Q3 2024 Warner Music Group Corp Earnings Call

Speaker Change: Don't know who you think that you're confusing I be like, ooh, it's amusing You think I'm gonna fall for an illusion It's amusing, it's amusing, it's amusing, it's amusing, I be like, it's amusing, it's amusing, it's amusing, it's amusing Illusion, I really like the way you're moving Yeah, I just wanna dance with the illusion Yeah, I just wanna dance with, yeah, I just wanna dance with, I could play the song all day

Operator: References to Normalized Revenue and Adjusted OEBDA are adjusted for items that impact comparability. The details of these can be found in our file. 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 forward-looking statements is contained in our filings with the SEC.

Speaker Change: 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 is a reasonable basis for them.

Speaker Change: 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 that differ materially from our expectations.

Speaker Change: Let's turn to Q3 results.

Speaker Change: As a result, Q3 total revenue increased 1%, with recorded music decreasing 1%, and music publishing increasing 9%.

Speaker Change: On a normalized basis, total revenue grew 3%, with recorded music up 1% and music publishing up 12%.

Speaker Change: Total Adjusted OEBDA increased 8% with margin growth of 130 basis points. On a normalized basis, Total Adjusted OEBDA grew 10% with margin increasing 120 basis points.

Speaker Change: As you may have seen, last week we announced organizational changes in our recorded music business.

Speaker Change: We have a deep bench of executors.

Speaker Change: Going forward, we'll be organized into four major regions in recorded music, each overseen by a talented leader who will report directly to me.

Speaker Change: 2. We'll be compounding our strength in the United States, the world's biggest music market, by organizing our front-line labels into two groups.

Speaker Change: At the same time, there will be changes at the top of Atlantic Music Group.

Speaker Change: as we grow the label's outstanding reputation.

Speaker Change: And three, we'll be strengthening our central operations in order to maximize our worldwide impact and provide operating leverage across the entire organization.

Speaker Change: We're making changes from a position of strength, and I'm happy to say that we're firing on all cylinders across new releases, catalog, distribution, and publishing.

Speaker Change: For decades one of the hallmarks of WMG's success has been our focus on artist development, building careers from the ground up.

Speaker Change: And this remains true today. So far in 2024, WMG has more new artists debuting on the Spotify Global Top 10 than any other music company.

Speaker Change: And many of them are homegrown successes, signed very early in their careers, including Artemis, Benson Boone, Teddy Swims, and many others.

Speaker Change: Meanwhile, our recent successes include blockbuster albums from Megan Thee Stallion and Gunna, who both were number one in the U.S., Dua Lipa, who reached number one in numerous countries including the U.K., Spain, and France.

Speaker Change: Her sixth studio album, Brat, has received rave reviews and spawned Brat culture.

Speaker Change: The pop sensation of the summer, with many influencers, celebrities, and even politicians joining in.

Speaker Change: Globally, we've had dozens of massive hits across multiple regions, including Capo Plaza, Baby Gang, and Rosevillain in Italy.

Speaker Change: S.C.H. and Soprano in France, Mike Towers in Mexico and Spain, and Charlie Zhao in China.

Speaker Change: As we help artists develop loyal fanbases, each new hit drives an uptick in their catalogue.

Speaker Change: And when we amplify and extend that halo effect, it builds the stickiness that transforms hits into evergreen, deep catalogue.

Speaker Change: It more than doubled the streams across the bands in the higher body of work that week.

Speaker Change: Recent developments include a global distribution deal with regional Mexican label Elegante Records and a partnership with Brazil's Suave Musica.

Speaker Change: In music publishing, Warner Chappell's impressive run continues.

Speaker Change: And we're seeing an increasing number of artists who want to partner with us across both recorded and publishing rights.

Speaker Change: There is power in having a unified global team supporting every aspect of their careers and catalogues, and it's true for everyone from legends like David Bowie and Tom Petty to current stars like Teddy Swims and Lizzo.

Speaker Change: Amy Allen is also in a spectacular hot streak as she co-wrote Sabrina Carpenter's summer smash Please Please Please and Espresso.

Speaker Change: A powerful example of our ecosystem in action is Benson Boone, the breakout star of the year, who signed with us for both recorded music and publishing.

Speaker Change: Benson was first discovered by Warner Chapel, who worked closely with him to hone his songwriter skills.

Speaker Change: Supported by a targeted strategic artist development plan, his single Beautiful Things became a global smash, topping the charts in over a dozen countries and holding the number one spot on the Billboard Global 200 chart for seven weeks.

Speaker Change: It was also the first record released in 2024 to hit 1 billion streams.

Speaker Change: keeping it in the top 10 of the Billboard Hot 100 for 24 of the last 27 weeks.

