Q4 2022 Warner Music Group Corp Earnings Call
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Good morning, and welcome to Warner Music group's fourth quarter earnings call for the period of fiscal year ended September 30th 2022.
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.
Now I would like to turn today's call over to your host Mr. Kareem Chin head of Investor Relations you may begin.
Good morning, everyone welcome to Warner Music group's fiscal fourth quarter and full year earnings conference call.
Please note that our earnings press release, earning snapshot and the Form 10-K, we filed this morning will be available on our website.
On today's call, we have our CEO , Steve Cooper, and our CFO , Eric Levin, who will take you through our results and then we will answer your questions.
Before our prepared remarks, I would like to refer you to the second slide of the earnings snapshot for 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 in our earnings snapshot slides and that provided schedules reconciling these <unk>.
<unk> 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.
<unk> 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 and thanks for joining us.
As you May know I'll be stepping down as CEO in January . So this is my last earnings call.
I'll have more to say about our leadership transition later, but let's start by talking about what's happening today.
It's no secret that we've been challenged on multiple fronts as we navigated to tumultuous macro environment.
This includes financial volatility rising interest rates inflation declines in online advertising spend and currency headwinds.
In addition, we've been navigating the complexities created by the pandemic and dealing with the impacts of the war in Ukraine.
Despite.
All these challenges I'm pleased to say that we've had a very successful quarter.
Our total revenue in Q4 was $1 5 billion representing year over year growth of 16%.
Adjusted EBITDA also increased 16% to $276 million.
With a margin of 18, 4% compared to 17, 2% in the prior year quarter.
These results were driven by growth across all revenue lines as well as the benefit from settling certain copyright infringement cases, as we discussed on our last earnings call.
Recorded music revenue was $1, two 4 billion an increase of 13%.
Streaming revenue grew 10, 4% when adjusted for the one time impact of the DSP renewal we've been discussing since Q1.
I'd like to remind everyone that Q4 was the final quarter impacted by this renewal.
Q4 uptick in subscription streaming growth and the benefit from the emerging streaming platform deal renewals.
More than offset the decline in AD supported revenue.
Artist services continued to recover in Q4, increasing by 33%.
While licensing and physical were up by 38% and 6% respectively.
Publishing had another impressive quarter with revenue of $254 million, reflecting exceptional growth of 32% plus.
Digital and performance revenue stood out growing 39, and 48% respectively.
As I look back on the last two and a half years since going public.
Clear that we happened for a single day operated in a normal environment.
So it's gratifying to report that our businesses continued to shine during fiscal 'twenty two.
Excuse me.
For the full year, we delivered total revenue growth of 16% and adjusted OIBDA growth of 18%.
Excluding one time items adjusted OIBDA grew 22%.
We converted 65% of our adjusted OIBDA to operating cash flow for fiscal 'twenty two.
Well in excess of the expectation we discussed last quarter.
50% to 60%.
As we look ahead, there is tremendous momentum in both the short and long term.
I've consistently told you that streaming revenue would continue to have significant runway.
We would have price increases and ongoing subscriber growth.
That emerging platforms will continue to expand.
We're now seeing all these come to fruition.
Most significantly.
Apple and visa recently announced price increases.
Making these announcements and the current economic environment shows that music subscription services offer amazing value to consumers.
<unk> remains undervalued, but we're optimistic that there will be other increases to call.
We're also encouraged by reports of subscriber growth.
Developed markets continue to grow in the double digits, while emerging markets are growing at higher percentages with.
With global smartphone penetration expected to increase meaningfully in the coming years.
Our conviction in streaming growth remains strong.
Finally, the revenue growth curve of emerging streaming platforms continues to outpace more established formats.
These new platforms are all heavily reliant on music and dance engagement continues to grow we expect monetization to follow suit.
And our recent deal with meta or annualized revenue from this category reached 370 million this quarter.
We look forward to the continued evolution of our deals as these platforms harness the power of user generated content.
Not just for music discovery, but for marketing and monetization.
You've often heard me referenced the four key pillars of our long term strategy.
Music globalization innovation and people.
So I'd like to talk about how these pillars have shaped our culture over the last decade.
And how they continue to drive our results.
Let's start with the music.
What distinguishes the Warner Music group is our ability to identify and sign original artist at the beginning of their careers and.
And develop them into the worlds most recognizable superstars.
We discovered many of our biggest names like Ed Sheeran, Cardi B do a leper Bruno Mars and the need us when they were just starting out.
Q4, except to fight the impact of our multi pronged approach.
We had great carryover success from our key artists like Ed Doer and silk Sonic.
