Description

WMG offers an opportunity to invest in a pure-play music content company that is well positioned to benefit from the growth of music consumption worldwide. Music is one the most consumed forms of entertainment in the world (18.4 hours per week in 2021 according to IFPI) with time spent listening increasing each year. Fans are also highly engaged with music: 54% of people surveyed by IFPI say they “love or are fanatical about music” and it is a form of entertainment which has high engagement across age groups and geographies. Music content companies supply music for fans and represent high quality businesses in industries that have demonstrated reliable growth. The recorded music and music publishing industries are growing, driven by consumer trends in the digital consumption of music, and have a long runway to benefit from secular tailwinds including the growth of streaming and other emerging digital monetization opportunities at an industry level independent of share shifts between distribution platforms.

I think UMG and WMG are both good investments with comparable risk/rewards. I prefer the record labels to Spotify, as I think economic value in the industry will disproportionately accrue to the content providers as opposed to the distribution pipes, but encourage those new to the space to read all of the SPOT writeups and Q&A on VIC to understand the positioning of the labels relative to the distributors. The 2022 Bollore writeup from singletrack also is a helpful discussion of UMG. I further like these businesses against the current macroeconomic backdrop given that they are mostly recession-resistant. The businesses don't trade at overly depressed valuations, though UMG and WMG are down -20% and -40% respectively YTD. I'm sympathetic to those who want somewhat lower valuations before building more meaningful positions. Nevertheless, since neither UMG or WMG have been posted on VIC yet, I think it makes sense to provide company and industry backgrounds and touch upon the bull thesis to invite further discussion of these interesting compounder opportunities.

Company Overview

WMG is one of the world’s largest music entertainment companies. The company is one of the three “majors” in the music label industry, after Universal Music Group (UMG) and Sony Music Entertainment (part of Sony Group), together known as the “big three” global music label groups. WMG’s family of record labels, including Atlantic Records, Warner Records, Elektra Records and Parlophone Records, is home to many of the most popular and influential recording artists in the world. The company is organized into two segments: Recorded Music (86% of revenue) and Music Publishing (14% of revenue). Every piece of music consists of two copyrights: the sound recording and the musical composition. The sound recording copyright is owned by record labels (Recorded Music segment), which represent performing artists. The record labels generate royalties from a sound recording every time that specific recording is played, performed, or used in other mediums. The musical composition copyright is held by music publishers (Music Publishing segment), which represent songwriters. The publisher takes a musical composition to a record label in hopes of getting a sound recording made. Once there is a sound recording, the publisher and songwriter share a cut of the royalties generated from that sound recording.

The 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. WMG plays an integral role in 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. WMG’s Recorded Music business is conducted principally through its major record labels – Atlantic Records and Warner Records as well as a collection of smaller record labels.

Recorded Music also includes distribution operations consisting of WEA Corp., which markets, distributes and sells music and video products to retailers and wholesale distributors, and Alternative Distribution Alliance (ADA), which markets, distributes and sells the products of independent labels to retail and wholesale distributors; and various distribution centers and ventures operated internationally.

Within Recorded Music, WMG has also diversified beyond the traditional record label business by entering into expanded-rights deals with recording artists. Under these agreements, in addition to the albums, the record label gets a percentage of all of the artist’s other revenue streams in exchange for providing services to the artist in ancillary areas like touring, sponsorship, and merchandising. WMG has built and acquired artist services capabilities and platforms for marketing and distributing this broader set of music-related rights. Although distribution and artist services operations are lower margin business compared to the record label business, they grant WMG exposure to revenue opportunities in the broader music landscape and also help improve long-term relationships with recording artists.

Recorded Music reported revenues consist of Digital (68%), Physical (12%), Artist services and expanded-rights (13%), and Licensing (6%). Digital revenues are generated from the expanded universe of digital partners, including digital streaming services and download services. Physical revenues are generated from the sale of physical products such as vinyl, CDs and DVDs. Artist services and expanded-rights revenues are generated from artist services businesses and participations in expanded-rights associated with artists, including sponsorship, fan clubs, artist websites, merchandising, touring, concert promotion, ticketing and artist and brand management. Licensing revenues represent royalties or fees for the right to use sound recordings in combination with visual images such as in films or television programs, television commercials and video games (also referred to as Synchronization). WMG may also receive royalties when sound recordings are performed publicly through broadcast of music on television, radio and cable and in public spaces such as shops, workplaces, restaurants, bars and clubs.

