Warner Music Group Q1 2026 Warner Music Group Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q1 2026 Warner Music Group Corp Earnings Call
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Operator: Welcome to Warner Music Group's Q1 earnings call for the period ended December 31, 2025. 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 Chinn, Head of Investor Relations. You may begin.
Operator: Welcome to Warner Music Group's Q1 earnings call for the period ended December 31, 2025. 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 Chinn, Head of Investor Relations. You may begin.
Speaker #2: Warner Music Group’s first-quarter earnings call for the period ended December 31, 2025. At the request of Warner Music Group, today’s call is being recorded for replay purposes.
Speaker #2: And if you object, you may disconnect at any time. Now, I would like to turn today's call over to your host, Mr. Relations. You may begin.
Speaker #3: Good afternoon and welcome to Warner Music Group's fiscal first-quarter earnings call. Please note that our earnings press release and snapshot are available on our website, and we plan to file our Form 10-Q on February 9th.
Kareem Chin: Good afternoon, and welcome to Warner Music Group's fiscal first quarter earnings call. Please note that our earnings press release and snapshot are available on our website, and we plan to file our Form 10-Q on 9 February. On today's call, we have our CEO, Robert Kyncl, and our CFO, Armin Zerza, who will take you through our results and then answer your questions. Before our prepared remarks, I would like to remind you that this communication involves forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results, including metrics that are adjusted for notable items, during this conference call and in our earnings materials, and have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website.
Kareem Chin: Good afternoon, and welcome to Warner Music Group's fiscal first quarter earnings call. Please note that our earnings press release and snapshot are available on our website, and we plan to file our Form 10-Q on 9 February. On today's call, we have our CEO, Robert Kyncl, and our CFO, Armin Zerza, who will take you through our results and then answer your questions. Before our prepared remarks, I would like to remind you that this communication involves forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results, including metrics that are adjusted for notable items, during this conference call and in our earnings materials, 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 #3: On today's call, we have our CEO, Robert Kyncl, and our CFO, and then answer your questions. Armin Zerza, who will take you through our results Before our prepared remarks, I would like to remind you that this communication involves forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance.
Speaker #3: We plan to present certain non-GAAP results, including metrics that are adjusted for notable items, during this conference call and in our earnings materials. We have provided schedules reconciling these results to our GAAP results in our earnings press release.
Speaker #3: All of these materials are posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted.
Kareem Chin: Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith, and we believe that there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, and projections will result or be achieved. Investors should not rely on forward-looking statements as they are subject to a variety of risks, uncertainties, and other factors that can cause actual results that materially differ from our expectations. Information concerning these risk factors is contained in our filings with the SEC. And with that, I'll turn it over to Robert.
Kareem Chin: Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith, and we believe that there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, and projections will result or be achieved. Investors should not rely on forward-looking statements as they are subject to a variety of risks, uncertainties, and other factors that can cause actual results that materially differ from our expectations. Information concerning these risk factors is contained in our filings with the SEC. And with that, I'll turn it over to Robert.
Speaker #3: 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 that there is a reasonable basis for them.
Speaker #3: 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, as they are subject to a variety of risks, uncertainties, and other factors that can cause actual results to materially differ from our expectations.
Speaker #3: Information concerning these risk factors is contained in our filings with the SEC. And with that, I'll turn it over to
Speaker #3: Robert. Thanks, Kareem.
Robert Kyncl: Thanks, Kareem, and hello, everyone. Greetings from Los Angeles, where we celebrated the successes of our artists and songwriters at the Grammys this past weekend. In fact, you just heard songs from our winners, Kehlani, FKA twigs, Turnstile, as well as Bruno Mars, who gave two incredible performances at the show. Our momentum continues as we delivered a third consecutive quarter of strong, profitable growth. Total revenue increased 7%, led by 9% growth in recorded music subscription streaming on an adjusted basis. Total adjusted OIBDA increased 22%, and margin increased 310 basis points. It's clear that our strategy is working as we continue to deliver on the three key components of our plan: growing our share, growing the value of music, and driving efficiency.
Robert Kyncl: Thanks, Kareem, and hello, everyone. Greetings from Los Angeles, where we celebrated the successes of our artists and songwriters at the Grammys this past weekend. In fact, you just heard songs from our winners, Kehlani, FKA twigs, Turnstile, as well as Bruno Mars, who gave two incredible performances at the show. Our momentum continues as we delivered a third consecutive quarter of strong, profitable growth. Total revenue increased 7%, led by 9% growth in recorded music subscription streaming on an adjusted basis. Total adjusted OIBDA increased 22%, and margin increased 310 basis points. It's clear that our strategy is working as we continue to deliver on the three key components of our plan: growing our share, growing the value of music, and driving efficiency.
Speaker #4: And hello, everyone. Greetings from Los Angeles, where we celebrated the successes of our artists and songwriters at the Grammys this past weekend. In fact, you just heard songs from our winners—Kehlani, FKA Twigs, Turnstile—as well as Bruno Mars, who gave two incredible performances at the show.
Speaker #4: Our momentum continues as we delivered a third consecutive quarter of strong, profitable growth. Total revenue increased 7%, led by 9% growth in recorded music subscription streaming on an adjusted basis.
Speaker #4: Total adjusted OIBDA increased 22%, and margin increased 310 basis points. It's clear that our strategy is working as we continue to deliver on the three key components of share, growing the value of music, and driving efficiency.
Speaker #4: I'll talk about our progress on each front, and then I'll explain how we plan to leverage AI to further accelerate progress towards each of these three goals.
Robert Kyncl: I'll talk about our progress on each front, and then I'll explain how we plan to leverage AI to further accelerate progress towards each of these three goals. Our strong Q1 results reflect the steady market share improvement we've been delivering. We saw approximately one percentage point of US streaming market share growth over the prior year quarter, with strength across new releases and catalog, and our market share on Spotify's Top 200 chart is up three percentage points fiscal year to date. We started the year with a bang as we released Zach Bryan's new album, With Heaven on Top, sending it to number one on Billboard 200. Meanwhile, just after his collaboration with Rosé on APT. finished at number one on the Billboard year-end global chart, Bruno Mars released his new single, I Just Might.
Robert Kyncl: I'll talk about our progress on each front, and then I'll explain how we plan to leverage AI to further accelerate progress towards each of these three goals. Our strong Q1 results reflect the steady market share improvement we've been delivering. We saw approximately one percentage point of US streaming market share growth over the prior year quarter, with strength across new releases and catalog, and our market share on Spotify's Top 200 chart is up three percentage points fiscal year to date. We started the year with a bang as we released Zach Bryan's new album, With Heaven on Top, sending it to number one on Billboard 200. Meanwhile, just after his collaboration with Rosé on APT. finished at number one on the Billboard year-end global chart, Bruno Mars released his new single, I Just Might.
Speaker #4: Our strong Q1 results reflect the steady market share improvements we've been delivering. We saw approximately 1 percentage point of U.S. streaming market share growth over the prior-year quarter, with strength across new releases and catalog, and our market share on Spotify's Top 200 chart is up 3 percentage points fiscal year to date.
Speaker #4: We started the year with a bang, as we released Zach Bryan's new album with "Heaven on Top," sending it to number one on the Billboard 200.
Speaker #4: Meanwhile, just after his collaboration with Rosé on "APT," finished at number one on the Billboard year-end global chart, Bruno Mars releases new single "I Just Might." It quickly jumped to number one on the Billboard Hot 100, and on both the Spotify US and global charts.
Robert Kyncl: It quickly jumped to number 1 on the Billboard Hot 100 and on both the Spotify US and global charts. Bruno's long-awaited first new solo album in a decade, The Romantic, drops on 27 February. Both Zach and Bruno are signed to us for recorded music and music publishing, which is a true testament to our One Warner approach. Outside the US, our focused approach is also paying off, with talent resonating across markets, languages, and cultures. We scored number 1s in France, Italy, Spain, the Netherlands, Finland, Korea, and China, and also won the Billboard Latin Airplay chart. Turning to our global catalog division, we've taken a new strategic approach that's also driving our share, including in an always-on marketing philosophy that ensures we keep artist brands alive and fresh with new generations across all forms of media.
Robert Kyncl: It quickly jumped to number 1 on the Billboard Hot 100 and on both the Spotify US and global charts. Bruno's long-awaited first new solo album in a decade, The Romantic, drops on 27 February. Both Zach and Bruno are signed to us for recorded music and music publishing, which is a true testament to our One Warner approach. Outside the US, our focused approach is also paying off, with talent resonating across markets, languages, and cultures. We scored number 1s in France, Italy, Spain, the Netherlands, Finland, Korea, and China, and also won the Billboard Latin Airplay chart. Turning to our global catalog division, we've taken a new strategic approach that's also driving our share, including in an always-on marketing philosophy that ensures we keep artist brands alive and fresh with new generations across all forms of media.
Speaker #4: Bruno's long-awaited first new solo album in a decade, "The Romantic," drops on February 27th. Both Zach and Bruno are signed to us for recorded music and music publishing, which is a true testament to our One Warner approach.
Speaker #4: Outside the US, our focused approach is also paying off, with talent resonating across markets, languages, and cultures. We scored number ones in France, Italy, Spain, the Netherlands, Finland, Korea, and China, and also won the Billboard Latin Airplay chart.
Speaker #4: Turning to our global catalog division, we've taken a new strategic approach that's also driving our share, including an always-on marketing philosophy that ensures we keep artists' brands alive and fresh with new generations across all forms of media.
Speaker #4: And we continue to find powerful sync placements to fuel consumption of our catalog and introduce our iconic catalog to new fans. An example is this season's "Stranger Things" on Netflix, where syncs resulted in major streaming upticks on chart movement for classic songs from legends like Prince, David Bowie, and Fleetwood Mac.
Robert Kyncl: We continue to find powerful sync placements to fuel consumption of our catalog and introduce our iconic catalog to new fans. An example is this season's Stranger Things on Netflix, where syncs resulted in major streaming upticks on and chart movement for classic songs from legends like Prince, David Bowie, and Fleetwood Mac. Momentum from a placement in the show's finale drove a more than 600% year-over-year increase in weekly streams following the premiere of the finale on Prince's 1984 hit, Purple Rain, which led to it reentering the Billboard Hot 100 for the first time in over a decade. Importantly, we've seen baseline weekly streams of Purple Rain settle to a new baseline that's six times higher than before the sync.
Robert Kyncl: We continue to find powerful sync placements to fuel consumption of our catalog and introduce our iconic catalog to new fans. An example is this season's Stranger Things on Netflix, where syncs resulted in major streaming upticks on and chart movement for classic songs from legends like Prince, David Bowie, and Fleetwood Mac. Momentum from a placement in the show's finale drove a more than 600% year-over-year increase in weekly streams following the premiere of the finale on Prince's 1984 hit, Purple Rain, which led to it reentering the Billboard Hot 100 for the first time in over a decade. Importantly, we've seen baseline weekly streams of Purple Rain settle to a new baseline that's six times higher than before the sync.
Speaker #4: Momentum from a placement in the show's finale drove a more than 600% year-over-year increase in weekly streams following the premiere of the finale on Prince's 1984 hit "Purple Rain," which led to it re-entering the Billboard Hot 100 for the first time in over a decade.
Speaker #4: Importantly, we've seen baseline weekly streams of "Purple Rain" settle to a new baseline that's six times higher than before the sync. And for David Bowie's anthemic "Heroes," we saw more than 300% year-over-year increase in weekly streams and a new baseline that's two and a half times higher than before the sync.
Robert Kyncl: For David Bowie's anthemic Heroes, we saw more than 300% year-over-year increase in weekly streams, and a new baseline that's two and a half times higher than before the sync. Amazing results, as you can see. In publishing, we focused on accelerating our proven A&R strategy by building and acquiring high-margin IP, executing admin and sub-publishing deals, and growing revenue through AI partnerships. Warner Chappell Songwriters contributed to half of the top 10 most-streamed songs of 2025 in the US. And a huge congrats to Amy Allen, who won Songwriter of the Year at the Grammys for the second year in a row. Turning to growing the value of music, we're now seeing the impact of the deals we've reshaped with the DSPs last year.
Robert Kyncl: For David Bowie's anthemic Heroes, we saw more than 300% year-over-year increase in weekly streams, and a new baseline that's two and a half times higher than before the sync. Amazing results, as you can see. In publishing, we focused on accelerating our proven A&R strategy by building and acquiring high-margin IP, executing admin and sub-publishing deals, and growing revenue through AI partnerships. Warner Chappell Songwriters contributed to half of the top 10 most-streamed songs of 2025 in the US. And a huge congrats to Amy Allen, who won Songwriter of the Year at the Grammys for the second year in a row. Turning to growing the value of music, we're now seeing the impact of the deals we've reshaped with the DSPs last year.
Speaker #4: Amazing results, as you can see. In publishing, we focused on accelerating our proven A&R strategy by building and acquiring high-margin IP, executing admin and sub-publishing deals, and growing revenue through AI partnerships.
Speaker #4: Warner Chappell songwriters contributed to half of the top 10 most streamed songs of 2025 in the US. And a huge congrats to Amy Allen, who won Songwriter of the Year at the Grammys for the second year in a row.
Speaker #4: Turning to growing the value of music, we're now seeing the impact of the deals we've reshaped with the DSPs last year. These agreements are finally shifting the industry toward price-driven growth that better reflects the ever-increasing value of music to users, and providing us with greater economic certainty.
Robert Kyncl: These agreements are finally shifting the industry toward price-driven growth that better reflects the ever-increasing value of music to users and providing us with greater economic certainty. I'm also pleased to announce we've renewed our deal with TikTok, resulting in an improved deal economics. Moving to our third priority of improving efficiency. Through our investments in technology over the past few years, such as overhauling our supply chain, building new tools for artists, songwriters, and employees, and rolling out our financial transformation program, combined with our reorganization, we have impressively been able to accelerate growth while cutting costs. This strategic overhaul of our foundational technology infrastructure has not only enabled us to increase efficiency, but has positioned us favorably to leverage AI across our three strategic priorities: growing share, growing the value of music, and efficiency.
Robert Kyncl: These agreements are finally shifting the industry toward price-driven growth that better reflects the ever-increasing value of music to users and providing us with greater economic certainty. I'm also pleased to announce we've renewed our deal with TikTok, resulting in an improved deal economics. Moving to our third priority of improving efficiency. Through our investments in technology over the past few years, such as overhauling our supply chain, building new tools for artists, songwriters, and employees, and rolling out our financial transformation program, combined with our reorganization, we have impressively been able to accelerate growth while cutting costs. This strategic overhaul of our foundational technology infrastructure has not only enabled us to increase efficiency, but has positioned us favorably to leverage AI across our three strategic priorities: growing share, growing the value of music, and efficiency.
Speaker #4: I'm also pleased to announce we've renewed our deal with TikTok, resulting in improved deal economics. Moving to our third priority of improving efficiency.
Speaker #4: Through our investments in technology over the past few years, such as overhauling our supply chain, building new tools for artists' songwriters and employees, and rolling out our financial transformation program, combined with our reorganization, we have impressively been able to accelerate growth while cutting costs.
Speaker #4: This strategic overhaul of our foundational technology infrastructure has not only enabled us to increase efficiency, but has positioned us favorably to leverage AI across our three strategic priorities: growing share, growing the value of music, and efficiency.
Speaker #4: That combined with our management team's deep tech and transformation experience uniquely positions us to capitalize on this tremendous opportunity. Starting with growing share, we're quickly deploying AI to accelerate new artists' discovery, and enhance and automate our marketing.
Robert Kyncl: That, combined with our management team's deep tech and transformation experience, uniquely positions us to capitalize on this tremendous opportunity. Starting with growing share, we're quickly deploying AI to accelerate new artist discovery and enhance and automate our marketing. This enables us to scale our marketing efforts beyond what's humanly possible, a transformational step for a large rights holder like us. We have an attractive opportunity to better monetize one of our most cherished assets, our extensive music catalog of over a million recordings that include some of the most iconic songs ever recorded. With the use of AI, we can quickly and inexpensively generate assets like motion art and music videos, and others, that stimulate greater exposure and engagement with our catalog at scale.
Robert Kyncl: That, combined with our management team's deep tech and transformation experience, uniquely positions us to capitalize on this tremendous opportunity. Starting with growing share, we're quickly deploying AI to accelerate new artist discovery and enhance and automate our marketing. This enables us to scale our marketing efforts beyond what's humanly possible, a transformational step for a large rights holder like us. We have an attractive opportunity to better monetize one of our most cherished assets, our extensive music catalog of over a million recordings that include some of the most iconic songs ever recorded. With the use of AI, we can quickly and inexpensively generate assets like motion art and music videos, and others, that stimulate greater exposure and engagement with our catalog at scale.
Speaker #4: This enables us to scale our marketing efforts beyond what's humanly possible, a transformational step for a large rights holder like us. We have an attractive opportunity to better monetize one of our most cherished assets—our extensive music catalog of over a million recordings—that includes some of the most iconic songs ever recorded.
Speaker #4: With the use of AI, we can quickly and inexpensively generate assets like motion art and music videos and others, that stimulate greater exposure and engagement with our catalog at scale.
Speaker #4: At the same time, we're developing tools to amplify the creativity of our artists, and we've been hosting workshops and songwriting camps to help our creators leverage the latest technologies to hone their work, cut through the noise, and build fandom in today's fast-moving world.
Robert Kyncl: At the same time, we're developing tools to amplify the creativity of our artists, and we've been hosting workshops and songwriting camps to help our creators leverage the latest technologies to hone their work, cut through the noise, and build fandom in today's fast-moving world. We also see a clear and tangible opportunity to leverage AI against our second priority, which is to increase the value of music by leaning into partnerships with new entrants, such as Suno and Udio, as well as our digital service providers, that provides fans with the opportunity for deeper engagement at higher price tiers, and we're already in discussions with some of them. By taking an early and aggressive approach to embracing new technologies, we are offering ethical guidelines that will enable us to protect and super serve artists and songwriters while creating incremental opportunities for the entire ecosystem.
Robert Kyncl: At the same time, we're developing tools to amplify the creativity of our artists, and we've been hosting workshops and songwriting camps to help our creators leverage the latest technologies to hone their work, cut through the noise, and build fandom in today's fast-moving world. We also see a clear and tangible opportunity to leverage AI against our second priority, which is to increase the value of music by leaning into partnerships with new entrants, such as Suno and Udio, as well as our digital service providers, that provides fans with the opportunity for deeper engagement at higher price tiers, and we're already in discussions with some of them. By taking an early and aggressive approach to embracing new technologies, we are offering ethical guidelines that will enable us to protect and super serve artists and songwriters while creating incremental opportunities for the entire ecosystem.
Speaker #4: We also see a clear and tangible opportunity to leverage AI against our second priority, which is to increase the value of music by leaning into partnerships with new entrants such as Suno and Udio, as well as our digital service providers that provide fans with the opportunity for deeper engagement at higher price tiers.
Speaker #4: And we're already in discussions with some of them. By taking an early and aggressive approach to embracing new technologies, we are authoring ethical guidelines that will enable us to protect and superserve artists and songwriters, while creating incremental opportunities for the entire ecosystem.
Speaker #4: To reiterate on my blog post from November, WMG is harnessing AI as fuel for music industry growth, guided by several non-negotiable principles. One, our partners must commit to license models.
Robert Kyncl: To reiterate on my blog post from November, WMG is harnessing AI as fuel for music industry growth, guided by several non-negotiable principles. One, our partners must commit to license models. Two, the economic terms must properly reflect the value of music. And three, artists and songwriters must have a choice to opt in to any use of their name, image, likeness, and voice in new AI-generated recordings. The latest example of these principles in action is our recently signed deal with Suno, the leader in AI music. And when it comes to our third pillar, efficiency, as I mentioned earlier, over the last two years, we laid the infrastructure foundation for us to effectively deploy AI across many different departments across the company. This includes departments such as legal, finance, and HR, to further increase our efficiency and effectiveness.
Robert Kyncl: To reiterate on my blog post from November, WMG is harnessing AI as fuel for music industry growth, guided by several non-negotiable principles. One, our partners must commit to license models. Two, the economic terms must properly reflect the value of music. And three, artists and songwriters must have a choice to opt in to any use of their name, image, likeness, and voice in new AI-generated recordings. The latest example of these principles in action is our recently signed deal with Suno, the leader in AI music. And when it comes to our third pillar, efficiency, as I mentioned earlier, over the last two years, we laid the infrastructure foundation for us to effectively deploy AI across many different departments across the company. This includes departments such as legal, finance, and HR, to further increase our efficiency and effectiveness.
Speaker #4: Two, the economic terms must properly reflect the value of music. And three, artists and songwriters must have a choice to opt into any use of their name, image, likeness, and voice in new AI-generated recordings.
Speaker #4: The latest example of these principles in action is our recently signed deal with Suno, the leader in AI music. And when it comes to our third pillar, efficiency, as I mentioned earlier, over the last two years, we laid the infrastructure foundation for us to effectively deploy AI across many different departments across the company.
Speaker #4: This includes departments such as legal, finance, and HR to further increase our efficiency and effectiveness. AI is leading to an explosion in creative and commercial possibilities that will create even greater demand for original talent.
Robert Kyncl: AI is leading to an explosion in creative and commercial possibilities that will create even greater demand for original talent. Shifts in culture and tastes have and will always be defined by real artistry, identity, and vision that define the strongest creative brands. In adhering to our principles, we are protecting and supporting our artists' and songwriters' original creativity, increasing fan engagement, and unlocking even greater value for the entire industry. We are well-positioned to capitalize on a healthy and growing industry. Momentum is strong, and we're seeing creative success that is translating to steady market share improvement, progress in economic terms with major DSPs, and deals with existing and new innovative platforms that will leverage the use of AI to drive a step change in the value creation for the industry.
Robert Kyncl: AI is leading to an explosion in creative and commercial possibilities that will create even greater demand for original talent. Shifts in culture and tastes have and will always be defined by real artistry, identity, and vision that define the strongest creative brands. In adhering to our principles, we are protecting and supporting our artists' and songwriters' original creativity, increasing fan engagement, and unlocking even greater value for the entire industry. We are well-positioned to capitalize on a healthy and growing industry. Momentum is strong, and we're seeing creative success that is translating to steady market share improvement, progress in economic terms with major DSPs, and deals with existing and new innovative platforms that will leverage the use of AI to drive a step change in the value creation for the industry.
Speaker #4: Shifts in culture and tastes have and will always be defined by real artistry, identity, and vision, that define the strongest creative brands. In adhering to our principles, we are protecting and supporting our artists and songwriters' original creativity, increasing fan engagement, and unlocking even greater value for the entire industry.
Speaker #4: We are well-positioned to capitalize on a healthy and growing industry. Momentum is strong, and we're seeing creative success that is translating to steady market share improvement, progress in economic terms with major DSPs, and deals with existing and new innovative platforms that will leverage the use of AI to drive a step change in the value creation for the industry.
Speaker #4: And finally, we have a steady stream of releases from new and established stars dropping every week for the rest of Q2. Be sure to look out for new music from Bruno Mars, Charlie XCX, Kehlani, Hilary Duff, Somber, Alex Warren, Fred Again, Charlie Puth, Tiesto, and many more.
Robert Kyncl: And finally, we have a steady stream of releases from new and established stars dropping every week for the rest of Q2. Be sure to look out for new music from Bruno Mars, Charli XCX, Kehlani, Hilary Duff, Sombra, Alex Warren, Fred again.., Charlie Puth, Tiësto, and many more. And now I'll pass it over to Armin.
Robert Kyncl: And finally, we have a steady stream of releases from new and established stars dropping every week for the rest of Q2. Be sure to look out for new music from Bruno Mars, Charli XCX, Kehlani, Hilary Duff, Sombra, Alex Warren, Fred again.., Charlie Puth, Tiësto, and many more. And now I'll pass it over to Armin.
Speaker #4: And now, I'll pass it over to Armin.
Speaker #2: Thank you, Robert, and good afternoon, everyone. I'd like to thank our teams for a very strong start to the year. It's rare to see a company undergo such significant transformation in such a short timeframe while delivering accelerated growth and profitability.
Armin Zerza: Thank you, Robert, and good afternoon, everyone. I'd like to thank our teams for a very strong start to the year. It's rare to see a company undergo such significant transformation in such a short timeframe while delivering accelerated growth and profitability. Yet, we've accomplished just that, and it's a testament to the incredible work of our employees. It's an exciting time at the company, with lots of momentum and opportunities ahead of us. When I arrived, we committed to delivering against 3 key metrics, which we view as essential to creating shareholder value. First, accelerating revenue and share growth. Second, driving margin expansion. And third, improving cash flow. This is now our third consecutive quarter of profitable growth, underpinned by healthy margin expansion and cash flow generation. Encouragingly, our performance was broad-based, demonstrating strength across divisions and market share gains in key regions.
Armin Zerza: Thank you, Robert, and good afternoon, everyone. I'd like to thank our teams for a very strong start to the year. It's rare to see a company undergo such significant transformation in such a short timeframe while delivering accelerated growth and profitability. Yet, we've accomplished just that, and it's a testament to the incredible work of our employees. It's an exciting time at the company, with lots of momentum and opportunities ahead of us. When I arrived, we committed to delivering against 3 key metrics, which we view as essential to creating shareholder value. First, accelerating revenue and share growth. Second, driving margin expansion. And third, improving cash flow. This is now our third consecutive quarter of profitable growth, underpinned by healthy margin expansion and cash flow generation. Encouragingly, our performance was broad-based, demonstrating strength across divisions and market share gains in key regions.
Speaker #2: Yet, we've accomplished just that, and it's a testament to the incredible work of our employees. It's an exciting time at the company, with lots of momentum and opportunities ahead of us.
Speaker #2: When I arrived, we committed to delivering against three key metrics: which we view as essential to creating shareholder value. First, accelerating revenue and share growth.
Speaker #2: Second, driving margin expansion. And third, improving cash flow. This is now our third consecutive quarter of profitable growth underpinned by healthy margin expansion and cash flow generation.
Speaker #2: Encouragingly, our performance was broad-based, demonstrating strengths across divisions and market share gains in key regions. And by consistently delivering on a sustainable growth model, which is anchored in high single-digit total revenue growth, double-digit adjusted output growth, and 50% to 60% operating cash flow conversion, we've established a solid baseline for how we expect our business to perform.
Armin Zerza: By consistently delivering on a sustainable growth model, which is anchored in high single-digit total revenue growth, double-digit adjusted output growth, and 50 to 60% operating cash flow conversion, we have established a solid baseline for how we expect our business to perform. In short, we are doing exactly what we promised and are just getting started. I will provide details on how we will accelerate on this solid foundation in a moment, but first, I want to talk about the key drivers of our performance in Q1. Total revenue growth of 7% reflects solid performance across recorded music and music publishing. This was highlighted by sequential improvement in recorded music streaming, led by subscription streaming growth of 11%, or 9% when adjusted for notable items. Ad-supported streaming grew 4%, driven by strong performance from traditional DSPs.
Armin Zerza: By consistently delivering on a sustainable growth model, which is anchored in high single-digit total revenue growth, double-digit adjusted output growth, and 50 to 60% operating cash flow conversion, we have established a solid baseline for how we expect our business to perform. In short, we are doing exactly what we promised and are just getting started. I will provide details on how we will accelerate on this solid foundation in a moment, but first, I want to talk about the key drivers of our performance in Q1. Total revenue growth of 7% reflects solid performance across recorded music and music publishing. This was highlighted by sequential improvement in recorded music streaming, led by subscription streaming growth of 11%, or 9% when adjusted for notable items. Ad-supported streaming grew 4%, driven by strong performance from traditional DSPs.
Speaker #2: In short, we're doing exactly what we promised and are just getting started. I will provide details on how we will accelerate on this solid foundation in a moment, but first I want to talk about the key drivers of our performance in Q1.
Speaker #2: Total revenue growth of 7 percent reflects solid performance across recorded music and music publishing. This was highlighted by a sequential improvement in recorded music streaming, led by subscription streaming growth of 11 percent, or 9 percent when adjusted for notable items.
Speaker #2: Ad-supported streaming grew 4 percent, driven by strong performance from traditional DSPs. Physical declined 11 percent due to a difficult comparison in the prior-year quarter, which saw releases from Linkin Park as well as in Japan and Korea.
Armin Zerza: Physical declined 11% due to a difficult comparison in the prior year quarter, which saw releases from Linkin Park, as well as in Japan and Korea. Artist services and expanded rights revenue increased 13%, driven by concert promotion revenue, primarily in France. Music publishing revenue grew 9%, which reflects the impact of MRC historical matched royalties in the prior year quarter. Adjusting for this notable item, publishing grew 15% and saw double-digit growth across performance, mechanical, sync, and streaming. Adjusted OIBDA rose by 22%, and our margin increased by over 300 basis points, reflecting the operating leverage that is inherent in our business, as well as the benefit of our cost savings program and favorable movements in FX rates. These factors also drove robust operating cash flow growth of 33%, for a conversion ratio of nearly 100% of adjusted OIBDA.
Armin Zerza: Physical declined 11% due to a difficult comparison in the prior year quarter, which saw releases from Linkin Park, as well as in Japan and Korea. Artist services and expanded rights revenue increased 13%, driven by concert promotion revenue, primarily in France. Music publishing revenue grew 9%, which reflects the impact of MRC historical matched royalties in the prior year quarter. Adjusting for this notable item, publishing grew 15% and saw double-digit growth across performance, mechanical, sync, and streaming. Adjusted OIBDA rose by 22%, and our margin increased by over 300 basis points, reflecting the operating leverage that is inherent in our business, as well as the benefit of our cost savings program and favorable movements in FX rates. These factors also drove robust operating cash flow growth of 33%, for a conversion ratio of nearly 100% of adjusted OIBDA.
Speaker #2: Artist services and expanded rights revenue increased 13 percent, driven by concert promotion revenue primarily in France. Music publishing revenue grew 9 percent, which reflects the impact of MLC historical matched royalties in the prior year quarter.
Speaker #2: Adjusting for this notable item, publishing grew 15 percent and saw double-digit growth across performance, mechanical, sync, and streaming. Adjusted output rose by 22 percent, and our margin increased by over 300 basis points.
Speaker #2: Reflecting the operating leverage that is inherent in our business, as well as the benefit of our cost savings program and favorable movements in FX rates.
Speaker #2: These factors also drove robust operating cash flow growth of 33 percent for conversion ratio of nearly 100 percent of adjusted output. Accordingly, we saw a significant increase in our cash balance, which grew by more than 200 million dollars since last quarter to 751 million dollars.
Armin Zerza: Accordingly, we saw a significant increase in our cash balance, which grew by more than $200 million since last quarter to $751 million. These results are just the beginning, and our focus is on accelerating growth by our strategic priorities and initiatives, which include, first, investing into our core, organically and inorganically. Second, expanding opportunities for music monetization by continuing to work with traditional streaming partners and building their capabilities, forging the partnerships, and making the investments necessary to win with AI. And third, driving margin and cash flow through a combination of top-line growth, operating leverage, and cost efficiencies. First, on investments in our core. Our refined approach to capital allocation and investment is clearly working, as we are seeing more consistent, broad-based results, driven by resilient and growing market share.
Armin Zerza: Accordingly, we saw a significant increase in our cash balance, which grew by more than $200 million since last quarter to $751 million. These results are just the beginning, and our focus is on accelerating growth by our strategic priorities and initiatives, which include, first, investing into our core, organically and inorganically. Second, expanding opportunities for music monetization by continuing to work with traditional streaming partners and building their capabilities, forging the partnerships, and making the investments necessary to win with AI. And third, driving margin and cash flow through a combination of top-line growth, operating leverage, and cost efficiencies. First, on investments in our core. Our refined approach to capital allocation and investment is clearly working, as we are seeing more consistent, broad-based results, driven by resilient and growing market share.
Speaker #2: These results are just the beginning, and our focus is on accelerating growth by our strategic priorities and initiatives, which include: first, investing into our core, organically and inorganically; second, expanding opportunities for music monetization by continuing to work with traditional streaming partners; and building the capabilities, supporting the partnerships, and making the investment necessary to win with AI.
Speaker #2: And third, driving margin and cash flow through a combination of top-line growth, operating leverage, and cost efficiencies. First, on investments in our core. Our refined approach to capital allocation and investment is clearly working, as we are seeing more consistent, broad-based results, driven by a resilient and growing market share.
Speaker #2: As we have said in the past, we are using M&A as an accelerant, with a focus on high-quality, equitable catalog acquisitions. We have a robust and growing pipeline of opportunities, which has led us to increase the capacity of our joint venture with Bain, as detailed in the 8-K filed earlier today.
Armin Zerza: As we have said in the past, we are using M&A as an accelerant with a focus on high-quality, accretive catalog acquisitions. We have a robust and growing pipeline of opportunities, which has led us to increase the capacity of our joint venture with Bain, as detailed in the 8-K we filed earlier today. WMG and Bain have increased our equity commitment by $100 million each and expect to maintain the existing equity-to-debt ratio, which will increase the JV's total capacity from $1.2 billion to approximately $1.65 billion. You can expect some exciting announcements coming in the near future, as we plan to deploy a significant portion of the JV's total capacity by the end of this fiscal year.
Armin Zerza: As we have said in the past, we are using M&A as an accelerant with a focus on high-quality, accretive catalog acquisitions. We have a robust and growing pipeline of opportunities, which has led us to increase the capacity of our joint venture with Bain, as detailed in the 8-K we filed earlier today. WMG and Bain have increased our equity commitment by $100 million each and expect to maintain the existing equity-to-debt ratio, which will increase the JV's total capacity from $1.2 billion to approximately $1.65 billion. You can expect some exciting announcements coming in the near future, as we plan to deploy a significant portion of the JV's total capacity by the end of this fiscal year.
Speaker #2: WMG and Bain have increased our equity commitment by 100 million dollars each and expect to maintain the existing equity to debt ratio which will increase the JV's total capacity from 1.2 billion dollars to approximately 1.65 billion dollars.
Speaker #2: You can expect some exciting announcements coming in the near future, as we plan to deploy a significant portion of the JV's total capacity by the end of this fiscal year.
Speaker #2: This combination of organic and inorganic investments will fortify our core giving us greater scale to capitalize on favorable investment trends as well as emerging opportunities like AI that will lean heavily on iconic content.
Armin Zerza: This combination of organic and inorganic investments will fortify our core, giving us greater scale to capitalize on favorable industry trends, as well as emerging opportunities like AI that will lean heavily on iconic content. Which leads me to expanding opportunities for monetization. Now that we have fortified our core business through more favorable terms with traditional streaming partners, we are focused on leveraging AI to drive significant incremental top- and bottom-line growth to the benefits of our artists, songwriters, and shareholders. Understandably, this topic has been a focus of investor attention with a wide range of views. Robert and I believe that AI is a tremendous opportunity for the music industry when executed ethically and responsibly. Our priorities have been to, first, invest into and forge partnerships to establish terms early and in a way that artists, songwriters, labels, and publishers are protected and fairly compensated.
Armin Zerza: This combination of organic and inorganic investments will fortify our core, giving us greater scale to capitalize on favorable industry trends, as well as emerging opportunities like AI that will lean heavily on iconic content. Which leads me to expanding opportunities for monetization. Now that we have fortified our core business through more favorable terms with traditional streaming partners, we are focused on leveraging AI to drive significant incremental top- and bottom-line growth to the benefits of our artists, songwriters, and shareholders. Understandably, this topic has been a focus of investor attention with a wide range of views. Robert and I believe that AI is a tremendous opportunity for the music industry when executed ethically and responsibly. Our priorities have been to, first, invest into and forge partnerships to establish terms early and in a way that artists, songwriters, labels, and publishers are protected and fairly compensated.
Speaker #2: Which leads me to expanding opportunities for monetization. Now that we have fortified our core business through more favorable terms with traditional streaming partners, we are focused on leveraging AI to drive significant incremental top and bottom line growth to the benefit of our artists, songwriters, and shareholders.
Speaker #2: Understandably, this topic has been a focus of investor attention, with the right range that AI is a tremendous opportunity of views. Robert and I believe, for the music industry, when executed ethically and responsibly.
Speaker #2: Our priorities have been to, first, invest into and forge partnerships to establish terms early and in a way that artists, songwriters, labels, and publishers are protected and fairly compensated.
Speaker #2: Second, design business models with our partners that are consumption-based and equitative to current ones, and third, build the capabilities to drive increased engagement with our treasure trove of recordings and compositions.
Armin Zerza: Second, design business models with our partners that are consumption-based and accretive to current ones. And third, build the capabilities to drive increased engagement with our treasure trove for recordings and compositions. Our recently completed AI deals with Suno, Stability AI, Klay Vision, and Udio are based on these principles, and have the potential to unlock significant incremental revenue at accretive economics. Importantly, in all of our deals, we'll be compensated on a consumption basis, ensuring that our economics scale as our partners' business grow. Also, our partners' offerings will result in higher ARPUs, reflecting the interactive nature of the platform. We were the first major label to sign a deal with Suno, the market leader in generative AI music content. Suno is already earning $several hundred million in annual revenue, and it's empowering music fans to create and play with music in groundbreaking ways.
Armin Zerza: Second, design business models with our partners that are consumption-based and accretive to current ones. And third, build the capabilities to drive increased engagement with our treasure trove for recordings and compositions. Our recently completed AI deals with Suno, Stability AI, Klay Vision, and Udio are based on these principles, and have the potential to unlock significant incremental revenue at accretive economics. Importantly, in all of our deals, we'll be compensated on a consumption basis, ensuring that our economics scale as our partners' business grow. Also, our partners' offerings will result in higher ARPUs, reflecting the interactive nature of the platform. We were the first major label to sign a deal with Suno, the market leader in generative AI music content. Suno is already earning $several hundred million in annual revenue, and it's empowering music fans to create and play with music in groundbreaking ways.
Speaker #2: Our recently completed AI deals with Suno, Stability, Clay, and Udio are based on this principle and have the potential to unlock significant incremental revenue at equitative economics.
Speaker #2: Importantly, in all of our deals, we'll be compensated on a consumption basis, ensuring that our economics scale as our partners' businesses grow. Also, our partners' offerings will result in higher outputs, reflecting the interactive nature of the platform.
Speaker #2: We were the first major label to sign a deal with Suno, the market leader in generative AI music content. Suno is already earning several hundred million dollars in annual revenue and is empowering music fans to create and play with music in groundbreaking ways.
Speaker #2: Through an innovative partnership we entered into last fall, we, Suno, and most importantly, our artists and songwriters will begin to reap the benefits of our music in fiscal year '26.
Armin Zerza: Through an innovative partnership we entered into last fall, we, Suno, and most importantly, our artists and songwriters, will begin to reap the benefits of our music in fiscal year 2026, while also showing what the future of music looks like. We expect this partnership to be a material top and bottom-line growth driver starting in fiscal 2027. Our goal is to maximize fans' ability to engage more deeply with the music they love. So of course, we are also exploring opportunities with our large DSP partners to incorporate AI tools that will enhance their consumer offerings. Doing so in ways that are consistent with our principles for ethical and responsible use of AI, represents the potential for significant industry value creation. And as Robert mentioned, the impact from AI-generated assets that spike engagement with our catalog can be a significant one.
Armin Zerza: Through an innovative partnership we entered into last fall, we, Suno, and most importantly, our artists and songwriters, will begin to reap the benefits of our music in fiscal year 2026, while also showing what the future of music looks like. We expect this partnership to be a material top and bottom-line growth driver starting in fiscal 2027. Our goal is to maximize fans' ability to engage more deeply with the music they love. So of course, we are also exploring opportunities with our large DSP partners to incorporate AI tools that will enhance their consumer offerings. Doing so in ways that are consistent with our principles for ethical and responsible use of AI, represents the potential for significant industry value creation. And as Robert mentioned, the impact from AI-generated assets that spike engagement with our catalog can be a significant one.
Speaker #2: While also showing what the future of music looks like. We expect this partnership to be a material top and bottom line growth driver starting in fiscal 2027.
Speaker #2: Our goal is to maximize fans' ability to engage more deeply with the music they love. So, of course, we're also exploring opportunities with our large DSP partners to incorporate AI tools that will enhance their consumer offerings.
Speaker #2: Doing so in ways that are consistent with our principles for ethical and responsible use of AI represents the potential for significant industry value creation.
Speaker #2: And as Robert mentioned, the impact from AI-generated assets that spike engagement with our catalog can be a significant one. Using AI to quickly and cost-effectively create motion art, which can boost attracts exposure on DSPs, and marketing and other assets that are derived from our catalog, such as remixes and music videos, will enable us to drive incremental revenue much more effectively.
Armin Zerza: Using AI to quickly and cost-effectively create motion art, which can boost attractive social DSPs and marketing and other assets that are derived from our catalog, such as remixes and music videos, will enable us to drive incremental revenue much more effectively. Finally, AI will be an advantage for us on the cost side as well, aligning with our initiatives to operate more efficiently to accelerate margin and cash flow growth. The use cases will range from music production, where many of our artists and songwriters are already leveraging these tools, to more analytically driven, precise deployment of marketing dollars, as well as more real-time forecasting and analytics. Further, on driving efficiency, I'm pleased that our cost savings plan is delivering on schedule and is on track to contribute 150 to 200 basis points to margin in fiscal 2026.
Armin Zerza: Using AI to quickly and cost-effectively create motion art, which can boost attractive social DSPs and marketing and other assets that are derived from our catalog, such as remixes and music videos, will enable us to drive incremental revenue much more effectively. Finally, AI will be an advantage for us on the cost side as well, aligning with our initiatives to operate more efficiently to accelerate margin and cash flow growth. The use cases will range from music production, where many of our artists and songwriters are already leveraging these tools, to more analytically driven, precise deployment of marketing dollars, as well as more real-time forecasting and analytics. Further, on driving efficiency, I'm pleased that our cost savings plan is delivering on schedule and is on track to contribute 150 to 200 basis points to margin in fiscal 2026.
Speaker #2: Finally, AI will be an advantage for us on the cost side as well. Aligning with our initiatives to operate more efficiently to accelerate margin and cash flow growth.
Speaker #2: The use cases will range from music production where many of our artists and songwriters are already leveraging these tools, to more analytically driven precise deployment of marketing dollars, as well as more real-time forecasting and analytics.
Speaker #2: Further, on driving efficiency, I'm pleased that our cost savings plan is delivering on schedule and is on track to contribute 150 to 200 basis points to margin in fiscal '26.
Speaker #2: As we work to drive even greater efficiency through the use of AI and improving the operating leverage in our business, we believe that a margin in the mid-20s is achievable in the short term.
Armin Zerza: As we work to drive even greater efficiency through the use of AI and improving the operating leverage in our business, we believe that a margin in the mid-20s is achievable in the short term, and have a longer-term goal to deliver margins in the high 20s. We will provide you with an update on our path to meaningful margin expansion as our plans evolve in the upcoming quarters. One housekeeping item I'd like to note: with the roll-off of BMG digital distribution revenue now largely completed, we intend to provide year-over-year adjustments for the remainder of the fiscal 2026. As disclosed in our notable items table in the earnings press release, the impact in Q1 is $6 million, and we estimate the impact for the remainder of the fiscal year to be approximately $10 million each in Q2, Q3, and Q4.
Armin Zerza: As we work to drive even greater efficiency through the use of AI and improving the operating leverage in our business, we believe that a margin in the mid-20s is achievable in the short term, and have a longer-term goal to deliver margins in the high 20s. We will provide you with an update on our path to meaningful margin expansion as our plans evolve in the upcoming quarters. One housekeeping item I'd like to note: with the roll-off of BMG digital distribution revenue now largely completed, we intend to provide year-over-year adjustments for the remainder of the fiscal 2026. As disclosed in our notable items table in the earnings press release, the impact in Q1 is $6 million, and we estimate the impact for the remainder of the fiscal year to be approximately $10 million each in Q2, Q3, and Q4.
Speaker #2: And have a longer-term goal to deliver margins in the high 20s. We will provide you with an update on our path to meaningful margin expansion as our plans evolve in the upcoming quarters.
Speaker #2: One housekeeping item I'd like to note. With the rollout of BMG Digital Distribution revenue now largely completed, we intend to provide year-over-year adjustments for the remainder of the fiscal 2026.
Speaker #2: As disclosed in our notable items table in the earnings press release, the impact in Q1 is $6 million, and we estimate the impact for the remainder of the fiscal year to be approximately $10 million each in quarter two, three, and four.
Armin Zerza: All the other notable items in fiscal 2026 have been disclosed previously, and as usual, you can find these items in our press release. In summary, we are very optimistic about the road ahead. With greater certainty around DSP deal terms, more consistent market share performance, and a refined approach to capital allocation, our path to accelerating growth in 2026 and beyond is clear. The key components of this will include a strong release slate, anchored by big new releases from Bruno Mars, Zach Bryan, and many others. Contractual PSM increases starting in Q2, and layering in throughout the balance of fiscal 2026. Acquisitions of high-quality, accretive catalogs, as well as of bolt-on capabilities that will accelerate our distribution e-commerce businesses. AI partnerships and initiatives resulting in material contribution to revenue and margin in fiscal 2027.
Armin Zerza: All the other notable items in fiscal 2026 have been disclosed previously, and as usual, you can find these items in our press release. In summary, we are very optimistic about the road ahead. With greater certainty around DSP deal terms, more consistent market share performance, and a refined approach to capital allocation, our path to accelerating growth in 2026 and beyond is clear. The key components of this will include a strong release slate, anchored by big new releases from Bruno Mars, Zach Bryan, and many others. Contractual PSM increases starting in Q2, and layering in throughout the balance of fiscal 2026. Acquisitions of high-quality, accretive catalogs, as well as of bolt-on capabilities that will accelerate our distribution e-commerce businesses. AI partnerships and initiatives resulting in material contribution to revenue and margin in fiscal 2027.
Speaker #2: All the other notable items in fiscal 26 have been disclosed previously, and as usual, you can find these items in our press release. In summary, we are very optimistic about the road ahead.
Speaker #2: With greater certainty around DSP deal terms, more consistent market share performance, and a refined approach to capital allocation, our path to accelerating growth in 2026 and beyond is clear.
Speaker #2: The key components of this will include a strong release slate anchored by big new releases from Bruno Mars, Stuck Bryan, and many others. Contractual PSM increases starting in Q2 and laying in throughout the balance of fiscal 2026.
Speaker #2: Acquisitions of high-quality, equitable catalogs, as well as bolt-on capabilities that will accelerate our distribution and e-commerce businesses. And AI partnerships and initiatives resulting in material contribution to revenue and margin in fiscal 2027.
Speaker #2: We look forward to providing regular updates as we continue to achieve our goals. With that, we'll take your questions.
Armin Zerza: We look forward to providing regular updates as we continue to achieve our goals. With that, we'll take your questions.
Armin Zerza: We look forward to providing regular updates as we continue to achieve our goals. With that, we'll take your questions.
Speaker #1: Thank you. If you would like to ask a question, please press *1 on your telephone keypad. If you would like to withdraw your question, simply press *1 again.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again.
Operator: Thank you. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again.
Speaker #1: Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Michael Morris with Guggenheim. Your line is
Armin Zerza: ... Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Michael Morris with Guggenheim. Your line is open.
Operator: ... Please ensure that your phone is not on mute when called upon. Thank you. Your first question comes from Michael Morris with Guggenheim. Your line is open.
Speaker #1: open. Thank you.
Michael C. Morris: Thank you. Good afternoon. I'd like to ask each of you for some more detail about your AI comments. Robert, first, can you expand a bit on your philosophy as it relates to the deals that you have made with those AI partners you referenced? I'm particularly interested in how your approach differs from the approaches of some of your peers, and why you've chosen that path. And for Armin, can you provide some more detail about the financial impact that you're expecting to see from the deals? Regarding the economic terms, you know, can you clarify: are these per stream payments similar to DSPs, or will Warner Music participate in the subscription revenue of the AI platforms themselves? It'd be great to get some clarity on that. Thank you.
Michael C. Morris: Thank you. Good afternoon. I'd like to ask each of you for some more detail about your AI comments. Robert, first, can you expand a bit on your philosophy as it relates to the deals that you have made with those AI partners you referenced? I'm particularly interested in how your approach differs from the approaches of some of your peers, and why you've chosen that path. And for Armin, can you provide some more detail about the financial impact that you're expecting to see from the deals? Regarding the economic terms, you know, can you clarify: are these per stream payments similar to DSPs, or will Warner Music participate in the subscription revenue of the AI platforms themselves? It'd be great to get some clarity on that. Thank you.
Speaker #2: Good afternoon. I'd like to ask each of you for some more detail about your AI comments. Robert, first, can you expand a bit on your philosophy as it relates to the deals that you have made with those AI partners you referenced?
Speaker #2: I'm particularly interested in how your approach differs from the approaches of some of your peers and why you've chosen that path. And for Armin, can you provide some more detail about the financial impact that you're expecting to see from the deals?
Speaker #2: Regarding the economic terms, can you clarify: are these per stream payments similar to DSPs, or will Warner Music participate in the subscription revenue of the AI platforms themselves?
Speaker #2: It'd be great to get some clarity on that. Thank
Speaker #2: you. All right.
Robert Kyncl: All right. Thanks, Mike. So, I'm not going to comment on what our competitors are doing, but I'll explain what we do. Well, let me take one step back, which is everything we do in AI is not just about deals, it's actually going against all three of our priorities of growing share, growing the value of music, and growing our efficiency. You know, I highlighted some of that in the monologue earlier on, but there's a lot of work that we are doing to grow our share using AI around assets and discovery, catalog monetization, and creativity. In terms of increasing the value of music, we clearly see a path to audience segmentation because creativity is the ultimate, or creation is the ultimate, expression of fandom.
Robert Kyncl: All right. Thanks, Mike. So, I'm not going to comment on what our competitors are doing, but I'll explain what we do. Well, let me take one step back, which is everything we do in AI is not just about deals, it's actually going against all three of our priorities of growing share, growing the value of music, and growing our efficiency. You know, I highlighted some of that in the monologue earlier on, but there's a lot of work that we are doing to grow our share using AI around assets and discovery, catalog monetization, and creativity. In terms of increasing the value of music, we clearly see a path to audience segmentation because creativity is the ultimate, or creation is the ultimate, expression of fandom.
Speaker #3: Thanks, Mike. So, I'm not going to comment on what our competitors are doing. But I'll explain what we do. And, well, let me take one step back, which is: everything we do in AI is not just about deals.
Speaker #3: It's actually going against all three of our priorities: growing share, growing the value of music, and growing our efficiency. And I highlighted some of that in the monologue earlier on.
Speaker #3: But there's a lot of work that we are doing to grow our share. Using AI around assets and discovery, catalog monetization, and creativity. In terms of increasing the value, of music, we clearly see the path to audience segmentation because creativity is the ultimate creation, is the ultimate expression of fandom.
Robert Kyncl: So for us, the super fan tiers of the future will all include AI functionality to create. And our partnerships with the four companies that we mentioned are key to establishing how we would like to see this market to evolve, and what it is that we do with our existing partners, with whom we obviously have to take our holistic relationship into consideration as well to make sure the business grows healthily for all of us. And the third priority is efficiency that we touched on earlier as well. We are, you know, we have deployed AI across finance, legal, marketing, HR, and more. There's a lot more to do, but we're humming across the company and against all three of our priorities.
Speaker #3: So for us to super fan tiers of the future will all include AI functionality to create and our partnerships with the four companies that we mentioned are key to establishing how we would like to see this market to evolve.
Robert Kyncl: So for us, the super fan tiers of the future will all include AI functionality to create. And our partnerships with the four companies that we mentioned are key to establishing how we would like to see this market to evolve, and what it is that we do with our existing partners, with whom we obviously have to take our holistic relationship into consideration as well to make sure the business grows healthily for all of us. And the third priority is efficiency that we touched on earlier as well. We are, you know, we have deployed AI across finance, legal, marketing, HR, and more. There's a lot more to do, but we're humming across the company and against all three of our priorities.
Speaker #3: And what it is that we do with our existing partners, with whom we obviously have to take our holistic relationship into consideration as well to make sure the business grows healthily for all of us.
Speaker #3: And the third party is efficiency, that we touched on earlier as well. We have deployed AI across finance, legal, marketing, HR, and more.
Speaker #3: There's a lot more to do. But we're humming across the company and against all three of our priorities. As it relates to double-clicking on the deals, very clearly, we've outlined our principles, which are ethical models—the companies have to license, have licensed models, they have to reflect properly the value of music, which means we have to be really happy with the commercial terms, which we are.
Robert Kyncl: As it relates to double clicking on the deals, very clearly, we've outlined our principles, which is ethical models. The companies have to license, have licensed models. They have to reflect properly the value of music, which means we have to be really happy with the commercial terms, which we are. And three, artists have to have a right to opt in, for the use of their name, image, likeness, and voice, and derivative content. And, that is what drives us. The important thing here is that if you want this market to grow and evolve healthily, it is important to strike the right balance.
Robert Kyncl: As it relates to double clicking on the deals, very clearly, we've outlined our principles, which is ethical models. The companies have to license, have licensed models. They have to reflect properly the value of music, which means we have to be really happy with the commercial terms, which we are. And three, artists have to have a right to opt in, for the use of their name, image, likeness, and voice, and derivative content. And, that is what drives us. The important thing here is that if you want this market to grow and evolve healthily, it is important to strike the right balance.
Speaker #3: And three, artists have to have the right to opt in for the use of their name, image, likeness, and voice in derivative content. And that is what drives us.
Speaker #3: The important thing here is that if you want this market to grow and evolve healthily, it is important to strike the right balance. And what I mean by that is not being black and white.
Robert Kyncl: What I mean by that is not being black and white in how we see the world, but actually finding the shades of gray of the right equilibrium between what the user wants and what we, the rights holders, artists, and songwriters, want. And if you get that right, then you actually build a very large business and create a lot of value. And if you are black and white about it, then likely you won't. And there are past attempts in the space of media that kind of prove that. One of those example is the TV Everywhere initiative, roughly 20 to 25 years ago, where all the media companies had a very sort of rigid and dogmatic approach to how their content would show up on the Internet.
Robert Kyncl: What I mean by that is not being black and white in how we see the world, but actually finding the shades of gray of the right equilibrium between what the user wants and what we, the rights holders, artists, and songwriters, want. And if you get that right, then you actually build a very large business and create a lot of value. And if you are black and white about it, then likely you won't. And there are past attempts in the space of media that kind of prove that. One of those example is the TV Everywhere initiative, roughly 20 to 25 years ago, where all the media companies had a very sort of rigid and dogmatic approach to how their content would show up on the Internet.
Speaker #3: And how we see the world, but actually finding the shades of gray, of the right equilibrium between what the user wants and what we, the rights holders and artists and songwriters, want.
Speaker #3: And if you get that right, then you actually build a very large business and create a lot of value. And if you are black and white about it, then likely you won't.
Speaker #3: And there are past attempts in the space of media that kind of prove that. One of those examples is the TV Everywhere initiative roughly 20, 25 years ago, where all the media companies had a very sort of rigid and dogmatic approach to how their content would show up on the internet.
Speaker #3: And that obviously didn't work. And in the meantime, it allowed companies like Netflix where I worked at that time to run faster and gain market share basically online.
Robert Kyncl: That obviously didn't work, and in the meantime, it allowed companies like Netflix, where I worked at that time, to run faster and gain market share, basically online. Two, DRM in music basically slowed down the adoption of streaming services. The decline post-Napster era could have been shorter had we been a little bit more flexible about it. We at Warner have learned from the past. We believe we found the right equilibrium in our deals, and we're very much focused on making sure that we're protecting our artists and songwriters' rights, and that we're creating tremendous value for our shareholders. This is the opportunity that we're seizing, and we do believe that we have it right.
Robert Kyncl: That obviously didn't work, and in the meantime, it allowed companies like Netflix, where I worked at that time, to run faster and gain market share, basically online. Two, DRM in music basically slowed down the adoption of streaming services. The decline post-Napster era could have been shorter had we been a little bit more flexible about it. We at Warner have learned from the past. We believe we found the right equilibrium in our deals, and we're very much focused on making sure that we're protecting our artists and songwriters' rights, and that we're creating tremendous value for our shareholders. This is the opportunity that we're seizing, and we do believe that we have it right.
Speaker #3: And two, DRM in music basically slowed down the adoption of streaming services. So the decline post Napster era, I could have been shorter had we been a little bit more flexible about it.
Speaker #3: So we at Warner have learned from the past. We believe we found the right equilibrium in our deals. And we're very much focused on making sure that we're protecting our artists' and songwriters' rights, and that we're creating tremendous value for our shareholders.
Speaker #3: So this is the opportunity that we're seizing, and we do believe that we have it right.
Speaker #2: Thanks, Robert. I'm going to start with where you closed. We believe this is one of the biggest opportunities for value creation. It allows us to provide better experiences to our fans.
Armin Zerza: Thanks, Robert. I'm going to start with where you closed. We believe this is one of the biggest opportunities for value creation. It allows us to provide better experiences to our fans, who will now be able to interact with our content. It actually allows us to deliver better services to artists and songwriters, as Robert mentioned, and it allows us to actually deliver better economics. You all know that music is one of the most under-monetized industries in the world, and this is a tremendous opportunity now that fans engage more with our content to increase ARPU. You know, I've worked in gaming for about a decade, and we had a similar experience in gaming.
Armin Zerza: Thanks, Robert. I'm going to start with where you closed. We believe this is one of the biggest opportunities for value creation. It allows us to provide better experiences to our fans, who will now be able to interact with our content. It actually allows us to deliver better services to artists and songwriters, as Robert mentioned, and it allows us to actually deliver better economics. You all know that music is one of the most under-monetized industries in the world, and this is a tremendous opportunity now that fans engage more with our content to increase ARPU. You know, I've worked in gaming for about a decade, and we had a similar experience in gaming.
Speaker #2: We will now be able to interact with our content. It actually allows us to deliver better services to our artists and songwriters, as Robert mentioned.
Speaker #2: And it allows us to actually deliver better economics. You all know that music is one of the most under-monetized industries in the world. And this is a tremendous opportunity, now that fans engage more with our content, to increase output.
Speaker #2: I've worked in gaming for about a decade. And we had a similar experience in gaming. When gaming moved from physical to a digital experience, and gamers started to interact with games more and communicate more with each other, then we had an opportunity not only to engage our players more, but we also had the opportunity to introduce multiple different business models.
Armin Zerza: When gaming moved from physical to a digital experience, and gamers started to interact with games more and communicate more with each other, then we had an opportunity not only to engage our players more... But we also had the opportunity to introduce multiple different business models, and that's what we, that's what our partners are intending to do here. And you see that the services that, you know, have been launched or are about to launch, they will all will happen at multiple subscription tiers. They will all introduce digital items, services over time. And as a consequence, upward on industry, it will dramatically increase. And in fact, as Robert mentioned, we don't think it will on-only happen just with our new innovative AI partners. We also believe that our current partners will start to introduce higher tiers.
