Warner Music Group Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

Key Takeaways

  • Total revenue grew 10% in Q3 with adjusted OIBDA up 18% and margins expanding 140 bps, driven by recorded music (+9% revenue) and publishing (+16% revenue).
  • WMG successfully pushed for subscription price increases across major DSPs (Spotify, YouTube, Tidal, Apple, Amazon, Deezer), positioning for further hikes without elevated churn.
  • Closed a landmark TikTok deal covering the main app, TikTok Music, CapCut and commercial libraries, with improved monetization per MAU comparable to other ad-supported platforms.
  • Embracing generative AI with protective artist frameworks and projects like an AI-generated duet with the late José Campany, reflecting both innovation and rights safeguarding.
  • Launched a financial transformation program across multiple territories through 2025, targeting $35–40 million in annualized run-rate savings to fund technology investments.
AI Generated. May Contain Errors.
Earnings Conference Call
Warner Music Group Q3 2023
00:00 / 00:00

There are 14 speakers on the call.

Operator

Welcome to Warner Music Group's Third Quarter Earnings Call for the period ended June 30, 2023. At the request of Warner Music Group, today's call is being recorded 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. Corinne Chen, Head of Investor Relations.

Operator

You may begin.

Speaker 1

Good morning, everyone, and welcome to Warner Music Group's fiscal 3rd quarter earnings conference call. For questions. Please note that our earnings press release, earnings snapshot and the Form 10 Q we filed this morning will be available on our website. On today's call, we have our CEO, Robert Kinstle and our CFO, Eric Levin, who will take you through our results and then we will answer your questions. For Before our prepared remarks, I'd like to refer you to the second slide of the earnings snapshot to remind you that this communication includes forward looking statements that reflect the current views of Warner Music Group about future events and financial performance.

Speaker 1

We plan to present certain non GAAP results during this conference call for full year 2019 and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website. 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 there is a reasonable basis for them.

Speaker 1

However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward looking statements because they are a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. For further information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

Speaker 2

Thanks, Karim, and good morning, everyone, and thank you for joining. For a challenging first two quarters, we're pleased to see strong evidence of back half recovery that we told you to expect. For. This has been a big team effort. I'm grateful to our leadership, all of our operators around the world and all of our incredible artists and songwriters.

Speaker 2

For I was happy that our Q3 results were driven by such a wide diversity of music. Strength came from many different territories, for. We succeeded with artists and songwriters across the spectrum of genres and generations, for and we saw the return of some of our biggest superstars, whose new music fueled fans engagement with all of their albums. In addition to improved performance in our core recorded music revenue, we also saw growth in licensing, audio services for almost all areas of publishing. I'm particularly pleased to say we're seeing our momentum accelerate into Q4.

Speaker 2

I'll provide more details, but first, let me get into our Q3 results. Total revenue grew 10% and adjusted OIBDA increased 18% with margins growing 140 basis points year over year. Recorded music revenue increased 9% and streaming grew 7%, reflecting double digit growth in subscription revenue for modest growth in ad supported revenue. Please note, beginning this quarter, when we talked about ad supported streaming revenue, and includes revenue from emerging streaming platforms such as TikTok, Meta, Peloton and others. Music Publishing for Q4, delivering revenue growth of 16%, driven by strong streaming growth of 28%.

Speaker 2

For. I'd like to dive a little deeper into the different projects that drove these results as they reflect the strength of our commitment to developing extraordinary talent for growing our incredible catalog. In recorded music, artists at all stages of their careers, for global superstars and local names, new albums and timeless classics, all added to our growing momentum. For Ed Sheeran's 6 studio albums subtract is number 1 in 11 countries and top 5 in 7 other countries. For Melanie Martinez' 3rd album, Portals, went top 3 in the U.

Speaker 2

S, U. K, Canada, for both the quarter and the quarter, which is being recorded for both Ed and Melanie are great examples for the same phenomenon in the modern music business. New music combined with Turing is resulting in an uptick of streams across the entire catalog. Given the cultural relevance of Latin music right now, I'm pleased to say that our Latin division is on par. For recent successes include Puerto Rico's Mike Powers, who soared to number 1 on Spotify Global Top 50 with his song La la for music and music and music

Speaker 3

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Speaker 2

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Speaker 3

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Speaker 2

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Speaker 3

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Speaker 2

For and by the way, we just signed Yann Lucas for publishing as well. Other amazing artists that are enjoying breakout hits include Korea's Aespa, for Italy's Capo Plaza, Sweden's Polaget, France's Nino, the U. K. Pink Panthers, the U. S.

Speaker 2

Bailey Zimmerman and Australia's for Fujairah. We also partnered with Chinese Superstar Jem for her groundbreaking album, for marking the first time a Mando Pop artist has recorded a full length Spanish release. This partnership truly highlights for the quarter. The combination of our global reach and local expertise for. Equally, it was great to see how music from our credible catalog and continue to contribute meaningfully to our results.