Newly minted superstars, Jack Carlo intact, Brian had multimillion selling out but it was released in Q3.
And list those phenomenal singles.
Or a precursor for her chart topping album Special released in Q4.
We've also proved once again that music can come from anywhere and resonate everywhere.
Not only do we develop Anglo blockbusters.
But also superstars within their domestic regions.
Local chart toppers like Japan's <unk> yard in South Korea is twice and.
And the international Superstars like France, as David Guetta, Argentina, as Paolo laundry in Nigeria is Berner boy.
In addition, given the growing consumption of catalog music.
We placed even more emphasis on spotlighting our legendary artist.
Recent highlights include great looks for Kate Bush, Fleetwood Mac and led Zeppelin.
As we broadened and deepened our artist roster and prioritized a global approach to domestic music are.
Our revenue competition composition.
<unk> evolved.
A decade ago, our top five artists generated over 15% of volume recorded music physical and digital revenue.
In 2022, they generated just over 5%.
Our momentum will continue.
With a strong release slate in Q1, including new music from Paramour Iron Nakamura, Cardi B, Peter Fox Righty, Rich Joel Corey and more.
I should also mention our outstanding showing in the Grammy nominations announced last week.
Recorded music kicked up more than 80 knots, which included half of the album of the year contenders.
Our top nominees were electrodes Brandi Carlisle were seven.
And six each for Atlantic result, in 300, <unk> Mary J Blige.
We also had three best new artist nominations for Anita.
Our Apollo and Molly Tuttle.
And Warner Chappell had a great showing highlighted by nominations for the dream.
And Amy Allen into brand New category of song writer of the year.
Warner Chappell is also performing very well delay.
Delivering on its strategy of diversifying revenue streams, while providing wider opportunities for songwriters globally.
Here are a few recent highlights.
In the U S. Daniel saves our took homes song of the year for Peaches and up to 2022 BMI RMB in hip Hop Awards.
We saw a pop sensation Lawrence Spencer Smith, and breakout punk rock band the Linda lenders.
We renewed our deal with eight time Grammy Award winner, Chris Stapleton.
And we entered into a license renewal with China based social platform quite show.
Our catalogs across multiple Asia Pac countries.
We constantly work to enhance the value of our song writers catalogs.
Our teams proactively fine needle moving placements for their new sick, which distinguishes us from passive rightholders.
One recent example of this is the placement of George Michael's Freedom.
By Warner Superstar dual liver.
In a <unk> Saint Laurent campaign that launched in August .
There's been a lot of debate over the value of major labels and publishers in a world where artists and songwriters.
Have any number of distribution alternatives.
While distribution has been democratized.
Never will be.
Genuine talent is rare and difficult to find.
Discovery is just the beginning.
True long term success requires significant resources, including financial investment.
Global infrastructure creative expertise and the skills to navigate the changing tech landscape.
It's that combination.
Genuine talent backed by our considerable resources and skills.
It builds careers for the long haul.
Over and over again artists and songwriters not only stay but grow their relationships with us in this fiercely competitive market.
That's when we know we're on the right track.
10 years ago, we were in Anglo centric company.
Today, we're a truly global music Entertainment company operating in over 70 countries.
The key to our successful global expansion has been in identifying markets on the brink of ignition.
We've customized for each new territory market and presence building strategies.
Couple of examples from the past decade or.
The 2014 acquisition of gold Typhoon in China.
And the critical mass we built in Mena, the world's fastest growing market through our investments and kind of what you're seeking and rotana.
We see eastern Europe , as the new and important growth area for music.
Consumption in the region, which has a population of some 160 million people grew 20% in 2021.
Seizing this opportunity we've made moves to grow our presence exam.
Examples include our recently announced investments in group, a step and big idea in Poland.
<unk> Records in Serbia, and the launch of out of order a new label that will elevate artist in eastern Europe and other emerging markets.
The expansion of our global footprint has been further complemented by entering into partnerships with more than 200 streaming services around the world.
And the music Entertainment business, New technologies and business innovation, driven have often been met with fear rather than excitement.
But today, we'd see tech is providing us with incredible opportunities to enhance the world of music.
We've consistently been a first mover and investing across the digital landscape.
Our early Embracive streaming made us the first nature to reported as our largest source of recorded music revenue back in 2016.
Around that time, we also began our revenue diversification efforts.
Since then we've partnered with nearly every major social platform.
Including Instagram Facebook snap Twitch tick tock and most recently pinterest.
In many cases, we were the first nature to do so.
