Warner Music Group Stock

Warner Music Group Corp., through its subsidiary, WMG Holdings Corp. (Holdings), operates as a music entertainment company.

The company's renowned family of iconic record labels, including Atlantic Records, Warner Records, Elektra Records and Parlophone Records, is home to many of the world's most popular and influential recording artists. In addition, Warner Chappell Music, the company's global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 150,000 songwriters and composers, with a global collection of more than one million musical compositions. The company's entrepreneurial spirit and passion for music has driven its recording artist and songwriter focused innovation for decades.

The company's Recorded Music business, home to superstar recording artists, such as Ed Sheeran, Bruno Mars, Cardi B and Dua Lipa, generated 82% of total revenues in fiscal 2023 (year ended September 30, 2023). The company's Music Publishing business, which includes esteemed songwriters, such as Twenty One Pilots, Lizzo and Katy Perry, generated 18% of total revenues in fiscal 2023 (year ended September 30, 2023). The company benefits from the scale of its global platform and its local focus.

Segments

The company operates in Recorded Music and Music Publishing segments.

Recorded Music

Recorded Music business primarily consists of the discovery and development of recording artists and the related marketing, promotion, distribution, sale and licensing of music created by such recording artists. The company plays an integral role in virtually all aspects of the recorded music value chain from discovering and developing talent to producing, distributing and selling music to marketing and promoting recording artists and their music.

In the United States, the company's Recorded Music business is conducted principally through its major record labels-Atlantic Records and Warner Records. In October 2018, the company launched Elektra Music Group in the United States as a standalone label group, which comprises the Elektra, Fueled by Ramen and Roadrunner labels, and in December 2021, the company acquired 300 Entertainment and subsequently launched 300 Elektra Entertainment, or 3EE, a frontline label group that brings together the multi-genre power of 300 Entertainment and Elektra Music Group. The company's Recorded Music business also includes Rhino Entertainment, a division that specializes in marketing its recorded music catalog through compilations, reissuances of previously released music and video titles and releasing previously unreleased material from its vault. The company also conducts its Recorded Music business through a collection of additional record labels, including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin' Records, TenThousand Projects, Warner Classics, and Warner Music Nashville.

Outside the United States, the company's Recorded Music business is conducted in more than 70 countries through various subsidiaries, affiliates, and non-affiliated licensees. Internationally, the company engages in the same activities as in the United States: discovering and signing artists and distributing, selling, marketing and promoting their music. In most cases, the company also markets, promotes, distributes and sells the music of those recording artists for whom its domestic record labels have international rights. In certain smaller markets, the company licenses the right to distribute and sell its music to non-affiliated third-party record labels.

The company's Recorded Music business' operations include WMX, a next generation services division that connects artists with fans and amplifies brands in creative, immersive, and engaging ways. This division includes a rebranded WEA commercial services and marketing network, which markets, distributes, and sells music and video products to retailers and wholesale distributors, as well as acting as the company's media and creative content arm. The company's business' distribution operations also include ADA, which markets, distributes, and sells the products of independent labels to retail and wholesale distributors; and various distribution centers and ventures operated internationally.

In addition to the company's music being sold in physical retail outlets, its music is also sold in physical form to online physical retailers, such as amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including streaming services, such as those of Amazon, Apple, Deezer, SoundCloud, Spotify, Tencent Music Entertainment Group and YouTube, radio services, such as iHeart Radio and SiriusXM and other download services.

The company has diversified its revenues beyond its traditional businesses by entering into expanded-rights deals with recording artists in order to partner with such artists in other aspects of their careers. Under these agreements, the company provides services to and participate in recording artists' activities outside the traditional recorded music business, such as touring, merchandising and sponsorships. The company has built and acquired artist services capabilities and platforms for marketing and distributing this broader set of music-related rights and participating more widely in the monetization of the artist brands it helps create.

