Q1 2021 Warner Music Group Corp Earnings Call
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Welcome to Warner Music group's first quarter earnings call for the period ended December 31 2023.
At the request of Warner Music Group today's call is being recorded for replay purposes, and if you object you may disconnect at any time.
Now I would like to turn today's call over to your host Mr. Kareem Chin head of Investor Relations you may begin.
Good afternoon, everyone welcome to Warner music from fiscal first quarter earnings Conference call.
Please note that our earnings press release earnings snapshot and the form 10-Q, we filed this afternoon will be available on our website.
On today's call, we have our CEO, Steve Cooper, and our executive Vice President and CFO, Eric Lindeman, who will take you through our results and then we will take your questions.
And of course these comments I would like to refer you to the second slide of the earnings presentation from mind you that this communication includes forward looking statements that reflect the current views of Warner music group about future events and financial performance.
We plan to present certain non-GAAP results. During this conference call and on the earnings snapshot slides posted on our website and have provided schedules reconciling. These results to our GAAP results and our earnings press release posted on our website.
Also please note that on revenue figures and comparisons discussed today will be presented and constant currency unless otherwise noted.
All forward looking statements are made as of today and we disclaim any duty to update such statements or expectations beliefs, and projections are expressed and good day and we believe there is reasonable basis for them.
However, there can be no assurance that management's expectations beliefs, and projections will result or be achieved and.
Investors 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 these from those and before.
Forward looking statements is contained in our earnings press release, our form 10, Qs and form 10-K, and other SEC filings and with that I'll turn it over to Steve.
Thanks Karim.
Good afternoon, everyone and thanks for joining us and welcome to our first quarter earnings call.
We're happy to Usher in a new year and we're excited about all the 2021 has to offer.
With our broad vaccine rollout on the horizon, we're hopeful that the world can safely begin to reopen.
And that will start to see some return to normalcy.
And the meantime, we're very fortunate that our core streaming business remains as strong as separate.
And that music has a rapidly growing presence in new and diverse applications.
In fact, Q1 was our highest revenue quarter, and our 17 year history as a Standalone company.
Our revenue grew 4% year over year.
From our previous record high in Q1 of 2020.
And achievement that we're especially proud of given that we accomplish this during the pandemic.
With strong double digit revenue growth digital.
More than offsets the continued disruption and recorded music service services and expanded rights revenue and music publishing performance revenue.
Excluding revenue from those areas are year over year revenue growth and Q1 would be approximately 8%.
Adjusted EBITDA was up by approximately 20% year over year with margins improving to over 22%.
Even with the decline and lower margin revenue streams, such as our to services <unk>.
This growth highlights the operating leverage driven by digital increasing contribution.
Our overall revenue as well as our focus on operating cost management.
Our reported music revenue returned to year over year growth and was up approximately 5%.
Double digit growth and digital revenue more than offset declines and physical and artist services.
Our primary goal will always be to create and deliver a constant ever growing flow dynamic and diverse new music.
Our successful and so on full display when the Grammy nominations were announced in late November.
Artists from every one of our U S label groups were recognized as well as talent from the U K, Nigeria, Jamaica and Germany.
We had two of the most nominated artists of the year with previous Grammy winners dual Lippe and why do you rich each getting six nods.
Excuse me.
We also did very very well and the big four categories with two nominations and each Coldplay and doer.
And album and the year, why do you and do it and record of the year and song of the year and Chica and Triple nominee and great Andrus and best New artists.
2020 was a landmark year for our labels with Atlantic taking the number one spot for the fourth consecutive year and on demand audio streams and the U S as reported by Nielsen.
Looking ahead, we expect this winning streak to continue with some amazing amazing music from.
Both are emerging talent and global superstars.
And music publishing revenue was essentially flat and the quarter with digital revenue growing almost 36% year over year.
This impressive jump was offset by the dislocation and performance where revenue was lost from the ongoing and closure of bars and restaurants clubs and concerts.
Mechanical was down given the continued contraction and physical sales.
<unk> was also down, but we expect an upward trajectory as COVID-19 subsides and TV and film production resumed.
Warner Chappell continued its creative revitalization and Q1 and.
It's riders contribute contributed to 10 number one charging singles and the U S, including hits from pop smoke and Ava Max.
Warner Chappell Nashville continued its impressive run being.
Being named country music publisher of the year by upscale.
And for the eighth consecutive year and by <unk> for the third consecutive year, while winning song of the year from boat.
And on the international from Warner Chappell top charts across the globe, which releases from and.
And E K Master kg and no simple raw Alejandro and Jay Cortez to name a few.
There's been a lot of coverage about new players doing big money deals from music publishing assets.
This is powerful recognition of the value of music and we're willing and able to do those deals when we believe they make sense.
However, given our rigorous financial discipline, we never buying market share at a loss.
Instead.
We're in the business of developing songwriters global careers and catalogs and rebuild.
Rebuild value over the long term.
Through our extensive expertise and global infrastructure.
With this in mind.
