Q2 2024 Warner Music Group Corp Earnings Call
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Operator: Welcome to Warner Music Group's second quarter earnings call for the period ended March 31st, 2024. 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 the call over to your host, Mr. Kareem Chin, Head of Investor Relations. Please, you may begin.
Speaker Change: Welcome to Warner Music groups second quarter earnings call for the period ended March 31 2024.
Speaker Change: 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.
Speaker Change: Now I would like to turn the call over to your host Mr. Kareem Chin.
Kareem Chin: Head of Investor Relations.
Kareem Chin: Please you may begin.
Kareem Chin: Good morning, everyone, and welcome to Warner Music Group's fiscal second quarter earnings conference call. Please note that our earnings press release, earnings snapshot, and Form 10-Q are available on our website. On today's call, we have our CEO, Robert Kyncl, and our CFO, Bryan Castellani, who will take you through our results, and then we will answer your questions.
Kareem Chin: Good morning, everyone and welcome to Warner Music group's fiscal second quarter earnings Conference call.
Kareem Chin: Please note that our earnings press release earnings snapshot in Form 10-Q are available on our website.
Kareem Chin: On today's call, we have our CEO, Robert Kintzel, and our CFO, Brian <unk>, who will take you through our results and then we will answer your questions.
Kareem Chin: Before our prepared remarks, I'd like to refer you to the second slide of the earnings snapshot to remind you that this communication involves 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.
Kareem Chin: For our prepared remarks, I'd like to refer you to the second slide of the earnings snapshot to remind you that this communication involves forward looking statements that reflect the current views of Warner music group about future events and financial performance.
Kareem Chin: 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.
Kareem Chin: Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. Our references to normalized revenue and adjusted OEBDA are adjusted for items that impact comparability. The details of these can be found in our files.
Kareem Chin: Also please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted.
Kareem Chin: Our references to normalized revenue and adjusted OIBDA, our adjusted for items that impact comparability.
Kareem Chin: The details of these can be found in our filings.
Kareem Chin: All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith, and we believe there's a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, and projections will materialize 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 that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statement is contained in our filings with the S.E.N. And with that, I'll turn it over to Robert.
Kareem Chin: 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.
Kareem Chin: 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.
Kareem Chin: Information concerning factors that could cause actual results to differ materially from those in the forward looking statements.
Kareem Chin: Contained in our filings with the SEC and with that I'll turn it over to Robert.
Robert Kyncl: Good morning, everyone, and thank you for joining us. I am pleased with everything our global team is doing to deliver for our artists and songwriters and drive our business forward. In Q2, total revenue increased 7%, with recorded music and music publishing increasing 4% and 19%, respectively. On a normalized basis, total revenue grew 9%, with recorded music up 7%. Recorded music streaming revenue increased 11%, led by subscription streaming growth of 13.5%. This was driven by stronger music performance, as well as subscriber growth and subscription pricing. Total adjusted OIBDA increased 9% or 10% on a normalized basis.
Robert Kyncl: Thanks Karim.
Robert Kyncl: Good morning, everyone and thank you for joining us.
Robert: I'm pleased with everything our global team is doing to deliver for our artists and songwriters and drive our business forward.
Robert: In Q2 total revenue increased 7% with recorded music and music publishing, increasing 4% and 19% respectively.
Robert: On a normalized basis total revenue grew 9% with recorded music up 7%.
Robert: Recorded music streaming revenue increased 11% led by subscription streaming growth of 13, 5%.
Robert: This was driven by stronger music performance as well as subscriber growth and subscription price increases.
Robert: Total adjusted OIBDA increased 9% or 10% on a normalized basis.
Robert Kyncl: In recorded music, we continue to break new artists, build global careers, and mine our extraordinary catalogue. This quarter, we saw massive hits from artists across different genres in all stages of development. Exactly the kind of mix we want.
Robert: In recorded music, we continue to break new artists build global carriers in mind, our extraordinary catalog.
Robert: This quarter, we saw massive hits from audits across different genres in all stages of development exactly the kind of mix we won.
Robert Kyncl: Benson Boom and Penny Swins are standout audit development stories of the year. They are also both signed to Warner Records as recording artists, as well as to Warner Chappell, a songwriter. During the quarter, Benson Boone reached number one on the Spotify Global Chart, while Teddy Swimps and Megan Thee Stallion individually hit number one on the US Hot 100 Chart. Menson, Megan, and Teddy all spent weeks in the Hot 100 Top 10, alongside carryover hits from Jack Harlow and Zach Bryan.
Robert: Benson boom and that he swims or standout audit development stories of the year.
Robert: There are also both signed to Warner Records as recording artist as well as to Warner Chappell Our song writers.
Robert: During the quarter Benson Boon reached number one on Spotify Global chart, while <unk> and Megan the stallion individually hit number one on the U S. Hot 100 chart.
Robert: Medicine, Megan entity all spend weeks in the Hot 100 top 10, alongside carryover hits from Jack Harlow and exact Brian.
Robert Kyncl: Around the world, we also had number ones from Mike Towers, Green Day, Joliet, and Blessed. We also continue to attract outstanding global talent, with recent signings including India-based superstar Nora Fatehi, top Ukrainian rock band Okian Elzy, and legendary multi-Grammy-winning icon Angelique Kidjo. It's encouraging to see our artists creating bodies of work with real staying power. These new releases are our catalog of the future. Here are some great examples of how our so-called shallow catalog is contributing to revenue growth. Ed Sheeran's Divide, released in 2017, and Dua Lipa's Future Nostalgia, released in 2020, are both in our top-earning albums for the quarter.
Robert: Around the World. We also had number ones from Mike Towers, Green day, Joliet and Blessed.
Robert: We also continue to attract outstanding global talent with recent signings, including India based superstar neuropathy.
Speaker Change: Ukrainian rock band, Okay on LG and legendary multi Grammy winning icon and jelly. Thank you Joe.
Speaker Change: It's encouraging to see our artist creating bodies of work with real staying power.
Speaker Change: These new releases our catalog of the future.
Speaker Change: Here are some great examples of how our so called shallow catalog is contributing to revenue growth.
Speaker Change: <unk> divide released in 2017 and do all the POS future nostalgia released in 2020 are both in our top earning albums for the quarter.
Robert Kyncl: The Deep Catalogue, releases that are more than 10 years old, also remains an important growth area with meaningful untapped opportunities. When we market the Deep Catalogue with the same ingenuity as new releases, it often has a significant impact.
Speaker Change: Deep catalog <unk>.
Speaker Change: <unk> is there are more than 10 years old also remains an important growth area with meaningful untapped opportunity when.
Speaker Change: When we market catalog with the same ingenuity as new releases it often has significant impact for.
Robert Kyncl: For example, at this year's Grammys, our recording artists Tracy Chapman and Joni Mitchell both performed classic songs that saw a big boost in weekly audio streams of over 180%, respectively. Additionally, our music publishing division, Warner Chapel, continues to perform extremely well. From Benson Boone's Beautiful Things, Teddy Swim's Lose Control, and Jack Harlow's Loving on Me, to Ariana Grande's We Can't Be Friends and Kanye West and Tadala Sign's Carnival.
Speaker Change: For example at this year's Grammys, a recording artist Tracy Chapman and Joni Mitchell both performed classic songs, that's a big boost in weekly audio streams of over 180% respectively.
Speaker Change: Our music publishing Division Warner Chappell continues to perform extremely well our songwriters contributed to a range of recent hits from Benson balloons beautiful things steady swim lose control and Jack Harlow Loving on me two Ariana Grande as we can be friends and Kanye West and <unk>.
Robert Kyncl: Top-tier songwriters continue to recognize Warner Chappell's momentum. Recent signings include five-time Grammy nominee Coco Jones and Dua Lipa, who joins other superstars such as Cardi B, Zach Bryan, Madonna, and Led Zeppelin who are represented by our company for both recorded music and music publishing. As reported in Music and Copyright, we outpaced our peers in 2023, growing our global market share in music publishing. Simply said, we've executed well on expanding our songwriter roster, strengthening our services, and finding innovative ways for songs to get heard. Impressively, this growth has largely been achieved organically, not through acquisitions at frowthy multistakeholders.
Speaker Change: <unk>.
Speaker Change: To your songwriters continue to recognize one of chapels momentum.
Speaker Change: Recent signings include five time Grammy nominee Coca Jones, Andrew Alibaba.
Speaker Change: Other superstars, such as card to be Zach, Brian Madonna and led Zeppelin, who are represented by our company for both recorded music and music publishing.
Speaker Change: As reported in music copyright, we outpaced our peers in 2023 growing our global market share in music publishing.
Speaker Change: Simply said, we've executed well on expanding our songwriter roster strengthening our services and finding innovative ways to songs to get hurt.
Speaker Change: Impressively this growth has largely been achieved organically not through acquisitions at frothy multiples.
Robert Kyncl: Further evidence of our success in identifying world-class songwriters early. A great example is the phenomenal success of British singer-songwriter Ray. She signed to Warner Chapel nine years ago, and in March, she smashed records for the most nominations and wins in a single year at the Brit Awards.
Speaker Change: Further evidence of our success in identifying world class songwriters early.
Speaker Change: A great example is the phenomenal success of British singer songwriter right.
Speaker Change: <unk> signed to Warner Chappell nine years ago.
Speaker Change: She smashed records for the most nominations and wins in a single year at the Brit Awards.
Robert Kyncl: In addition to her solo work, she's written hit songs for the likes of Beyonce, Rihanna, and John Legend. Earlier this year, I laid out three strategic priorities. Grow engagement with our music, increase the value of our music, and evolve how we work together. We continue to make important progress on all these fronts. First, growing engagement with our music. This is primarily driven by signing and serving an ever-broadening spectrum of artists and songwriters, identifying and investing in territories where local music is gaining global appeal, and helping our talent break through the noise in a cluttered and fiercely competitive environment.
Speaker Change: In addition to her solo work. She has written hit songs for the likes of beyond say, Rihanna and John legend.
Speaker Change: Earlier this year I laid out three strategic priorities growing engagement with our music increased the value of our music and evolve how we work together.
Speaker Change: We continued to make important progress on all these fronts.
Speaker Change: Growing engagement with art music.
Speaker Change: This is primarily driven by signing in serving ever broadening spectrum of artists and songwriters.
Speaker Change: Identifying and investing in territories, where local music is gaining global appeal.
Speaker Change: And helping our talent breakthrough the noise in the clutter it appears like competitive environment.
Robert Kyncl: Unusual for a company of our scale, most of our biggest stars are homegrown talent who have been with us since the earliest days of their careers. Bruno Mars, Ed Sheeran, Cardi B, and Dua Lipa, among others.
Speaker Change: Unusual for a company of our scale most of our biggest stars are homegrown talent, who have been with us since the earliest days of their careers.
Speaker Change: Nomura at Sharon Cardi, B and dwell Lipa among others.
Robert Kyncl: We're building on this legacy by nurturing original artists into the next generation of superstars. A great example is Warner Records, who are the hottest label in the U.S. right now due to their focus on genuine talent and long-term artist development. In an industry where it's harder than ever to get through, Warner Records has bucked the trend with success stories like Zach Bryan, Benson Boone, and Teddy Swinburne, and their hot streak shows no sign of slowing down.
Speaker Change: We're building on this legacy by nurturing original artists into the next generation of Superstars.
Speaker Change: Great example is Warner Records, who are the hottest label in the U S. Right now due to their focus on genuine talent and long term artist development.
Speaker Change: In an industry, where it's harder than ever to cut through Warner Records has bucked the trend with success stories like Zach, Brian Benson Boon and Teddy swimmers in their hot streak shows no sign of slowing down.
Robert Kyncl: Last September, we announced a joint venture with 10K Projects, funded by Elliot Grain. Tenke operates as a standalone U.S. label, opening up a whole new channel through which we can bring quality talent to market. From the get-go, this has been successful for Warner Music Group, both commercially and creatively. 10K continues to deliver incredible hits, with Artemis' latest single, I Like the Way You Kiss Me, going number one on the Spotify Global Chart.
Speaker Change: Last September we announced a joint venture with turnkey projects funded by Elliot Grange.
Speaker Change: <unk> operates as a Standalone U S label opening up a whole new channel through which we can bring quality talent to market.
Speaker Change: From the get go this has been a success. This has been successful for Warner Music group, both commercially and creatively.
Speaker Change: 10-K continues to deliver incredible hits with Artemus. This latest single I like the way you Kiss me going number one on Spotify Global chart.
Robert Kyncl: As I've mentioned before, we continue to fuel our growth organically and via partnerships and acquisitions. As part of our mission to be a destination for artists and songwriters at every stage of development, we're expanding our lower-tech services that many independent artists, labels, and songwriters rely on. Here is just one recent example.
Speaker Change: As I've mentioned before we continue to view, our growth organically and via partnerships and acquisitions.
Speaker Change: As part of our mission to be a destination for artists and songwriters at every stage of development, we are expanding our lower tax services.
Speaker Change: Many independent artists labels and songwriters rely on.
Robert Kyncl: Last month, Warner Chappell partnered with BandLab, the social music creation platform, and they will work together to identify and sign emerging songwriters, providing them with access to our comprehensive suite of offerings. We have a clear plan to develop this area of our ecosystem across the company, and we're building solutions in-house while staying vigilant about our M&A opportunities, which could accelerate our capability. At the same time, we're expanding our presence in dynamic recorded music marketing.
Speaker Change: As just one recent example last month Warner Chappell partnered with band lab, the social music creation platform.
Speaker Change: We will work together to identify and sign emerging songwriters, providing them with access to our comprehensive suite of offerings.
Speaker Change: We have a clear plan to develop this area of our ecosystem across the company and we're building solutions in house, while staying vigilant about our M&A opportunities, which could accelerate our capabilities.
Speaker Change: At the same time, we're expanding our presence and dynamic recorded music markets. We've seen impressive results this past year.
Robert Kyncl: We've seen impressive results this past year. In Argentina, the fastest growing market in 2023, we doubled our year-over-year revenue organically. In Sub-Saharan Africa, the fastest growing region in 2022 and 2023, we were the only major music company to grow share last year. In India, already the 14th largest market and climbing past, we were again the only major to grow share in 2023. We continue to find ways to turbocharge our growth and strengthen our global platform for local talent. Last month, we launched Warner Music South Asia to address a region with 400 million people across Bangladesh, Nepal, Pakistan, and Sri Lanka.
Speaker Change: In Argentina, the fastest growing market in 2023, we doubled our year over year revenue organically.
Speaker Change: In sub Saharan Africa, the fastest growing region in 2022 and 2023, we were the only major music company to grow share last year.
Speaker Change: In India already the 14th largest market then climbing passed we were again the only major to grow share in 2023.
Speaker Change: We continue to find ways to turbocharge, our growth and strengthen our global platform for local talent.
Speaker Change: Last month, we launched Warner music, South Asia to address a region with 400 million people across Bangladesh, Nepal, Pakistan and Sri Lanka.
Robert Kyncl: Turning to our next strategic priority, growing the value of our music. There are two aspects to achieving this, growing the pie and growing our participation in the pie. Over the past year, there have been some initial steps in the right direction to grow the pie, including the first price increases at all major DSPs. We will continue to advocate for further increases, as well as more sophisticated price optimization, especially as DSPs improve their offerings to bring in more subscribers.
Speaker Change: Turning to our next strategic priority growing the value of our music.
Speaker Change: There are two aspects to achieving this growing the pie and growing our participation in the pie.
Speaker Change: Over the past year, there have been some initial steps in the right direction to grow the pie, including the first price increases at all major DSP.
Speaker Change: We will continue to advocate for further increases as well as more sophisticated price optimization, especially as dsp's improve their offerings to bring in more subscribers.
Robert Kyncl: We've also seen encouraging early signs in the evolution of royalty for a better aligning economy, Premium Contents, thus growing our participation in the pie. It's important to note that these shifts to more artist-centric models take time to fully implement, and we don't expect an immediate impact on our results. We're making every effort to build alignment with our partners.
Speaker Change: We've also seen encouraging early signs in the evolution of royalty models.
Speaker Change: Aligning economics with premium content, thus growing our participation in the pie.
Speaker Change: It is important to note that these shifts to more artist centric models take time to fully implement and we don't expect immediate impact on our results.
Speaker Change: We're making every effort to build alignment with our partners.
Robert Kyncl: And it's the best way to ensure that the value that music provides to these platforms is properly recognized. Another area where we see great potential to grow the value of music is AI. As I've said before, there are three components which play critical roles in the evolution of AI.
Speaker Change: And Thats the best way to ensure that the value of that music provides to these platforms is properly recognized.
Speaker Change: Another area, where we see great potential to grow the value of music is AI.
Speaker Change: As I've said before there are three constituents, which play critical roles in the evolution of AI.
Robert Kyncl: Platforms, models, and government. The concepts of control, monetization, attribution, and provenance are the core of our discussions with all parties in order to protect artists, songwriters, and writers. Last Tuesday, I testified on the promise and perils of generative AI before the U.S. Senate Judiciary Subcommittee on Intellectual Property, voicing the shared concerns of the creative community. I urge Congress to act this year and pass a federal law that addresses the... My central message was that the use of people's likeness and voice requires consent and must be subject to free market negotiation.
Speaker Change: That forms models and governments.
Speaker Change: The concepts of control monetization attribution and provenance.
Speaker Change: The core of our discussions with all parties in order to protect artists songwriters and rights holders.
Speaker Change: Last Tuesday identified on the promise and parallels of generated AI before the U S Senate Judiciary subcommittee on intellectual property.
Speaker Change: Voicing the share concerns of the creative community.
Speaker Change: I urge Congress to act this year and pass a federal law that addresses deep fakes.
Speaker Change: The central message was that the use of People's likeness and voice requires consent and must be subject to free market negotiations.
Robert Kyncl: We should not abide by the appropriation of people's identities and the theft of artists' livelihoods. I'll briefly highlight one amazing example of the power of AI when done right. Since 2013, Randy Travis has had aphasia, a condition that limits his ability to speak and think.
Speaker Change: We should not abide by the appropriation of People's identities and the theft of audits livelihoods.
Speaker Change: I'll briefly highlight one Amazing example of the power of AI when done right.
Speaker Change: Since 2013 rounded Travis had a feature a condition that limits its ability to speak and sing.
Robert Kyncl: Last week, the legendary Grammy Award-winning Country Music Hall of Famer was able to release new music for the first time in over a decade. Thanks to AI. We played his new song, Where That Came From, on our pre-call hold music, and you should add it to your playlist right now.
Speaker Change: Last week, the legendary Grammy Award, winning country Music Hall of Famer was able to release new music for the first time in over a decade, thanks to AI.
Speaker Change: We played his new song where that came from on our pre call hold music and you should add it to your playlists right now.
Robert Kyncl: Moving on to my third priority. Thank you for including How We Work. On our last earnings call, we announced a restructuring plan that will enable us to increase our investment in music, technology, and new skill sets. We are on track, although the full savings will not be realized until the end of Fiscal 25. The majority of the changes have already been implemented. This includes centralizing certain functions and exiting our owned and operated media. Since we last spoke, we have sold the entertainment websites Uproxx and HipHopDX.
Speaker Change: Moving on to my third priority <unk>.
Speaker Change: Evolving how we work.
Speaker Change: On our last earnings call, we announced a restructuring plan, which will enable us to increase our investment in music technology and new skill sets.
Speaker Change: We are on track, although the full savings will not be realized until the end of fiscal 'twenty five the majority of the changes have already been implemented.
Speaker Change: This includes centralizing certain functions.
Speaker Change: And exiting our owned and operated media businesses.
Speaker Change: Since we last spoke we have sold the entertainment websites up rocks and hip hop Dx.
Robert Kyncl: We're laying a strong foundation to accelerate our progress and yield greater value over time. As part of this, we continue to develop our tech capability. I'll give you a few examples of some of our projects. We've made improvements to our royalty system and the tools used to identify unclaimed revenue. We've overhauled our global supply chain, unlocking our ability to scale our third-party distribution business. And we've transformed our proprietary tools that identify fan trends while building new ways to engage with supermarkets.
Speaker Change: We're laying a strong foundation to accelerate our progress and yield greater value over time.
Speaker Change: As part of this we continue to develop our tech capabilities.
Speaker Change: Give you a few examples of some of our projects.
Speaker Change: We've made improvements to our royalty systems and the tools used to identify unclaimed revenue.
Speaker Change: We've overhauled our global supply chain unlocking our ability to scale, our third party distribution business.
Speaker Change: And we've transformed our proprietary tools that identified find trends, while building new ways to engage with supervalu.
Robert Kyncl: Our second half includes eagerly-anticipated music from Dua Lipa, who dropped her new album Radical Optimism last Friday. And we're excited about our new releases from Twenty One Pilots, Sia, Gunna, Megan Thee Stallion, David Guetta, Fred again, Charlie Booth, and Maria Becerra. This is an exciting and transformative period for our company and for the music industry. We're looking forward to building incredible careers and creating dynamic new opportunities in the months and years ahead. And with that, I'll turn it over to Bryan. Thank you.
Speaker Change: Our second half includes eagerly anticipated music from dual Alibaba, who dropped her new album radical optimism last Friday.
Speaker Change: And we're excited about our new leases from 21 pilots Sia Ghana, Megan the stallion, David Guetta, Fred again, Charlie Booth and Mario of the chair.
Speaker Change: This is an exciting and transformative period for our company and for the music industry.
Speaker Change: We're looking forward to building incredible carriers and trading dynamic new opportunities in the months and years ahead and with that I'll turn it over to Brian.
Bryan Castellani: Thank you, Robert, and good morning, everyone. Before I get into details of our Q2 results, I want to remind everyone that growth rate comparisons will be in constant currency. The items affecting recorded music streaming revenue and comparability included the BMG digital revenue roll-up, which was $22 million unfavorable in the quarter. Additionally, the renewal with one of our international digital partners that resulted in upfront incremental revenue recognition of $27 million last quarter resulted in an unfavorable impact of $4 million this quarter and will have a similar impact in Q3 and Q4. Details relating to these items can be found in our earnings press release.
Bryan Castellani: Thank you Robert and good morning, everyone.
Bryan Castellani: Before I get into details of our Q2 results I want to remind everyone that growth rate comparisons will be in constant currency.
Bryan Castellani: The items affecting recorded music streaming revenue.
Bryan Castellani: Comparability include the BMG digital revenue roll off which was $22 million unfavorable in the quarter.
Bryan Castellani: Additionally, the renewal with one of our international digital partners that resulted in upfront incremental revenue recognition of $27 million last quarter resulted in an unfavorable impact of $4 million this quarter and we will have a similar impact.
Bryan Castellani: <unk> in Q3 and Q4.
Bryan Castellani: Details relating to these items can be found in our earnings press release.
Bryan Castellani: In Q2, total revenue grew 7% and adjusted OEBDA increased 9%, with a margin of 20.9%, an increase of 40 basis points over the prior year quarter. On a normalized basis, total revenue grew 9% and adjusted rate increased 10%. Recorded music revenue grew 4% and 7% on a normalized basis.
Bryan Castellani: In Q2 total revenue grew 7% and adjusted OIBDA increased 9%.
Bryan Castellani: With a margin of 29% an increase of 40 basis points over the prior year quarter.
Bryan Castellani: On a normalized basis total revenue grew 9% and adjusted OIBDA increased 10%.
Bryan Castellani: Recorded music revenue grew 4% and 7% on a normalized basis.
Bryan Castellani: Streaming revenue grew 11% on a comparable basis, with subscription streaming growth accelerating to 13.5%. Meanwhile, ad-supported revenue increased by... The improvement in subscription growth was driven by stronger DSP sub-performance, along with price increases, although partially offset by a deceleration in ad-supported revenue driven by platform misses. Physical revenue decreased 7% driven by the timing of release. Artists Services and Expanded Rights revenue decreased 3% due to lower merchandising revenue partially offset by higher concert promotion revenue in France and Japan. Licensing Revenue Group 5%, primarily due to the timing of legal settlement. Recorded music adjusted OEBDA increased 9% with a margin of 22.9%, an increase of 110 basis points. On a normalized basis, adjusted OEBDA increased by 10%.
Bryan Castellani: Streaming revenue grew 11% on a comparable basis with subscription streaming growth accelerating to 13, 5%.
Bryan Castellani: While AD supported revenue increased 5%.
Bryan Castellani: The improvement in subscription growth was driven by stronger DSP sub performance.
Bryan Castellani: Along with price increases.
Bryan Castellani: <unk> offset by a deceleration in AD supported revenue driven by platform mix.
Bryan Castellani: Physical revenue decreased 7% driven by the timing of releases.
Bryan Castellani: Artist services and expanded rights revenue decreased 3% due to lower merchandising revenue, partially offset by higher concert promotion revenue in France and in Japan.
Bryan Castellani: Licensing revenue grew 5%, primarily due to the timing of legal settlements.
Bryan Castellani: Recorded music adjusted OIBDA increased 9% with a margin of 22, 9% an increase of 110 basis points.
Bryan Castellani: On a normalized basis.
Bryan Castellani: Adjusted OIBDA increased 10%.
Bryan Castellani: Music publishing continues to deliver impressive results, with revenue growth of 19% driven by streaming and performance revenue. Digital and streaming revenue increased by 27% and 29%, respectively, reflecting the continued growth in streaming and the impact of digital deal renewal. We also benefited from the continued investment in and expansion of our publishing catalog. Performance revenue increased by 18% due to strong artist touring activity in Europe, while sync revenue increased 2%. Driven by the timing of the legal settlement.
Bryan Castellani: Music publishing continues to deliver impressive results with revenue growth of 19% driven by streaming and performance revenue.
Bryan Castellani: Digital and streaming revenue increased by 27% and 29% respectively, reflecting the continued growth in streaming and the impact of digital deal renewals.
Bryan Castellani: We also benefited from the continued investment and expansion of our publishing catalog.
Bryan Castellani: Performance revenue increased by 18% due to strong artist touring activity in Europe.
Bryan Castellani: While sync revenue increased 2% driven by timing of legal settlements.
Bryan Castellani: Mechanical revenue decreased 6% due to lower physical sales. Music publishing adjusted OEBRA grew 8% with a margin of 26.8%, a decrease of 270 basis points due to lower revenue. Turning to CapEx, we saw a $9 million decrease from the prior year quarter to $26 million due to the timing of tech investments. Operating cash flow decreased to a use of $31 million from a use of $6 million in the prior year quarter due to increased A&R investment and timing of working capital items. Free cash flow decreased to a use of $57 million from a use of $41 million in the prior year quarter.
Bryan Castellani: Mechanical revenue decreased 6% due to lower physical sales.
Bryan Castellani: Music publishing adjusted OIBDA grew 8% with a margin of 26, 8% a decrease of 270 basis points due to revenue mix.
Bryan Castellani: Turning to Capex, we saw $9 million decrease from the prior year quarter to $26 million due to the timing of tech investment.
Bryan Castellani: Operating cash flow decreased to a use of $31 million from a use of $6 million in the prior year quarter due to increased <unk> investment and timing of working capital items.
Bryan Castellani: Free cash flow decreased to a use of $57 million from a use of $41 million in the prior year quarter.
Bryan Castellani: Our goal continues to be to deliver operating cash flow conversion of 50 to 60% over a multi-year period, which we expect to achieve for full year 2024. As of March 31st, we had a cash balance of $587 million, total debt of $4 billion, and net debt of $3.4 billion.
Bryan Castellani: Our goal continues to be to deliver operating cash flow conversion of 50% to 60% over a multiyear period, which we expect to achieve for full year 2024.
Bryan Castellani: As of March 31, we had a cash balance of $587 million total debt of $4 billion and net debt of $3 4 billion.
Bryan Castellani: Our weighted average cost of debt was 4.5%, and our nearest maturity date remains 2028. In February, we announced a plan to deliver $200 million of annualized run rate cost savings by the end of fiscal 2025. The plan is proceeding according to schedule. We achieved modest cost savings in the quarter, the majority of which were reinvested into tech. Regarding BMG, we estimate the revenue impact to be in the range of $25 to $30 million in both Q3 and Q4, eventually rolling off completely in fiscal 2025. As a reminder, BMG's physical distribution will roll off in fiscal 2025.
Bryan Castellani: Our weighted average cost of debt was four 5% and our nearest maturity date remains 2028.
Bryan Castellani: In February we announced the plan to deliver $200 million of annualized run rate cost savings by the end of fiscal 2025.
Bryan Castellani: The plan is proceeding according to schedule, we achieved modest cost savings in the quarter, the majority of which were reinvested into attack.
Bryan Castellani: Regarding BMG.
Bryan Castellani: Estimate the revenue impact to be in the range of $25 million to $30 million in both Q3 and Q4 eventually rolling off completely in fiscal 2025.
Bryan Castellani: As a reminder, bmg's physical distribution will roll off in fiscal 2025.
Bryan Castellani: As we look ahead, Q3 is off to a solid start. As Robert mentioned, we are excited about our upcoming releases. The momentum in music in the business is strong, and we continue to position ourselves for long-term success, including delivering on our goals of healthy top line growth, margin expansion, and strong cash flow conversion on a consistent basis. Thank you to everyone for joining us today. We'll now open the call for questions.
Bryan Castellani: As we look ahead to Q3 is off to a solid start as Robert mentioned, we are excited about our upcoming releases.
Bryan Castellani: The momentum in music and the business is strong and we continue to position ourselves for long term success, including to deliver on our goals of healthy top line growth margin expansion and strong cash flow conversion on a consistent basis.
Speaker Change: Thank you to everyone for joining us today, we'll now open the call for questions.
Operator: As a reminder, to ask a question, you will need to press star 1 1 on your telephone. To remove yourself from the queue, you may press star 1 1 again. Please stand by while we compile the Q&A rock. Our first question... comes from the line of Benjamin Black, up to it.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: Move yourself from the queue you May press Star one again, please standby, while we compile the Q&A roster.
Speaker Change: Our first question.
Speaker Change: Comes from the line of Benjamin Black of Deutsche Bank.
Benjamin Thomas Black: Hey, good morning. Thank you for the questions. I have two.
Benjamin Thomas Black: Hey, good morning. Thank you for the questions I have two so Robert last quarter, Youre, obviously contemplating yet.
Benjamin Thomas Black: Form a bit but believes we've obviously since withdrawn your interest I'd be curious to hear sort of why that yields on the parts and also it'd be good to hear sort of where strategic M&A fits into your outlook.
Robert Kyncl: So, Robert, last quarter you were contemplating a bid, a formal bid for Belief. You've obviously since withdrawn your interest. I'd be curious to hear sort of why that deal fell apart. And also, it would be good to hear sort of where strategic M&A fits into your capital allocation hierarchy right now. And then secondly, you know, there appears to be quite a few developments on the pricing front. For example, Spotify is currently in the early innings of introducing a tiered structure with what at least appears to us to be a potential surcharge for audiobooks.
Benjamin Thomas Black: Allocation hierarchy right now and then secondly, there.