A&R

The company has a decades-long history of identifying and contracting with recording artists who become commercially successful. The company's ability to select recording artists who are likely to be successful is a key element of its Recorded Music business' strategy and spans all music genres and all major geographies and includes recording artists who achieve national, regional and international success. This success is directly attributable to the company's experienced global team of artists and repertoire (A&R) executives, to the longstanding reputation and relationships that it has developed in the artistic community and to its effective management of this vital business function.

In the United States, the company's major record labels identify potentially successful recording artists, sign them to recording contracts, collaborate with them to develop recordings of their work and market and sell or license these finished recordings to legitimate digital channels and retail stores. Increasingly, the company is also expanding its participation in image and brand rights associated with artists, including merchandising and sponsorships. The company's labels scout and sign talent across all major music genres, including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, alternative, folk, blues, gospel and other Christian music. Internationally, the company markets and sells U.S. and local repertoire through its network of subsidiaries, affiliates and non-affiliated licensees. With a roster of local recording artists performing in various local languages throughout the world, the company has an ongoing commitment to developing local talent aimed at achieving national, regional or international success.

Many of the company's recording artists continue to appeal to audiences long after it ceases to release their new music. The company maximizes the value of its catalog of recorded music through its Rhino Entertainment business unit and through activities of each of its record labels. The company uses its catalog as a source of material for re-releases, box sets and special package releases, which provide consumers with incremental exposure to familiar music and recording artists. Rhino Entertainment also releases new music from legacy recording artists and markets and promotes the name and likeness of certain artist estates and brands.

Recording Artists' Contracts

The company's recording artists' contracts define the commercial relationship between its recording artists and its record labels. The company negotiates recording contracts with recording artists that define its rights to use the recording artists' music. In accordance with the terms of the contract, the recording artists receive royalties based on sales and other uses of such recording artists' music. The company customarily provides upfront payments to recording artists called advances, which are recoupable by it from future royalties otherwise payable to such recording artists.

Many of the recording contracts the company enters into are expanded-rights deals, in which it shares in the touring, merchandising, sponsorship, fan club or other ancillary music revenues associated with those artists.

Marketing and Promotion

The company's approach to marketing and promoting its recording artists and their music is comprehensive. The company seeks to increase the value of music and helps its recording artists connect with their fans.

Manufacturing, Packaging and Physical Distribution

The company has arrangements with various suppliers and distributors as part of its manufacturing, packaging and physical distribution services throughout the world.

Sales and Digital Distribution

The company generates revenues from the new releases of current artists and its catalog of recordings. In addition, it repackages music from its catalog to form new releases. The company's revenues are generated in digital formats, including streaming and downloads, CD format, as well as through historical formats, such as vinyl albums.

In connection with the digital distribution of its music, the company partners with a broad range of digital music services, such as Amazon, Apple, Deezer, KKBox, Spotify, Telefonica, Tencent Music Entertainment Group and YouTube, and are actively seeking to develop and grow is digital business. The company also sells traditional physical formats through both the online distribution arms of traditional retailers, such as target.com and walmart.com and traditional online physical retailers, such as amazon.com, bestbuy.com and barnesandnoble.com. Streaming services stream the company's music on an ad-supported or paid subscription basis. In addition, downloading services download the company's music on a per-album or per-track basis. In digital formats, per-unit costs related directly to physical products, such as manufacturing, distribution, inventory and return costs do not apply. The company sells its physical recorded music products through a variety of different retail and wholesale outlets, including music specialty stores, general entertainment specialty stores, supermarkets, mass merchants and discounters, independent retailers and other traditional retailers. Although some of the company's retailers are specialized, many of its customers offer a substantial range of products other than music.

Most of the company's physical sales represent purchases by a wholesale or retail distributor. The company's sale and return policies are in accordance with wholesaler and retailer requirements, applicable laws and regulations, territory and customer-specific negotiations and industry practice.

