WARNER MUSIC GROUP Sells 75 % of its Spotify Shares

In its earnings call on Monday morning, Warner Music Group announced that it has sold around 75% of its Spotify equity for approximately $400 million. “We will be sharing equity proceeds with distributed labels,” Cooper said, if that stipulation is included in their agreements with the company. Separately, but as part of the same earnings report in which the sale of its Spotify earnings were announced, Warner said $300 million will go to shareholders.

Earlier this year Sony Music announced that it has sold 17.2% of its shares in Spotify, yielding a gain for the label of $260 million or more, according to a notice Sony shared with investors.

WMG CEO Stephen Cooper was quick to note that the company’s decision does not reflect a lack of confidence in Spotify’s future. “Just so there won’t be any misinterpretation about the rationale for our decision to sell, let me be clear:  We’re a music company, and not, by our nature, long-term holders of publicly traded equity,” he said. “This sale has nothing to do with our view of Spotify’s future. We’re hugely optimistic about the growth of subscription streaming, we know it has only just begun to fulfill its potential for global scale.  We fully expect Spotify to continue to play a major role in that growth.”

Asked about the sale on the call, Cooper added, “I think at the moment our valuation  reflects what we believe is fair. The speculation about [whether] Universal Music Group [will sell any of its equity] remains speculation at the moment, and with respect to public versus private, to the best of my knowledge [Warner parent company] Access prefers private, so I think that while we’re seeing a lot of interesting movement in the world of music. The only one that’s really materialized is Spotify, and the valuation that they received was expected, and good for them.”

Warner’s percentage of ownership was not disclosed, although it is less than 5%, the minimum that would make the company obligated to disclose changes in its holdings under SEC rules. At the time of Spotify’s initial public offering, Sony Music Entertainment owned 5.7% of Spotify’s outstanding shares, or 10.16 million shares. With the sale, Sony Music retains 8.4 million Spotify shares, or 4.7% of the internet company’s total ordinary shares.

SME did not disclose the value of the Spotify shares it sold Tuesday. Spotify’s stock opened at $165.90 per share at 12:43 p.m. ET before closing at $149.01. Given that it sold about 1.74 million shares, at the closing price that would have been worth around $260 million. In the announcement, Warner said that these results contributed to its cash balance of $612 million at the end of the quarter.

Warner re-emphasized that it was the first major music company to announce that we would share proceeds with our artists from the sale of equity in digital services.  “As we said, we’ll share these proceeds on the same basis as we share revenue from actual streams and so-called digital breakage.  In addition, we will be sharing equity proceeds with distributed labels, if included in their agreements with us.”