WMG - Earnings call transcript Q3 2024 | Warner Music Group Corp.

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Operator

Welcome to the Warner Music Group Third Quarter Earnings Call for the period ended June 30, 2024 at the request of Warner Music Group, today's call is being recorded for replay purposes, and if you objection may disconnect at any time.

Now I'd like to turn today's call over to your host, Mr. Kareem Chin Chen, Head of Investor Relations.

You may begin.

Kareem Chin

Good morning, everyone, and welcome to Warner Music Group's Fiscal Third Quarter Earnings Conference Call. earnings on earnings our our XX-Q and that available are website. note press snapshot release, Form Please On today's you call, questions. and and our we we have our Brian then who CEO, Castellani, will answer take will through results, CFO, our your Robert Kyncl;

our this like refer events communication current statements reflect the I involves you snapshot to views would the performance. the Music financial future slide forward-looking and of earnings remarks, Group of remind prepared to Before to second you about Warner that that

present plan conference these release. in We provided slides results call results and certain press reconciling to non-GAAP and during in results schedules snapshot GAAP earnings this to our our earnings our have

and posted our be note materials will Also, unless these presented in are of constant All noted. on discussed comparisons currency, today revenue website. figures otherwise please that all

References items revenue update and can All for of made OIBDA that of such are found as impact forward-looking in to adjusted these and duty to details filings. disclaim any our are be The normalized statements. adjusted statements we comparability. today,

we and beliefs and good faith, basis there's a expressed reasonable in expectations, projections for are them. Our believe

on be that Investors there result differ from other and be cause will results beliefs should can are actual or to because statements our However, that and materially of can not projections expectations, management's risks, uncertainties they assurance no expectations. rely subject forward-looking variety achieved. a factors that

materially to it in Information turn And those concerning Robert. that, our SEC. factors the differ the to from with with forward-looking over that results actual is filings cause in statements contained could I'll

Robert Kyncl

joining and everyone, morning, Thanks, Kareem. Good for you us. thank

the developing with songwriters I'm forward. signing global from our and the work to strengthening to artists has been team to talent, our doing drive pleased efficiency and to improving is presence great business our bearing very commitment fruit, Our and

was impressive services both to and softer and normalized streaming effects of well increases. revenue. subscriber This offset driven a to QX comparisons a growth as results. was ad price performance artist basis, in on and turn improved by Subscription performance the accelerating physical XX% strong by market as Let's challenging

As increasing points. music with OIBDA normalized publishing X%. total X%, grew increased growth X% a grew recorded Total up of On with and music basis margin points. music a publishing and XX%. basis, basis, music increased X% OIBDA result, QX decreasing total X% total up X% with XX% a basis normalized revenue revenue On XXX adjusted margin recorded with XXX increasing adjusted

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

for to foundation Max Before strong in CEO. exceptional music I building and future. leader. especially go like thank into years as his over past the a been He's today Lousada first-class A the contributions last I'd to for this for creating further recorded this, company of our decades, detail on his X WMG instrumental X our

the on He's an our remain end end year he'll of that, XX, agreed of stay on adviser the to fiscal after January. September until and through

global and one, setting expertise elevate Our help flatter direct important regional reorganization leadership, X will new us that structure more between opportunities. channels things: we'll our up will have achieve creative local

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closing DLG and and On [ AI the for been front, to testified the of Blackburn, [ and balance Benson their This the April the many Senate control introduced voice safeguarding last Coons, coming for needs Deep image of Cher technology ] quarter, in of grateful Committee to about. Mike strikes of age we're great U.S. No you Coldplay, and Senate act Fredigan, industry, creativity optimistic every the ] to the crafting at Tillis legislation. week. year year right the Act, Guetta, entire the with I for Klobuchar between powered a be Boone, last Fake Americans the right on WMG David their propelling lots while as the the Dosin music thoughtful Senators, Fake Towers, transformative wave new next there's and I use told hearing in Judiciary It's was others. which from AI in own I'm