Benjamin Thomas Black: Quite a few developments on the pricing front.
Robert Kyncl: So, I guess the question is, you know, will Warner potentially benefit from that incremental surcharge, or is it more of a carve out? And relatedly, would their bundled offering, by your knowledge, at least qualify for lower mechanical rates as dictated by the CRB in the US?
Robert Kyncl: Thank you very much.
Robert Kyncl: Alright, thank you. So on belief, as I've mentioned on several earnings calls, we have a clear strategy for expanding our offerings to serve more artists across a wider array of their careers. And obviously, we are building against that. So we have our team working really hard, building all the right features that we need. But, as any other steward of a business, we always look for ways to accelerate. And because all of this work takes time, anytime there's an option in the market that allows us to accelerate our roadmaps, we will look at it.
Benjamin Thomas Black: We always look at ways to accelerate.
Benjamin Thomas Black: Because all of this work takes time.
Benjamin Thomas Black: Anytime there is an option in the market that allows us to accelerate our roadmaps, we will look at it.
Robert Kyncl: We pursued that with belief. This was a very unique situation because the timing was out of our control, the public nature of it was out of our control, and the, you know, extremely short time frame for diligence was out of our control. So, obviously, it played out publicly. We decided not to pursue it for a variety of reasons that I really can't go into.
Benjamin Thomas Black:
Speaker Change: Oh, we pursue.
Speaker Change: Pursue that with belief this was a very unique situation.
Speaker Change: Cause the timing was out of our control the public nature of it was out of our control and the extremely short timeframe.
Speaker Change: For diligence was our out of our control. So obviously played out publicly.
Benjamin Thomas Black: We and we decided to not not to pursue it for a variety of reasons that I really can't go into.
Robert Kyncl: But our strategy is to continue to look for opportunities that can augment our built strategy. And, you know, we continue to do that on pricing, an evolution of pricing, and especially as it relates to bundling. So first, what I would say is that bundling is generally good for a subscription business because it achieves two things. One, it tends to lower subscriber acquisition cost, and it tends to lower churn rate. So for platforms, it becomes a strong growth driver.
Benjamin Thomas Black: But our strategy is to continue to look for opportunities that can augment our build strategy.
Benjamin Thomas Black: And we continue to do that.
Benjamin Thomas Black: On pricing and evolution of the evolution of pricing and especially as it relates to bundling so first what.
Benjamin Thomas Black: What I would say is that bundling.
Benjamin Thomas Black: Is generally good for.
Robert Kyncl: And we've obviously had, you know, 50 years of very healthy television market through bundling. And if you look at many different sectors, you can see that. The job of wholesalers, like the music companies, like ourselves, is to ensure that the sanctity of our pricing across the different services, whether individual subscriptions, standalone subscriptions, or bundled offerings, are in line with each other.
Benjamin Thomas Black: Our subscription business.
Benjamin Thomas Black: Because at the Qis two things one it.
Benjamin Thomas Black: Tends to lower subscriber acquisition cost and it tends to lower churn rate. So.
Benjamin Thomas Black: So four platforms it becomes a strong growth driver and we've obviously had.
Benjamin Thomas Black: 50 years, so very healthy TV market through bundling and if you'll get many different sectors you can see that the.
Benjamin Thomas Black: The.
Benjamin Thomas Black: The the the job of a wholesale wholesalers like the music companies like ourselves is to ensure that the sanctity of our pricing across the different services, whether individual subscriptions standalone subscriptions or bundled offerings are in line with each.
Robert Kyncl: So you can expect us to pursue that strategy. As for what you were referring to, the CRB, which is a US-specific issue, I don't see it as something that will persist in the long term. I believe in global solutions. We're in a global business, all of us, and individual carve-outs in any markets don't, I think, play out well amongst parties that are tied at the hip and partners for the future. So I have a different point of view on that.
Benjamin Thomas Black: So you can expect us to pursue that strategy.
Benjamin Thomas Black: As it relates to as it relates to what you were referring to the CRB.
Benjamin Thomas Black: Which is a U S specific issue.
Benjamin Thomas Black: I I don't see see it as something that will.
Benjamin Thomas Black: Persistent or long term.
Benjamin Thomas Black: Believe in sort of global solutions.
Benjamin Thomas Black: We're in a global business all of us and sort of individual carve outs in any markets I don't think play out well amongst parties that are tied.
Benjamin Thomas Black: Tied at the hip and partners for the future. So.
Benjamin Thomas Black: Confident our point of view on that.
Bryan Castellani: And Ben, it's Bryan, and just to echo what Robert said on the capital allocation hierarchy, there's really no change there. As we've, you know, articulated before and we've walked you through our cascade, we continue to see plenty of runway on organic investment, which you continue to see in our artist signings and A&R investments, as well as as we continue to expand our publishing and catalog rights. You know, last year we acquired 10K, which was a smaller, inorganic acquisition, and, of course, we also continue to return capital via the dividend to shareholders.
Benjamin Thomas Black: And Ben it's Brian and just Echo what Robert said on the capital allocation hierarchy, there's really no change there as we've articulated.
Bryan Castellani: Articulated before and we've walked you through our Cascade, we continue to see plenty of runway on our organic investment, which you continue to see in our artist signings in and our investment as well as we continue to expand our publishing and catalog rights.
Benjamin Thomas Black: Last year, we acquired 10-K, which was a smaller inorganic acquisition.
Benjamin Thomas Black: And of course, we also continue to return capital via the dividend to shareholders as Robert said, it's our job to survey the market and if there is inorganic opportunities that will accelerate our initiatives will take those but I think we've always demonstrated to be good stewards financially.
Bryan Castellani: As Robert said, it's our job to survey the market, and if there's inorganic opportunities that will accelerate our initiatives, we'll take those, but I think we've always demonstrated to be good stewards financially, and we will continue to do that, and I think our interest and belief was well-founded in looking through our capital allocation hierarchy if it could accelerate it, but again, the unique nature of it led to the outcome, but no change there on capital allocation.
Benjamin Thomas Black: And we will.
Benjamin Thomas Black: Continue to do that and I think.
Benjamin Thomas Black: Our interest and believe was well founded and looking through our capital allocation hierarchy, if it could accelerate it but again the unique nature of it.
Benjamin Thomas Black: It led to the outcome, but.
Benjamin Thomas Black: No change there on capital allocation.
Benjamin Thomas Black: Very helpful. Thank you very much.
Speaker Change: That's very helpful. Thank you very much.
Speaker Change: Thank you.
Operator: Our next question comes from the line of Ben Swinburne of Morgan Stanley.
Speaker Change: Our next question.
Speaker Change: It comes from the line of.
Speaker Change: Ben Swinburne of Morgan Stanley.
Cameron: Hi, thanks. This is Cameron on behalf of Ben.
Speaker Change: Hi, Thanks. This is cameron on for Ben.
Cameron: You guys had previously described this year as it is a second half weighted year from our release slate perspective is that still your expectation as we look to the remainder of the year and does that translate into accelerating organic streaming growth over the next couple of quarters.
Robert Kyncl: You guys have previously described this year as a second half-weighted year from a release slate perspective. Is that still your expectation as we look through the remainder of the year? And does that translate into accelerating organic streaming growth over the next couple quarters?
Cameron: Then.
Speaker Change: And another one if I can.
Bryan Castellani: What, to the extent you can share with us, drove the de-sale and added emerging platform organic growth from last quarter to this quarter? I know you called out platform mix, but anything in addition to that that you could provide would be helpful.
Speaker Change: To the extent you can share with us drove the DSL and add an emerging.
Speaker Change: Emerging platform organic growth from last quarter to this quarter I know you called out platform mix, but any thing.
Speaker Change: In addition to that and that you can provide would be helpful. Thanks.
Cameron: Alright, I'll take the first, and Bryan will take the second. Thank you, Ben. So, we remain excited about our new music; we have lots of great content coming from the likes of Dua Lipa, who just released her album, Twenty One Pilots, Sia, Ghana, and so on and on and on. At the same time, we're also having great real-time success, which is amazing to see with Teddy Swims, Benson Boone, and Artemis.
