Warner Music Group’s Quarterly Profits Up 14% on Streaming Growth

Warner Music Group’s stock was up 6% after the third-largest major music company reported on Wednesday that streaming revenue growth and lower costs offset declines in merchandise and physical music sales in the third fiscal quarter.

Quarterly net profit rose nearly 14% to $141 million from $124 million in the third quarter last year. Overall revenue fell by 1% to $1.554 billion from $1.564 billion in the year ago quarter due to the roll off of BMG’s distribution deal and a difficult comparison to the year-ago quarter, which included a $7 million benefit from the Copyright Royalty Board in Phonorecords III.

The company’s digital revenue and streaming revenue were up 4.7% and 5.5% respectively, as subscription revenue grew 7%. Recorded Music streaming revenue increased 5.0%, and music publishing streaming revenue increased 7.9%.

“Our strong subscription streaming growth in [the third quarter] was driven by the performance of our music and healthy industry trends,” Warner Music Group chief executive Robert Kyncl said in a statement. “We’re nurturing the next generation of artists and songwriters, creating fresh impact for our iconic catalog, and working with our partners to increase the value of music. Our commitment to long-term artist development, combined with a flatter structure in recorded music, will enable us to super-serve talent and set WMG up for sustained future growth.”

WMG’s operating income jumped 10% to $207 million in the quarter from $189 million in the third quarter last year. Adjusted operating income before depreciation and amortization (OIBDA), which measures profitability over a specific period of time, rose 6% to $316 million from $297 million in the prior-year quarter.

Revenue from WMG’s recorded music division fell by 2% to $1.251 billion from $1.282 in the year-ago quarter. This was due in part to the exiting of BMG as a client, which resulted in $26 million less revenue, and a “renewal with one of the Company’s digital partners” which created an additional $3 million drage on recorded music streaming revenue, the company said.

BMG began winding down its distribution agreement with WMG’s ADA last September to move control of its 80 billion-stream digital business in-house.

Physical revenue fell by 4.8% because of release timing and a tough year-ago comparison, the company said. Artist services and expanded-rights revenue fell by 27.1% mainly due to lower merchandising revenue.

Revenue from WMG’s music publishing division rose by 8% to $305 million from $283 million in the year-ago quarter.

Topline Results: