Q1 2022 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 2021.
Plus with Warner Music Group today's call is being recorded for replay purposes, and if you object. You may disconnect time, now I would like to turn today's call over to your host Mr. Cohen Chin head of Investor Relations you may begin.
Good morning, everyone welcome to Warner Music group's fiscal first quarter earnings Conference call. Please note that our earnings press release earnings snapshot and Form 10-Q , we filed this morning will be available on our website.
On today's call, we have our CEO Steve Cooper.
<unk>, our acting CFO , who will take you through our results and then we will answer your questions.
Before our prepared remarks I'd like to refer you to the second slide of the earnings snapshot to remind you that this communication.
All 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 in our earnings snapshot slides and have provided schedules reconciling. These results to our GAAP results in our earnings press release all of these materials are posted on our website.
Also please note that all revenue figures and comparisons discussed today will be presented in 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 in good faith and we believe there is a reasonable basis for them.
However, there can be no assurance that management's expectations beliefs, and projections will result or be achieved.
Investors should not rely on forward looking statements because they are subject to a variety of risks uncertainties and other factors that can 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 filings with the SEC.
And with that I'll turn it over to Steve.
Thanks, Karim good morning, everyone.
Thanks for joining us.
When we spoke last.
First in mid November I indicated to you that we would have a productive end to 2021.
The last few months I've met those expectations.
And as a result, we're off to a great start in fiscal 'twenty two.
In Q1.
Our total revenue was one 6 billion.
An all time high during our 18 years of sustained alone company.
We saw growth over the prior year quarter, 21 and 22%.
On an as reported and constant currency basis, respectively.
Adjusted EBITDA was 389 million an increase of 31% with.
With margin improvement driven by strong revenue growth in both our recorded music publishing businesses.
In recorded music, our revenue was nearly one $4 billion.
Other 18 year record.
An increase of 21% from the prior year quarter.
Streaming revenue grew 22%.
Artist services and physical continues to show impressive recovery.
With revenue growth of 33% and 14% respectively.
Licensing revenue grew 13%.
In publishing.
We delivered revenue of $229 million and growth of 32%.
Over the prior year quarter, driven by double digit increases across all revenue lines.
Both the quarterly revenue.
And year over year growth also represent record highs.
I regularly highlighted our increasing focus on revenue from the merchant streaming platforms in areas like social fitness containment.
Until now we've been reporting this revenue only for recorded music.
Going forward, we'll report this revenue for recorded music.
Publishing on a combined basis.
On an annualized basis.
This revenue increase from $310 million in Q4.
To $325 million in Q1.
Driven by growth in recorded music publishing.
Our approach to music.
It was all about expanding our universe of opportunities.
We are constantly.
Debate of openings.
More music to more people in more ways and in more places.
The agility and imagination, with which we maximize the value of our music.
This apart from our competitors.
Right now a lot of money.
Music is a so called asset class.
In this environment.
This song writers and tech entrepreneurs.
Any different options for building their businesses and brands.
We're being recognized for our unique position in this growing music ecosystem.
Our creative expertise.
Our global infrastructure.
Our willingness to experiment.
Gives us strength and give us our edge.
While taking risk as part of our business, we pride ourselves on taking educated risks are crossed a wide investment portfolio with a pronounced with discipline.
<unk> focus perspective.
Toward the end of the calendar year.
We completed several strategic acquisitions that reflect our approach.
We acquired 300 entertainment.
One of the most influential labels to emerge from the 20 <unk> century.
It has developed a distinctive identity.
Dynamic community of Arts.
We are honored to welcome to the Warner Music Group Magnum this value.
Doug.
Mary J Blige and many more.
300 shares the independent spirit, that's always been part of Warner story, our DNA and our visits.
With this deal Kevin Lyles, who Cofounded 300.
<unk>, the chairman and CEO of both 300, and our electro music group.
Could you also required.
Rights to David <unk> entire publishing catalog encompassing hundreds of songs across this revolutionary.
Dave.
Three months earlier.
We closed a career spanning licensing deal with.
Through both recorded music.
We'll now call. Please this incredible body of work.
Both are recording artists and songwriters.
And in a deal that makes us one of the biggest music distributors in Africa.
We acquired a majority stake in App for Corey.
The continent's, leading artist development rights management digital distribution customers.
Last year after Corey recorded strong revenue growth across all major DSP.
Through the generation of hundreds of millions of audience screams and billions of Youtube views.
