What changed in this filing

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Item 1. Business

2020-11-23 compared with 2019-11-27 · 171 added, 161 removed, 363 unchanged (48% of the section changed)

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K (this “Annual Report”) includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

These statements are based on current expectations, estimates, forecasts and projections about the industry in which we operate, management’s beliefs and assumptions.

Words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe” or “continue” or the negative thereof or variations of such words and similar expressions are intended to identify such forward-looking statements.

These statements are not guarantees of future performance and involve risks, uncertainties and assumptions, which are difficult to predict.

Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

We disclaim any duty to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Warner Music Group Corp.

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Acquisition of Warner Music Group by Access Industries

(“Access”), and Airplanes Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), on July 20, 2011 (the “Merger Closing Date”), Merger Sub merged with and into the Company with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

Pursuant to the Agreement and Plan of Merger, dated as of May 6, 2011 (the “Merger Agreement”), by and among the Company, AI Entertainment Holdings LLC (formerly Airplanes Music LLC), a Delaware limited liability company (“Parent”) and an affiliate of Access Industries, Inc., and Airplanes Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), on July 20, 2011 (the “Merger Closing Date”), Merger Sub merged with and into the Company with the Company surviving as a wholly owned subsidiary of Parent (the “Merger”).

In connection with the Merger, the Company delisted its common stock from the New York Stock Exchange (the “NYSE”).

The Company continues to voluntarily file with the U.S.

Securities and Exchange Commission (the “SEC”) current and periodic reports that would be required to be filed with the SEC pursuant to Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as provided for in certain covenants contained in the instruments covering its outstanding indebtedness.

All of the Company’s common stock is owned by affiliates of Access.

The Company continued to voluntarily file with the U.S.

Securities and Exchange Commission (the “SEC”) current and periodic reports that would be required to be filed with the SEC pursuant to Section 15(d) of the Exchange Act as provided for in certain covenants contained in the instruments covering its outstanding indebtedness.

Initial Public Offering

On June 5, 2020, the Company completed an initial public offering (“IPO”) of 77,000,000 shares of Class A common stock of the Company, par value $0.001 per share (“Class A Common Stock”) at a public offering price of $25 per share.

The Company listed these shares on the NASDAQ stock market under the ticker symbol “WMG.” The offering consisted entirely of secondary shares sold by Access Industries, LLC (collectively with its affiliates, “Access”) and certain related selling stockholders.

On July 7, 2020, the Company completed the sale of an additional 11,550,000 shares of Class A Common Stock from the selling stockholders to the underwriters of the Company’s IPO pursuant to the exercise by the underwriters of their option to purchase additional shares of Class A Common Stock.

The Company did not receive any of the proceeds of the IPO or exercise of the underwriters’ option.

Following the completion of the IPO and the exercise in full of the underwriters’ option to purchase additional shares, Access and its affiliates held an aggregate of 421,450,000 shares of Class B common stock of the Company, par value $0.001 per share (“Class B Common Stock”), representing approximately 99% of the total combined voting power of the Company’s outstanding common stock and approximately 83% of the economic interest.

As a result, the Company is a “controlled company” within the meaning of the corporate governance standards of NASDAQ.

Risk Factors — Risks Related to Our Controlling Stockholder.

We are one of the world’s leading music entertainment companies.

Our 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, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 80,000 songwriters and composers, with a global collection of more than 1.4 million musical compositions.

Our entrepreneurial spirit and passion for music has driven our recording artist and songwriter focused innovation for decades.

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The tools to make and distribute music are at every musician’s fingertips, and today’s technology makes it possible for music to travel around the world in an instant.

This has resulted in music being ubiquitous and accessible at all times.

This has resulted in music being ubiquitous

and accessible at all times.

Against this industry backdrop, the volume of music being released on digital platforms is making it harder for recording artists and songwriters to get noticed.

We cut through the noise by identifying, signing, developing and marketing extraordinary talent.

Our global artists and repertoire (“A&R”) experience and marketing strategies are critical ingredients for

recording artists or songwriters who want to build long-term global careers.

Our global artists and repertoire (“A&R”) experience and marketing strategies are critical ingredients for recording artists or songwriters who want to build long-term global careers.

We believe that the music, not the technology, delights fans and drives the business forward.

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We were the first major music entertainment company to strike landmark deals with important companies such as Apple, YouTube and Tencent Music Entertainment Group, as well as with pure-play music technology companies such as MixCloud, SoundCloud and Audiomack.

We adapted to streaming faster than other major music entertainment companies and were the first such company to report that streaming was the largest source of our recorded music revenue in 2016.

We adapted to streaming faster than other major music entertainment companies and, in 2016, were the first such company to report that streaming was the largest source of our recorded music revenue.

Looking into the future, we believe the universe of opportunities will continue to expand, including through the proliferation of new devices such as smart speakers and the monetization of music on social media and other platforms.

We believe advancements in technology will continue to drive consumer engagement and shape a growing and vibrant music entertainment ecosystem.

We maintain an Internet site at www.wmg.com.

Our website and the information posted on it or connected to it shall not be deemed to be incorporated by reference into this Annual Report.

Company History

The Company today consists of individual companies that are among the most respected and iconic in the music industry, with a history that dates back to the establishment of Chappell & Co.

