Q3 2023 Warner Music Group Corp Earnings Call
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Welcome to Warner Music group's third quarter earnings call for the period ended June 30th 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 morning, everyone and welcome to Warner Music group's fiscal third quarter earnings Conference call.
Please note that our earnings press release earnings snapshot in the Form 10-Q, we filed this morning will be available on our website.
On today's call, we have our CEO , Robert Kintzel, and our CFO , Eric Levin, 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 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 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 would be achieved investors should not rely on forward looking statements because they are subject to a variety.
City of risks uncertainties and other factors that could cause actual results.
For material before 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 Robert.
Thanks, Gary and good morning, everyone and thank you for joining.
After a challenging first two quarters were pleased to see strong evidence of back half recovery that we've told you to expect.
This has been a big team effort I am grateful to all the leadership all of our operators around the world.
All of our incredible artists and songwriters.
I was happy that our Q3 results were driven by such a wide diversity of music.
Strength came from many different territories labels and revenue lines.
We succeeded with artists and songwriters across the spectrum of genres and generations and.
And we saw the return of some of our biggest superstars.
It was new music fans engagement with all of their albums.
In addition to improved performance in our core recorded music revenue. We also saw growth in licensing harvest services in almost all areas of publishing.
I'm, particularly pleased to say, we're seeing our momentum accelerate into Q4.
I'll provide more details, but first let me get into our Q3 results.
Total revenue grew 10%.
And adjusted OIBDA increased 18% with margins growing 140 basis points year over year.
Recorded music revenue increased 9%.
Screening grew 7%, reflecting double digit growth in subscription revenue and modest growth in AD supported revenue.
Please note that beginning this quarter when we talked about the AD supported streaming revenue and includes revenue from emerging streaming platforms, such as Tictoc meadow peloton and others.
Music publishing turned in yet another impressive quarter delivering revenue growth of 16% driven by strong stream and growth of 28%.
I'd like to dive a little deeper into the different projects that drove these results as they reflect the strength of our commitment to developing extraordinary talent and growing our incredible catalog.
In recorded music.
All of this at all stages of their careers global superstars and local names.
New albums, and timeless classics, all added to our growing momentum.
Ed Sharon's fixed studio album subtract It number one in 11 countries and top five and seven other countries.
Melanie Martina is this third album portals when top three in the U S. U K, Canada, Ireland, New Zealand, and Australia, which is celebrated first number one album.
Both Ed and Melanie are great. Examples of the same phenomenon in the modern music business.
<unk> music combined with Turing is resulting in an uptick of streams across the entire catalog.
Given the cultural relevance of Latin music right now I'm pleased to say that our Latin division is on product.
Recent successes include Puerto Rico's Mike powers.
Number one on Spotify global top 50% with his own Lala and Mexico's young Lucas as monster hit a lot better than nearly four months and Spotify Global top 10.
And by the way, we just saw in young Lucas for publishing as well.
Other amazing artists that are enjoying breakout hits include Korea.
Italy, coupled plaza <unk>.
<unk> will I get prices Nino the UK, Spain pass throughs, the U S as baileys Zimmerman and Australia's wood here.
We also partnered with Chinese Superstar Jim.
Groundbreaking album, marking the first time, a mental pop artist has recorded a full length Spanish release.
This partnership truly highlights our languages and genres.
<unk>.
The combination of our global reach and local expertise.
<unk> continues to give us a competitive advantage as we lean into this trend.
Equally it was great to see how music from our incredible catalog continues to contribute meaningfully to our results.
This includes major projects with renowned names such as Lincoln Park on the Grateful dead as well as impressive carryover sales from newer artists such as that Brian <unk> and Oliver.
I'm also happy to say that our Q3 momentum is carrying over into Q4.
<unk>.
Gordon is third number one album on the Billboard 200 with Pink tape.
The first hip hop album.
The chart in 2023.
Young thugs businesses business peaks.
Peaked at number two and got us a gift and occurs.
Number three on the Billboard 200, but as lead single, reaching number one on the Spotify in the U S.
<unk> highly anticipated new track guidance Tonight, which is currently number one on your official European Airplay chart.
First off the campaign for Barbie the album.
Released on Atlantic Records.
Like the movie itself. The album has been a massive global cultural.
But a number one in seven countries, including the UK, Canada, Australia, New Zealand, Netherlands, Ireland and Portugal.
It is the first contract ever.
<unk> top five singles in the UK.
All in all I'm.
I'm pleased with our improvement in Q3, but do we still have lots of work to do.
Kudos to the whole recorded music team for how they partner with our audits and worked hard to drive these results.
In publishing we continue to see impressive results from our strategy to diversify our revenue streams strengthening our services in mind argued the catalog.