Warner Chappell is unique among the majors for having established a dedicated creative services team that mindset catalog for incremental revenue.
And as one example announced just last week, our creative services team helped launch the 50th anniversary celebration of the sound and Philadelphia.
This launch includes a partnership with smart speaker manufacturers. So on those for a new radio program, which we're honored to have hosted by long time, Warner Chappell icon Kenny Gamble.
We also have a suite of proprietary tools that helps us create new licensing opportunities all around the world for our deep catalog and the hidden gems.
These tools include our song demo database Arrow, and our beef brokerage service offering easy to clearer curated songs for sampling.
As we've said before we have a one company philosophy and Warner Chappell and recorded music worked closely together to maximize the value of all Reits are.
Our sound recordings and on musical compositions are critical to any comprehensive music service offerings.
And Warner chapters fractional or full ownership of <unk>.
And well over a million songs gives us and expanded reach and all of our digital and negotiations.
As we look ahead, our rep, our revenue opportunities are vast and diverse.
We continue to see robust growth and both subscription and AD supported streaming with plenty of runway around the globe.
At the same time.
And Denmark has accelerated consumer adoption and areas like and home digital fitness.
<unk> gaming live streaming and social media.
These platforms rely heavily on music and we're at the forefront and helping them invent and evolve new commercial opportunities.
Your adjusted a few examples from this quarter.
With the rapidly growing gaming market two clear trends emerge.
Games as virtual shared social spaces, and a shift towards user generated content.
Our recently announced steak and roadblocks aligns <unk> with the leading platform at the intersection of both of these trends.
Roadblocks as a meta versus of social experiences and in game currency robots, and 40 million daily active users each on average spending more than two and a half hours per day on the platform.
That level of engagement is unmatched by social networks.
And she only music company to have invested and roadblocks as last round. We're in a pole position to create next generation music based fan experiences and products.
We have a number of upcoming events that were excited to announce in the near future.
Second our ever expanding relationship with Tic Toc.
Since being launched outside of China, a little over three years ago to social media App is reportedly attracted more than 1 billion monthly users.
Kick touch creator community now has broad access to the latest hits and classic tracks from our artists and songwriters.
Deal with Tic Toc will also see us collaborating on imaginative marketing campaigns and offering new ways for fans to express their creativity.
There are some exciting competition in this space with other companies like Instagram and Youtube snap and Tencent on.
Also exploring how do we have more music and to everyone social media feeds.
And.
Third we revealed last week that we will be a launch partner for adaptor.
This is a first of its kind service that enables developers to quickly and easily license music and.
<unk> is designed to accelerate innovation reduce infringement and generate incremental value for our artists and songwriters.
With so many startups experimenting with music adaptor allows them to go straight to market and forged a whole new frontier of commercial possibilities.
Fourth we're differentiating WMC and the marketplace through our collection of owned and operated direct to consumer destinations.
This global network brings us closer to millions of music fans, while helping us better understand their behavior and emerging cultural trends.
Our consumer brands <unk>.
And <unk> as well as our social content publisher I M. Gn, all show double digit revenue growth and Q1.
As our business continues to be pressure tested by Covid.
These destinations had been and stabilizing force, adding to this quarter's strong results.
The biggest contributor was E&P.
Our European merchandising E Tailers.
With many brick and mortar operations remaining on your Covid restrictions.
<unk> opportunity and drove its first quarter revenue up by over 30%.
And clever marketing plan generated healthy sales from Black Friday through cyber Monday with average order value. So the dose four days increasing by 36%.
Year over year.
We recently brought in and Maria Weaver is president of our global artists and labels services network.
To oversee all of our DTC efforts.
Previously Chief marketing officer for Comcast advertising.
She brings a wealth of new ideas and expertise to help monetize our ever widening range of music products and experiences.
As Covid continues to test our resolve.
Adapting and become even more resourceful and finding ways to enhance our company's results.
Under difficult circumstances, we've achieved record breaking results.
All the while maintaining our track record of financial discipline.
We have some fantastic new music from amazing artists and songwriters on the way and we continue to grow our investment and a new generation of talent, while and vending bolt and memorable ways to impact global culture.
And with that I'll turn it over to Eric.
Thank you, Steve and good afternoon, everyone.
We are extremely pleased with our financial performance and the first quarter.
Fiscal Q1 of last year was a record breaking revenue quarter for our company.
And was also the last reporting period that was unaffected by Covid.
Against a difficult comparison, and while still navigating the challenges presented by the pandemic.
We not only returned the company to growth, but we've also set a new all time high for quarterly revenue and our history is it.
A standalone company.
Our business model has proved to be robust and flexible and.
And by continued strong growth and digital and.
And our <unk> businesses as well as our financial discipline.
And while Covid continues to challenge some of our some areas of our business.
And have leaned aggressively into other opportunities as growth prospects were accelerated by the pandemic.
We expect this will position us favorably as things return to normal.
Moving to our performance and the quarter.
Our total revenue was up approximately 4% on a constant currency basis, and up 6% on and as reported basis compared to the prior year quarter.