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Other milestones include the Company’s acquisitions of direct-to-audience businesses such as entertainment specialty e-tailer EMP (as defined later in this Annual Report), live music application Songkick and youth culture platform UPROXX.

Our Business Strengths

Industry Overview

The music entertainment industry is large, global and vibrant.

The recorded music and music publishing industries are growing, driven by consumer and demographic trends in the digital consumption of music.

Consumer Trends and Demographics

Consumers today engage with music in more ways than ever.

According to the International Federation of the Phonographic Industry (“IFPI”), global consumers spent 18 hours listening to music each week in 2019.

Demographic trends and smartphone penetration have been key factors in driving growth in consumer engagement.

Younger consumers typically are early adopters of new technologies, including music-enabled devices.

According to Nielsen, in 2019, 58% of teens in the United States between the ages of

13 and 17 and 45% of millennials in the United States between the ages of 18 and 34 used their smartphones to listen to music on a weekly basis, as compared to a 40% average for all U.S.

Furthermore, in 2019, U.S.

teens and millennials listened to an average of 32.6 and 29.7 hours of music each week, respectively, above the 26.9 hours for all U.S.

Members of older demographic groups are also increasing their music engagement.

According to an IFPI survey of 19 leading geographic markets in 2019, 54% of 35- to 64-year-olds used a streaming service to listen to music in the past month, representing an increase from 46% in 2018, which was the highest rate of growth for use of streaming services across all age groups.

Music permeates our culture across age groups, as evidenced by the footprint that music has across social media.

According to the Recording Industry Association of America (“RIAA”), as of September 2019, 7 out of the top 10 most followed accounts on Twitter belong to musicians, and according to YouTube, the majority of videos that have achieved more than one billion lifetime views as well as the top 10 most watched videos of all time, belong to musicians.

Recorded Music

The recorded music industry generated $20.2 billion in global revenue in 2019 and has consistently grown since 2015, according to IFPI.

IFPI measures the recorded music industry based on four revenue categories:

digital (including streaming), physical, synchronization and performance rights.

Digital is the largest, generating $12.9 billion of revenue in 2019, representing 64% of global recorded music revenue.

Within digital, streaming generated approximately 88% of revenue, or $11.4 billion, with the remainder of digital revenue coming from other formats such as downloads.

Overall, digital grew by 18% in 2019, with streaming increasing by 24%.

Physical represented approximately 22% of global recorded music revenue in 2019, with growth in formats such as vinyl partially offsetting declines in CD sales.

Performance rights revenue represents the use of recorded music by broadcasters and public venues, and represented approximately 13% of global recorded music revenue in 2019.

Synchronization revenue is generated from the use of recorded music in advertising, film, video games and television content, and represented 2% of global recorded music revenue in 2019.

According to IFPI, global recorded music revenue has grown at a 9% CAGR since 2015.

Global Recorded Music Industry Revenues 2015 to 2019 ($ in billions)

We believe the following secular trends will continue to drive growth in the recorded music industry:

Streaming Still in Early Stages of Global Adoption and Penetration

According to IFPI, global paid music streaming subscribers totaled 341 million at the end of 2019.

While this represents an increase of 34% from 255 million in 2018, it still represents less than 11% of the 3.2 billion smartphone users globally, according to Statista.

It also represents a small fraction of the user bases for large, globally scaled digital services such as Facebook, which reported 2.7 billion monthly users across its services as of September 2020, and YouTube, which reported over two billion unique monthly users as of May 2019.

On-demand streaming (both audio and video) reached 1.15 trillion streams in the United States in 2019, according to Nielsen, and this growth is expected to continue.

According to Nielsen, as of July 2020, 51% of adults in the U.S.

(calculated across four demographic cohorts—Generation Z, Millennials, Generation X and Baby Boomers) reported that they are spending more time with music during the COVID-19 pandemic.

Further, according to Nielsen, 56% of adults in the U.S.

who added an entertainment subscription during the COVID-19 pandemic added a music streaming subscription, and 87% of those who added a music subscription intend to keep the music subscription after the pandemic passes.

The potential of global paid streaming subscriber growth is demonstrated by the penetration rates in early adopter markets.

Approximately 43% of the population in Sweden, where Spotify was founded, was estimated to be paid music subscribers in 2020, according to Goldman Sachs.

This compares to approximately 27% and 18% for established markets such as the United States and Germany, respectively.

Moreover, paid digital music subscribers in Japan, the world’s second-largest recorded music market in 2019 according to IFPI, still only represented approximately 8% of the population, according to Goldman Sachs.

There also remains substantial opportunity in emerging markets, such as Brazil and India, where smartphone penetration is low compared to developed markets.

For example, according to Statista, smartphone penetration for Brazil and India as of September 2019 was 46% and 25%, respectively, compared to 79% in the United States.

China, in particular, represents a substantial growth market for the recorded music industry.

Digital music monetization models, including paid streaming and virtual gifting (which refers to the purchase of a digital, non-durable, non-physical item (e.g., an emoji) that is delivered to another person often during a live karaoke performance), created the foundation for the recorded music industry to overcome piracy and generate revenue in China.

According to Goldman Sachs, paid streaming models are at an early stage in China, with an estimated 4% paid streaming penetration rate in 2020.

Despite its substantial population, China was the world’s seventh-largest music market in 2019, having only broken into the top 10 in 2017.