These deals are already producing dividends.
<unk> new album on 300 Entertainment.
D S forever.
Landed at number one on the Billboard 200, giving his second chart topper.
And just a month after our <unk> acquisition color.
Peloton introduce David Bowie collections.
Which makes every release since as catalog available for peloton users as the soundtrack to their workouts.
300.
While we and after Corey bolster our already incredible roster of RBC songwriters.
Our star power was on full display when this year's Grammy nominations were announced.
Electrodes, Brandi Carlile and Atlantic Silk Sadeq ultra.
Both receive multiple nominations.
So landing in the top categories, where Atlantic security.
For solid year and Warner record sweetly.
For Best New Awards.
In publishing.
We received numerous nominations, including some of the year and best rap and country songs among many others.
We bring original artist and inspiring song writers as every genre.
<unk> and generation to the world stage.
We are a place where quality and diverse diversity rather.
That's the mindset behind our constant ever growing flow of great movies.
In Q1.
You saw the chart topping.
Chart topping return albums of stores, like Kodak flat and variety, which.
As well as strong carryover performances from Ed Sheeran and hold flat.
Latin American artist Thiago PC today.
Patriots and payout.
As set social media on fire with hundreds of thousands of tick tock videos, having been created from their fifth songs.
With over 800 million on demand audio and video streams combined.
Due of lipids <unk> was the most streamed sawn.
<unk> 21 in the U S and was the number one solid year on Billboards yearend singles chart.
Atlantic Rising Star Gail.
Is wrapped up over 3 million tick tock video creations.
5 billion streams from her debut single.
South to effort to CK.
<unk> new peaks with multiple versions of this global Smash love the warranty team.
Which has surpassed $600 million.
More than triple what I reported on our last call.
Meanwhile, Warner Chappell continued its impressive run.
Signing key deals with Cardi b.
And the RMB icon, G&A, IPO and partnering on a new deal with tubing to adding new <unk> Sam Smith.
While new Chopard Warner shop or Nashville.
Landed BMI publisher of the year with a fourth consecutive year.
And took home <unk> publisher of the year accolade.
Second went in three years.
Warner Chappell was also number one on billboards year end.
<unk> chart for the fourth year in a row.
And ranked second on Billboards.
100 publishers lifts.
Use it is no longer linear transactional or limited by format.
Complex multifaceted and interactive.
The intersection of virtual social spaces gaming and use it presents enormous opportunities to engage with massive and diverse audiences.
We're leaning in and taking control of our future through a series of strategic partnerships collaborations and investments.
We kicked off the year with collaboration with some of the biggest names in this space.
Roadblocks feature David get us in the first ever DJ set performed by an avatar.
On Fortnite.
<unk>.
Broad shifts from her debut chart topping album to the platform Soundwaves series.
Meanwhile, silk Sonic drilling the platforms Eikon series, allowing players to express themselves as the Grammy nominated duo.
Seventies inspired outfits and accessories into discovering music through the new iconic radio station.
From collectibles to music royalties web three represents an exciting future for the music industry.
It will help our hardest reached millions upon millions of new fans and interesting and innovative ways.
Since our investment in Dapper labs.
The 19th.
We've been consistently investing building and partnering with web three opportunities.
We're continuing in this direction at an even faster clip in 2022.
In January alone, we launched three important partnerships in the web two <unk>.
We partnered with one of the company passed by new supply chain seek charters.
We'll be collaborating to create artists in fts using their echo revenue friendly green.
Green web three platform.
We announced the first major music partnership with the digital is collectible cloud quarter Black card.
Our initial collaboration is with the vendor superstars state.
We also became the first major music company to partner with the sandbox.
We'll be working with them to build out W. M G land.
A space, where fans will be able to connect with their favorite artist through virtual experiences and ftes.
We've been talking to for several quarters now.
Our differentiated dynamic range of artists and labels services.
Covering everything from streaming emerge the branded content and beyond.
This strategy was crystallized late last year, when we unveil W web apps.
Given this important segment of our business, a fresh look and unified approach.
W. Amex brings together a culturally curious audience of music lovers that currently totals more than a quarter of the 1 billion monthly unique visitors.
These connections are driven by our wholly owned media brands.
Rocks sawn kick in hip hop DFS.
WNS is right by Comscore.
Among the top five video media companies or.
Or 18 to 34 year old audiences in the United States.
It generates almost 50 billion monthly views.
