Q4 2020 Warner Music Group Corp Earnings Call
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Good morning, and welcome for the Warner Music Group.
Quarter earnings call for the period and fiscal year ended September Thirtyth 2020, that's.
That's a request for Warner Music Group today's call is being recorded for replay purposes, and if you object you may disconnect at any time in our life science for this call over to your host Mr. Karim Chen head of Investor Relations you may begin.
Good morning, everyone.
Welcome to Warner Music group fiscal fourth quarter, and 2020 year end earnings conference call.
Both our earnings press release and the form 10-K, we filed this morning are available on our website.
On today's call, we'd our CEO, Steve Cooper, and our executive Vice President and CFO.
Who will take you through our results and then we will take your questions.
Force. These comments, let me remind you that this communication includes forward looking statements reflect the current views with Warner music moving about future events and financial performance.
All forward looking statements are made as of today and we disclaim any duty to update such statements.
Our expectations beliefs and projections for expressed in good faith, and we believe there is reasonable basis for them.
However.
No assurance that management's expectations beliefs, and projections will result or be achieved.
Mr should not rely on forward looking statements because they are subject to a variety of risks uncertainties and other factors that could cause actual results to differ materially from our expectations.
Information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in our earnings press release, our form 10-Q form 10-K, and other SEC filings.
We plan to present certain non-GAAP results. During this conference call. We have provided schedules reconcile these results to our GAAP results in our earnings press release posted on our website also.
Also please note that all revenue figures and comparison discussed today will be presented in constant currency, unless otherwise noted and with that I'll turn it over to Steve.
Thanks, Karim morning, everyone and thanks, so much for joining us today.
Looking back on the past year, despite the impact of the pandemic on our business.
We're proud of everything we've accomplished.
Weve kept music fans engaged and excited with flow is really great new releases.
And we've seen a marked acceleration in early stage revenue streams, such as social media gaming fitness in live streaming.
Although we selected vaccines may be on the horizon companies across many different industries are still expecting a pretty long road to recovery.
Against that backdrop, we're very fortunate to be in a global business, creating something so vital to people's lives all over the world.
Music. Unlike other forms of entertainment.
Can be enjoyed wherever you are and whatever you're doing.
With that in mind, I would like to turn to our performance in the fourth quarter.
While digital revenue grew 15% year over year, our total revenue was down 1%.
Digital revenue growth was offset by steep declines in the areas of our business that are most aligned with touring and life appearances and therefore, most disrupted by closing.
Specifically those areas are artist services and expanded rights in recorded music.
And performance in music publishing.
Excluding revenue from those areas our growth in Q4 would have been approximately 9%, which clearly demonstrates the ongoing strength the decor garden business.
Adjusted EBITDA was up by approximately 33% year over year.
This highlights the operating leverage in our business driven by the continuing shift from physical to digital as well as our focused on operating cost discipline.
Our recorded music revenue was down by about 1% is double digit growth in digital is offset by a 45% decline in artist services and expanded rights revenue.
As always our primary focus is on creating and delivering their constant ever growing flow great New music.
This quarter Carty, B and Megan de stallions web became the first female wrap collaboration in history to debut at number one on the Billboard Hot 100.
There was also an impressive diversity of releases across genres from countries right Eldridge for Pops, Charlie Please turn reps for reading.
On the international front.
Artists to top two charts, including Germany's Amigos in country say, France.
Francis Idehen Nakamura, and Brazil's Anita Who's made Goose day had more than 140 million streams in just two months.
Japan, Samaan and twice enjoyed huge success is helping drive our physical revenue for.
The decline earlier in the fiscal year, two essentially flat in Q4.
Our top selling artists for the fiscal year also showcase the power and range for broad roster converge.
Breakout sensations righty Rich Tobin Tonight.
For new global icons dual net book and so.
Mega Star Edge Sharon.
Despite a solid overall year revenue from our music publishing business declined about 3% in the quarter.
More importantly, digital revenue in music publishing continued to be strong growing almost 30%.
Year over year.
This impressive jump was offset by declines in performance, where revenue was lost from the closing of bars restaurants clubs in concerts.
Mechanical in sync were also down that being said cynkus. So some recovery since fiscal Q3 with a gradual resumption.
Television and film production.
Warner Channel continued its creative revitalization as.
Its writers contributed to 18 number one albums on the Billboard 200 chart during fiscal 2020.
This included perhaps most posthumous release shoot for the stars aimed for the Moon.
As a result of our aggressive global signing campaign, we attracted a growing number of world class songwriters, including country start time misread.
Iconic Mexican group Bronco and the legendary Quincy Jones.
The company also renewed its deals with the number of its global superstars, including Spain's Pablo all Brian German.
Germany's capital Bra and Sweden's mislead.
Since our acquisition by access in 2011.
We've continued to evolve from an Anglo American company.
Into a global music Entertainment enterprise.
Today, our hits can come from anywhere and resonate everywhere.