Opportunities for Improved Streaming Pricing

In addition to paid subscriber growth, we believe that, over time, streaming revenues will increase due to pricing increases as the broader market further develops.

Streaming services are already at the early stages of experimenting with price increases.

For example, in 2018, Spotify increased monthly prices for its service in Norway.

In addition, in 2019, Amazon launched Amazon Music HD, a high-quality audio streaming offering that is available to customers at a premium price in the United States.

We believe the value proposition that streaming provides to consumers supports premium product initiatives.

Technology Enables Innovation and Presents Additional Opportunities

Technological innovation has helped facilitate the penetration of music listening across locations, including homes, offices and cars, as well as across devices, including smartphones, tablets, wearables, digital dashboards, gaming consoles and smart speakers.

These technologies represent advancements that are deepening listener engagement and driving further growth in music consumption.

Device Innovation.

According to Nielsen, as of July 2020, U.S.

consumers listened to music across an average of 3.7 devices per month.

We believe that the use of multiple devices is expanding listening hours by bringing music into more moments of consumers’ lives, and the different uses these devices enable are also broadening the base of music to which consumers are exposed.

The music that consumers listen to during a commute may be different than the music they listen to while they exercise, and different still than the music they play through a smart speaker while cooking a meal.

Smart speakers enable consumers to access music more readily by using their voices.

According to PwC, smart speaker ownership is expected to increase at a 38% CAGR from 2018 through 2023, to 440 million devices globally in 2023.

The adoption of smart speakers in the United States has been strong, and according to Nielsen, 27% of music listeners today use a smart speaker to listen to music in a given month.

In addition, according to Nielsen, 39% of Generation Z and 38% of millennials own a smart speaker.

Smart speakers are fueling further growth in streaming, by converting more casual listeners into paid subscribers, drawn in by music as a critical application for these devices.

According to Nielsen, 61% of U.S.

consumers who use a smart speaker weekly to listen to music currently pay for a subscription as well.

Format and Monetization Model Innovation.

Short-form music and music-based video content has grown rapidly, driven by the growth of global social video applications such as TikTok, which features 15-second videos often set to music.

TikTok has reportedly been downloaded more than two billion times since its launch in 2017 and has a global monthly active user base of nearly 700 million as of August 2020.

Such applications have the potential for mass adoption, illustrating the opportunity for additional platforms of scale to be created to the benefit of the music entertainment industry.

These platforms enable incremental consumption of music appealing to varied, and often younger, audiences.

From a recording artist’s perspective, these platforms have the potential to rewrite the path to stardom.

For example, our recording artist, Fitz & the Tantrums, an American band, rose to international fame in 2018 as their song “HandClap” went viral in Asia on TikTok.

Fitz & the Tantrums quickly topped the international music charts in South Korea and surpassed one billion streams in China.

Short-form music and music-based video content have also become increasingly popular on social media platforms such as Facebook and Instagram, further illustrating the growing number of potential pathways through which recording artists may gain consumer exposure.

Music Publishing

According to Music & Copyright, the music publishing industry generated $5.6 billion in global revenue in 2019, representing an approximate 2% increase from $5.5 billion in 2018 (following an increase in global music publishing revenues of 11% from 2017 to 2018).

Music publishing involves the acquisition of rights to, and the licensing of, musical compositions (as opposed to sound recordings) from songwriters, composers or other rightsholders.

Music publishing revenues are derived from four main royalty

mechanical, performance, synchronization and digital.

In 2019, digital, which accounted for approximately 42% of global revenue, represented the largest and fastest-growing component of industry revenues, while performance, which accounted for approximately 30%, represented the second-largest component of industry revenues.

Synchronization accounted for approximately 19% of global revenue in 2019.

Mechanical revenues from traditional physical music formats (e.g., CDs, DVDs, downloads), which accounted for approximately 8% of global revenue in 2019, have continued to fall while digital revenues have grown to offset this decline.

Global Music Publishing Industry Revenues 2015 to 2019 ($ in billions)

Positive Regulatory Trends

The music industry has benefited from positive regulatory developments in recent years, which are expected to lead to increased revenues for the music entertainment industry in the coming years.

Music Modernization Act (“MMA”).

In 2018, the enactment of the MMA in the United States resulted in major reforms to music licensing.

The MMA improves the way digital music services obtain mechanical licenses for musical compositions, requires the payment of royalties to recording artists for pre-1972 sound recordings streamed on digital radio services such as SiriusXM and Pandora, and provides for direct payments of royalties owed to producers, mixers and engineers when their original works are streamed on non-interactive webcasting services.

C opyright Royalty Board (“CRB”).

In 2018, the CRB issued its determination of royalty rates and terms, significantly increasing the mechanical royalty rates paid for musical compositions in the United States from 2018 through 2022.

In August 2020, following an appeal of that decision by some digital music services, the decision was vacated in part and the case was remanded to the CRB for further proceedings.

In 2018, the CRB issued its determination of royalty rates and terms, significantly increasing the royalty rates paid for sound recordings in the United States by SiriusXM from 2018 through 2022, and the MMA extended that increase through 2027.

European Union Copyright Directive.

In 2019, the European Union (“E.U.”) passed legislation which will rein in safe harbors from liability for copyright infringement and rebalance the online marketplace to ensure that rightsholders and recording artists are remunerated fairly when their music is shared online by user-uploaded content services such as YouTube.