At the same time, our song writers are contributing to massive hits, including Morgan wavelengths last night Miley Cyrus is flowers.
Thus kill Bill.
All of which reached number one on Billboard Hot 100.
And we're also seeing huge successes from Germany's Apache to southern Spain.
Spain Cavetto, the Uk's days and Mega hub produce about to name a few.
We're always expanding our.
Publishing roster and have recently signed deals with Grammy winning pop rockers imagine Dragons.
Hi, spices produce a variety of USA.
In Spanish Star Auto Mena.
I'd like to emphasize one other key theme today.
Our efforts to grow the value of music, which includes our approach to AI.
We're focused on creating virtuous cycle, where innovation fan engagement and greater monetization.
Together, providing even bigger opportunities for artists and songwriters and music fans around the world.
When I arrived at <unk>, one of the first priorities identified was the push for increases in music subscription prices.
I'm pleased with the traction we're getting.
Last month title Youtube and Spotify, all follows Apple Amazon and diesel by upping their prices.
As the fiscally responsible thing to do for themselves and for the creative community.
I'd like to thank them all what.
Taking this important step.
Back in March I said that if we adjusted for inflation since 2011.
The year that music streaming was introduced in the U S.
Price of a monthly music subscription in the U S should be $13 25 today.
To point out that in 2011, the price of the standard Netflix plan was $7 99.
It has since increased to 15 49 today.
If the monthly price of a music subscription had gone up by the same proportion.
Would have increased from 999, where it was in 2011 to 1937 today.
Let's remember that music subscription services give you access to all of the music ever released.
Our continuously growing library for roughly the price of a single CD.
You need to subscribe to three or four movie and TV services or roughly $45 a month to get anywhere near a comprehensive offering.
So we see these initial price increases is an encouraging start.
There is no evidence that the services are experiencing elevated levels of churn.
We believe the market will bear further price increases in the future.
We're expecting that they'll arrive on a more regular cadence than in the past.
Again, when I joined <unk>, one of the questions I repeatedly golf was about tick tock.
Seven months and I'm pleased to say, we also made great progress there.
Last month, we announced an expanded and significantly improved deal with them.
Greenland covers the main pick back up the rollout of the.
Subscription service Tictoc music video editing App kept up and picked us commercial music library.
Our deal gives our artists and songwriters access to new levels of monetization marketing spend at Wolf and features.
This is a first of its kind of a partnership that will also mean, the joint development of additional and alternative economic models as.
As we grow the ecosystem together.
I know that there is interest in the specifics of our expanded relationship but due to confidentiality provisions, we aren't at liberty to disclose them.
What I can say is this.
The deal features improved monetization per Mou that is comparable to other AD supported dsp's polar recognizing the value of our music and how critical it is to engagement on the platform.
I was glad to have the benefit of my experience at Youtube aligning with the music industrial solutions that work for everyone.
We look forward to working with the team at Tictoc, along with our other partners to continue to innovate and grow the value of music.
The market's adoption of subscription price increases combined with the ongoing evolution of our key partnerships gives us tremendous optimism for the future of streaming growth.
As we turn to AI I'd like to point out we have long history of working together with distribution platforms established licensing models that drive growth and innovation.
For the past 15 years music companies and distribution platforms as partner to grow user generated content is a multibillion dollar revenue stream for artists and songwriters.
Today, there are obvious similarities where they are.
Working with our artists and songwriters, we're leaning in moving fast and working with our network of partners, including both generated AI engines and distribution platforms.
Many Warner RSR already exploring impactful ways to use generated by AI to create augment and remix music.
We have some great examples from big names on the wait later this quarter.
Other artists are using Jacob visuals.
With the artists like metal band disturbed and does produce on recall.
On the superstar Rod Lincoln Park, all creating highly impactful music videos.
In addition, AI enabled stem separation technology is giving new life to recordings by orders no longer with us.
For example.
<unk> has been used to isolate the vocal performance from South Dakota legendary entertainers Sammy Davis Junior.
Renowned opera singer Maria Callas as part of groundbreaking St deals.
With deeply inspired by our oddest abilities to embrace and push the boundaries of the latest technology.
I'd like to highlight one of the first official and professionally AI generated its homes featuring the deceased August which came through our EA Division.
Costa Rican musician Petro company.
Released the new do it with his dad legendary father of Costa Rican Rock Jose Company.
This is Jose first song since 2001.
The year of his tragic.
After analyzing hundreds of hours of interviews a cabela's recorded songs and live performances from most of his career every nuance of the pattern of its voice was modeled using AI and machine learning.
The resulting song moving announces the arrival of federal San Jose's grandson.