here Now Bryan. is

Bryan Castellani

good everyone. you, Thank Robert, and morning,

digital normalized to QX Before comparisons want appropriate, I constant currency I affecting reference details with unfavorable where will the and partners, items million this which be The rate comparability in that the digital revenue unfavorable quarter. previously of one our results, recorded our I renewal will of and quarter into growth in was $X metrics. BMG music revenue everyone get include streaming growth international which $XX remind million roll-off, was disclosed the

with a normalized million revenue the in OIBDA QX, increased the over XX%. prior rate Additionally, publishing margin quarter. points total an of X% prior $X adjusted a provided adjusted basis basis, grew digital increase and X% music revenue X%, year quarter. year of increased a grew total XX.X% and revenue the XXX On benefit OIBDA increase In CRB

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Artist The prior U.S. releases year X% announced releases ad a revenue to challenging comparison timing the supported was the and properties. Services deceleration lower revenue, Japan Rights decreased and due revenue to and due Expanded media foregone driven year France related physical revenue in owned to from strong the decreased XX% to by promotion in Physical and and of in revenue lower prior operated quarter. revenue merchandising concert previously our quarter. the exit

a Licensing increased revenue of OIBDA points. X% year X% Publishing XXX X% and revenue. increased continues copyright from basis deliver strong increase adjusted increased music margin basis, or basis XXX OIBDA points. with by Music adjusted On streaming, of settlements on growth an with revenue and results margin increased to a the driven quarter. Recorded of XX% by performance infringement sync XX.X% normalized X% in decreased revenue driven a prior normalized basis,

XX% an X% normalized or normalized or on of by Digital of a radio market Performance activity increased increase touring the expansion and in X% increase timing airplay. continued catalog XX% investment payments. to a growth, increased basis XX% revenue U.S. by an by Streaming continued basis. in on and the revenue increased and U.S. our outside reflecting revenue in due

On XX.X%, an XX% normalized XX revenue Sync Publishing sales. margin revenue flow to OIBDA lower increased year increased X% a quarter. XX decreased margin points. $XXX Music a XX% to Total in grew infringement physical basis XX% million increase million X% from Mechanical cash OIBDA basis of the increased with settlements. $XXX adjusted of basis, points. due increased of adjusted operating prior driven copyright by timing

to adjusted XX% remain flow for conversion $XXX to XX% was Free XX% on XX% to OIBDA. and prior million quarter, operating Operating of the achieve the pace from We year. year $XXX our multiyear in full cash timing target cash driven strong of by capital. million working increased performance flow

and billion of balance of of cash a million, $X As XX, total debt debt of had net June billion. $XXX we $X.X

weighted XXXX. X.X% remain average was cost debt nearest Our our date of and maturity

of roll-off look in estimate to As the to be in continue $XX distribution digital QX. million will the we million range ahead, from BMG we $XX

subscription an Looking quarter. prior at in we expect strength the QX, to we while revenue, see comparisons streaming continued ad-supported challenging year revenue,

As we QX. of across approach flag will available anniversary impact of $XX million to result no existing to impact music our videos music they premium to Meta which will approximately that longer per in This the deal, music publishing, their will X-year users. we be offering start revenue quarter and want in Meta's a to recorded us making both change

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

year, that on and focused I'm is pleased to start. a off to are close strong solid QX We delivering the a

for the remains and health for in new now success. long-term the the for persists, We'll the vectors market strong delivering continue questions. ourselves we ad Thank forward position you come. exciting for to the to music multiple in challenges We joining growth, quarters open to today. macro of us with While industry look call

Operator

[Operator Maral with ISI. Instructions] first Kutgun from Our Evercore comes question

