Q4 2024 Warner Music Group Corp Earnings Call
Speaker Change: I only wanted to be part of something I only wanted to be part of, part of I only wanted to be part of something I only wanted to be part of Then you cut me open just to watch me bleed Gave up who I am for who you wanted me to be Don't know why my hope is so fucking high Falling for the promise of emptiness again Emptiness again
Speaker Change: I know that this could hurt me bad, I know that this could feel like that But I just can't stop, that my defense is dropped I know that I was born to kill, any angel on my windowsill But it's so dark inside
Speaker Change: Welcome to Warner Music Group's fourth quarter earnings call for the period ended September 30, 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 today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin.
Speaker Change: Good morning, everyone, and welcome to Warner Music Group's fiscal fourth quarter and four-year earnings conference call.
Speaker Change: Please note that our earnings press release, earnings snapshot, and Form 10-K are available on our website. On today's call, we have our CEO, Robert Kyncl, and our CFO, Brian Castellani. We'll take you through our results, and then we'll answer your questions.
Speaker Change: Before I prepare remarks, I'd like to refer you to the second slide of the earnings snapshot to remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance.
Speaker Change: 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.
Speaker Change: Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. References to normalized revenue and adjusted OIDA are adjusted for items that impact comparability. The details of these can be found in our filings.
Speaker Change: All forward-looking statements are made as of today, and we disclaim any duty to update such statements.
Speaker Change: 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.
Speaker Change: Investors should not rely on forward-looking statements because they're subject to a variety of risks, uncertainties, and other factors that can cause actual results that differ materially from our expectations.
Speaker Change: Information concerning factors that can cause actual results to differ materially from those in the forward-looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert.
Robert Kyncl: Thanks, Kareem, and good morning, everyone, and thank you for joining us.
Robert Kyncl: I am pleased with our progress, both this quarter and this year, as we have demonstrated our strength and adaptability in a highly competitive market.
Robert Kyncl: Today, I'll provide more context on how we're positioning the company for sustained growth and to deliver even greater value for our artists, songwriters, and shareholders.
Robert Kyncl: First, let me give you a quick summary of our Q4 results. These are normalized for all previously disclosed non-recurring items.
Robert Kyncl: We delivered an 11% jump in recorded music subscription streaming revenue driven by strong releases and assisted by global subscriber growth and price increases.
This was our fourth consecutive quarter of double-digit growth.
Robert Kyncl: Total revenue was up 6% with recorded music up 6% and music publishing up 5%.
Robert Kyncl: and Adjusted OEBDA grew 14% with margin increasing 150 basis points.
Robert Kyncl: Our robust Q4 results contributed to full-year revenue and adjusted OIPDA growth of 7% and 11% respectively.
Robert Kyncl: Our strategy is designed to enhance our ability to attract original artists and songwriters at every stage of their development.
Robert Kyncl: We hope them realize their musical visions, cut through the noise, build sustainable careers, and grow passionate and loyal fanbases.
Robert Kyncl: This year, we've reimagined our organization based on the principle that simplicity and focus drive higher intensity and impact.
Robert Kyncl: We've done a lot of important work, which has set us up for success today and will help us grow more profitably in the future.
Robert Kyncl: We strengthen our presence in the U.S., the world's largest music market. We've shifted to a simpler and flatter organization structure to create faster and more direct channels for local talent to reach the global stage.
Robert Kyncl: And we've reorganized key business lines, such as catalog and distribution, in order to deliver greater global reach.
Robert Kyncl: We've continued to find ways to strengthen the coordination across our Recorded Music and Music Publishing divisions, and we've fixed a lot of foundational infrastructure issues that will now enable our technology team to be more offensively focused.
Robert Kyncl: I'd like to dive a little deeper into these changes and tell you about some of the further steps we've taken this quarter.
Robert Kyncl: In the U.S., we have two flagship record label groups, Atlantic and Warner Records.
Robert Kyncl: Important twin engines will grow. As Potterwell's structural changes, we elevated LA at Grange to lead the Atlantic.
Robert Kyncl: While this kind of transition is never easy, this was a seamlessly executed handover. The team has delivered first-class results for priority projects, while bringing in fresh ideas, onboarding dynamic executives, and attracting exciting new artists.
Robert Kyncl: With a digital and native approach, the Atlantic team will expand and diversify our artists' roster and increase the volume of releases.
Robert Kyncl: While all of this is going on, the label has kicked off our new fiscal year with a bang. APT, the collaboration between Korean superstar Rosé, who we signed just a few months ago, and Bruno Mars, immediately shot to number one on the Spotify and Billboard global charts.
with this absolutely massive head.
Robert Kyncl: Rosé is the first female K-pop solo artist to break into top 10 on Billboard Hot 100.
Robert Kyncl: Bruno Mars is the biggest artist in the world. He has the largest reach of anyone, with 130 million monthly listeners on Spotify.
Robert Kyncl: This week, he holds two top positions on the Billboard Global 200 chart with APT and Die With a Smile, his Grammy-nominated collaboration with Lady Gaga.
