Ed Sheeran’s Divide puts Warner Music’s streaming income on track to cross £1bn

The popularity of Ed Sheeran and his latest album, Divide, helped drive a 58% increase in streaming revenue for Warner Music, putting it on track to make more than $1.3bn (£1bn) from digital services including Spotify and Apple Music this year.

The world’s third largest record company made $360m from streaming in the three months to the end of June, up 58.6% on the same period a year ago, crediting top-selling artists including Sheeran, Dua Lipa, Bruno Mars, Gorillaz and Clean Bandit.

A spokesman said Divide, which smashed streaming records on Spotify when it launched in March, had a “big bang” effect on sales in the third quarter of its financial year.

The company also pointed to Mars’s third album, 24K Magic, which has continued to sell strongly since being released in November, as well as Linkin Park’s final album before the death of their lead singer, Chester Bennington, last month.

The boost in streaming revenue was marked even compared with Warner Music’s previous quarter (up 20%), and has put it on track to crack the $1bn annual streaming revenue mark for the first time.

Warner Music is on target to make more than $1.3bn from streaming revenues, compared with just over $900m in its last financial year, to the end of September 2016.

After a decade of plummeting revenues due to online piracy, the decline in CD sales and a lack of viable streaming services, the music industry’s fortunes are looking up.

“As we see it, the industry is still in the early stages of its recovery. In 2016, the recorded music industry was only half as big as it was in the year 2000,” said Steve Cooper, the chief executive of Warner Music, in a call with investors. “I often get asked whether or not these trends can continue. We at Warner are confident they will. There remains an enormous amount of untapped potential for subscription streaming to achieve global scale.”

He added that Warner Music is still in talks on a new licensing deal with Spotify, the last of the majors to do so following Universal Music and Sony. These deals gave Spotify a small reduction on how much it pays in royalties, but allow the labels more flexibility on making albums available only to Spotify users paying for its premium service.

“We only agree to terms that are ‘net positive’ for our recording artists and songwriters,” said Cooper. “At the same time, we want to stimulate a healthy and competitive ecosystem. We must work with digital services to create greater differentiation between subscription and ad-supported models.”

Warner Music reported that revenues across its recorded and music publishing operations rose 13% year-on-year to $917m for the three months to the end of June, its biggest third quarter in 14 years. Digital revenues across the business grew 30% to $496m, accounting for more than half of the record company’s total income in the quarter.

In May, Warner Music renewed its licensing contract with YouTube in tough talks Cooper referred to in an internal memo at the time as not being a “free market” negotiation. The music industry has accused YouTube, owned by Alphabet, of a “value grab”, paying a fraction of the royalties of subscription audio streaming services such as Spotify.

YouTube has said that last year it paid more than $1bn globally to the music industry from advertising that runs around videos.

Last month, Sheeran’s new album, and his headline Glastonbury spot, were credited with helping increase total UK music sales by 11% in the first half of the year. At one point Sheeran’s album overwhelmed the official charts with all 16 songs making the Top 20 singles list.