Speaker Change: Alright, I'll take the first and then Brian will take the second.
Bryan Castellani: Thank you Ben.
Speaker Change: So.
Bryan Castellani: While we remain excited about our new music.
Bryan Castellani: We have lots of lots of great content coming from the likes of do all the box you just released their album 21 pilots and.
Bryan Castellani: And so on and on and on.
Bryan Castellani: At the same time also having a great real time success, which is amazing to see with that he swims spend some boon and Artemis.
Cameron: So we've been doing well with new music. The one thing that you should keep in mind is that we've now seen the full impact of the Spotify price increases in our results. And in the second half, we'll be lapping last year's price increases with the other DSPs, namely Apple and YouTube. But we're continually encouraged by subscriber growth as well.
Bryan Castellani: So that's so we've been doing well on the new music.
Bryan Castellani: The one thing that you should keep in mind is that we've not seen the full impact of the Spotify price increases in our results and in the second half, we'll be lapping last year's price increases with the other DSP, namely.
Bryan Castellani: Apple and Youtube, so, but we're continually encouraged by the subscriber growth as well.
Bryan Castellani: Cameron, it's Bryan. Just to maybe break down the quarter a bit and the overall recorded music streaming of 11% on a normalized basis. Within that, I would say two or three pieces accelerated. You saw subscriptions at 13.5% versus 12% in the prior quarter. And then, well, ad supported and emerging combined decelerated. We did see growth and an accelerating trend there in the traditional ad supported. Emerging markets can have some lumpiness based on deal timing, content delivery, as well as the mix of platforms.
Bryan Castellani: And Cameron, it's Brian just maybe break down the quarter a bit in the overall recorded music streaming of 11% on a normalized basis.
Bryan Castellani: Within that I would say two or three pieces accelerated.
Bryan Castellani: You saw subscription at 13, 5% versus 12 in the prior quarter and then well add supported an emerging combined decelerated, we did see a growth an accelerating trend there in the traditional AD supported emerging can have some lumpiness based on <unk>.
Bryan Castellani: Timing content delivery as well as mix of platforms.
Bryan Castellani: But again, underlying strength there in the core subscription streaming and the traditional ad-supported. And overall, I think you got to look at emerging. While there may be some lumpiness, we still believe it's a growing category. And so, over the long term, we expect it to continue to grow. That's helpful. Thanks, guys.
Bryan Castellani: Again, the underlying strength there in the core subscription streaming in the traditional AD supported and overall I think you've got to look at emerging while there may be some lumpiness as you know we still believe it's a growing category.
Bryan Castellani: So over the long term, we expect it to continue to grow.
Speaker Change: That's helpful. Thanks, guys.
Speaker Change: Yes.
Operator: Thank you. Now, our next question.
Speaker Change: Thank you.
Speaker Change: Our next question.
Batya Levi: comes from the line of Batya Levi of UBS. Great, thank you. Can you talk a little bit more about the initiative?
Speaker Change: It comes from the line of <unk> Levi of UBS.
Levi: Great. Thank you can you talk a little bit more about the initiatives to monetize Super fans. I think you had plans to launch an ads how how are you approaching the partnership with DSP Group. Please go ahead.
Speaker Change: Going direct in that.
Speaker Change: Thank you.
Robert Kyncl: Sure, thank you. Yeah, so we've been working on it. And it's well, well progressed. But nothing new to announce on that.
Speaker Change: That sharp thank you yeah. So.
Speaker Change: We've been working on it.
Speaker Change: And it's well well.
Speaker Change: Well progressed.
Speaker Change: But nothing new to announce on that.
Speaker Change: On partnership with DSP is the way, we think about this partnerships versus versus doing it ourselves.
Robert Kyncl: On partnership with DSPs, the way we think about these old partnerships versus versus doing it ourselves. The one, I think, unique insight with music is that, unlike other forms of creation, it's incredibly ubiquitous. If you're an artist, you want your content to be distributed as widely as possible across as many touchpoints. And therefore, it's very hard to optimize for any individual platform and try to anchor a superfan relationship in one place because your superfans are across many, many different platforms, which means I think we're naturally set up to be the right place to do this and do it cross-platform.
Speaker Change: The one I think unique insight with music is that unlike other forms of creation, it's incredibly incredibly ubiquitous.
Speaker Change: If you're an artist you on your content to be distributed as widely as possible across as many touch.
Speaker Change: Touch points and therefore, it's very hard to optimize for any individual platform.
Speaker Change: And tried to anchor.
Speaker Change: Superfan relationship it in one place because youll super funds are across many many different platforms, which means.
Speaker Change: I think we're naturally.
Robert Kyncl: And then we can always partner with the DSPs, but through the offering that we have. But I just think it's the absolutely ubiquitous nature of music and finding super plans across all of those, but you can't optimize for any single place, any single platform. Therefore, it has to be a controlled solution.
Speaker Change: Set up to be the right place to do this and do it cross platform and then we can always partner with the dsp's, but through the offerings that we have but I just think its the absolutely ubiquitous nature of music.
Speaker Change: And and finding super fans across all of those but you can optimize for any single place.
Speaker Change: In a single platform and therefore.
Speaker Change: It has to be a controlled solution.
Batya Levi: Thank you.
Speaker Change: Alright, thank you.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question.
Operator: comes from the line of Kutgun Maral of Evercore ISI. Kutgun, your line is open. Please make sure your line isn't muted, and if you're on a speakerphone, lift your hands, or go to the next question. Our next question comes from the line of Michael Morris of Guggenheim Security.
Speaker Change: It comes from the line of cut gun morale.
Speaker Change: Evercore ISI.
Speaker Change: Yeah.
Speaker Change: Evercore Your line is open.
Speaker Change: Yeah.
Evercore ISI: Please make sure your line is immediate lithium a speakerphone lift your handset.
Speaker Change: Well go to the next question.
Speaker Change: Yeah.
Speaker Change: Uh huh.
Speaker Change: Our next question.
Speaker Change: Comes from the line of Michael Morris of Guggenheim Securities.
Michael C. Morris: Thank you. Good morning.
Michael C. Morris: Thank you good morning, I had two.
Michael C. Morris: Two topics if I can.
Michael C. Morris: First I wanted to follow up on the question about pricing changes.
Michael C. Morris: Modified in particular.
Michael C. Morris: I have two topics, if I can. The first is the question about pricing changes at Spotify, in particular. As you see the pricing changes that they have announced right now and the structure of those price changes, do you expect to participate in the incremental revenue that's being generated from the new pricing plans? Or do you see it as all specifically earmarked for their audiobook product that is part of a pool that you don't participate in?
Michael C. Morris: And as you see the pricing changes that they have announced right now and the structure of those price changes do you expect to participate in the incremental revenue that's being generated from the new pricing plans, where do you see it as a specifically earmarked for their audio book product.
Michael C. Morris: As part of a pool that you don't participate in.
Michael C. Morris: Also do you think that this change by Spotify is sort of representative.
Michael C. Morris: And also, do you think that this change by Spotify is sort of representative of another leg of the cycle of pricing, Robert, that you've spoken about in the past? How do you, I don't know if you could expand on this a little bit, but how do you ensure that this creates a pipeline to sort of deeper artist relationships that you can progress on as opposed to offering a service that just kind of sustainably meets artists' needs in kind of a less revenue- or less profit-generating manner?
Michael C. Morris: Of another leg of the cycle of pricing Robert that you've spoken about in the past.
Michael C. Morris: Is helping to close that gap between the intrinsic value of music and and the current price point.
Michael C. Morris: And then second I wanted to ask about the lower touch services that you <unk>.
Michael C. Morris: References developing.