Our Competitive Strengths

Well-Positioned to Benefit from Growth in the Global Music Market Driven by Streaming.

The music entertainment industry has undergone a transformation in the consumption and monetization of content towards streaming over the last five years.

According to the International Federation of the Phonographic Industry or IFPI, from 2015 through 2018, global recorded music revenue grew at a CAGR of 9%, with streaming revenue growing at a CAGR of 45% and increasing as a percentage of global recorded music revenue from 20% to 47% over the same period.

According to the IFPI, from 2015 through 2019, global recorded music revenue grew at a CAGR of 9%, with streaming revenue growing at a CAGR of 42% and increasing as a percentage of global recorded music revenue from 19% to 56% over the same period.

By comparison, from fiscal year 2015 to fiscal year 2019, our recorded music streaming revenue grew at a CAGR of 37% and increased as a percentage of our total recorded music revenues from 24% to 55%.

becoming the first major music entertainment company to report that our streaming revenue was the largest source of recorded music revenue in 2016.

We believe our innovation-focused operating strategy with an emphasis on genres that over-index on streaming platforms (e.g., hip-hop and pop) has consistently allowed our digital revenue growth to outpace the market, highlighted by our becoming the first major music entertainment company to report that our streaming revenue was the largest source of recorded music revenue in 2016.

The growth of streaming services has not only improved the discoverability and personalization of music, but has also increased consumer willingness to pay for seamless convenience and access.

We believe consumer adoption of paid streaming services still has significant potential for growth.

For example, according to MIDiA, in 2018, approximately 30% of the population in Sweden, an early adopter market, was paid music subscribers.

For example, according to Goldman Sachs, in 2019, approximately 43% of the population in Sweden, an early adopter market, was paid music subscribers.

This illustrates the opportunity to drive long-term growth by increasing penetration of paid subscriptions throughout the world, including important markets such as the United States, Japan, Germany, the United Kingdom and France, where paid subscriber levels are lower.

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Established Presence in Growing International Markets, Including China.

We believe we will benefit from the growth in international markets due to our local A&R focus, as well as our local and global marketing and distribution infrastructure that includes a network of subsidiaries, affiliates and non-affiliated licensees in more than 60 countries.

We believe we will benefit from the growth in international markets due to our local A&R focus, as well as our local and global marketing and distribution infrastructure that includes a network of subsidiaries, affiliates, and non-affiliated licensees and sub-publishers in more than 70 countries.

We are developing local talent to achieve regional, national and international success.

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We have also strengthened our Warner Music Asia executive team with new appointments and promotions.

According to IFPI in 2018, recorded music industry revenues in Asia and Australasia grew 12% year-over-year.

According to IFPI in 2019, recorded music industry revenues in Asia and Australasia grew 3% and 7%, respectively, year-over-year.

Over the same period and on a constant-currency basis, we grew revenues in Asia and Australasia by 26%, again outpacing the industry.

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As one of three major music entertainment companies, our industry position remains strong and poised for continued growth.

As reported in Music Business Worldwide, our global recorded music market share has increased every year from 2014 to 2018, growing from 14.3% to 16.3%.

As reported in Music & Copyright, our global recorded music market share has increased approximately 6% from 2011 to 2019, growing from 15.1% to 16.0%.

In addition, according to Nielsen, Atlantic Records was the No.

1 record label in the United States in 2017 and 2018, and is currently on track to be No.

1 record label on the Billboard 200 in the United States in 2017, 2018 and 2019.

Star-Making, Culture-Defining Core Capabilities.

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Our creative instincts yield custom strategies for each and every one of our recording artists, including, for example:

Cardi B, whose first Atlantic Records single “Bodak Yellow” was a break-out hit that has been certified nine times Platinum in the United States by the Recording Industry Association of America or RIAA;

• Cardi B, whose first Atlantic Records single “Bodak Yellow” was a break-out hit that has been certified nine times Platinum in the United States by the RIAA;

• Twenty One Pilots, whose rise to stardom accelerated with the release of their second Fueled by Ramen studio album, Blurryface ;

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We believe our longstanding reputation and relationships in the creative community, as well as our historical success in talent development and management, will continue to attract new recording artists and songwriters with staying power and market potential through the strength and scale of our proprietary capabilities.

Strong Financial Profile with Robust Growth and Operating Leverage.

For fiscal year 2017 through fiscal year 2019 , we have grown as-reported revenues at a CAGR of 12%, and on a constant-currency basis, at a CAGR of 10%, driven by secular tailwinds, organic reinvestment in A&R and strategic acquisitions.

For our fiscal year 2019 , our business generated net income and Consolidated EBITDA of $258 million and $737 million , respectively, implying Consolidated EBITDA margin of approximately 16%.

Strong Financial Profile with Robust Growth, Operating Leverage and Free Cash Flow Generation.

For fiscal year 2018 through fiscal year 2020, we have grown as-reported revenues at a CAGR of 6%, and on a constant-currency basis, at a CAGR of 7%, driven by secular tailwinds, organic reinvestment in A&R and strategic acquisitions, partially offset by the impact of the business disruption resulting from the COVID-19 pandemic in fiscal 2020.

For our fiscal year 2020, our business generated net loss and Adjusted EBITDA of $470 million and $837 million, respectively, implying an Adjusted EBITDA margin of approximately 19%.

We believe our financial profile provides a strong foundation for our continued growth.