The company enters into agreements with digital music services to make its music available for access in digital formats (e.g., streaming and downloads). The company then provide digital assets for its music to these services in an accessible form. The company's agreements with these services establish its fees for the distribution of its music, which vary based on the service. The company typically receives accounting from these services on a monthly basis, detailing the distribution activity, with payments rendered on a monthly basis. In fiscal year 2023, Recorded Music revenue earned under the company's agreements with its top three digital music accounts, Spotify, YouTube and Apple, accounted for approximately 41% of its Recorded Music revenues. Since the emergence of digital formats, the company's business has become less seasonal in nature and driven more by the timing of its releases.

Music Publishing

While Recorded Music focuses on marketing, promoting, distributing and licensing a particular recording of a musical composition, Music Publishing is an intellectual property business focused on generating revenue from uses of the musical composition itself. In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, the company's Music Publishing business shares the revenues generated from use of the musical compositions with the songwriter or other rightsholders.

The operations of the company's Music Publishing business are conducted principally through Warner Chappell Music, its global music publishing company headquartered in Los Angeles, and through various subsidiaries, affiliates, and non-affiliated licensees and sub-publishers. The company owns or controls rights to more than one million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions. Assembled over decades, the company's award-winning catalog includes over 100,000 songwriters and composers and a diverse range of genres, including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative and gospel. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios. The company has an extensive production music catalog collectively branded as Warner Chappell Production Music.

Music Publishing Royalties

Warner Chappell Music, as a copyright owner and administrator of musical compositions, is entitled to receive royalties for the use of musical compositions. The company continually adds new musical compositions to its catalog and seek to acquire rights in musical compositions that will generate substantial revenue over the long term.

Music publishers generally receive royalties pursuant to public performance, digital, mechanical, synchronization and other licenses. In the United States, music publishers collect and administer mechanical royalties, and statutory rates are established pursuant to the U.S. Copyright Act of 1976, as amended, for the royalty rates applicable to musical compositions for sale and licensing of recordings embodying those musical compositions. In the United States, public performance income is administered and collected by music publishers and their performing rights organizations and in most countries outside the United States, collection, administration and allocation of both mechanical and performance income are undertaken and regulated by governmental or quasi-governmental authorities. Throughout the world, each synchronization license is generally subject to negotiation with a prospective licensee and, by contract, music publishers pay a contractually required percentage of synchronization income to the songwriters or their heirs and to any co-publishers or other rightsholders.

Warner Chappell Music acquires copyrights or portions of copyrights and administration rights from songwriters or other third-party holders of rights in musical compositions. Typically, in either case, the grantor of rights retains a right to receive a percentage of revenues collected by Warner Chappell Music. As an owner and administrator of musical compositions, the company promotes the use of those musical compositions by others. For example, the company encourages recording artists to record and include its musical compositions on their recordings, offer opportunities to include its musical compositions in filmed entertainment, advertisements and digital media and advocate for the use of its musical compositions in live stage productions. Examples of music uses that generate music publishing revenues include:

Performance: Performance of the song to the general public include broadcast of musical compositions on television, radio and cable; live performance at a concert or other venue (e.g., arena concerts, nightclubs); broadcast of musical compositions at sporting events, restaurants or bars; and performance of musical compositions in staged theatrical productions.

Digital: Licensing of recorded music in various digital formats and digital performance of musical compositions to the general public, such as streaming and download services; social media and short-form video platforms; and graphic design and editing software and other creator tools.

Mechanical: sale of recorded music in various physical formats, such as Vinyl, CDs, and DVDs.

Synchronization: Use of the musical composition in combination with visual images, such as films or television programs; television commercials; video games; and merchandising, toys or novelty items.

Other: Licensing of copyrights for use in printed sheet music.

