Warner Music Group Q2 2025 Earnings Report

Warner Music Group EPS Results

• Actual EPS: $0.07
• Consensus EPS: $0.28
• Beat/Miss: Missed by -$0.21
• One Year Ago EPS: $0.18

Warner Music Group Revenue Results

• Actual Revenue: $1.48 billion
• Expected Revenue: $1.52 billion
• Beat/Miss: Missed by -$39.38 million
• YoY Revenue Growth: -0.70%

Warner Music Group Announcement Details

• Quarter: Q2 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 8:30AM ET

Warner Music Group (NASDAQ:WMG) operates as a music entertainment company in the United States, the United Kingdom, Germany, and internationally. It operates through Recorded Music and Music Publishing segments. The Recorded Music segment is involved in the discovery and development of recording artists, as well as related marketing, promotion, distribution, sale, and licensing of music created by such recording artists; markets its music catalog through compilations and reissuances of previously released music and video titles, as well as previously unreleased materials; and conducts its operation primarily through a collection of record labels, such as Warner Records and Atlantic Records, as well as Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Fueled by Ramen, Nonesuch, Parlophone, Reprise, Roadrunner, Sire, Spinnin' Records, Warner Classics, and Warner Music Nashville. This segment markets, distributes, and sells music and video products to retailers and wholesale distributors; independent labels to retail and wholesale distributors; and various distribution centers and ventures, as well as retail outlets, online physical retailers, streaming services, and download services. The Music Publishing segment owns and acquires rights to approximately one million musical compositions comprising pop hits, American standards, folk songs, and motion picture and theatrical compositions. Its catalog includes approximately 150,000 songwriters and composers; and various genres, including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative, and gospel. This segment also administers the music and soundtracks of various third-party television and film producers and studios. The company was founded in 1929 and is headquartered in New York, New York.

Warner Music Group Q2 2025 Earnings Call Transcript

Presentation

[Operator]

Welcome to Warner Music Group's Second Quarter Earnings Call for the period ended 03/31/2025. 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. Karim Chin, Head of Investor Relations.

[Operator]

You may begin.

[Kareem Chin, Senior VP & Head of Investor Relations at Warner Music]

Good morning, everyone, and welcome to Warner Music Group's fiscal second quarter earnings conference call. Please note that our earnings press release, earnings snapshot, and Form 10 Q are available on our website. On today's call, we have our CEO, Robert Kinzel, and our departing CFO, Brian Castellani, who will take you through our results, and then we will answer your questions. 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. We plan to present certain non GAAP results during this conference call and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release.

[Kareem Chin, Senior VP & Head of Investor Relations at Warner Music]

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. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved.

[Kareem Chin, Senior VP & Head of Investor Relations at Warner Music]

Investors should not rely on forward looking statements because they are subject to a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

[Robert Kyncl, CEO at Warner Music]

Thanks, Karim, and hello, everyone. While you were waiting, you just heard new tracks from Rose and Don Toliver, both featured in the hotly anticipated f one movie. The blockbuster Apple film starring Brad Pitt will be released in June. Its soundtrack will add to our run of hit albums for movies such as Barbie and The Greatest Showman. As many of you know, Brian Castellani will be leaving us, and I'd like to thank him for his counsel, partnership, and contributions to our company.

[Robert Kyncl, CEO at Warner Music]

I know everyone joins me in wishing him the best in his next endeavor. Armin Zerza joined us as CFO this week, and he brings a strong track record of operational excellence, commercial innovation, and financial discipline. He was previously CFO at gaming giant Activision Blizzard, where he played pivotal roles in the company's growth for almost a decade. I look forward to working with Armin as we enter the next exciting era for music. I'll get into our broader strategy shortly, but first, let's talk about the quarter.

[Robert Kyncl, CEO at Warner Music]

Our results in q two reflect a lighter release schedule, market share pressure in China, and a tough year over year comparison in subscription streaming, where we saw strong double digit growth in the prior year quarter. As a result, the company's revenue increased 1% as recorded music revenue grew 1% and music publishing revenue grew 3%. Within recorded music, subscription streaming grew 3%. Total company adjusted OIBDA decreased 1% and adjusted OIBDA margin decreased 50 basis points. We recognize this is a moment of transition in the industry and for our company.

[Robert Kyncl, CEO at Warner Music]

Even so, we are very optimistic for many reasons, but three in particular. One, against the backdrop of global uncertainty, music is the most resilient art form and currently the least expensive. Two, the industry across music companies and DSPs is aligned behind driving growth through subscribers and price increases. And three, WMG has the right creative and commercial strategies in place, and we're sharpening our execution as we stay focused on our long term growth and profitability. I'd like to dive deeper here and give you insight into the progress we're making across the three priorities we've previously shared, grow market share, grow the value of music, and become more efficient, freeing up more capital both for reinvestment and to drive greater shareholder return.