It also coincides with Jose catalog being available on all streaming services for the first time.
With the right framework in place.
It will enable fans to pay their heroes, the ultimate compliment to a new level of user driven content, including new cover versions and measures.
AI is unquestionably one of the most transformative courses in human history.
Unless this technology shift is more familiar terrain that first meets the eye.
Like many technologies before it presents massive opportunities for human creativity and innovation.
Q4 is off to a strong start with amazing releases, including Barbie album.
Oh Boy, Nino <unk> pancreas, Thiago PDK Holly.
And then Murray.
And we have new music coming from Zach Brian .
Dan and Jay.
David Guetta, Charlie Puth, O'meara, Apollo and Robin Shoals.
We have a fantastic roster of artists and songwriters.
<unk>.
We continue to invest in our expertise and infrastructure, both creative and technological in order to create long term success.
As I said on my first earnings call I'm, a big believer in actions speaking louder than words.
So today more than anything else I've said.
Our results show, we're gaining real traction and Theres a lot to be excited about in Q4 and beyond.
Eric over to you.
Thank you Robert and good morning, everyone.
Our Q3 results are reflective of a robust release slate strong carryover from a variety of artists across different genres and geographies easy.
Easing ad comps.
Standing performance in our publishing business.
As a result, we delivered solid growth across key metrics, including revenue adjusted OIBDA and adjusted OIBDA margin.
Total revenue increased 10%.
Reflecting growth in both recorded music.
And music publishing.
Adjusted OIBDA increased 18% with a margin of 19% compared to 17, 6% in the prior year quarter.
These increases were primarily due to strong operating performance and disciplined cost management.
Our margin performance in the quarter was not materially impacted by savings from our March head count reduction as we reinvested most of the savings into technology.
Although we anticipate that we will similarly reinvest most of those savings for the balance of this fiscal year, we are raising our guidance to deliver full year margin expansion at the high end of our 50 to 100 basis point range.
Accorded music revenue grew 9%.
<unk> revenue increased 7%.
Scripture streaming revenue grew in the low double digits and AD supported increased in the low single digits as Robert mentioned earlier, starting Q3 and going forward. When we talk about AD supported streaming revenue it will be inclusive of revenue from emerging streaming platforms.
Our streaming results improved in each month of the quarter as we release new music.
Additionally, the market related AD supported headwind moderated as we lapped the pressure we began to see in the prior year quarter.
Physical revenue increased 2%.
By solid performance in the U S.
Artist services and expanded rates revenue increased by 14% due to higher concert promotion and merchandising revenue.
Licensing revenue increased 24% driven by growth in sync and broadcast fees.
Recorded music adjusted OIBDA increased by 16% with a margin of 26% this.
This is an increase of 130 basis points compared to the prior year quarter.
Music publishing continues to deliver strong results posting 16% revenue growth driven by strength in digital and mechanical.
Digital revenue grew 27% and streaming revenue increased 28%, reflecting the continued growth in streaming.
Digital deal renewals and a revenue true up of $9 million.
We had a $17 million benefit from the CRB rate increase in the prior year quarter, and we had a $7 million benefit in the current quarter.
Performance revenue decreased by 9% due to the timing of payments from collection societies mechanical revenue increase by 45%, primarily due to a higher share of physical sales.
And timing of distributions.
<unk> was flat.
Two lower commercial licensing activity offset by copyright infringement settlements.
Music publishing adjusted OIBDA increased 32%.
The $74 million with margin, increasing 310 basis points to 26, 1% driven by strong operating performance.
In April we successfully launch certain components of our financial transformation program in select territories. The program remains on track to meaningfully rollout.
Wade based approach.
We have expanded functionalities during fiscal 2023 2024 and into 2025.
Once fully implemented we expect the program to yield annualized run rate savings of $35 million to $40 million.
Q3, capex decreased to $33 million as compared to $35 million in the prior year quarter.
Operating cash flow decreased 10% to $146 million from $163 million in the prior year quarter due to higher cash taxes and cash interest.
Free cash flow decreased 12% to $113 million from $128 million in the prior year quarter.
Adjusted OIBDA to operating cash flow conversion was 49% in Q3.
Our goal remains to deliver an operating cash conversion of 50% to 60% over a multiyear period and we expect to achieve this target for 2023.
As of June 30, we had a cash balance of $600 million total.
Total debt of approximately $4 billion.
And net debt of $3 4 billion.
Our weighted average cost of debt is four 1% and our nearest maturity is in 2020.
As we look ahead, we expect continued improvement in our results.
We're working hard to execute against our plan and look forward to sharing more about fiscal 2024 on our next earnings call.