Premium channels.
Sandals as well as other streaming and social media platforms.
WNS.
Is helping to differentiate us in our mission to attracting amplify the original artists by building broader and deeper fan bases.
As you all know there is a growing wave of interest and what companies are doing about important environmental social and governance issues.
Sure Ross.
<unk> to become a more equitable and sustainable company to some moral commercial and creative imperative.
This is something we've been passionate about for many years and we've taken important steps.
Since we hired some emphasis as our head of ESG back in August .
Last week, we released our inaugural ESG report, which can be found on our website.
The report outlines how we believe we can more effectively address the social and environmental challenges our global society is facing.
Along with details about our north star.
<unk>.
The report also highlights.
Some of our initial accomplishments related to fighting climate change.
Producing more sustainable products and other important initiatives.
We recently announced the third round of grant recipients from the Warner Music group or bottleneck family foundations, social Justice filings.
Since the fund was announced in June 2020.
It has pledged $22 5 million.
Two dozen organizations.
Its contributions continue to reflect.
To fund strategic pillars.
Criminal Justice reform education in Arts and culture, while also addressing the intersection of race and gender equity.
We view all of these initiatives.
As long term commitments to action and accountability.
And we're excited about the path we're on.
Before I pass the Mic Tobey.
I have some good news about the return of our CFO Eric Cabot.
As you are all aware Eric has been out of medical leave since November .
And we are happy and excited that there'll be rejoining us as CFO .
Many many thanks to Lee with.
For the amazing job that he's been doing a SaaS and CFO . In addition to its important responsibilities as our SVP and corporate controller.
We couldnt be more enthusiastic about the amazing new music, we have in the store this year from our talented artists and songwriters.
So cardi B, Jack Carload Bella porch, and many many others are going to be back with really great news.
We're more convinced than ever that <unk> III will be one of the next steps in the evolution of the music ecosystem.
As the global Entertainment economy continues to change at light speed.
Major music companies, they're the only ones with the skill sets the global footprint and the financial resources to fully support our dispatch songwriters.
At the Warner Music Group, we're unrelenting champions of the incredible work of our artists and songwriters.
<unk> for their rights as creators.
So again.
Thank you to everyone in our company, who makes this possible.
And thank you to our shareholders for your continued support.
With that I'll hand, it over to Lee.
Thank you, Steve and good morning, everyone. Our Q1 results are highlighted by record high revenue across the board since we became a standalone company in 2004.
These results were driven by growth in traditional and emerging streaming platforms as well as continued recovery in physical and artist services, all of which underpin the continued momentum across our business.
Before I get into our results I'd like to highlight an item that affected comparability. This quarter Q1 includes the benefit of an additional week of operating performance versus the prior year quarter due to the timing of our 50 253 week financial calendar. The additional week fell in December 2021, and as a result, this fiscal quarter is a fortune.
In the quarter versus the standard 13 week quarter in the prior year. This additional week, primarily benefited our recorded music streaming revenue and will only impact Q1 as all of the subsequent quarters in fiscal 'twenty, two or 13 weeks consistent with the prior year.
Moving now to our results total revenue increased by over 22% on a constant currency basis, and 21% on an as reported basis, reflecting strong performance in both recorded music and music publishing star.
Starting this quarter, we will breakout streaming revenue for each each of recorded music and music publishing and we will report revenue from emerging streaming platform for recorded music and music publishing on a combined basis.
Total streaming revenue increased 24% driven by growth across both segments.
This strong operating performance translated into impressive adjusted OIBDA growth of 26% with margin improving from 21, 1% to 22% our margin growth is particularly notable given the continued strong recovery and lower margin revenue lines such as artist services.
Adjusted EBITDA grew 31% with margins improving from 22, 2% to 24, 1%.
Also driven by strong operating performance and the pro forma impact of future cost savings and the transactions. We closed in the quarter you can find the calculations and reconciliations related to adjusted OIBDA and adjusted EBITDA in our press release.
Accordingly music revenue grew 21% underpinned by growth across all revenue lines streaming revenue increased by 22% driven by growth in subscription AD supported and emerging streaming platforms. As I noted earlier. These results also benefited from the additional week in December and were partially offset by the impact of a new.
Deal with one of our DSP partners, which began at the start of fiscal 2022.
Adjusting for the net impact of the additional week, which was $60 million and the new DSP deal, which was $28 million our reported in music streaming revenue would have grown by approximately 18%.