Michael C. Morris: How do you I don't know if you could expand on this a little bit but how do you ensure that this creates a pipeline sort of deeper artist relationships that you can progress on as opposed to offering a service that just kind of sustainably meets artist needs and kind of a less revenue or less profit generating manner.
Robert Kyncl: Thanks. Thank you. Okay, so on the first one...
Robert Kyncl: Okay, so on the first one, so first, what I would say is that we had 15 years of no price action by anyone, including myself, and I was. And so it is amazing to see that, A, we have price increases, and we can actually, on an earnings call, say words like, "We're now lapping the one-year anniversary of a price increase." I mean, I just want to make sure it doesn't go unnoticed because it hasn't existed for 15 years.
Speaker Change: Thank you.
Speaker Change: Okay. So on the first one.
Speaker Change: So first what I would say is that we had 15 years of no price action by anyone.
Speaker Change: And myself and I will let you do right.
Speaker Change: And so it is amazing to see that a we have price increases that we actually kind of on an earnings call say awards like we're now lapping one year anniversary of our price increase I mean, I I just want to make sure. It doesn't go unnoticed because it has not existed for 15 years, So amazing that's happening.
Robert Kyncl: So, amazing that that happened. Two, I think as services are growing and thinking through their pricing strategies, obviously, this indicates that they're thinking about it super hard. They're coming up with all kinds of different solutions, and bundled solutions are part of that suite. So I think all of that is good news. As I mentioned before, I think we, the music companies, have to make sure that the sanctity of our pricing is upheld correctly, and that that pricing also keeps on moving up all the time. In fact, not all the time, but at the appropriate steps.
Speaker Change: Two I think our services are growing and thinking through their pricing strategy. Obviously this indicates that they're thinking about it is super hard.
Speaker Change: They're coming up with all kinds of different solutions and bundled solutions are part of that that suite.
Speaker Change: So I think all of that is a good news.
Speaker Change: The.
Speaker Change: What.
Speaker Change: As I mentioned before I think we the music companies have to make sure that the sanctity of our pricing is upheld correctly and that pricing also keeps on moving up all the time.
Speaker Change: Oh I'm talking about all the time.
Speaker Change: You know at the appropriate steps, but it doesn't mean that they wouldn't be higher priced bundled offerings.
Robert Kyncl: But it doesn't mean that there wouldn't be higher-priced bundled offerings that are allocated for those additional content providers. So, I think all of this is, you know, the right direction, the right things that our partners are focused on. There may be bumps in the road along the way, obviously, right? It's playing out with the CRB thing, but
Speaker Change: That are allocated for those additional content providers, but that also benefits us because now there is a bundled offering now there is a single offering and as long as we price it correctly ourselves we will benefit. So so I think all of this is.
Speaker Change: The right direction right things that our partners are focused on there may be bumps in the road along the way obviously rate is playing out with the CRB thing, but this is this is good news in my opinion to push forward.
Robert Kyncl: This is good news, in my opinion, to push forward. On the second question, the lower-touch services, I think it's important to realize that there are artists who are getting started at many different stages of their careers. Somebody has no following, and somebody has a bigger one.
Speaker Change: On the second question the lowered.
Speaker Change: Lower touch lower type of services I think it's important to.
Speaker Change: Realize that there are artists or getting started.
Speaker Change: You know that many different stages of their care. If somebody has no no. Following a number if somebody has a bigger one and it's important for us to effectively.
Robert Kyncl: And it's important for us to effectively widen the net in which we can work with artists and find great talent. So it's basically about the deal flow, if you really put it in business terms. And I think the thing that we're focused on is to make sure that we don't simply just follow the model where we have more shots on the goal but the same sort of, I'm going to mix up two sports analogies, we'll say batting average, but that we also actually are making money from the shots on the goal, that we actually run the business more profitably across these offerings.
Speaker Change: Guidance than that.
Speaker Change: And which we can work with artists and find the right talent.
Speaker Change: So it's really it's basically about the deal flow if you really put it in business terms and and I think the.
Speaker Change: The thing that we're focused on is to make sure that we we don't simply just follow the model, where we have more shots on the goal, but the same sort of economics to sports analogies, but same batting average.
Speaker Change: But.
Speaker Change: We also actually are making money from the shots on the goal that we actually run the business more profitably across our across these offerings and so I think that's what your question was getting up and that is exactly the intent that we want to make sure that we're building things in a way that its technology dependent that is providing opt.
Robert Kyncl: And so I think that's what your question was getting at, and that is exactly the intent. We want to make sure that we're building things in a way that it's technology-dependent, that it's providing operating leverage, and that not only do we get more shots on the goal, but we also improve our odds overall and have a profitable relationship and a mutually beneficial relationship with all of the artists.
Speaker Change: <unk> leverage and that not only would get more shots on the goal, but also improve our.
Speaker Change: Our auto overall and in and have a profitable relationship and mutually beneficial relationship with all of the orders in the system.
Speaker Change: Yeah.
Speaker Change: Thank you I appreciate it.
Speaker Change: Yeah.
Speaker Change: Thank you.
David Karnovsky: Our next question comes from the line of David Konofsky of J.P. Morgan.
Speaker Change: Our next question comes from the line of David Karnofsky of J P. Morgan.
David Karnovsky: Hi, thank you for the questions. Robert, you noted in the quarter the contribution from the shallow and deep catalog to results. If you follow up on this, you know, abstinent artists putting out a new album, what are some tools you have to kind of drive increased engagement with your older content? And then separately looking at Universal and TikTok's announcement, there's a lot of lip service paid to potential protections around AI and then also co-development of tools to enable creativity. Just wanted to follow up here. Does this agreement mean anything incremental for WMG and your ability to make gains on this front?
David Karnofsky: Alright, Thank you for the questions Rob.
David Karnofsky: Robert you noted in the quarter the contribution from shallow and deep catalog to results maybe following on this option and artist.
David Karnovsky: Could I actually ask you to repeat the first question? I couldn't really capture it.
David Karnofsky: Putting out a new album, what are some tools you have to kind of drive increased engagement with your older content.
David Karnofsky: And then separately looking at.
David Karnofsky: Universal and Tic Toc and Theres a lot of lip service paid to potential protections around AI and then also co development of tools to enable creativity.
David Karnofsky: Just wanted to follow up here does this agreement mean anything incremental for WNS.
David Karnofsky: Your ability to make gains on this front.
Speaker Change: Greg can I actually ask you to repeat the first question I Couldnt really capture it.
David Karnovsky: Sure. It was just a follow-up on your comments around the shallow and deep catalog and what tools you have at your disposal absent an artist putting out a new album to drive more engagement with older content. Okay. Thank you. All right, so on the first one.
David Karnofsky: Sure.
Greg: It was just a follow up on your comments around the shallow and deep catalog and what tools you have in your disposal option and artist putting out a new album to drive more engagement with older contents.
Robert Kyncl: Oh, got it. Okay, thank you. All right, so on the first one...
Greg: Oh got it okay. Thank you.
Speaker Change: So on the first one.
Robert Kyncl: This has actually been an area of focus for us for quite some time, and the best way to think about this is that obviously, the catalog is a tremendous wealth that we have. It's something that continues to grow, pay dividends, and and it's it's just an incredible resource for us and uh, when you think about where the vast majority of the revenue is coming from its digital distribution. Therefore, if we want to increase the performance of Catalog, we have to make sure that we optimize all of our titles across all of our main DSPs.
Speaker Change: This has actually been an area of focus for us.
Speaker Change: For quite some time.
Greg: And the best way to think about this is that obviously catalog is has is a tremendous wealth of.
Greg: That we have it's a it's something that continues to grow.
Greg: You know pay dividends and.
Greg: It's just an incredible resource for us and.
Greg: When you think about where the vast majority of the revenue is coming from its digital distribution.
Greg: Therefore, if we want to increase the performance of catalog, we have to make sure that we optimize all of our titles across all of our main Dsp's and now this sounds very very simple set that way, but when you. When you think about the size and scale of our catalog, it's a very very difficult task and it's one.