Thank you to everyone for joining us today, we'll now open the call for questions.
Thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for anything to be announced.
To withdraw your question. Please press star one again.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Benjamin Swinburne with Morgan Stanley . Your line is now open.
Good morning, Rob.
Robert You mentioned the price increases I think you think the DSP for what you described as a as a good start.
But at least from our perspective, there's a bigger prize longer term, which is really.
Continued movement of prices higher and really are maybe a structural change to sort of the incentives that are driving the markets. I'm wondering if you could talk a little bit about your.
Confidence in your ability or the industry's ability to really drive significant change in the incentive structure and whether or not you have a new agreement with Spotify because there were some disclosure in there quarterly filing suggesting they've got.
New commitments with partners Universal announced a new agreement so would love to hear your thoughts on sort of the long term changes you'd like to see the industry adopt beyond just one year of price increases and also whether you can talk a little bit about your relationship with Spotify and whether anything has changed there. Thank you.
Thanks Ben.
Well, let me take it from the backwards.
So no we do not have a new deal with Spotify.
So let me just clarify that upfront.
The.
We're not in.
Relationship with the consumers our DSP partners are so they are free to raise prices.
Without any contractual change so it's not required.
In order to do so.
I think as I look forward into the future obviously, you've heard me in my opening remarks talk about the value of music.
<unk>.
And.
This being a first step in what I believe is a more regular cadence of increases but.
Let me give you an example of what I think.
Sure.
Happened more often and why if you look at the history of Netflix and their innovation around price. It was really both on the way down and on the way up.
It started at $20 a month more than 20 years ago. Then it went up to $22 and then over the course of many years.
<unk> innovated down to $19 8 million to $17 16, all the way down to $7 99.
And then it started to grow it back up and today. The standard plan is $15 I forgot the name of the next plan with more permanent members on it is $19 so close to 20.
The level of innovation around price is incredible.
And I think that the.
DSP, it's on the music space.
Well begin on the same path because.
Video services are showing us price elasticity that consumer has that it is not resulting in elevated levels of churn now let me be clear I am not suggesting that we go to $19 today.
That is that is not what I'm, saying, but what I'm pointing out.
As the innovation that is happening in the entertainment space around it the value that we all provide to users and the elasticity that is there.
We are.
We obviously want to make sure that we're working collaboratively together with our DSP partners to.
Innovate over the next decade.
Around this point.
Thank you and then if I could ask you a follow up.
Eric just around margins I mean, this quarter, we really saw the business deliver the kind of growth I think we all expect.
Over time, particularly both revenue, but also operating leverage.
I think there's still some question out there Robert about whether your appetite to sort of reinvent the organization from a technology point of view is going to cause some kind of pause in the margin story that we are seeing again. This quarter I was wondering if you could talk a little bit about the technology investments, you're making and whether you think you can continue to drive operating leverage in the <unk>.
Over time, assuming the top line performs thank you very much.
Ben This is Eric I'll take that so I think the first thing to note is that.
We did a restructuring.
<unk> head count this year.
Or getting meaningful savings from that our technology investments are really being funded by those savings not coming out of margin. So that's the first point.
The second point is at.
At the IPO, we had a long term projection of 100 basis points increase per year on average and margin.
We have largely met that we're saying we're going to meet again in 'twenty three I will say that of course, we look forward. We are focused on margin increases.
We are working on our 24 budget now so I don't have anything specific to say 24, I will say that we actively.
Robert myself the business team actively worked on.
Our game plan for quite a bit of growth and margin improvement within fiscal 'twenty. Three we're working collectively as a team early in the year I said 50 to 100 basis points was realistic for this year now we're confirming the high end of that range as our objective is our goal for the year.
And that is largely through active management of the business both revenue growth we saw.
Re accelerated digital growth and recorded this year, an extraordinary performance in our publishing division, both with growing margins and active cost management not just in head count, but also areas like marketing that are allow us to achieve this strong margin growth. So we have the team will continue to look at growth in the.
Business, both topline and margin we're exactly at around 24, we will report in.
In future quarters, as we finalize our budget, but it's very much in the center of our focus thanks Pat.
Thank you.
Thank you. Our next question comes from the line of Michael Morris with Guggenheim Securities. Your line is now open.
Hi, good morning, Thanks for taking the question.
I wanted to ask about the <unk> agreement.
A lot of complexity in the announcement here. So I'm, hoping you can share some additional detail as you look at the different components of this agreement.
Ravi can you help us understand which elements are most impactful to your business maybe in the near term.
As compared to which elements need to unfold a bit more over time.
So some details that would be great I'm also curious as to whether this deal.
Any precedent.
For other technology partnerships that you have.