Business now spans over 70 countries enduring cobot, we added to our global reach.
Earlier this year, we opened new offices in Vietnam, India, and Turkey, Warner Chapel opened in Shanghai to capitalize on the exploding Chinese entertainment market.
88, our independent label services Division expanded into Asia, and Latin America.
In addition, we forged innovative partnerships with proven job the music, especially Sickie media in India and with half for Corey the largest music distributor in sub Saharan Africa.
If there has been a silver lining to the cold and cloud.
It's been an opportunity to recalibrate, our longview accelerate the pace of change and position ourselves to emerge from the pandemic stronger than the other.
Hope it is reinforced the importance of technology across every aspect of that business for us.
We signed talent to how we market music and how we pay royalties.
It's made us more agile more efficient and more precise.
Just two quick examples.
Since January on a year over year basis, we doubled the number of new artist inside underwriters signings identified through our proprietary and our app so determined.
In the same timeframe, we've doubled the number of sand writers and triple the number will be recording artist using our royalty portals.
Music is being woven into every aspect of our daily lives, we have the unique intellectual property the countless emerging platforms need.
We're standing on the threshold of the new gold nature music and the opportunities are everywhere.
As a result, we see subscription streaming is just the beginning it's.
It's only one of our many avenues for long term growth.
With this in mind, we wanted to give you will look at what's on our horizon.
First.
The worlds of social media gaming in live streaming.
With an expanding number of partnerships, including Facebook tick tock in snap among others.
Social media is already a meaningful nine figure revenue stream and is growing at a rate faster than subscription streaming.
Billions of people are able to create the soundtrack of their lives.
The creators for the audience and the audience for the creators producing a massive multiplier effect.
Argus in song writers of volume John recent generations have the potential to go global at any moment.
Thanks to a recent viral video.
Woodmac, some dreams returned to Billboards top 10 more than 40 years. After it was first released.
Moving to supercharge the demand for two D and three D lives streaming events.
We successfully facilitated virtual concerts on platforms like waived XR roadblocks in fortnight.
These platforms enable artists to engage with audiences through an interactive immersive content.
That defies real world limitations around these experiences we're also offering digital goods such as in game avatars.
On track to be a several hundred billion dollar market by 2025 game.
Gaming is among the fastest growing sectors of digital media and we positioned ourselves to forge meaningful partnerships within the gaming community.
Second we've expanded our involvement in other forms of entertainment content like TV and podcasting.
Especially with the rise of boutique key demand for music driven programming, both audio and video is rapidly increasing.
WMG currently produces dozens and podcasts and wood and we've already had some successes such as digging deep.
It's Robert plant.
In 2017.
We launched a dedicated film and TV Division Warner Music Entertainment.
This group has been delivering a slate of fantastic projects, such as Spike lease acclaimed film of David Burns American Utopia.
We recently announced a major partnership with imagined entertainment.
Production company behind movies like eight mile and TV shows like Empire.
Third we've created a growing network of owned and operated direct to consumer destinations. This makes us unique among the major music companies.
We acquired social social publishing platform.
I am G.
And music new sites pop Dx this year.
They joined Approx MPN song kick as ways for us to gain early insight in the cultural trends and fan behavior.
Our global retail operations have adapting quickly to the new reality of the marketplace for.
For example.
Our European digital merchandiser.
Launch an array of new products, including a stay at home collection.
And since the beginning of the pandemic they've sold nearly half a million branded face masks.
Year over year their user base was up 10% and that's showing accelerating growth so far in the current fiscal year.
For we're.
We're seeing explosive activity in the in home fitness arena, most notably through physical products like peloton and mirror, but also through virtual reality experiences like supernatural innocuous.
According to statistics for the global fitness subscription market is already more than $23 billion debt.
These services are still at low market penetration, but they are fueled by music than there is enormous potential for future growth.
I also wanted to give you an update on our diversity equity an inclusion initiatives.
More recently the net arrived in August to lead our efforts in this space working with our teams around the world.
These teams include our executive diversity and inclusion consul employee resource groups and senior leadership.
At the same time for $100 million Warner Music group.
Extremely foundation, Social Justice fund has gained momentum.
The fund is making disbursements to organizations that are doing amazing work on the front lines of anti racism community transformation musicians support.
Prisoners rights.
I also want to note did see seekers became the newest member of W. Energy's Board of directors on October Onest.
Cc brings valuable independent expertise perspective to the board.
In line with best practices in corporate governance, all the members of the board with the exception of myself for now externally.
Finally, as we look to 2021.
We're expecting that our release schedule will be backend weighted with highly anticipated music from some of our global.
Superstars.
In this increasingly complex environment.
We're the vital connective tissue between artists fans in services. This gives our artists songwriters and us the power to entertain the world.
Shaped a course of culture and satisfy the essential human need for.
For connection and solace and now over to Eric.
Thank you, Steve and good morning, everyone.