Robert Kyncl: New albums from Don Toliver and the Marias, both of which continued to build strongly months after their release And the impactful remix of Charli XCX's Brad album and her seven Grammy nominations, including Album of the Year and Record of the Year
Robert Kyncl: At the same time, the Atlantic team is bringing through the next generation of talent. Artemis reached 1 billion streams with his smash hit, I Like The Way You Kiss Me.
Horace Frank, and Jordan Adedunji received their first Grammy nominations.
Robert Kyncl: Jazz artist Shazil and singer-songwriter Sam Barber and rapper Huncho are taking off. And competitive new signings include Bash for the World and 1900 Rugrats.
Robert Kyncl: Elliot and his team have an impressive ability to discover an extraordinary talent across multiple genres and find fresh ways to help both established and emerging artists stand out from the crowd.
Robert Kyncl: At Warner Records, the team's commitment to artist development is driving hits and creating superstars.
Robert Kyncl: Under the leadership of Aaron Bayshock and Tom Corson, the label's market share hit a new peak this year, reaching the number three position in the U.S. for current releases.
Robert Kyncl: They're helping the likes of Diddy Swims, Benson Boone, N. Ali Chapa, and Zach Bryan have worldwide smashes with real staying power. For example, Diddy's number one single, Loose Control, has been an impressive 44 weeks in the top 10 of the Billboard Hot 100.
Robert Kyncl: and Ali Chapo's carrier streams crossed the 9 billion mark at the ripe old age of 22.
Robert Kyncl: And it's great to see that label mates Teddy and Benson are up for Best New Artist at the Grammys.
Robert Kyncl: At the same time, Warner Records has been integral to the successful resurgence of icons like Green Day, Cher, and Linkin Park, who have triumphantly returned with their first album in seven years.
Robert Kyncl: the first since the tragic death of lead singer Chester Bennington.
Robert Kyncl: The band's new album, From Zero, had the most pre-sales in WMG history.
while the band embarked on a massive global tour.
Robert Kyncl: As I've said many times, the power of new releases drives engagement around the artists' catalog, and vice versa.
Robert Kyncl: We create a virtual cycle of consumption that fuels an uplift across the artist's entire body of work. For example, when Linkin Park's new single, The Emptiness Machine, dropped in September and the band's new album was announced, their streams jumped by half a billion compared to the same quarter last year.
Robert Kyncl: Through our shift to a flatter organizational structure, we've elevated our regional leadership across Latin America, EMEA, and AIPAC.
Robert Kyncl: This has created faster, more direct channels for local talent to access the global stage.
Robert Kyncl: This quarter, we continue to take steps that expand our presence in both mature and high-growth markets. In Japan, the second largest music market, we appointed a new leadership duo, CEO Takeshi Okada and Chairman Kenji Kititani.
Robert Kyncl: In Korea, we launched Amplify, a new label focused on English-language music.
Robert Kyncl: In Benelux, we bought a leading indie label, Cloud9 Recordings. In Africa, we completed our acquisition of Africory, the region's leading distribution company.
Robert Kyncl: and Warner Music Latina joined forces with indie label Street Mop Records, an incubator of new Mexican talent.
Robert Kyncl: Our focus on bringing a wider array of local talent to Stardom is paying off. We have vibrant music from homegrown heroes, topping charts, and many territories.
Robert Kyncl: We've had number one singles and albums by the likes of Soprano in France, Speed in Australia, Ailiva in Germany, Bien in Kenya, Gosang in Italy, Wu in Vietnam, and King in India.
Robert Kyncl: We've also helped our global superstars reach new heights around the world. For example, Dua Lipa became the first female artist to have two albums exceed 13 billion streams each on Spotify.
Robert Kyncl: Before we move on, I'd like to spotlight a territory we believe has huge global potential.
Robert Kyncl: With a population of 1.4 billion, India is more like a continent than a country.
Robert Kyncl: It has the fifth largest GDP, but it's still only the 14th largest music market in the world. That gap will continue to close in the coming years, and as it does, India will become an increasingly influential global force in the music business.
Robert Kyncl: The country has already seen a significant increase in paid subscribers, which have increased by almost 40% since last year, but it still has less than 2% penetration.
Robert Kyncl: A few weeks ago, I visited our offices in India and met with our team, artists, and partners.
Robert Kyncl: and it was very inspiring. Since launching there in 2020, we've partnered with the most important local players, as well as buying stakes in and acquiring outright local music companies such as ePositive, Vivo and Global Music Junction.
Robert Kyncl: Earlier this month, we made our latest move, buying a stake in SkillBot, a leading ticketing and live events platform.
Robert Kyncl: We're helping Indian stars like Diljit Dosanjh and King reach new audiences while building loyal Indian fan bases for global talent, such as Coldplay and Dua Lipa, who are both touring there in the coming months.
Robert Kyncl: As a result, we've seen an impressive revenue growth by over 100% in fiscal 2024. And most importantly, everything we're doing means we're well positioned to keep taking market share as India continues its explosive growth.