And then finally, Eric you discussed in the past some of these kind of emerging agreements.
From fixed payment structures into more variable.
<unk>. So does this agreement start to compensate you more on a usage basis.
Particularly given just the popularity of the platform. Thanks Scott.
Sure.
Sure sure.
Go ahead, sorry, Robert Alright, Eric <unk> couplings.
[laughter] Taiwan.
Uh huh.
So.
So we can share much Scott.
<unk>.
As I mentioned before.
What I can tell you on the elements, obviously I focused on value for us.
Whats.
As important to me is that whether it's an AD supported or subscription that we have fairness across all of our distributors.
So that nobody feels disadvantage or advantage to in any way.
And we have a well distributed.
Distributor.
A set of partners.
Well sort of feeling equal and so that was an important tenant of the relationship with demand.
With Tic Toc, but.
What I also wanted to make sure is that we focus on the users on their users because that is important to tick tock and any DSP for that matter and I think it's important for for music companies to focus on that equally.
In order to make it win win.
And I have to say that I'm very pleased with.
The way Shao <unk> CEO is engaged in sort of win win deal for both sides.
And I want to make sure that this impactful platform.
<unk> drives CMO and more value for us in the future because we are delivering the value to them as well.
And I think we have achieved this between both parties, but theres a lot of work to do for us to Alicia and more opportunities and we have a roadmap for that.
Yes, let me add a few things so thanks Robert.
One is and again consistent with what Robert said.
And how our philosophy is.
Having services that compete with each other that our monetization is in line so that we're not.
Incentive to support one service versus another but to provide the best content, we can across all services and let their competition in the market to determine where audience Cisco. So we're achieving our objective as we do these deals Tictoc is an example of that it also opens up new growth drivers.
As they rollout subscription services and other products that they want to.
Hmm.
What I will say is we have been saying for quite some time that we've had emerging streaming deals that were concluded in 2021 that we expected renewals in 'twenty three and 'twenty four.
Obviously as a substantive one of them.
What we will say is that.
This is happening pretty much when we expected and in line with where we would have.
Expected. This too. So this is really consistent with our model in our forecast.
We're really pleased to still concluded and Robert said.
And good partnership so we move forward. Thanks.
Thanks, Michael.
Great. Thank you guys.
Thank you.
Our next question comes from the line of Backyard Levi with UBS. Your line is now open.
Great. Thank you.
You provide a little bit more color on the emerging platform revenue mix now and your expectations for growth over the next.
A couple of quarters.
Maybe just one question on the advertising trends did you start to see some improvement in the base, excluding the emerging platform and how should we think about that going forward. Thank you.
So thanks for the questions. So the first thing is this is the first quarter and hopefully this simplifies things for folks out there. We know that that's been something we've had to explain and components in the past we're now combining the emerging streaming category.
The traditional AD supported streaming category combined.
Which is how we know others report this as well.
We have seen improvement in the in that category sequentially as the market improves specifically for AD supported services.
You see that in the reporting public reporting of some of the services that we have licensed the Swift. So we're seeing this as a continued category of improvement quarter to quarter, we see the emerging subset more of the social gaming subset is continuing to show upside and opportunity and growth and.
The traditional AD side, which was declining for the past year or so really starting to come back into a positive growth environment. So across the board.
We've been pleased.
And again as we've said as I've said before we had a series of renewals.
That are coming up from 23, and 'twenty four tics Hawk being one that we've talked about publicly that was just noting that that didnt affect our Q3 results that that deal was done in our fiscal Q4, and we will see that in our fiscal Q4.
Thank you.
Thank you. Thank you.
Our next question comes from the line of cut and morale with Evercore ISI. Your line is now open.
Good morning, and thanks for taking the questions I was hoping to follow up on the streaming revenue discussion when I think of the DSP price increases Tictoc deal and improved AD supported trends at this moment, there seems to be more tailwind to growth and maybe there has been at any other point over the last few years I know you called out that momentum has carried into Q.
Four but is there any more color you can provide on if we should see another acceleration in a year over year growth and how high that could get to and specifically I realize you don't provide guidance, but are we entering a period for the next year or so in recorded music subscription streaming revenue growth could get closer to low teens.
Range compared to the double digits in Q3. Thank you.
Thanks, Ken This is Eric I'm happy to take your questions. So I think you're right.
When you look at.
Traditionally when you look at the time of our IPO just looking back a couple of years when you looked at what's going to drive streaming growth. It was.
Numerical growth in subscribers. It was literally subscription growth now it's a multi pronged growth engine continues to be subscriptions, but now it's not just developed markets emerging markets have accelerated their growth in subscriptions pricing, we've seen in the past year pricing.
