I’ve said it before, I’ll say it again: In my view, Warner Music Group made two significant strategic missteps over the past 20 years.
The first was an under-investment in independent distribution. Case in point: in the same year Sony Music announced it was spending $400+ million to buy AWAL, Warner splashed a similar sum on 300 Entertainment, which has since been denuded down to an Atlantic A&R hub.
WMG’s second mistake was its under-investment in catalog M&A. As Larry Mestel‘s Primary Wave was amassing its war chest, as Merck Mercuriadis was building Hipgnosis, as private equity started pouring billions into music rights, Warner largely stood still.
As Mestel once told me: “Back in 2006, had the majors been aggressive, none of the companies that you’re talking about would have ever been able to get into the business, including us.”
Since Robert Kyncl took over as WMG CEO in 2023, he’s earned his fair share of industry brickbats. Sweeping Warner layoffs continue to be whispered about at industry dinners. And the former YouTube exec’s vocabulary can certainly give off the bouquet of a tech-head, rather than a ‘music man’.
Yet Kyncl is at least attempting to directly address both of Warner’s historic shortfalls.
On catalog: Warner’s joint venture with Bain Capital has now deployed $650 million on acquisitions, led by the Red Hot Chili Peppers’ masters at $300 million-plus. The vehicle has been upsized from $1.2 billion to $1.65 billion.
On indie distribution: WMG’s recent acquisition of Revelator – a cloud-based platform for independents – is a small but direct challenge to FUGA (under UMG/Virgin Music Group).
At the same time, Warner just had one of its most impressive quarters in years. The company generated $1.73 billion in calendar Q1, up by nearly $250M vs the prior-year period (albeit comped against a dud of a quarter in 2025).
The mood on WMG’s latest earnings call, held on May 7, was jubilant. Kyncl opened the Q&A section with this remark: “After years of doing hard, unsexy foundational work, after making tough organizational decisions and redesigns… we have now hit our stride. It feels really good to be at Warner today.”
Here are three things worth considering about Warner Music Group’s strategy, and its place in the market, as things stand…
1) Warner’s margin transformation is real – and the target is ambitious
On the May 7 earnings call, CFO Armin Zerza – who was simultaneously promoted to CFO/COO – was blunt about where Warner’s profitability has been, and where it’s headed:
“Frankly, our margins were way too low [in the past]. When I started here, it was in the low 20s. As you can see, fiscal year-to-date, we’re around 24%… I’m very confident that we can get to the high-20s target in the medium to long term.”
The high 20s – i.e., approaching 30%. Zerza is talking about a structural transformation of Warner’s economics, not a one-quarter sugar rush.
At a JPMorgan conference earlier this week, Zerza went further.
He credited WMG’s margin gains to three factors: “One, focused on what we call ‘profitable growth’… Number two, cost savings that was primarily driven by a reorganization of the company from what was a very local organization to a global-regional-local organization. And… now, obviously, operating leverage.”
He highlighted a particular stat worth considering: catalog, said Zerza, accounts for 65% of WMG’s recorded music streaming revenue today – and often carries 50%+ margins.
He added: “Less than 5% of our songs [today] represent more than 90% of our revenue on DSPs. That gives you the idea of how concentrated consumer behavior really is in music.”
This stat contrasts with figures announced by then-Warner CEO, Steve Cooper, four years ago, when Cooper heralded an era of lessening superstar concentration in WMG’s business.
Said Cooper: “[In 2012] our Top 5 artists generated over 15% of our recorded music physical and digital revenue. In 2022, they generated just over 5%.”
If I had to guess, the re-concentration of Warner’s revenues into a relative handful of hit artists has been driven by one thing: the market share explosion of evergreen catalog music.
Don’t forget: the total streaming volume of new music actually fell in real terms in the US last year – down 5 billion streams YoY – as catalog music surged.
2) Robert Kyncl’s ’empty calories’ philosophy – and an intriguing claim about distribution
Robert Kyncl has previously said that Warner strategically avoids “empty calories” deals – aka distribution agreements that book large revenues but skinny profits.
He counted Warner’s former global distribution agreement with BMG as one such deal, and didn’t shed tears when it ended. Kyncl also wasted little time dumping Warner’s DIY distribution platform, Level Music, soon after joining the company.
This “empty calories” philosophy is central to understanding how Warner thinks about indie distribution in 2026 – a sector widely regarded as structurally lower-margin than frontline label operations.
On the May 7 WMG earnings call, Kyncl made a striking claim about Alejandro Duque, who now runs ADA alongside Warner’s Latin America operation.