Music Publishing is an intellectual property business focused on generating revenue from uses of the musical composition itself. The operations of Music Publishing are conducted principally through Warner Chappell Music, a global music publishing company. Warner Chappell Music, as a copyright owner and administrator of musical compositions, receives royalties on the licensing of musical compositions on behalf of songwriters, composers or other rightsholders. WMG shares in the revenues generated from use of the musical composition in return for promoting, placing, marketing and administering the creative work.

WMG 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, WMG’s award-winning catalog includes over 100,000 songwriters and composers and a diverse range of genres. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios.

Music Publishing reported revenues consist of Digital (57%), Performance (16%), Mechanical (6%), Synchronization (19%), and Other (1%). Digital revenues are generated from recordings licensed to digital streaming services and digital download services and for digital performance. Performance revenues are received when the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations (e.g., bars and restaurants), live performance at a concert or other venue (e.g., arena concerts and nightclubs) and performance of musical compositions in staged theatrical productions. Mechanical revenues are generated with respect to the musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs and DVDs. Synchronization revenues represent the right to use the composition in combination with visual images such as in films or television programs, television commercials and video games as well as from other uses such as in toys or novelty items and merchandise. Other revenues represent earnings for use in printed sheet music and other uses.

The Global Recorded Music Market Has Returned to Steady Growth

The recorded music industry enjoyed more than a decade of growth from the mid-1980s through the late-1990s, driven by the adoption of CDs which drove sales of physical media. Industry revenue peaked in 1999 at $24.1B, the same year Napster launched its digital file sharing service that allowed users to download music without compensating rightsholders. This marked the beginning of a period when digital piracy exploded and music consumption was disconnected with monetization. Over the next 15 years, recorded music revenue fell 41% to $14.2B in 2014.

It wasn’t until the adoption of music streaming became more widespread that the recorded music industry returned to growth. Streaming shifted the industry paradigm away from physical ownership, which had been the model for several decades. Consumers were now purchasing the ability to access the entire catalog of available music through a digital service, and record companies moved to a revenue share model vs. fixed fees on units sold. Since bottoming in 2014, global recorded music revenue has grown in each of the last seven years, reaching $25.9B in 2021, only now surpassing the prior industry peak from 22 years earlier. The driving force has been growth in streaming which has offset declines in physical media and digital downloads and now accounts for 65% of total industry revenue.



Source: IFPI

Growth in Streaming Will Continue to Drive Industry Revenue

The music industry hit an inflection point in 2015 as streaming scaled and has been on a steady growth trajectory ever since. The ongoing secular shift to streaming from physical media, downloads and radio is being driven by an attractive consumer value proposition, increasing accessibility, personalization and interactivity. Streaming, and in particular paid streaming (~74% of overall streaming revenue) is a key driver of WMG revenue where it accounts for 65% of revenue (same as the industry).

Global recorded music revenue derived from streaming has grown at a 29% CAGR over the last five years. Streaming growth has naturally been slowing as the industry moves through its second decade, but there appears to be substantial runway for continued growth in the coming years driven by increasing TAM and penetration. The streaming market is a function of access to the internet and consumer choice to engage with DSPs (digital service providers, ie. Spotify, iTunes, Amazon Music, Youtube, etc). If we look at global smartphone users as a representative pool of users that have access to the internet and income that can be allocated to internet services, the penetration of paid streaming would appear to be relatively low. According to IFPI, there were 523 million global paid streaming subscribers at the end of 2021 which represented just 11% of global smartphone users. If paid streaming penetration increases to 16% by 2025, this would result in sustainable double-digit growth for the industry for the next several years. This appears to be achievable as penetration in developed markets move towards levels seen in early adopter markets such as Scandinavia and penetration in emerging markets approach double digits, similar to levels seen in developed markets in 2016. 