Our services and recorded music and performance and music publishing were the areas most affected by Covid due to the cancellation or postponement of tour.
If you exclude those areas our revenue grew 8% on a constant currency basis, and 10% on an as reported basis compared to the prior year quarter.
Both adjusted OIBDA, and adjusted EBITDA saw significant year over year increases and the quarter, reflecting the continuing revenue mix shift from physical to digital.
Adjusted OIBDA increased approximately 18% to $282 million with margin improving from 19% to over 21%.
This improvement was driven by an increase and contribution from higher margin screaming revenue cost management initiatives and the impact from certain previously announced transactions that closed in the quarter.
Adjusted EBITDA increased 19% to $297 million with margin improving from 20% to over 22%.
This increase was largely due to the same factors that drove our adjusted OIBDA performance. In addition to higher pro forma savings that we expect to realize from our transformation initiatives and the pro forma impact of those previously announced transactions.
These transactions contributed $5 million to adjusted OIBDA and $9 million to adjusted EBITDA and the quarter.
Adjusting the impact of that contribution growth, excluding the impact of that contribution our adjusted OIBDA and adjusted EBITDA grew 13% and 16% respectively.
Adjusted OIBDA excludes one time costs related to restructuring and other transformation initiatives COVID-19 related expenses and noncash stock based compensation expense and both the current and prior year quarters adjusted.
Adjusted EBITDA excludes these items and includes pro forma savings that we expect to realize from our transformation initiatives and the pro forma impact of those previously announced transactions.
Please refer to our press release for calculations and reconciliations.
And recorded music.
Q1 revenue increased approximately 5% over prior year quarter.
Digital revenue grew 13% driven by a 16% increase and streaming revenue.
Streaming is a category saw growth across all key components with both subscription and AD supported streaming growing double digits and growth and revenue from emerging streaming platform.
Our outpacing the broader category.
Physical revenue declined 9%.
The effects of the continued transition to streaming.
And Covid were partially offset by strong physical releases and the quarter.
Licensing revenue declined 1% driven by lower deal activity and advertising television and film related to Covid.
Offset by certain one time settlements.
Our debt service revenue services revenue, which includes tour related merchandising as well as our direct to consumer merchandising through DMT declined 9%.
While revenue related to concert promotion and flow related merchandising declined significantly year over year.
So a healthy growth of over 30% driven by a strong holiday season, as Covid restrictions limited brick and mortar shopping and Europe.
For Q1 recorded music adjusted OIBDA increased 16% over the prior year quarter to $275 million.
Due to a revenue mix shift towards digital and overall cost savings.
OIBDA margin increased two percentage points to 24%.
Music publishing revenue declined 1% from Q1 as digital revenue growth of 36% driven by an increase and streaming revenue.
And was offset by declines and performance and things as well as a decrease and mechanical revenue.
Is it publishing adjusted OIBDA increased 18%.
From 34 million to $40 million with margins improving from 20% to almost 23% due to revenue mix.
And the first quarter operating cash flow increased to $169 million compared.
Compared to $78 million and the prior year quarter.
Due to strong operating performance and timing of working capital <unk>.
Including payments from certain digital services free.
Free cash flow decreased from $46 million and the prior year quarter to negative $174 million.
This decline was driven by increased investment activity related to those previously announced transactions, partially offset by an increase in operating cash flow.
Capex and the first quarter was $18 million compared to $15 million and the prior year quarter.
Increase is related to our previously announced plans to upgrade our I T and finance infrastructure.
The total investment associated with this program is expected to be about $20 million and fiscal 'twenty, one with annualized run rate savings of approximately $35 million to $40 million once fully implemented.
For fiscal 'twenty, one, we expect total capex to be and the range of $90 million to $100 million.
Cash taxes were $17 million and the quarter.
On December one and we paid our regular quarterly dividend of <unk> 12 per share for an aggregate dividend of $62 million for the quarter.
As of December 31, we had a cash balance of $566 million and net debt of approximately $2 8 billion.
On November 2nd we completed a $250 million tackle two or three 3% senior secured notes due 2031.
The proceeds of this financing in conjunction with cash on hand of approximately $90 million, we used to fund the previously announced transactions for aggregate cash consideration of $338 million.
Additionally on January 20th we completed an amendment to our term loan credit agreement.
And extends the maturity from November one 2023 to January 22028, and.
We removed a number of negative covenants.
In closing we are.
We're encouraged by our first quarter performance, which gives us a strong start to the year.
Although challenges related to Covid roommate.
Are solidly in line screaming growth combined with our outperformance and our DTC business and strong physical releases and the quarter have only increased.
Our conviction and our ability to achieve strong growth and fiscal 'twenty one.
We thank you for joining our call today and.
We will now open the call for questions.
To ask a question you and need to press star one on your telephone to withdraw your question. Please press the pound key.
Stambaugh and compile the Q&A roster.
Our first question comes from Michael Morris with Guggenheim. Your line is open.
Yes.
Thank you and good afternoon guys.
