Business model of Warner Music

Customer Segments

Warner Music serves a range of clients through its Recorded Music and Music Publishing segments. The majority of the Company’s physical sales are made to wholesalers, distributors or retail chains, as well as music specialty stores, general entertainment specialty stores, supermarkets, mass merchants and discounters, and independent retailers. This includes large retail groups such as Amazon, Best Buy and Barnes and Noble.

Warner Music also licenses its content to a variety of media customers through which it reaches consumers, including:

• Streaming services and internet radio platforms, including well-known operators such as Spotify, Apple Music, Deezer and YouTube;
• Digital download services, such as iTunes and Google Play; and
• Television and motion picture studios.

Warner Music provides its services and content to customers across the world. Its principal market, however, is its native US. The Company also serves markets across Europe, Latin America, Asia and the Middle East.

Value Propositions

Warner Music provides value to its customers in the following ways:

• The quality and breadth of its content, with the Company owning the rights to a wide range of music content across numerous genres, and from high-profile artists both current and historic, such as Ed Sheeran, The Eagles, Van Morrison, Wiz Khalifa, The Kinks and Skrillex;
• Its standing and reputation within the music industry, being one of the oldest and most established companies in its industry, considered one of the “big three” music publishing groups, and including major music labels such as Atlantic Records and Parlophone; and
• Its industry expertise, with the Company employing experienced industry executives and highly qualified staff.

Channels

Warner Music operates a website at www.wmg.com, through which it provides information on its various services and its music content portfolio. The Company does not make its content available through its own digital sales channels.

Warner Music’s physical products – including CDs, DVDs, and LPs – are sold directly to retail and distribution customers by its own in-house sales force, from a network of sales offices across its operating jurisdictions. The Company has a presence in more than 50 countries worldwide, either directly or via subsidiary companies, affiliates or non-affiliated licensees.

Warner Music’s content is also available through a range of digital stores and online streaming services. Digital sales and streaming agreements are also covered by the Company’s own sales and business development teams.

Customer Relationships

Despite its online presence, Warner does not provide content or services to its customers on a self-service basis. Its music content is available to consumer, however, on a self-service basis from various retail outlets, digital stores and streaming services.

Warner Music establishes its sales agreements with retail chains, distributors and wholesalers through direct consultation between its sales team and the customer. The Company seeks to establish long-term relationships with these clients that separately cover the needs and of each individual client. Agreements with online and mobile service providers typically last one to three years. These shorter agreements enable the Company to maintain some flexibility in its dealings with the fast-paced digital business space.

Warner music provides a range of information resources on its website, including FAQs and provides contact details for new and existing customers to contact the company directly. Customers can also interact directly with the Company through its social media accounts with Facebook, Twitter and Instagram.

Key Activities

Warner Music Group is one of the largest music publishing groups in the world.

The company operates through two reportable segments: Recorded Music, which covers the Company’s discovery and development of artists, and all related marketing and distribution of music produced by these artists; and Music Publishing, which covers the Company’s ownerships and acquisition of music rights – across all music genres – and the licensing of recorded music content to for use in soundtracks, music streaming and compilation albums.

Warner Music operates through a number of record labels, including Atlantic Records, Asylum, Big Beat, Canvasback, Eastwest, Elektra, Erato, FFRR, Fueled by Ramen, Nonesuch, Parlophone, Reprise, Roadrunner, Sire, and Warner Classics.

Key Partners

Warner Music partners with companies from a variety of sectors and from a range of international jurisdictions. Its partners can be categorised as follows:

• Copyright and royalty collection societies, which assist the Company and its artists in collecting royalty dues for its portfolio content;
• Online and mobile music service providers, that collaborate with the Company on the digital distribution of its music content;
• Publishing partners, with which the Company cooperates in marketing and distributing new content, often through local joint venture companies; and
• Advertising and marketing partners, with which the Company collaborates on marketing and advertising campaigns.

Warner Music currently partners with online service providers and mobile service providers, such as Amazon, Apple, Vevo, KKBox, Rhapsody, and Vadio; has established an advertising agreement with Rogers Media; and has launched joint-venture publishing operations with Amedia in Russia and Julien Creuzard in France.

Key Resources

Warner Music’s key resources are its music catalogue and portfolio of artists, its sales and distribution channels, its partnerships, and its personnel. The Company’s library of music content is material to its ongoing business operations.

As such, Warner Music protects its intellectual properties through a range of intellectual property measures, principally copyright law and trademarks.

Cost Structure

Warner Music incurs costs through the production of new music content, the sale and distribution of physical and digital music products, the implementation of marketing and advertising campaigns, the management of its partnerships, and the retention of its personnel.

The Company also incurs artist and repertoire costs, comprising the payment of royalties to songwriters, co-publishers and other copyright holders, and the signing and development of new songwriters and artists.

As of 30^th September 2015, Warner Music employed around 4,211 members of staff worldwide, including temporary and part-time employees, all of whom represent costs in the form of salaries and benefits. The Company also operates a network of offices and facilities across 50 countries, accruing cost in the form of rental and utility fees.

Revenue Streams

Warner Music generates revenue through the production, sale and licensing of music content through its two operating segments. The Recorded Music segment derives revenue from four revenue stream:

• Physical, comprising the sale of physical products such as CDs, vinyl and DVDs;
• Digital, comprising sales through digital download services, streaming services and other online and mobile digital music services;
• Artist services and expanded-rights, comprising sponsorship services, development of artist websites, merchandising, touring, concert promotion, and brand management; and
• Licensing, comprising royalties and fees associated with the licensing of content to films and television programs, television commercials, and videogames, as well as royalties associated with the broadcasting of music on television and radio, and in public spaces such as shops, workplaces, restaurants, bars and clubs.

Warner Music’s Music Publishing revenues are derived from five principal sources:

• Performance, comprising public performances of proprietary content;
• Mechanical, comprising the sale of recordings in any physical format or configuration such as CDs, vinyl and DVDs;
• Digital, comprising the sale of recordings to digital download services and streaming services, as well as digital performances;
• Synchronisation, comprising revenue derived from the sue of recordings in other products, such as in commercials, videogames, toys, novelty items, and merchandise; and
• Other, including revenue derived from the use of proprietary content in printed sheet music.

In 2015 Warner Music generated an annual revenue of $2.966 billion. The Company’s Recorded Music revenues decreased by $25 million, or 1%, to $2.501 billion, from $2.526 billion in 2014, while Music Publishing revenues decreased by $35 million, or 7%, to $482 million the year.