In addition to growth in paid streaming, the total user base that listens to music online is also increasing across Youtube and other ad-supported offerings, growing at a 14% CAGR over the last five years, and engagement time is also increasing. As this trend continues, it should translate into higher DSP advertising revenues and record label royalties. Even if ad-supported user growth moderates, ad-supported streaming revenue could sustain double digit growth if monetization improves over the next several years. Opportunities for improving ad-supported monetization include improving the monetization of ad-supported digital video services like Youtube which pay a lower royalty rate compared to audio streams, improving audio advertising technology that will increase the targeting capabilities and addressable market of audio services, and continued migration of listenership and ad dollars from terrestrial radio which is a $27B market. Music labels in the US garner much lower economics from radio, and music labels are positioned to capture a greater share of these dollars in the shift to streaming as streaming royalties are often multiples greater than terrestrial royalties. For example, terrestrial broadcast radio pays fixed per-play rates, regardless of the number of listeners, and only musical composition copyright owners and songwriters (on the music publishing side) are compensated, not the recording copyright owners and performers (on the recorded music side). In contrast, streaming pays per listener and content owners and creators on both the music publishing side and recorded music side are compensated. In addition, because streaming services pay on a share of revenue basis, music content owner revenues grow in line with that of the listening platform.

Incremental Growth from Emerging Streaming Opportunities

In addition to the traditional streaming market, WMG and other music labels have also taken steps to establish commercial relationships with new digital distribution platforms and partners. Music is now being utilized and consumed over a wider range of products and services creating incremental monetization opportunities enabled by new technologies and media categories. Consumers are finding new ways to listen to, engage with and discover music across social media, gaming, live-streaming, connected fitness and digital goods. In recent years, WMG has successfully signed licensing agreements with many of the key emerging streamers, including Facebook, TikTok, Snap, Peloton, etc. for whom access to music catalogs has become necessary as music is integrated into their offerings. Short-form, music-based video content in particular has become a robust driver of music consumption, driven by growth in global social video platforms such as TikTok. In addition, new categories continue to come online including Web3 and metaverse related opportunities that are in the experimentation phase of product models and monetization. WMG has referenced deals signed with best-in-class partners in NFTs and building out mods with Roblox and other platforms which were all done with an eye towards developing a model for music in this new world that it can monetize.

Emerging streaming represents ~10% of WMG’s streaming revenue and is still very early in the development stage. Emerging streaming growth has decelerated in recent quarters but is expected to fluctuate with new licensing deals and renewals. Management noted that the number of licenses now measures in the hundreds. It is believed that most of these deals are structured based on minimum guarantees with largely fixed payout terms over 2-3 years. This would contribute to non-linear growth based on the timing of deals and renewals. For example, management called out a significant renewal deal with META which closed in the current F4Q22 and will contribute to a reacceleration in growth after a period that saw less deal activity. Management also noted the company had a slew of new deals in FY21, some of which will come up for renewal in FY23 and will be seen in next year’s results. In the future, emerging streaming deals should transition to more variable structures similar to music streaming deal structures which should result in more linear growth and also allow WMG to participate in the growth of partner revenue.

The revenue base across potential partners in the emerging streaming category is enormous – estimated to be in excess of $300B and growing in the mid-teens. Music as a cost for the emerging streaming category is estimated to represent just 0.4% of revenue. If the music industry can increase its payout in the emerging streaming addressable market by 5-10bps per year, this could drive 30% annual growth for music rightsholders in this category. The market is still nascent and difficult to forecast, but it seems clear that emerging streaming will experience continued growth as new digital products and platforms drive experimentation, consumer engagement and consumption around music. Growth may not be linear, but the integration of music with other forms of content in a blended, interconnected manner will require access to robust libraries of music and licensing agreements to allow for their use which will enable content owners to generate incremental revenue from these non-traditional digital channels.

Outlook for Stable Economics between Music Labels and Streaming Providers

According to data from the Digital Media Association, digital service providers (DSPs) keep ~32% of streaming revenue received and pay out ~68% to recording rightsholders and composition rightsholders. This market structure allows record companies to retain 55% of the revenue pool and music publishers 13%. Although DSPs have been successful in negotiating royalty rates down in the past, rates do not appear to have changed much over the last five years (rate negotiations between the music labels and DSPs usually take place every two to three years). For example, in F1Q22, WMG noted a headwind for Recorded Music streaming revenue due to a renewed DSP deal with a partner. While it is negative that the deal was negotiated lower, WMG management noted that following this renewal, “all deals with DSPs now fall within a very tight band”. This particular deal had been outside of the range and was now brought inside the band similar to all other deals. If viewed as an outlier rather than a trend, WMG economics with DSPs would appear to have stabilized in the current range, though this remains a potential risk to monitor going forward. In the medium term, there are several reasons to think that music labels can preserve their economics, including industry concentration and the established value of music content.

