain During CEO Transition

Warner Music Group CEO Steve Cooper will be “actively in the loop” in the transition process to his successor, he said on a Tuesday earnings call. “We decided to announce a change with a long lead time," to have a "very thorough, thoughtful broad search” with a “diverse group of candidates,” he said. There will be an overlap in the transition, he said.

WMG reported “solid underlying streaming growth": in fiscal Q3 ’22 ended June 30, despite "ad-supported pressure” in what Cooper called “turbulent times.” Revenue grew 7% year on year in the quarter, with digital revenue growing 2%, the company said. The stock closed 7.9% lower Tuesday at $29.50.

Headwinds in the quarter included “very, very significant” foreign exchange rate fluctuations, the delay of key albums from fiscal Q3 into Q4, a slowdown in ad-supported revenue and the ongoing suspension of operations in Russia, Cooper said.

Streaming revenue's 2% growth in the quarter owed in part to ad-supported streaming weakness, Cooper said. The growth percentage doesn’t represent the strength of the streaming business, Cooper said, saying recorded music streaming revenue grew 9.2%, not counting one-time events, including a catchup payment in the year-ago quarter. In Q4, WMG expects recorded music revenue to have an uptick due to a “strong release slate,” including titles from Cardi B, Lizzo, Panic! At the Disco and international titles.

WMB signed new deals with Meta that will produce additional revenue in the current quarter, Cooper said. They include an expanded revenue-sharing model that will open up additional opportunities for front-line and catalog artists, he said.

Cooper expanded on the importance of innovation in WMG’s future plans, referencing the “sophisticated, multi-platform campaign" behind Lizzo’s new release, Special. In April, Lizzo made her metaverse debut performing at the Song Breaker award show on Roblox, Cooper said. In July, she celebrated the Special release with a light show experience and concert in New York, sponsored by American Express and livestreamed on Twitch.

He also cited opportunities for WMG artists in the video entertainment space. This fall, HBO Max will air a documentary about Lizzo’s life, co-produced by Warner Music Entertainment and Atlantic films, and Kate Bush’s 1985 song, “Running Up That Hill,” is featured in the new season of Stranger Things. The exposure propelled the song to No. 1 on Billboard’s Global 200 list and Spotify’s daily global charts, Cooper said, calling it an example of the “evergreen power of unique songs and recordings.” A hit song can “emerge, and re-emerge from anywhere, from anyone, at any time,” he said.

WMG continues to push into Web 3.0, Cooper said. WMG artists Jason Derulo and 22Gz worked with Metaverse studio TerraZero to recreate “real-life landmarks’ on the virtual platform Decentraland, which helped WMG “expand its horizon across multiple metaverse worlds and tap into new promotional avenues, Cooper said.

In the U.K. Warner Music partnered with Bose on a first-of-its-kind non-fungible token (NFT) collection called Stickmen Toys, he said. “Using a custom-built algorithm, visual art was mapped to audio stems creating a set of unique collectible characters,” he said. Stickmen Toys peaked at No. 2 on the Open Sea NFT marketplace, he said.

WMG was pleased by the July 1 remand decision by the Copyright Royalty Board (CRB) that “after a long, drawn-out appeals process, streaming services are finally being required to pay songwriters and publishers the percentage of revenue rates set by the CRB in February 2019," Cooper said. The rates reached 15.1% in 2022, up from 10.5% in 2017 and 11.4% in 2018, he noted.

Since many digital services are still paying songwriters and publishers at the 10.5% rate, they will have to make “significant retroactive payments,” what Cooper called “an important step in the fight for fair compensation.” Digital revenue of $944 million in Q3 included a $17 million benefit from the CRB decision, said Chief Financial Officer Eric Levin.