Warner Music Group (WMG) ended its fiscal year 2024 on September 30 with a 7.3% increase in annual revenue, reaching $6.38 billion.

Subscription streaming revenue for Recorded Music climbed 8% year-over-year, hitting $2.54 billion and accounting for nearly 40% of total revenue. Digital revenues overall made up 66.6% of WMG’s total revenue, driven by a 12.6% rise in streaming revenue during the fourth quarter, fueled by a strong release schedule and improved ad-supported revenue.

Despite these gains, WMG faced notable challenges. Fourth-quarter profit dropped significantly due to the termination of a distribution agreement with BMG, which caused a $25 million revenue shortfall. Operating cash flow also fell 17% to $338 million during the quarter.

In addition, WMG launched a strategic restructuring plan, including layoffs affecting 750 employees, or 13% of its workforce, aiming to achieve $260 million in pre-tax cost savings by the end of fiscal 2025. In February 2024, the company had already announced a 10% workforce reduction, affecting approximately 600 employees,  primarily targeting owned and operated media properties, corporate, and support functions. The most recently planned layoffs are focused on divesting non-core media assets such as Uproxx and HipHopDX and winding down certain divisions like Interval Presents and IMGN. These actions aim to streamline operations and concentrate resources on core music operations, including artist development.

CEO Robert Kyncl highlighted WMG’s adaptability, stating, “Our performance this quarter and this year demonstrated our strength and adaptability in a thriving, fast-moving market.”

CFO Bryan Castellani praised the company’s financial discipline, adding, “Our strong streaming performance, underpinned by positive industry trends, and combined with our cost discipline, resulted in robust cash flow generation.”

While overall digital revenue grew modestly by 7%, subscription streaming outperformed, growing by 11.3% after adjustments for licensing changes. This growth offset weaker gains in ad-supported streaming, which rose just 3% year-over-year, reflecting a continued consumer preference for paid services over ad-supported models.

On the Music Publishing side, subscription streaming mirrored this success, rising 15% to $752 million. After adjustments, growth in this segment hit 19%, underscoring consistent demand and market expansion.

WMG also dealt with headwinds from licensing disruptions, particularly the BMG termination and adjusted partner agreements. Nevertheless, its steady subscription revenue growth signals strong execution amid a competitive market.

INSIDER TAKE

Warner Music Group’s performance highlights the critical role of subscription streaming revenue in the music industry. With nearly two-thirds of its digital revenue and 40% of total revenue derived from subscriptions, the company demonstrates a resilient and forward-thinking strategy.

Strengths:

• Resilience in Subscription Streaming: Adjusted growth of 11% in Recorded Music and 19% in Music Publishing underscores WMG’s ability to capitalize on global consumer preferences for paid services.
• Diversified Revenue Streams: WMG balances its portfolio effectively across Recorded Music and Music Publishing, reducing over-reliance on any single segment.

Challenges:

• Licensing Impact: The BMG termination and adjusted licensing agreements presented temporary setbacks, highlighting the need for stable partnerships.
• Ad-Supported Weakness: Ad-supported streaming saw only modest growth, with quarterly declines emphasizing its vulnerability compared to the stability of subscriptions.

Strategic Outlook:

WMG’s focus on growing its subscription footprint aligns with broader trends in the subscription economy. By streamlining operations and divesting non-core assets, the company is positioning itself for long-term growth. Addressing licensing challenges and further optimizing ad-supported revenues will be essential for sustained success. For subscription operators, WMG’s strategic approach serves as a case study in leveraging recurring revenue models while managing operational headwinds.