Warner's Steve Cooper Talks Virtual Artists, The Value Of Record Labels

It’s been just over a year since Warner Music Group floated on the Nasdaq on June 3 2020, following a delay to its IPO caused by uncertainty over the Coronavirus pandemic. According to Warner Music Group CEO Steve Cooper, speaking on the company’s fiscal Q3 (but calendar Q2) earnings call this week, WMG’s “first year as a publicly traded company, despite home confinement, has been one of the most satisfying in my career”.This is the case, he says, because WMG’s “artists and songwriters backed by our outstanding team have accomplished so much during a very trying time”.Some of those accomplishments were highlighted this week in Warner Music Groups’ fiscal Q3 (but calendar Q2) results, in which WMG reported that it generated quarterly recorded music revenues of over a billion dollars for the third consecutive quarter. Revealed yesterday (August 3), the company’s quarterly recorded music revenues for the three months to end of June, – including streaming, digital and physical sales, plus ancillary income – hit $1.152 billion, up 34% year-on-year (or 27.6% in constant currency).$781 million of that recorded music figure in calendar Q2 2021 was generated by streaming, which grew $192m, or 32.6% (27.2% in constant currency), from $589m in calendar Q2 2020. “WE CONTINUED TO KEEP PACE THROUGH OUR CONSTANT EVOLUTION, AND AS A RESULT, WE’VE GROWN STRONGER THAN EVER.”-STEVE COOPER “We’re really fortunate that in looking back over our third quarter, we can celebrate the extraordinary achievements of our global team, our artists, our songwriters and our partners during this really crazy time,” added Cooper. “Entertainment consumption habits have been changing swiftly during COVID and the growth in new business models have been accelerating. “We continued to keep pace through our constant evolution, and as a result, we’ve grown stronger than ever.” Cooper was grilled about the company’s earnings on the call with analysts this week. Here are four things that stood out for us…

REVENUE FROM EMERGING PLATFORMS LIKE TIKTOK AND PELOTON “IS NOW RUNNING AT ROUGHLY $235 MILLION ON AN ANNUALIZED BASIS”…

In his opening remarks, Cooper explained that the “music ecosphere is so much more than albums, singles and videos” and added that WMG is therefore “continuously transforming to become a tech enabled digital first company in order to deliver long-term growth”. What that means in practice, according to Cooper, is that “while subscription streaming has a long runway ahead of it,” Warner Music Group is also actively “positioning itself at the center” of the convergence of the social gaming, digital fitness and music spaces. WMG’s involvement across these sectors can be seen with the likes of the stake it bought in virtual concerts platform Wave back in May, and its participation in the $520m investment round in video game platform Roblox in January. According to Cooper, as a result of WMG’s “digital first strategy”, the company’s revenue from emerging platforms, including Facebook, video app TikTok and fitness platform Peloton “is now running at roughly $235 million on an annualized basis”. Cooper also confirmed that this figure is “just from recorded music”. “Look for more announcements to come in the near future about new investments, partnerships and collaborations,” added Cooper.

WARNER MUSIC GROUP’S NETWORK OF MEDIA BRANDS GIVE IT “A REAL EDGE IN TERMS OF UNDERSTANDING FAN BEHAVIOUR”.