<unk> come pretty much across the board now for all steps in.
Virtually all substantive distributors youre seeing emerging streaming.
Continue to grow with positive renewals reaffirming the category and its potential youre seeing the traditional AD supported streaming that was affected by economic weakness.
Starting to improve and get back to positive growth.
So we're seeing a series of growth drivers and streaming all of which are seeing positive momentum.
As far as the.
Number <unk>.
Growth will hit in the short term I wouldn't want to give that forecast there. Many third parties that published numbers. There I would ask you to look at study and evaluate their assumptions, but I would say that as we were as we're entering fiscal 'twenty almost entering fiscal 'twenty four versus 23 the environment.
Across the board has become.
Meaningfully more positive and optimistic as far as the variety of growth drivers and the strength of the growth drivers. So we do agree with you if theres real cost of momentum out there cut Ken.
For the question.
That's great. Thanks, Eric.
Thank you.
Next question comes from the line of Ken.
Turning black with Deutsche Bank. Your line is now open.
Hi, Thank you and good morning, and thanks for the questions.
So Robert on the <unk>.
Last earnings call.
With disconnect between sort of the value of screens from higher caliber artists and sort of the current payment model.
Yeah.
Quite a few DSV to raise pricing. So I guess my question here is you made any progress.
More artist centric model and then just a quick follow on the follow up question on take time.
When it was announced.
You mentioned the possibility of new revenue opportunity for you Archie can you song writers and also new fan monetization possibilities.
Where exactly are those new opportunities.
Any additional color or commentary would be great. There. Thank you.
Yeah.
So.
On the progress around Asp's so.
<unk>.
If you sort of step back.
What I highlighted before is there is there is sort of disparity between the value that users receive.
By subscribing to music services and what it cost today alright.
Like I said, it multiple times versus Netflix versus.
Inflation et cetera, that's one thing.
The.
The need for innovating around price optimization and.
What has served the industry incredibly well for the past 15 years was this collaboration about getting one hundreds of millions of people multiple hundreds of millions of people into the premium experience, creating playlists that having stickiness.
And the great value prop.
I don't think that that is what will serve the industry well in the next 15 years.
And we will all collectively have to focus on much more innovation around.
Audience segmentation and price optimization and with.
Without negatively impacting the users I should add.
That is not a thing that happens overnight or.
Quarter to quarter.
Carefully.
Develop and orchestrated change.
We will undergo but don't expect news on that anytime soon it takes time to unfold and it takes multiple parties.
It takes two to tango in this and has more than two in this case.
But I'm very much focused on it because I do think it is the right thing for all parties involved.
And it's and it's worth so undergoing onto and then the most collaborative fashion possible.
I forgot there was a second part of your question, which I'll pick duck.
Oh Tictoc.
I think I said earlier that I can't give too many details on picked out because of our confidentiality agreements that I get a lot of questions on it.
Every time, you have massive user engagement, which ticked doghouse right has been very successful in creating it it creates new opportunities not just for that company that as the consumer.
But also for companies that work with us to develop new revenue streams off of this fan engagement and whether that engagement is promotional in nature or economic and E Commerce driven.
All of those are the possibilities and what I wanted to establish as having a.
Strong agreement with Tic Toc that.
Gives us the license to both go deep together and innovate.
And in the coming years and Thats what were doing so were I can't really share any more details on that but other than.
Very pleased to be partnering with them to partner with Charles and his team.
And.
And.
Often running.
Great Great things that happens right. Thank you.
Thank you.
Next question comes from the line of Douglas <unk> with Cowen <unk> Company. Your line is now open.
Hey, Thank you.
You talked a bit about the some of the opportunities you have had using AI to create music I. Just wondering if you could talk a little bit about.
Both sort of on the legal side the right tissues that you have to negotiate when doing that and then also just in terms of the relationships of the artists. Obviously AI has become a point of some significant attention and other entertainment fields and kind of where your discussions sit.
Right now with respect to that thank you.
Yes, so as you can imagine.
<unk>.
We are deeply engaged with our <unk>.
Distribution partners as well as with you generate of AI engines. So it's like sort of two fronts that were <unk>.
Lots of discussion on collaboration around.
I I always.
View this as both a defensive and offensive.
And that is one of the reasons I mentioned in my opening remarks, some of the great progress, we're making around generative AI with some of our artists.
And there is and there is a lot more that is happening behind the scenes that I have not talked about and because it's a creative tool.
However, the the thing that is important.
Is that.
Orders have a choice.
Because there are some that may not like it and that's totally fine and then there are some that will embrace it and that's also fine.
And we have to make sure that we ensure that they have a choice.