Both the recorded music and music publishing industries are characterized by high supplier concentration. The “big three” music label groups command 70% market share of the recorded music industry and 60% of the music publishing industry and actually increased share in both industries in 2021. The high degree of supplier concentration provides negotiating leverage for the major record labels. Unlike the video market, a music service needs to offer a complete library of content to be viable, so there is little incentive for platforms to increase their cut of retail revenues and risk content owners withholding their music. A DSP would likely face significant churn and lingering impact on their business if content from one of the “big three” labels was removed from their service. Similarly, music labels would likely see backlash from consumers and potentially artists who generally want to be present on all platforms to maximize their reach. This dynamic between music labels and DSPs may have evolved to the point where the potential risks for both sides have moved the industry towards an equilibrium.

The streaming distribution market is also concentrated with the top two DSPs (Spotify and Apple) accounting for 52% of total streaming music subscribers. However, they lost market share in 2021 while challengers like Youtube Music, Amazon Music and NetEase Cloud Music gained share and have built scaled competitors to the historical leaders. Although these competitive gains may not represent a material threat to the business outlook for the top two players, they do illustrate the growing list of alternatives that are available for customers who might churn. A more competitive distributor market should benefit music labels by providing more scaled bidders for their content, lower customer concentration and potentially another reason to help maintain the equilibrium described above. Although distributor concentration remains, it’s notable that the ~30% retailer cut has held for downloads over time, despite iTunes alone holding a 75% market share. Recently, DSPs have taken steps to diversify into non-music content which could in turn lower their supplier concentration and create more competition for listening time. However, having access to a complete music catalog represents a necessary component for any DSP to establish its service and remain competitive. While non-music content could provide incremental revenue and attractive margins for DSPs, it’s likely that this would increase the value of the overall service for subscribers without decreasing the value they derive from having access to a complete music catalog.

Record Labels Remain a Valuable Piece of the Music Ecosystem

Technology has made it significantly easier for artists to self-publish their music on streaming services and self-promote their brands on social networks like TikTok and music discovery platforms like SoundCloud, raising questions as to whether artists might bypass the traditional record labels. However, low barriers to entry also bring significantly greater competition. Spotify sees ~60K new songs uploaded per day, there are numerous regional streaming platforms operating globally and emerging digital platforms that are looking to leverage music in their product offering. The sheer volume of music being released on digital music services is making it harder for recording artists and songwriters to stand out and get noticed while the increasing diversity of monetization channels brings both opportunity and added complexity. There are over 400 music streaming services worldwide, dozens of social platforms and many more media outlets available to promote, and many incremental ways to monetize.

Music labels have positioned themselves to remain at the forefront in this changing landscape, utilizing data analytics to find artists earlier and chart a path to success. Major labels have the scale to quickly take music to a global audience while also providing capital to these artists in the form of attractive upfront commitments, marketing dollars and other services. There may be isolated examples of major artists who go direct to market successfully (Chance the Rapper), but most others have found value in signing with a record label early in their careers (Billie Eilish, Lil Nas X). Furthermore, the vast majority of star artists (who arguably have the greatest ability and incentive to break away) have re-signed with major music labels in recent years (Taylor Swift, Drake, Jason Derulo). In order for self-distribution to develop into a widely adopted strategy for big artists, artists would need to focus on becoming highly sophisticated in terms of global distribution and marketing, beyond focusing on just creating music, and must be willing and able to forego large upfront commitments. If an artist were to spend as much as a label to create a hit they would have to take on a substantial liability, leading to an uncomfortably high risk/reward scenario.