While this new DSP deal is now consistent with our other major DSP deals we are seeing a variance relative to the prior deal, which will result in similar impact on year over year comparisons that will extend throughout the remainder of fiscal 'twenty. Two we fully expect to see normalization of our recording music streaming growth rate commencing in Q1 2023.
Artist services and expanded rights revenue, which include merchandising grew by over 33%, reflecting an increase in merchandising in concert promotion revenue as Turing is resumed.
Physical revenue grew by 14%, primarily driven by strong new releases and a worldwide demand for vital.
Licensing revenue increased by 13%, mainly due to higher synchronization and other licensing revenue as businesses continue to recover from Covid disruption.
Adjusted OIBDA was $336 million.
A 22% increase over the prior year quarter with margins improving to 24, 2%. This growth was driven by strong operating performance across all revenue lines.
Music publishing had a record quarter as well posting revenue of $229 million a growth rate of 32% over the prior year quarter, reflecting double digit growth across all revenue lines.
Digital led the way with revenue growth of over 34% driven by streaming growth of 36%, reflecting strength across traditional and emerging platforms.
Zinc revenue increased over 31% due to higher TV motion picture and commercial income in the quarter and Covid disruption in the prior year quarter with performance in mechanical revenue increased by 27% as businesses continue to recover from Covid disruption with mechanical benefiting from strong physical sales.
Music publishing adjusted OIBDA increased 38% to $55 million, while margin increased one one percentage points to 24%. This.
This increase in adjusted OIBDA margin was primarily due to strong operating performance.
As mentioned.
On our last call, we still expect to see elevated full year capex in the range of $130 million to $135 million.
In Q1, Capex increased to $34 million as compared to $18 million in the prior year quarter, mainly due to the investments in it infrastructure and the expansion of our E&P facilities to address the strong demand in our ecommerce business.
Financial transformation program remains on track and is expected to deliver annualized run rate savings of about $35 million to $40 million once fully implemented starting in fiscal year 2023.
Operating cash flow decreased 24% to $129 million from $169 million. The decline was largely driven by continued anr investment and the timing of working capital.
Free cash flow decreased 37% to $95 million from $151 million from the prior year quarter.
As of December 31, we had a cash balance of $450 million total debt of $3 85 billion and net debt of $3 $4 billion. Since our IPO. We have continued to actively manage our capital structure further reducing our weighted average cost of debt from 4% to three 2% and extending maturities with our nearest.
Maturity date now in 2028.
And earlier this morning, we announced that we will be issuing our next quarterly dividend of <unk> 15 per share.
As we look ahead, our business has more growth drivers than ever before whether in recorded music, where we continue to see growth in traditional and emerging streaming acceleration in sync and the return of artist services and vital.
And at Warner Chappell now that performance is stabilizing and streaming in St are searching this diversification gives us more confidence than ever that we are well positioned for continued strong growth.
We are truly excited about the steady flow of great New music, we have in store and look forward to an amazing remainder of the year. Thank you for joining our call today and we will now open the call for questions.
Thank you to ask a question you will need to press star one of your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from Michael Morris with Guggenheim. Your line is open.
Thank you good morning, I wanted to ask a couple of questions.
Your relationships with your largest streaming distribution partners first Lew you referenced that $28 million headwind from the new deal with extreme partner can you expand a bit on <unk>.
Why this renewal had a negative impact what it means for your growth for the balance of the year and beyond and what it could mean for renewals with other partners.
And then Steve I am hoping you can address this.
Public controversy that Spotify is having.
Joe Rogan podcast right now what the implications could be for Warner music.
It's pretty vast topic.
There's a lot to cover but maybe you could share your thoughts on how Spotify carrying something some controversial can impact your relationship with them.
And kind of the broader concern that's now coming up it has to do with how much Spotify is compensating music artists.
The compensation to the podcast contributors being so high.
Would appreciate your thoughts on that thanks, guys.
So Michael on the first question with regard to the DSP renewal.
This is a short term financial anomaly.
It really understates the strength of streaming that we're seeing at Warner all the deals we have with our global ESP now fall within a very tight band and the oddity of the comparison that we're seeing and that's created one exists beyond fiscal 2022.
We're incredibly confident that traditional with traditional and emerging platforms will continue to experience strong growth.
And as a result, our 2022 and beyond.
What changed.
Great. So let me see if I can deal with.
Spotify is.
Issue or issues.
