Music Majors in the Streaming Economy: Warner Music Group

In its last annual report Warner Music Group (WMG) exhibited a total revenue of US $3.58bn – the highest since the recorded music company was sold by Time-Warner to the Investor Group in 2003. Although overall costs also increased to US $3.15bn (WMG 2017: 38-39), the operating income is remarkably high with US $222m (WMG 2017: 40) especially compared to the disastrous results of the early 2000 years with annual losses of about 1 billion US$. The main driver of the revenue growth is the music streaming boom. In the recorded music segment streaming revenue increased by US $434m to US 1.34bn in the fiscal year ending on September 30, 2017. The music publishing segment contributed a further increase of US $58m of streaming revenue (WMG 2017: 36). Thus, WMG earned almost US $500m more with music streaming in 2017 compared to 2016. The further analysis highlights how the music major’s business model has shifted to the music streaming economy.


Music Majors in the Streaming Economy: Warner Music Group

Warner Music Group (WMG) has two main business segments – a recorded music business and Warner/Chappell music publishing. Over the years recorded music has contributed the lion share of at least 80 percent of the total revenue. Thus, the recorded music segment is highly relevant for the financial performance of WMG in the observation period.


Figure 1: WMG’s overall revenue by business segments, 2001-2017

Sources: Time Warner Group annual reports 2001-2002; WMG annual reports, 2003-2017.


A) Recorded music segment

A.1. Revenues

Figure 2: WMG’s recorded music revenues by segments, 2001-2017

Sources: Time Warner Group annual reports 2001-2002; WMG annual reports, 2003-2017.


CD sales dominated WMG’s recorded music revenues until 2004. Despite a 9.6 percent drop in physical sales in 2005, the overall recorded music revenue increased by 2.7 percent to US $ 2.92bn due to ringtones sales and licensing revenue. In 2006, recorded music sales peaked at US $3.0bn because of increasing digital sales that compensated for the loss of physical sales. However, the growth of digital sales – mainly from music downloads – could not compensate for the dramatic decrease of 61.0 percent in physical sales from US $2.59bn in 2006 to US $0.97bn in 2012. For 2012, WMG reported the first revenues from music streaming that increased by US$ 58m to US $202m. In the same year, WMG exhibited also for the first time a revenue for expanded rights deals – Warner’s term for 360° deals – and merchandising. In the following year, WMG managed the turnaround to sustainable growth. The revenue from music streaming increased by 37.1 percent to US $277m and download as well as other digital music sales peaked at US $720m. In the following years, music streaming was the main driver for revenue growth in the recorded music segment. Streaming revenue exploded by almost 200% from US $277 in 2013 to US $1.34bn in 2017, offset by decreases in download and other digital sales of US $370m or 51.4 percent. Despite further declining physical sales to US $ 667m and weaker download sales, overall recorded music sales hit a historical high of US $3.02bn in 2017 due to music streaming. Streaming revenue accounted for 44.4 percent of total revenue and 79.3 percent of digital revenue in 2017. It has become the most important single revenue source for WMG.


Figure 3: WMG’s revenues from music streaming compared to download and other digital music sales

Sources: WMG annual reports, 2011-2017.


Figure 4: WMG’s recorded music revenue shares, 2007, 2012 and 2017

Sources: WMG annual reports, 2007, 2012 and 2017.


A.2. Cost of revenue and other costs

WMG’s costs that are directly connected with the production and manufacturing of recorded music comprises of artist and repertoire costs also including licensing costs as well as product costs.


Figure 5: WMG’s recorded music cost of revenues, 2005-2017

Sources: WMG annual reports, 2005-2017.


In a restructuring plan the new owners of WMG, who had bought the company from Time-Warner in 2003, terminated a lot of artist contracts, which resulted in one-time restructuring costs of US $72m (WMG 2005: 109).

The recorded music cost of revenues remained relatively stable at a level of US $1.5bn until 2008. When the recorded music revenue decreased in 2009 due to declining CDs sales that could not be compensated by increasing digital music sales, the costs for signing new artists and acquiring new repertory were cut by almost US$ 100m (22.1 percent) to US$ 679m. The 2011 annual report highlighted that the “(…) decrease in artist and repertoire costs was driven by the decrease in revenue, a cost-recovery benefit related to the early termination of certain artist contracts and a benefit from increased recoupment on artists whose advances were previously written off.” (WMG 2011: 64). In comparison the product related costs remained stable, but with a significant decrease in 2012 by US $135m due to further decreasing physical sales and lower artist services costs in the European concert promotion business (WMG 2012: 65).