Kutgun Maral

Two, could. if I

First streaming. on subscription

industry Some the outlook strength a on the more to streaming there you've points have certain you is subscription continued the DSPs. called I subscriber recorded a WMG the into and outlook But growth out at know and called relates streaming in pressure ahead? QX. it any on can out on trends at opportunities share slowdown of seeing you're your music touched for of and number peers as

it's coming for these to the Robert, us implications early more ways know out number of hard financials appreciate achieve reorg, the serve these business. efficient it the how music recorded and sometimes how called on decisions but ultimately impact the in the you over moves to thoughts it's on and on second, any outside might days, And of might the become years? you the impact items a that artists. to effective hope that you I

Robert Kyncl

appreciate Thank you I question. for it. the

So The first, [indiscernible] in Two, I our mix. to industries think the resilient And we're demand revenue any not is and side streaming seeing very on strong. market. demand for wish our of very other business continue. change would

industry sure have always diversified been cautioned to mix. it's because like don't as we're make financial much in we company, So proxy I'd any entire change -- and one to the the community revenue you more not Spotify and that namely happening just to the what's look our for seeing in

three, deeply X am very and obviously, teams, our And engaged drive together, I to our things with encouraged around with DSP growth. partners

continued markets last seen within to. growth family is year optimization, price includes which and the the one taking pricing and approaches so, out increases, established you've First between various continue play emerging different over on and plans obviously which we'll Two obviously or and those.

acquisition underlying has how retention in content and precipice really improving the Three, through And played royalty business nonmusic models, the which on evolution pie the adding of obviously we're drive the subscriber many that, industries. forward, out other music with the overall divided. and well which offering audience to is four, segmentation the of metrics,

streaming So it reasons, hard these overall, I'm we for bullish very all into DSP as and together can, partners. as on we're our with of leaning

we around the have the not to markets lean what do, X which emerging are world. has emerging of And which the infrastructure do can there all On an these just markets in growing flatter that accelerated allows only repeat world the in all international companies the reorg, is organizational of handful business I'll global which in the is and things, a into overall. us nature structure really

trade unique out a And and make exchange that's handful stars stars do global difficult of to can the companies routes a of on local to only and very content of have execute and infrastructure a thing unleashed and them. And effectively take that.

in flat that our into creative Warner two, Warner strength and So the local Records, organizational we're team; consolidating Nashville Warner U.S. structure Atlantic. leadership elevates into compounding by our Records XX-K

functions operating So for centralizing simplifying several three, then organization; leverage. the and

it, a of impact exercise. financial decision, is the strategic a to As this cost-saving not

early of today. incredibly market it to therefore, for up any it's to well too future speak it's far us so to strategic impact the And but set

Bryan Castellani

out what DSPs Robert our is pointed the us handful of number top to growth of and from and as see in and we led that, carryover industry, slate to subscriber and certainly growth tide, Robert resiliency health well the releases of across Bryan, that. took extent, the this new just by to by, as the part first of that on we as but of a the pretty quarter. price growth rising underpinned believe strong lesser it's gave prior and momentum and my ones mouth that But reiterate a second part on Kutgun, a words of continue consistent to

Operator

next from Manson Cameron question Morgan comes Stanley. Our [indiscernible] with

Unknown Analyst

on One, over I if Two DSP can. just pricing time.

Suno approaches a in wanting how start Udo, strategies your time? how risks approach Obviously, the and a users, against a see and relationship over think But owners how the we around you've those distribution streaming how world or they're if you developing you're couple generative monetizing AI or of and opportunities of any update DSPs about that I meaningful businesses generative technologies? IP partners. there's And lawsuits your mentality. terms talked between to owners does [ maybe facilitate and different historically, on impact thinking about enter across and well divergence across ] content to just where

Robert Kyncl

Sounds good. Thanks, Cameron.

approaches divergence So the different between on ESPs. between the

a work does as demand chase side for work, the people obviously long industry thing where adjust of good. And may you Because when doesn't. as the but it know they for works, diversity and is demand in approaches. the that, diversity people what have divergence word not using something you growth. that diversity, use generally you're means really think is there I from the I business, strong because the strong go of I and what learn

