Warner Music Group Q1 Results Overview
Warner Music Group released its Q1 calendar results (Fiscal Q2) today (May 8), and General Director Robert Kinkle acknowledged the challenges the company is facing within the industry.
“We recognize that this is a pivotal moment for the industry and for our company,” Kinkle stated during the call, while maintaining optimism for future growth.
WMG reported a revenue increase of 1.2% year in constant currency for Q1, with music revenue rising 0.7% year, and publishing income growing 3% year. Subscription streaming revenue experienced a 3.2% year increase, which is a significant slowdown compared to the double-digit growth seen in the same quarter last year.
In his opening remarks, Kinkle highlighted specific factors contributing to these results: “Our Q1 results reflect a lighter release schedule, market pressure in China, and a challenging comparison with the previous year’s double-digit growth in subscription streaming.”
Reasons for Optimism
Despite these figures, Kinkle presented three reasons for optimism: “Firstly, amid global uncertainty, music remains the most stable form of art and currently the most affordable,” he noted.
“Secondly, the relationship between music companies and DSPs is shifting towards subscriber growth and price increases. Lastly, WMG possesses the right creative and commercial strategies, allowing us to sharpen our performance as we remain focused on long-term growth and profitability.”
The company continues to execute its triadic strategy, which Kinkle described as: “Increasing market share, enhancing the value of music, and improving our efficiency, thereby freeing up capital for reinvestment and boosting shareholder profitability.”
Here are four key takeaways from the Warner Music Group Q1 calendar call:
1. M&A Strategy Accelerated for Market Share Growth
Warner Music Group is intensifying its merger and acquisition efforts as part of its broader market share growth strategy. Kinkle outlined this dual-engine approach during the call: “We are accelerating our M&A activities alongside organic growth and investments. Expect to hear more about our M&A plans in the near future.”
While he did not specify the recent $1 billion partnership with Bain Capital for acquiring copyrights, Kinkle hinted at the types of transactions he hopes to pursue. Following last quarter’s acquisition of the Tempo catalog, he expressed a desire for more intellectual property acquisitions.
According to today’s call, Kinkle referred to the Tempo deal as “a clear example of our M&A strategy in action, reinvesting funds into high-quality music with strong margins.”
“By replicating this strategy across our other labels and markets, we will enhance our growth through M&A. In short, we are putting more resources behind fewer initiatives to turbocharge our core business.”
Robert Kinkl
It appears that a focus on music mergers and acquisitions has crystallized after Kinkle unwinded certain investments made by previous WMG leadership, such as divesting from “owned and controlled” media platforms like Uproxx and Hiphopdx.
Kinkle also suggested it is unlikely WMG will acquire a distribution company soon, stating in a Morgan Stanley interview that he has evaluated all distribution firms over the past 18 months but does not wish to pursue market share at any cost.
One potential area for investment could be the catalogs of prominent artists, with reports indicating that the Red Hot Chili Peppers might finalize a lucrative deal with WMG.
Kinkle remains optimistic about emerging markets, particularly in India, where WMG has made several investments in recent years.
2. New CFO Adjusts Investor Expectations for FY
The Q1 calendar marked the last quarter for Brian Castellani as WMG’s CFO, with Armin Graze taking over on May 5.
Graze, previously the financial director at Activision Blizzard, played a pivotal role in the company’s $69 billion acquisition by Microsoft.
Earlier this year, WMG anticipated “strong, unambiguous growth” in subscription streaming over the coming years; however, Kinkle acknowledged today that this outlook may not materialize this fiscal year. He suggested that the new CFO, Armin Graze, will influence how the company perceives its financial outlook: “As Armin settles into his new role, we will update our business priorities and capital allocation plans moving forward,” Kinkle stated.
Furthermore, reflecting on Q1 results and the remainder of the financial year, Kinkle candidly acknowledged: “We expect the challenges faced this quarter to persist throughout the financial year, leading to a decline in expected subscription growth.”
However, Kinkle indicated that WMG will continue to prioritize freeing up additional funds for reinvestment.
Kinkle explained: “By making organizational changes to optimize our performance and capitalizing on technological advantages, we create a virtuous cycle, allowing for more investment in artists, songwriters, and shareholders.”
Kinkle added: “We have announced plans to achieve cumulative annual cost savings of over $300 million, most of which will be reinvested in music and technology.”
“This is an ongoing process that has become part of our DNA, and we will continue seeking ways to enhance efficiency. Thus, we will free up resources to seize the most attractive opportunities through a disciplined capital allocation plan.”
3. Investment in A&R Yields Positive Results
The primary beneficiary of these reinvestments has been A&R expenses.
Kinkle confirmed: “As I mentioned during our last earnings call, we saw our A&R expenditures grow double digits last year, and this will continue to rise this year. We are beginning to notice the positive impact of our strategy.”
Kinkle added: “I want to emphasize that our creative engine is operating at full capacity. Our share on the global Spotify charts has consistently grown, nearing a 50% increase since mid-2023 … achieving our highest share on the charts in two years.”
“Additionally, WMG recording artists currently hold five of the ten top tracks on the Billboard Global charts, including the top three spots, with contributions from Alex Warren, Bruno Mars, and Pink.”
As Kinkle stated, the company’s “creative engine is buzzing.”
“There are various ways to succeed in the market. I am genuinely pleased that we do not have just one approach to our business.”
Robert Kinkl
During the Q&A session, Kinkle specifically highlighted WMG’s success in the U.S., where Elliot Grange has been the CEO of Atlantic Music Group for the past year, while Warner Records, under the leadership of Tom Corson and Aaron Bay-shakh, continues to flourish.
Commenting on WMG’s two flagship labels, analyst Kiscada Hastings mentioned, “It seems that (Warner) now has two distinct philosophies regarding its flagship labels.”
Hastings observed: “With Aaron at Warner, there’s a longer-term and more deliberate approach to artist management, while Elliot at Atlantic excels at quickly identifying and launching artists.”
In response to Hastings’s observation, Kinkle remarked, “As a company, we need to walk and chew gum at the same time. There are different ways to succeed in the market. I am genuinely glad we have diverse talents with varied strengths.”
Kinkle elaborated, “You highlighted some of our leaders, but this does not imply that Elliot’s focus on rapid success is the only strategy. He is also committed to artist development.”
“We collaborate extensively as a leadership team across all divisions, ensuring we share insights rather than competing against one another, ultimately resulting in better overall performance as a company. This diversity in leadership is essential.”
4. AI Legislation as a Focus for New Revenue Streams
Kinkle also underscored how Warner Music Group is actively addressing artificial intelligence issues.
During today’s earnings call, he discussed recent advocacy efforts: “I was in Columbia County last month supporting the revised anti-deepfakes legislation, the same legislation I testified about in the Senate last April.”
The bill aims to provide “protection against unauthorized deepfakes while establishing a licensing structure that paves the way for new revenue streams and more advanced products,” Kinkle explained.
“By advocating for legislation that provides a clear licensing framework, Warner seeks to protect creators and open new income opportunities in the rapidly evolving AI landscape.”
Robert Kinkl
This is “not only a bipartisan bill with broad support across music, entertainment, and technology sectors, but it may also serve as a model for addressing rights related to names, images, likenesses, and voices globally.”
Kinkle emphasized that protecting artists and songwriters is fundamental to enhancing the music’s value: “The increasing value of music starts with the protection of our artists and songwriters. Today, this issue is more critical than ever, especially with regard to AI.”