[Robert Kyncl, CEO at Warner Music]

I'll start with growing market share. From great new signings to returning superstars to timeless legends across genres and geographies, every aspect of our artist and songwriter development engine is heating up. With our investment activities also gathering pace, we're well positioned to take a bigger slice of the pie. In recorded music, our new talent is really shining through. From mega hits like Teddy Swim's Lose Control, the longest running top 10 song in the history of Billboard Hot 100, to Benson Boone's Beautiful Things, the number one song in the world for all of twenty twenty four.

[Robert Kyncl, CEO at Warner Music]

The next wave of rising stars includes Alex Warren, who's at Ordinary, has topped The UK chart for seven consecutive weeks and also rose to number one on the Billboard Global 200. And Ovi on the drums, W Sound, whose La Plena is the biggest Latin song in the world, reaching number one in 13 markets. There's also huge momentum behind artists like Maria's, Sambur, Raven Lanay, and Forrest Frank. At the same time, our superstars continue to build momentum. Ed Sheeran's Azizam hit the top 10 in several markets including The UK in advance of his latest album Play, which comes out in September.

[Robert Kyncl, CEO at Warner Music]

Roseanne Bruno Mars APT spends his twenty seventh week in the Spotify Global Top five, and Bruno Mars record breaking duet with Lady Gaga, Dive With A Smile currently sits at number one for the twenty ninth week. And we have more number ones across established markets with domestic artists like SCH in France, province in Germany, Gang Parade in Japan, and many more. We're also seeing real progress in high growth markets such as MENA, Nigeria, and India, where we've meaningfully increased our market share in an environment where monetization is rapidly shifting towards paid streaming. We recently signed a promising new deal with highly regarded entrepreneur, Angela Acharya, to help break artists of South Asian heritage in North America. I've known Angela since my days at Netflix, and I partnered with her at YouTube.

[Robert Kyncl, CEO at Warner Music]

And I'm very excited to be working with her again. Our legendary catalog also consistently performs. We recently commanded nearly half of the top 50 best selling albums for record store day in The US, the biggest vinyl sales day of the year. Classic tracks continue to research and impact today's culture. For example, Wale's twenty thirteen single Love Hate Thing went viral on TikTok and saw streams rise more than 6000% over seven weeks.

[Robert Kyncl, CEO at Warner Music]

In music publishing, Warner Chappell's Web Billboard's Publishers Quarterly for the first time, taking the number one spot on the radio airplay, Hot 100 songs, and country airplay charts. Composer Daniel Bloomberg won the best original score Oscar for The Brutalist, and we continue to make exciting new signings, including superstar DJ Diplo and reggaeton star Yandell. I'd like to highlight that our creative engine is firing on all cylinders. Our share on the Spotify global charts has grown very consistently and by nearly 50% since mid twenty twenty three, with q three on trend to be our highest chart share in two years. In addition, right now, WMG's recording artists hold five of the top 10 tracks on the Billboard global chart, including the top three with Alex Warren, Bruno Mars, and Rose.

[Robert Kyncl, CEO at Warner Music]

These results are a promising sign that our strategy is working. We take a twin engine approach to growing our market share. Alongside organic and our investment, we're also increasing our M and A activity. We expect to have more news about our M and A investment plans in the near future. Now let's turn to our second priority, growing the value of music.

[Robert Kyncl, CEO at Warner Music]

One key shift in the industry is that it's moving from just subscriber growth to growth driven by both subscribers and price increases. Our collaboration with many of the biggest tech companies in the world, including Spotify and Amazon, provides more opportunities for innovation along with greater certainty around our economic participation as price increases become more regular. Growing the value of music starts with protecting our artists and songwriters. And today, nowhere is that more crucial than with AI. I was in DC last month to support a revised no fakes act, the same legislation that I testified for at a senate hearing last April.

[Robert Kyncl, CEO at Warner Music]

The bill provides protections against unauthorized deepfakes while setting up a licensing framework paving the way for new revenue streams and more trustworthy products. This is not only a bipartisan bill, but we have gathered support across music, entertainment, and tech industries, including MPA, SAG AFTRA, YouTube, OpenAI, and others. It also could serve as a blueprint for the treatment of name, image, likeness, and voice rights around the world. Our role as a music company has never been more relevant and is becoming increasingly pivotal as the ecosystem gets more complex. Bringing together millions of copyrights across recorded music and publishing, we use our scale and expertise to create value for artists and songwriters across a vast global network of multibillion dollar tech companies.