Speaker 2

This includes major projects with renowned names such as Linkin Park and the Grateful Dead, as well as impressive carryover sales from newer artists such as Zach Bryan, for Ivo Max and Don Toliver. I'm also happy to say that our Q3 momentum is carrying over into Q4. Lil Uzi Vert scored his 3rd number one album on the Billboard 200 with Pink Tape, for the 1st hip hop album to top the chart in 2023. Young Thug's Business is Business peaked at number 2 for. And Gunnar's A Gift and Occurs debuted at number 3 on the Billboard 200, with his lead single reaching number 1 on the Spotify in the U.

Speaker 2

S. For Duvalipa's highly anticipated new track, Dance the Night, which is currently number 1 on the official European AirPlay chart, for the campaign for Barbie the album released on Atlantic Records. Like the movie itself, the album has been a massive global cultural event, for putting number 1 in 7 countries, including the UK, Canada, Australia, New Zealand, Netherlands, Ireland and Portugal. For. All in all, for Q3, but we still have lots of work to do.

Speaker 2

Kudos to the whole recorded music team for how they partner with our artists for for the quarter. We will see impressive results from our strategy to diversify our revenue streams, strengthen our services and mine our deep catalog. For. At the same time, our songwriters are contributing to massive hits, including Morgan Wayland's Last Night, Miley Cyrus' Flowers for from Germany's Apache 207, Spain's Quevedo, the UK's Dave and Mega Heart Producer Mac to name a few. We're always expanding our publishing roster and have recently signed deals with Grammy winning pop rockers, Imagine Dragons, for I Spy's producer, RISE USA and Spanish star, Anna Mina.

Speaker 2

I'd like to emphasize one other key theme today, our efforts to grow the value of music, which includes our approach to AI. For We're focused on creating virtual cycle where innovation, fan engagement and greater monetization thrive together, for providing even bigger opportunities for artists and songwriters and music fans around the world. When I arrived at WMG, one of the first priorities I identified was the push for increases in music subscription prices. For. Last month, Tidal, YouTube and Spotify for all followed Apple, Amazon and Deezer by upping their prices.

Speaker 2

This is the fiscally responsible thing to do for themselves and for the creative community. I'd like to thank them all for taking this important step. For Back in March, I said that if we adjusted for inflation since 2011, the year that music streaming was introduced in the U. S, for the quarter. The price of a monthly music subscription in the U.

Speaker 2

S. Should be $13.25 today. I'd like to point out that in for 2011, the price of the standard Netflix plan was $7.99 It has since increased to $15.49 today. For. If the monthly price of a music subscription had gone up by the same proportion, it would have increased from $9.99 where it was in 2011 to 1937 today.

Speaker 2

Let's remember that music subscription services for you to access all the music ever released and a continuously growing library for roughly the price of a single CD. For You need to subscribe to 304 movie and TV services for roughly $45 a month for future quarters. So we see these initial price increases as an encouraging start. For There is no evidence that the services are experiencing elevated levels of churn. We believe the market will bear further price increases in the future and we're expecting that they'll arrive on a more regular cadence than in the past.

Speaker 2

Again, when I joined WMG, for. One of the questions I repeatedly got was about TikTok. 7 months in, I'm pleased to say we also made great progress there. For last month, we announced and expanded and significantly improved deal with them. The agreement covers the main TikTok app, for the rollout of the subscription service TikTok Music, the video editing app, CapCut and TikTok's commercial music library.

Speaker 2

For our audience and songwriters access to new levels of monetization, marketing and fan development features. For this conference call. This is a first of its kind partnership that will also mean the joint development of additional and alternative economic models as we grow the ecosystem together. For. I know there is interest in the specifics of our expanded relationship, but due to confidentiality provisions, we aren't at the liberty to disclose them.

Speaker 2

What I can say is this. The deal features improved monetization per MAU that is comparable to other ad supported DSPs, for fully recognizing the value of our music and how critical it is to engagement on the platform. I was glad to have had the benefit of my experience at YouTube, for quality and quality

Speaker 3

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Speaker 2

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Speaker 3

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Speaker 4

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Speaker 3

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Speaker 2

quality and quality and quality and quality. We look forward to working with the team at TikTok along with our other partners to continue to innovate and grow the value of music. The market's adoption of subscription price increases for the Q4, combined with the ongoing evolution of our key partnerships, gives us tremendous optimism for the future of streaming growth. As we turn to AI, I'd like to point out we have long history of working together with distribution platforms to establish licensing models that drive growth for music and innovation. For the past 15 years, music companies and distribution platforms have partnered to grow user generated content

Speaker 5

for

Speaker 2

working with our artists and songwriters. We're leaning in, moving fast and working with a network of partners, including both generative AI engines and distribution platforms. For many Warner artists are already exploring impactful ways to use generative AI to create, augment and remix their music. For. Other artists are using generative AI for visuals with artists like metal band Disturbed and dance producer Ritahn and the superstar rock band Linkin Park, all creating highly impactful music videos.