Speaker Change: I note that investor attention has recently been focused on the dynamics between the labels and the DSPs, with some speculating that we're adversaries playing a zero-sum game. That's simply not the case.

Speaker Change: We're actively engaged with our partners around ways to drive growth for all of us.

Speaker Change: On the AI front, as I told you last quarter, I testified at the Senate Judiciary Committee hearing in April on the needs for deepfake legislation.

Speaker Change: This act strikes the right balance between propelling the next wave of technology-powered creativity while safeguarding every American's right to control the use of their own image and voice in the age of AI.

Speaker Change: We're closing the year with great new music coming from Coldplay, David Guetta, Benson Boone, Mike Towers, Cyril, Fred again, Diljit Donsaiz, and many others.

Operator: And with that, I'll turn it over to Robert.

Brian: Now, here is Bryan.

Brian: Thank you, Robert, and good morning, everyone.

Robert Kyncl: Kareem, good morning everyone, and thank you for joining us, for strengthening our global presence and for improving efficiency to drive the business forward. Subscription streaming was strong, accelerating to 14% on a normalized basis, driven by improved performance as well as subscriber growth and price increases. This impressive performance was offset by the effects of a softer ad market and challenging comparisons in both artist services and physical revenue. As a result, Q3 total revenue increased 1%, with recorded music decreasing 1% and music publishing increasing 9%. On a normalized basis, total adjusted OEBDA grew 10%, with margin increasing by 120 basis points.

Robert Kyncl: He's agreed to stay on until the end of our fiscal year on September 30th, and after that, he'll remain an advisor through the end of January. We have a deep bench of executives, and they will be compounding our strength in the United States. Warner Records, which is on an incredible run with chart-topping artists such as Zach Ryan and Benson Boone, will expand its responsibilities to oversee Warner Music National. Atlantic Music Group, which already includes Atlantic Records and 300 Electra Entertainment, will now also encompass the recently acquired 10K Project.

Bryan: And where appropriate, I will reference normalized growth metrics.

Bryan: include the previously disclosed BMG digital revenue roll-off, which was $25 million unfavorable in the quarter.

Speaker Change: and the renewal with one of our international digital partners, which was $3 million unfavorable this quarter.

Speaker Change: Additionally, the CRB rate increase provided a $7 million benefit to Music Publishing Digital Revenue in the prior year quarter.

Speaker Change: In Q3, total revenue grew 1% and adjusted OEBD increased 8%, with a margin of 20.3%, an increase of 130 basis points over the prior year quarter. On a normalized basis,

Robert Kyncl: She will take on a new role as chairman, with Elliot Grange coming in as CEO, as we grow the label's outstanding reputation. As a result, the heads of Global Catalog, Marketing, WMX, and ADA will directly report to me.

Robert Kyncl: When you take these three things together, I am confident that over time, we'll become both more effective... Our new structure better reflects the fast-moving nature of cultural trends across new releases, catalog, distribution, and publishing. So far in 2024, WMG has more new artists debuting on the Spotify Global Top 10 than any other music company. Benson Boone, Teddy Swims, and many others. Dua Lipa, who reached number one in numerous countries, including the UK, Spain, and France, as we help artists develop loyal fanbases.

Robert Kyncl: It builds the stickiness that transforms hits into evergreen, deep catalogues. As one example, Twenty One Pilots released their latest album Clancy, and it more than doubled the streams across the bands in the higher body of work that we do. We continue to reinvigorate our entire catalog, which extends back over seven decades and includes legendary artists such as the Eagles, Fleetwood Mac, Prince, Joni Mitchell, Ray Charles, The Doors, and Tracy Chapman, among many others.

Robert Kyncl: Recent developments include a global distribution deal with regional Mexican label Alegante Records and a partnership with Brazil's SUAM Music, and current stars like Teddy Swims and Lizzo, both of which hit number one on the Billboard Hot 100. Benson was first discovered by Warner Chapel.

Robert Kyncl: It was also the first record released in 2024 to hit 1 billion streams, demonstrating how we can help turn dreams into careers and build lasting value in partnership with genuine talent. While some have speculated that we are adversaries playing a zero-sum game, that's simply not the case. Streaming dynamics remain healthy, with plenty of headroom for subscriber growth in both established and emerging markets across multiple partners.

Speaker Change: Total revenue grew 3% and adjusted OEBRA increased 10%.

Operator: Thank you, Robert, and good morning, everyone. And, where appropriate, I will reference normalized growth methods. The items affecting Recorded Music Streaming Revenue Comparability and the renewal with one of our international digital partners, which was $3 million unfavorable this quarter. Total Revenue grew 3%, and Adjusted OIBRA increased 10%. Recorded music revenue declined 1% and grew 1% on a normalized basis, while streaming revenue grew 10%. Artist Services and Expanded Rights revenue decreased 26%.

Speaker Change: Streaming revenue grew 10%, with subscription streaming growth accelerating to 14%, while ad-supported revenue increased 1%. The improvement in subscription growth was driven by subscriber growth and price increases.

Speaker Change: Physical revenue decreased 4% due to the timing of releases and strong U.S. physical releases in the prior year quarter.

Speaker Change: Artist Services and Expanded Rights Revenue decreased 26%.

Operator: Forgong revenue related to the previously announced exit from our owned and operated media property. Recorded music adjusted OEBDA increased 8%, with a margin of 22.5%, an increase of 190 basis points. On a normalized basis, Adjusted OEBD increased 9% and Margin increased 160%. Music publishing continues to deliver strong results, with revenue growth of 9% or 12% on a normalized basis driven by streaming, performance, and sync revenue. Digital revenue increased by 7% or 11% on a normalized basis.

Speaker Change: and forgone revenue related to the previously announced exit from our owned and operated media properties.

Speaker Change: Licensing revenue decreased 1%, driven by increased revenue from copyright infringement settlements in the prior year quarter.

Speaker Change: Music publishing continues to deliver strong results, with revenue growth of 9% or 12% on a normalized basis, driven by streaming, performance, and sync revenue.

Speaker Change: Digital revenue increased by 7% or 11% on a normalized basis.

Operator: Streaming revenue increased by 8% or 12% on a normalized basis, reflecting continued market growth, continued investment in and the expansion of our catalog, and timing of payment. Performance revenue increased by 33% due to an increase in touring activity outside the U.S. and an increase in U.S. radio airplay. Mechanical revenue decreased 19% due to lower physical sales.

Speaker Change: Streaming revenue increased by 8% or 12% on a normalized basis, reflecting continued market growth, continued investment in and the expansion of our catalog, and timing of payments.

Operator: Music Publishing adjusted OEBDA grew 8% with a margin of 26.2%, an increase of 10 basis points. Operating cash flow conversion was 59% of adjusted OEB. We remain on pace to achieve our 50-60% multi-year target for the full year. As of June 30th, we had a cash balance of $607 million, total debt of $4 billion, and net debt of $3.4 billion. Our weighted average cost of debt was 4.5%, and our nearest maturity date remains 2028.

Speaker Change: Music publishing adjusted OEBDA grew 8% with a margin of 26.2%, an increase of 10 basis points.

Speaker Change: On a normalized basis, Adjusted OEBDA increased 11%. Merge and increased 20 basis points.

Speaker Change: Total operating cash flow increased 29% to $188 million from $146 million in the prior year quarter. Operating cash flow conversion was 59% of adjusted OEBIT.

Speaker Change: We remain on pace to achieve our 50-60% multi-year target for the full year.

Operator: As we look ahead, we continue to estimate the roll-off from BMG Digital Distribution. Looking at Q4, we see continued strength in subscription streaming revenue, while in ad-supported revenue, we expect challenging comparisons to the prior year quarter. As we approach the two-year anniversary of our existing metadeal, we want to flag that they will no longer be making premium music videos available to their users. This change to META's offering will result in a revenue impact of approximately $10 million per quarter across both recorded music and music publishing, which will start to impact us in Q4. We look forward to delivering exciting new music in the quarters to come.

Speaker Change: will be in the range of $25 to $30 million in Q4. Looking to Q4, we see continued strength in subscription streaming revenue, while in ad-supported revenue we expect challenging comparisons to the prior year quarter.

Speaker Change: As we approach the two-year anniversary of our existing MetaDeal, we want to flag that they will no longer be making available premium music videos to their users.

Speaker Change: This change to META's offering will result in a revenue impact of approximately $10 million per quarter across both recorded music and music publishing, which will start to impact us in Q4.

Speaker Change: We continue to be excited about the portfolio of emerging streaming platforms and expect this category to be a driver of long-term growth.

Operator: Thank you for joining us today. We'll now open the call for questions. Thank you, ladies and gentlemen. If you have a question...

Operator: If your question has been answered and you wish to remove yourself from the queue, please press star 11 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Kutgun Maral with Evercore ISI. Your line is open.

Kutgun Maral: Good morning, and thank you for taking the questions. Two, if I could.

Speaker Change: Subscriber growth at certain DSPs. I know you've touched on a number of opportunities for the industry and WMG and called out continued strength into Q4, but is there any more you can share on the trends you're seeing at recorded music, subscription streaming, and the outlook ahead?

Speaker Change: I know it's early days, but any thoughts on how these moves might impact the financials over the coming years? Thank you.