Right Michael.
You know on Paul.
First of all just to be clear.
Neil Young kilometer total crowd spills.
And our legendary artists.
And.
As such they continue to have.
An amazing impact on culture.
After more than 50 years.
Creating wonderful wonderful news.
Our first inclination is.
Yes.
Always support artists.
It is good to see.
That Spotify is responding to this issue.
It tends to resolve.
But they should be the ones that speak.
Speak about.
Their own positions in there.
All the signals.
We do just to be.
Crystal clear.
We do business with hundreds.
On streaming operations around the world.
Not only traditional screen moves.
These new emerging business platforms.
And we and our artist broadly speaking.
Feel very good about those.
Those revenue streams.
Revenue streams that are generated.
Many on a consumption basis.
And we the Warner Music group.
As I mentioned in my remarks continue to fight.
Good day and night.
Or are there some song writers to ensure that they are compensated for their work and is equitable a fashion as possible.
Okay. Thanks, Steve if I could just just real briefly it sounds like youre, saying that.
But while you are still very much trying to represent artisan and ensure that compensation.
Broadly youre not necessarily highlighting a disparity between different <unk>.
Sps is compensating.
Better or worse or fairly or more are unfairly compared to another.
Okay.
<unk>.
But you are saying there.
No as Lou mentioned.
Virtually all of our deals.
Fall within a.
Very tight band of.
Economics.
And.
And when you when you look at Spotify.
They are in the process.
Building as Daniel <unk> announced.
Several years ago, a podcast business.
The economics of.
That business are different than the economic.
Relationship that we have with Spotify and the music side.
Great. Thank you I appreciate it.
Sure.
Thank you. Our next question comes Ben Swinburne with Morgan Stanley . Your line is open.
Hey, good morning.
Thanks for the disclosure on the emerging streaming revenues in and looking at that on a total company basis I'm wondering if you think that.
That revenue base can grow again this fiscal year I know the timing of those deals are lumpy.
And then you probably can't be Super specific on when you have major renewals, but just if you expect that that there is an opportunity to grow that.
In this fiscal year ahead still and then for Steve I think you mentioned web three twice in your prepared remarks, I, certainly am not going to tend to be a web <unk> expert, but where.
Certainly getting questions from investors about how this could be a risk.
To any of the existing players in audio labels and DSP.
The idea of being three and blockchain allows artists and fans to be more directly connected.
And.
Essentially eliminate or reduce the impact of the profits available too.
Intermediaries, what's your.
Excuse the crude referenced.
I'd love to hear your thoughts I'm sure you have a view on this is to label the role of a label in web three.
Music distribution, which is starting to become something that people are focusing more on thank you.
New why don't you take the first part and then I'll take the second part.
Okay.
So since since our IPO, we have seen significant growth across emerging streaming platforms and social and fitness.
As you've mentioned sort of that because of the nature of those deals a lot of them are buyout deals not consumption base. The revenue patterns can be at times, a bit step as opposed to linear obviously as those services mature and the goodwill consumption model that will convert to a more linear pattern.
We are expecting stable growth to continue with an emerging streaming platform through the through the balance of the year and as Steve mentioned and you alluded to we do see enormous long term potential is sort of web scales, and we see opportunities and collectibles in a piece.
In other words three opportunities.
Great. So so before I address web three let me just say that.
We've been very consistent with.
With respect to.
Traditional streaming.
Both in mature markets and in emerging markets, we still see.
Tremendous protection for growth.
When you look at the.
The subscriptions relative to smart device population.
When you look at when you look at the nascent trend.
Raising prices that are that are sticking.
All of these for us are our markers it say.
These areas will continue to enjoy very very nice growth for the foreseeable future.
See the same opportunities, albeit as <unk> points out.
In many of these.
Emerging models they have at least for the moment, they lean more towards buyouts.
Function.
We continue to see new models coming to market every day.
Continue to see those models have been in the market for a year or two.
To grow and so we are confident.
That on what we would now describe as the more traditional side to the business.
That long term sustained growth as is.
It's been argued quite probable.
With respect to words three.
Which is a broad way of.
Talking about.
Blockchain crypto and.
In Ftes as a form of crypto and so on we see.
Not only.
At the beginning of Av.
These.
At the beginning of interactive models.
Coming to the surface, Adam and beginning to engage fandom around the world.
But we think they are going to be more opportunities.
We can even imagine.