Speaker 2

For In addition, AI enabled stem separation technology is giving new life to recordings by artists for no longer with us. For example, AI has been used to isolate the vocal performance from sound recordings of legendary entertainer Sammy Davis Jr. For the record of the renowned opera singer, Maria Callas, as part of groundbreaking Sing Pios. We're deeply inspired by our artist abilities to embrace and push the boundaries of the latest technology. I'd like to highlight one of the first official and professionally AI generated songs featuring a deceased artist, which came through our ADA Latin division.

Speaker 2

The Serbian musician of Pedro Campany for Has released a new duet with his dad, the legendary father of Costa Rican rock, Jose Campany. For This is Jose's first song since 2001, the year of his tragic death. After analyzing hundreds of hours of interviews, for a cappella's recorded songs and live performances from Jose's career. Every nuance and the pattern of his voice for Was modeled using AI and machine learning. The resulting song movingly announces the arrival of Pedro Sun, Jose's grandson.

Speaker 2

It also coincides with Jose's catalog being available on all streaming services for the first time. With the right framework in place, AI will enable fans to pay their heroes the ultimate complement through a new level of user driven content, for including new cover versions and measurements. AI is unquestionably one of the most transformative forces in human history. For. Nonetheless, this technology shift is more familiar terrain than first meets the eye.

Speaker 2

Like many technologies for Q4. It presents massive opportunities for human creativity and innovation. Q4 is off to a for strong start with amazing releases, including Barbie the Album, Burna Boy, Nino, Pink Pantheris, for Thiago Pizzikay, Kahli, Tiesto and Anne Marie. And we have new music coming from Zach Ryan, for Cia, Dan and Shay, David Guetta, Charlie Puth, Omar Apollo and Robin Schulz. For.

Speaker 2

We have a fantastic roster of artists and songwriters and a great team. We continue to invest in our expertise and infrastructure, both creative for future success. As I said on my first earnings call, I'm a big believer in action speaking louder for Q4. So today, more than anything else I've said, it's our results, it's sure we're gaining real traction, and there is a lot to be excited about in Q4 and beyond. Eric, over to you.

Speaker 5

Thank you, Robert, and good morning, everyone. For Q3 results are reflective of a robust release slate, strong carryover from a variety of artists across different genres for further growth and geographies, easing ad comps and outstanding performance in our publishing business. As a result, we delivered solid growth across key metrics, including revenue, adjusted OIBDA for fiscal 2020 and adjusted OIBDA margin. Total revenue increased 10%, reflecting growth in both recorded music for music publishing. Adjusted OIBDA increased 18% with a margin of 19% compared to 17.6% for the quarter.

Speaker 5

These increases were primarily due to strong operating performance for quality and disciplined cost management. Our margin performance in the quarter was not materially impacted by savings from our March headcount reduction as we reinvested most of the savings into technology. Although for the Q4 of fiscal year. We are raising our guidance to deliver full year margin expansion at the high end of our 50 basis point to 100 basis point range. Recorded music revenue grew 9%.

Speaker 5

For streaming revenue increased 7%. Subscription streaming revenue grew in the low double digits and ad supported increased in the low for single digits. As Robert mentioned earlier, starting Q3 and going forward, when we talk about ad reported streaming revenue, it will be inclusive of revenue from emerging streaming platforms. For replay. Additionally, for the quarter.

Speaker 5

The market related ad supported headwind moderated as we lapped the pressure we began to see in the prior year quarter. For fiscal revenue increased 2%, driven by solid performance in the U. S. Artist Services for the quarter and expanded rights revenue increased by 14% due to higher concert promotion and merchandising revenue. For licensing revenue increased 24%, driven by growth in sync and broadcast fees.

Speaker 5

For recorded music adjusted OIBDA increased by 16% with a margin of 20.6%. For. This is an increase of 130 basis points compared to the prior year quarter. Music Publishing for continued to deliver strong results, posting 16% revenue growth, driven by strength in digital for replay and mechanical. Digital revenue grew 27% and streaming revenue increased 28%, reflecting the continued growth in streaming, digital deal renewals and a revenue true up of $9,000,000 We had a $17,000,000 benefit from the CRB rate increase in the prior year quarter and we had a $7,000,000 benefit for the Q4 performance revenue decreased by 9% due to the timing of payments from collection societies, for.

Speaker 5

Mechanical revenue increased by 45%, primarily due to a higher share of physical sales for and timing of distributions. Think was flat due to lower commercial licensing activity for profit, offset by copyright infringement settlements. Music Publishing adjusted OIBDA increased 32% to $74,000,000 with margin increasing 3 10 basis points to 26.1 percent, driven by strong operating performance. In April, we successfully launched certain components of our financial transformation program in select territories. The program remains on track to meaningfully rollout in a wave based approach for fiscal 2023, 2024 and into 2025.