Robert Kyncl: And now this sounds very, very simple said that way, but when you think about the size and scale of our catalog, it's a very, very difficult task. And it's one that you can't only do with people because the number of SKUs is simply too high.
Greg: That you can't only do with people because the number of Skus, it's simply too high.
Robert Kyncl: So we have a project on this across our technology team and our business team to basically move down through the entire catalog and make sure it's properly optimized for streaming on every single large DSP. So it's a very sort of methodical approach, and all of this augments our marketing campaigns against catalogs, which we have done in the past, which we continue to do, and we're applying more and more frontline-like focus on catalog titles, and that's also yielding results.
Greg: So we have a we have a project on this across our technology team and our business team to to basically move down through the entire catalog and make sure it's properly optimized for streaming and on on every single large DSP. So.
Greg: So it's a very sort of methodical approach that and all of this augment our marketing campaigns against the catalog.
Greg: Which we have done in the past, which we continue to do and we're applying more and more frontline like focus on catalog titles and that's also yielding results. So it's kind of like a two pronged approach one which is very very scaled and then the other one which is very high touch where we select what do we what do we push.
Robert Kyncl: So it's kind of like a two-pronged approach, one which is very, very targeted, and then the other one which is very high-touch where we select what we push. On the second part of UMG TikTok, obviously, I have no details about their business. So I can't really comment on it at all, other than what I can say is that I'm pleased that they reached an agreement. And, you know, as I said at the Morgan Stanley Conference, I think on stage with Ben Swinburne, and I think Lucien also said the same thing recently, which is that this category is still very much in the early stage of evolution, and we need to stay vigilant to make sure that it's driving creative growth for
Greg: On the.
Greg: Second part on UMC picked up obviously I have no details about their business. So I can't really comment on on it at all other than what I can say is that I'm pleased that they reach an agreement.
Greg: And.
Greg: As I said that there.
Greg: The Morgan Stanley Conference I think on stage with Ben Swinburne, and I think Lucy and also.
Greg: Set the same thing recently, which is this category is still very much in the early stage of evolution and we need to stay vigilant to make sure that it's.
Greg: Driving accretive growth to our companies.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question.
Operator: comes from the line of Stephen Laszczyk of Goldman Sachs.
Speaker Change: It comes from the line of Stephen at last check of Goldman Sachs.
Stephen Laszczyk: Hey, great. Thanks for taking the questions. Bryan, on margins, I was curious if there's any help you could give us on the expected pace of margin expansion this year, just as we see some of the cost efficiencies flow through the income statement and how that's comparing, you know, versus the rate at which you can reinvest. Any help there would be great.
Stephen: Hey, great. Thanks for taking the questions Bryan on margins I was curious if there's any help you could give us on that I expect the pace of margin expansion this year.
Stephen: As we see some of the cost efficiencies flowing through the income statement.
Speaker Change: And how that's comparing versus that.
Bryan Castellani: The rate at which you can reinvest any help there would be great and then maybe just on the market for music rights would be curious if you could give us an update on what youre seeing in that market. It feels like there is hope that the bid ask well get closer as rates came down.
Bryan Castellani: And then maybe just on the market for music rights, we'd be curious if you could give us an update on what you're seeing in that market. It feels like there is hope that the bid-ask will get closer as rates come down, but that, you know, appears that that might not be the case at this point. Just curious what you're hearing on that front. Thank you.
Bryan Castellani: It.
Speaker Change: It appears that that might not be the case at this point just curious what you're hearing on that front. Thank you.
Robert Kyncl: Stephen, thanks, Bryan. On margin, and you know, as we say, we remain focused on our three goals of healthy top line, margin expansion, cash flow conversion. We did call out and reiterate the cash flow conversion this quarter, just knowing that Q2 is Seasonally a quarter where with timing of receivables and payments and deal timing that we do have low low cash conversion and on margin again, we're As we look out over the year and I think you got to look at that over the course of a year Rather than quarter to quarter there will be lumpiness and margin again based on timing slate deals as well as just internal efficiencies, so You know, we remain focused on it We don't guide quarter to quarter, but I think you can look over the long term and know we're focused on
Speaker Change: Steven Thanks, Brian on margin.
Steven: We say we remain focused on our three goals of healthy top line margin expansion cash flow conversion, we did call out and reiterate the cash flow conversion. This quarter, just knowing that Q2 is seasonally a timing a quarter with timing of receivables and payments and deal timing.
Steven: That we do have low a low cash conversion and on margin again, we're as we look out over the year and I think you've got to look at that over the course of the year rather than quarter to quarter. There will be lumpiness in margin again based on timing slate deals.
Speaker Change: As well as just our internal efficiencies. So you know we remain focused on them, we don't guide quarter to quarter, but I think you can look over the long term and we're focused on.
Bryan Castellani: And on the content rights market, I think the first or second question was around capital allocation and M&A, etc., and Bryan answered by saying, look, we're looking at lots of different content rights, as well as technology solutions that augment our built-in house roadmap. And on the content rights piece, there are a lot of opportunities. The pipelines of deals that we're maintaining are pretty significant. It is more than we can even afford today.
Speaker Change: Yeah, and then and on the content rights market.
Speaker Change: As we I think our.
Speaker Change: First the second question was around capital allocation, and M&A et cetera, and Brian answered then, saying look we're looking at Oh lots of different content rights as.
Speaker Change: As well as technology solutions that augment our built in house roadmap.
Speaker Change: And on the content rights piece, there's a lot of opportunities the pipelines of deals that we're maintaining our produce significant.
Bryan Castellani: And therefore, we're very diligent about what we go after and the returns that we can yield from that. And it's all around the world. So there are lots of different opportunities, and we expect those to continue and perhaps even increase because there have been many buyers in the past who may need to make changes in their portfolio. Yeah, and Stephen, I would just add to that.
Speaker Change: It is more that we can even afford today and.
Speaker Change: And therefore, we're very diligent.
Speaker Change: Diligent about where do we go after and the returns that we can yield from that.
Speaker Change: And it's and it's all around the world. So there are lots of different opportunities and we expect those to continue and perhaps even increase because.
Speaker Change: There've been many buyers in the past who may need.
Speaker Change: We need to make changes in their portfolios yes.
Stephen Laszczyk: Yeah, and Stephen, I would just add to that. There's a bit of a double-edged sword there in terms of, you know, higher rates, making it more rigorous. But I think you're also seeing a maturation or rationalization across buyers in the market. But also, you know, the interest and the pricing just speak to the value of music, and I think it's just an attractive space. So, you know, as Robert said, we still see runway there and our ability to invest.
Speaker Change: Yes, and Stephen I would just add to that I mean, there's a bit of a double edge sword. There in terms of you.
Speaker Change: You know higher rates, making it more rigorous I think youre also seen a.
Speaker Change: The maturation of rationalization across buyers in the market.
Speaker Change: But also that.
Speaker Change: The attractive.
Speaker Change: The interest and the pricing just speaks to the value of music and I think it's just an attractive space and so are you now as Robert said, we still see runway, there and our ability to invest.
Speaker Change: Got it thank you Beth.
Robert Kyncl: Okay, so I think that's all the questions. Really appreciate your time. Thank you for all your questions, and please... Do not forget to go to your favorite DSP and listen to Randy Travis and his song Where That Came From, which was generated with AI, with Randy's permission, with his entire life. And it's just a wonderful, wonderful collaboration and example of what's possible with AI.
Speaker Change: Okay. So.
Speaker Change: I think that's a that's it for with all the questions really appreciate your time. Thank you for your questions and please do not forget to go to your favorite DSP and.
Speaker Change: Yeah listen to Randy Travis and his song where that came from which was generated with AI with randy's permission with his producer from his entire life and it's just a wonderful wonderful collaboration an example of what's possible with AI.
Speaker Change: Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: [music].
Speaker Change: Thank you Brandon.
Speaker Change: Okay.
Speaker Change: Yes.