Armin Zerza: When gaming moved from physical to a digital experience, and gamers started to interact with games more and communicate more with each other, then we had an opportunity not only to engage our players more... But we also had the opportunity to introduce multiple different business models, and that's what we, that's what our partners are intending to do here. And you see that the services that, you know, have been launched or are about to launch, they will all will happen at multiple subscription tiers. They will all introduce digital items, services over time. And as a consequence, upward on industry, it will dramatically increase. And in fact, as Robert mentioned, we don't think it will on-only happen just with our new innovative AI partners. We also believe that our current partners will start to introduce higher tiers.
Speaker #2: And that's what we—that's what our partners are intending to do here. And you see that with services that have been launched or are about to launch; they will all happen at multiple subscription tiers.
Speaker #2: They will all introduce digital items, services over time. And as a consequence, upwind on the industry will dramatically increase. And in fact, as Robert mentioned, we don't think it will only happen just with our new innovative AI partners.
Speaker #2: We also believe that our current partners will start to introduce higher tiers. In fact, when you think about engagement with content, that's the best opportunity to engage a super fan.
Armin Zerza: In fact, when you think about engagement with content, that's the best opportunity to engage a super fan. And super fan typically spend more time, engage more, and spend more on our content. So net, we believe, is a tremendous opportunity. And then the question, Mike, on the deals. First, we believe the impact next fiscal year will be material for us. Why? You know, we have signed a deal with the largest partner. Their revenue is already $multiple hundred million. They continue to grow, and our revenue share is strong, so we will see a material impact next fiscal year. Second, the deals have been designed on a variable and accretive basis, as I mentioned, variable, because we will grow as those platforms grow, and accretive because we'll grow output.
Armin Zerza: In fact, when you think about engagement with content, that's the best opportunity to engage a super fan. And super fan typically spend more time, engage more, and spend more on our content. So net, we believe, is a tremendous opportunity. And then the question, Mike, on the deals. First, we believe the impact next fiscal year will be material for us. Why? You know, we have signed a deal with the largest partner. Their revenue is already $multiple hundred million. They continue to grow, and our revenue share is strong, so we will see a material impact next fiscal year. Second, the deals have been designed on a variable and accretive basis, as I mentioned, variable, because we will grow as those platforms grow, and accretive because we'll grow output.
Speaker #2: And super fans typically spend more time engaging and spend more on our content. So in that, we believe it's a tremendous opportunity. And then there are question marks on the deals.
Speaker #2: First, we believe the impact next fiscal year will be material for us. Why? We have signed a deal with the largest partner. Their revenue is already multiple hundred million dollars.
Speaker #2: They continue to grow. And their revenue share is strong. So we will see a material impact next fiscal year. Second, the deals have been designed on a variable and accretive basis, as I mentioned.
Speaker #2: Variable, because we will grow as those platforms grow, and accretive because we'll grow output. And, last but not least, we have designed this in a way to protect our artists and songwriters, who all will benefit.
Armin Zerza: Last but not least, we have designed this in a way to protect our artists and songwriters, who all will benefit from all the increase in the revenue and the accretive nature of that revenue. That's how we think about it.
Armin Zerza: Last but not least, we have designed this in a way to protect our artists and songwriters, who all will benefit from all the increase in the revenue and the accretive nature of that revenue. That's how we think about it.
Speaker #2: From all the increase in revenue. And the accretive nature of that revenue. So that's how we think about
Speaker #2: it.
Robert Kyncl: Thank you very much. I appreciate it.
Michael C. Morris: Thank you very much. I appreciate it.
Speaker #1: appreciate Thank you very much. I
Speaker #1: it. Seen next
Operator: The next question comes from Peter Supino with Wolfe Research. Your line is open.
Operator: The next question comes from Peter Supino with Wolfe Research. Your line is open.
Speaker #3: question comes from Peter Cepino with Wolf Research. Your line is open.
Speaker #4: Hi, good afternoon, everybody. A couple of related questions on your financial outlook. I wondered if you could talk in greater detail about the coming year from two perspectives.
Peter Lawler Supino: Hi, good afternoon, everybody. A couple of related questions on your financial outlook. I wondered if you could talk in greater detail about the coming year from two perspectives. First, about your paid streaming growth and how that outlook corresponds to your DSP deals inked in 2025. And then in parallel, on the financial outlook, if you could talk about potential growth accelerants that may be in your plan and how much incremental growth those could contribute to the outlook. Thank you.
Peter Lawler Supino: Hi, good afternoon, everybody. A couple of related questions on your financial outlook. I wondered if you could talk in greater detail about the coming year from two perspectives. First, about your paid streaming growth and how that outlook corresponds to your DSP deals inked in 2025. And then in parallel, on the financial outlook, if you could talk about potential growth accelerants that may be in your plan and how much incremental growth those could contribute to the outlook. Thank you.
Speaker #4: First, about your paid streaming growth and how that outlook corresponds to your DSP deals inked in 2025. And then in parallel on the financial outlook, if you could talk about potential growth accelerants that may be in your plan and how much incremental growth outlook.
Speaker #4: those could contribute to the Thank you.
Armin Zerza: Yeah, thanks, Peter. I'll answer that question. First, as we discussed in our prepared remarks, we're very happy with the progress that we are making, and I wanna thank our teams again for the excellent work they have been doing despite the major reorganization. We now deliver three quarters of consistent high single-digit growth in revenue and streaming, and obviously, we have grown share, which means we're winning in the marketplace. Now, at the same time, we have improved margin and cash flow. And why is that important for us? Because I committed to you that we're gonna improve shareholder value creation, and we do that by accelerating revenue growth, improving margin, and improving our cash flow productivity. So looking forward, as you know, we're not providing guidance, but we have many opportunities to accelerate growth from here.
Armin Zerza: Yeah, thanks, Peter. I'll answer that question. First, as we discussed in our prepared remarks, we're very happy with the progress that we are making, and I wanna thank our teams again for the excellent work they have been doing despite the major reorganization. We now deliver three quarters of consistent high single-digit growth in revenue and streaming, and obviously, we have grown share, which means we're winning in the marketplace. Now, at the same time, we have improved margin and cash flow. And why is that important for us? Because I committed to you that we're gonna improve shareholder value creation, and we do that by accelerating revenue growth, improving margin, and improving our cash flow productivity. So looking forward, as you know, we're not providing guidance, but we have many opportunities to accelerate growth from here.
Speaker #2: Peter. I'll answer that Yeah, thanks, question. First, as we discussed in our prepared remarks, we're very happy with the progress that we are making.
Speaker #2: excellent work they have been doing And I want to thank our teams again for the despite the major reorganization. We now deliver three quarters of consistent high single-digit growth in revenue and streaming and obviously we have grown fair, which means we're winning in the marketplace.
Speaker #2: the same time, we have improved Now, at margin and cash flow. And why is that important for us? Because I committed to you that we're going to improve shareholder value creation.
Speaker #2: we do that by accelerating revenue growth, improving margin, and And improving our cash flow productivity. So looking forward, as you know, we're not providing guidance, but we have many opportunities to accelerate growth from here.
Speaker #2: First, we know now with the PSM increases that we are starting to see that volume-led subscription streaming growth will evolve to volume growth. And on top of that, we believe this is the and value-led best opportunity now with AI to introduce super premium tiers.
Armin Zerza: First, you know, we know now with the PSM increases, that we are starting to see that volume-led subscription streaming growth will evolve to volume and value-led growth. On top of that, we believe this is the best opportunity now with AI to introduce super premium tiers. Secondly, we're making strong progress with our investments in our organic business, but we're also making strong progress with M&A. As we announced today, we're increasing the capacity of our joint venture with Bain from $1.2 billion to about $1.7 billion. We are doing that because we have developed a very, very strong pipeline, which we'll start to announce in the remainder of this calendar year. Thirdly, we have an opportunity to grow in areas that we haven't grown fast, frankly, in the past.
Armin Zerza: First, you know, we know now with the PSM increases, that we are starting to see that volume-led subscription streaming growth will evolve to volume and value-led growth. On top of that, we believe this is the best opportunity now with AI to introduce super premium tiers. Secondly, we're making strong progress with our investments in our organic business, but we're also making strong progress with M&A. As we announced today, we're increasing the capacity of our joint venture with Bain from $1.2 billion to about $1.7 billion. We are doing that because we have developed a very, very strong pipeline, which we'll start to announce in the remainder of this calendar year. Thirdly, we have an opportunity to grow in areas that we haven't grown fast, frankly, in the past.
Speaker #2: making strong progress with our investments in Secondly, we're organic business, but we're also making strong progress with M&A. As we announced today, we're increasing the capacity of our joint venture with Bain from 1.2 billion to about 1.7 billion.
Speaker #2: And we're doing that because we have developed a very, very strong pipeline the remainder of this calendar which will start to announce in year.
Speaker #2: Thirdly, we have an opportunity to grow in areas that we haven't grown fast, frankly, in the past. One is distribution. And the other one is in physical and merchandising.
Armin Zerza: One is distribution, and the other one is DTC, so direct to consumer, both in physical and merchandising. We have talked this in the last call, so I'm not going to detail this, this time. And then last but not least, we have a tremendous opportunity to step change growth in this industry with AI, as I mentioned before. So net, we are very, very confident about our momentum and the growth that we can deliver for our shareholders, but also for artists and songwriters and our employees.
Armin Zerza: One is distribution, and the other one is DTC, so direct to consumer, both in physical and merchandising. We have talked this in the last call, so I'm not going to detail this, this time. And then last but not least, we have a tremendous opportunity to step change growth in this industry with AI, as I mentioned before. So net, we are very, very confident about our momentum and the growth that we can deliver for our shareholders, but also for artists and songwriters and our employees.
Speaker #2: TTC, so direct-to-consumer. Both We have talked this in the last call, so I'm not going to detail this this time. And then last but not least, we have a tremendous opportunity to step-change growth in this industry with AI, as I mentioned before.
Speaker #2: that, we are very, very confident So in growth that we can deliver for our about our momentum. And the shareholders, but also for our artists and songwriters and our
Speaker #2: employees.
Peter Lawler Supino: That's great. Thank you.
Peter Lawler Supino: That's great. Thank you.
Speaker #4: Thank
Speaker #4: Thank you. Seen next
Operator: The next question comes from Ian Moore with Bernstein. Your line is open.
Operator: The next question comes from Ian Moore with Bernstein. Your line is open.
Speaker #3: question comes from Ian Moore with Bernstein. Your line is
Speaker #3: open. Thank
[Analyst] (Bernstein): Thank you. Robert, you've been delivering market share improvement for several consecutive quarters now. Can you maybe talk to us a little about what you're doing differently to drive that consistent growth and how sustainable you believe that performance is? Thanks.
Ian Moore: Thank you. Robert, you've been delivering market share improvement for several consecutive quarters now. Can you maybe talk to us a little about what you're doing differently to drive that consistent growth and how sustainable you believe that performance is? Thanks.
Speaker #2: you. Robert, you've been delivering market share improvement for several consecutive quarters now. Can you maybe talk to us a little about what you're doing differently to drive that consistent growth and how sustainable you believe that performance is?
Speaker #2: Thanks.
Speaker #4: Sure. Thanks, Ian. So first, I want to repeat that it's actually the positive thing here is that it's broad-based. It's happening across regions and business units.
Armin Zerza: Sure. Thanks, Ian. So, first, I want to repeat that it's actually the positive thing here is that it's broad-based. It's happening across regions and business units. The place where we have the most amount of work to do still is Asia. Obviously there, we've changed leadership both in Japan as well as across the entire region. So we know what to do. We got the right people there, but it takes some time, but we're working on that hard. Other than that, all of our business units are growing at a very, very healthy clip, and it's showing up in the results.
Robert Kyncl: Sure. Thanks, Ian. So, first, I want to repeat that it's actually the positive thing here is that it's broad-based. It's happening across regions and business units. The place where we have the most amount of work to do still is Asia. Obviously there, we've changed leadership both in Japan as well as across the entire region. So we know what to do. We got the right people there, but it takes some time, but we're working on that hard. Other than that, all of our business units are growing at a very, very healthy clip, and it's showing up in the results.
Speaker #4: work to do still is Asia. The place where we have the most amount of leadership, both in Japan as well as across And obviously, there we've changed the entire region.
Speaker #4: we know what to do. We got the right So people there. But it hard. But other than that, all of our takes some time.
Speaker #4: business units are But we're working on that growing at a very, very healthy clip. And it's showing up in the results. If you go back to 2024, we've done a significant restructuring back then.
Armin Zerza: If you go back to 2024, we've done a significant restructuring back then, and at that time, we told you that we would reinvest the proceeds of that restructuring into growth through technology and investments into A&R. And those materialized through fiscal 25, and so you're starting to see the results of that.
Robert Kyncl: If you go back to 2024, we've done a significant restructuring back then, and at that time, we told you that we would reinvest the proceeds of that restructuring into growth through technology and investments into A&R. And those materialized through fiscal 25, and so you're starting to see the results of that.
Speaker #4: And at that time, we told you that we would reinvest the proceeds of that restructuring into growth through technology and investments into A&R. And those materialized through fiscal '25.
Speaker #4: And so you're starting to see the results of that. Then, when you layer on top of it the much, much sharper capital allocation that Armin mentioned earlier, our strong pipeline of initiatives that we're managing across the company.
Robert Kyncl: ... Then when you layer on top of it the much, much sharper capital allocation that Armin mentioned earlier, our strong pipeline of initiatives that we're managing across the company, our leadership overhaul in many business divisions, it is, you know, it, it, it does start paying dividends, and that's, that's where we are. That's why we're, we're very pleased to see our consistent performance. You know, we, we're really, you know, firing on most cylinders that there are. And, you know, all of it is underpinned by our incredible ability of artist development that is showing up through the fact that we consistently are finding new, amazing artists that break through the clutter in a very noisy world on a global stage: Alex Warren, Marius, Sombra, etc.
Robert Kyncl: ... Then when you layer on top of it the much, much sharper capital allocation that Armin mentioned earlier, our strong pipeline of initiatives that we're managing across the company, our leadership overhaul in many business divisions, it is, you know, it, it, it does start paying dividends, and that's, that's where we are. That's why we're, we're very pleased to see our consistent performance. You know, we, we're really, you know, firing on most cylinders that there are. And, you know, all of it is underpinned by our incredible ability of artist development that is showing up through the fact that we consistently are finding new, amazing artists that break through the clutter in a very noisy world on a global stage: Alex Warren, Marius, Sombra, etc.
Speaker #4: Our leadership overhaul in many business divisions, that's where we are. That's why it does start paying dividends. And we're very pleased to see our consistent performance; we're really firing on most cylinders that there are.