Speaker 5

For. Once fully implemented, we expect the program to yield annualized run rate savings of $35,000,000 to $40,000,000 Q3 CapEx decreased to $33,000,000 as compared to $35,000,000 in the prior year quarter. Operating cash flow decreased 10% to $146,000,000 from $163,000,000 in the prior year quarter due to higher cash taxes and cash interests. Free cash flow decreased 12% to $113,000,000 from $128,000,000 in the prior year quarter. Adjusted OIBDA to operating cash flow conversion was 49% in Q3.

Speaker 5

For 2019. Our goal remains to deliver an operating cash conversion of 50% to 60% over a multiyear period, for 2020 3. As of June 30, we had a cash balance of $600,000,000 for total debt of approximately $4,000,000,000 and net debt of $3,400,000,000 Our weighted average cost of debt is 4.1% and our nearest maturity date is in 2028. As we look ahead, we expect continued improvement in our results. We are working hard to execute against our plan and look forward to sharing more about fiscal 2024 on our next earnings call.

Speaker 5

Thank you to everyone for joining us today. We'll now open the call for questions.

Operator

Our first question comes from the line of Benjamin Swinburne with Morgan Stanley. Your line is now open.

Speaker 2

For Good morning.

Speaker 6

Robert, you mentioned the price increases. I think you thanked the DSPs for what you described as a good start. For But at least from our perspective, there's a bigger prize longer term, which is really continued movement of prices higher for the quarter and really maybe a structural change to sort of the incentives that are driving the market. So I'm wondering if you could talk a little bit about your for confidence in your ability or the industry's ability to really drive significant change in the incentive structure for And whether or not you have a new agreement with Spotify, because there was some disclosure in their quarterly filings suggesting they've got a number of new commitments with partners. For Universal announced a new agreement.

Speaker 6

So I would love to hear your thoughts on sort of the long term changes you'd like to see the industry adopt beyond just 1 year of price increases and also whether you can talk a little bit about your relationship with Spotify and whether anything has changed there. Thank you.

Speaker 4

For Thanks, Ben. Let me take it from the backcourt. So no, we do not have a new deal with Spotify. So let me just clarify that upfront. For We're not in relationship with the consumers.

Speaker 4

Our DSP partners are. So they are free to raise prices at any time without any contractual change. So it's not required in order to do so. For I think as I look forward into the future, obviously, you've heard me in my opening remarks for the Q1 of 2019. And this being a first step in what I believe is a more regular cadence for increases.

Speaker 4

But let me give an example of what I think should happen more often and why. If you look at the history of Netflix and their innovation around price, it was really both on the way down and on the way up. For Netflix. Netflix started at $20 a month more than 20 years ago, then it went up to $22 and then it, over the course of many years, for 2019, 2018, 2017, 2016 all the way down to 799. And then for it started to grow it back up.

Speaker 4

And today, the standard plan is $15 I forgot the name of the next plan, for With more family members on it is $19 or goes to $20 The level of innovation around price for Is incredible. And I think that the DSPs in the music space will begin on the same path because for Video services are showing us price elasticity that consumer has that it is not resulting in elevated levels of churn. Now let me be clear. I am not suggesting that we go to $19 today. That is not what I'm saying.

Speaker 4

But what I'm pointing out for The innovation that is happening in the entertainment space around it, the value that we all provide to users and the elasticity that is there. For. And we are we obviously want to make sure that we're working collaboratively together with our DSP partners to innovate over the next decade around this point.

Speaker 6

Thank you. And then if I could ask you a follow-up, you and or Eric, just around margins. I mean, this quarter, we really saw the business deliver the kind of growth, I think we all kind of expect over time, particularly both revenue, but also operating leverage. I think there's still some question out there, Robert, about whether your appetite to sort of reinvent the organization from a technology point of view cause some kind of pause in the margin story that we're seeing again this quarter. Just wondering if you could talk a little bit about the technology investments you're making and whether you think you can continue to drive operating leverage in the business over time assuming the top line performs?

Speaker 6

Thank you very much.

Speaker 5

Ben, this is Eric. I'll take that. So I think the first thing to note is that for We did a restructuring, reduced headcount this year, are getting meaningful savings from that. For quality. Our technology investments are really being funded by those savings, not coming out of margin.

Speaker 5

So that's the first point. For. 2nd point is, at the IPO, we had a long term projection of 100 basis points increase per year on average in margin. We have largely met that. We're saying we're going to meet that again in 2023.

Speaker 5

I will say that folks, we look forward. We are focused on margin increases. We are working on our 2024 budget now, so I don't have anything specific to say for 2024. I will say that we actively, Robert, myself, the business team actively worked on a game plan for for quality and margin improvement within fiscal 2023. We're working collectively as a team.