I'm about worried good and sometimes growth On is So sometimes But drive and and come have you Gen and focus to long on opportunities. you and experimentation all will in that. not term win lose. times. at and I AI you risks experimentation

YouTube, year all platforms content people that's So we said whatever partners our Spotify, end And the this we'll I'll really quarters because X. et up places one, ago, where maybe of to our in a consumed. One, cetera, I just what Jenai else, prioritization about a content the There are space. where in stakeholders current repeat or few how partners. has somewhere repeat listening, created think the DSP I'll ago is of our our sort of used

the of mentioned engines, You then from that then our it's I government. Two, have is that the order right? order Generative AI, at least AI is and picking X of standpoint. some because them; them the in

start place. as You will some the have are both the take Gen to in are there business. as with in And the platform business well consumption who partners AI

cetera. et YouTube is Meta of is a example a good of that, example good that.

So we Obviously, It's those most content focus are the we great of first approaches alone. industry and obviously on have because partners entire the We're course, progress solve and we we're making with can for and it government. the not future. thoughtful regulation varying where approaches. foremost how they're

you to see but music within also a it's more fruition. coming lot But industry content alignment industry, within the can the

there's been There's And actually nothing I'm you Obviously, that. optimistic new filed. so that's to [indiscernible] on about quite And on report this. a lawsuit touched

focused on on this. very, So But we're next we're waiting very for that. the step

songwriters it and our artists right because a and is and it Well is it. our do, business likeness name to good do thing to IP, defend and religiously the

Operator

with comes Our question from next UBS. Batya Levi

Batya Levi

how price maybe if talk about should confirm XQ Spotify we you'd on you from roll-offs? that increases some you you upcoming the Can think of And saw able any services. recent lapped you we if price increase for that participate in bundled Can in about fiscal the any think and just to be had if -- you increase.

Bryan Castellani

Thanks. Batya, it's Brian.

But would a price geographic the are Spotify the increases, lapping as around we're influence bit say, biggest. have of On world the lapping are of mixes the it there end the certainly can at that tier well. and and really, We YouTube. still those I of

Robert Kyncl

the Yes. one. take And second I'll

family there we've disclosed And plans never in are and existence know, duals, SKUs different cetera. any between participate So many already et in as the those. we how you of various

mind. not don't that best anchor obviously we But assumption to So forward. tell plan participate -- tenants would assumption you I key any change can to is not us, such as put it's the that going not that in

Operator

Our with from Stephen question comes Laszczyk Sachs. Goldman next

Stephen Laszczyk

could. if Two, I

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

you on if the if could rights curious agree to you're streaming in you Just the meta the for of next incremental headwinds growth deal across streaming, the but some IP thinking with appreciate premium holders that. broadly. and emerging just the curious video, opportunity year I emerging update opportunities would there how more general then from And about on just us of

Robert Kyncl

All Stephen. Thanks, right.

strong. first, that We one to for to want focus we I do I say But release also to forward. performance and I question the slate is say don't feel talked our only. Yes, on strong. So catalog about want QX on and incredibly continues catalog thing actually release -- earnings we going costs to But about. strong that our our know slate. be of an the consistently we new is justice the that really -- I have

X of And of by catalog new strength also lot on releases, shallow cohorts. company if the is our uplifted of performance a a the it of obviously, but it's it's is combination

catalog. [indiscernible] your music catalog question, Boone, To have great from Guetta, -- Coldplay, Towers, to others. firing shallow all cylinders. Benson all really we it's answer see and it's on releases, it David Mike And many, New deep and coming specifically many

phenomenal slate. We're and out. job lot, team is shipping a busy there's doing coming a incredibly lot So the the

the all content music a -- content, of this bite-sized of are into have generations. things to they whether for And or relevant platforms, growing of completely that make embedded them. do is and about one the very them with and we just with short and that is incredibly It's grow. hard but that streamers. for we're them markets of continue for one We're And lots all drive really on that content. reasons that things help great the deeply sure business experiment innovative our emerging forward, On also to those long-form working relationships we're we not us

excited to wake it. we And medium or amazing So I'm robust to all up way it do about size. And rate every day, obviously we our monetize is the and bring all that short have relevant on whole. or across I sure so the growth just right to of music whether of types and it say, mediums, job kind make a long that