These deals are empowering our artist to scale their communities.
Encouraging fans to share unit generated content and.
And delivering significant incremental value.
We were also the first major to aggressively pursue opportunities in the matters.
While our work in <unk> III space.
Has accelerated over the last 12 months our efforts started back in 2019, when we invested in leading blockchain company Dapper labs.
Our partnerships with roadblocks.
Night and waived.
We have created innovative opportunities for virtual world building concerts and other forums.
This allowed us to work with artists like 21 pilots and Charlie CX and pioneering new forms of fan engagement.
Through our deal with Sandbox, we were the first major to plant a flag and build on virtual real estate.
WMD land our current working title is now live in the Sandbox and Atlantic Waco was the first started to become part of the experience.
I am very proud of the progress we've made over the past 10 years, we've moved way beyond thinking in terms of singles albums and videos, we help artist create all forms of rich immersive interactions with their music and both the real and virtual worlds.
As I look out on the next 10 years.
I believe we're at the doorstep of a new Golden nature music.
As the ecosystem becomes more complex and exciting new business models emerge.
Our role as the connective tissue between artists and fans will only become more prominent and more important.
Finally, our people are the driving force that will always take our company to the next level.
Last month, we announced that Julie Greenwald had been elevated to chair and CEO of the newly created Atlantic Music Group.
Julie has been with the company for 18 years.
And it's industry Maverick slight curve that are the backbone of our success.
We've enhanced our focus around important areas like ESG and diversity.
Last year, we hired a head of ESG and established an executive oversight Committee.
On February one of 'twenty, two we released our first annual ESG report detailing our commitment to sustainability equity and social impact.
Our second annual report will be published this coming January .
In 2020, we hired a global head of diversity equity and inclusion.
We have since established global Northstar commitments and launched our <unk> Institute.
And we created a $100 million.
Warner Music Group <unk> family Foundation, Social Justice spun that invests in organizations and advances community initiatives around the globe.
To date, the fund is already committed over $24 million in grants.
On November one we.
We published the protect Blackheart open letter and the New York Times, and the Atlanta Journal Constitution.
The letter urges legislators across the us to end the racially discriminatory practice of treating rap lyrics as criminal confession.
Signatories included companies, such as Universal Sony Music, Spotify and Tic Toc.
Organizations, such as the ACLU color or change the recording <unk> and <unk>.
And artist such as Alicia Keys hold play Drake, Megan this value and post Malone among many others.
I am pleased to see us, creating new opportunities in our local communities.
Using our resources to express our values and taking a stand on important issues.
At the end of September .
We announced that Robert Kinsell will become CEO during January 23.
And then CEO on February one.
As an entrepreneurial leader Robert has an impressive track record of championing change at companies like Youtube and Netflix.
He is a pioneer of the creator economy, whose commander technology will enable us to unlock new opportunities for our company our artist and our song writers.
I have the utmost confidence that he'll build upon our strong foundation.
And bring us into a new era of how music lives in the world.
With that I'll turn it over to Eric.
Thank you, Steve and good morning, everyone.
Against the backdrop of currency fluctuate fluctuations the weak AD market inflation and war, our 2022 results truly highlight the resilience and diversified nature of our business.
Despite the many macro challenges, we delivered double digit growth for Q4, and the full year across a number of key metrics, including <unk>.
Total revenue on a constant currency basis, adjusted OIBDA and operating cash flow, which as Steve mentioned exceeded our full year expectations.
So let me provide some detail on our results in Q4.
Total revenue grew 16% reflecting growth across recorded music and music publishing.
I want to note that our revenue includes the benefit from settling certain copyright infringement cases, as we discussed on our last earnings call.
The $38 million impact is reflected in downloads and other digital revenue.
Adjusted OIBDA increased 32, 5% with a margin of 17, 7% compared to 15, 5% in the prior year quarter.
These increases were primarily due to strong operating performance as well as $29 million from the copyright settlement.
Adjusted OIBDA and margin growth were impacted by foreign exchange rates as well as two onetime items. These were the copyright settlement I just mentioned.
The impact of a DSP renewal, we've been discussing since our earnings call since Q1 <unk>.
Excluding these items constant currency adjusted OIBDA grew 33% and margin would have increased 200 basis points.
Adjusted EBITDA increased 16, 5% with margins increasing from 17, 2% to 18, 4% you can find our adjusted EBITDA reconciliation in our earnings press release.
Recorded music revenue grew 13, 1% streaming revenue increased 5%.
Reflecting continued growth in subscription streaming and our recent deal with meta.