Speaker 5

Early in the year, I said for 50 basis points to 100 basis points was realistic for this year. Now we're confirming the high end of that range as our objective as our goal for the year. For And that is largely through active management of the business, both revenue growth, we saw reaccelerated digital growth in recorded this year and extraordinary performance in our Publishing division, both with growing margins and active cost management, for the quarter, not just in headcount, but also areas like marketing that will allow us to achieve this strong margin growth. So we as a team will continue for 2019. We're going to look at growth in the business, both top line and margin, where exactly it will land 24, we'll report for future quarters as we finalize our budget, but it's very much in the center of our focus.

Speaker 5

Thanks, Ben.

Speaker 7

Thank you.

Speaker 8

Our next question comes from

Operator

the line of Michael Morris with Guggenheim Securities. Your line is now open.

Speaker 9

For Hi, good morning. Thanks for taking the question. I wanted to ask you about the TikTok agreement. For There's a lot of complexity in the announcement here. So I'm hoping you can share some additional detail.

Speaker 9

As you look at the different components of this agreement, Robert, can you help us understand which elements are the most impactful to your business maybe in the near term as compared to which elements need to unfold a bit more over time. So some details there would be great. I'm also curious as to whether this deal sets any precedent for other technology partnerships that you have. And then finally, Eric, you've discussed in the past moving some of these, kind of emerging agreements from fixed payment for structures into more variable agreements. So does this agreement start to compensate you more on a usage basis, for particularly given just the popularity of the platform.

Speaker 9

Thanks, guys.

Speaker 5

Sure. Go ahead,

Speaker 4

So obviously, we can't share much confidentiality, as I mentioned before. For What I can tell you on the elements, obviously, I focused on value for us. And what is important to me for Whether it's in ad supported or subscription, that we have fairness across all of our distributors, for So that nobody feels disadvantaged or advantaged in any way and that we have a well distributed for distributor, a set of partners, we're all sort of feeling equal. And so that was an important tenant of the relationship with me for with TikTok. But what I also wanted to make sure is that we focus for the users, on their users because that is important to TikTok and any DSP for that matter.

Speaker 4

For music companies to focus on that equally in order to make it win win. For. And I have to say that I'm very pleased with the way Xiao, the TikTok CEO, for both sides. And I want to make sure that this impactful platform for between both parties and but there's a lot of work to do for us to unleash even more opportunities and we have a road map for that.

Speaker 5

Yes. Let me add a few things. So thanks, Robert. For One is and again consistent with what Robert said, and how our philosophy is, for Having services that compete with each other that our monetization is in line so that we're not for quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and

Speaker 3

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Speaker 4

and quality and quality and

Speaker 3

quality and quality and quality and quality and quality and quality and quality and quality and quality and

Speaker 4

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Speaker 3

and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and quality and

Speaker 5

quality and quality and quality and quality and quality. For Q and A. So, we're achieving our objective as we do these deals.

Speaker 3

For the quarter. TikTok is an example of that. It also

Speaker 5

opens up new growth drivers as they roll out subscription services and then other products that they want to. For What I will say is, we have been saying for quite some time that we've had emerging streaming deals for 2019. That were concluded in 2021 that expected renewals in 2023 2024. This obviously is a substantive one of them. For What we will say is that this is happening pretty much when we expected and in line with where we would have for So this is really consistent with our model and our forecast.

Speaker 5

And we're really pleased this deal concluded, and Robert said, for in good partnership. So we move forward. Thanks, Michael.

Speaker 9

Great. Thank you, guys.

Operator

Thank you. Our next question comes from the line of Batya Levi with UBS. Your line is now open.

Speaker 8

Great. Thank you. Can you provide a little bit more color on for the quarter. The emerging platform revenue mix now and your expectations for growth over the next couple of quarters. And Maybe just one question on the advertising trends.

Speaker 8

Did you start to see some improvement in the base excluding the emerging platform? And how should we think about that going forward. Thank you.

Speaker 5

So a few thanks for the question. So the first thing is, this is the Q1 for and hopefully this simplifies things for folks out there. We know that it's been something we've had to explain in components in the past. For. We're now combining the emerging streaming category and the traditional ad supported streaming category combined, for in that category sequentially as the market improves, specifically for ad supported services.

Speaker 5

You see that in the reporting of public reporting of some of the services that we have licenses with. So we're seeing this as a continued category of improvement quarter to quarter. We see the emerging subset more of the social gaming subset as continuing to show for the Q1 of 2019. And the traditional ad side, which was declining for the past year or so, really starting to come back into for positive growth environment. So across the board, we've been pleased.

Speaker 5

And again, as we've said, as I said before, for we had a series of renewals, that are coming up in 2023 2024, TikTok being one that we've for questions. We talked about publicly that was just done noting that that didn't affect our Q3 results that that deal was done in our fiscal Q4 and we'll see that in our fiscal Q4.

Speaker 8

Got it. Thank you.

Speaker 5

Thank you.

Speaker 8

Our next question comes from the

Operator

line of Ketan Mural with Evercore ISI. Your line is now open.