Speaker Change: Thank you for the question. I appreciate it. And good morning. So first, on the streaming market.

Operator: First on subscription streaming, some of your peers have called out pressure points on the streaming outlook as it relates to a slowdown in subscriber growth at certain DSPs. I know you've touched on a number of opportunities for the industry and WMG and called out continued strength into Q4, but is there any more you can share on the trends you're seeing in recorded music subscription streaming and the outlook ahead? And second, on the recorded music reorg, it's sometimes hard for us on the outside to appreciate the implications of these decisions and how they might impact the business.

Speaker Change: Two, we're not seeing any change in our revenue mix. So, you know, I'd like to... We have always cautioned...

Operator: Robert, you called out a number of items that you hope to achieve to ultimately become more effective and efficient in the ways that you serve artists. I know it's early days, but any thoughts on how these moves might impact the finances over the coming years? Thank you.

Speaker Change: Very encouraged and deeply engaged together, obviously, with our teams, with our DSP partners, around four things to drive growth. First one is obviously the continued growth between emerging and established markets and taking different approaches within those.

Speaker Change: to price optimization, which includes family plans and various pricing increases.

Speaker Change: 3. The Evolution of Royalty Models. You know how the pie is divided.

Speaker Change: and 4.

Speaker Change: I'll just, you know, I'll repeat the three things, which is...

Speaker Change: The flatter organizational structure allows us to really lean into the global nature of the business, which has accelerated overall. There are only a handful of companies in the world that can do what we do, which is...

Speaker Change: to take local stars and make global stars.

Brian: Kutgun, it's Bryan, and Robert took the words out of my mouth on the second part of that, but on the first part of that, just to reiterate what we believe is the health, resiliency, and growth of the industry. We continue to see pretty consistent growth across our handful of top DSPs.

Brian: Certainly led by subscriber growth and that rising tide, but as well as price to a lesser extent, and underpinned by, as Robert pointed to, a number of new releases and carryover from prior ones that a strong slate gave us momentum in this quarter.

Speaker Change: Our next question comes from Cameron Manson Perron with Morgan Stanley . Your line is open.

Robert Kyncl: Thank you for the question, I appreciate it, and good morning. So, first on the streaming market.

Robert Kyncl: 2, we're not seeing any change in our revenue. So, you know, I'd like to, as we have always cautioned, I am very encouraged and deeply engaged together, obviously, with our teams, with our DSP partners, around four things to drive growth. The first one is obviously the continued growth between emerging and established markets and taking different approaches within those. 4, Warner stands at the precipice of audience segmentation with adding non-music content to the music offering and through that improving the underlying subscriber acquisition and retention metrics which drive the overall business forward, which has obviously played out really well in many other industries, of all

Speaker Change: If we start to enter a world where there's a meaningful divergence across DSPs in terms of how well they're monetizing streaming users, how does that impact your approach or mentality?

Speaker Change: Obviously a couple of lawsuits.

Speaker Change: I think generally diversity is good. I know you're using the word divergence and I use diversity but it really means the diversity of approaches.

Speaker Change: As long as there is a strong demand in the industry because people obviously chase growth.

Speaker Change: So, I'm not worried about that, I welcome it, and experimentation is good, and sometimes you win, and sometimes you lose, but you have to focus on the long term and...

Speaker Change: YouTube, Spotify, etc., you know, all of our partners.

Speaker Change: Then it's the generative AI engines, right, you mentioned some of them, and then three is the governments. I have them in that order because that is the pecking order of AI, at least from our standpoint.

Speaker Change: You have to start where the consumption will take place and there are some partners who are both in the platform business as well as in the Gen AI business.

Speaker Change: YouTube is a good example of that, Meta is a good example of that, etc. So of course, those are the partners where we focus first and foremost.

Speaker Change: Obviously, we're making great progress.

Speaker Change: With regulation and governments, we're not alone, it's obviously the entire content industry and their varying approaches, but you can see a lot more alignment.

Speaker Change: and so I'm actually quite optimistic about this and you know and you touched on Sunon Audio obviously we have a there's a lawsuit that's been filed there's nothing new to report on that

Speaker Change: So, you know, we're waiting, you know, for the next step on that, but we're very, very focused on this.

Speaker Change: religiously defend.

Speaker Change: our IP, our artists and songwriters name and likeness, and because it is the right thing to do and it is good business to do.

Speaker Change: Our next question comes from Batya Levi with UBS. Your line is open.

Speaker Change: Batya, hey, it's Bryan, thanks. On the price increases...

Speaker Change: Yeah, and I'll take the second one. So, as you know, there are many different SKUs already in existence between the various family plans and duos, etc., and we've never disclosed.

Speaker Change: how we participate in any of those.

Speaker Change: So we obviously don't plan to change that going forward.