Robert Kyncl: In our catalog and distribution divisions, we've made changes that better align our expertise and resources with the growing global opportunities for artists. Where previously we were operating on a country-by-country basis, now we've globalized our operations.
Robert Kyncl: Our dedicated, centrally managed global teams enable us to share learnings, leverage best practices, and deploy technology to find efficient ways of having greater worldwide impact.
Robert Kyncl: Turning to music publishing, the business continues to deliver impressive results.
Robert Kyncl: The 14% growth in total revenue on a normalized basis for the full year represents our fourth consecutive year of double-digit revenue growth.
Robert Kyncl: This was led by 19% streaming growth on a normalized basis.
for contributing to Global Heads.
strengthening our services and monetizing deeper into our catalog.
Here are a few recent high points.
Robert Kyncl: Three of the five Grammy nominees for Songwriter of the Year are Warner Chappell writers.
Amy Allen, Ray, and Justin Alexander.
Robert Kyncl: Warner Chapel is number two for a second consecutive quarter on Billboard's Top Radio Airplane Rankings.
Robert Kyncl: and rising to number two on the Hot 100 Songs chart with 25% market share.
Robert Kyncl: Warner Chapel is number one on the German half-year charts, with its writers spending 18 of 26 weeks at number one on the singles chart.
Robert Kyncl: Despite all this success, we aren't resting on our laurels, and we've continued to invest into our future growth by forging new partnerships with Analog Metaverse, the company founded by Grammy award-winning producer Salaam Remy.
Robert Kyncl: Launching a venture with the widely respected British dance label Defected Records.
Robert Kyncl: and appointing new leadership in high growth territories, such as Lisa Lee in China and Sophia Hong in Korea.
We're very optimistic about the future at Warner Music Group.
Robert Kyncl: We have the right team and strategy to deliver long-term profitable growth in a dynamic and thriving industry.
Robert Kyncl: We continue to build strong, mutually beneficial relationships with our partners that grow the value of music.
Robert Kyncl: With penetration in mature markets expected to increase from approximately 35% today to nearly 50% by 2030, and emerging markets going from single to low double digits over the same time frame,
Robert Kyncl: Music subscriber growth should remain healthy for the years to come.
Robert Kyncl: For reference, in the U.S., cable TV penetration is a little over 50% and the SWAT penetration is approaching 50%.
Robert Kyncl: Highlighting that even in a mature market, music penetration is very low and has plenty of runway ahead.
with Bull Subscriber Growth and Opportunities for Wholesale Price Increases.
Robert Kyncl: The formula for streaming growth is strong, and there is plenty of room for acceleration.
Robert Kyncl: Our focus on efficiency has freed up capital, enabling us to increase our investments in growth opportunities.
Robert Kyncl: As we previously promised, we've increased our A&R investment by approximately 11% in fiscal 2024 as we continue to sign new artists and songwriters and acquire IP and catalogs, all while driving our digital transformation.
Robert Kyncl: As part of our investment strategy, we will consider bolt-on acquisitions that accelerate our progress while meeting our return thresholds.
Robert Kyncl: In addition to these investment opportunities, I wanted to note that our board has authorized a share repurchase program of up to $100 million.
Robert Kyncl: The program demonstrates our confidence in the value of our company and our optimism for the path ahead.
Robert Kyncl: Our confidence is underpinned by the strong momentum we're carrying into 2025.
with an exciting release slate that includes projects from Rosé.
Robert Kyncl: Dua Lipa, Teddy Swims, Jack Harlow, Benson Boone, Mike Towers, David Guetta, Erna Boyd, FKA Twigs, and more.
Robert Kyncl: We're excited by the opportunities ahead and look forward to delivering more culture-shaping music in 2025 and beyond.
Now over to you, Brian.
Thank you, Robert, and good morning, everyone.
Brian Castellani: Before I get into our results, I want to remind everyone.
Brian Castellani: That growth rate comparisons will be in constant currency and where appropriate I will reference normalized growth metrics
Brian Castellani: There are items throughout the quarter and the year that affect comparability.
Brian Castellani: The details and adjustments relating to these items can be found in our earnings press release.
Brian Castellani: In Q4, total revenue grew 3% and adjusted OEBDA increased 11%, with a margin of 21.7%, an increase of 170 basis points over the prior year quarter.
Brian Castellani: On a normalized basis, total revenue grew 6%, adjusted OEBITDA increased 14%, and margin increased 150 basis points.
Brian Castellani: Recorded music revenue increased 4% and grew 6% on a normalized basis.
Brian Castellani: led by subscription streaming which grew 11% our fourth consecutive quarter of double-digit growth.
Brian Castellani: Ad support streaming declined by 6% as we lapped last year's TikTok renewal and saw the revenue impact of Meta's exit from premium music videos.
Brian Castellani: Driven by increased revenue from copyright infringement settlements primarily in the U.S. and growth in broadcast use.
Brian Castellani: Recorded music adjusted Oibre increased 13% with a margin of 23.7%, an increase of 200 basis points.
Brian Castellani: On a normalized basis, adjusted OIBDA increased 14% and margin increased 160 basis points.