Speaker 9

For Good morning and thanks for taking the questions. I was hoping to follow-up on the streaming revenue discussion. When I think of the DSP price increases, for the Q1 of 2019. At this moment, there seems to be more tailwinds to growth than maybe there have been at any other point over the last few years. For Q4.

Speaker 9

But is there any more color you could provide on if we should see another acceleration for the year over year growth and how high that could get to. And specifically, I realize you don't provide guidance, but are we entering a period for the next year or so when recorded for the Q3. Thank you.

Speaker 5

Thanks, Ketkin. This is Eric. I'm happy to take the questions. So I think you're right. When you look at for.

Speaker 5

Traditionally, when you look at I mean, the time of our IPO, just looking back a couple of years, when you looked at what's going to drive streaming growth, for It was the numerical growth in subscribers. It was literally subscription growth. Now it's a multi pronged for growth engine. It continues to be subscriptions, but now it's not just developed markets, emerging markets have accelerated their growth in subscriptions. For pricing.

Speaker 5

We've seen in the past year pricing come pretty much across the board now for all substance for virtually all substantive distributors. You're seeing emerging streaming continue to grow with positive renewals reaffirming the category and its potential. You're seeing the traditional ad supported streaming for So we're seeing a series of growth drivers in streaming, all of which are seeing positive momentum. For As far as the number that, that growth will hit in the short term, I wouldn't want to give that forecast. There are for many third parties that published numbers there, I would ask you to look at study and evaluate their assumptions.

Speaker 5

For But I would say that as we're entering fiscal 2020 almost entering fiscal 2024 versus 2023, the environment for across the board has become meaningfully more positive and optimistic as far as the variety of growth drivers for and the strength of the growth drivers. So we do agree with you that there's real positive momentum out there, Ketkin. Thanks for the question.

Speaker 9

That's great. Thanks, Eric.

Operator

Thank you. Our next question comes from the line of Benjamin Black with Deutsche Bank. Your line is now open. For

Speaker 7

Hi, thank you. Good morning and thanks for the questions. So Robert, on the last earnings call, you mentioned for the disconnect between sort of the value of streams from higher caliber artists and sort of the current payment model. Obviously, quite a few DSPs have for greater pricing. So I guess my question here is, have you made any progress towards a more artist centric model?

Speaker 7

And then just a quick follow on and follow-up question on TikTok. I think when it was announced, you mentioned the possibility of new revenue opportunities for your artists and your songwriters and also new fandom monetization possibilities. So what exactly are those new opportunities? For any additional color or commentary would be great there. Thank you.

Speaker 4

So for On the progress around DSPs. So the if you sort of step back, for What I highlighted before is there is sort of disparity between the value for That users receive by subscribing to music services and what it costs today, right? Like I said in multiple times versus Netflix versus for inflation, etcetera. That's one thing. The and the need for innovating around price optimization for Q and A.

Speaker 4

And what has served the industry incredibly well for the past 15 years was this collaboration about getting 100 of millions of people, multiple hundreds of millions of people into the premium experience, creating playlists and having stickiness and having a great value prop. I don't think that, that is what will serve the industry well in the next 15 years. And we will for all collectively have to focus on much more innovation around audience segmentation and price optimization and for Without negatively impacting any of the users, I should add. And that is not a thing that happens overnight or for quarter to quarter. It's a carefully developed and orchestrated change that we will undergo, for But don't expect news on that anytime soon.

Speaker 4

It takes time to unfold, and it takes multiple parties. For It takes 2 to tango in this and it's more than 2 in this case. And But I'm very much focused on it because I do think it is the right thing for all parties involved. For And it's worth undergoing and doing in the most collaborative fashion possible. I forgot there was a second part of your question, which I'll tick tock.

Speaker 4

For TikTok. I think I said earlier that I can't give too many details on TikTok because of our confidentiality I get a lot of questions on it. Every time you have for massive user engagement, which TikTok has, right? It's been very successful in creating it. It creates new opportunities, for not just for that company that has the consumer, but also for companies that work with it to develop new revenue streams off of this fan engagement.

Speaker 4

For And whether that engagement is promotional in nature or economic and e commerce driven, all of those are the possibilities. And What I wanted to establish is having a strong agreement with TikTok that for Gives us a license to both go deep together and innovate in the coming years. And that's what we're doing. So we're I can't really share any more details on that. But other than I'm very for questions.

Speaker 4

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 7

For Great. Thanks for having Troy. Thank you.

Operator

Thank you. Our next question comes from the line of Douglas Kreutz with Cowen and Company. Your line is now open.

Speaker 10

Hey, thank you. You talked a bit about some of the opportunities you've had using for Hi, to create music. I just wondered if you could talk a little bit about both sort of on the legal side, the rights issues that you have for the quarter. And then also just in terms of the relationships with the artists, obviously AI has become a point of some significant tension in other entertainment fields and for Kind of where your discussions sit right now with respect to

Speaker 3

that?