Speaker #4: And all of it is underpinned by our incredible ability of artist development that is showing up through the fact that we consistently are finding new, amazing artists that break through the clutter in a very noisy world on a global stage.
Speaker #4: Alex Warren, Marius, Samber, etc. And on top of it, we have an incredible at Q2, right, with Bruno slate just even if you look Mars, Zach Bryan, Charlie XCX, Kehlani, Hilary Duff, Don Toliver, Charlie Puth, etc.
Robert Kyncl: On top of it, we have an incredible slate, you know, just even if you look at Q2, right, with Bruno Mars, Zach Bryan, Charli XCX, Kehlani, Hilary Duff, Don Toliver, Charlie Puth, et cetera. So across the company, you know, we're going for it.
Robert Kyncl: On top of it, we have an incredible slate, you know, just even if you look at Q2, right, with Bruno Mars, Zach Bryan, Charli XCX, Kehlani, Hilary Duff, Don Toliver, Charlie Puth, et cetera. So across the company, you know, we're going for it.
Speaker #4: So across the company, we're going for
Speaker #4: it.
Speaker #2: Thank you.
Armin Zerza: Thank you.
Ian Moore: Thank you.
Operator: The next question comes from Cameron Mansson-Perrone with Morgan Stanley. Your line is open.
Operator: The next question comes from Cameron Mansson-Perrone with Morgan Stanley. Your line is open.
Speaker #3: Seen next question comes from Cameron Manson Perrone with Morgan Stanley. Your line is open.
Speaker #2: Thank you. Two, if I could. First, trying to maybe approach some of what you've discussed already from a different angle. Both of you have kind of talked about AI tools and premium or a super fan offering.
[Analyst] (Morgan Stanley): Thank you. 2, if I could. First, trying to maybe approach some of what you've discussed already from a different angle. Both of you have kind of talked about AI tools and a premium or a super fan offering as being potentially tied together or related. I'm curious, you know, when you think about your traditional DSP partners, whether you're having conversations with those partners to that effect already, or how those conversations might be evolving? And then separately, you know, there's been some pricing announcements recently from Spotify and from Amazon. Maybe if we take Spotify as an example, given their scale, how do you expect to benefit from that pricing this year? And then, you know, I think they left the basic tier pricing unchanged, whether there's any consideration in terms of impact to Warner from that dynamic.
Cameron Mansson-Perrone: Thank you. 2, if I could. First, trying to maybe approach some of what you've discussed already from a different angle. Both of you have kind of talked about AI tools and a premium or a super fan offering as being potentially tied together or related. I'm curious, you know, when you think about your traditional DSP partners, whether you're having conversations with those partners to that effect already, or how those conversations might be evolving? And then separately, you know, there's been some pricing announcements recently from Spotify and from Amazon. Maybe if we take Spotify as an example, given their scale, how do you expect to benefit from that pricing this year? And then, you know, I think they left the basic tier pricing unchanged, whether there's any consideration in terms of impact to Warner from that dynamic.
Speaker #2: As being potentially tied together or related. I'm curious when you think about your traditional DSP partners, whether you're having conversations with those partners to that effect already or how those conversations might be evolving.
Speaker #2: And then separately, there's been some pricing announcements recently from Spotify and from Amazon. Maybe if we take Spotify as an example, given their scale, how do you expect to benefit from that pricing this year?
Speaker #2: And then I think they left the basic tier pricing unchanged. Whether there's any consideration in terms of impact to Warner from that dynamic? I appreciate it.
[Analyst] (Morgan Stanley): I appreciate it.
Cameron Mansson-Perrone: I appreciate it.
Speaker #4: Sure. So on the first part of the question, yeah, we're in discussions with our partners. As we mentioned before, AI provides a tremendous opportunity for engagement of users or listening to music to now create.
Robert Kyncl: Sure. So on the first part of the question, yeah, we're in discussions with our partners. As we mentioned before, AI provides a tremendous opportunity for engagement of users who are listening to music to now create, and, you know, basically with audience segmentation strategy and premium tiers. Again, it was very important for us to establish our terms with independent players in the market, which we've done with four of them. It was a very clear strategic move on our part, and so we are ready to engage, and we are talking to our partners, our DSP partners. As it relates to the second part of it, you know, our strategy is always to...
Robert Kyncl: Sure. So on the first part of the question, yeah, we're in discussions with our partners. As we mentioned before, AI provides a tremendous opportunity for engagement of users who are listening to music to now create, and, you know, basically with audience segmentation strategy and premium tiers. Again, it was very important for us to establish our terms with independent players in the market, which we've done with four of them. It was a very clear strategic move on our part, and so we are ready to engage, and we are talking to our partners, our DSP partners. As it relates to the second part of it, you know, our strategy is always to...
Speaker #4: And basically, what audience segmentation strategy and premium tiers. Again, it was very important for us to establish our terms with independent players in the market, which we've done with four of them.
Speaker #4: It was a very clear strategic move on our part. And so we are ready to engage. And we are talking to our partners, our DSP partners.
Speaker #4: it, our As it relates to the second part of strategy is always to sorry. When I started, I was always saying music is undervalued.
Robert Kyncl: You know, sorry, when I started, I was always saying music is undervalued, you know, we need to increase prices, and it's valued at half the rate of video. So whenever we see a price increase, obviously we're happy, obviously we're grateful. However, our job is to create certainty of our rates, and that's what we told you last year that we would do, and that's exactly what we did, and we now did it with 4 of our top 5 DSPs.
Robert Kyncl: You know, sorry, when I started, I was always saying music is undervalued, you know, we need to increase prices, and it's valued at half the rate of video. So whenever we see a price increase, obviously we're happy, obviously we're grateful. However, our job is to create certainty of our rates, and that's what we told you last year that we would do, and that's exactly what we did, and we now did it with 4 of our top 5 DSPs.
Speaker #4: to increase prices. We need And its value that have the rate of video. It's so whenever we see a price increase, obviously, we're happy.
Speaker #4: Obviously, we're grateful. However, our job is to create certainty. Certainty of our rates. And that's what we told you last year, that we would do.
Speaker #4: And that's exactly what we did. And we now did it with four of our top five DSPs. And if a year ago, I also told you it was actually on this earnings call.
Robert Kyncl: If a year ago, I also told you, it was actually on this earnings call, if I also told you that a year later, we would consistently be growing at high single digits before any of those PSM increases kick in, you would probably put a massive premium on our valuation, because it's an incredible feat that we've accomplished that. So we're really excited about our relationship with our partners, both existing as well as new. We're excited about the direction of the industry, both in terms of volume as well as price, with the audience segmentation strategy. And we just think we can create a lot of value together.
Robert Kyncl: If a year ago, I also told you, it was actually on this earnings call, if I also told you that a year later, we would consistently be growing at high single digits before any of those PSM increases kick in, you would probably put a massive premium on our valuation, because it's an incredible feat that we've accomplished that. So we're really excited about our relationship with our partners, both existing as well as new. We're excited about the direction of the industry, both in terms of volume as well as price, with the audience segmentation strategy. And we just think we can create a lot of value together.
Speaker #4: If I also told you that a year later, we would consistently be growing at a high single digits, before any of those PSM increases kick in, you would probably put a massive premium on our valuation.
Speaker #4: Because it's an incredible feat that we've accomplished that. So we're really excited about our relationship with our partners. Both existing as well as new.
Speaker #4: excited about the direction of the We're industry. Both in terms of volume as well as price. With the audience segmentation strategy. And we just think we can create a lot of value together.
Speaker #2: Very helpful.
[Analyst] (Morgan Stanley): Very helpful. Thanks.
Cameron Mansson-Perrone: Very helpful. Thanks.
Speaker #2: Thanks. Seen
Operator: The next question comes from Benjamin Black with Deutsche Bank. Your line is open.
Operator: The next question comes from Benjamin Black with Deutsche Bank. Your line is open.
Speaker #3: Benjamin Black with Deutsche Bank. next question comes from Your line is open.
Benjamin Thomas Black: Good evening, yes, thank you for taking my questions. Maybe a two-parter for Armin. So the recent results demonstrate that your investment philosophy is working. So, you know, how are you approaching capital allocation differently when evaluating deals? And secondly, can you provide an update on your M&A plans? You know, why did you increase the capacity of your Bain JV? And how much do you expect to deploy this fiscal year? It seems like a lot of the major labels have announced financing partnerships, Sony, UMG, for instance. So, you know, what does all this capital flowing into the space actually signal? Thank you.
Benjamin Thomas Black: Good evening, yes, thank you for taking my questions. Maybe a two-parter for Armin. So the recent results demonstrate that your investment philosophy is working. So, you know, how are you approaching capital allocation differently when evaluating deals? And secondly, can you provide an update on your M&A plans? You know, why did you increase the capacity of your Bain JV? And how much do you expect to deploy this fiscal year? It seems like a lot of the major labels have announced financing partnerships, Sony, UMG, for instance. So, you know, what does all this capital flowing into the space actually signal? Thank you.
Speaker #5: my questions. Maybe a two-parter for Armin. So the Good evening. Yes. Thank you for taking recent results demonstrate that you're an investment philosophy is working.
Speaker #5: So how are you approaching capital allocation differently when evaluating deals? And then secondly, can you provide an update on your M&A plans? capacity of your Bain Why did you increase the JV?
Speaker #5: And how much do you expect to deploy this fiscal year? It seems like a lot of the major labels have announced financing partnerships—Sony, UMG, for instance.
Speaker #5: So, what does all of this capital flowing into the space actually signal? Thank you.
Armin Zerza: I guess it shows the opportunity, Ben. But hi, Ben. On the investment philosophy, you know, you and I have talked this before, but for the audience here, we have moved from basically looking at individual deals to looking at our entire deal portfolio. And why is it important? If you're an investor, we want to understand the landscape of opportunities out there, and that's exactly what we do with our deal portfolio. We do thousands of deals a year, so it's really important for us to understand what deals are the best ones for us to put our money behind. But we also what deals are the most promising ones to put our money behind.
Armin Zerza: I guess it shows the opportunity, Ben. But hi, Ben. On the investment philosophy, you know, you and I have talked this before, but for the audience here, we have moved from basically looking at individual deals to looking at our entire deal portfolio. And why is it important? If you're an investor, we want to understand the landscape of opportunities out there, and that's exactly what we do with our deal portfolio. We do thousands of deals a year, so it's really important for us to understand what deals are the best ones for us to put our money behind. But we also what deals are the most promising ones to put our money behind.
Speaker #4: I guess it fills the opportunity then. But hi, Ben. On the investment philosophy—you and I have talked about this before—but for the audience here, we have moved from basically looking at individual deals to looking at our entire deal portfolio.
Speaker #4: And why is that important? If you're an investor, you want to understand the landscape of opportunities out there. And that's exactly what we do with our deal portfolio.
Speaker #4: We do thousands of deals a year. So it's really important for us to understand what deals are the best ones for us to put our money behind.
Speaker #4: But we also what deals are the most promising ones to put our money behind. We have now created a deals office that has a view of all those deals over multiple years, which not only allows us to prioritize the best deals, but also gives us much better visibility of what the impact of those deals are on future revenue, on future growth and share growth, on future margin, and future cash flow, which in turn allows us to optimize our investment flow over time.
Armin Zerza: We have now created a deals office that has a view of all those years, of all those deals over multiple years, which not only allows us to prioritize the best deals, but also gives us much better visibility of what the impact of those deals are on future revenue, on future growth and share growth, on future margin, and future cash flow, which in turn allows us to optimize our investment flow over time. That's why you see the results you're seeing: growth, share growth, margin expansion, and cash flow productivity. Now, obviously, we are doing all of this in collaboration with our creative teams and operators. This is not just a financial exercise, and we review biweekly now with our creative teams, our operators, and our leaders in the regions, and our entire deal portfolio and ensure that their creative and operating voices are heard.
Armin Zerza: We have now created a deals office that has a view of all those years, of all those deals over multiple years, which not only allows us to prioritize the best deals, but also gives us much better visibility of what the impact of those deals are on future revenue, on future growth and share growth, on future margin, and future cash flow, which in turn allows us to optimize our investment flow over time. That's why you see the results you're seeing: growth, share growth, margin expansion, and cash flow productivity. Now, obviously, we are doing all of this in collaboration with our creative teams and operators. This is not just a financial exercise, and we review biweekly now with our creative teams, our operators, and our leaders in the regions, and our entire deal portfolio and ensure that their creative and operating voices are heard.
Speaker #4: That's why you see the results you're seeing. Growth, share growth, margin expansion, and cash flow productivity. Now, obviously, we're doing all of this in collaboration with our creative teams and operators.
Speaker #4: This is not just a financial exercise. And we'll review biweekly now with our creative teams and our operators and our leaders in the regions and our entire deal portfolio and ensure that the creative and operating voices are heard.
Speaker #4: And number two, obviously, this is behind our strategy to invest into the core business. We're really focused on making and ensuring that all of our investments are focused either organically or inorganically to our core business.
Armin Zerza: And number two, obviously, this is behind our strategy to invest into the core business. We're really focused on making and ensuring that all of our investments are focused either organically or inorganically to our core business. Now, on M&A, which is the inorganic part of that, we are seeing tremendous opportunities around the world to invest into highly, highly attractive and margin accretive catalog businesses, both on the RM and NP side. Because of the pipeline that we have been developing, which is very attractive for us, we've expanded basically the scope of the JV from $1.2 to 1.7 billion, as I said. Also, I have to say that we have a great partner with Bain.
Armin Zerza: And number two, obviously, this is behind our strategy to invest into the core business. We're really focused on making and ensuring that all of our investments are focused either organically or inorganically to our core business. Now, on M&A, which is the inorganic part of that, we are seeing tremendous opportunities around the world to invest into highly, highly attractive and margin accretive catalog businesses, both on the RM and NP side. Because of the pipeline that we have been developing, which is very attractive for us, we've expanded basically the scope of the JV from $1.2 to 1.7 billion, as I said. Also, I have to say that we have a great partner with Bain.
Speaker #4: Now, on M&A, which is the inorganic part of that, we are seeing tremendous opportunities around the world to invest into highly attractive and marginally creative catalog businesses.
Speaker #4: Both on the RM and the P side. Because of the pipeline that we have been developing, which is very attractive for us, we've JV from 1.2 to 1.7 billion dollars as I said.
Speaker #4: Also, I have to say that we have a great partner with Bain. The leader who is working with us has experience in the industry.
Armin Zerza: You know, the leader who is working with us has experience in the industry, so we've identified opportunities and work on them together, which gives us really a competitive edge relative to some of the other partners that are out there. So net-net, we are very, very happy with the progress, and you see it in our results.
Armin Zerza: You know, the leader who is working with us has experience in the industry, so we've identified opportunities and work on them together, which gives us really a competitive edge relative to some of the other partners that are out there. So net-net, we are very, very happy with the progress, and you see it in our results.
