Warner Music’s New CEO Calls Songs “Undervalued,” Charts “Next Phase of Our Evolution”

Warner Music Group, home to the likes of Ed Sheeran, Cardi B and Bruno Mars, reported lower fiscal first-quarter revenue and earnings Thursday as new CEO Robert Kyncl set his sights on “the next phase of our evolution,” while also highlighting “a challenging business environment.”

The latest quarter was hit by timing factors as the comparable year-ago period included an additional week, as well as foreign currency impacts.

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Revenue for the quarter ending Dec. 31 fell 8 percent, or 3 percent in constant currencies, to $1.49 billion. That was driven by an 11 percent drop in recorded music (or 6 percent on a constant-currency basis) and a 5 percent decline (or 1 percent on a constant-currency basis) in digital revenue, including a 4 percent drop in streaming revenue. Though WMG noted that was “underlying growth in total streaming revenue despite a challenged macroeconomic environment.” Music publishing revenue rose 9 percent (or 14 percent on a constant-currency basis).

WMG’s quarterly net income of $124 million fell 34 percent from $188 million in the prior-year period. Adjusted operating income before depreciation and amortization (OIBDA) decreased 6 percent to $335 million.

In the music major’s publishing unit, top sellers in the latest period included the Red Hot Chili Peppers, Zach Bryan, Lizzo and Sheeran.

“This was a tough quarter,” Kyncl told a morning analyst call as the company faced “macro-economic headwinds” and the impact of currency exchange rates. But the former YouTube chief business officer added Warner Music expects a strong release schedule in the second half of 2023, with artists like Sheeran, Cardi B and David Guetta bringing their latest work to market.

Kyncl replaced Stephen Cooper as head of the music label on Jan. 1. The longtime executive was key in bolstering YouTube’s business relationships with online creators and ensuring the video and music platform was a top platform for creator monetization.

Kyncl pointed to recent hires as he looked to drive investment in new artists and songwriters at the label, which is a major partner for YouTube and its streaming app, YouTube Music. “I plan on bringing the same approach to WMG and the industry so that our interests are aligned with our partners, and that our artists and songwriters gain maximum participation and monetization,” he told analysts.

While noting he had only been in the top job for five weeks, Kyncl talked about his growth strategy at WMG in response to questions from analysts, and he pointed to investments in technology, likely to include artificial intelligence software and apps, to reduce costs and drive market reach for creators.

“AI is probably one of the most transformative things that humanity has ever seen, so because of that, yes, we’re paying close attention to that,” Kyncl argued of a business environment where music is increasingly being generated using AI apps.

The new WMG head also said music content was “undervalued,” but gave little away about how he would drive more profitability from the label’s product. “I know I’m not giving you much of the specifics other than I have a history of getting things done, and I have a history of being collaborative. And I want the industry to grow for everyone,” Kyncl said on the call as he recalled his experience developing YouTube Music and its freemium business model.

YouTube Music like Spotify offers a free plan for consumers to stream music with commercials, while also having an option to upgrade to an ad-free premium account. Kyncl also responded to a question about indie music tracks increasingly taking share of play on online music streaming platforms away from major record labels and their artists.

He insisted it was on WMG to fight back against new competition. “Obviously, it’s something I keep an eye on, but it’s fair game. These are platforms where content providers are uploading content, and we have to do a great job and have a robust catalog,” Kyncl said.

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