Key performing rights organizations and collecting societies include The American Society of Composers, Authors and Publishers (ASCAP), SESAC and Broadcast Music, Inc. (BMI) in the United States; PRS for Music Ltd in the United Kingdom; and Societe des auteurs, compositeurs et edituers de musique (SACEM) in France. The societies pay a percentage (which is set in each country) of the performance royalties to the copyright owner(s) or administrators (i.e., the publisher(s)), and a percentage directly to the songwriter(s), of the composition.

Composers' and Lyricists' Contracts

Warner Chappell Music derives its rights through contracts with composers, lyricists (songwriters) or their heirs and with third-party music publishers. In some instances, those contracts grant either 100% or some lesser percentage of copyright ownership in musical compositions and/or administration rights. In other instances, those contracts only convey to Warner Chappell Music rights to administer musical compositions for a period of time without conveying a copyright ownership interest. The company's contracts grant it exclusive use rights in the territories concerned excepting any pre-existing arrangements. Many of the company's contracts grant it rights on a global basis. Warner Chappell Music customarily possesses administration rights for every musical composition created by the writer or composer during the exclusive acquisition term of the contract.

While the duration of the administration rights under contracts may vary, some of the company's contracts grant it ownership and/or administration rights for the duration of copyright.

Recording Artist and Songwriter Value Proposition

The company's success is a function of attracting exceptional talent and helping them build long and lucrative careers. In an environment where music entertainment companies often fiercely compete to sign recording artists and songwriters, its ability to differentiate its core capabilities is crucial.

Welcoming Talent

The company offers recording artists and songwriters numerous pathways into its ecosystem. Whether it is an up-and-coming songwriter making music in his or her bedroom, a breakout superstar recording artist selling out stadiums or an icon looking to curate a legacy, the company offers the necessary support and resources.

The company is not just searching for immediate hits. The company scouts and signs talent with the market potential for longevity and lasting impact. As a result, the company is investing in more new music every year without losing its commitment to each recording artist and songwriter. It is that focus, patience and passion that has built and sustained the reputation that perpetuates the company's cycle of success.

Creative Partnership

The company's A&R executives both champion and challenge the talent they sign, empowering them to realize their visions and evolve over time. The company's longstanding relationships within the creative community also provide its recording artists and songwriters with a wide network of collaborators, which is a vital part of helping them to realize their best work. The company provides the investment that gives its recording artists and songwriters the requisite time and space to experiment and flourish. This includes access to a multitude of songwriters' rooms and recording studios around the globe with more to come.

Marketing and Promotional Firepower

The company is expert in the art of amplification, with proven specialties in every aspect of marketing and promotion. From every meaningful digital music service and social media network to radio, press, film, television and retail, the company is plugged into the most influential people and platforms for music entertainment. At the same time, by combining its collective experience with billions of transactions each and every week, the company gathers the insights needed to make meaningful commercial decisions grounded in data-based discipline. Most importantly, the company quickly adapts to changes in how music is consumed to maximize the opportunities for its recording artists and songwriters. For example, the company quickly honed its expertise in securing placement on playlists and other valuable positioning on digital music services.

Global Reach and Local Expertise

The company's approach combines a deep understanding of local cultures, with a close-knit, nimble team that is in constant communication around the world.

A Broad Universe of Opportunity

Albums, singles, videos and songs are still the primary drivers for the company's business. But as the demand for music has grown, music has been woven into the fabric of the company's daily lives in new and increasingly sophisticated ways.

In its Recorded Music business, beyond digital and physical revenue streams, the company provides a wide array of artist services, including merchandise, e-commerce, VIP ticketing and fan clubs. In its Music Publishing business, the company takes an active role in expanding the consumption of music, through performance, digital, mechanical, synchronization and the original music publishing revenue stream, sheet music. Last year, the company launched a creative services team that is tasked with finding innovative ways to revitalize catalogs and create new possibilities for its songwriters.

In 2017, the company launched a film and television unit and subsequently acquired additional video production capabilities in order to offer greater storytelling possibilities for its recording artists and songwriters.