Brian Castellani: Our music publishing results reflect the $17 million benefit from the CRB rate increase in the prior year quarter.
Brian Castellani: Adjusted for that benefit, music publishing total revenue increased 5%, while digital increased 6%, and streaming increased 5%.
Brian Castellani: These growth rates compare against the prior year quarter which saw robust streaming growth of 17% and reflect continued market and catalog growth as well as timing of payments.
Brian Castellani: Bank revenue increased 15%, reflecting an increase in copyright infringement settlements primarily in the U.S., while performance revenue decreased 2%.
Brian Castellani: Mechanical revenue decreased 12% due to lower physical sales and timing of distributions.
Brian Castellani: Music Publishing Adjusted Oeuvre grew 11% with a margin of 28.1%, an increase of 290 basis points.
Brian Castellani: On a normalized basis, total revenue grew 7% and adjusted OEBD grew 11%, with a margin of 21.4%.
Brian Castellani: Adjusted Orbit of Margin increased 70 basis points as strong operating performance and savings from our restructuring programs were partially offset by increased investment in ANR as well as revenue mix.
Brian Castellani: Recorded music revenue increased 6% and adjusted oeuvre grew 17% with margin expansion of 240 basis points.
on a normalized basis.
Brian Castellani: Recorded music revenue increased 6% with adjusted oibit growth of 11% and margin expansion of 110 basis points.
Brian Castellani: These results reflect streaming revenue growth of 10%, led by strengthened subscription streaming, which grew 12%.
Brian Castellani: Q4 operating cash flow decreased 10% to $304 million from $338 million in the prior year quarter.
Brian Castellani: The decrease was primarily driven by timing of working capital items, partially offset by the timing of severance payments.
Greed cash flow decreased 10%.
Brian Castellani: to $271 million from $300 million in the prior year quarter.
Brian Castellani: For the full year, operating cash flow increased 10% to $754 million, and free cash flow increased 14% to $638 million.
Brian Castellani: Operating cash flow conversion was 53% of adjusted OEBRA for the full year, in line with our target at 50-60%, despite increased investment in A&R and shifts in deal timing.
Brian Castellani: As of September 30th, we had a cash balance of $694 million, total debt of $4 billion, and net debt of $3.3 billion.
Brian Castellani: Our weighted average cost of debt was 4.3% and our nearest maturity date remains 2028.
Brian Castellani: We continue to actively manage and improve our capital structure, most recently repricing our term loan in September, which has led to continued improvements in our debt ratings, with both S&P and Fitch assigning us investment grade ratings in August and September, respectively.
Brian Castellani: I'd like to reiterate that as a result of actions taken in Q4 to reorganize our recorded music business,
Brian Castellani: We now expect our restructuring plan to generate pre-tax cost savings of $260 million, and we continue to expect a significant majority of these savings to be achieved by the end of fiscal 2025.
Brian Castellani: Looking ahead, our strong Q4 momentum in 2024 is carrying into 2025.
Brian Castellani: Subscription streaming continues to see healthy underlying trends, and we expect high single-digit growth for fiscal 2025 on a multi-year basis.
Brian Castellani: Additionally, our goal remains to deliver margin expansion of 100 basis points and operating cash flow conversion of 50-60% of adjusted OEBDA on a multi-year basis.
Brian Castellani: As a reminder, there are a number of previously disclosed items that will impact comparability in Q1.
Brian Castellani: Streaming growth will be impacted by the BMG digital distribution roll off, the digital license renewal in the prior year, and the lapping of Spotify price increases.
Brian Castellani: Our digital distribution relationship with BMG that was planned to roll off by the end of fiscal 24 will now continue into fiscal 25. The revenue impact in Q1 is approximately $16 million versus the prior year quarter.
Brian Castellani: And the digital license renewal with one of our international partners was $27 million in the prior year quarter.
Brian Castellani: Our physical distribution relationship with BMG has largely rolled off. We expect there to be an unfavorable revenue impact of $15 to $20 million in Q1.
Brian Castellani: Licensing revenue will reflect the $68 million catalog licensing agreement extension we disclosed in Q1-24.
Brian Castellani: The music industry remains healthy, and we continue to see positive subscriber growth and penetration trends, as well as opportunities for wholesale pricing growth.
Brian Castellani: We are excited about the slate this year and look forward to delivering great music.
Brian Castellani: The momentum in the business is strong, and we are positioning ourselves for long-term success.
Brian Castellani: Thank you for joining us today. We'll now open the call for questions.
Speaker Change: Thank you. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Cutgun Merall with Evercore ISI. Your line is now open.
Speaker Change: Good morning. Thanks for taking the question. I just had a high level one on the broader music industry.
Speaker Change: Looking at the labels specifically, you know, the industry construct remains very attractive. There's healthy competition for sure, but the big three still drive roughly two-thirds of global recorded music revenue and are must-haves for any platform. And structurally, you continue to see improvements with DSP price increases and the shift to artist-centric royalty models. So, a very healthy and encouraging backdrop.
Speaker Change: A lot of value has instead accrued to the DSPs and even certain live entertainment companies.
and monetizing the growing power of music.
