The world of music is digitalizing fast and is controlled today by music streaming services. The days of physical records and CDs dominating this auditory medium are now over. One would think that this would deteriorate record labels profitability, but, in actuality, this has been boosting toplines and expanding margins for those labels savvy enough to evolve with the industry. Warner Music Group is one such beneficiary and just filed documentation to go public on Thursday February 6
th, under the proposed ticker: WMG.
While companies like Spotify (
SPOT Quick Quote SPOT - Free Report) , Apple Music ( AAPL Quick Quote AAPL - Free Report) , Amazon Music ( AMZN Quick Quote AMZN - Free Report) , YouTube Music ( GOOGL Quick Quote GOOGL - Free Report) , and a slew of others storm the streaming space, record labels like Warner can sit back and enjoy the profits of this growing service. More and more people are subscribing to these services giving customers virtually every song available at their fingertips.
The music industry has been growing fast with streaming making up 80% of its annual revenue, according to
RIAA Music Revenues Report. Streaming revenues grew by 26% in the first half of 2019 and are expected to continue at this rapid rate of expansion.
Warner Music has effectively transitioned to the digitalizing music landscape. Digital sales make up a growing majority of the company’s topline and are this music conglomerates strongest growth driver. Digital music sales, driven by streaming, have been growing in the high-to-mid teens over the last three years. These sales exhibit higher margins than physical music sales because of the obvious lack of material investment that records, CDs, and other physical mediums require.
Warner Music Group top labels include Atlantic Record, Elektra Records, and Warner Records, with 100s of hit artists ranging from music icons like Madonna to hot new artists like Lizzo. Warner Music Group is the third-largest music company behind Universal Music and Sony Music (
SNE Quick Quote SNE - Free Report) .
This IPO is not being used to raise money for Warner Music but rather provide liquidity for its investors. Len Blavatnik‘s privately held conglomerate, Access Industries, acquired Warner Music Group for $3.3 billion. The company has thrived under Access’s leadership, and now Blavatnik wants some return on his investment. Warner’s rival Universal Music Group just sold 10% of its stake to Tencent Holding (
TCEHY Quick Quote TCEHY - Free Report) , which valued the company at $33 billion.
Blavatnik is hoping that his music giant will be valued in close accordance with this competitor, especially considering the robust growth outlook of not only this company but the sector. Goldman Sachs is estimating that the music market will be worth $45 billion in annual revenue by 2030, with streaming being the primary catalyst. This would represent 135% growth from what the industry netted in 2018, according to a
WSJ article. Take Away
The exact date in which Warner Music Group will be debuting its share to the public is yet to be set as well as the number of shares that will be released. This firm has been able to take advantage of the evolving music landscape and is embracing streaming services. The company is on the right side of the music streaming war as new entries to the market only broaden its accessible market.
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