Partially offset by the market related slowdown in AD supported revenue and the impact of the DSP renewal.
Adjusting for the DSP renewal, which had a $38 million impact in the quarter streaming revenue grew by 10, 4%.
This growth was highlighted by subscription streaming growth in the low teens.
Quinn show improvement from Q3.
However, AD supported streaming revenue, which does not include revenue from emerging streaming platforms saw increasing pressure and decline by high single digits.
Thanks, with the impacts of the DSP renewal and the copyright settlements recorded music revenues grew by 14, 2%.
Harvest services and expanded rights revenue increased by 33% driven by merchandising and concert promotion.
Physical revenue also increase with growth of 6%, primarily driven by higher sales of final products and strong performance in Japan.
Licensing revenue grew by 38% due to higher broadcast fees.
<unk> and other activity.
Recorded music adjusted OIBDA increased by 20% with margin improving from 17, 2% in the prior quarter to 18, 2%, primarily due to strong operating performance as well as a $15 million impact from the copyright settlement.
Excluding the one time items detailed earlier adjusted OIBDA grew 26% on a constant currency basis and margin improvement would have been approximately 170 basis points.
Music publishing continues to deliver impressive results posting 32% growth.
Digital revenue grew 39%, reflecting solid momentum in streaming which increased 37%.
Digital revenue includes a $7 million benefit in downloads and other digital revenue from the copyright settlement. Excluding this benefit digital revenue increased 33%.
Performance revenue increased by 48% as revenue from bars restaurants concerts and live events continue to grow.
We saw particularly strong recovery in Brazil, UK, Germany, and the U S thinking mechanical revenue both increased by over 8%.
Yes.
Music publishing adjusted OIBDA increased 33% to $60 million with margin increasing modestly excluding.
Excluding the impact of the copyright settlement adjusted OIBDA would have increased 31% on a constant currency basis and margin would have increased 50 basis points.
Moving to our full year results total revenue grew 16% driven by double digit growth.
<unk> recorded music and music publishing this translated to a healthy adjusted OIBDA growth of 18%.
With a margin of 19, 4% from 19, 1% in the prior year.
Excluding one time items, the details of which can be found in our earnings press release constant currency adjusted OIBDA increased 21, 6% and margin increased 70 basis points to 18, 6%.
Full year, adjusted EBITDA increased nine 7% with margin decreasing from 26% to 22%.
Recorded music revenue increased by 13, 6% or 15, 2% when normalized for onetime items within recorded music streaming revenue grew nine 5%.
Or 13, 5% on a normalized basis.
Adjusted OIBDA increased by 12% with margin declining by 30 basis points to 21, 1% excluding.
Excluding the one time items adjusted OIBDA increased 17% on a constant currency basis with margin, increasing 30 basis points to 24%.
Music publishing revenue increased by 30% or 27% when normalized for one time items adjusted OIBDA increased by 35% with margin increasing from 23, 4% to 24, 3%, excluding the one time items.
Adjusted OIBDA increased 32% on a constant currency basis with margin, increasing 100 basis points.
In line with our expectations Q4, capex increased to $38 million as compared to $35 million in the prior year quarter, mainly due to investments in it infrastructure.
I want to note that our financial transformation program has encountered a delay.
As a result of the disruption of COVID-19. In addition, the size and scale of this global system implementation requires us to invest more time performing the rigorous system testing and data validation to ensure go live readiness.
We expect the program to meaningfully rollout in 2024 and expand globally in the following couple of years. The program is still expected to deliver annualized run rate savings of $35 million to $40 million once fully implemented. However, the delay will result in a reduction in pro forma impact of cost savings.
That we account for in our adjusted EBITDA reconciliation in fiscal 'twenty, two and 'twenty three.
We saw very strong operating and free cash flow growth and conversion in Q4 operating cash flow increased 78% to $406 million from $228 million in the prior year quarter.
Free cash flow increased 91% to $368 million from $193 million in the prior year quarter.
For the full year operating cash flow increased 16% to $742 million and free cash flow increased 11% to $607 million.
We delivered operating cash flow conversion.
Calculated as the ratio of operating cash flow to adjusted OIBDA of 65% for the full year.
This was well above our expectation of 50% to 60% that we discussed last quarter.
Over delivery was largely driven by our strong operating and operating performance in Q4 higher recruitment and the timing of Anr investment and deal renewals.
To emphasize that some of our Q4 over delivery was the impact of timing, while we believe that our targets are reasonable we view them as multi as a multi year period and there will be lumpiness in working capital that will impact our operating cash flow to adjusted OIBDA conversion rates from quarter to quarter.