Speaker Change: I'm not saying that those companies are undeserving of Wall Street's optimism, but it seems like the perceived potential for the labels has lagged, despite their crucial role in everything. So I don't know if it's...
Speaker Change: Changing the dynamics with the DSPs and ad-supported tiers or a reimagined approach to superfans but can you share your views on what the biggest opportunities for WMG are over the next few years to Better participate in what seems to be a very robust growth profile for the overall music industry. Thanks
Speaker Change: Thank you. Thanks for the question. So I see this in two different buckets. Bucket number one is the obvious moves.
Speaker Change: and in those I'm focused on two big ones which is reduction of discounts on family plans and more frequent PSM escalators.
It's very simple. It comes down to these two levers.
and their very obvious moves for the industry.
for a company like W&G.
and they are not.
Speaker Change: a zero-sum move between us and the DSPs. They can actually...
Speaker Change: be in concert with each other. And then the second bucket is in more innovations. And that's where, you know, sort of a superfan tier like the Music Pro that's been discussed a lot, or other SKUs, some which may include ads, et cetera, just innovation around SKUs.
Speaker Change: and audience segmentation, those are also potential upsides for all of us. My focus is in the order that I described, which is obvious moves first, those two specifically, and then the innovations.
Speaker Change: and all of these things would be sort of incremental to the glide path as you guys see for the industry.
Understood, thank you.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of Benjamin Swinburne with Morgan Stanley. Your line is now open.
Speaker Change: Thanks, good morning. I guess I had two questions, you know, Robert you gave us some helpful context around the management changes. I wanted you to talk a little bit about, you know, what worked and is working so well at 10k, you know, Elliott's label that you guys acquired last year.
Speaker Change: You know, that is or isn't applicable to the, you know, the larger business of Atlantic. I'm thinking about things like...
Speaker Change: artist discovery, marketing, contract, anything that you think we should be thinking about as that he steps into, obviously, or has stepped into a much larger, broader, and important role, and how this new structure, flatter structure, translates into faster growth for the company.
Speaker Change: which maybe you're already seeing, but we'd love to get some more color on all of that. And then, you and Brian both mentioned opportunities and wholesale pricing in your prepared remarks, so I figured I might as well follow up. I think you're in the midst of your Spotify renewal right now, so I thought maybe you could talk a little bit about your optimism.
Speaker Change: So what seems like a pretty substantial change, maybe not, but seems like a substantial change to the way, you know, retail wholesale economics work. Thanks.
Speaker Change: Sounds good. Thank you, Ben. All right, so let me start with Henke and Elliot.
Speaker Change: When you think about the music industry today, there are obviously lots of different independent music companies.
Speaker Change: Many of whom claim to do many things really, really well.
Speaker Change: I would say you have to take everything with a great grain of salt.
Speaker Change: But one of those that surely did that was 10k. I know that's a fact from the numbers that both they had prior and the numbers that they have delivered in the first year under the WNG umbrella, which was a phenomenal growth both on top line and bottom line.
Speaker Change: The skill set that they bring, and it's not just Taliat, it's also his team.
Speaker Change: The skill set that they bring is being very digitally native. Today, the vast majority of our revenue is coming through streaming. Promotion mostly happens online. You must be digitally native if you want to succeed today and in the future in the music industry.
Speaker Change: And that is important to the DNA of the company. And they have brought that the other part of that they bring is intensity. When you when you start a company of that size, you start from scratch, bootstrap it.
Speaker Change: You have to be incredibly intense about everything that you do.
Speaker Change: and I love that about them. You also create strong points of view on various decisions.
Speaker Change: and I can tell you that all of these things, they touch
Speaker Change: Developing artists, aspiring artists, as well as superstars. Everybody wants to have broad reach, have hits, have loyal fan bases, and obviously then monetize it really well.
But if you're if you're somebody who's just starting
Speaker Change: You need to build an audience. If you're a superstar, you want to keep the audience. Either way, it comes to that. So, this digital first mindset from 10k has translated really well into the company. And it also goes to their talent development. You know, I named two artists.
Speaker Change: who are, you know, voters back in Jordan for the first Grammys.
Speaker Change: and it's amazing to see that. So that's one. At the same time you have to be really great at working well in a larger organization like WMG which means you have to have a flexible mindset and work well with others and Elliot does that incredibly well.
So I'm really, really pleased.
with How Things Are Going.
Speaker Change: On your wholesale question, I think the way you asked the question was that it's not how normally things work. I actually think that's exactly how things work in wholesale, which is wholesale prices generally go up, and that happens in all industries.
Speaker Change: It may not have been that way in music in the past, but it is how it works in 99% of industries. So, we're just trying to align with the way the world works.
Speaker Change: And Ben, I would chime in just on the overall subscription.
Robert Kyncl, Kareem Chin
Speaker Change: and our view is that subscribers, there's been 70 to 80 million...
New subs brought into the ecosystem a year of late.
Speaker Change: We continue to see that being the vast driver, take that as 70%, if not more.