Bryan Castellani

the offering I'll strong, they Meta year, Bryan. premium There to also from their with anniversary the Having is real moved we excited called well. And our are And that, our that out and as said relationship like that, about and underlying TikTok our it's remain that Meta is changed Stephen, music had add Instagram away last we have commentary growing category. I video come in step-up. growing. and upon of my licensing. we

growth have continues But So to the that. we a category. also be category

Operator

Fargo. Mejias Omar from comes Wells with question next Our

Omar Mejias Santiago

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

Robert Kyncl

right. All

the streaming, Was me subscription it of were Was drivers sure that sure. growth? just on question wanted correct? correctly. to the I underlying I understood make that So make what let

Bryan Castellani

couple pretty to was quarter top again, of a the impact last as or strengthen see last obviously, our well price. consistent on from additional the streaming sub tenths lesser to extent we a DSPs again, as helped still support it carryover And few growth, And subscription some by On that's Excel, continue across underpinned quarter. which, quarter releases slate this it. a our up

what And so drove really it. that's

of then just the the would low. at say subscriptions are penetration place we're health music on really And of where still a I industry,

about go overall or optimization XX% from they're over million and lot the $X be there's to talked to earlier audience a years. of as has and more and XXX product to today still we've there billion and as there's X think as I And sophistication over headroom about, spoken XXX Robert subscriptions well well million innovation. price done segmentation to next on

So it. about still optimistic

Robert Kyncl

effectively well. on select the which for titles, growth. is high-touch impact that on optimization and catalog algorithms There's correctly that set drive do up within Let marketing incredibly entire it's which to one you right, all catalog catalog optimistic me sure well super a making at-scale the sort the think take recommendations, that team high really work second have ways for the X question. then to of of executes about And optimization that One, it. DSPs of our campaigns is sort

both X approaches, like different have push and same we continue we So at to on time. the

Operator

Our with next from question Barclays. comes Kannan Venkateshwar

Kannan Venkateshwar

some competitors just just to more. as few Maybe when reported of landscape. you obviously streaming and could different numbers, a growth headwinds terms extent. subscription out you're about into between what aware, called broadly trends different the a Maybe DSPs industry talk little in across drilling diverging seeing your the probably you're bit they

forward. And your some I expect peers that maybe well as with at And specifically. mean it respect our social seems if the some like from to content least media impact again at looking there's platforms a going big commentary from market Spotify share their you shift away growth trends there's others. been to towards

landscape could talk the broadly about that would if on the and be why in that convergence So you going what's data.

Robert Kyncl

you. Thank

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

I We're So I'm with of our performance really I comment is. competitors. -- making. pleased their and inside can't not business the are their what about our the see partners DSP that drivers don't progress

the because was somebody as As people approaches forget, I and I view divergence ways. question positive mentioned are experimenting there's different in which

that's out, and and this is they sometimes don't, they interplay there a as of underpinned again, adjust think the And continue as business, strong there sometimes people of work the the long of demand music is today's I side world it's but by of and than they which effectively elevating sort the and ever emerging is of in services those relevance before. music because it because platforms are between relevant role been music more of the all sort

ever and job DSP platforms. It's to also within platforms share between us it's well an the consumption the as emerging our new catalog with our for to And play consumption partners. within grow the grow incredibly and time strong both as forms full the ecosystem the of And obviously releases in. together do we have and overall to play streaming And our both present. more bite-size all that in

Operator

from Our Tim Nollen with next comes question Macquarie.

