CANDACE KOLLER ~ ZACHARY EVANS

MUSIC & VIDEOSWE’VE GOT YOU COVERED

Wednesday, December 10, 14we are Zach Evans and Candace Koller. We are here to discuss a very important new trend in the music industry. We know that after our presentation you will be excited to move forward with our ideas and be comfortable on how it will benefit Warner Music Group.

WARNER MUSIC STREAMING SERVICES

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Wednesday, December 10, 14Warner Music Group has been a very successful music label, distributor, publisher and label service provider to it’s strong roster of artists. We feel it’s time to think outside of the box and develop our own streaming service that is exclusive for WMG music artists. This will be more than what other streaming services offer. We will offer incentives to our subscribers that will help customers feel that they are getting more than just streaming.

Problem & Solution (3 points each) Explain what challenges this company faces that relate to how your proposal will help. Address how your proposal will benefit the company qualitatively. Answer the question, “Why should they do this?”

PROBLEM&

SOLUTION

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Wednesday, December 10, 14The problems are two fold. 1. Music sales are in a decline. During the 2013 sales year, no one artist was able to achieve platinum sales and more customers would rather tap into a cloud based account for their music listening pleasure. Customers do not want to deal with storing and maintaining a music library be it digital or physical.

WARNER MUSIC STREAMING SERVICESENVIRONMENTAL SCANNING

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Record Sales

Record Sales Record SalesRecord SalesRecord Sales

Label Services

Streaming Services

Wednesday, December 10, 14This new streaming service will allow for continues revenue as the subscriber will pay a minimum monthly subscription fee. It will also allow us to continue to introduce new music to customers who are interested in purchasing digital and physical media as well as bring revenue into the label services which will allow WMG to continue to support their roster of artist.

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WARNER MUSICSTRENGTHS & WEAKNESSES

Wednesday, December 10, 14Warner Music Group has a massive stable of artists whom which have a fan base who is loyal to them. Not only will we be able to help our artist collect royalties they deserve but we will also be able to provide them and their fans direct contact and access to their music. This will allow our artists to recoup appropriate publishing and performance royalties, but also use their label services to continue making music and support their careers.

Weaknesses, there are other subscription based providers who have a broader range of music available than we do. It may be a challenge to get them to buy in or switch to our service.

Financial  StandingsAs  of  March  31,  2014,  the  company   reported  a  cash  balance  of  $142  million,  total  long-­‐term  debt  of  $2.869  billion  and  net  debt  (total  long-­‐term  debt,  including  the  current  porDon,  minus  cash)  of  $2.720  billion.    There  was  no  balance  outstanding  on  the  records  as  of  March  31,  2014.  Revenue  for  the  company  has  declined  3%  and  digital  revenue  increased  6%  both  on  a  constant  currency  basis.  The  net  loss  was  $59million  versus  net  income  of  $4  million  in  the  prior  year  quarter.  (WMG.com)NASDAQ  WMG  status  is  a  share  price  of  $17.00,  shares  offered  32,600,000  in  common  stock.  Company  financials:  revenue  $1,008,000,000,  Net  Income  $36,000,000,  Total  liabiliDes,  $5,148,000,000,  stock  holders  equity   -­‐$125,000,000  with  total  assets  equaling  $5,023,000,000.  The  current  CEO  Edgar  Bronfman,  CFO  Eric  Levin,  EVP  Brian  Roberts  and  WMG  currently  employ  4000  staff  members.  (NASDAQ.com)

WARNER MUSIC COLLABORATORS

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Wednesday, December 10, 14Warner music group has a long list of partnerships and collaborations. One in particular that we feel is a strong and will help our marketing and sales push is the partnership with soundcloud. They have a strong list of people using their service and we hope to use it in conjunction with our streaming service to help unsigned/unknown artists get discovered.

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WARNER MUSIC COMPETITORS

Wednesday, December 10, 14As previously stated there is a growing list of streaming services available to consumers. We think our incentive based subscriptions will bring more customers to our service as well as theirs if not exclusively.

WARNER MUSIC BUSINESS CLIMATE

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Swift Yorkehttps://www.flickr.com/photos/carlos_muller/3388897561

Wednesday, December 10, 14The business climate sees more artists who are declining to have their music sold for free or for minimal residuals and publishing. We would offer are artists to be exclusive with us or they could share their music on our platform and others they choose. We’ve seen companies such as CBS pulling their content from video streaming providers like hulo and netflix and only allowing their content to be viewed from their CBS application only. Allowing them more control of the content and being aware of their share in the market place.

WARNER MUSIC STREAMING SERVICESSTRATEGY FORMULATION

WARNER MUSIC GROUP

MARKETING DISTRIBUTION A & R LEGAL STREAMINGDEPT.