Record labels help artists succeed by funding, developing and marketing talent, and ensuring they remain relevant. They are also critical in helping artists monetize their work through various channels and protecting their work from copyright infringement. The major labels enable their artists to leverage their vast networks, experience and relationships across the globe and benefit from greater leverage with the various platforms (DSPs, social media, radio, TV, etc.). Major labels collect and analyze billions of data points across hundreds of platforms worldwide to identify patterns in listening which can be a critical resource in the breakthrough of artists and promoting them to the right audiences. The prevalence of expanded-rights deals also provides artists with services and support for touring, engaging with fans and merchandizing. Beyond the traditional monetization pathways, major labels are exploring new emerging uses of music including short form video, gaming, fitness, etc. It seems likely that most artists will continue to rely on record labels for a more comprehensive go-to-market strategy in order to maximize their revenue streams. The expertise is in maximizing audience plays on streaming services, defending licenses, finding new international audiences, organizing and promoting tours and finding incremental music opportunities from emerging platforms. For example, most top-tier artists do not actually make the majority of their earnings by selling music, but largely through concerts and touring income which account for 75% to 80% of artists’ collective take-home pay prior to the pandemic according to Billboard.

Outlook for Steady Growth and Modest Changes in Market Share

We expect that WMG will generate steady revenue growth going forward, primarily driven by continued growth in streaming, though we also expect WMG revenue growth will trail that of the overall streaming industry due to modest market share dilution.

Due to the complexity and scale required to be successful long-term, partnering with a major label is likely to remain the preferred option for most top artists. However, as the barriers to music production, distribution and discovery have fallen, the music industry has seen exponential growth in the number of artists, particularly in the long tail. We believe this offers the opportunity for a larger number of artists to make money from their music, though it remains difficult for new independent artists to break through. Thus far, this trend has impacted volumes more than revenue with the majors’ share of streams on Spotify falling to 77% in 2021 from 87% in 2017 whereas their combined share of recorded music revenue has remained broadly stable at 68% to 70%. That said, we expect modest dilution in market share in the future driven by the growing long tail of independent artist’s music being made available on DSPs, ongoing competition from independent music labels, and a mix shift in industry revenue towards emerging markets. Major label share in emerging markets is estimated to be about half that of their market share in developed markets. Thus, we expect that WMG’s market share of global streaming revenue will be diluted as emerging market revenue growth outpaces developed market growth. WMG has been investing more aggressively in non-English speaking artists and music labels and should increase its share in emerging markets over time, but the difference in market share today and the faster pace of emerging market growth will likely be superseding factors for the time being.

Although we expect that WMG will cede modest share going forward, we believe that the risk WMG loses significant market share is low. One reason is that the rise of streaming has increased the consumption of catalog music (music greater than 18 months old), creating an offset for potential share loss for the major labels. The shift away from physical music and towards streaming has made it possible for catalog music to be more easily consumed and monetized and catalog consumption has been gaining share of overall music consumption. Catalog music now accounts for approximately two-thirds of music industry revenue and experiences relatively little volatility in consumption and monetization from period to period relative to new music given its more established fan base. This has benefitted the major music labels who have deep catalogs of music and have been adding to their catalogs over time. WMG, with its robust and difficult to replicate catalog of music, is well-positioned to maintain its relative share of catalog consumption and monetization. Another reason is WMG’s strong Artist & Repertoire (A&R) capabilities. WMG has a history of being highly successful at identifying, signing, and commercializing new artists who have helped ‘feed’ the top of the Recorded Music and Music Publishing funnels. WMG has a clear track record of consistently developing and breaking top artists across the world. For example, from January 2017 through April 2020, WMG owned and distributed labels have received more U.S. Gold and Platinum certifications from the RIAA for debut albums than those of any other company. Furthermore, if WMG is more successful than anticipated in breaking and commercializing new artists, or sees greater than expected growth in catalog music, this could drive potential upside to our market share outlook.

Potential for Margin Expansion

We believe that WMG can drive margin expansion over the next several years and grow EBITDA faster than revenue, even as competition for musical talent and inflationary pressures remain and likely result in higher Artist & Repertoire (A&R) costs.

Record labels deploy a significant level of investment into A&R expenses to develop new talent. A&R Expenses consist primarily of the costs associated with signing and developing recording artists, creating master recordings in the studio, and paying royalties to recording artists, producers, songwriters, other copyright holders & trade unions per the terms of the recording contract. Going forward, we expect to see A&R costs rise with the shift to streaming and artists seeking a higher portion of the economics. While this trend is apparent in absolute dollar terms, we note that A&R cost as a % of revenue has increased more modestly. For instance, WMG’s A&R cost as a % of revenue has been broadly stable at around 33-35% since 2014, despite streaming rising from 20% to 65% of revenue over the same period. Over time, we do see competition from self-distribution and independent music labels increasing A&R expenses as a % of revenue and shifting a small amount of economics away from major music labels, while greater control of A&R costs or improved efficiency in generating a return on investment could generate upside to our expectations.