As you know our fiscal year ended on September Thirtyth.
We released preliminary estimates of our results on October 19 in conjunction with the bond offering we launched at that time.
Cogut has obviously created a unique set of challenges since taking hold in early March and has impacted certain areas of the business in the month, but once that followed.
Moving to our performance in the quarter. Our total revenue was down approximately 1% on a constant currency basis for the effectively flat on an as reported basis compared against the prior year quarter.
Our dis services and expanded rights and recorded music and performance in music publishing for the most affected areas due to the cancellation or postponement of touring.
If you exclude those revenue streams, our revenue grew 9% on a constant currency basis, and 11% on an as reported basis compared to the prior year quarter.
For the full year, our total revenue was about flat.
Both at constant currency and as reported basis, excluding revenue streams from artist services, an expanded rights and performance. Our revenue grew 4% on both at constant currency and as reported basis compared to prior year.
We saw significant growth in both adjusted OIBDA and adjusted EBITDA in the fourth quarter and full year.
In Q4, adjusted OIBDA increased approximately 35% to $174 million with margins improving from 11.5% to 15.5 per cent. This.
This improvement was driven by an increase in contribution from higher margin streaming revenue lower variable compensation expense and active cost management initiatives.
Adjusted EBITDA increased 33% to $177 million with margins improving from 11.8% to 15.7%.
The increase was largely due to the same factors that drove our adjusted EBITDA performance. In addition to higher pro forma savings that we expect to realize from our transformation initiatives and the pro forma impact of certain transactions closed in the quarter.
For the full year, adjusted OIBDA, and adjusted EBITDA increased 11% and 14% respectively drill.
Driven by a mix shift towards higher margin streaming revenue as well as lower operating costs.
Adjusted EBITDA excludes one time costs related to our IPO non.
Non cash stock based compensation expense koeppen related expenses. The company is Los Angeles office consolidation restructuring and other transformation initiatives.
Adjusted EBITDA excludes these items and includes pro forma savings that we expect to realize from our transformation initiatives and add backs for certain transactions.
Please refer to our press release for calculations and reconciliations.
Reported music Q4 revenue decreased by just under 1% over the prior year quarter.
Digital revenue grew almost 13% driven by a 16% increase in streaming revenue, which benefited from growth in revenue from emerging digital platforms and the significant recovery in AD supported streaming revenue compared to Q3.
Physical revenue was flat and licensing revenue declined 6%.
The decline in licensing revenue reflects a decrease in broadcast fees and synchronization revenue from lower advertising television and film deal activity due to the impact of coated.
Are the services and expanded rights revenue, which includes merchandising declined 45%.
For Q4 recorded music adjusted OIBDA increased 35% over the prior year quarter to $161 million due to a revenue mix shift towards digital and overall cost savings.
Adjusted OIBDA margin increased 4.3 percentage points to 16.8%.
For the full year recorded music revenue declined slightly as growth in digital was more than offset by declines in physical artists services and expanded rights in licensing revenue adjusted OIBDA increased by 12% with margin improving to almost 20%.
Music publishing revenue declined 3% in Q4 as digital revenue grew by 28% driven by increases in streaming revenue and timing of digital deals, which was more than offset by declines in performance sensing as well as a decrease in mechanical revenue.
Music publishing adjusted OIBDA decreased by $1 million and margins remain flat.
For the full year music publishing revenue increased by 3% and adjusted OIBDA decreased by 4%.
In the fourth quarter operating cash flow increased 17% to $176 million compared to $151 million in the prior year quarter due to timing of working capital, including payments from certain digital services.
Free cash flow decreased to $44 million compared to $115 million in the prior year quarter, largely because of increased capex to support transformation initiatives and increased investment and acquisition activity, partially offset by the higher operating cash flow.
For the full year operating cash flow increased by 16% and free cash flow increased to $244 million from $24 million in the prior year.
Which reflected the acquisition of the MP for $183 million fiscal 19, which was entirely finance with debt.
Capex in the fourth quarter was $37 million compared to $22 million in the prior year quarter and was $85 million for the full year.
The increase over the prior year quarter is related to our previously announced plans to upgrade our IC and finance infrastructure.
We expect to invest approximately 20 million of the costs associated with this program in fiscal 21 annualized run rate savings from the program should be about $35 million to $40 million once fully implemented.
For fiscal 21, we expect total capex to be in the range of $90 million to $100 million.
Cash taxes were $81 million in fiscal 20, and we expect they will be in the $90 million to $95 million range in 21.
On September Onest, we paid our quarterly dividend of 12 cents per share November 13th we announced our next quarterly dividend of 12 cents per share to be paid on December onest.
As of September Thirtyth, we had a cash balance of $553 million and net debt of approximately 2.6 billion.
On November 2nd we completed a $250 million tack on to our 3% senior secured notes due 2031.
The proceeds of this financing in conjunction with the cash on hand of approximately 90 million. We used to fund two acquisitions of music and music related assets for aggregate cash consideration of $338 million.