Wednesday, December 10, 14As for our strategy for this new streaming service we see the necessity of adding a new streaming department. This department would be relatively small and will need minimal support at the onset of this venture. During the launch we will need to enlist the help of the legal department to discuss licensing and royalty agreements with the artist. The marketing department to help get the service out there and start cultivating interest in the service. A team of 15 employees and 2 webmasters that make up the division based

WARNER MUSIC PROJECT BUDGET

Sales

Year 1

Expenses

Year 2 Year 3

Operations

Marketing

Legal

Distribution

Net Profit

57,230,238 60,091,750 63,096,337

TOTAL

6,428,321 6,697,237 6,979,599

5,000,000

150,000

0

5,000,000

160,000

0

5,000,000

170,000

0

$12,149,599 $11,857,237 $11,578,321

$45,651,917 $48,234,513 $50,946,738

Wednesday, December 10, 14The  first  and  largest  cost  for  the  implementaDon  of  Warner  Music  Group  streaming  services  is  the  cost  of  operaDons.  Included  in  operaDons  are  streaming  costs,  licensing  fees  and  hosDng  as  well  as  the  employee  budgets  associated  with  it.  Due  to  the  streaming  service  being  an  added  division  within  Warner  Music  Group  the  arDsts  and  music  streamed  will  mostly  be  limited  to  the  ones  inside  of  the  WMG  catalogue,  which  allows  for  a  lower  need  to  have  too  many  employees.  In  order  for  the  service  to  be  a  success  there  has  to  be  an  awareness  surrounding  the  product  which  could  fit  inside  of  a  $5  million  dollar  budget  that  would  include  but  not  be  limited  to  social  media  markeDng,  terrestrial  radio  markeDng,  print  adverDsing  and  event  markeDng.  Making  people  aware  that  the  product  exists  is  important  for  the  launch  of  the  product  and  once  there  is  an  established  foundaDon  users  tesDmonies  and  word  of  mouth  will  be  very  beneficial  to  the  growth  of  the  services  offered.  

WARNER MUSIC SALES PROJECTIONS

Year 1 Year 2 Year 3

Sales Projections

Projected Units Sold

Unit Price

Unit Cost

TOTAL

13,944,000

5,378,321

$57,230,238

$3.99-$4.99

14,641,200

$3.99-$4.99

5,647,237

$60,091,750

15,373,260

$3.99-$4.99

5,929,599

$63,096,337

Wednesday, December 10, 14When it comes to how many paid subscribers exist in America the numbers in research varied from 22-28 million. The most recent number with an accurate breakdown states that there are approximately 24.9 million paid subscribers to music streaming services as of November 2014. With the strong presence of countless Warner Music Group artists stretched across every genre past and present and the features that are not matched by current streaming services it is anticipated in good reason that in the first year Warner Music Group streaming services could reach at least 7% of the market share or 1,743,000 million subscribers in the first year.

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Wednesday, December 10, 14First, the WMG team of lawyers would already be relatively familiar with the artists contracts and be an essential tool in giving the department the go ahead to add the artists music to the platform. In the event that there are a few artists who own the majority of the rights to their music the lawyers may need to get the artists permission before adding the music to the catalogue. Adding two lawyers to be dedicated to contracts involved should be around $150,000 the first year.All in all, the benefit of having such a large in house catalogue for WMG gives plenty of content without having to go outside to make the service successful. The second great advantage is that there are virtually no distribution costs that are not already included inside of the operations because everything is digital and there will be no physical distribution of the product.

Strategy Evaluation (3 points) Explain how you will evaluate the success of executing your strategy. This addresses your SMART goals and how you will stay on track.

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WARNER MUSIC MILESTONES

Wednesday, December 10, 14All  in  all,  the  benefit  of  having  such  a  large  in  house  catalogue  for  WMG  gives  plenty  of  content  without  having  to  go  outside  to  make  the  service  successful.  The  second  great  advantage  is  that  there  are  virtually  no  distribuDon  costs  that  are  not  already  included  inside  of  the  operaDons  because  everything  is  digital  and  there  will  be  no  physical  distribuDon  of  the  product.  Aber  relentless  markeDng  efforts  to  build  a  solid  foundaDon  the  goal  is  to  hit  the  one  million  subscribers  milestone  by   September  of  2015   through  compeDDve  pricing  and  the  ability   to  offer  more  than  the  compeDDon.  In  December  of  2015  the  goal  is  to  have  a  least  1.7  million  paid  subscripDons.  

The  second  year  will  focus  on  improving  on  the  progress  that  has  been  made.  Through  evaluaDng  the  department  needs  as  well  as  updaDng  the  placorm  it  will  make  users  experience  even  greater  than  before.  In  March  of  2016  the  goal  is  to  hit  the  2  million  paid  subscripDon  mark  and  shortly  aber  begin  creaDvely  coming  up  with  ways  to  offer  things  that  the  compeDDon  simply  cant.  

Another  large  milestone  for  2017  is  to  have  at  least  3  million  paid  subscribers  and  to  introduce  partnerships  with  large  corporaDons  such  as  car  manufacturers  to  use  WMG  streaming  in  their  cars  and  make  the  audio  and  visual  components  readily  available  inside  of  their  vehicle.

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ONE MILLIONSUBSCRIPTIONS

Wednesday, December 10, 14

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EXCLUSIVE MEMBERSHIP INCENTIVES

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Wednesday, December 10, 14The  numbers  and  research  point  us  to  a  very   logical  direcDon,  which  will  help  increase  revenue  in  record  sales,  label  services,  and  the  new  streaming  music  subscriber  business  model.  Warner  Music  Group  needs  to  develop  and  support  our  own  paid  subscripDon  music  streaming  service  for  the  arDsts  on  our  roster.  By  doing  this  we  will  drive  traffic  to  our  website,  support  the  payment  of  licenses  to  our  arDsts  owned  copyrights,  find  a  revenue  stream  that  consumers  are  willing  to  support  and  will  help  our  label  to  find  new  customers  and  create  a  stronger  bond  with  our  exisDng  ones.  

WARNER MUSIC STREAMING SERVICESMARKETING

Wednesday, December 10, 14Thank you for your time and attention. I hope you’ve enjoyed the presentation and the ideas that were discussed.