Over the past couple of years, MBW has been following Warner Music Group’s evolution from a major music company into a fully-fledged media publisher. This transition was clear to see in 2018 and 2020 when WMG acquired media brands UPROXX and HipHopDX, respectively. WMG also bought Instagram and TikTok meme-maker IMGN a couple of years back for around $85m. Speaking on the company’s earnings call this week, Cooper said that WMG has been “differentiating ourselves in the market by building an influential network of consumer destinations”. “IT’S A POWERFUL THING FOR US TO CONTROL OUR OWN NETWORK OF MEDIA BRANDS. THIS IS SOMETHING UNIQUE TO THE WARNER MUSIC GROUP.” He added: “Each brand has music in its DNA and command its own independent audience of loyal fans. “Our strategy to turbocharge growth included bringing together our owned media channels under a newly formed digital advertising and creative content unit “These coordinated channels, which include UPROXX, Songkick, IMGN, HipHopDX, and Cover Nation have all seen accelerated growth over the past year.” Cooper suggested that “it’s a powerful thing for us to control our own network of media brands” and that “this is something unique to the Warner Music Group”. “These assets manually drive digital ad revenue, they give us a real edge in terms of understanding fan behavior, quickly catching new trends and identifying cultural shifts,” added Cooper. IT’S BENEFICIAL FOR ARTISTS TO WORK WITH LABELS IN ORDER TO “CUT THROUGH THE NOISE” OF THE “TENS OF THOUSANDS OF TRACKS” BEING UPLOADED TO MUSIC STREAMING PLATFORMS.. During his opening remarks, Cooper highlighted the recent news that WMG has acquired David Guetta’s (pictured inset) entire recordings catalog as well as agreeing a deal with him for future recordings.According to Cooper, “performers at his level can choose any route to release their music, and our new partnership is a great endorsement of the value we offer to creative community at all stages of their careers”. An analyst dug into this point, asking for more detail on the value that a label can offer an artist in the current and future industry landscape, noting in particular that “there is concern in the marketplace that eventually technology disintermediates the label value”. Cooper responded that it’s beneficial for artists to work with labels because, “despite the tools that are available in the digital world, the ability to effectively utilize those tools and amplify an artists career, their music, their social presence through an organization that has a global and local footprint literally around the globe can’t be underestimated”. “THE VALUE A LABEL BRINGS TO AN ARTIST IS THE ABILITY TO HELP THEM CUT THROUGH THE NOISE.” He then noted that there are “literally tens of thousands of tracks” being uploaded to music streaming services every day, and suggested further that “the number probably now is somewhere between half a million to three quarters of a million tracks a week that are being uploaded”. (Back in February, Spotify alone revealed that 60,000 new tracks are now being ingested by its platform every single day.) “The value a label brings to an artist is the ability to help them cut through the noise of a 0.5 million or three quarters of a million tracks, and separate their music and their career from literally all of this noise,” added Cooper. “When you look at really, really well established, tremendous global superstars, all of whom have had the opportunity to pivot away from labels, utilize the digital tools available and go solo so to speak … virtually none of them — none of them have taken that decision to pivot away from the labels. “At the end of the day it is not that easy to separate the really great music and the great artists without an organization such as ours behind that. It is really, really hard work.” VIRTUAL ARTISTS ARE NO “FLASH IN THE PAN”, SAYS COOPER. THEY’RE “HERE TO STAY”. At the end of July, Warner Music Group‘s pan-Asian dance label in China Whet Records announced that it has signed a virtual artist called Ha Jiang, which is what’s known locally as a “virtual idol”. These virtual characters are popular in Asia and particularly in China and Japan, some of whom have amassed significant fan bases. Cooper was quizzed by an analyst about the signing and how much of an Asia specific opportunity virtual idols are, how positioned WMG is to benefit from growth in this field and if there’s potential for growth outside of Asia.According to Cooper: “When you look at social gaming and these metaverses, we are already talking about dealing in the virtual world, where people have their own avatars. “Creating virtual only beings is not an illogical next step. And while this has been predominantly the domain of certain Asian countries, the wonderful thing about it is, you can create these characters, and you can create a tremendous fan base relative to these characters. “WE’RE DETERMINED TO LEAD THE CROSSOVERS OF THESE VIRTUAL BEINGS INTO THE WORLD OF MUSIC.” He added: “I’ll give you something that’s a bit analogous, even though it’s not quite all in the digital format. When you watch a Marvel movie, you’re talking about characters that don’t exist in real life, and you’re talking about computer generated imaging that doesn’t exist in real life. “But yet when you look at the success of these characters, you look at the success of Marvel, you look at the success of many of the soundtracks, which in many cases we provide, and you look at the fanbase for these characters, being able to do this in a virtual world is really not a massive step. “And it’s a step where we’re determined to lead the crossovers of these virtual beings into the world of music. So, I don’t think it’s a flash in the pan. It’s here to stay. And not only do I think it’s here to stay, I think it’s here to grow.”