Warner Music Revives IPO, Gives Alternative Way to Bet on Streaming
Warner Music Group launched its IPO of 70,000 shares today. The price is expected to be between $23 and $26. WMG initially announced plans of an initial public offering in February, but pulled the plug on March 2 due to COVID-19.
Betting on star-power: If you want to invest in the success of superstar recording artists such as Ed Sheeran, Bruno Mars, and Cardi B, WMG is giving you the chance to do so through ownership of its stock. These three artists, in addition to many others, are a core piece of WMG’s Recorded Music business, which generated $3.840 billion of revenue in fiscal 2019, representing 86% of total revenues. WMG’s Music Publishing business, which includes songwriters such as Twenty One Pilots, Lizzo and Katy Perry, generated $643 million of revenue in fiscal 2019, representing 14% of total revenues.
Artist arms race: Music labels are emptying their pockets in an effort to locate and sign the musical stars of the future. WMG competes with other recorded music companies and music publishing companies, such as Universal Music Group and Sony Music, to identify and sign new recording artists and songwriters.
Those three record companies spent $4.1 billion on A&R, which is the money required to sign artists, and to develop and record their music, in 2017, according to worldwide trade body IFPI.
Digital consumption of music: The rise of online music streaming made possible by platforms such as Spotify and Apple Music is providing relief to the music industry, which had long suffered from piracy and declining physical sales. In its S-1 filings, WMG points to several statistics from IFPI that highlight the growth of digital music:
Digital is the largest component of the recorded music industry, generating $12.9 billion of revenue in 2019, representing 64% of global recorded music revenue. Within digital, streaming generated about 88% of revenue.
Global consumers spent 18 hours listening to music each week in 2019.
In 2019, U.S. teens and millennials listened to an average of 32.6 and 29.7 hours of music each week, respectively, above the 26.9 hours for all U.S. consumers.
Streaming in the early innings: Despite its rapid adoption, global paid music streaming penetration still remains low.
Global paid music streaming subscribers totaled 341 million at the end of 2019, according to IFPI. This accounts for less than 11% of the 3.2 billion smartphone users across the world, according to Statista.
Emerging markets, such as Brazil and India, have low smartphone penetration compared to developed markets. Smartphone penetration for Brazil and India as of September 2019 was 46% and 25%, respectively, compared to 79% in the United States, according to Statista.
China had an estimated 33 million paid subscribers in 2018, according to IFPI. That’s just 2% of China’s population of over 1.4 billion.
Music labels vs. Streaming Platforms: Four music labels control 90+% of Spotify’s music, putting the labels in an advantageous negotiating position for royalty rates and rates of revenue sharing. While Spotify and Apple Music need these labels, the labels also need Spotify and Apple. In fiscal year 2019, revenue earned under WMG’s license agreements with its top two digital music accounts, Apple and Spotify, accounted for about 27% of its total revenues.
Recent Developments/COVID-19 Impact: In WMG’s updated S-1 filing, the company revealed WMG experienced a 12% increase in Recorded Music streaming revenue during the one month ended April 30, 2020. This, however, was offset by a drop in Recorded Music ad-supported revenue resulting from the impact of COVID-19 and download revenue due to the continued shift to streaming services, according to WMG. In April 2020, estimated total revenue was $295 million compared to $335 million a year earlier.