As we look ahead for the rest of fiscal 21 what.
Well, we don't give guidance our expectations for full year revenue and adjusted EBITDA performance remained largely in line with our internal expectations for the time of the IPO.
However, certain areas will be impacted by cogan.
Well our objective is to have a steady flow of great New music, there will always be lumpiness in our release schedule even.
Even without covert our release schedule would have been back half weighted but kogan has complicated the situation with the logistical recording challenges and has created.
That said, we expect streaming growth continued to be strong through 21. So there are no material changes to our expectations for streaming which represents about 60% of our total revenue today.
We expect some slippage on our blockbuster albums to the back half of per year.
We also expect our artist services and expanded rights revenue as well as performance revenue from bars in concerts will be second half weighted as economies reopened.
Thanks is starting to recover but should remain impacted in the first half of fiscal 21 to two film and TV production delays. The latest data show that building permits and only grew by 24% in October versus September and Thats building activity is just under 50% of what is normal.
Physical should see some bounce back but overall, we expect to see continued decline.
In 2020, we returned to the public equity markets in the midst of a global pandemic. That's has challenged us to reimagine our business.
We look forward to continuing to drive music.
All of the places and platforms, where it touches our lives.
We thank you for joining our call today I will now open the call for questions.
Ladies and gentlemen, this give a question for a comment at this time. Please press Star then the one key on your Touchtone telephone. If your question has been asked already we're seeing with results from the queue. Please press the pound key.
Question comes for Benson for with Morgan Stanley.
Hey, good morning, guys.
One for Steve and one for Eric Please Steve.
Steve you got you've been talking for years about.
You know price points in subscription streaming and it looks like we're starting to see.
Prices move up based on what Spotify is talked about credit, it's only seven markets, but key to this I'm sure. You would agree is that you know the.
The other competitors don't start discounting for share and driving price is offsetting that trend upward with.
For the pricing or in the industry. So I'm wondering what are your thoughts as someone who has been obviously focused on this for a while on the implications of spot price decision to start raising prices and do you have any expectations.
For what the broader industry may do its competitive set as a reaction.
And then I'll just ask Eric Eric you guys completed a bunch of acquisitions in the quarter I think based on the 8-K, there was a modest revenue impact, but at a more substantial EBITDA impact I Wonder if you could just give us a little bit of color on what's going on there lets you guys acquired thanks.
Okay, Hey, Ben good morning, and happy holidays.
Good morning.
So first.
First of all day.
We do think this is good news that spot.
Spotify is beginning to.
Take more seriously upward bias on pricing and down.
The news that they are going to be testing a number of countries.
Was well received at least by us.
I think that as.
Subscription strength in gross.
And as the services offered more verticals.
That it is likely.
That we continue to see across a number of the more substantial players.
Exercising your ability to raise prices I'm sure you know.
When Amazon added there hi, Def tier.
Raising prices there.
I think the other services given that spot applies essentially a pure play.
We'll look at this as an opportunity to also test the market.
And follow along.
I don't see.
I don't see any massive massive shift of subscribers from.
Spot applied to other services.
They obviously have created their play lists they have their routines on Spotify and as as we said during the IPO ultimately.
The value of the years has to begin to catch up with the value of the eyeballs I think this is a start.
I'm very hopeful that it will be a successful start and I believe this will give the other services the opportunity to follow.
Great and let me take your second question Ben.
And by the way.
The Thanksgiving every day.
The on the two deals that we closed this quarter were a combination of music publishing and recorded music domestic growth catalog and go forward rights.
I think part of for your question is by bringing up the revenue of six and the EBITDA of 37.
Some of these assets are many of these assets were ones, where we have a partial position.
Position in and it allows us to consolidate.
Those rights in those assets. So that we are having a significant way, but upside even though the revenue impact is less pressing thing. Thank you for Thanksgiving Yep. Thank you for them.
Our next question comes from Heath, Terry with Goldman Sachs.
Great. Thanks.
I was wondering if we could spend a little bit more time on some of the.
The new revenue opportunities you touched on on earlier, particularly some of the social media areas things like Twitch and tick tock and.
When you.
When you look at the monitor.
Monetization framework for those is there anything that you would compare them to I mean.
As we think about sort of the the passive nature.
Just in terms of song choice for for most of the people consuming the music on those does it make it more akin to your licensing models versus your streaming models. How would you have us think about sort of the the potential there that say if it's if it's something completely new where along the spectrum, perhaps do you see it potentially falling as it as it matures and then.
And when we look at that that category in aggregate.
Is there a way that you would you could quantify for us either in terms of you.
Users or even better sort of hours consumed.
I would put it on par with say where streaming was X number of years ago or some way just to just sort of give us a sense of where you see that opportunity in terms of its a.
Its maturity at this point.
Steve do you want me to take that Steve.
Sure go ahead, Eric and then I'll chime in if Theres anything nights for that.