As I'm sitting here in my kitchen today.
I will say this I think that the.
Emergence of web fleet.
He is going to further amplify the.
The importance of music labels and publishers.
This is an area.
Between.
Models will emerge.
The technology.
Technology.
Blockchain.
<unk> of navigating crypto.
The skill sets required to deal with.
<unk>.
Distributed autonomous organizations.
Will require.
Organizationally like us.
That have the financial resources.
Intellectual capital by that I mean, the specific skill sets.
And the global footprint.
To be able to help our artists and songwriters not only navigate.
Through this brave new world for Brave New universe.
Navigate successfully.
In order to optimize.
Presence.
Inside the world of web three and to optimize their revenue options and their revenue alternatives inside of web III.
So I think.
Staples and publishers.
We will be.
More importantly.
Then they are today.
As the world becomes more and more complex.
I don't believe that when I look at it.
Individual artists.
Managers their agents.
That they will be able to be as successful as they can.
Unless they navigate these new but very interesting waters with Warner music and others like this.
Thank you guys.
Yes.
Thanks Pat.
Our next question comes from Ben <unk> with RBC capital markets. Your line is open.
Hi, good morning, Thanks for taking my questions.
One on capital allocation and one on margins if I could first you've clearly been very active in investing to sustain or if not accelerate our growth through strategic acquisitions.
Shortly you have been very consistent with your capital allocation philosophy financial discipline, and ROI focused but I'm just trying to better understand if the new deals are indicative of a greater focus on M&A and maybe willingness to deploy capital as we move ahead, particularly as we might be at the cusp of a pretty massive.
Step function increase in free cash flow over the next few years and just second EBITA margins continue to be a bright spot up almost 200 basis points year over year to over 24%. Despite the meaningful recovery and lower margin revenue streams can you just help us think about the puts and takes as we track towards.
And mid 20% range. It seems like you might get there well ahead of expectations, but when of course appreciate your perspectives and I'm not sure. If recent M&A is accretive or dilutive to margins.
So look why don't I take the capital allocation and then you can take the margins.
So thanks for your questions by the way.
Flex the capital allocation.
Our philosophy.
Remains the same albeit it gets refined.
Im sick time.
We still look for us to reinvest in the business.
And that reinvestment in the business falls into.
Several buckets one is to invest in.
Identifying.
New or this new sunrise.
Funds in their music.
And we will continue to.
Sure.
Yes.
Assertively.
In our core business to ensure a constant and ever growing.
Flow of new artists and new news.
We are also investing.
Probably.
Our internal.
Infrastructures, because we are permitted to do.
And we are well on our way to.
And immersive.
Tech enabled 21st century digital economy.
And and in order to achieve that goal.
We have to provide our organization.
With the appropriate tools.
Whether the self serving well organized data oceans, whether it be robotics.
Whether it's the.
Digitization of processes.
We have to have those tools.
To reach our goals and to enhance and support the decision making of our people.
Already utilize good judgment financial discipline.
And are accountable to these choices.
So our internal capital allocation.
Main sustainable externally.
We will continue to look for opportunities.
Where we believe that between the opportunity.
What we have to pay.
The desire to be immediately accretive.
And our long term ability to.
Grow those acquisitions.
We will continue also in that area to be quite solid.
With respect to investing.
In these technologies some of which.
We discussed in our prepared remarks.
We are committed to beyond the leading edge of change.
Within.
Our segment of the music ecosystem.
And if you look at our investment strategy.
We intend to be first.
Or is that a first I'd point, you first to see.
Because we want to create our future.
We don't want to follow somebody else into it.
And that philosophy is also going to continue to prevail.
Yes.
Lew why don't you cover the margin issue.
Yes from a margin perspective, obviously, we did see some margin expansion as we move through Covid and as I mentioned in the prepared remarks is that lower margin revenue returned we did see some margin.
Compression in the period, although we are still able to deliver strong margin for the quarter, an increase in margin year over year.
Long term, we expect the revenue mix and the continued growth in streaming including emerging streaming platforms to contribute nicely to margin expansion. We also have the cost savings initiatives, we've talked about around fit and otherwise, which will drive margin improvement.
We obviously did two material deals at the end of December with 300 Entertainment and David Bowie publishing catalog.
We think theres a lot of growth potential within those assets and also some operating efficiencies.
They just closed late in the quarter, we're not seeing the impact of those within the quarter ended December but obviously when we get to March we'll start to see that flow through and because those are accretive deals they will help margin expansion nicely.