Figure 6: WMG’s recorded music other costs, 2005-2017

Sources: WMG annual reports, 2005-2017.


Selling and marketing expenses were also cut in the same period by US $202m – more than a third to US $385m, whereas overhead and distribution expenses remained more or less stable. We can, therefore, conclude that WMG countered the decline in recorded music revenue by terminating artist contracts and with less new signings than in the years before. WMG also spent less on marketing and sales, but did not significantly cut general and administrative expenses.

When music streaming has become a relevant revenue source in the recorded music segment, the cost of revenues increased by 29.8 percent to US $ 1.59bn from 2012-2017, especially due to higher A&R costs in the past two years – 30.7 percent to US $964m (WMG 2017: 44). The annual report of 2017 explained that “(…) the increase was driven by strong performance from lower margin repertoire and higher artist related costs and investment.” (ibid.) It seems that music streaming enabled WMG to invest more in artist development and in new signings. WMG also spent more on sales & marketing in the streaming economy by increasing the marketing expenses by 20.8 percent in the past five years.


A.3. Operating income and OIBDA[1]

Hence, it is no surprise that WMG could improve its profitability in the music streaming boom.


Figure 7: WMG’s recorded music operating income and OIBDA, 2001-2017

Sources: Time Warner Group annual reports 2001-2002; WMG annual reports, 2003-2017.


After disastrous losses from 2001 to 2004, the operating income became positive in 2005 after a wide-ranging restructuring program. The Investor Group that had bought Warner Music Group from the Time-Warner conglomerate in 2003 sold CD and DVD manufacturing (WEA Manufacturing Inc. und die Warner Music Manufacturing Europe GmbH), packaging (Ivy Hill Corporation) and Giant Merchandising for US$ 1.1bn to Cinram (WMG 2005: 10). WMG also reduced the number of employees by 1,600 to 4,000, which caused one-time restructuring costs of US $164m for employee termination benefits and relocation (WMG 2005: 109). The shift to the digital music business model improved the cost structures and stabilized profitability since 2006 despite several acquisitions of recorded music labels (e.g. Ryko and Parlophone Music Group). Due to music streaming the revenue-costs-relation further improved and resulted in the highest operating income of US $283m in 2017. The OIBDA for recorded music modestly decreased in 2017 as “(…) a result of higher artist and repertoire costs and general and administrative expenses.” (WMG 2017: 45).


B) Music publishing segment

B.1. Revenues

WMG describes its music publishing business of Warner/Chappell as the acquisition of rights to musical compositions from songwriters, composers or other rights holders to exploit and market these rights and receives royalties or fees for their use. Therefore, music publishing revenues are derived from five sources: mechanical, performance, synchronization fees, digital and other uses (WMG 2015: 1).

Music publishing revenue accounted up to 20 percent of WMG’s total revenue depending on the year. In contrast to recorded music, publishing revenues remained more or less stable in the observation period from 2001-2017. Warner/Chappell reported the highest revenue of US $623m in 2008 and the lowest with US $482 in 2015. WMG’s music publishing sector, therefore, did not fall into a recession as the recorded music sector. However, the revenue mix fundamentally changed in the course of digitization.


Figure 8: WMG’s music publishing revenues by segments, 2005-2017

Sources: WMG annual reports, 2005-2017.

In 2005, mechanical fees from licensing copyrights directly and indirectly via mechanical rights organizations (MROs) to recorded music labels were by far the most important revenue source for Warner/Chappell. US $264m of mechanical royalties accounted for 43.5 percent of total music publishing revenue. In contrast, the revenue of US $20m from digital uses accounted just for 3.3 percent of the total. In 2017, we can observe the opposite. Digital royalties of US $187m have become an essential revenue source of music publishing, nearly as important as performance royalties which are collected by performance rights organizations (PROs) mainly from music live performances and broadcasting. In 2016, digital royalties outperformed the revenue of synchronization fees from the use of songs in TV and film productions, commercials and videogames, which is the third important revenue source with US $112m yet.


Figure 9: WMG’s music publishing revenue shares, 2005 and 2017

Sources: WMG annual reports, 2005 and 2017.