Speaker Change: would not participate is not the best assumption.

Operator: Thanks. Good morning, guys, too, if I can.

Speaker Change: Thank you.

Robert Kyncl: And because of that, you learn what works, what doesn't, and when you have a strong demand side of the business, for people, where something may not work, they adjust and go for the thing that does work, as long as there's a, you know, strong demand in the industry. So I'm not, I'm not worried about that. I will commit, and experimentation is good. And sometimes you win, and sometimes you lose. But you have to focus on the long term and drive growth and experimentation at all times on Gen AI and risks and opportunities.

Speaker Change: Hey, great, thanks. Two if I could. First, maybe on the release slate, Robert, you talked a little bit about your expectations for the upcoming slate into the back half of the year. I was wondering if you could elaborate a little bit more on that. It feels like some artists who are releasing albums later this year might have some deeper catalogs.

Speaker Change: Alright, thanks Stephen. So, first I want to say, I know the question is about new release slate, but I feel that we actually consistently don't do justice.

Speaker Change: to our catalogue, you know, on the earnings calls that we talk about, we focus on one thing only.

Speaker Change: But I really want to also say that the performance of our catalogue is strong.

Speaker Change: but it's the strength of our company.

Speaker Change: is on a combination of three cohorts.

Speaker Change: and and it's really it's it's great to see it all firing on all cylinders. To specifically answer your question...

Speaker Change: emerging streamers

Speaker Change: to all generations.

Speaker Change: And one of the reasons is that we're deeply embedded.

Speaker Change: and all of those markets continue to grow, we're working really hard on our relationships with them and make sure that we're growing with them.

Speaker Change: Stephen, it's Bryan. I'll add to that and I called out the meta in my commentary as we come upon.

Steven: Our anniversary of that, and it's, you know, they have changed their offering and moved away from premium music video licensing, having said that...

Speaker Change: Our underlying relationship with Metta is strong, growing, you know, there is Reels and Instagram that also...

Operator: Great, thank you. Can you confirm if you've lapped any price increases in fiscal 3Q and what we should think about the upcoming roll-offs? And maybe just on the recent price increase that we saw from Spotify for bundled services, can you talk about if you think you'd be able to participate in some of that increase? Thank you.

Speaker Change: Great, thank you both. One moment for our next question.

Operator: Good evening.

Speaker Change: Our next question comes from Omar Mejias with Wells Fargo. Your line is open.

Operator: Hey, great, thanks. Two, if I could.

Operator: First, maybe on the release slate, Robert, you talked a little bit about your expectations for the upcoming slate in the back half of the year. I was wondering if you could elaborate a little bit more on that. It feels like some artists who are releasing albums later this year might have some deeper catalogs and might have the potential to move the needle and market share a little bit. Just curious if you would agree with that.

Omar Mejias: Hey guys, thank you for taking the question. Maybe first, subscription streaming growth was very strong during the quarter and then accelerated sequentially. Can you unpack some of the drivers of the sequential acceleration?

Speaker Change: Maybe along those lines, on just the overall health of the industry and based on the underlying trends you guys see, are you seeing or do you have a changing view to the total addressable market for the industry over the long term?

Operator: And then on emerging streaming, I appreciate the meta deal and the headwinds from premium video, but I'd be curious if you could update us on how you're thinking about the opportunities for incremental growth across some of the emerging streaming IP rights holders and just the opportunity there in general over the next year or two more broadly. Thank you.

Robert Kyncl: Alright, thanks Stephen. So, first I want to say, I know the question is about the new release slate, but I feel that we actually consistently don't do justice to it. Q4 and going forward. But I really want to also say that the performance of our catalogue is strong and continues to be strong. And obviously, a lot of it is also, if it's a shallow catalogue, uplifted by the performance of new releases. But the strength of our company is a combination of three cohorts, new releases, shallow catalogue, and deep catalogue.

Robert Kyncl: And it's great to see it all firing on all cylinders. To specifically answer your question, we have music coming from Coldplay, David Guetta, Benson Boone, Mike Tower, Cyril, Fred again, Goji Dinsang, and many, many others. So there's a lot, a lot coming out. We're incredibly busy, and the team is doing a phenomenal, phenomenal job shepherding the slate across all types of mediums, whether short, or long, or medium-sized, and we obviously have to do our job to make sure that we monetize it the right way and bring it all to a robust growth rate on the whole.

Bryan Castellani: Stephen, it's Bryan. I'll add to that, and I called out the meta in my commentary as we come upon our anniversary of that. They have changed their offering and moved away from premium music video licensing. Having said that, our underlying relationship with Meta is strong and growing. There are Reels and Instagram that are also growing well, and so we remain excited about the category. Like last year, we had our TikTok step up, so we also have that, but the category continues to be a growth category.