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Expertise in Strategic Acquisitions and Investments That Extend Our Capabilities.

Since 2011 when Access became our controlling shareholder, we have completed a number of strategic acquisitions.

Since 2011 when Access became our controlling shareholder, we have completed more than 15 strategic acquisitions.

The acquisition of PLG in 2013 significantly strengthened our worldwide roster, global footprint and executive talent, particularly in Europe.

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Acquiring and investing in businesses that are highly complementary to our existing portfolio further enables us to potentially derive incremental and new revenue streams from different business models in new markets.

Our Strategies

Our Growth Strategies

Attract, Develop and Retain Established and Emerging Recording Artists and Songwriters.

A critical component of our global strategy is to produce an increasing flow of new music by finding, developing and retaining recording artists and songwriters who achieve long-term success.

Since 2011, our annual new releases have grown significantly and our catalog of musical compositions has increased to over 1.4 million .

Since 2011, our annual new releases have grown significantly and our catalog of musical compositions has increased to more than one million.

We expect to enhance the value of our assets by continuing to attract and develop new recording artists and songwriters with staying power and market potential.

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We recognize that music is inherently local in nature, shaped by people and culture.

According to IFPI, in 2018, at least seven of the top-selling singles in Brazil, India, Italy and South Korea were performed by or featured local artists.

Similarly, in 2018, at least seven of the top-selling albums in France, Germany, Spain and Turkey were performed by or featured local artists.

In 2019, at least 80% of the 50 top-selling singles in Brazil, Mexico and Argentina, and at least 90% of the 50 top-selling singles in Japan and South Korea, were performed by or featured local artists.

In addition, at least 50% of the 50 top-selling singles in Sweden, Italy and the Netherlands were performed by or featured local artists, each of which reflects over 20% growth since 2016.

One of our vital business functions is to help our recording artists and songwriters solve the complexities associated with a fragmented, global market of mixed musical tastes.

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We believe the growth of digital formats will continue to create new and powerful ways to distribute and monetize our music.

We were the first major music company to strike landmark deals with important companies such as Apple, YouTube and Tencent Music Entertainment Group, as well as with pure-play music technology companies such as MixCloud, SoundCloud and Audiomack.

We were the first major music company to strike landmark deals with important companies such as Apple, YouTube, Peloton and Tencent Music Entertainment Group, as well as with pure-play music technology companies such as MixCloud, SoundCloud and Audiomack.

We believe that the continued development of new digital channels for the consumption of music and increasing access to digital music services present significant promise and opportunity for the music entertainment industry.

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Our Recorded Music business also includes Rhino Entertainment, a division that specializes in marketing our recorded music catalog through compilations, reissuances of previously released music and video titles and releasing previously unreleased material from our vault.

We also conduct our Recorded Music

business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’, Warner Classics and Warner Music Nashville.

Outside the United States, our Recorded Music business is conducted in more than 60 countries through various subsidiaries, affiliates and non-affiliated licensees.

We also conduct our 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, Warner Classics and Warner Music Nashville.

Outside the United States, our Recorded Music business is conducted through various subsidiaries, affiliates and non-affiliated licensees.

Internationally, we engage in the same activities as in the United States:

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and various distribution centers and ventures operated internationally.

In addition to our music being sold in physical retail outlets, our 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 download services such as Apple’s iTunes and Google Play.

In addition to our music being sold in physical retail outlets, our 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 download services.

We have diversified our revenues beyond our traditional businesses by entering into expanded-rights deals with recording artists in order to partner with such artists in other aspects of their careers.

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Internationally, we market and sell U.S.

and local repertoire through our network of subsidiaries, affiliates and non-affiliated licensees in more than 60 countries.

and local repertoire through our network of subsidiaries, affiliates and non-affiliated licensees.

With a roster of local recording artists performing in various local languages throughout the world, we have an ongoing commitment to developing local talent aimed at achieving national, regional or international success.

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We have arrangements with various suppliers and distributors as part of our manufacturing, packaging and physical distribution services throughout the world.

In 2019, we switched to a new U.S.

physical distribution supplier, which increased the supplier’s volume and has led to delays and other inventory issues.

We believe that our manufacturing, packaging and physical distribution arrangements are sufficient to meet our business needs.

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In return for promoting, placing, marketing and administering the creative output of a songwriter, or engaging in those activities for other rightsholders, our Music Publishing business garners a share of the revenues generated from use of the musical compositions.

The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles with operations in over 60 countries through various subsidiaries, affiliates and non-affiliated licensees.

We own or control rights to more than 1.4 million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions.

The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles, and through various subsidiaries, affiliates, and non-affiliated licensees and sub-publishers.

We own or control 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, our award-winning catalog includes over 80,000 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, techno, alternative and gospel.

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• Television commercials

• Video games

• Merchandising, toys or novelty items

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Our Recording Artist and Songwriter Value Proposition

Over the last five years, we have outperformed in a highly competitive market.

For example, since January 2017, our recording artists have received more U.S.

Gold and Platinum certifications from the RIAA for debut albums than those of any other company.

Our success is a function of attracting exceptional talent and helping them build long and lucrative careers.

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Our longstanding relationships within the creative community also provide our recording artists and songwriters with a wide network of collaborators, which is a vital part of helping them to realize their best work.