Fantastic so he's really interesting question.
First the first question is really is that look more like streaming or more like licensing.
Really these look more like streaming and for the way I think of it or I think the way we think of it.
Licensing is generally.
More of a case by case type situation, whereas these really are full catalog plus new music licenses access for the full portfolio and that is much more like streaming.
The use cases, obviously bye bye.
Whether it's a social service for fitness service or even within social services can be very different but it's really a content that is selected accessing a vast array of catalog and constantly being updated with new music is much more like streaming now each case is different and.
The deal structure that reflects the appropriate monetization for music Miss relative value given to the overall content.
Different on a case by case basis, and those have to be evaluated and negotiated as these business models evolve in that clarifies.
Exactly and other monetizing exactly the roll music close.
[music].
Quantifying it versus streaming is a little challenging in a very linear way, but I can try and do it directionally.
What we would say is the first thing with streaming that makes it relatively straightforward to quantify for US is you can all assess the Tam for total addressable market. If you look at the smartphones I mean, you could start to track penetration and see what the addressable market. So it's much harder to do with the social fitness live gaming services.
Because with streaming services in general this is simplification you could likely going to have one per home and its competition to get as many homes as you can with social and fitness and other services you can have Manny monetize used and monetized within an individual home one person may use tick tock.
In the home and Facebook and their brother sister May use Instagram and they may have a peloton or another so your total addressable market really becomes.
Enormous when you think about multiple services and image home and new services launching but use music all the time that continue to increase that potential.
What we can say is that each of these businesses gaming is already 100 billion dollar business fitness is already 10, 20 to 30 billion dollar business and growing rapidly and that our revenue streams from guidance, which three years ago. We're really nascent now is $100 million annually.
And growing extremely fast so we published equating the screaming I would say this would be the very very early days.
When people were just discovering it and its relative growth was accelerated.
And I think we see this as a high growth portion of the business for for quite some time and its ability to growth through larger large numbers is we think for and meaningful but I apologize I can't do it with numbers in a better way because it's.
It's a it's total addressable market is just.
We think magnified by the fact that there could be multiple services utilized per home.
Heath I would show us supplement that with with a thought.
Particularly with tick tock.
When you look at the service.
The.
Creators for the audience and the audience for the creators.
And the way the the tick tock users are.
Utilizing that service.
From at least our perspective.
Increases the ability.
Music to go viral and and it goes viral.
Because for for these users it's the social platform.
It's it's a.
It's a game where where the creators.
Try and attract.
Their fellow creators and vice versa, and and the utilization in music to utilization of.
These contests these dares not all of them safe at times has has.
Just produced from our perspective, a tremendous multiplier effect.
By way of utilization and we see that continuing for the foreseeable future.
Great. Thank you both.
Thanks you.
Our next question comes from Brian Russo with Credit Suisse.
Hi, Thanks for taking the questions I've got two for Steve on the publishing business and then one for Eric So.
So for Steve you recently made a significant catalog purchase.
And given all the headlines around sort of Taylor Swift and the friction between her and the owners are per IP. I was just hoping you could talk about how you ensure that Warner chapel maintains a positive relationship with the artist that's one.
The second question on publishing is is that we know we're clearly seeing a lot of capital being put to work buying up catalogs. So maybe you could talk a little bit about what value Warner can bring to a catalog such that when you make an acquisition you can generate healthy and attractive returns even in the current climate of rising valuations.
And then last for Eric.
Right now that the street is expecting or your total revenue growth to improve next year and adjusted EBITDA to grow more or less right along with it roughly the same pace for the question is is that a reasonable expectation for adjusted EBITDA do you think maybe you could highlight for us any swing factors that might prevent adjusted EBITDA from growing around the same pace as you are.
Revenue next year. Thanks.
Okay. Thanks, Brian for the questions so for.
First of all with respect to.
Publishing assets or just relations so on and so forth.
In our in our latest acquisition.
We were approached by artist.
And the artist wanted to.
To sell.
Part of his rights.
And we were able to get in a very cordial way.
To workout for deals that.
He or she was very happy with and.
And we were very happy with.
We we do not.
Typically.
Saw rights, we are more often than not.
And acquired rights, but we are very very very sensitive.
Two.
To how our artist feel about those transactions.
Frankly, we have turned down transactions, where the artist was not happy where the.
The artist was not inclined to be supportive.
Because we are we are in the business on on both sides of our business is long term margin development.
So we're.
When we look at the.
The.
For the Taylor Swift.
And going back and forth between.
Taylor and broaden and Taylor Shamrock those are types of situations that we look to avoid.
One of the reasons that we do these transactions and one of the reasons that.
We're in the publishing business is that we have a platform.
That that.
Okay, not only administrate.
Copy rights, but a platform and an organization.
That can amplify their success Brian.
We have we are a.
Full service shock.
So once rights your required.
We go to work on.
Sinks, we go to work inviting these writers into writing can we.