Operator: Great, thank you both. One moment for our next question. Our next question comes from Omar Mejias with Wells Fargo. Your line is open.

Speaker Change: Up a couple of tenths or a few from last quarter. And obviously that's underpinned by sub-growth, which again, we continue to see pretty consistent across the top DSPs.

Speaker Change: Still some impact, to a lesser extent, on price, and again, our carryover slate last quarter, as well as additional releases this quarter, helped support it.

Omar Santiago: Hey guys, thank you for taking the question. First, subscription streaming growth was very strong during the quarter and then accelerated sequentially. Can you unpack some of the drivers of the sequential acceleration as it relates to sub-growth pricing and, more importantly, some internal actions that you guys have taken to drive your catalog? Maybe along those lines, on just the overall health of the industry and based on the underlying trends you guys see, are you seeing, or do you have a changing view of the total addressable market for the industry over the long term?

Speaker Change: And so, that's what really drove it. And then on the health of the industry, I would just say...

Speaker Change: And there's a lot of headroom there to go from seven, eight hundred million subscriptions today to well over a billion over the next five years.

Speaker Change: And as Robert has talked earlier and we've spoken about, there's still more sophistication and optimization to be done on price as well as audience and product segmentation or innovation.

Operator: All right. So, let me thank you, Omar.

Robert Kyncl: that our team executes on incredibly well.

Robert Kyncl: sort of at scale optimization of the entire catalog and making sure that it's set up correctly on all DSPs to effectively work really well within their algorithms.

Robert Kyncl: for recommendations which drive growth. So we have like two different approaches and we continue to push on both at the same time.

Speaker Change: Thank you. Thank you. Thank you.

Operator: So on subscription streaming, let me make sure I understood the question correctly. Was it, "What were the underlying drivers of that growth?" Was that correct? I just wanted to make sure I heard it. Yeah, on Excel.

Speaker Change: Thank you. Maybe just drilling into the subscription streaming trends a little bit more. As you're probably aware, your competitors obviously reported different numbers, and they called out a few headwinds in terms of industry growth between different DSPs diverging to some extent.

Speaker Change: and if you expect that to impact our growth trends as well going forward.

Operator: Our subscription streaming strength, and it was 14 up a couple of tenths or a few from last quarter, and obviously that's underpinned by sub-growth, which again, we continue to see pretty consistent across the top DSPs, still some impact to a lesser extent on price, and again, our carryover slate last quarter, as well as additional releases this quarter, helped support it, and so that's what really drove it. And then on the health of the industry, I would just say, you know, we're at a place where penetration of music subscriptions is still really low. I think they're overall about 15%, and there's a lot of headroom there to go from seven, eight hundred million subscriptions today to well over a billion over the next five years. And as Robert has talked earlier, and we've spoken about, there's still more sophistication and optimization We're still optimistic about it, Omar.

Speaker Change: And there's been some commentary, again, from your peers with respect to, you know, maybe some social media platforms looking at their content, at least. So, if you could talk about what's going on broadly in the landscape and why there are divergences, that would be very helpful. Thank you.

Operator: Let me take the catalog optimization question. There are two ways to think about it. One, which is super-high-touch marketing campaigns that you do for select titles that have high impact that our team executes on incredibly well. And then the second one is sort of at-scale optimization of the entire catalog and making sure that it's set up correctly on all DSPs to work really well within their algorithms for recommendations, which drive growth. So we have two different approaches, and we continue to push on both at the same time.

Operator: Thank you, guys. One moment for our next question.

Operator: Maybe just drilling into, you know, the subscription streaming trends a little bit more, as you're probably aware, when your competitors obviously reported different numbers, and they called out a few headwinds in terms of industry growth between different DSPs diverging to some extent. Maybe you could just talk about what you're seeing broadly across the landscape. I mean, there seems like there's a big market share shift towards Spotify away from the others, and if you expect that to impact our growth trends as well going forward, and there's been some commentary again from your peers with respect to, you know, maybe some social media platforms looking at their content at least differently. So if you could talk about what's going on broadly in the landscape and why there are divergences, that would be very helpful. Thank you.

Robert Kyncl: Sorry, I'll thank you. So again, I'll sort of repeat, which is, we're not seeing any change from what we've been seeing before. We don't have a different, we don't have a change in our revenue mix. And I would say that's probably our... Strongest answer on that point.

Speaker Change: And I would say that's probably our...

