Report: WMG Signs A New Deal With YouTube, Releases Q2 Financials

New Deal With YouTube

WMG has reportedly signed a new deal with YOUTUBE after running on a month-to-month basis in their licensing agreement, as do many of the other labels.

FORBES reports, "Even though no terms were announced, it's easy to read between the lines of the announcement to see that WARNER MUSIC didn't get very much of what it wanted in the end, thanks to phrases like 'tough negotiations' and 'very difficult circumstances'. In an internal memo from WMG boss STEVE COOPER and published by MUSIC BUSINESS WORLDWIDE, he states, 'There’s no getting around the fact that, even if YOUTUBE doesn’t have licenses, our music will still be available but not monetized at all. Under those circumstances, there can be no free-market ‘willing buyer, willing seller’ negotiation."

The music has long been unhappy with YOUTUBE's royalty payouts, "but it's between a rock and a hard place when it comes to changing it," notes FORBES. "As COOPER stated in his memo, should a label refuse to license its catalog to the service, its music will still appear on it thanks to the fact that the user generated content featuring that music will still be posted. The problem here is that instead of a below-industry-average payout, there would be no payout at all since the label wouldn't be able to monetize those user videos as it does now. YOUTUBE is completely shielded from any threat of copyright violation thanks to the DMCA law that labels user content a 'safe harbor' for which YOUTUBE is not responsible."

Revenues Up Almost 11%

WARNER MUSIC GROUP has released second quarter financial results for the period ended MARCH 31, 2017.  

“We had another excellent quarter, with double-digit growth in both the current and prior-year quarters,” said CEO STEVE COOPER. “Our streaming revenue is now double that of physical and triple that of downloads.  An improved industry environment is helping, but we continue to outperform our competition due to fantastic new music and outstanding execution by our operators around the world.”

“This was a very strong quarter, marking the 7th consecutive quarter of year-over-year revenue growth,” added EVP/CFO ERIC LEVIN.  “Although tough comparisons could make for a more challenging second half, I’m confident we’ll have another great full fiscal year.”  

Revenue grew 10.7% (or 12.7% in constant currency). Growth in Recorded Music digital and artist services and expanded-rights revenue, and Music Publishing performance, digital and synchronization revenue was partially offset by declines in Recorded Music physical revenue.  Recorded Music licensing revenue was flat due to currency fluctuations. Music Publishing mechanical revenue was flat.  Revenue grew in the U.S., ASIA and LATIN AMERICA, which was partially offset by currency-related declines in EUROPE. Digital revenue grew 21.9% (or 23.3% in constant currency), and represented 53.2% of total revenue, compared to 48.3% in the prior-year quarter. The company noted, "This is the first quarter where digital revenue exceeded 50% of the Company’s total revenue."  

Operating income was $78 million, compared to $52 million in the prior-year quarter. OIBDA increased 11.0% to $141 million from $127 million in the prior-year quarter and OIBDA margin rose 0.1% to 17.1% from 17.0% in the prior-year quarter. The improvement in operating income and OIBDA was the result of increased revenue. The increase in OIBDA margin was due to revenue mix, which was partially offset by higher variable compensation expense. Adjusted OIBDA rose 13.2% and Adjusted OIBDA margin was up 0.4 percentage points to 17.7% as a result of the same factors that impacted OIBDA and OIBDA margin. 

Net income was $20 million, compared to $12 million in the prior-year quarter, and Adjusted net income was $25 million, compared to $14 million in the prior-year quarter. The increase was primarily attributable to higher OIBDA, lower interest expense and a tax benefit that primarily related to currency losses on an intercompany loan. The company explained, "These factors were offset by higher other expenses related to losses on the Company’s EURO-denominated debt and derivative assets, as well as a loss on investment."  

Adjusted operating income, Adjusted OIBDA and Adjusted net income exclude certain losses in the second quarter related to PLG-related asset sales and costs associated with the Company’s shared service center move. As of MARCH 31, 2017, the Company reported a cash balance of $476 million, total debt of $2.767 billion and net debt (total long-term debt, which is net of deferred financing costs of $34 million, minus cash) of $2.291 billion.

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