Couple of questions for me. The first one is on streaming and the streaming revenue sources that were strong and the quarter, Eric I'm, hoping to maybe push you a little bit on some more detail of the contribution from the new partnerships and the relative performance of the subscription side versus the AD side. It sounds like all were strong but any any additional detail you can give us on.
And on maybe relative.
Performance and also how those are pacing and the fiscal second quarter and.
And my second question there are a couple of things specifically that you've cited is benefiting during COVID-19.
You've had your virtual concerts, Steve you spent some time talking about E&P. My question is as we look forward and hopefully see things starting to open up do you expect some regression and those areas or do you think you can continue to have a strong base and see that's a live event recovery. Thanks guys.
Okay great.
So let me tackle your first one so.
And we break streaming and kind of the three broad categories of subscription and AD supported and emerging.
Forms of digital revenue subscription and that supported our I would say now Boe.
In line, both growing similar amounts and double digits.
And that is great subscription has been growing from.
From Covid double digits throughout the whole time, but advertising initially took a dip and then has quarter by quarter been showing progress and this the first quarter, but we can say it's been double digits. So it feels like the AD supported streaming has really recovered and its growth is really in line with.
Where we'd expect it to be.
On the emerging Forbes and screaming.
They continue as they have and the path to grow at a significantly faster rate from both subscription and AD supported and that's both because of the category and.
Social and.
Gaming and fitness live streaming are all.
Really coming on line.
And growing and accelerated rate, but also because of those new platforms.
Merge that we continue to do deals with so we have a broader array of partners that we continue to add there.
We see no reason why these trends across all three of these categories.
We will continue going forward.
As we continued to see strong performance on those categories plus we also.
Have a high degree of confidence and our strong release schedule going forward.
As far as the category, we would expect to see them going forward, even as we come from Covid, especially I think Michael you were referring to the emerging experience look we see this as a growth area. Even after we come out of Covid, and we think that consumer behavior around social.
<unk>.
Gaming.
And real explosion of meta versus.
Our growth areas going forward and.
We see these areas that we continue to see innovation and new platforms coming online.
And continued strong growth going forward, but during the Covid affected Europe and.
And thereafter.
Thank you for that and just to clarify on that second part on.
On E&P and that physical direct to consumer and particular as well.
And you feel that this is a base that's growing and will be strong sort of even post the reopening or do you think there is perhaps a little bit of a trade off there.
And with perhaps live events merchandising or anything like that.
I think it's.
Thank you that's a great question E&P.
A business that when we acquired about three years ago that we had real belief and their ability to grow their business long term nothing we have seen has.
Caused us anything but to have increased.
Confidence and the business and the management team running E&P, it's certainly true that the closure of brick and mortar businesses has proven and consumers more to E commerce platforms, and Emt has both and the benefit of that but PMT has also not been passive they have.
Broadened their product line.
Innovative their marketing tactics.
And continue to sharpen their skills and reaching their customers, but also expanding their customer base across Europe.
So, although 30% growth may not be the norm and.
And the future.
We see growth and solid growth and that platform is something that we will be managing towards both during the COVID-19 affected euro and thereafter.
Great. Thank you.
Our next question comes from Alexia <unk> with Jpmorgan. Your line is open.
Thank you very much can you talk about the impact from acquisitions you highlighted on your last call I believe it was $338 million and how does that impact your results this quarter and I.
And what do you expect the impact to be going forward and then my follow up question on sort of a follow up on your on your commentary and your answer to Michael's question.
I think he asked about the emerging growth platforms for gaming and fitness and stuff and how you will do there when you Congress reopen I guess, Mike My follow up on that it's a little bit different and this content.
If we do see a pull back and gaming and we do see a pullback and fitness in terms of engagement is your penetration level. So early days that regardless of maybe a pullback and engagement and the broader population you still can see kind of robust growth on those platforms. Because you have so much more to kind of growth.
And the existing platforms.
So on the M&A one of the M&A that we're talking about that we acquired for $338 million in Q1.
On a $5 million incremental OIBDA impact and the $9 million incremental impact to adjusted EBITDA.
Note as we've looked at it on an annualized basis and those numbers are in line with our expectations.
At the.
On a run rate OIBDA on an annualized basis was about $37 million.
And you can see how that's kind of consistent with these numbers and.
This business has performed right in line with expectations.
As far as emerging platforms, what I would say is we.
We see music, becoming more and more integrated across social gaming medical versus the various places where live streaming is integrated.
And we see it as being very early days and we see the ubiquity of music across so many different forms both existing and new.
Really just finding its stride.
We would be.
And we fully expect to be managing that line for growth both during COVID-19 and thereafter.
Thank you.
Thanks Alexia.
Our next question comes from Ben Swinburne with Morgan Stanley. Your line is open.
Thanks, Good afternoon.
I'd love to hear from Steve on.
And the strategy for these emerging digital platforms and what I mean by that is the press reported you guys signed.
I think a second tictoc deal and a relatively short period of time and hit the first one was in April.