Robert Kyncl: I can't really comment about our competitors. I don't see inside their business and what the drivers of their performance is. We're pleased with the progress that our DSP partners are making. As I forget, somebody mentioned in the questions, there is divergence in approaches, which I view as positive because people are experimenting different ways and again sometimes they work out sometimes they don't but people adjust and they continue as long as there is a strong demand side of the business which there is and I think that's underpinned by sort of this interplay between the emerging platforms and the sort of music services because all of those are effectively elevating the role of music and the relevance of music in today's world because it is more relevant than it's ever been before.

Speaker Change: sort of strongest answer on that point.

Speaker Change: Which I view as positive because people are experimenting different ways and I guess sometimes they work out sometimes they don't but people adjust

Robert Kyncl: It's more ever-present, and it's between both bite-sized consumption within the emerging platforms as well as full consumption within the streaming platforms, and all of that forms an incredibly strong ecosystem for us to play in. And we obviously have to do our job to grow our share, you know, both in the catalog and new releases and also grow the overall pie together with our dealers.

Speaker Change: for us to play in. And we obviously have to do our job to grow our share, you know, both in catalog and new releases, and also grow the overall pie together with our DSP partners.

Operator: One moment for our next question. Our next question comes from Tim Noland with Macquarie. Your line is open.

Speaker Change: I'd be interested in getting some of your thoughts on what role you think the ad-supported tier should take, and if windowing should apply, i.e. should an album only be available to pre-users after a week or so. How many letters do you have to type in order to influence the optimization of music here?

Tim Noland: 1. I don't have an opinion on window shopping today.

Speaker Change: It's a much more detailed topic to really think through together with our partners.

Robert Kyncl: I think that's a very, uh.., much more detailed topic to really think through together with our partners, but I do have a strong opinion on advertising in general, which is that if you think about the advertising market that music effectively plays in, it is the advertising market that you want to be in. I.E. It's addressable, it's on mobile devices, it's on tablets, it's on computers, and it's on... It's not linear advertising that is not effectively targeted.

Speaker Change: But I do have a strong opinion on advertising in general, which is, if you think about the advertising market that music effectively plays in, it is the advertising market that you want to be in.

Speaker Change: It's addressable, it's on mobile devices, it's on tablets, it's on computers, and it's on the TV screen.

Speaker Change: It's not linear advertising that is not effectively targeted, and you see the shift from sort of traditional advertising to, you know, obviously all the digital platforms that deliver all the things that I mentioned.

Robert Kyncl: And you see the shift from sort of traditional advertising to, you know, obviously all the digital platforms that deliver all the things that I mentioned. And that is really where our product is exposed. So I think we are in the right advertising market. That's number one. Number two.

Speaker Change: And that is really where our product is exposed. So I think we are in the correct advertising market. That's number one. Number two...

Robert Kyncl: Obviously, advertising markets fluctuate with GDP. It's basically marketing budgets are a function of GDP and GDP growth. So they fluctuate with those a little bit more than subscriptions. That's okay.

Speaker Change: Obviously, advertising markets fluctuates with GDP, so basically marketing budgets are a function of GDP.

Speaker Change: GDP growth, so they fluctuate with those a little bit more than subscriptions.

Robert Kyncl: That's just a fact of life, but we're swimming in the right river. So let's start with that. Two, I think your question is, is there too much content in there and is it impacting subscriptions, etc.? I think in order to grow subscriptions, it is helpful to have a healthy funnel. But the question is, what does "healthy" mean.

Speaker Change: That's okay, that's that's just a fact of life and but we are in the we're swimming in the right river So let's start with that

Speaker Change: I think your question is, is there too much?

Robert Kyncl: And these are the experiments that I was talking about. If we want to change something in the future, it has to be done in concert together with our DSP partners, which would drive overall growth. Focusing on driving growth and driving both of those in unison can only be done if you... You cannot do one without the other. And you cannot do experimentation in subscription only without experimenting in supported. And it just has to be done together with our partners. So there is nothing new to report on that today. But I'm glad we're swimming in the right river.

Speaker Change: It is...

Speaker Change: helpful to have a healthy funnel.

Speaker Change: Now the question is, oh, what does healthy mean? And these are the experimentations that I was talking about.

Speaker Change: If we want to change something in the future, it has to be done in concert, together with our DSP partners that would drive the overall growth, focusing on driving growth and driving our...

Speaker Change: And driving both of those in unison can only be done if you, you can't do one without the other, and you cannot do experimentation.

Speaker Change: in subscription only without experimenting and supported and it just has to be done together with our partners. So nothing new to report on that today, but I'm glad we're swimming in the right river.

Operator: One moment for our next question. The next question comes from Richard Greenfield with LightShed Partners.

Speaker Change: All right, thank you.

Speaker Change: Au revoir!