Especially in the past two years digital royalties significantly grew by 42.4 percent in 2016 and 32.6 percent in 2017, respectively. The WMG 2016 annual report highlighted that growth of digital royalties was due to “(…) an increase in streaming of $58 million, partially offset by digital download and other digital declines of $12 million.” (WMG 2017: 37). In the following year, revenue from music streaming increased by further US $37m and, thus, accounted for the lion share of the digital revenue (WMG 2017: 36). Music streaming, therefore, is the most important driver of music publishing revenue.


B.2. Cost of revenues and other costs

Warner/Chappell’s cost of revenue is solely defined by A&R costs. In the cost cutting program of 2003 a lot of songwriters and co-publisher contract were terminated (WMG 2005: 109). Hence, the cost of revenues decreased to US $70m in 2005 and to an even lower level of US $50m a year later mainly due to the sale of Warner Bros. Publications’ sheet music business in 2005.


Figure 10: WMG’s music publishing cost of revenues, 2005-2017

Sources: WMG annual reports, 2005-2017.


Figure 11: WMG’s music publishing other costs, 2005-2017

Sources: WMG annual reports, 2005-2017.


However, WMG augmented the music publishing catalogue in the following years by purchasing Non-Stop-Music in 2007, Groove Addicts Production Music Library and Carlin Recorded Music Library in 2010 as well as 615 Music and Southside Independent Music Publishing in 2011 (WMG 2011: 12). Especially the acquisitions of Southside with Bruno Mars’ copyrights significantly increased Warner/Chappell’s value of copyrights by 52.5 percent to almost US $1.5bn in 2011. Despite the acquisitions the music publishing cost of revenues remained more or less stable at the level of US $70m as well as administration and marketing expenses.


Figure 12: Warner/Chappell’s value of copyrights, 2004-2017

Sources: WMG annual reports, 2004-2017.


B.3. Operating income and OIBDA

In 2002, Warner/Chappell – then part of the Time-Warner conglomerate – had to decrease the useful life of its music publishing copyrights from 20 years to 15 which increased amortization expenses by approximately US $50 million. Along with lower revenues, operating income for 2002 was deeply in red with US $273 (Time Warner 2002: 30). The sale of WMG to the Investor Group brought Warner/Chappell back on track. The new management increased profitability by a restructuring program and sold the sheet music business in 2006. Thus, the music publishing operating income stabilized in the range from US $50-100m per year and the OIBDA oscillated around the US $150m mark despite several acquisitions of music publishing catalogues and libraries.


Figure 13: Warner/Chappell’s operating income and OIBDA, 2001-2017

Sources: Time Warner Group annual reports 2001-2002; WMG annual reports, 2003-2017.



As already analysed in an earlier contribution, WMG was rebuilt from a company manufacturing and selling CDs to a conglomerate of music catalogues that are licensed to digital music service providers since 2003. WMG sold its manufacturing facilities and physical distribution channels, but also performed a wide-ranging restructuring program cutting the number of employees by almost 30 percent, terminating a lot of artist and songwriter contracts and cutting marketing & sales costs. Instead WMG invested in the acquisition of recorded music and music publishing catalogues that could be perfectly monetized when the music streaming boom unfolded. The music streaming business model relies on quantity. The larger the pool of economically relevant recordings and copyrights the better. Therefore, WMG transformed into a global licensing platform for recorded music and music publishing rights. WMG doubled its music publishing business and purchased several recorded music companies – Parlophone Music Group, Roadrunner Records and Ryko – to exploit valuable master rights. Thus, profits (operating income) increased to a historical high that enabled higher investment in new artist signings and the acquisition of new repertoire along with higher expenses for marketing & sales. It seems to be evident that cost savings in the production and dissemination of music are offset now by higher marketing costs in the music streaming economy. The recorded music companies have to increase the visibility of its productions in an ocean of online music. A music major, such as WMG, has the marketing power to gain the attention of music consumers for its music to channel substantial revenues from music streaming in its pocket.



Music Business Research Blog, “Warner Music Group in the Digital Paradigm Shift“, December 27, 2016 (accessed February 26, 2018).

Time Warner Group, Annual reports for 2001 and 2002.

WMG, Annual Reports for 2003 to 2017.



[1] OIBDA = Operating income before depreciation and amortization.


1 Response to “Music Majors in the Streaming Economy: Warner Music Group”

  1. May 1, 2021 at 1:02 pm

    Hi Peter,
    I agree with you. The way you explain even I also do not think like that. Very well explain. Music is one of the major ways to grow the economy.

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