Warner Music Group Layoffs Are About Reinvesting in Itself

New Warner Music Group CEO Robert Kyncl didn’t take much time to make an imprint on the company. On Wednesday, fewer than three months into Kyncl’s tenure, WMG announced it would lay off 270 employees, or 4% of its workforce.

The layoffs will “save” it $22 million in fiscal year 2023 ending Sept. 30, 2023, and “$50 million on an annualized run-rate basis in fiscal year 2024,” according to an SEC filing released Wednesday. That money isn’t exactly saved, however — the company says it plans to reinvest elsewhere.

Like many other companies, WMG is becoming more mindful of its resources as the music industry tries to extend an eight-year growth spurt. Universal Music Group’s Motown Records announced layoffs in February as the label was reintegrated under Capitol Music Group. Downtown Music Holdings, Spotify and SoundCloud have also reduced their head counts in recent months.

WMG had “to make some hard choices in order to evolve” and position the company “long-term success,” Kyncl wrote in a memo to employees. The cuts were thoughtful and purposeful, he added, not a “blanket cost-cutting exercise.” The layoffs “should be substantially completed by the end of the next fiscal quarter” ending June 30, according to the filing.

While WMG will reduce headcount in some areas, the company is also building for the future – with an eye on tech. Kyncl, who quickly hired ex-YouTube executive Ariel Bardin for the newly created role of president of technology, said in his memo that WMG would be “reallocating resources towards new skills for artist and songwriter development and new tech initiatives.”

WMG was already working towards expanding its gross margin by 50 to 100 basis points – equal to one-half to one percentage point – in fiscal 2023. The nature of the changing music business helps the bottom line. WMG’s margins improve as it sells less of “margin-declining” physical product and “high-margin growing” digital business accounts for a larger share of its total revenue,” CFO Eric Levin said at the Deutsche Bank 31st Annual Media, Internet & Telecom Conference on Feb. 28. Prior to announcing the layoffs, WMG said a “financial transformation program,” to roll out in fiscal 2024, is expected to produce annual savings of “$35 million to $40 million once fully implemented,” Levin said in WMG’s Feb. 9 earnings call.

“We still see solid margin growth in 2023” despite declining ad-supported streaming revenues, Levin added at the Deutsche Bank conference. “When we see ad-supported start to stabilize and hopefully rebound and grow, it may create an environment for very favorable margins.”

UPDATE: This article was updated at 2:17 p.m. EST on March 30 to correct that WMG’s layoffs were not a cost-saving measure but, rather, a reinvestment in the company.