We provide the investment that gives

our recording artists and songwriters the requisite time and space to experiment and flourish.

We provide the investment that gives our 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.

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Our Recorded Music business includes music from:

Global superstars such as Ed Sheeran, Bruno Mars, Michael Bublé, Cardi B, Kelly Clarkson, Coldplay, David Guetta, Dua Lipa, Neil Young, Prince, Pink Floyd, David Bowie, Phil Collins, Fleetwood Mac, Tom Petty and The Smiths.

Next-generation talent including A Boogie wit da Hoodie, Charli XCX, Lizzo and Bebe Rexha.

International stars such as Anitta, Aya Nakamura, TWICE, Christopher, Udo Lindenberg and Laura Pausini.

• Global superstars such as Ed Sheeran, Bruno Mars, Michael Bublé, Cardi B, Kelly Clarkson, Coldplay, David Guetta, Dua Lipa, Kenny Chesney, Neil Young, Prince, Pink Floyd, David Bowie, Phil Collins, Fleetwood Mac, Tom Petty and The Smiths.

• Next-generation talent including A Boogie wit da Hoodie, Roddy Ricch, YoungBoy Never Broke Again, Tones and I, Charli XCX, Lizzo and Bebe Rexha.

• International stars such as Anitta, Aya Nakamura, TWICE, Christopher, Pablo Alborán, Udo Lindenberg and Laura Pausini.

Our Music Publishing business includes musical compositions by:

Superstars such as Stormzy, Twenty One Pilots, Green Day, Katy Perry, George Michael, Chris Stapleton, Damon Albarn, Dave Mustaine and Kacey Musgraves.

• Superstars such as Stormzy, Twenty One Pilots, Green Day, Katy Perry, George Michael, Chris Stapleton, Dan + Shay, Tayla Parx, Damon Albarn, Dave Mustaine and Kacey Musgraves.

• International talent such as Jonathan Lee, Tia Ray, Manuel Medrano, Melendi, Bausa, Shy’m, Tove Lo and Jack & Coke.

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As such, competitive strength is predicated upon the ability to continually develop and market new recording artists whose work gains commercial acceptance.

According to Music and Copyright, in 2018, the three largest recorded music companies were Universal Music Group, Sony Music Entertainment and us, which collectively accounted for 67% of global recorded music revenues.

There are many mid-sized and smaller players in the industry that accounted for the remaining 33%, including independent recorded music companies.

Universal Music Group was the market leader with a 30% global market share in 2018 after absorbing the bulk of the recorded music assets of the former EMI in late 2012, followed by Sony Music Entertainment with a 21% share.

We held a 16% share of global recorded music revenues in 2018.

According to Music & Copyright, in 2019, the three largest recorded music companies were Universal Music Group, Sony Music Entertainment and us, which collectively accounted for approximately 68% of global recorded music revenues.

There are many mid-sized and smaller players in the industry that accounted for the remaining approximately 32%, including independent recorded music companies.

Universal Music Group was the market leader with an approximately 32% global market share in 2019 after absorbing the bulk of the recorded music assets of the former EMI in late 2012, followed by Sony Music Entertainment with an approximately 21% share.

We held an approximately 16% share of global recorded music revenues in 2019.

The music publishing industry is also highly competitive.

The three largest music publishing companies collectively accounted for 58% of the global market in 2018 according to Music & Copyright.

According to Music & Copyright, Sony/ATV was the market leader in music publishing in 2018 with a 26% share (reflecting its administration of the EMI music publishing assets).

Universal Music Publishing was the second-largest music publisher with a 20% share, followed by us at 12%.

There are many mid-sized and smaller players in the industry that account for the remaining 42%, including many individual songwriters who publish their own works.

The three largest music publishing companies collectively accounted for approximately 58% of the global market in 2019 according to Music & Copyright.

According to Music & Copyright, Sony/ATV was the market leader in music publishing in 2019 with an approximately 25% share (reflecting its ownership of the EMI music publishing assets).

Universal Music Publishing was the second-largest music publisher with an approximately 21% share, followed by us at approximately 12%.

There are many mid-sized and smaller players in the industry that account for the remaining approximately 42%, including many individual songwriters who publish their own works.

Intellectual Property

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The duration of copyright protection for such sound recordings varies based on the year of publication, with all such sound recordings receiving copyright protection for at least 95 years, and sound recordings published between January 1, 1957 and February 15, 1972 receiving copyright protection until February 15, 2067.

The term of copyright in the European Union, or E.U., for musical compositions in all member states lasts for the life of the author plus 70 years.

The term of copyright in the E.U.

for musical compositions in all member states lasts for the life of the author plus 70 years.

In the E.U., the term of copyright for sound recordings lasts for 70 years from the date of release in respect of sound recordings that were still in copyright on November 1, 2013 and for 50 years from date of release in respect of sound recordings the copyright in which had expired by that date.

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We consider our trademarks to be valuable assets to our business.

Although we cannot assure you that our trademark applications, even for major trademarks, will be approved, we endeavor to register our major trademarks in every country where we believe the protection of these trademarks is important for our business.

Our major trademarks include Asylum, Atlantic, Elektra, EMP, Parlophone, Reprise, Rhino, Sire, Spinnin’, Warner Chappell and WEA, and their respective logos.

Although we cannot assure you that our trademark applications, even for major trademarks, will register, we endeavor to register our major trademarks in every country where we believe the protection of these trademarks is important for our business.