We go to work trying to match songs to artists that we know we're looking for.
New product.
No new sounds.
Innovative.
Toone said lyrics.
And our business.
He is to work with our ardis and those copyrights to.
To to create.
More momentum and more success.
By by being proactive.
And not letting them sit Walt.
For the next 510 or 15 years, what we see with other investments coming into the market.
Where where substantial capital is put against these investments.
Those organizations and our investment organizations.
And you know frankly, it looks to me like it's a fixed income arbitrage play as opposed to how do we work with the yard is that needs copyrights to ensure that we are doing everything we can proactively.
To to optimize.
The results of their song writing efforts so were to divert we're in a different business where operators that.
Work with our artists on investments were not him investment house, that's looking to arbitrage for fixed income right.
Thanks Ann.
The the two.
Anyone question on growth so Brian as you know, we don't give guidance. So I'll answer, perhaps a little generally, but I will try and answer as clearly as I can so first and foremost we manage our business for growth, we managed to drive strong growth in our business one of the metrics we discussed on the call was that.
Q4 revenue growth excluding hardest services.
And Warner Channel performance grew 9%.
The underlying business. Despite the areas affected by Covance is still showing very strong growth.
We don't control, what's going to happen with co bid next year and specifically those related to touring those revenues related to touring as are the services and performance in publishing could be effective for parts of next year.
One we believe there are opportunities to really focus on driving the areas that are available for growth and getting really strong growth other them and when the impacts of covance side to make sure. We're poised to immediately capitalize on the opportunities of those areas that are resuming growth in Q4 alone you saw.
AD supported streaming improve you saw physical improve and we saw early signs of sync revenue improving so we're already seeing signs of improvement in key areas of revenue and in 21, we will capitalize on those opportunities regardless of when these revenue opportunities start to improve.
We're also very focused on driving bottom line growth just like we did in 20, when there were certain revenue streams that we're growing well and other that were limited by Covis, we focused on managing cost per.
Moving or resources into place, where they'll drives the best bottom line results and performance in the market and we expect to continue to do that in 21, continuing to drive bottom line growth by focusing on spend in the areas, where it can drive impact and in the areas where accounts, making sure we're managing very actively.
In addition to that we have our cost containment initiatives, which will start to roll on line in fiscal 21.
Lastly, expanding overtime.
Thanks, Brian.
Understood. Thanks, guys.
Yes.
Our next question comes from Rich Greenfield with light said partners.
Hi, Thanks for taking the question, we've seen a lot of and Theres been a lot of talk surrounding whats going on in the video game space.
With Twitch and other is looking at takedown notices and it feels in many ways what the music industry accomplished with you too many years ago. I was wondering if you could sort of give us a roadmap of what do you think happens in the video game space. How does this play out over time and how significant can that revenue.
Dollars B.
More broadly for the industry, but obviously for for Warner as well.
So Eric why don't I start and then you can.
And adding anything you want.
So I think they're they're actually.
Two ways that we're looking at this rich.
One is the point you touched on which is.
Obviously.
When people.
Our utilizing our music or anyone else has music.
We believe that.
That should be licensed.
So in many respects.
You are right. This this looks like the.
The early days of view too.
But we and.
The gaming World are now much better organized than they were 15 or 20 years ago.
So the fact of the matter is Twitch is twitches talking to the industry about.
Licensing of music and obviously based upon new use cases.
That license will be narrow it will be broad it will be.
It will be all in on terms and conditions that that support.
For the use cases and support the growth of those of those use cases, so that's one avenue.
Second Avenue that that we see as being.
As for more productive.
Partnering with gaming companies, so that inside of the immersive worlds, they're creating.
Warner Music.
Has a.
Has the right sort of beach front property so to speak.
Where we are inside of those games.
With in conjunction with our artist or artist avatars are providing entertainment.
Our holding concerts are bringing people to the Warner music Arena for.
For other events.
It's an opportunity to two.
So virtual goods, it's an opportunity to sell real world goods, and it's an opportunity to create a broader canvas.
For artists to paint all.
So so we are looking this we're looking at gaming.
As a multi dimensional opportunity for Warner music and for our artists in the years ahead.
Eric team is making sure that add to that.
And just before you move onto that I'd love the answer when you when you look at roadblocks going public when we start to get a flavor of part two as people start to dig into roadblocks will we see some of what you're talking about.
Well fingers crossed that you will be.
Because because these games.
NPS gaming.
These gaming world.
Have to continue to.
To expand their offerings to continue to attract hold active players in in their games and their universe.
So to speak rich so so.
Just like we can stay static they can stay static and partnering with people like Warner music.
It gives them an opportunity to.
Bring some of the world's greatest music sales of the world's greatest artists into their main events.
Which is good for them and good for us because these type of events attract millions upon millions of gamers.
And the day add flavor.
To the gain on.
That that would be absent without music at Argus. So the answer is yes.
Yes in the future you should expect to see.