Speaker Change: with, as Robert said, the glide path on pricing is, I would say, modest.
Speaker Change: to the extent wholesale gains are had, those would provide upside to that. And then, of course, on share, we're pleased on the progress we've made, and we have momentum with 24 releases and overall roster and catalog, and that carrying into 25. So, again, encouraged there about all the underlying trends with which.
Speaker Change: which we think have upside to the extent pricing optimizes sooner.
Thank you guys, appreciate it.
Speaker Change: Thank you. Our next question comes from the line of Jason Bazinet with Citi. Your line is now open.
Your commentaries...
Speaker Change: helpful and bullish, I guess, in terms of subscriber growth and potential trends on wholesale pricing and potentially market share. I just wanted to ask, how likely do you think it might be that there's a headwind embedded in those three tailwinds you talked about just from geographic mix, meaning the sub-growth?
Speaker Change: comes from more emerging markets as opposed to developed markets. Is that a risk that you think investors should be focused on or do you?
Speaker Change: Do you not really think that that could present itself as a headwind? Thanks.
Speaker Change: So, I won't answer what you should do. I'll just tell you what I do, and then you guys extrapolate from that.
Speaker Change: I study the video industry a lot, whether it's MVPDs, TV film, cable, satellite television, or subscription video on demand as well, because they're extremely adjacent to what we do.
Speaker Change: and simply studying the penetrations. You know, I kind of like take two markets, two extremely opposite markets, right? United States and India.
Speaker Change: One is the largest market in revenue, the other one is the largest market in users in the world.
But low, obviously.
Speaker Change: United States, today penetrations are around 30%, but television is around 50% as far as approaching 50%.
with lots of different subscription services, obviously, investing and growing.
Speaker Change: There is a lot more to grow in the United States for music. And by the way, we're a lower-priced product that gives you everything, and it's extremely fluid and easy.
Speaker Change: So I view it that way. And then in the, in the, I almost don't want to call it the merchant markets because they're really high growth markets.
Speaker Change: But the penetration there is extremely low today. And obviously ARPU is low, but what we will see over there...
Speaker Change: is we're betting on countries that have forward look that a have higher GDPs now but also have movements in GDPs up in the future because higher GDP will translate into more ad revenue and it's because that's a function of GDP and it will translate into better conversion rates and subscriptions. So in India,
Speaker Change: It's an extremely low number of subscribers today. In total, I think it's about 15 million. And on television, there's more than 100 million households in India. So there's a lot of room to grow.
Speaker Change: and so I kind of look at those two bookends and then it's obviously gradation in between by market then we just study each of those markets so this is what's giving us confidence.
That's super helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Benjamin Black with Deutsche Bank. Your line is now open.
Speaker Change: Great, thank you for taking my question. So, you know, last year a couple DSPs moved to an artist-centric model. I'm just curious if you could give us an update on how that impacted your streaming growth.
Speaker Change: I guess, relatedly, do you think they're doing enough? What else could they do? And what about the other larger DSPs? Why haven't all adopted an artist-centric model at this point?
Speaker Change: Just a follow-up to Samizand, you mentioned a large discount embedded in these offerings. I guess in a similar vein to Ben's earlier question, you know, in your Spotify renewal, is this something that you're addressing, you know, have you been able to accelerate progress here?
Speaker Change: So let me just quickly comment on the second side I can't comment on any of our discussions with our partners
Speaker Change: So that would not be fair to anyone, whether you're on the call or to our partners, so I'll decline there. But on the autocentric model, we're very consistent from day one, even before it started, in saying that it is an important initiative.
Speaker Change: We're glad that we have a foot in the door on that.
Speaker Change: and it's something that we obviously have to continually roll out and not keep it static, that it has to keep on evolving with the growing scale of the industry. So I don't view this as a one and done. I view this as...
Speaker Change: One and done as input in the door, and then you start expanding it. And by doing it together with our partners obviously, right? So this is a collaborative effort. So I think you will continue to see impact from it.
Speaker Change: It's never easy, but it is exactly what we're working on. It is the right thing for artists and songwriters, and they understand it, they appreciate it. And our partners also think it's a good idea. So it's just finding the right balance for all of us.
Thank you.
Speaker Change: Thank you. Our next question comes from the line of David Karnosky with JPMorgan. Your line is now open.
Speaker Change: Hey, thank you. Just on the ad-supported side of streaming, I wanted to see if you could speak to Trent there, just stripping out the impact of renewals or items like premium video with meta.
Speaker Change: should we kind of think about this line going forward. And then Brian, thanks for the multi-year outlook on margins, just kind of bringing it to 25. I don't know if you can kind of walk through specific drivers or any phasing we can think through here. Thanks.
Sure. On the ad supported, the underlying...
Speaker Change: Traditional, what I shouldn't say is traditional ad supporter because again, it's streaming and digital advertising, which is the right sector to be in.
Speaker Change: That continues to see some of the macro trends you've seen across others. We see that, you know, kind of your low, mid, single digits at the moment.
