Warner Music Group Fetches a Decent ‘BBB’ IDR Rating from Fitch Ratings

Photo Credit: Gideon Benari / CC by 2.0

Fitch Ratings gives Warner Music Group a first-time long-term credit rating of a decent ‘BBB,’ spelling good news for the company.Just a few days after Bill Ackman’s Pershing Square Holdings, which owns approximately 10% of Universal Music Group’s equity, led to the company receiving an increased stock rating of “outperform,” its rival, Warner Music Group, receives similar good news. Fitch Ratings, one of the “Big Three” credit rating agencies in the US, has given WMG a first-time long-term “Issuer Default Rating” (IDR) of ‘BBB.’

The Fitch website’s ratings system guide confirms this is good news for the company. Fitch wrote that WMG’s rating “reflected its leading position in the music entertainment industry supported by its extensive portfolio of music assets and diversified revenue base.” The rating also takes into consideration the company’s “modest leverage and robust Free Cash Flow (FCF) generation, balanced against the inherent volatility of its hit-driven recorded music segment.”

Further, Fitch’s outlook for Warner Music also incorporates expectations for its continued growth in paid music streaming, expansion into emerging markets, and new monetization opportunities from new platforms and “dedicated superfans.”“The global music industry has strong growth potential with opportunities from continued adoption of paid streaming services, price increases by Digital Service Providers (DSP), growth in emerging markets, monetization from new platforms, and premium plans for superfans,” Fitch explained, adding that it believes WMG is “well positioned to capitalize on emerging market opportunities.”

“Although major labels have signed licensing rights with platforms like Meta and TikTok, Fitch believes there is still a sizable value gap from unlicensed use of music by emerging platforms such as short-form video, exercise, gaming, and livestreaming,” the company concluded.

Meanwhile, Warner Music Group CEO Robert Kyncl has hinted that he’s interested in the company’s presence growing in the so-called “middle class artist market.” Warner’s recent minority stake in Brazil’s Sua Música will also be “a significant partner” for its strategy of expanding its presence throughout the Brazilian market.