Warner Music Group’s Q1 Earnings Show a Label in Transition: What You Need to Know

What a difference a year can make.

Warner Music Group said on Thursday that revenue from its first fiscal quarter fell 5% to $1.67 billion from a year ago, as the company suffered tough comparisons to a period last year when it still had BMG as a physical and digital distribution client and enjoyed a $30-million boon from a digital licensing renewal deal.

But the third-biggest major music company also showed that the deep staffing cuts and wind-down of certain businesses over 2024 freed up money for investment — such as the $450-million acquisition of Tempo Music‘s catalog — and growth, like Atlantic’s half-a-percentage point market share expansion.

WMG’s quarterly results — which included a nearly 40% decrease in operating income and $27 million in restructuring costs and impairment charges — depict a company deep in transformation. Chief executive Robert Kyncl is trying to increase efficiency in legacy businesses and technology, while standardizing its sprawling global network, and striking more lucrative deals with streaming platforms.

Recorded music revenue in the first fiscal quarter, which ended Dec. 31, 2024, fell 7% to $1.35 billion from last year’s quarter, as BMG’s termination of its distribution deal created a $32 million drag (evenly split between streaming and physical revenue). Last year’s quarter also included the extension of one artist’s licensing agreement worth $75 million, and the $30-million renewal of a digital partner’s license.

WMG says if you strip those three things out, total revenue rose 3.4%.

Overall, digital revenue and streaming revenue each fell by around 2%.

Adjusted operating income before depreciation and amortization (adjusted OIBDA)–which measures the profitability of a company’s core businesses–fell 19.5% to $363 million, and adjusted OIBDA margin fell to 21.8% from 25.8% in the prior-year quarter. If you take out the negative impacts of the licensing agreement and digital partner renewal, the company said its adjusted OIBDA fell by just 0.3% and adjusted OIBDA margin decreased 0.8 percentage point.

The company said adjusted OIBDA margin was also dragged down by the 8% rise in the value of the U.S. dollar since last year’s presidential election. (Almost 60% of Warner’s income is earned in euros and other currencies that trade against the dollar, according to the company.)

“All of these impacts will stabilize over time,” Kyncl said on a call with analysts discussing the earnings. “We’re confident about the future. Our goals are clear: increase our share of the pie, meaning market share; grow the pie itself by increasing the value of music; and become more efficient, providing greater cash flow, both for re-investment and for shareholder return.”

The company’s net income was up nearly 25% to $241 million, boosted by foreign exchange hedging activity and the sale of a $29-million of an investment. Free cash flow was up 12% to $296 million.

Other highlights from the company’s earnings and conference call:

» Within Recorded Music, digital and streaming revenue both fell by 3.9% and 3.7%, which reflects a 2% decline in subscription revenue and an 8.2%-decline in ad-supported revenue. If you strip out BMG’s termination and the digital partner’s license renewal, the company says recorded music streaming revenue was up 1.5% and subscription revenue increased 5.3%, while ad-supported revenue still fell by 7.9%. Nonetheless, physical revenue rose 7.8% thanks to the strength of releases by Linkin Park, Charli XCX, Teddy Swims, Mariya Takeuchi and Benson Boone.

» Music publishing revenue rose 6.3% to $323 million from growth in digital, performance and other revenue, partially offset by lower mechanical revenue.

» Warner completed multi-year publishing and recorded music licensing deals with Amazon and Spotify over the past year, Kyncl said, though he declined to provide much detail. The deal with Spotify notably includes a new publishing agreement with a direct licensing model with Warner Chappell Music for the United States and several other countries. “There’s more work to do with others and for all of this to cycle through, but this is a really great step in the right direction.”

» Atlantic’s market share ticked half a percentage point up, a small win Kyncl attributed to the growing investments made in A&R last year. He said the investments came as a result of money left over after it made” organizational changes and investments into technology … [and] exited some non-core businesses.” Kyncl later said, “Our goal was to reinvest the majority of those savings into strategically important initiatives that will propel our business forward. This enabled us to increase our A&R investment by double-digits last year and this year.”

» Kyncl said buying Tempo is “a great example” of the company’s acquisition starategy. “of our M&A strategy in action. “As we become more efficient, we are creating a virtuous cycle that will enable greater reinvestment that delivers accelerated growth.”