That's great. Thank you both thank you.
Thank you. Our next question comes from moving catastrophe <unk> with Barclays. Your line is open.
Thank you.
So new.
On the new revenue streams.
Thanks for the clarity.
On the publishing side of the business, but.
If you could just.
Break them down a bit.
It can help us understand if it grew sequentially on the same basis that it was measured last quarter as well.
And that would be helpful. Glenn.
I understand.
The underlying trends are.
Yes.
Yes.
The expansion.
With an emerging streaming sequentially included both growth in recorded music and music publishing.
Got it that's helpful.
And then in terms of the <unk>.
In fact.
The $28 million impact on the BSD side.
It sounded like it's because of.
Restructuring these deals on a kind of a podcast.
They are playing I mean, correct me, if I'm wrong, but.
Does that also mean the contribution margin impact.
Going forward may be different compared to the overall contribution margin.
Of the business as a whole.
So if you could just help us understand the EBITDA, but.
Of that revenue stream that would be useful as well.
And follow up with Steve Okay.
Okay.
On the DSP item 28 that you've quoted it was unrelated to the impact of podcasting.
It was tied to the deal that we had with that specific DSP. We obviously can't discuss specific terms of deals, but we'll reiterate that it was a unique situation.
As Steve had said the economics are now operating within a very narrow band.
And just as a reminder, we will lap this when we get to Q1 of 2023 on a comparable basis. So we will see the grocery returned to a more normalized level, reflecting the underlying consumption of the business.
Got it.
And I guess.
More broadly when you think about it.
These new revenue streams.
You mentioned these are bio deals right now and they might move to consumption based models over time and that trade growth of course.
But as of now when some of these platforms like peloton being an example, or people being an example, when there is some kind of a growth impact on these assets.
Does that have any correlation with the kind of revenue stream from C from these assets or because they are buyouts.
The isolated.
Thanks.
Yes, so the buyout deals that we do the economics of those deals should approximate usage on their services to.
To the extent, we shipped to a consumption based model the revenue recognition might be more linear, but we should still see an improvement in economics, regardless of the method with which were paid and how they report to us.
Okay.
Okay.
Thank you. Our next question comes from Vijay Jayant Evercore ISI. Your line is open.
Hi, it's David on for Vijay I, just had two questions.
Can you share any color about what youre seeing in terms of paid music subscription growth across the industry based on internal data that you see and maybe how is growth.
Pacing versus pre Covid levels and my second question was over the past few quarters. There has been a lot of music assets between catalogs and indie labels that have come to the market. How do you evaluate potential assets you may want to buy and maybe specifically kind of what made the two assets you purchased compelling versus some of the other assets.
That came to the market over that timeframe.
So look why don't <unk>.
Yes.
Ill take the second and then you can.
Take care.
So.
We.
We look at.
Deals solve the timetable we have a steady steady flow.
And when we evaluate deals we look at what what the asking prices.
And we look at what we know we can do with that organization and to those assets.
Once we get our hands on the wheel.
Mott's.
Financial buyers.
We.
By short because we our operators and we know how to take these organizations or assets.
And accurate data in ways that.
Are different.
Okay.
Then the ways. They are currently be activated.
So.
When we look at any particular asset.
We are able to.
Determined for lack of a better word.
How much headroom we have.
By way of enhancing the performance of those assets.
Where we see assets.
That don't have headroom.
And the us.
While.
Asking prices, we take a pass.
When we see assets going concern or catalog.
And we evaluate.
How they have been managed versus how they could be there.
And we conclude that there is substantial headroom.
And we can align what we pay.
With.
The appropriate return on investment.
We buy.
But we pass.
On.
Far more.
Deals.
Asleep.
We choose to.
When we choose to close on.
Because we're not we are we are not inclined.
Two.
To get into.
Auctions and prove that we have the biggest chunk booking com.
We are inclined solely.
To buy at the right price for the right reasons and take and supercharge the assets that we close them.
That's that's how we have operated for the last decade, that's how we continue to operate as we go forward.
We invest we don't speculate.
And then just on streaming subscriber growth question.
We like the fundamentals of streaming we think they are very strong we're confident in our long term growth.
Streaming platforms and subscription when you look at penetration across both emerging and developed markets. There is tremendous opportunity for further penetration that will drive growth. So we think that there is a lot of room here and we're confident that the long term growth of the.