Speaker Change: The emerging within ad-supported, as we had said earlier, we are lapping our TikTok deal, and also we have done our meta-renewal, which
Speaker Change: were pleased with, that underlying deal continues to grow and expand. As you know, they exited the premium music video licensing. And so generally, the underlying core advertising there is stable and growing.
Speaker Change: The second part of your question on margin for 25, we continue to be committed to 100 basis points a year over a multi-year period. There's always going to be quarter-to-quarter timing.
where, you know, whether the timing of releases and marketing
Speaker Change: how savings and when they're redeployed but generally we continue to see this opportunity as our business shifts more and more digital and streaming and is diversified around the world by artists genres and so forth that that continues to be a driver of our margin growth.
Thanks.
Speaker Change: Thank you. Our next question comes from the line of Devin Briscoe with Wolf Research. Your line is now open.
Speaker Change: Superfan tears have been a hot topic this year and I think everyone is anxiously awaiting what that product launch will look like.
Speaker Change: Are there any details you can share about the potential features and monetization avenues you'd like to see introduced in that product launch? Is that tier something you expect all the DSPs to have, potentially globally, maybe with slightly different variations?
Speaker Change: And given that these tiers will likely have a variety of features, how should we think about how you'll get paid? Will it be similar to existing tiers today, sort of a rev-split model based on engagement, where there'll be a la carte revenue streams on top of that? Anything you could share on that would be appreciated.
Speaker Change: Sure. Can I just clarify quickly? I cut off a little bit in the beginning. Were you asking about Music Pro?
Speaker Change: I was asking about, I'm sorry, I was asking about Superfantears.
Speaker Change: and what you'd like to see in that product and the opportunity there. Thanks.
For more information, visit www.FEMA.gov
Speaker Change: Sure. So, again, it's a little bit tough for me to answer on behalf of the retailer. It is ultimately their platform and their features. Obviously, we have to work together, but I know.
Speaker Change: they've declined to answer it specifically and so I can't do that on their behalf but the the in general
So if you think about music today...
Speaker Change: It is monetized exactly the same way, whether you're a superfan or whether you're not, right, on subscription streaming. So it's obviously an undervalued, it's an underexploited opportunity for all of us, and it's...
Speaker Change: If you look at the gaming industry, 80% of revenue comes from 20% of users.
Robert Kyncl, Kareem Chin, Ltd.
Speaker Change: All of that, like, learning from the gaming industry is a really good place to go. And I really don't want to comment on behalf of our partners about their features.
Speaker Change: but we're engaged in all the conversations deeply. We're bullish about it. We think it's a great opportunity both for the retailers, sorry, for the DSPs, as well as for us. And it's yet another one of those catalysts of increased growth that, you know, none of us has figured into our business.
Speaker Change: Thank you. Our next question comes from the line of James Haney with Jeffries. Your line is now open.
Speaker Change: Great. Thanks for taking the question. Could you just talk about the drivers of the high single-digit growth in subscription streaming on a multi-year basis? What gives you that conviction and how much of that is coming from ARPU versus subscription? Thank you.
Speaker Change: Yeah, I'll go back to those three catalysts that it is subscribers, price, and share. And on subscribers, as I said, we continue...
Robert Kyncl, Kareem Chin
Speaker Change: You're in the mid to maybe high single digits, going to low to mid-double digits over the next four or five years.
Speaker Change: So, those continue to be a vast majority of what we see as the growth driver over the multi-year period, that subscriber growth.
Speaker Change: Having said that, you know, there's, I think, modest assumptions in industry projections for pricing.
Speaker Change: We see opportunity there on Catalyst, whether it is from, you know, things like audience segmentation and super fans and raising ARPU.
Speaker Change: across DSPs, as well as wholesale pricing optimization, as Robert talked about the improving on the family plan and multi-user discounts, as well as the
Speaker Change: and the Per Subscriber Minimums, and trying to move the industry more progressively on the wholesale side, knowing full well that in many of these bundles, music, as we like to say, is an anchor tenant, driving high engagement.
Speaker Change: And then on share, again, you know, we, the changes we have made, we think, improve our volume, velocity, diversity.
of Artists Development.
as well as our
Speaker Change: We're continuing to scour the market as we always do for bolt-on acquisitions, whether those are IP, catalog, or can help us on the digital side in terms of quickening our initiatives.
Speaker Change: So a few things there that give us the optimism over the multi-year period for the high single-digit subscription growth.
David Karnovsky, David Karnovsky
That's helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Batya Levy with UBS. Your line is now open.
Speaker Change: Great, thank you. Just following up on the multi-year high single-digit growth and subscription revenue growth, can we maybe talk a little bit more specifically for 2025? Should we expect a slower growth in the first half of the year and maybe improvement in the back half as you lap the price increases and maybe just cadence on artist releases? Do you expect a more linear year similar to last year? Thank you.
But yeah, thanks.
Robert Kyncl, Kareem Chin
Robert Kyncl, Kareem Chin
Speaker Change: Just given the drivers, and yes, we are lapping some of those price increases, so we will see some moderation, but again, we think the overall marketplace and the subscriber growth will continue to lift the subscription growth.