Oh more volume participation in the gaming world and participating in a way that.
That we create value for artists, we create value for the game for the game companies and we create value for Warner music.
Just to put a button on that one of our artist if a max.
Just recently had a livestream event on growth books. So we're already actively working with that platform and.
With everything Steve. So this is a vital robust area.
For more and more more more fully.
Thank you both for the detailed answer appreciate it.
Thanks, Rick.
Our next question comes from Jessica Reif early for be only securities.
Thank you good morning.
Moving different questions first on and I think just want us to Steve's, Steve you've talked a lot about how.
How important it is to go global where are you in now versus your long term aspirations and what percentage of your.
Artists are or I guess revenue as local about the twog versus and growth.
Is there any difference in margin between angle on Investor Day World Second question topic is on line with several Super excited about the potential vaccine and getting back to.
Life as we know it on but how do you think about or what do you anticipate amer.
For lives.
Back at scale, and how should we think about the financial risk.
Its skeleton lives touring is pushed to 22% for summer of 21.
On marketing slot to price testing, a new discovery mode, which allows artist and labels to influence the song selected price algorithm like this even the lower royalty payout.
How do you how does this feature affect your marketing strategy and how do you think about the importance of marketing within that.
That ecosystem on Dsps and general price is marketing or promoting music through other channels. Thank you.
So Eric I'll take the.
Kind of the global and the marketing and you can take the couple in between.
Thanks for your questions Jessica.
On on.
You know our our ambition.
Is you know, we've we've said historically.
Music is the you the only universal language on the planet.
And our ambition.
Is to be able to be speaking that music in every language on the planet.
As we mentioned during our IPO process.
We have expanded tremendously over the last seven or eight years, our global footprint and it was an intentional expansion.
To turn this from an angle for centric to a truly global.
Global Music Entertainment company.
That expansion is going to continue.
We are constantly looking at opt.
Opportunities.
You know outside of well, we're looking at opportunities inside the us inside the UK, but also in the rest of the world because when you look at streaming.
For you look at gaming.
Or you look at tick tock.
They they are global energy prices.
And and the people that utilize them.
Our our army a global said this since.
We want to be.
And in that same place, where we are global.
And we are an army of.
Of music content delivers to people around the world that are looking not only for music in English, but music in their local languages and one of the recent news we are so intent. Upon this expansion is that Tim.
Typically tip.
Typically more than 50 per cent or the music listening to.
In any local area is the local music.
So that while while Anglo music travels well globally.
And and.
Say powerful mover of culture.
At the local level the predominant for new music is local music and therefore, you've got a beep beep.
Because we are global and we want to be able to speak music in all of the language around the globe.
On the spot apply question.
We look at and we evaluate marketing tools all the time.
To the extent.
We find tools that we believe for the cost providing adequate rate of return we will experiment with some experiment with some experiment with them and if they work we will continue.
We find.
That the that the cold is really sad and secure so to speak for the cure is worse than this growth I guess is the way that phrase goes we move on to other tools that provide us with better results and better rates of return.
So we have to use we are experiencing with with the.
Ceos Spotify.
More key but but.
It remains to be seen how valuable new tool that will be.
And with that I'll turn it over to Mike hopefully that answers your question, Jessica and I'll turn it over to.
Eric now.
I think there are other oral trying to quickly one you're asking about local versus Anglo margin.
Margin on reference for and I would say in general.
Our interest for businesses in our domestic business similar.
Similar margin.
So theres each piece of music can be very differently on around the world is different there are countries that really are dominantly local music.
The international is less a piece of the pie.
The other every business virtually every business, where we do business, we're producing a significant amount of local language local music.
One thing about Anglo okay.
Global.
The marketing often happens in this post market and then when it goes overseas, although there is marketing and other.
Markets. It does take advantage of the initial marketing in its home market release, when it goes globally and there can be kind of call it scale or benefits of marketing for music that growth vocal, whereas local music always needs to be more locally.
Look we have to make sure we do everything we can to break that artists and the music locally. So the differences are often in marketing.
More than anything else and where the marketing spend is to break individual piece of music and then online I would say, there's two ways to components for that one.
For our business, while law has been on hold for the past eight.
Once we.
We have pivoted how we.
Great and promote music given that that's no longer part of the equation and I think have been very effective and developing.
Marketing programs and techniques that well.
Artists and their music to reach fans and break across platforms for quick globally.
For us specifically and how it affects Warner music for financially.
Obviously, there we have concert promotion businesses and torment businesses within our services those have larger revenue than a bottom line impact those tend to be our.
For lower margin businesses.
So with those businesses, we obviously manage costs.
Sure that.
Although there'll be a topline impact that but very limited impact on our bottom line growth will continue to monitor those really closely and those tour.
Tore lives starts to resume we fully expect to Reenergize, our term tour merck's business and our concert promotion businesses in certain markets. So again those are a fraction of our revenue.