And that's something that is not done to them that is done with them.
So that is my utmost.
Our priority here because.
There is nothing more precious too.
Artist then their voice and protecting their voice is protecting their livelihood and proton protecting their persona. So so I want to make sure that we.
We are delivering on that and at the same time, we deliver on opportunities that the tools can provide them.
Thank you.
Yes.
Thank you. Our next question comes from the line of Sebastiano Petti with Jpmorgan. Your line is now open.
Hi, Thanks for taking the question Eric.
I'm just trying on this one here you know you said you wouldn't give us any color on the 24 in terms of margins, but can you help us unpack maybe the phasing in of the financial transformation program.
Could you, perhaps highlight what percentage or what you saw in the quarter wasn't material, maybe how that will phase into 'twenty five and as Youre looking at as Youre looking into 2000 and for anything that we should keep in mind in terms of comps this year.
Relative to 'twenty, two which will perhaps normalized inside of 2024.
Thinking about the reported margin expansion.
What that kind of looks like more on a like for like basis in 'twenty, three seems to better rather than perhaps.
Coming in on a reported basis and then I guess another kind of cleanup question here just on the emerging streaming platform great that its going to be combined with AD supported going forward to align with tears.
But could you give us an update on the underlying emerging streaming platform.
Revenue, perhaps in the quarter and trying to parse that out against the true underlying AD supported growth I think you call that thank you.
Okay, a lot of questions packed in there first Jana nice to hear from you.
Alright, let me try to tackle that I think I've got three groups of questions. So one is financial transformation.
What we're trying to communicate there is a few things one is that it's launched.
We have several markets now using the new technology successfully and that is fantastic.
Working and.
<unk>.
And functional in a few markets.
What we have done is adjusted our launch schedule to come in waves across fiscal 'twenty, three 'twenty four and into fiscal 'twenty. Five this will allow us to make sure that we have the proper support and hyper care as each segment of <unk>.
<unk> is rolled out to make sure that it is successful in that as we do this we have the ability to.
Use the new processes and tools successfully with the right training the right controls so it's a very thorough.
Launch planned phasing over time as we roll out the benefits will roll in with it obviously a substantial portion of the benefits have been winners global so some of the benefits will roll in in 24, although a very modest amount larger than 2005 and once it's rolled out in 'twenty five.
Benefits, we expect to be robust for fiscal 'twenty six.
You asked a question about margin I am not sure I, 100%.
Got it what I will say about fiscal 'twenty three.
That the.
Acceleration of digital and streaming revenue in the second half 'twenty three.
Which is high margin revenue is a great boost in our active cost management.
Is allowing us to.
Meet the high end of the range, which is what we've been looking at in prior years not every year is exactly the same I don't have analytical like for like comparisons sitting in front of me.
But every year, we are looking for the opportunities to achieve the high end of the range depending on the mix of releases distributed versus owned.
Artist services and its rate of growth, which is lower revenue every year has a slightly different profile.
But as we look at and we will look at in the 'twenty four budget look at the profile of <unk> 24 is revenue and the margins.
Of that revenue.
Both the best plan for the year, we can with margin growth as one of the things we are actively managing.
Your last question was now that we're reporting emerging streaming and AD supported together I think you want us to give some color on each piece, what we will say is that.
And emerging streaming there were no notable new deals in 'twenty three the tick talk to you I'm sorry in Q3 of 'twenty three.
Talk to your commences in Q4.
Category.
Emerging streaming continued to grow nicely.
I would say well into the teens.
And AD supported continued to show sequential improvement.
Heading back towards growth.
And so hopefully that gives you the color that you want an <unk> channel.
Thanks, Eric appreciate all the color around right.
Thank you.
Our next question comes from the line of Matthew Thornton with <unk> Securities. Your line is now open.
Hey, good morning, Robert Good morning, Eric.
Most of mine have been answered so a couple of housekeeping questions if I could.
I think given the cadence of the recent price increases across the Dsp's I would assume that.
We don't see the full run rate impact of that until the calendar fourth quarter. So fiscal first quarter I want to make sure that that's.
A fair assumption.
And then maybe for Eric in the.
In the publishing side of things and streaming I think theres a couple of puts and takes between renewals and a revenue true up and.
Some CRB impact and I think there was a copyright infringement settlement within sink I'm just kind of curious how to net those out in terms of what the maybe the net impact from some of those onetime items might've might've been in the quarter, but any color there would be helpful. Thanks guys.
Thanks, Matthew So I'll take the second one first because they pretty much net out to zero. The two most substantive things in publishing whereas the <unk>.
Revenue true up in streaming.
The CRB on our records three.
<unk>.
Which has now been finalized.