Speaker 4

Thank you. Yes. So as you can imagine, for We are deeply engaged with our distribution partners as well as with the generative AI for questions. So it's like sort of two fronts that we're having lots of discussion and collaboration around. For I always view this as both defensive and offensive.

Speaker 4

For And that is one of the reasons I mentioned in my opening remarks some of the great progress we're making around generative AI with some of our artists. And there's a lot more that is happening behind the scenes that I have not talked about. For And because it's a creative tool. However, the thing that is important is that for artists of a choice because there are some that may not like it, and that's totally fine. And then there are some that will embrace it, and that's also fine.

Speaker 4

For questions. And we have to make sure that we ensure that they have a choice and that something is not done to them, that is done with them. For And so that is my utmost priority here because there's nothing more precious to for an artist than their voice and protecting their voice is protecting their livelihood and protecting their persona. For questions. So I want to make sure that we deliver on that.

Speaker 4

And at the same time, we deliver on opportunities that the tools can provide them.

Operator

For comes from the line of Sebastiano Petti with JPMorgan. Your line is now open.

Speaker 11

Hi, thanks for taking the question. Eric, Just trying on this one here. You said you wouldn't give us any color on 2024 in terms of margins. But can you help us unpack maybe the phasing in of the financial transformation program? What if could you perhaps highlight what percentage or what you saw in the quarter was a material and maybe how that will phase in through 2025?

Speaker 3

For 2019. And as you're

Speaker 6

looking into 2024, anything that we

Speaker 11

should keep in mind in terms of comps this year relative to 2022, which will perhaps normalize inside of 2024, for thinking about the reported margin expansion, what that kind of looks like more on a like for like basis and 2023 seems to better for further than perhaps how it's coming in on a reported basis.

Speaker 7

And then I guess another kind

Speaker 11

of cleanup question here while just on the emerging streaming platform, great that it's going to be for combined with ad supported going forward to align with peers. But could you give us an update on the underlying emerging streaming platform for revenue perhaps in the quarter and trying to parse that out against the true underlying ad supported

Speaker 5

for Okay. A lot of questions packed in there, Sebastiano. Nice to hear from you. All right. Let me try to tackle that.

Speaker 5

I think I've got 3 groups of questions. So one is financial transformation. For What we're trying to communicate there is a few things. One is that it's launched. It is live.

Speaker 5

For the quarter. We have several markets now using the new technology successfully and that is fantastic. It is working for And functional in a few markets. What we have done is for fiscal 2020, 2024 and into fiscal 2025. For the quarter.

Speaker 5

This will allow us to make sure that we have the proper support and hyper care as each segment of markets is rolled out to make sure that it is successful and that as we do this, we have the ability to use the new processes and tools successfully with the right training, the right controls. So it's a very thorough launch plan phasing over time. For. As we rollout, the benefits will roll in with it. Obviously, a substantial portion of the benefits happen when it is global.

Speaker 5

For some of the benefits will roll in, in 2024, although a very modest amount, larger in 2025. And once it's rolled out in 2025, for the quarter. You asked the questions about margin. I'm not sure I 100% for Got it. What I will say about fiscal 2023 is that the acceleration of digital and streaming revenue in the second half twenty twenty three, which is high margin revenue is a great boost and our active cost management for the quarter.

Speaker 5

Is allowing us to meet the high end of the range, for Which is what we've been looking at in prior years, not every year is exactly the same. I don't have an analytical like for like comparison sitting in front of me. For but every year we are looking for the opportunities to achieve the high end of the range depending on the mix of releases distributed versus owned, for artists services and its rate of growth, which is lower revenue every year has a slightly different profile. For 2020. But as we look at and we'll look at in the 2024 budget, look at the profile of 24's revenue and the margins of that revenue and for the year we can with margin growth as one of the things we are actively managing.

Speaker 5

For. Your last question was, now that we're reporting emerging streaming and ad supported together, I think you want us To give some color on each piece, what we'll say is that, in emerging streaming, there were no notable new deals in for Q3 of 2023, the TikTok deal commences in Q4. For the quarter. The category in emerging streaming continued to grow nicely, I would say well into the teens for growth. For And so hopefully that gives you the color that you wanted to pass, gentlemen.

Speaker 11

Thanks, Eric. Appreciate all the color on that one.

Operator

Thank you. Our next question comes from the line of Matthew Thornton with Truist Securities. Your line is now open.

Speaker 12

For Hey, good morning, Robert. Good morning, Eric. Most of mine have been answered, so a couple of housekeeping questions, if I could. For. I think given the cadence of the recent price increases across the DSPs, I would assume that we probably don't see the full run rate impact of that until the calendar Q4, so fiscal Q1.

Speaker 12

I just want to make sure that that's a fair assumption. And then maybe for Eric, in the publishing side of things, in streaming. I think there was a couple of puts and takes between renewals and a revenue true up and, some CRB impact. And I think there was a copyright infringement settlement within sync. For 2019.