The business.
Other thing.
Obviously, it's been talked about in Spotify has released some information around their <unk>, we obviously have internal metrics Renato.
Seen some some.
Some increases in <unk> and obviously to.
To the extent that there is pricing increases that would further benefit us.
Thank you. Our next question comes from <unk> with Citi. Your line is open.
Thanks.
About two years ago. When you guys spoke about your view of monetization.
On the AD supported streaming services you felt like maybe you werent getting paid.
A fair level.
Just wondering the intervening two years do you feel like these AD supported services have sort of harmonized or where you feel like youre getting paid appropriate level appropriate compensation for an AD supported stream or is there still potential to rectify that.
Well we're doing.
We're doing several things.
Number one.
Where we believe.
Rates are inadequate we continue to.
Negotiate for what we believe to be appropriate splits.
But more importantly, with W and X.
We have.
Unified.
Our approach.
The ad market.
We have been.
Able to consolidate.
Across all of our businesses as a result of that unification.
And approach the Greens are.
Entire portfolio of artist and we use it.
Two.
Potential advertisers and we have been able.
Two on a on a global basis.
And organizationally.
Are you able to.
Much better match.
The needs of advertisers.
With the treasure chest that we have.
Our portfolio of new segments.
So.
I have every expectation.
That.
The goals.
That we are setting internally.
For the growth of our AD revenue and the growth of our AD pricing.
We'll beat that.
By taking this.
Yes.
Laser light approach to the market.
So I think on both sides a through negotiating specific deals, but more importantly through the through the reorganization.
Into Wi Max.
I'm confident we'll see.
A very nice return.
On on that.
Organization that laser like focus on the AD market.
And can I just ask one follow up when you say the reorganization of Wi Max It's essentially just putting more of your talent under one umbrella and selling it sort of holistically because that's the nature of the real one.
It is it is essentially creating.
A centralized service.
That's that.
Sure.
Deals.
The deals.
As ever please.
Between.
AD buyers needs.
And how we can satisfy those needs.
So.
It ticks down a little.
A worldwide service.
That is as coordinated focus through.
<unk>.
Our highly motivated highly skilled centralized organization.
Thank you.
Thank you our last question from Matthew Thornton with tourists Securities. Your line is open.
Hey, good morning, Steve Good morning Lou.
Maybe two if I could I guess, just coming back to the renewed deal with the digital partner the 28 million without.
Without getting into specifics is there.
Is there any benefit that you're getting from the renew deal maybe there is promotion or whatever it might be or is it really just this particular DSP was a little bit outside of the band and Theyre being brought inside the band I'm just curious if there's any benefit to Warner.
Maybe on the on the other side from this deal.
Then just secondly can you talk a little bit about linearity for the year. Obviously, the first quarter is off to a good start but when you think about the the content slate for the year or investments, you're making anything you'd call out as we think about linearity for the for the year end and Lou hand in hand, with I don't know if you have any.
Thoughts or estimates on what you expect a currency headwind to be for the year versus may be organic.
<unk> contribution to revenue growth for the year. Thanks, guys.
So.
Great. Yes go ahead Luke.
Okay.
I was just going to answer the first question quickly.
On the deal.
It was outside of the band announced inside the band so.
That's the answer to that one and we obviously don't talk about specifics.
Steve over to you.
When we look at.
When we look at the rest of the year.
We think we establish.
Nice momentum.
We believe that.
As is mentioned.
Mentioned in the remarks, we've got a <unk>.
Lots of great.
Music coming.
And.
<unk>.
While while I can't draw a.
A.
Mark the line or curve for us.
What that's going to translate to.
Elaine.
Comfortable.
That.
<unk>.
We will deliver what we've historically committed to deliver this.
This year.
Okay.
Thank you hopefully that answers your question.
Thank you and I would now like to turn the call back over to Steve Cooper for closing remarks.
Yes.
Thanks again today every one for your time.
Appreciate it.
Sure.
You are joining us on these calls as.
Always.
We appreciate your ongoing support so.
We'll talk.
Two months.
Hopefully my confidence in our momentum will be borne out.
Anyway I hope.
Enjoys the balance of the lunar new year.
Have a wonderful Valentine's day.
Wonderful.
Have a wonderful.
The rest of the winter and stay safe thanks, everybody bye.
Bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect.
You too.
No.
Hello This is Joe.
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At this time.
Thank you.
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Hi.
Okay.
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