The centralization of the company's technology capabilities and data insights has resulted in increased transparency of its royalty reporting to its recording artists and songwriters.

Representative Sample of Recording Artists and Songwriters

The company's Recorded Music business includes music from:

Global superstars, such as Ed Sheeran, Dua Lipa, Coldplay, Cardi B, Bruno Mars, Michael Buble, Lizzo, Kelly Clarkson, David Guetta, Kenny Chesney, Madonna, Neil Young, Red Hot Chili Peppers, Prince, Green Day, Cher, Pink Floyd, David Bowie, Fleetwood Mac, Aretha Franklin, and The Smiths.

Next-generation talent, including Zach Bryan, Megan Thee Stallion, Jack Harlow, Lil Uzi Vert, Fred Again.., PinkPantheress, Maria Becerra, Kenya Grace, Gayle, and CKay.

International stars, such as Burna Boy, Aya Nakamura, King, TWICE, Ninho, Capo Plaza, Pablo Alborán, Udo Lindenberg, and Laura Pausini.

The company's Music Publishing business includes musical compositions by:

Superstars, such as Madonna, William Corgan, Belly, Cardi B, Bruno Mars, Anderson Paak, Lizzo, Tones and I, Pablo Alborán, Lin Manuel Miranda, Lil Uzi Vert, Imagine Dragons, Chris Stapleton, Dan + Shay, Tayla Parx, Damon Albarn, Dave Mustaine, Katy Perry, and Kacey Musgraves.

International talent, such as Jonathan Lee, Tia, Manuel Medrano, Melendi, Bausa, Shy'm, Tove Lo, Joaquin Sabina, Raye, Stromae, Jack & Coke, Marco Borreo, Danna Paola, and MZMC.

Songwriting icons like David Bowie, Cole Porter, Grateful Dead, Led Zeppelin, Quincy Jones, George Michael, Marco Antonio Solís, Eric Clapton, Brody Brown, Liz Rose, Justin Tranter, busbee, Zach Bryan, Stephen Sondheim, George & Ira Gershwin, and Gamble & Huff.

Acquisitions

In August 2023, the company purchased 51 % of the issued and outstanding equity securities of TenThousand Projects Holdings LLC (TenThousand Projects), an independent U.S. record label, pursuant to the terms of the unit purchase agreement of the same date among Warner Music Inc., a wholly-owned subsidiary of the company, TenThousand Projects LLC, and Ten Thousand Projects Holdings LLC (the Unit Purchase Agreement).

Strategy

The key elements of the company's strategy are to attract, develop and retain established and emerging recording artists and songwriters; focus on growth markets to position it to realize upside from incremental penetration of streaming; expand global presence with investment in local music in nascent markets; embrace commercial innovation with new digital distributors and partners; and pursue acquisitions to enhance asset portfolio and long-term growth.

Trademarks

The company's major trademarks include 300 Entertainment, ADA, Asylum, Atlantic, East West, Elektra, EMP, Erato, Nonesuch, Parlophone, Reprise, Rhino, Roadrunner, Sire, Songkick, SPINNIN' RECORDS, TenThousand Projects and Warner Chappell, and their respective logos. The company also uses certain trademarks pursuant to a royalty-free license agreement. The duration of the license relating to the WARNER, WARNER MUSIC and WARNER RECORDS word marks and W logo is perpetual, but may be terminated under certain limited circumstances, including its material breach of the license agreement and certain events of insolvency.

Joint Ventures

The company has entered into joint venture arrangements pursuant to which the company or its various subsidiary companies distribute, market, promote, license and sell (in most cases, domestically and internationally) recordings and other rights owned by the joint ventures. An example of this arrangement is Frank Sinatra Enterprises, a joint venture established to administer licenses for use of Frank Sinatra's name and likeness and manage all aspects of his music, film and stage content.

History

Warner Music Group Corp. was founded in 1929. The company was incorporated in 2003.