Richard Greenfield: Thanks for taking the question. Robert, given your experience at Google and YouTube, they were really the first to bundle when you think about YouTube Premium, which includes music versus just the YouTube Music Service. And I'm sort of curious what you think about what that means for the music business at Google, and how we can think about how that translates over time to Spotify as they look to bundle. And then, sort of a separate question, but there's a lot of speculation in the marketplace about Apple launching advertising as part of Apple TV+.

Speaker Change: I'm sort of curious how you think about what that meant for the music business at Google, how we can think about how that translates over time to Spotify as they look to bundle.

Speaker Change: And then sort of a separate question, but there's a lot of speculation in the marketplace about Apple launching advertising as part of Apple TV Plus.

Richard Greenfield: Wondering, they've never done an ad-supported music service. Clearly, Spotify has shown the power of that funnel to drive people to go the freemium model. Just curious whether you think Apple might move in that direction, seeing Spotify's success, and how willing you are to have others in the marketplace using advertising in a freemium-like model.

Speaker Change: sort of go the freemium model. Just curious whether you think Apple might move in that direction seeing Spotify's success and how willing you are to have others in the marketplace using advertising in a freemium like model. Thanks.

Robert Kyncl: Thank you, Richard. All right. Drawing on my past experience, but I have already forgotten all of it.

Speaker Change: It was very helpful, both for YouTube as well as for the music industry.

Robert Kyncl: I'm kidding. It was very helpful, both for YouTube as well as for the music industry. Uh... you know, I remember when we started, we had five million subscribers, and we were like, oh, how are we going to make it to twenty, and now it's north of a hundred. And it was, you know, it was a big grind, but we created a unique offering in the market that was not replicated by anyone And it works for that company, right?

Speaker Change: You know, I remember when we started and we had 5 million subscribers and we were like, oh, how are we going to make it to 20, right? And now it's north of 100.

Robert Kyncl: And that's, uh... This is what I mean when I say... I am happy to see divergence in approaches because companies should play to their own strengths: what makes them unique, and what is the offering that they can do that others can't do that drives the business forward. And that's what we did at YouTube. And the team over there executed flawlessly, and it was good for the music industry. So... that takes me to the second question on Apple.

Speaker Change: And it works for that company, right? And that's, this is what I talk about when I, this is what I mean when I say.

Speaker Change: I am happy to see divergence in approaches, because companies should play to their own strengths, what makes them unique, and what is the offering that they can do, that others can do, that drives the business forward.

Robert Kyncl: I don't have anything new to share on that, but I am the most willing to experiment and drive the business forward with any of our partners and in whatever directions as long as it's achieving strong objectives for both of us. And again, that doesn't mean that there aren't failures along the way; that always comes with, you know, unless you... push hard, unless you fall sometimes, you don't know you're pushing hard But it's most willing to experiment with companies that are small and with companies that are big to find all these unique offerings that can drive more growth.

Speaker Change: the most willing to experiment and drive the business forward with any of our partners.

Speaker Change: And again, it doesn't mean that there aren't failures along the way, that always comes with, you know, unless you push hard, unless you fall sometimes, you don't know you're pushing hard enough, but it's most willing to experiment with companies which are small, with companies which are big, to find all these unique offerings that can drive more growth.

Speaker Change: Thank you. Thank you. Thank you.

Operator: And I'm not showing any further questions at this time. I'd like to turn the call back over to Robert for any closing remarks.

Speaker Change: Thanks, appreciate it.

Speaker Change: And I'm not showing any further questions at this time. I'd like to turn the call back over to Robert for any closing remarks.

Robert Kyncl: I want to close by saying how excited we are about the momentum that we have, the hits that we have on the board, and the execution of our teams while going through obviously complicated things such as reorganizations and transitions. I once again want to give really heartfelt thanks to Max Lusada for his incredible contributions to the company and to Julie, who has done an incredible job of creating culture over the last 20 years and great icons in the music industry.

Robert Kyncl: Well, um...

Robert Kyncl: I once again

Speaker Change: want to give really heartfelt thanks to Max Lusada for his incredible contributions to the company and and to Julie who has done an incredible job of creating culture over the last 20 years and great icons.

Robert Kyncl: And I appreciate both of their efforts to have a very smooth transition and make sure that our artists and songwriters are the ones who benefit the most from everything that we do. And I want to welcome Elliot to Atlantic and challenge him to build upon Julie's incredible legacy, which is, you know, there are big shoes to fill, and he's got a big job ahead of him. So with that, I'm really excited about the direction of the company and the team that we have and look forward to talking to you guys in 90 days.

Speaker Change: in the music industry, and I appreciate both of their efforts.

Speaker Change: to Atlantic.

Speaker Change: and which is you know they're big shoes to fill and and he's got a big job ahead of him so with that really excited about the direction of the company and and the team that we have and look forward to talking to you guys in 90 days

Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.