Speaker 12

I'm just kind of curious how to net those out in terms of what the maybe the net impact for some of those one time items might have been in the quarter. Any color there would be helpful. For

Speaker 5

Thanks, Matthew. So I'll take the second one first because they pretty much net out to 0. The 2 for the quarter. Most substantive things in publishing was the revenue true up in streaming and for the quarter. The CRB, Vona Records 3, which has now been finalized, the for kind of backlog revenue impact now that it's able to be calculated.

Speaker 5

The revenue true up was a positive. The CRB, although there was for a positive this quarter, the prior year was a positive was $10,000,000 more. So when you net that all out, it all nets for 0. The streaming revenue growth of 28% in publishing is about what it is once you net out all those true ups. So it's really kind of negates each other.

Speaker 5

On the price increases on the recorded side, I would really say to expect the benefit of those or the full benefit of those in fiscal 2024. And for Spotify's announced rate increase as an example, takes a few months to execute rollout to their consumers then roll out into our numbers, so I'd expect to see the price increases roll through our numbers in fiscal 'twenty four, for No, I don't think realistically in Q4 2023.

Speaker 12

And maybe I could just sneak one more housekeeping as well to Eric. The lower variable marketing for the quarter. I just wanted to kind of double check if that's something that's sustainable or if that's something that needs to come back a little bit. Any color there as well. Thanks again.

Speaker 5

I'd say it's too early for us or me to make a definitive statement there. I think some of that depends on the release schedule, which markets it's skewed towards. Some markets, have higher need to break for local music and a higher marketing demand. When some products come out in with for partners or partnerships of how they're released that creates efficiencies in marketing. So it depends on the release schedule for next year.

Speaker 5

Obviously, for. As you see from this year, we're very actively looking at evaluating and managing costs, including marketing. For. And as we look forward, we will continue to, with great discipline, evaluate and manage those. For But I wouldn't want to yet call a specific permanent lower variable marketing.

Speaker 5

I will say that we're very actively looking to manage and improve margins and that is one of the significant tools that you have to use.

Speaker 12

Great. Appreciate the color. Thanks guys.

Speaker 5

Thanks,

Speaker 3

Mitch.

Operator

Thank you. Our last question comes from Steven Lasik with Goldman Sachs. Your line is now open.

Speaker 13

Hey, great. Thanks. Good morning. I was wondering if you could maybe talk a little bit more about the momentum you saw in market share in the Q3 on the back of some strong releases, especially if there's anything you can say around perhaps the cadence or magnitude of those trends. And then maybe looking ahead, could you maybe give us an update on how the release slate for stacks up in the back half of this year versus what we saw in the first half.

Speaker 4

Sure. So First, I want to point out that we obviously had great release slate with lots of momentum for a lot of success. But at the same time, our catalog is also delivered, which is something that I for Tremendously appreciate. So it was we've kind of been firing on both engines in new release and catalog. For We have a great slate for the next quarter.

Speaker 4

There is I would say The best way to think about this is that we entered the quarter with great success with Little Uzi from Little Uzi Vert, for the Q1 of 2019. So our entry into the quarter has been great. For Q4 and the rest of the year. For There's lots of great new releases coming up from Burna Boy, Nino, Ping Patrice, Thiago Pizzike, Khali, Thiesto, Anne Marie and so on and on and on. For And we have some new music coming from Zac Brian and Dan and Chase, David Giddot, Charlie Poo, for Robin Schulz, etcetera.

Speaker 4

So there's a lot of activity. The team is firing on all cylinders. For Q and A. And I'm just glad that we have reaccelerated and that we continue. For

Speaker 13

Great. And then maybe just a longer term question on the publishing business. You're seeing some great momentum on that side of the house. I was wondering if you can maybe talk a little bit more about for diversification and services strategy that you're pushing through in that business and to what degree we maybe could expect similar outperformance on the publishing side over the course of 2024. Thank

Speaker 4

you. Yes. I mean, it's hard for me to guide for 2024 just to sort of be in line with Eric for On that. But what I can say is that Guy and Carrie Anne have done a tremendous job over the past 4 years with Warner Chappell and run a very for They've diversified our services. They mine the catalog incredibly well.

Speaker 4

And we have 1,000,000 more than 1,000,000 songs for that we're focusing on monetizing and that takes some machine to do. And they're incredible operators and their results are really speaking for themselves. For So obviously, I worked with them very closely to set this up for the future and make sure that we continue, for I'm not prepared to guide on that into 2024 as of today. But overall, I just want to close by saying I'm for the company, to our team's hustle in the last quarter for the quarter and in the current quarter and it's great to see music speaking for itself and delivering the results.

Operator

Thank you. I'd like to hand the call back over to Robert Kinstill for closing remarks.

Speaker 3

For

Speaker 4

questions. So I want to thank you all for taking the time out of your day to dial into our call, for all of your thoughtful questions, for challenging us on things. And for the quarter. Again, very appreciative to the entire team at Warner Music Group, and I look forward to our next earnings call with you. Have a great morning.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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