As of September 30, we had a cash balance of $584 million total debt of $3 7 billion and net debt of $3 1 billion.
Weighted average cost of debt is three 5% and our nearest maturity date is in 2028.
Fiscal 'twenty three is already off to a very solid start even as the challenging macro environment persists.
There is still softness in the online AD market. We believe it is a temporary dislocation and that we will be well positioned to capitalize on the inevitable recovery.
We are excited about the recent price increases announced by several of our digital partners as well as the opportunity for more to come.
The runway for streaming growth remains strong as global penetration continues to increase and the next wave of emerging opportunities take shape.
Music is no longer reliant on any one format or distribution channels is there isn't a central part of every form of entertainment.
The momentum in the music Entertainment business is strong and we continue to position ourselves for long term success and growth we're.
We're excited about the next chapter and we look forward to having Robert onboard to lead us into new frontiers.
Finally, Steve Stephen I've been doing these calls together for the past eight years.
It's been a true jewelry to sure the mic with him.
On behalf of everyone at the company I wanted to thank Steve for an amazing decade of growth and success. He has led this company brilliantly through euro of incredible change both in our industry and the world at large Steve. Thank you so much.
And thank you to everyone for joining us today.
Now open the call for questions.
Thank you as a reminder to ask a question you will need to press star one one Oreo touchtone telephone.
Please standby, while we compile the Q&A Ross clears.
Our first question comes from the line of Ben Sunburn with Morgan Stanley . Your line is now open.
Thank you and good morning couple of questions, maybe just to start with Steve.
Stepping back you've been there and watch the industry go from declining to growing.
During your tenure as CEO when.
When you step back and think about.
Your time at Warner music, what's been the biggest change for the for the industry. The company. The one you think will have the biggest impact is we all look forward over the next five to 10 years.
Well thanks for the question Ben Happy Thanksgiving.
Thank you.
I think the easy answer is streaming but.
At least what I believed that Warner.
It's really been for us a shift in our mindset.
And that shift has been driven by our evolution.
From an Anglo American music company to a global music Entertainment platform.
From thinking about our business in terms of Richard formats.
To really moving to offering fans access to unlimited ubiquitous music in every way shape and form in the real land and the virtual worlds.
We moved from a narrow set of artist deals to expanding our definitions.
Artists and partnerships and offering much broader suites of services.
And the mind shift has really been.
Built on a foundation.
Running Warner as.
One company.
And one team.
With a common set of goals and I think that at least for us.
That as the ecosystem becomes more and more complex.
That by having that mind shift.
And by working as one team.
That that that can connective tissue that we provide between.
Artists and fans.
And what we do too.
Move the value of music to its appropriate place.
We will just become more and more apparent as time goes by.
Hum.
Happy to say that.
With my colleagues.
I played a.
A party and creating that mind shift and I'm very confident that that.
That that we will continue to embrace.
Adapt and adopt adapt and adopt as as the world of music continues to evolve.
Thank you Steven the best in the next chapter for you.
Eric could you just help us think about the emerging streaming opportunity in fiscal 'twenty three.
Obviously.
Youre always at work trying to get music valued appropriately.
I think it is.
Essentially a busy year for you in terms of contract renewals and in particular, given what's happening with Youtube and AD supported streaming Tictoc is just one kind of Paramount.
Important for your business, because they seem to be taking share.
From Youtube and others. So could you just help frame sort of the year ahead on the emerging streaming front of what we should be focused on R&D.
Sure. So thanks, Brent and nice hearing from you.
So again don't want to get into specific deals, but broadly the category.
So youre right Ben so in <unk>.
Fiscal 'twenty, one we had a series of deals that we did or renewed and generally we do deals in two to three year cycles. So 'twenty.
'twenty three we would expect to be the start of that process.
Broadly that category consists of more and more licenses with growing consumption, we see that category as a growing category.
For the long long term to come.
Each deal and each contract will be negotiated individually some of the companies within that category have been highly successful in scale and others.
Have had more challenges so each deal will meet where that partner is.
But as our objective deal by deal to get the full and appropriate value of music and we will be negotiating for each deal assertively to make sure. Each deal was valued properly. The other thing to note is.
These deals as we've talked about in the past are generally fixed fee deals.
Our objective over time to move these deals.
<unk> or towards being variable.
No that's not going to all happen in one renegotiation across the board, but we'll be working towards that end.
And obviously as steel's move variable the growth curve would be smoother and in line with monetization and consumption growth, whereas with fixed fee deals. So it's more of a stair step.