Our major trademarks include Asylum, Atlantic, East West, Elektra, EMP, Erato, Nonesuch, Parlophone, Reprise, Rhino, Roadrunner, Sire, Songkick, SPINNIN’ RECORDS, Warner Chappell and WEA, and their respective logos.

We also use certain trademarks pursuant to a royalty-free license agreement.

The duration of the license relating to the WARNER, WARNER MUSIC and WARNER RECORDS marks and “W” logo is perpetual.

The license may be terminated under certain limited circumstances, including our material breach of the license agreement and certain events of insolvency.

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 our material breach of the license agreement and certain events of insolvency.

We actively monitor and protect against activities that might infringe, dilute or otherwise harm our trademarks.

However, the actions we take to protect our trademarks may not be adequate to prevent third parties from infringing, diluting, or otherwise harming our trademarks, and the laws of foreign countries may not protect our trademark rights to the same extent as do the laws of the United States.

the actions we take to protect our trademarks may not be adequate to prevent third parties from infringing, diluting, or otherwise harming our trademarks, and the laws of foreign countries may not protect our trademark rights to the same extent as do the laws of the United States.

Joint Ventures

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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.

As of September 30, 2019 , we employed approximately 5,400 persons worldwide, including temporary and part-time employees as well as employees that were added with the acquisition of EMP.

As of September 30, 2020, we employed approximately 5,500 persons worldwide, including temporary and part-time employees as well as employees that were added through acquisitions.

As of such date, none of our employees in the United States were subject to a collective bargaining agreement, although certain employees in our non-domestic companies were covered by national labor agreements.

We believe that our relationship with our employees is good.

INDUSTRY OVERVIEW

The music entertainment industry is large, global and vibrant.

The recorded music and music publishing industries are growing, driven by consumer and demographic trends in the digital consumption of music.

Consumer Trends and Demographics

Consumers today engage with music in more ways than ever.

According to IFPI, global consumers spent 18 hours listening to music each week in 2019.

Demographic trends and smartphone penetration have been key factors in driving growth in consumer engagement.

Younger consumers typically are early adopters of new technologies, including music-enabled devices.

According to Nielsen, in 2019, 58% of teens in the United States between the ages of 13 and 17 and 45% of millennials in the United States between the ages of 18 and 34 used their smartphones to listen to music on a weekly basis, as compared to a 40% average for all U.S.

Furthermore, in 2019, U.S.

teens and millennials listened to an average of 32.6 and 29.7 hours of music each week, respectively, above the 26.9 hours for all U.S.

Members of older demographic groups are also increasing their music engagement.

According to an IFPI survey of 19 leading geographic markets, 54% of 35- to 64-year-olds used a streaming service to listen to music in the past month in 2019, representing an increase from 46% in 2018, which was the highest rate of growth for use of streaming services across all age groups.

Music permeates our culture across age groups, as evidenced by the footprint that music has across social media.

According to RIAA, as of September 2019, 7 out of the top 10 most followed accounts on Twitter belong to musicians, and according to YouTube, the majority of videos that have achieved more than one billion lifetime views as well as the top 10 most watched videos of all time, belong to musicians.

Recorded Music

The recorded music industry generated $19.1 billion in global revenue in 2018 and has consistently grown since 2015, according to IFPI.

IFPI measures the recorded music industry based on four revenue categories:

digital (including streaming), physical, synchronization and performance rights.

Digital is the largest, generating $11.2 billion of revenue in 2018, representing 59% of global recorded music revenue.

Within digital, streaming generated approximately 80% of revenue, or $8.9 billion, with the remainder of digital revenue coming from other formats such as downloads.

Overall, digital grew by 20% in 2018, with streaming increasing by 33%.

Physical represented approximately 25% of global recorded music revenue in 2018, with growth in formats such as vinyl partially offsetting declines in CD sales.

Performance rights revenue represents the use of recorded music by broadcasters and public venues, and represented 14% of global recorded music revenue in 2018.

Synchronization revenue is generated from the use of recorded music in advertising, film, video games and television content, and represented 2% of global recorded music revenue in 2018.

According to IFPI, global recorded music revenue has grown at a 9% CAGR since 2015, with growth accelerating to 10% in 2018 from 7% in 2017.

We believe the following secular trends will continue to drive growth in the recorded music industry:

Streaming Still in Early Stages of Global Adoption and Penetration

According to IFPI, global paid music streaming subscribers totaled 255 million at the end of 2018.

While this represents an increase of 45% from 176 million in 2017, it still represents less than 8% of the 3.2 billion smartphone users globally, according to Newzoo.

It also represents a small fraction of the user bases for large, globally scaled digital services such as Facebook, which reported 2.7 billion monthly users across its services as of July 2019, and YouTube, which reported two billion unique monthly users as of May 2019.

On-demand streaming (both audio and video) is on pace to exceed one trillion streams in the United States in 2019, according to Nielsen, and this growth is expected to continue.

The potential of global paid streaming subscriber growth is demonstrated by the penetration rates in early adopter markets.

Approximately 30% of the population in Sweden, where Spotify was founded, was estimated to be paid music subscribers in 2018, according to MIDiA.

This compares to approximately 25% and 16% for established markets such as the United States and Germany, respectively.