Speaker #4: So we've identified opportunities and working them together, which gives us really a competitive edge relative to some of the other partners that are out there.
Speaker #4: So net net, we're very, very happy with the progress. And you see it in our results.
Speaker #2: Wonderful. Thank you so
Speaker #2: Wonderful. Thank you so much. Thank
[Company Representative 2] (Warner Music Group): Wonderful. Thank you so much.
Benjamin Thomas Black: Wonderful. Thank you so much.
Armin Zerza: Thank you.
Armin Zerza: Thank you.
Operator: The next question comes from Kutgun Maral with Evercore ISI. Your line is open.
Operator: The next question comes from Kutgun Maral with Evercore ISI. Your line is open.
Speaker #3: Seen next you. question comes from Kutkan Mara with Evercore ISI. Your line is
Speaker #3: open. And thanks
Kutgun Maral: Good afternoon. Thanks for taking the questions. Armin, I wanted to follow up on the margin color you provided. I think it'd be helpful if you could provide a bridge on how you get to your longer term margin target. You know, what are the building blocks, and how do you expect them to contribute? And then, given this outlook, why is 50 to 60% operating cash flow conversion the right target? You know, is, is it possible that you could deliver more? Thanks.
Kutgun Maral: Good afternoon. Thanks for taking the questions. Armin, I wanted to follow up on the margin color you provided. I think it'd be helpful if you could provide a bridge on how you get to your longer term margin target. You know, what are the building blocks, and how do you expect them to contribute? And then, given this outlook, why is 50 to 60% operating cash flow conversion the right target? You know, is, is it possible that you could deliver more? Thanks.
Speaker #6: Thanks for taking the questions. Armin, I wanted to follow up on the margin color you provided. I think it’d be helpful if you could provide a bridge on how you get to your longer-term margin target.
Speaker #6: What are the building blocks? And how do you expect them to contribute? And then given this outlook, why is 50 to 60 percent operating cash flow conversion the right target?
Speaker #6: Is it possible that you could deliver more?
Speaker #6: Thanks. Well, thank you,
Armin Zerza: Well, thank you, Kutgun. You know, first, I wanna reiterate that our focus is on driving total shareholder return. So while we are improving margin and cash flow, you know, obviously, one of our key priorities is also accelerate revenue growth and we're delivering against that too. And I don't wanna lose the fact that we're really making sure that we wanna be balanced across all of those three priorities. Now, on the margin progress, we are very, very happy with the progress. In fact, we're making progress faster than I expected. You saw our Q1 results, where our margin is up more than 300 basis points to 25%. It's really driven by three key items. One is the reorganization and cost savings related to that.
Armin Zerza: Well, thank you, Kutgun. You know, first, I wanna reiterate that our focus is on driving total shareholder return. So while we are improving margin and cash flow, you know, obviously, one of our key priorities is also accelerate revenue growth and we're delivering against that too. And I don't wanna lose the fact that we're really making sure that we wanna be balanced across all of those three priorities. Now, on the margin progress, we are very, very happy with the progress. In fact, we're making progress faster than I expected. You saw our Q1 results, where our margin is up more than 300 basis points to 25%. It's really driven by three key items. One is the reorganization and cost savings related to that.
Speaker #4: Kutkan. First, I want to reiterate that our focus is on driving total shareholder returns. So while we are proving margin and cash flow, obviously, one of our key priorities is also accelerated revenue growth and delivering against that too.
Speaker #4: And I don't want to lose the fact that we're really making sure that we want to be balanced across all of those three priorities.
Speaker #4: Now, on the margin progress, we're very, very happy with the progress. In fact, we're making progress faster than I expected. You saw our first quarter results where our margin is up more than 300 basis points to by three key items.
Speaker #4: One is 25%. And it's really driven the reorganization and cost savings related to that. Two is the acceleration of high margin streaming growth. And three is the operating leverage we get behind that.
Armin Zerza: Two is the acceleration of high-margin streaming growth, and three is the operating leverage we get behind that. Now, as we look forward, we'll work on the same drivers, but there are also new drivers that we can leverage. The first one is the DSP pricing and tiering that Robert just mentioned. The second one is the high margin catalog M&A that I just talked about. And the third one is, in my view, it's gonna be one of the most discontinuous one, is accretive AI revenue that will continue to accelerate over the next few years. So we're really, really bullish about our margin, and I think a margin target in the mid- to high 20s is very realistic for our industry. And by the way, it's important for us. Why? Because it will give us, and gives us today, more flexibility to invest into the business.
Armin Zerza: Two is the acceleration of high-margin streaming growth, and three is the operating leverage we get behind that. Now, as we look forward, we'll work on the same drivers, but there are also new drivers that we can leverage. The first one is the DSP pricing and tiering that Robert just mentioned. The second one is the high margin catalog M&A that I just talked about. And the third one is, in my view, it's gonna be one of the most discontinuous one, is accretive AI revenue that will continue to accelerate over the next few years. So we're really, really bullish about our margin, and I think a margin target in the mid- to high 20s is very realistic for our industry. And by the way, it's important for us. Why? Because it will give us, and gives us today, more flexibility to invest into the business.
Speaker #4: Now, as we look forward, we'll work on the same drivers, but there are also new drivers that we can leverage. The first one is the DSP pricing and tiering that Robert just mentioned.
Speaker #4: The second one is the high margin catalog M&A that I just talked about. And the third one is, and my view is going to be one of the most discontinuous ones, is a creative AI revenue that will continue to accelerate over the next few years.
Speaker #4: So we're really, really bullish about our margin. And I think a margin target in the mid to high 20s is where realistic for our industry.
Speaker #4: And by the way, it's important for us. Why? Because it will give us and gives us today more flexibility to invest into the business.
Speaker #4: On your M&A question, I alluded to that when I talked about Bain. We are really excited about the opportunities around the world. As I travel around the world, there are opportunities everywhere and every corner of the market.
Armin Zerza: On your M&A question, I alluded to that when I talked about Bain. We are really excited about the opportunities around the world. You know, as I travel around the world, there are opportunities everywhere, in every corner of the market. And that, you know, we'll do that both in terms of working with our partner, Bain, but we're also looking at other opportunities, including opportunities where we acquire capabilities to accelerate some of our business. So net, we feel very, very good in that area too.
Armin Zerza: On your M&A question, I alluded to that when I talked about Bain. We are really excited about the opportunities around the world. You know, as I travel around the world, there are opportunities everywhere, in every corner of the market. And that, you know, we'll do that both in terms of working with our partner, Bain, but we're also looking at other opportunities, including opportunities where we acquire capabilities to accelerate some of our business. So net, we feel very, very good in that area too.
Speaker #4: that will do that And both in terms of working with our partner Bain, but we're also looking at other opportunities, including opportunities where we acquire capabilities to accelerate some of our business.
Speaker #4: that area So net, we feel very, very good in too.
Kutgun Maral: That, that's great. Thanks so much. And just wanted to make sure to follow up, and sorry if I missed it. Anything in more detail around the 50 to 60% operating cash flow conversion, as we look out further, and if you could out-deliver on that, possibly?
Kutgun Maral: That, that's great. Thanks so much. And just wanted to make sure to follow up, and sorry if I missed it. Anything in more detail around the 50 to 60% operating cash flow conversion, as we look out further, and if you could out-deliver on that, possibly?
Speaker #1: I just wanted to make sure to follow up. And sorry if I missed it. Anything in That's great. Thanks so much. And more detail around the 50 to 60 percent operating cash flow conversion as we look out further and if you could outdeliver on that
Speaker #1: possibly? On cash
Speaker #1: possibly? On cash
Armin Zerza: On cash flow, you know, it's interesting. We delivered almost 100% cash flow conversion in Q1, which, you know, shows you how strong our capital allocation model works. There's also some benefit from lower capital spending as we normalize some of the tech spending we did in the past, that Robert had to do to get ready for this AI push that we are doing now. Looking forward, we will continue to work on those drivers, but also continue to improve margin, which will improve cash flow. Now, is there an opportunity that on a quarterly basis we'll see higher conversion than the 60% to 65% target that we declared for sure, and you've seen it just last quarter.
Armin Zerza: On cash flow, you know, it's interesting. We delivered almost 100% cash flow conversion in Q1, which, you know, shows you how strong our capital allocation model works. There's also some benefit from lower capital spending as we normalize some of the tech spending we did in the past, that Robert had to do to get ready for this AI push that we are doing now. Looking forward, we will continue to work on those drivers, but also continue to improve margin, which will improve cash flow. Now, is there an opportunity that on a quarterly basis we'll see higher conversion than the 60% to 65% target that we declared for sure, and you've seen it just last quarter.
Speaker #4: We delivered almost 100% cash flow conversion in the first quarter. Which shows you flow, it's interesting. how strong our capital allocation model works. And there's also some benefits from lower capital spending as we normalize some of the tech spending we did in the past that Robert alluded to to get ready for the AI push that we're doing now.
Speaker #4: will continue to work on those drivers, but also Looking forward, we continue to improve margin, which will improve cash flow. Now, is there an opportunity that on a quarterly basis we'll see higher conversion than the 50 to 60 percent target that we declared?
Speaker #4: For sure. And you've seen it just last quarter. But at the same time, we want to retain some flexibility to invest into the business to accelerate growth.
Armin Zerza: But at the same time, we want to retain some flexibility to invest into the business to accelerate growth. We have so many opportunities to invest into, as I mentioned before, and by the way, we are disciplined, we want to create it, we want to maintain that flexibility. So at this point, we're not changing that target. May it change over time? Possibly, but at this point, we're not ready to do that.
Armin Zerza: But at the same time, we want to retain some flexibility to invest into the business to accelerate growth. We have so many opportunities to invest into, as I mentioned before, and by the way, we are disciplined, we want to create it, we want to maintain that flexibility. So at this point, we're not changing that target. May it change over time? Possibly, but at this point, we're not ready to do that.
Speaker #4: We have so many opportunities to invest into. As I mentioned before, and while we're very disciplined, we want to create we want to maintain that flexibility.
Speaker #4: So at this point, we're not changing that target. May change over time, possibly, but at this point, we're not ready to do that.
Robert Kyncl: Very helpful. Thanks, Oren.
Robert Kyncl: Very helpful. Thanks, Oren.
Speaker #1: Very helpful. Thanks, Armin.
Operator: The next question comes from Batya Levi with UBS. Your line is open.
Operator: The next question comes from Batya Levi with UBS. Your line is open.
Speaker #3: From Bhatia Levy with Citi. Next question comes UBS. Your line is open.
[Analyst] (UBS): Great, thank you. Can you talk about the underlying performance that you're seeing at Music Publishing? I think you mentioned the One Warner approach, and how we should think about longer-term growth for this business. And a second one, maybe a follow-up: Can you give us a sense on the response from artists and their willingness to obtain opportunities with AI platforms? And maybe some thoughts on how you get comfortable with an open studio approach that you have with the Suno deal versus a walled garden to protect attribution and to promote and measurement. Thank you.
Batya Levi: Great, thank you. Can you talk about the underlying performance that you're seeing at Music Publishing? I think you mentioned the One Warner approach, and how we should think about longer-term growth for this business. And a second one, maybe a follow-up: Can you give us a sense on the response from artists and their willingness to obtain opportunities with AI platforms? And maybe some thoughts on how you get comfortable with an open studio approach that you have with the Suno deal versus a walled garden to protect attribution and to promote and measurement. Thank you.
Speaker #7: Great. Thank you. Can you talk about the underlying performance that you're seeing at music publishing? I think you mentioned the one Warner approach and how we should think about longer-term growth for this business.
Speaker #7: And a second one, maybe a follow-up. Can you give us a sense on the response from artists and their willingness to opt in opportunities with AI platforms?
Speaker #7: And maybe some thoughts on how you get comparable with an open studio approach that you have with the Suno deal versus a walled garden to protect attribution and to end measurement?
Speaker #7: Thank
Speaker #7: you. Well, thank you, Bhatia.
Armin Zerza: Well, thank you, Batya. I'll take the first part of your question, and Robert will take the second part. On publishing, we are very, very happy with the performance. In fact, we just did a strategic review of the business, and if you look at the business over the long term, so the past five years, we have doubled the business, top and bottom line. And I want to take the opportunity to thank the entire team, but also our leadership at publishing, Guy Moot and Carianne Marshall, who you know are leading this business, for the tremendous achievements they've had over the past five years. Now, looking at the more recent past, that we've seen double-digit growth on publishing for the past three quarters, and as you see, last quarter, we take out a one-time item from last year, we delivered 15% growth.
Armin Zerza: Well, thank you, Batya. I'll take the first part of your question, and Robert will take the second part. On publishing, we are very, very happy with the performance. In fact, we just did a strategic review of the business, and if you look at the business over the long term, so the past five years, we have doubled the business, top and bottom line. And I want to take the opportunity to thank the entire team, but also our leadership at publishing, Guy Moot and Carianne Marshall, who you know are leading this business, for the tremendous achievements they've had over the past five years. Now, looking at the more recent past, that we've seen double-digit growth on publishing for the past three quarters, and as you see, last quarter, we take out a one-time item from last year, we delivered 15% growth.
Speaker #4: I'll take the first part of your question, and Robert will take the second part. On publishing, we're very, very happy with the performance. In fact, we just did a strategic review of the business.
Speaker #4: And if you look at the business over the long term, so the past five years, we have doubled the business top and bottom line.
Speaker #4: And I want to take the opportunity to thank the entire team but also our leadership at publishing, so Guy and Kareem, who you know are leading this business for the tremendous achievements they have had over the past five years.
Speaker #4: Now, looking at the more recent past, we've seen double-digit growth on publishing for the past three quarters. And as you see last quarter, if you take out a one-time item from last year, we delivered 15% growth.
Armin Zerza: So again, amazing, amazing performance. Looking forward, we reviewed the plan as part of this strategic review with the team, and they have many, many opportunities to continue that growth profile, but also accelerate it. The first one is, we will double down, like we do in other parts of our business, on the proven A&R strategy that the team has. And by the way, we have now more firepower to do that than in the past. Secondly, we'll double down in regions, specifically developing regions, where we have seen strong traction behind the investments that we're doing, specifically in Latin America. Thirdly, we'll also obviously leverage our venture and the increased capacity we have also in our publishing business. There's highly attractive catalog in that area, too.
Armin Zerza: So again, amazing, amazing performance. Looking forward, we reviewed the plan as part of this strategic review with the team, and they have many, many opportunities to continue that growth profile, but also accelerate it. The first one is, we will double down, like we do in other parts of our business, on the proven A&R strategy that the team has. And by the way, we have now more firepower to do that than in the past. Secondly, we'll double down in regions, specifically developing regions, where we have seen strong traction behind the investments that we're doing, specifically in Latin America. Thirdly, we'll also obviously leverage our venture and the increased capacity we have also in our publishing business. There's highly attractive catalog in that area, too.