And then this most recent one just in January and I know you can't talk about specifics, but as these these agreements evolve and you renew them.
What other than trying to maximize your revenues are you trying to accomplish and how do these agreements and the business models behind them.
And your eyes evolve over time do they eventually look and feel like kind of streaming. So it's a rev share and relatively predictable or do you think these are going to be quite.
Quite different and and also specific to tick tack on for you can comment.
They reported that there were 70 artists over 70 artist that debt broke on tick tock and were signed with MAGE by majors last year I'm just wondering.
How are you guys are ensuring that you are able to find and sign the art if you want.
And of your competition.
I'd love to hear your thoughts on those things.
Thanks Ben.
So let me let me start first with.
With kind of how we see the shape of the world.
Our revenue.
Falls into.
On.
What I would call four buckets.
First is.
I'm going to put aside for the moment physical.
And touring related revenue and talked about really digital so and.
And the four buckets, we've got the traditional streaming.
And we.
And we see.
As Eric has said.
A lot of runway both with the.
Establish services and in the more mature markets as well as emerging markets.
The second bucket are really the.
Social platforms.
And.
Facebook and.
Instagram.
Twitter.
And now they are you seeing more and more music.
Not because they are pushing it but because their users are pulling it.
And and so with respect to the social platforms.
We continue to shape and or reshape our deals.
Based upon.
How mature they are.
Relative to their growth curve.
And what support we believe they need from us.
To blossom into very substantial sources of revenue.
And I think as we mentioned the People's during our IPO that we startups, we typically give breaks and exchange for.
Futures.
And on.
And so far that approach has worked very well force.
The third bucket are.
Yes.
What I would call day.
<unk>.
And our active.
These these interactive business models.
You've got Fort night, you've got roadblocks.
You've got.
And in certain respect some of the fitness models.
And we see ourselves as being.
Part of.
Those universes or medical uses.
Where where we establish ourselves and our business.
As an integral part of those universes roadblocks in particular.
Has a very interesting model.
There you can create your own business and your own world and our case, our own music and entertainment world inside of their meta versus.
And.
Our intent is to continue to work within these inner act is.
Digital worlds to create a strong presence for the Warner Music group.
Where where we our April.
Whether it be on a transaction or sharing basis able to work with them not only to optimize our revenue, but help them bid day or build their models. The fourth bucket is frankly, all leather and those are.
New models and new opportunities that are literally emerging day in and day out.
And I can't tell you yet exactly how we're going to handle them.
We do know is that we see a constant stream of opportunities.
To both partner with and to invest and for the foreseeable future and we plan on continuing to do that.
And with Tic Toc specifically.
We have a very close relationship.
One of our recent acquisitions.
IMG and was recently named as one of their top five creators.
And we have.
Very good relationships with with <unk>.
On.
On the collected known as Influencers on tick tock.
And.
With people that utilize our music and in fact, you may have seen.
I don't know a month or two ago.
And that.
Dreams.
And all of which a 40 year old song.
And it was used on tick tock.
And came back into the <unk>.
The top 10 on radio and the top 10 on streaming services.
So we work on.
Through our labels and through our.
R R.
Our affiliates, our local affiliates around the globe to ensure that we have a <unk>.
Strong relationship not only with the service itself.
But the creators and developers on those services.
That wish to utilize our music and we wish to utilize their talent.
So hopefully that answers your question.
Yes, thanks, Steve even I heard of the dreams and staying on tick tock, that's how and how big it was.
Thank you for the color.
Yes.
Thank you. Our next question comes from James Heath, Terry with Goldman Sachs. Your line is open.
Great. Thank you very much.
And I'm wondering how you are.
And hopefully kind of come closer to the light at the end of the tunnel here.
And wondering how you're planning for.
Warner's position and live music is there.
Is there work that can be done now is being done now around.
Around preparing for the return of live events sort of positioning your artists as best as possible.
And as we're kind of thinking about what the second half of 2021.
Could look like how do you see this how do you see this opportunity and kind of kind of playing out for Warner to get a faster start.
Well I I.
And I actually.
<unk>.
See several things first of all.
I hope.
That second half.
Calendar 2021.
No.
I hope that's the vaccine has been broadly distributed.
I hope that.
And we get clarification on its efficacy rates relative to the new strains and.
Debt businesses can open and we can begin the what I think is going to be a longer path to get back to some semblance of normalcy.
So.
What we are doing.
Tiffany and the enrollment is a couple of things.
Number one we are.
We are.
Taking advantage.
Of live streaming.
To continue to promote.
Our established and our emerging artist and we're doing that.
With any number.
Digital.
And streaming partners that are.
Our operating successfully in the live streaming world.
And in the <unk>.
Virtual reality worlds.
So what we're continuing to do is work in a variety of ways to grow the fan bases.
<unk> established and emerging artists.
We obviously.
Continue to roll forward plans for.
For our.
Our life activities, our promotional tour.
But as you know.
For our emerging talent much of that relies on the opening of.
Smaller venues and.
And.
While we are hopeful.
Net.