Unknown Analyst

the to that in optimization Robert, Tim. time for don't your order levers ad-supported or monetize thoughts ad-supported some to do music uses pre dissatisfaction only And tier interested of to given should after I'd of what expressed the Ross a tier apply, sufficiently should i.e., role be take. the have DSPs of is produced. This on in with you of you if they available many industry so. windowing at value music here. have shouldn't some some be artist think How the getting on the influence week

Robert Kyncl

on an I today. one, windowing don't opinion So have

it's addressable, much very strong you opinion devices. i.e., think in plays about -- the is through in, I more to partners. to do that mobile it's on really market a in. together you it's detailed if a But the be is with have that's our advertising think advertising effectively advertising want music it that market which general, I topic think on

where all the it's digital that mentioned. of computers see not It's TV And to, that product that advertising is targeted. is tablets, not shift exposed. the things from you sort advertising on screens. on really that platforms obviously, all is it's on deliver I traditional our effectively It's the linear And and

So I one. number the are market. correct advertising we in think That's

advertising with obviously, GDP. fluctuates two, Number market

a function So budgets growth. are GDP GDP. basically, of And marketing

That's So life. in a than they of we're right bit fluctuate But It's a river. okay. with just swimming fact more the those subscriptions. little

So let's with that. start

question Two, in cetera. is, much I think your is content And impacting is too et it there subscriptions, there?

order subscriptions, grow it to to funnel. healthy in have think a is helpful I

has I unison you be question growth is, be are can done that would of cannot you without and and in it to just done both do And only growth, those talking we and be the other, driving has one only in you do if experimenting partners. does driving our Now experimentation like was together in the it want in done the driving the to without with ARPU -- in ad-supported can if together subscription experimentations that with our what and on concert drive these partners something the change DSP future, to that about focusing overall timing?

to that report today, nothing we're river. the spending but So in I'm right glad new on

Operator

Greenfield Partners. from with Our question LightShed next comes Rich

Richard Greenfield

YouTube translates and your service. just about which they experience you given How the music really that they how YouTube, at Premium, were that of Spotify first you think And bundle music I'm meant bundle. think how about sort think the look at as to time includes Google versus music when the can over curious Robert, to for to what business YouTube we about Google.

of a of service. of Apple to the And sort go drive part TV shown a that of about Clearly, funnel people question, they've of Spotify ad-supported marketplace model. done an in there's to has never the music freemium Wondering Apple power the speculation lot launching separate then sort Plus. as advertising but

you Apple using direction, how willing freemium-like a curious advertising whether are might Spotify that move Just in seeing think to the marketplace success have model? others in and you in

Robert Kyncl

Thank right. All you, Richard.

I I very as remember are really in both had music industry. million in we started, make kidding. it and all I'm works by now And that it a well to unique was XX, it's offering replicated we ride for of a And anyone it that to we north else, my on was YouTube So as we how Oh, forgot it. past X like, I'm of when subscribers for right? but helpful, experience, right? not the It the big going created market company, was XXX. for

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and industry. And the the we good was what music at did over executed YouTube for team flawlessly. that's it there And

our experiment the So business on it share any to to Apple. am forward question most anything don't with the takes new drive of to I on willing me But partners. have that. I second and the

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Operator

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

Robert Kyncl

momentum done incredible transition from that music smooth efforts and most everything to the making culture thanks the do that got and for ahead complicated who reorganizations have, teams to to give creating want build and are of board incredible and his our big fill, transitions. and obviously about by Julie, job upon big him heartfelt have we there to an we to I we such welcome as want I Julie's and industry hits ones the in and XX Max are the our icons benefit how job to close that a to a saying to going sure him. execution appreciate of have great the he's excited of to the and their want contributions Lousada we Well, and through over challenge on artists shoes songwriters incredible the who our things I legacy company. to Elliott of very both are again has the once the Atlantic And last years really that

about really we guys that So have company team to look direction with days. and you and that, talking the the of the in forward excited to XX

Operator

presentation. today's conclude does this gentlemen, and Ladies

You now disconnect, day. a and may wonderful have

Warner Music (WMG) 7 Aug 242024 Q3 Earnings call transcript