The kind of backlog revenue impact now that the table to be calculated the revenue true up was a positive.
The CRB, although there was.
A positive this quarter. The prior year was a positive 10 million more so when you net that all out it all nets to zero the streaming revenue growth of 28%.
In publishing is about what it is once you net out all of those true ups. So.
So it's really kind of negate each other.
On the price increases on the recorded side.
I would really say to expect the benefit of those of the full benefit of those in fiscal 'twenty four.
Spotify has announced rate increase as an example.
It takes a few months to execute rollout to their consumers then rolled out into our numbers. So I'd expect to see.
Rice increases roll through our numbers in fiscal 'twenty four.
I don't think realistically in Q4 23.
And maybe if I could just make one more housekeeping as well, but erika the lower variable marketing spend that you talk a little bit about in the release I just wanted to kind of double check if thats something thats sustainable or if that's something that needs to come back a little bit any any color there as well. Thanks again.
I'd say, it's too early for for Us or me to make a definitive statement. There I think some of that depends on the release schedule.
Which markets, it's skewed towards some markets.
Higher need to break local music kind of higher marketing demand when some products come out in.
With partners or partnerships of how they are released to critics efficiencies in marketing. So it depends on the release schedule for next year obviously.
As you see from this year, we're very actively looking at evaluating and managing costs, including marketing.
And as we look forward, we will continue to.
With great discipline evaluated and manage those but I wouldn't want to yet call a specific.
Permanent lower variable marketing I will say that we're very active we're looking to manage and improve margins from that there's one of the significant tools that you have to use.
Great I appreciate the color thanks, guys. Thanks.
Thanks, Matt.
Thank you.
Last question comes from Stephen Lasik with Goldman Sachs. Your line is now open.
Hey, great. Thanks. Good morning, I was wondering if you could maybe talk a little bit more about the momentum you saw in market share in the third quarter on the back of some strong releases, especially if theres anything you can say around perhaps the cadence or magnitude.
Are those trends and then maybe looking ahead could you maybe give us an update on how the release slate stacks up in the back half of this year.
Versus what we saw in the first half.
Sure.
So.
First I want to I want to point out that we had we obviously had.
Great release slate with with lots of momentum and lots of success.
But at the same time, our catalog has also delivered.
<unk>, which is which is something that I.
Tremendously appreciate so so it was kind.
<unk> been firing on both engines and new releases in catalog.
We have a great slate.
For for the next for the next quarter.
There is I would say the best way to think about this is that we entered the quarter with great success with little <unk>.
<unk> got a young talk Kelly Clarkson as Spa and the Barbies contract, obviously is a huge blockbuster. So so our entry into the quarter has been great.
And our slate looks.
Also very very strong.
For Q4, and the rest of the year those lots of great new releases coming up.
From burn a boy Nino being pathways, Thiago PZ K call Etfs, though Ann Marie and so on and on and on so.
And we have some new music coming from Zach Bryan and Dan and Chase, David get out Charlie Puth Robyn.
Robin shirts et cetera, so there's a lot of activity the team is.
<unk>.
Firing on all cylinders.
And I'm just.
Glad that.
We have re accelerated.
And that we continue.
Great and then maybe just a longer term question on the publishing business you are seeing some great momentum on that side of the house I was wondering if you can maybe talk a little bit more about the diversification and services strategy.
That youre pushing through in that business and to what degree. We maybe you can expect similar outperformance on the publishing side.
Over the course of 24 thank.
Thank you.
Yes, I mean, its hard for me to guide for 'twenty for just to sort of in line with Eric.
On that but what I can tell you is that guy and carry and.
<unk> have done a tremendous job.
Over the past four years.
With Warner Chappell.
And run a very.
<unk> and effective.
Machine Dave.
Yeah.
They've diversified our services they mined the catalog incredibly well.
And we have one mill in more than 1 million songs.
We're focusing on monetizing that.
So machine to do.
They're incredible operators.
The results are really speaking for themselves.
No.
Obviously I've worked with them very closely to two.
Set this up for the future and make sure that we continue.
I'm not prepared to guide on that 10 to 24 as of today, but overall I just want to close by saying.
Very grateful.
To the whole company to our teams hustle.
And the last quarter and in the current quarter.
It's great to see.
Speaking for itself.
And delivering the results. Thank you.
Thank you.
Like to hand, the call back over to Robert Kessler for closing remarks.
Oh.
So I want to thank you all for taking the time out of your day to dial in to our call for all of your thoughtful questions.
For challenging us on thanks.
And.
Again, very appreciative to the entire team at Warner Music Group.
Look forward to our next earnings call with you.
Have a great morning.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Yes.
Sure.
Yes.
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