That's going to happen sooner as opposed to later.
We also know that the way we scheduled this and the way we returned the line.
It has to be carefully crafted.
So that artists don't get lost and a traffic jam.
But our label operators are looking at this.
On a regular regular basis.
Because they know that when the gates do open we have to be and the right lanes so to speak.
What we also believe.
And I think that Eric touched on this as well.
Is people's habits are changing.
And we are looking.
Two frankly and capitalize on that.
By establishing.
A.
A sound foundation in live streaming.
And working on establishing lifestyle nations and these interactive world.
So.
We're aware of it we continue to roll forward, our plans, but we are looking at other ways in which frankly to capitalize on what's been a.
For the planet broadly speaking a horrendous situation.
Great. Thank you Steve I appreciate that.
Thank you. Our next question comes from Jason Bazinet with Citi. Your line is open.
This is maybe a dumb question, but I'm just going to ask it anyway. When you guys talked about E&P I sort of thought of that as a bit of a sideshow and then with this.
And I am Gn media assets that you bought.
And your stake and I think you have a stake and roadblocks.
And I'm starting to think that.
We sort of we're seeing the early outlines of our strategy to almost vertically integrate and and.
And a new way not not by buying.
Traditional stream or anything like that but is that the right way to think about how you're thinking about using your excess cash flow.
Well.
I think that.
You should look at.
And a couple of ways, Jason I got the name right I hope it.
Yes.
And doing us on an iPhone, so sometimes it's a little <unk>.
Scratching.
And we're doing.
I guess you could look at our strategies our growth strategies and a couple of ways. The first is we're going to ensure that our core businesses recorded music and music publishing.
And that we continue to build.
Thoughtfully with the right financial discipline and those businesses.
So we intend on overtime continuing to increase our anr budgets and.
And the related budgets marketing and promotion.
We also plan.
And on enhancing.
And the footprint of those businesses on the music publishing side, primarily through catalog acquisitions on recorded music side.
Merely through the acquisition of Golden concerns or opening new offices.
But.
And.
What what streaming has shown us.
Is that it is more important than ever and our core businesses to be global and.
And not Anglo century and.
That's been one of our goals over the last eight or nine years, and we're going to continue to pursue that.
So that's that's number one.
Number two some of the moves that we've made.
To do with which not only revenue diversification.
Where we see.
The world of musical Entertainment.
And the next five or 10 years, Jason and.
And where we see.
And the intersection.
Social.
Of gaming.
Of.
God knows everything else are in these meta versus.
Where people come to them.
For any number of reasons.
And we want to make.
Music.
Far more compelling reason.
How come to these alternative worlds.
Yes.
So that that is where we see much of the future.
And we intend on investing in our future that we believe is figurative Lee and all of those literally around the corner.
So your observation is accurate.
Okay. Thank you very much.
And our next question comes from Brian Russo with Credit Suisse. Your line is open.
Hi, Thanks for taking the question. This is a follow up to a couple on the earlier question either for Steve or Eric.
And when you look at the impact of the shutdown had on the subscription streaming and calendar 'twenty.
And then it looks like the subscription piece was really negatively impacted.
When the when the world sort of returns to concerts and live events. Hopefully later this year do you think we should expect to see the subscription streaming benefit at all maybe with the notion that you'd have a lot more new music coming and new concerts might encourage consumers to subscribe. Thank.
Thank you.
Well I'm happy to happy to help answer that.
So so.
The return.
Covid for subscription streaming.
Think the environment is growing solidly now.
There are opportunities for that to grow.
Potentially.
We could break it into developed markets and emerging markets and developed markets.
We continue to see.
Subscriber growth, we think we're still relatively early innings and there's ample room for subscriber growth. What we are starting to see with the with the DSP is there's some experimentation with price increases and we think as that.
We hope and pray.
There's a strong opportunity for that to gain traction so whether it's Spotify, which has.
And selected markets increased the price of family plan or Amazon and we hope other platforms looking at high resolution as a tier that can support increased pricing. So we think that has the potential to be a positive impact on developed markets as their ARPA has the.
<unk>, which really hasn't increased and the past 10 years to go up.
And we think emerging markets are really just starting to find their stride.
It is really very very early days.
And we think that the growth there has the potential to really accelerate growth that there could be lower or <unk>. However, those markets and the past were relatively light revenue contributors overall.
And that is subscription streaming and thats dreaming find their way into emerging markets really has an opportunity to be incremental growth at very high rates. So we do think that subscription streaming and AD supported streaming have an opportunity to really continue to grow strongly going forward using those combination of fat.
<unk>.
Hopefully that answers your question Brian.
Eric just to follow up I think and a prior call you were talking about back half weighted this year in terms of your release schedule and lot more artists are releasing and.
And that's kind of what I was asking about if you have a sort of like.
Push from lots of new releases.
And the artist will support this by Turing fingers crossed does that is that something that sort of moves the needle for the subscription streaming or is it all just sort of more based on the overall number of subscribers and some of the other opportunities that you talked about it.