Speaker Change: Top of the funnel on our pipeline, whether it's deals on the distribution side or releases and making sure that there's enough volume in our pipes.
Speaker Change: to allow for movements back and forth between different quarters. And obviously, when that's combined with creative success on the charts, which we have had, it's, you know, it translates into results.
Great, thank you.
Speaker Change: Thank you. Our next question comes from the line of Stephen Lazik with Goldman Sachs. Your line is now open.
Speaker Change: Hey, great, thank you, too, if I could. First for Robert, on newer forms of music monetization, maybe away from social media or short-form video, I'm curious if you see any opportunity for other categories to come into the picture over the next year or two that might be able to move the needle on emerging revenue, streaming revenue growth. And then for Brian on free cash flow conversion, just curious if there's any puts or takes worth calling out as we think about operating or free cash flow conversion heading into next year. Thank you.
Speaker Change: So thanks, Steven. So one, I'll answer this a little bit more broadly, which is,
Speaker Change: Music always, music is the most widely distributed medium of any kind. More than video, more than text, more than anything.
Speaker Change: and because of that it becomes a soundtrack to everyone's lives and you know and because of that it deserves it always finds a way for next new revenue stream so your question is 100% spot-on the question is how often those come and how successful they become I have two to three new revenue streams sketched out but nothing that I will be prepared to speak about publicly
Speaker Change: because that would be a little bit premature. But it is exciting to actually see when you look at the engagement of people around the world with music.
Speaker Change: when you see lots of different distribution partners that we have, when we have a lot of label partners distributing through us, lots of artists.
Speaker Change: There are many different opportunities to monetize than we do today, but there's nothing that we can offer in terms of specific just yet. But your question is so spot on because it always does happen.
Speaker Change: music. And so I am allocating some portion of my time to developing these things as well.
Robert Kyncl, Kareem Chin
but otherwise we see it largely consistent year-to-year.
Great. Thank you both.
Speaker Change: Thank you. Our last question comes from the line of Jessica Reefer-Ehrlich with Bank of America Securities. Your line is now open.
Speaker Change: Oh, thank you. I guess one follow-up and one question. On the wholesale pricing, obviously it's
Speaker Change: very important piece of the financials. Are you looking for, I know you're looking for price increases, but I'm not sure I heard you say anything about.
Speaker Change: structural changes so if you could comment on that and then also you know you've made a lot of tech investments since you since you've come to the company Robert and you kind of can you talk about like kind of what you've seen from those investments and you know what what you will see it the results and then what's left to go
Speaker Change: Sure, sounds good. So on the first one, on the wholesale prices. So if you think about it, all of the conversations in the past have translated, have really been done through
through retail pricing.
So, you have wholesalers like us.
talking about retail pricing.
Speaker Change: And I just don't think that's right. We're wholesalers, therefore we should talk about wholesale prices. Whatever happens with retail prices is not what we control, and therefore, like, that is not how we should think about the business.
Speaker Change: So I'm very much focused on the things that we control and we learn from other industries.
Speaker Change: and Jessica. So if you look at the television industry, Jessica, you're obviously extremely familiar with how retail pricing works. And it's obviously similar in many other different industries.
Speaker Change: So that's why you see us talking about wholesale rather than retail. And on the technology investment, over the last 12 to 18 months, we focused on fixing a lot of legacy infrastructure issues.
Speaker Change: that we had in the company and we've stabilized and upgraded a lot of our core systems.
Speaker Change: you know, which were burdened by a significant amount of technology debt.
Speaker Change: So, we focused a lot on things like royalty processing systems for publishing or royalty statements for clients, sync licensing systems that allow us to drive more revenue and look into the black boxes, and obviously our digital supply and infrastructure. So there's a lot of foundational investments that we made.
Speaker Change: And now, as I said in my opening remarks, now the team is able to start focusing much more offensively on driving growth and efficiencies.
Speaker Change: Thank you. I would now like to turn the call back over to Robert Kyncl for closing remarks.
Robert Kyncl: All right, so thank you everyone. Thanks for your engagement, all of your questions, which were great. We are...
Robert Kyncl: You know, I said one thing in my opening remarks, that it's really exhilarating.
Robert Kyncl: to see the creative engines of Horner Records and Atlantic coming at the same time. We are up 10 percentage points in market share and top 200 on global Spotify chart since the time that I started at the company and it's just great to see this continual improvement in relevance.
Creating hits, creating stars.
Robert Kyncl: and having two large twin engines of growth in the biggest market in the world, Humming.
Robert Kyncl: That doesn't mean that we're resting on our laurels. We continue to invest.
Robert Kyncl: and we continue to look inward, look at further efficiencies so that we can keep on, you know, delivering on what we said, which is, you know, our margin improvement and at the same time increasing our growth into the future. So thank you so much for your support, for your attention, and look forward to talking to you in the future.
Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: A Cowboy's Journey Hiram! Your blades are sharp and with precision Flashing your favorite point of view I know you're waiting in the distance Just like you always do Just like you always do Already pulling me in Already under my skin And I know exactly how this ends I let you cut me open Just to see