LATAM, Kyncl noted, is a “very distribution-heavy market.” Then he said: “[Duque] has managed to run that territory on a margin which is [broadly] the same as our company’s.”
This claim was repeated by Armin Zerza this week, who said that Duque’s team had “grown [WMG’s LATAM] business on average 15% every single year for the past five years at almost company average margins“.
It’s a notable assertion: despite indie distribution deals remaining the bedrock of the Latin market, WMG’s LATAM business is apparently banking somewhere near the mid-20-percent OIBDA margins showing up in the firm’s global numbers.
Duque’s remit in Latin America goes far beyond indie distribution, of course, encompassing frontline label activity and other revenue lines. And Warner doesn’t specifically break out margins for ADA in its fiscal filings, so we can’t know for sure where they sit.
But this is a trend worth watching at Warner. In an industry where indie distribution is increasingly where the growth is, the question of how profitable that growth is matters.
One alternative view? There are ways to grow margins in indie distribution beyond watching the pennies.
The majority of deals at Sony‘s The Orchard or UMG’s Virgin Music Group, for example, will inevitably be lower-margin than deals at their sister record companies. Yet these firms often leverage their relationships with said indies to make equity investments into their businesses, thereby boosting margins.
A global indie distribution/administration network can also act as a far-reaching catalog M&A pipeline, giving valuable visibility into market opportunities.
As Chord Music’s John Chapman said this week of Chord’s relationship with UMG: “[Chord] had a great partnership with the team at KKR for a couple of years, but the reality is that during that time period, I bought eight catalogs for roughly $350 million. Then last year, [having established a partnership with UMG], I bought 20 catalogs for $800 million.
“It is just a clear, fundamental difference – a pipeline of opportunities that I see as a direct result of our partnership with UMG.”
3) In a way, Warner is hanging back in the majors’ race. In another way, it’s becoming more unique.
The chart below shows calendar Q1 revenues for UMG, Sony, Warner, and HYBE, over the past three years. All figures are in USD, converted from root currencies where required at prevailing quarterly rates.
From calendar Q1 2024 to calendar Q1 2026, UMG added nearly $600 million in quarterly revenue. Sony added roughly $500 million. Warner added closer to $250 million.
As a result, the quarterly revenue gap between the No.2 and No.3 major widened during this period, from ~$1.0 billion in Q1 2024 to ~$1.3 billion in Q1 2026.
Meanwhile, in gross revenue terms, UMG remains roughly double the size of WMG today.
There was a time when Warner’s publicly stated ambition was to catch the No.2 player in the global market. Former CEO Steve Cooper told me as such.
Those days have gone: in gross revenue terms, the likelihood that Warner can one day break into the ‘big two’ looks as good as over.
Yet that might not be the right lens through which to view WMG anymore.
Warner is quietly becoming something else: a company too big to be called an ‘independent’, operating at multiple times larger than HYBE or the soon-to-be-merged BMG/Concord (valued at approximately $15 billion on a projected $730 million annual EBITDA).
Yet Warner is combining this unique No.3 market power with its ever-increasing thirst for margin.
Armin Zerza described WMG’s approach at JPMorgan this week as a “flywheel”: margin improvement generates cash, cash funds investment, investment drives growth, growth expands margins further.
He said Warner has been able to “grow the business while actually spending less in A&R as a percent of revenue.”
WMG is doing this while still increasing its A&R spend YoY in real terms.
That’s not a company trying to outspend its competition. It’s a company trying to out-earn them, per dollar invested.
Which brings me to the most provocative moment from Zerza’s JPMorgan appearance this week.
Asked about the gap between private-market multiples for music catalogs and public-market valuations for music companies, he was blunt: “We agree that our public valuation does not reflect our underlying value, especially given the results that we have been delivering and will continue to deliver.”
Zerza then added: “Fairly sophisticated investors around the world agree… you’ve heard that recently from one large investor as they looked at our industry.”
That was a nod to Bill Ackman’s Pershing Square, which in April launched a bid to acquire Universal Music Group at a $64 billion valuation – partly on the thesis that public markets are chronically undervaluing UMG’s stock.
Len Blavatnik‘s Access Industries took Warner Music Group private for $3.3 billion in 2011. It then floated the company on the Nasdaq in 2020. Today, Warner’s market cap sits at approximately $18 billion.
If Zerza is right that public markets don’t reflect Warner’s underlying value… and if Ackman is right that the music industry’s best days are ahead of it… and if Blavatnik agrees with both…
Could Warner end up as a private company again over the next few years? Perhaps a kind of catalog-heavy, global ‘enormo-indie’, with a 30%-plus margin profile? I won’t be shocked if that’s the ultimate destination.Music Business Worldwide