It's a combination and Brian I mean, certainly subscribers and <unk> are huge part of the equation, but also market share is and market share can be driven through a combination of things, obviously, new releases and having a strong release schedule and as part of the formula continuing to mine our.
Catalog and continuing to make sure that.
New audiences are discovering our catalog and continuing to keep that robust. So yes. That's releases continue to come out and hopefully and we expect to have a strong release schedule, which we continue.
Two to work towards the second half of the year, we would obviously expect and hope that drives streaming streaming opportunities. So yes, we do we do think that's.
That is certainly something we're striving for.
Perfect. Thank you.
Thanks, Ron.
<unk>.
Our next question comes from Rich Greenfield with Mike Chen Your line is open.
Hi, Thanks for taking it.
I guess two questions, one and <unk> been Steven and dental team you've been talking so extensively about gaming.
And count the number of times and better versus come up, but it's a lot like and.
Do you think about how much gaming has played into it we're just which fall into this I know that they've got and you all as an industry gotten a lot harder on takedowns and.
Sort of making sure that copyright is respected.
Or are they in terms of licensing music from Warner music is that a 2021 goal to get something larger done and then the second and sort of a bigger broader topic, but.
And we're seeing all of the major subscription streaming platforms and even AD supported streaming platforms for that matter.
Lot more focused on podcasts and I've, certainly seen podcast or start to integrate more and more premium audio content music content into podcasts.
And where the opportunity lies is it a risk that podcast start to eat into music time spent like I guess, just how do you look at the overall podcast equation I guess is the multi layered question and as part two.
Well I'll.
Let me deal with Twitch first.
On.
I believe the.
Industry is in deep conversations with Twitch about licensing.
Because you're right there has been this.
Kind of aggravated back and forth.
And I'm relative.
Relatively confident that will be resolved in 2021.
And.
And what it does show.
As is the utilized the utilization and music.
And the gaming World.
It's a critical element to gaming.
It provides.
<unk> the beat and the game so to speak.
So I'm confident that that will get resolved and.
It will get resolved to everybody's satisfaction.
And on podcasts team.
And now.
E.
I get torn about podcast and we we do.
Dozens upon dozens upon dozens of podcasts.
At the operating levels and they are aired on.
Apple's there aired on radio aired on.
I think we got a deal with Spotify their yard on on a number of services.
But.
I believe that.
<unk>.
People come to the streaming services primarily.
To listen to music, and we will listen to podcasts.
So those who come for podcasts.
While also listen to music and I believe that it will be beneficial.
In both directions.
What I have seen is that.
Podcasts have smaller.
Smaller followings.
And there are dozens upon dozens upon dozens of niches.
And hang on.
And.
People at least the people I know.
Don't.
Listen to the same podcast 510, 15 2030 times.
Which they will do with their favourite tracks and music.
So.
So.
The way podcasts being at least again and my view.
Has to be serviced is with.
With just ongoing ongoing.
Levels of content.
And two smaller crowds.
And and while we are doing that providing content to these to these services and these narrow niches.
Ultimately.
I see them as as a gateway, particularly as people use more and more music and podcast as the gateway to just listing and more music and general on streaming rich.
So you think that ultimately podcast and can actually help be a way to introduce music to different audiences than just traditionally just listening to music and.
Starting from yes.
Yeah, absolutely look it's it's it's.
If you if you think about all of the <unk>.
All of the.
Regular broadcast television programs.
That used to introduce new music to the world.
Whether whether it's the contests and American idol or.
Or the voice or <unk>.
Podcasts for some people will be a source of discovery.
And to the extent they like what they hear.
That will lead them to listen to two music that they discovered these would be the broad podcast and music that similar.
Does it now gets curated on all of these services. So I think the answer's, yes at podcast and will benefit music.
Thanks for the thoughtful answers I really appreciate it.
Thank you on last question comes from Jessica Reif Ehrlich with Bank of America. Your line is open your line.
Thank you.
Thanks.
And I guess Capex, one is and <unk>.
Dreaming and the others just artists to accounts.
And on on streaming and you kind of touched on this from earlier, but so I would say is testing price increases and seven markets and it's been going on from several months now have you seen anything in terms of changes and dynamics given the price changes.
And is there a way for you to incentive if it's successful is there a way for you to incentivize other DSP to follow on I mean, Amazon has a different different offer.
And then.
And also within streaming.
Where do you think you'll see meaningful growth going forward in terms of new markets modified just launched and South Korea.
On Russia was one of their biggest launches and there is talk of DSP is going into Africa, which is a market I can't imagine you guys monetize well on the past.
And then kind of switching gears.
You mentioned in the press release as well as on the call a few times sure.
Upcoming release schedule for new and as I think you mean, new and established artists or is there any color.
That you can give us in terms of visibility on what will be coming.
No.
Well, Eric Let me, let me make a couple comments and you may want to chime in.
So.
Just.
Just about.
Streaming broadly.
And the monetization Jessica.
You know our view is that there is still an enormous gap between your monetization of eyeballs and monetization of yours.