And even smaller portion of our bottom line, but we do expect to re energize overtime when touring research.
Thanks, Thank you.
Ladies and gentlemen, we have time for one more question and our last question comes from Matthew Thornton with your Securities.
Hey, good morning, everybody. Thanks for taking the question maybe one for Steve and then two clarifications for Eric If I could Steve coming back to live here just for a second given given the reach of Dsps at this point and given the rise of live streaming here during during coven I'm curious your latest thoughts as to how your.
Leaning into the opportunity or do you think there is an opportunity here to really accelerate we come out of covert to Reaccelerate live as it relates to your touring business. Your merchandising performance on the on the music publishing side I'm curious to hear your latest thoughts there.
And then just Eric maybe two points of clarification for.
First you talked about 9% growth in the.
Revenue line is not impacted by total I think thats still includes advertising and so I'm curious is advertising for.
Fully recovered in in your view or do we still have some some ways to go there and then just to paraphrase your commentary it does but 21 just to make sure that we got it right. It sounds like you're looking for results.
I assume that means revenue and adjusted OIBDA adjusted EBITDA margin.
Largely in line with kind of what you articulated coming out of the IPO process. It sounds like maybe it's a little more second half.
Weighted.
Otherwise largely consistent guys want to make sure that we kind of heard that for that all correctly. Thanks guys. Appreciate it.
Great. So so just to.
She crystal clear.
[music].
Matt we see we see lives in a couple ways.
First of all debt.
We think there's a very reasonable probability that this last 789 months.
And the the continuing.
Covert assaults.
Has begun.
And has changed the number of peoples habits.
So when we talk about life and we talked about touring.
Our intent is to continue to to invest in live streaming.
Uh huh.
Live concerts.
Our concerts.
And and continue to support.
Not only new habits, but the market place for this sort of entertainment at home.
Because.
We believe at least.
Even with the announcement of the vaccines for distribution is going to be.
Very different called.
You know for the foreseeable future.
And we think that there is going to be an ongoing market.
For live streaming for D.R. concert, so on and so forth.
When it comes to life total rigs per se.
Based upon.
Access so any of these potential vaccines.
And the way people are thinking at that point in time.
We'll determine.
You know how successful.
The return to Ly this.
My own personal view is that there are going to be.
You know, Gary there's going to be some change of thinking.
About hacking yourself into stadiums for a renewed.
So I think there's some concern about returning to a mass for this society.
And I'm not smart enough to know how all of this is going to play out.
What I do believe is that.
The new normal.
Whether its.
This summer whether its later in 21 just for its deferred to 22, the new normal each day.
Gonna look different than the old normal that we were all used to.
In 2017, 18, and 19, how it plays out I think it is highly uncertain.
But what I do know.
As peoples habits are changing our intent is to identify these trends.
And ensure that whichever way the wind blows.
We are there to support them.
With our music and our artists that much I do though.
Great let me tackle.
These last two questions so and thank you for for the other good things to just make sure we take a moment and clarify.
So on the.
For.
Revenue for two number that we quoted which was 9% growth revenue growth in Q4, excluding artist services and recorded music and performance of music publishing Thats just meant to do the represent math for you.
During two of the areas that were most affected.
Hi, co bid if you pull them out the rest of the business is still showing 9%.
Close to double digit growth, but to clarify your point you're right.
In that 9% growth still areas that are materially affected by suppose it so.
Thank you and licensing is still in there as we said in our prepared remarks.
TV and film production is still only a fraction of what it was pretty cold and then what we expect it to be once we come out of Copenhagen.
I think in licensing opportunities, we think has significant opportunity to rebound.
And Warner Chapel sink was up 17% in.
In the first half of fiscal planning and was down in the second half 2000, So there's significant upside.
So within the areas covered in the 9%, but we just wanted to give we'll call. It a simple algebra metric. So you could see how much.
If you pull out two of the most impacted areas are the underlying business was growing but youre right theres ups.
And then the second piece was on the 21.
Okay.
Weighting towards the second half of the year because that is right. We are saying that for the full year, our internal expectations at the time of the IPO for the full year.
Is what we are still targeting.
It is something that we can strive for but.
But that's based on timing of revenue streams, which are impacted by cobot and timing of our release schedule for that our business will be somewhat more second half weighted correct.
Thank you Matt.
[music].
Yes.
Steve I don't know.
Yes.
But credit.
No I was going to turn it back over for you guys for closing comments.
Steve do you want to make closing comments Dave.
Sure.
Sure I want to hit this very brief just thanks, everyone for taking the time out of board I'm sure your busy schedules too.
Joining us today and I hope that.
Everyone has a.
A safe and.
A wonderful Thanksgiving and I hope that.
We also day not only safe, but same so we'll talk to you.
Back to you in a few months, thanks, everybody and happy holidays.
Ladies and gentlemen, this conclude todays presentation. We thank you for your participation you may all disconnect and have a wonderful day speakers. Please standby.
Hi.