Speaker #4: amazing performance. So again, Looking forward, we reviewed the plan as part of this strategic review with the team. And they have many, many opportunities to continue that growth profile, but also accelerate it.
Speaker #4: The first one is we will double down, like we do in other parts of our business, on the proven A&R strategy that the team has.
Speaker #4: And by the way, we have now more firepower to do that than in the past. Secondly, we'll double down in regions, specifically developing regions where we have seen strong traction behind investments we've been doing, specifically Latin America.
Speaker #4: Thirdly, we'll also obviously leverage our bench on venture and the increased capacity we have also in our publishing business as highly attractive catalog in that area too.
Speaker #4: And last but not least, that business will also benefit from acceleration and growth by the AI partnerships we are doing. So, in summary, we're really confident that we can continue to deliver double-digit growth in that business.
Armin Zerza: Last, but not least, that business will also benefit from acceleration and growth by the AI partnerships we are doing. In summary, we're really confident that we can continue to deliver double-digit growth in this business, and by the way, also continue to improve margins. We're very, very confident about the business and the leadership we have there.
Armin Zerza: Last, but not least, that business will also benefit from acceleration and growth by the AI partnerships we are doing. In summary, we're really confident that we can continue to deliver double-digit growth in this business, and by the way, also continue to improve margins. We're very, very confident about the business and the leadership we have there.
Speaker #4: And by the way, also continue to improve margin. So we're very, very confident about the business and the leadership we
Speaker #4: have there.
Speaker #1: All right.
Robert Kyncl: All right, I'll take the second part. I guess two questions there. One, on the artist and songwriter engagement. It's been surprisingly high. It's a, you know, if you think about it, a lot of artists and songwriters are curious about the future. They hear and read about these things, and many of them want to get involved early on. So just the other day, I had two of them, two separate, one of them visit in the office and talk about how they can get involved, and kind of be, you know, sort of in the detail of it with us. We are talking to many of our artists, their attorneys, their managers, et cetera, to make sure that they understand everything, if they have questions.
Robert Kyncl: All right, I'll take the second part. I guess two questions there. One, on the artist and songwriter engagement. It's been surprisingly high. It's a, you know, if you think about it, a lot of artists and songwriters are curious about the future. They hear and read about these things, and many of them want to get involved early on. So just the other day, I had two of them, two separate, one of them visit in the office and talk about how they can get involved, and kind of be, you know, sort of in the detail of it with us. We are talking to many of our artists, their attorneys, their managers, et cetera, to make sure that they understand everything, if they have questions.
Speaker #1: I'll take the second part. I guess two questions there. One, on the artists and songwriter engagement—it's been surprisingly high. If you think about it, a lot of artists and songwriters are curious about the future.
Speaker #1: They hear and read about these things. And many of them want to get involved early on. So just the other day, I had two of them to separate when I visited in the office, and talk about how they would get it how they can get involved and kind of be sort of in the detail of it with us.
Speaker #1: We are talking to many of our artists their attorneys, their managers, etc., to make sure that they understand everything as they have questions. So our outreach has been quite extensive.
Robert Kyncl: So our outreach has been quite extensive, and we think that underpins, you know, what we do, right? We need to be in constant communication, make sure that we're clear, that we're making sense of things, and that we're offering the tools to those who want to use them. So we've been pleasantly surprised with the engagement. In terms of your question on walled gardens, I think this issue is getting painted too much in black and white, which is what I mentioned before. From my experience, both working at Netflix and YouTube over 20 years, having gone through a bunch of changes and lots of difficult decisions and understanding the industries beyond music, black and white is never the answer.
Robert Kyncl: So our outreach has been quite extensive, and we think that underpins, you know, what we do, right? We need to be in constant communication, make sure that we're clear, that we're making sense of things, and that we're offering the tools to those who want to use them. So we've been pleasantly surprised with the engagement. In terms of your question on walled gardens, I think this issue is getting painted too much in black and white, which is what I mentioned before. From my experience, both working at Netflix and YouTube over 20 years, having gone through a bunch of changes and lots of difficult decisions and understanding the industries beyond music, black and white is never the answer.
Speaker #1: And we think that underpins what we do, right? We need to be in constant communication, make sure that we're clear that we're making sense of things, and that we're offering the tools to those who want to use them.
Speaker #1: So, we've been pleasantly surprised with the engagement. In terms of your question on walled gardens, I think this issue is getting painted too much in black and white.
Speaker #1: Which is what I mentioned before. From my experience, both working at Netflix and YouTube over 20 years, having gone through a bunch of changes and lots of difficult decisions, and understanding the industry is beyond music, black and white is never the answer.
Speaker #1: If you're building lots of value, strong consumer offerings, you have to find the right point, the right equilibrium point in the shades of gray.
Robert Kyncl: If you're building lots of value, strong consumer offerings, you have to find the right point, the right equilibrium point in the shades of gray. And that is, that is the art. That is what we do. And, you know, in our company, you know, we obviously have the benefit of that experience, but it is... You know, we're focused on value creation, for artists, songwriters, us, our shareholders, and we're focused on protection of our, our artists and songwriters, and we're focused on making sure that users can engage with them, in ways that they, that they want. And, it's never easy, but it is worth it to do the hard work of finding the equilibrium that creates this value. And, we think we got it right.
Robert Kyncl: If you're building lots of value, strong consumer offerings, you have to find the right point, the right equilibrium point in the shades of gray. And that is, that is the art. That is what we do. And, you know, in our company, you know, we obviously have the benefit of that experience, but it is... You know, we're focused on value creation, for artists, songwriters, us, our shareholders, and we're focused on protection of our, our artists and songwriters, and we're focused on making sure that users can engage with them, in ways that they, that they want. And, it's never easy, but it is worth it to do the hard work of finding the equilibrium that creates this value. And, we think we got it right.
Speaker #1: And that is the art. That is what we do. And in our company, we obviously have the benefit of that experience. But we're focused on value creation.
Speaker #1: For artists, songwriters, us, our shareholders. And we're focused on protection of our artists and songwriters. And we're focused on making sure that users can engage with them in ways that they want.
Speaker #1: And it's never easy, but it is worth it to do the hard work of finding the equilibrium that creates this value. And we think we got it right.
Speaker #1: So and again, I would just repeat what I said before. Which is there are plenty of examples from the past where the black and white solutions failed.
Robert Kyncl: So again, I would just repeat what I said before, which is there are plenty of examples from the past where the black and white solutions failed. And so we're focused on getting it right.
Robert Kyncl: So again, I would just repeat what I said before, which is there are plenty of examples from the past where the black and white solutions failed. And so we're focused on getting it right.
Speaker #1: And so we're focused on getting it right.
Speaker #7: Got it. Thank
[Analyst] (UBS): Got it. Thank you.
Batya Levi: Got it. Thank you.
Speaker #7: you. Seen next
Robert Kyncl: Mm-hmm.
Robert Kyncl: Mm-hmm.
Operator: The next question comes from Stephen Laszczyk with Goldman Sachs. Your line is open.
Operator: The next question comes from Stephen Laszczyk with Goldman Sachs. Your line is open.
Speaker #3: question comes from Steven Lastric with Goldman Sachs. Your line is open.
Speaker #8: Hey, great. Thanks for taking the of the deal with TikTok in your prepared questions. Robert, you mentioned the renewal remarks. I was curious if you'd be willing to speak maybe more about some of the priorities that you feel like you advanced in the new deal.
Armin Zerza: Hey, great. Thanks for taking the questions. Robert, you mentioned the renewal of the deal with TikTok in your prepared remarks. I was curious if you'd be willing to speak-
Stephen Laszczyk: Hey, great. Thanks for taking the questions. Robert, you mentioned the renewal of the deal with TikTok in your prepared remarks. I was curious if you'd be willing to speak-
[Analyst] (Goldman Sachs): ... maybe more about some of the priorities that you feel like you advanced in the new deal. And then as you look out ahead here, I was curious if there was any other deals of this kind where you feel like you might be able to meaningfully advance the narrative in favor of your artists? Thank you.
Stephen Laszczyk: ... maybe more about some of the priorities that you feel like you advanced in the new deal. And then as you look out ahead here, I was curious if there was any other deals of this kind where you feel like you might be able to meaningfully advance the narrative in favor of your artists? Thank you.
Speaker #8: And then as you look out ahead here, I was curious if there was any other deals of this kind where you feel like you might be able to meaningfully advance the narrative in favor of your artists.
Speaker #8: Thank you.
Speaker #1: Yeah, thank you. So first, I want to say that we're very happy with our partnership with TikTok in general. There's a lot of collaboration.
Robert Kyncl: Yeah, thank you. So first, I want to say that we're very happy with our partnership with TikTok in general. There's a lot of collaboration between us around our artist releases. You know, many of our artists are extremely popular on TikTok, and we utilize it quite a lot as we're launching new records, and we're very happy with our new deal. Obviously, I cannot disclose the deal terms of it, but it contains structural changes that better reflect the value of music, which we're happy about. And also, our deals are never just about money; they're also about data, promotion, insights, and all the things that can help advance our business overall.
Robert Kyncl: Yeah, thank you. So first, I want to say that we're very happy with our partnership with TikTok in general. There's a lot of collaboration between us around our artist releases. You know, many of our artists are extremely popular on TikTok, and we utilize it quite a lot as we're launching new records, and we're very happy with our new deal. Obviously, I cannot disclose the deal terms of it, but it contains structural changes that better reflect the value of music, which we're happy about. And also, our deals are never just about money; they're also about data, promotion, insights, and all the things that can help advance our business overall.
Speaker #1: us, around our Between artist releases. Many of our artists are extremely popular on TikTok. And we utilize it quite a lot as we're launching new records.
Speaker #1: And we're very happy with our new deal. Obviously, I cannot disclose the deal terms of it. But it contains structural changes that better reflect the value of music, which we're happy about.
Speaker #1: They're never just about money. They're also about data, and also our deals, promotion, insights, and all of the things that can help advance our business overall.
Robert Kyncl: But having said all that, you know, as a percentage of revenue, it's in lower single digits for the company, so it's not, like, material to our fortunes, you know, every day.
Speaker #1: But having said all that, as a percentage of revenue, it's in lower single digits for the company. So it's not like material to our fortunes every day.
Robert Kyncl: But having said all that, you know, as a percentage of revenue, it's in lower single digits for the company, so it's not, like, material to our fortunes, you know, every day.
Speaker #8: Great, thank you. And then, are there any deals on the horizon of a similar kind that you feel like you might be able to advance on the back of?
[Analyst] (Goldman Sachs): Okay. Thank you. And then any deals on the horizon, of similar kind that you feel like you might be able to advance on the back of TikTok?
Stephen Laszczyk: Okay. Thank you. And then any deals on the horizon, of similar kind that you feel like you might be able to advance on the back of TikTok?
Speaker #8: TikTok? Nothing immediately on the
Robert Kyncl: Nothing immediately on the horizon. We're very focused on advancing our AI initiatives across the board. You know, we see it as a great value creation tool, and making sure that we get things right with our current DSP partners, taking our holistic relationship with them into consideration, making sure that we deliver on, you know, obviously, our second priority with them, which is increasing the value of music on a consistent basis. And as part of that, adding, you know, AI into the mix to further accelerate that.
Robert Kyncl: Nothing immediately on the horizon. We're very focused on advancing our AI initiatives across the board. You know, we see it as a great value creation tool, and making sure that we get things right with our current DSP partners, taking our holistic relationship with them into consideration, making sure that we deliver on, you know, obviously, our second priority with them, which is increasing the value of music on a consistent basis. And as part of that, adding, you know, AI into the mix to further accelerate that.
Speaker #1: Horizon. We're very focused on advancing our AI initiatives across the board. As I said, we see it as a great value creation tool.
Speaker #1: And making sure that we get things right with our current DSP partners, taking our holistic relationship with them into consideration. Making sure that we deliver on, obviously, our second priority with them, which is increasing the value of music on a consistent basis.
Speaker #1: And as part of that, adding AI into the mix to further accelerate that.
Speaker #8: Great.
[Analyst] (Goldman Sachs): Great. Thank you.
Stephen Laszczyk: Great. Thank you.
Speaker #8: you. That is all
Robert Kyncl: Mm-hmm.
Robert Kyncl: Mm-hmm.
Operator: That is all the time we have for questions. I'll turn the call to Robert Kyncl for closing remarks.
Operator: That is all the time we have for questions. I'll turn the call to Robert Kyncl for closing remarks.
Speaker #3: the time we have for questions. I'll turn the call to Robert Kyncl for closing
Speaker #3: the time we have for questions. I'll turn the call to Robert Kyncl for closing remarks. Okay.
Robert Kyncl: Okay. Well, I want to thank you for spending time with us today. I want to reiterate our happiness with the company being in steady state, consistent delivery 3 quarters in a row, with strong outlook, strong initiative pipeline, and that through many of the things that are happening, you realize that we do what we say. Whether it's PSM increases, whether it's margin expansion, whether it's consistent growth, we said what we would do, and we did it, and we continued to do it, and we'll continue to do that. So, it is, it's a pleasure to be able to say that and have the confidence to say that. And the reason I have it is, Armin and I went through it, you know, on the call.
Robert Kyncl: Okay. Well, I want to thank you for spending time with us today. I want to reiterate our happiness with the company being in steady state, consistent delivery 3 quarters in a row, with strong outlook, strong initiative pipeline, and that through many of the things that are happening, you realize that we do what we say. Whether it's PSM increases, whether it's margin expansion, whether it's consistent growth, we said what we would do, and we did it, and we continued to do it, and we'll continue to do that. So, it is, it's a pleasure to be able to say that and have the confidence to say that. And the reason I have it is, Armin and I went through it, you know, on the call.
Speaker #1: Well, I want to thank you for spending time with us today. I want to reiterate our happiness with the company being in steady state—consistent delivery, three quarters in a row—with strong outlook, strong initiative pipeline.
Speaker #1: And that through many of the things that are happening, you realize that we do what we say. Whether it's BSM increases, whether it's margin expansion, whether it's consistent growth, we said what we would do, and we did it.
Speaker #1: And we continue to do it, and we'll continue to do that. So it is a pleasure to be able to say that and have the confidence to say that.
Speaker #1: And the reason I have it is Armin and I went through it on the call. There are so many things that we have improved in the company.
Robert Kyncl: There are so many things that we have improved in the company. All the work that we've done over the past few years is starting to pay off, and we're incredibly excited about the future. So thank you for your time, and have a great day.
Robert Kyncl: There are so many things that we have improved in the company. All the work that we've done over the past few years is starting to pay off, and we're incredibly excited about the future. So thank you for your time, and have a great day.
Speaker #1: All the work that we've done over the past few years is starting to pay off. And we're incredibly excited about the future. So thank you for your time.
Speaker #1: Have a great day.
Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