And you try to capture the expected growth in the platform within a fixed fee over that period of time, So we'll be working each negotiation and seeing what we can accomplish there and the last thing I would say is web three <unk> three is an emerging category that we are actively driving in market experiments Steve talked about.
The experiment, we're doing in the sandbox now with others in flight.
We see that as an area that over time is quite promising and we think is going to be a contributor to the long term growth of our of our new digital revenue.
I hope that helps.
Yes, absolutely thanks, everybody. Thank you.
Thank you.
Our next question comes from the line of Jason Bazinet with Citi. Your line is now open.
Okay.
I was just had one quick question regarding <unk>.
Your calendar year are you reporting schedule for next year, because I think you guys are shifting.
From that sort of 53 weeks. It happens every four years to something more normalized.
Can you just help us as we think about modeling 23.
And beyond where we will see sort of the greatest distortion.
Is it in the fourth quarter of next year is that the right answer and then maybe didn't get smoothed after that.
Thank you good I'm glad you hit on that good question. Its an important one so yes, we have now shifted to calendar quarters and so we will see the main real impact in fiscal Q1 of 'twenty three.
Disclosed in fiscal.
Q1 of 'twenty, two we had kind of that extra week is there's a 50 <unk> week you get an extra weekend one quarter that was in Q1 of 'twenty. Two so that will be a comparative item in Q1, but the rest of the following quarters.
Q I'm sorry in fiscal 'twenty, three we will expect a consistent year on year comparison with the same number of weeks, but in Q1, we will have that.
To address.
We've disclosed that last year, and we will continue to make sure. We're careful about that when we report Q1 results.
Okay. Thank you very much thank you.
Thank you.
Our next question comes from the line of cut on morale with RBC capital markets. Your line is now open.
Good morning, and thanks for taking the questions.
Two if I could so first Steve congratulations again on a long and successful run at WMD, if I could follow up on the question earlier, and maybe asking a bit differently as you reflect back on the last two and a half years. Following the IPO are there any parts of the story that you feel are remain misunderstood or at least underappreciated by <unk>.
Investors and and second for Eric on recorded music streaming revenue.
4% underlying growth was particularly strong and it certainly seems to be ahead of your peers I am not expecting multiyear guidance and I know that AD supported piece remains uncertain, but can you help frame the puts and takes for 2023, a bit and maybe update us on your longer term expectations specifically.
Around the subscription front.
Had very attractive low teens growth in the fourth quarter is that a good benchmark heading into 'twenty three could it be higher given apple music or are there offsets we should be mindful of.
Alright, So Eric I'll go first.
And thanks for the question I do think that.
<unk>.
Our business.
Is to a certain degree misunderstood and it's misunderstood.
In the in the following context.
When you look at when you look at the results we produce.
Over the longer term call it for argument's sake, a year versus the shorter term.
Our March.
For the last.
I don't know.
910 years has been steadily northward bound.
Both by way of the top line and.
And by way of the bottom line.
And <unk>.
My expectation would be.
But that steady March north.
We'll continue for the foreseeable future.
That being said I.
I think that many investors.
Evaluate us.
On a quarter to quarter to quarter basis.
And as high as as I believe many of our investors have seen.
That quarters can be impacted by.
Any number.
Extraneous items.
But as those extraneous items, whether it be shifts and release schedules.
Getting a deal done a quarter late versus a quarter early.
What we what we have done.
Both by bolstering our investments in <unk>.
In recorded music.
By bolstering our investments in publishing and with publishing now.
Having lagged by way of.
Of the growth.
Digital revenue is now leading by way of that growth.
Through the focus that we put on diversification.
Over the last four or five or six years.
Diversification both geographically.
That as local language.
With emerging platforms.
Emerging markets.
That that I think.
That all of these quarter to quarter blips.
I have a tendency to be ironed out.
Over an extended period of time again call it a year.
And that's that.
Really.
Observe and investors will see.
That despite those blips.
That year to year year to year year to year.
That March North continues and its continued this year despite choppiness in a couple of quarters.
So I think it's valuing us or evaluating us.
As a quarterly business.
Is somewhat misguided and I think you're evaluating us.
On an annual basis or a rolling 12 month basis.
At least from my perspective.
A far better way of looking at how we are doing the health of our company and the trends were steady.
So hopefully that answers your question.
Great.
I fully agree with Steve on that so could come. Thank you for your both your questions I'll answer your second one on streaming.
So let me break that into two pieces kind of 2022, and then forward looking so in 2022 on adjusted basis, maybe looking at the underlying trends of streaming Q4 grew 10% in the full year grew 13% very strong streaming results.