Moreover, paid digital music subscribers in Japan, the world’s second-largest recorded music market in 2018 according to IFPI, still only represented approximately 7% of the population, according to MIDiA.

There also remains substantial opportunity in emerging markets, such as Brazil and India, where smartphone penetration is low compared to developed markets.

For example, according to Newzoo, smartphone penetration for Brazil and India as of September 2019 was 46% and 25%, respectively, compared to 79% in the United States.

China, in particular, represents a substantial growth market for the recorded music industry.

According to IFPI, paid streaming models are at an early stage in China, with an estimated 33 million paid subscribers in 2018, representing only 2% of China’s population of over 1.4 billion.

Despite its substantial population, China was the world’s seventh-largest music market in 2018, having only broken into the top 10 in 2017.

Opportunities for Improved Streaming Pricing

In addition to paid subscriber growth, we believe that, over time, streaming revenues will increase due to pricing increases as the broader market further develops.

Streaming services are already at the early stages of experimenting with price increases.

For example, in 2018, Spotify increased monthly prices for its service in Norway.

In addition, in 2019, Amazon launched Amazon Music HD, a high-quality audio streaming offering that is available to customers at a premium price in the United States.

We believe the value proposition that streaming provides to consumers supports premium product initiatives.

Technology Enables Innovation and Presents Additional Opportunities

These technologies represent advancements that are deepening listener engagement and driving further growth in music consumption.

Device Innovation.

According to Nielsen, as of August 2019, U.S.

consumers listened to music across an average of 4.1 devices per week.

Smart speakers enable consumers to access music more readily by using their voices.

According to PwC, smart speaker ownership is expected to increase at a 38% CAGR from 2018 through 2023, to 440 million devices globally in 2023.

The adoption of smart speakers in the United States has been strong, and according to Nielsen, 31% of music listeners today own smart speakers.

Smart speakers are fueling further growth in streaming, by converting more casual listeners into paid subscribers, drawn in by music as a critical application for these devices.

According to Nielsen, 61% of U.S.

consumers who use a smart speaker weekly to listen to music currently pay for a subscription as well.

Format and Monetization Model Innovation.

Short-form music and music-based video content has grown rapidly, driven by the growth of global social video applications such as TikTok, which features 15-second videos often set to music.

TikTok has reportedly been downloaded more than one billion times since its launch in 2017 and has a global reach of 500 million users, according to

Such applications have the potential for mass adoption, illustrating the opportunity for additional platforms of scale to be created to the benefit of the music entertainment industry.

These platforms enable incremental consumption of music appealing to varied, and often younger, audiences.

From a recording artist’s perspective, these platforms have the potential to rewrite the path to stardom.

For example, our recording artist, Fitz & the Tantrums, an American band, rose to international fame in 2018 as their song “HandClap” went viral in Asia on TikTok.

Fitz & the Tantrums quickly topped the international music charts in South Korea and surpassed one billion streams in China.

Music Publishing

According to Music & Copyright, the music publishing industry generated $5.5 billion in global revenue in 2018, representing an 11% increase from $4.9 billion in the prior year.

Music publishing involves the acquisition of rights to, and the licensing of, musical compositions (as opposed to sound recordings) from songwriters, composers or other rightsholders.

Music publishing revenues are derived from four main royalty sources:

mechanical, performance, synchronization and digital.

Digital represents the largest and fastest-growing component of industry revenues, while performance represents the second-largest component of industry revenues.

Mechanical revenues from traditional physical music formats (e.g., CDs, DVDs, downloads) have continued to fall while performance revenues and digital revenues have grown to offset this decline.

Positive Regulatory Trends

The music industry has benefitted from positive regulatory developments in recent years, which are expected to lead to increased revenues for the music entertainment industry in the coming years.

Music Modernization Act (“MMA”).

In 2018, the passing of the MMA in the United States resulted in major reforms to music licensing.

The MMA improves the way digital music services obtain mechanical licenses for musical compositions, requires the payment of royalties to recording artists for pre-1972 sound recordings streamed on digital radio services such as SiriusXM and Pandora and provides for direct payments of royalties owed to producers, mixers and engineers when their original works are streamed on non-interactive webcasting services.

C opyright Royalty Board (“CRB”).

In 2018, the CRB issued its determination of royalty rates and terms, significantly increasing the mechanical royalty rates paid for musical compositions in the United States from 2018 through 2022.

That decision is currently being appealed by some digital music services.

European Union Copyright Directive.

In 2019, the E.U.

passed legislation which will reign in safe harbors from liability for copyright infringement and rebalance the online marketplace to ensure that rightsholders and recording artists are remunerated fairly when their music is shared online by user-uploaded content services such as YouTube.

Corporate Information

Warner Music Group Corp.

is a Delaware corporation.

Our principal executive offices are located at 1633 Broadway, New York, New York 10019, and our telephone number is (212) 275-2000.

Our website is www.wmg.com.

Information on, or accessible through, our website or any other website is not incorporated by reference herein.

All website addresses in this Annual Report are intended to be inactive textual references only.

Available Information

Our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those forms are available free of charge through our website (investors.wmg.com) as soon as reasonably practicable after they are filed with or furnished to the SEC.

The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov.

None of the information contained on, or that may be accessed through our websites or any other website identified herein is part of, or incorporated into, this filing.

All website addresses in this Annual Report are intended to be inactive textual references only.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business