Overall, we see opportunity for WMG to expand margins as higher operating leverage in streaming and greater monetization of music catalogs can help offset A&R inflation. Music labels can generate gross margins in streaming that are ~15% higher compared to physical sales as the cost of manufacturing, distribution, inventory and returns are removed. Therefore, the continued secular shift to streaming should help WMG improve gross margins over the next several years, though this benefit is waning as the mix of physical revenue has diminished. We also anticipate the shift away from physical to make the business less seasonal in nature, providing a boost to visibility and predictability. The ongoing shift of consumption towards catalog music should also contribute to improving margins as catalog revenue is far more profitable compared to frontline revenue. This is because catalog music requires significantly less marketing expense per unit of consumption compared to new music given its established notoriety and fan base.

In addition, WMG is in the process of implementing a financial transformation initiative to upgrade its information technology and finance infrastructure in order to become more cost efficient. There was a slight delay in the timing of the transformation initiative as a result of the ongoing effects of COVID-19, but it is expected to begin delivering in 2023 and generate $35M to $40M in annual savings. Layering WMG’s discrete cost reduction program alongside benefits from the shift to streaming and catalog consumption, plus additional back office and real estate savings, plus normal fixed cost leverage, we believe WMG could approach its stated target to expand margins by 100bps per year.

Valuation

As one of the “big three” major record label groups, we view WMG as a scaled owner of music content that operates an attractive business model with highly visible revenues streams and a large addressable market opportunity. The music industry should benefit from several strong secular tailwinds in the coming years and WMG offers pure-play exposure to these favorable secular trends. Taken together, we believe WMG represents a high-quality compounder that can garner a premium valuation relative to other media and entertainment and selected comparable companies.

WMG trades at an undemanding 12.5x EV/2023 EBITDA, towards the lower end of the stock’s historical range on an absolute and relative basis vs. the S&P 500. This also represents a 3 turn discount to its closest comparable in UMG. The valuation discount may reflect several factors including UMG’s greater scale, higher margins and WMG’s ownership structure. WMG is controlled by billionaire Len Blavatnik's Access Industries, which holds a super voting Class B share (20 votes/share vs. 1 vote/share for Class A shareholders). As a result, Access maintains a 73% economic interest and 98% voting interest in the company, leaving Class A shareholders with little-to-no say in the future direction of the company. Investors may also be exposed to the overhang of secondary offering risk when Blavatnik decides to lower its stake. While the ownership structure should reflect a discount, it’s notable that investors have been comfortable investing in super voting ownership situations in the media industry in the past (old Viacom, News Corp, Fox). In addition, UMG’s greater scale may provide modest incremental benefits with respect to competitive positioning and profitability. WMG remains one of the three major labels at a scale multiple times larger than the next closest competitor. WMG has also found consistent success while competing with UMG in identifying, signing and commercializing some of the most successful artists in the world over the course of many years. Furthermore, management has commented that excluding certain IFRS accounting policies, on an apples-to-apples basis WMG’s margins are nearly identical to UMG’s. WMG has outlined a similar long-term margin target as UMG and developed a plan to deliver annual margin expansion towards meeting that goal.

With a modest amount of multiple expansion, steady top line growth and margin expansion, WMG should deliver a reliable, compounding total return profile for years to come.

Risks

- Growth of music streaming may slow as the industry matures or other forms of entertainment gain share
- Emerging streaming opportunities may not develop or monetize as anticipated
- Competition between major music labels for artists could contribute to loss of market share
- Competition from artist self-distribution and independent labels could drive greater increases in A&R costs as a percent of revenue
- As an increasing portion of revenues are generated from digital streaming services, they may be able to alter the economics for WMG
- Disintermediation due to artist self-distribution, independent distribution deals or digital streaming services could negatively impact WMG’s results
- WMG is a controlled company

Catalyst

- Top line growth and margin expansion
- Secular industry growth
- Market share gains for streaming