Challenging macro market in Q4.
We saw subscription streaming.
Grow low teens are very strong result.
AD supported though is significantly affected by the macro environment AD supported declined and declined in the high single digits this quarter.
As we look forward, we think there is a lot to be really quite positive and optimistic about it.
I will point towards Goldman's.
The air forecast just because it gives.
And interesting, we think useful template to look at they see subscribers.
Doubling or quite frankly more than doubling over the next 70 years, it's driven by a couple of components in each of the components I'll try and address in.
Paint what we think is the picture.
<unk> markets, which are around which are penetrated in the 30 percents now.
We've seen we've seen market studies and forecast predict that increasing to 50 or even 60% penetration. So as you look forward 567 years. We think we are seeing consistent growth in developed markets today, and we think there's a lot of runway to be looking forward to.
What is now really additive to that as we've seen price increases just in the past quarter from Apple teaser.
There is have talked publicly about considering price increases we think the environment for price increases has changed and we are optimistic about continued price increases going forward and that is additive, especially in developed markets. So we think developed markets for subscription streaming has a lot of growth in front of us.
And we're really pleased with the potential and opportunity there emerging markets are growing even faster than developed markets. The penetrations across emerging markets on average are still single digits and have the opportunity to grow into the tens twenties and hopefully over time, even the thirties, although the average <unk> is lower in emerging market.
The rate of growth has increased and we think has tremendous promise we've also been investing.
At Warner into what we think are some of the most promising emerging markets Steve in his talking points talked about our investments in the middle East, which from 'twenty. One was the world's fastest growing market growing I believe 35% and we are building our market share into that growth. So we see emerging markets as being a real opportunity.
For subscriber growth revenue growth, but also for us to develop.
Real footholds.
Our market share in footprints.
Supporting it has been more challenging in the short term remember before the macro environment.
Was so challenging AD supported would grow in line double digits pretty consistently with subscriptions, but when macro environments get difficult one of the first things that we've seen consistently.
It's affected negatively as AD supported we saw it when COVID-19 hit in 2020, and we're seeing it now.
AD supported market is in decline, even though consumption of products go up just monetization has gone down in the short term.
When the macro environment starts to improve and economies start to improve we would expect to see that improve in AD supported to rebound strongly and go back to growth.
We also see the emerging streaming category as one that is still in early stages with more diversified revenue streams increased number of partners and deals and growth within many of the key partners within that category. So we see them and web three emerging components. So we see the emerging streaming.
<unk> bucket as one that is.
Continued growth area for us, while noting that our deals many of our deals and there are fixed price. The growth is not consistent that can be lumpy, but over time, we see it as an extremely promising growth contributor. So we see streaming as a very.
First to file form of growth now globally across subscription social fitness web three and we're very pleased with how that's developing and see it as an area that we're really optimistic growth going forward.
Thanks Kurt.
Thank you.
Our next question comes from the line of Stephen <unk> with Goldman Sachs. Your line is now open.
Thank you good morning, Steve Congratulations on your retirement from Warner maybe.
Maybe two questions if I could first on market share you had.
Some notable releases album releases in the back half of the fiscal year could you maybe talk a little bit more about how that is impacting market during the quarter and then looking forward. How the release slate is shaping up relative to other major labels as we head into 'twenty three and then a follow up question on emerging and maybe for Erik the labels are in the process.
Machine with Mike Dance.
Looking to expand and that's why we service it would be great to get your latest thoughts on the opportunity you see to improve monetization of light stands at a holistic level I wanted to ask on the tech side of the house or.
Thank you.
Okay. So.
Wow.
Can't talk about our release.
Great.
And the specifics we did touch upon.
Those albums that we know.
Either dropped or will drop in the first quarter.
<unk>.
What I will say.
Is that.
Our diversification our geographic diversification.
And our focus over the last decade in growing.
Not only are Anglo.
Our non Anglo business.
Has provided us with.
A tremendous amount of what I would call the lease with <unk>.
<unk>.
That we have we.
We have local regional and global Superstars.
Bubbling up from many many many different parts of the world.
And because of.
Because we've created.
Both a geographic re domestic.
Domestic music.
Local language portfolio.
Along with our Anglo portfolio, Steven It gives us.
A tremendous amount of.
Resiliency by way of quarter in quarter out year in year out momentum.
Where we have become less and less dependent upon any particular August .
The less and less dependent upon blockbusters, because this portfolio is consistently hitting singles doubles triples and home runs.
So that's kind of bonding.
The slave point.