And ultimately <unk>.
Ultimately, we think that.
And all of the streamers as they add new features new functionality by way of example, you cited Amazon with their with.
Hi, Rez.
Youre right Spotify is experimenting.
And with price increases ultimately.
We think that all of the services overtime will increase prices, we encourage them to do this.
And when and when we think about the tens of millions of tracks that people get for a few dollars a month.
Our expectations.
Every day.
Grow that.
That the services will begin to raise prices for for functionality and features.
And Spotify.
It's experimenting we hope they broadened that experiment.
Relative to pricing.
And stay as we've said.
We think that there's a lot of runway still not only and the more mature markets by day.
And emerging markets.
And as they launch and new markets.
Even when they begin with free offerings, it exposes people to more and more music.
You mentioned, Russia.
<unk> and <unk>.
Russia, even before the advent of Spotify.
There are a number of streamers that we and others have partnered with and Russia is a nicely growing market.
Same is true and South Korea.
You mentioned Africa, where we have partnered with apt for Cory, which is one of the largest stock music streamers and distributors in Africa.
So while these markets.
By way of economics.
Don't look overly meaningful at the moment when you compare them to the U S or Japan or the UK.
They are growing.
People are being exposed to curated music people are being exposed to some of the world's greatest start as boats.
Global largest as well as local hardest.
And so.
Our view is that that one.
While the circumference of the globe is only.
25000 miles with respect to the circumference of.
<unk> music gets a lot more.
Yeah.
On.
So.
That with streaming and new markets what.
And what was your third question.
Sorry, I was on mute on.
Well first of all on Spotify and have you seen any change in consumer behavior.
Because as the price increases and then my second question and my last customers and more about your talent and such so important to you.
And you will look and.
The press release as well as on the call you guys have talked about your.
The lease schedule is there any color you can give us or visibility for the rest of the year on new or established artists.
And then if I could just follow up on something you just said.
Well, it's truly thank you think local artists will drive part of the market and edition to the international artist.
What about developing artist and.
You said you wanted vehicles more global as time goes on less Anglo.
How is that bringing those local artist to the Anglo markets.
Well alright.
Alright, so how.
I'll do I will do.
On that and then Eric and Eric can talk about any change in behavior. So we do that.
We are we cross our artists.
We're wherever we can and where we see the potential in both directions.
And.
By way of example, one of the most prominent Chinese artist JJ Lin.
And one of his latest albums and China, We featured our artist from the West and vice versa.
We look for crossover opportunities.
Whenever we can and we do it because one of the things we've observed.
And I think we've mentioned this before is global hits can come from anywhere and resonate everywhere and we're seeing more and more examples of that every day.
And we run a recorded music business and a way that not only are we global.
But we're also very low.
Youll see youll.
And you'll see and the Grammy nominations.
And.
Berna Boy, who has put out.
I don't know I think maybe three or four albums style with Atlantic.
Is the first Nigeria and homegrown artists to be nominated for a Grammy.
And.
We have successfully worked with him.
And as such a talented kid.
Two to take him globals so to speak.
So we do see that and we do actively work on that.
We've taken we've taken.
Anita from.
Brazil and.
And.
Blow on her up over all of.
South America Central America, and Mexico, the Iberian Peninsula.
And other parts of the world.
With respect to our scheduled we schedule of releases, we typically don't.
So I won't give a forward look on net.
<unk> I will just say that when Eric characterized it as a very strong release schedule from.
On both.
Our superstars and our emerging artist she was spot on.
So Eric do you want to comment on on.
And Youre changes relative board or behavioral changes.
Well, yes.
So I.
I would be cautious and us characterizing how spotify as consumers responded to their family plan and rate increases.
There are some things that we can say.
One is we think this is a natural progression.
There'll be experimentation and getting data on how customers respond and then using that data to determine.
If when and how to continue our progression of rate increases I think there's been some reports today that Spotify.
The family plan and prices in both Canada, and France additional markets.
We think that's very encouraging.
And indicative of.
<unk>.
The continued momentum of rolling family plan and increases to additional markets. So we think the there is momentum that is starting to pick up on price increases and.
We would continue to you also asked how were Incentivising look we think our deals and incentivize.
Both sides to be supportive of rate increases that are purely accretive.
We are in constant discussions with the DSP is not just when we are having negotiations and talk to you about what we see and what they see as opportunities and obviously price increase would be one vector, we're having conversations and and we are seeing some positive movement.
Across the Asps in that direction, and we do think as some of the influential larger dsp's start too.
Positive feedback on the rate increases that certainly will encourage others to follow suit and be.
We don't control that happening, but we certainly are encouraging of it and we're seeing early signs of what we think could be that movement directionally.
Great. Thanks, Thank you both.
Thanks Jesper.
Thank you I would now like to turn the call back over to Steve Cooper for closing remarks.
Well I want to thank everybody again for taking the time to.
Joining us today and I.
Hope you all stay safe and stay Sane. So thanks, again, and well talk to you on a few months bye now.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
And with that.
Next week.
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