On market share.
Market share moves around a bit.
Often driven by.
The strength or.
More strength or less strength and release schedules one of the things I would point out though.
Is that.
While there are various reports.
On share moving to.
Two.
Yeah.
Labels or artist that arent affiliated with Warner or Sony or Universal.
The fact of the matter is when you continue to look at listening.
And the listening behavior.
Are people that immerse ourselves in use.
That we continue to be one of the two.
Truly dominant global forces and music when it comes both to share and as importantly to hours of listening.
So while you will see small movements.
The fact that this continues to be dominated by.
Why.
Warner Sony and Universal.
Shows in my views.
The the fact that and I mentioned this in my opening remarks.
While access.
And distribution.
Has to come to market size.
Talent isn't.
And never will be.
Frankly of talent was democratize I'd be celebrating.
Entry into the NBA Hall of Fame.
And the fact of the matter is that that we seek out real genuine talents.
That complemented and supplemented by our resources, our creativity our skills.
Create a very meaningful profitability that artist, whether you're on a local regional or global level.
We will be able to be successful.
And it's those artists.
At the local regional and global level.
That are driven by.
Only a few companies in the world, one of which hits us at <unk>.
Thats dominating.
Listening hours and years had been used to consuming public.
Hopefully that addresses your question Steven.
And I'll take the second question.
So on your question on <unk>, Steven So just I'll start by Couching, a little bit just that we don't talk to individual deals, but I can certainly talk to our approach, which I think will be helpful.
First is.
We work with each partner each platform.
And one of our first goal is to help them.
In terms of how we can work together.
Help them expand their products their services their reach.
Positive to consumption, it's positive to competition all of which we are we think are favorable to the music industry and Warner.
The second piece is we take each negotiation and we look at the.
Establishing growth trends and the projected.
Growth trends of that platform and business and we negotiate each deal to get what we think is full value from music out of that platform.
As platforms evolve and there's more information about how they have achieved over the past several years and more clarity into their product and expansion plans for the go forward term, we will build all of that into our negotiation and attempt to get the best economics that we can out of that deal.
Obviously as I said before.
We also seek to move our emerging streaming deals from fixed to variable deals as best as we can that requires the systems that requires that we're able to resolve the negotiation in a very favorable variable form but these are all things that come into the equation and we work hard to make sure each deal.
Every single partner is right sized and structured to help them succeed to fully value music and continue to build and expand our partnership.
Hope that helps students.
Got it thank you very much.
Thank you. Our last question comes from the line of Vijay Jayant with Evercore ISI. Your line is now open.
Thanks. This is ashley on for Vijay.
I just had a quick question on some of these DSP price increases there.
Sort of any dynamics with the price increases and changes in payment terms versus what you were getting before the price increase or is that negotiation that comes up.
Asps increased.
Ashton I think it was a little further but I think your question is about price increases and how that affects our economics, if I have that right and so what we.
And we will continue to remind folks is that our certainly our major DSP partners are generally all on similar economic terms in a very tight band and are generally variable deals.
So as price increases roll through the market, we generally expect to share in the upside that that generates.
So as the average <unk> per consumer increases that's positive and favorable for our economics, what I would say is that each affiliate has a complex mix of how they generate their revenue they operate across both developed and emerging markets subscribers are growing in both.
Developed in emerging markets. Each affiliate has a different mix for what their growth is the different percentage from developed and emerging markets and our crews are different in developed markets and lower in emerging markets price increases obviously raised the whole boat.
And a favorable for us in the industry and we're thrilled to see that price increases are starting to roll through.
Something we've been advocating for years and years and it's.
It's really it's really nice to see if that distributors are starting to recognize that as well.
Thank you Ashton.
Thank you. This concludes the question and answer session I would now like to hand, the conference back over to Steve Cooper for closing remarks.
Thank you.
Just a couple.
Last points.
I think my Warner colleagues, our artist's song writers partners Board of directors and shareholders for allowing me to lead the company.
Over the last 11 years.
It's honestly been.
Just an enormous amount of fun.
Incredibly interesting and one of the greatest experiences of my working life.
And I'm really honored to have been a small part of the incredible Warner music group churn.
Number two thanks again for joining us today and I hope that everyone has a very happy Thanksgiving and a wonderful holiday season, So goodbye for now.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
Okay.
Okay.
Okay.
Thank you.
<unk>.
Yeah.
All right.
When you do need.
But I think that does it.
Got that.
I always wanted.
Jim.
Hey, Jonathan.
Good luck.
Hey, John .
Yes.
Sure.
Okay.