[Robert Kyncl, CEO at Warner Music]

Finally, let's turn to efficiency. As we make organizational changes to optimize our performance while yielding benefits from tech upgrades, we are driving a virtuous cycle so we can invest more for the benefit of artists, songwriters, and shareholders. Since 2023, we've announced plans to achieve a cumulative total of more than $300,000,000 in annualized cost savings, the majority of which is being reinvested in music and technology. This is an ongoing process that has become part of our DNA, and we will continue to look for ways to drive even more efficiencies. By doing so, we will free up additional resources to pursue the most attractive opportunities through a disciplined capital allocation plan.

[Robert Kyncl, CEO at Warner Music]

As I told you on our last earnings call, we saw our ANR spend increased double digits last year and it will increase by even more this year. We're starting to see signs of our strategy paying off. As I mentioned earlier, we have the strongest chart presence that we've had in a long time, which is translating to expanding market share in new releases across The U. S, the largest market in the world. As we replicate this strategy across our other labels and geographies, we will augment our growth with M and A.

[Robert Kyncl, CEO at Warner Music]

In short, we're putting more wood behind fewer arrows to turbocharge our core business. Our tempo investment is a good signpost for the kinds of acquisitions you can expect us to make. The deal is a prime example of our M and A strategy in action, reinvesting cost savings into high quality essential music with high margins. And we continue to invest in technology to sharpen our competitive edge and improve services for our artists and songwriters. A key example is the recent beta launch of WMG Pulse.

[Robert Kyncl, CEO at Warner Music]

This is an app which offers real time insights drawn from every major DSP and social media platform. This week, we invited 100 artists and songwriters to use the app, and we'll be adding more sophisticated features and financial data in the coming months. In an ever evolving industry, we're confident we'll drive more consistent long term growth and profitability. However, we expect these challenges we experienced this quarter to persist for the remainder of the fiscal year, resulting in lower subscription streaming growth than previously expected. As Armin settles into his new role, we'll provide updates on our business and capital allocation priorities on the next earnings call.

[Robert Kyncl, CEO at Warner Music]

With highly anticipated new releases from Ed Sheeran, Lizzo, David Guetta, Benson Boone, Alex Warren, Rose, Berna Boy, Teddy Swims, Mike Towers, and others coming this year. We are excited about the momentum we're building into 2026. I'll now pass it over to Brian, who will take you through the numbers.

[Bryan Castellani, Executive VP & CFO at Warner Music]

Thank you, Robert, and good morning, everyone. Before I get into our results, I wanna remind everyone that growth rate comparisons will be in constant currency. In Q2, total revenue increased 1% and adjusted OIBDA declined 1% with a margin of 20.4%, a decrease of 50 basis points over the prior year quarter, primarily due to revenue mix. Recorded music revenue increased 1%. Subscription streaming grew 3%, reflecting the challenging comparison to robust growth in the prior year quarter, compounded by a lighter release slate and market share loss in China.

[Bryan Castellani, Executive VP & CFO at Warner Music]

Ad supported streaming declined by 3% driven by a soft overall ad environment. Physical revenue increased 2% due to strong releases in The U. S. And Japan, which was partially offset by the BMG roll off. Artist services and expanded rights revenue decreased 6% due to lower concert promotion revenue, primarily in France, as well as ongoing weakness in our e commerce business, EMP.

[Bryan Castellani, Executive VP & CFO at Warner Music]

Licensing revenue increased 3%, driven primarily by activity in Japan and The US, partially offset by timing of legal settlements. Recorded music adjusted OIBDA increased 1% with a margin of 23%, an increase of 10 basis points. Music publishing total revenue increased 3%, while streaming revenue increased 2% due to the impact of digital deal renewals, primarily in The US. We had a tough comparison against the prior year quarter, which saw robust streaming revenue growth of 29%. Performance revenue grew 6% driven by an increase in concerts, radio, and live events primarily outside The US.

[Bryan Castellani, Executive VP & CFO at Warner Music]

Sync revenue increased 2% due to higher TV and commercial licensing activity and mechanical revenue increased 14% due to higher physical sales. Music Publishing adjusted OIBDA increased 5% with a margin of 27.4%, an uptick of 50 basis points. Q2 operating cash flow increased to $69,000,000 from a use of $31,000,000 in the prior year quarter. The increase was primarily due to timing of working capital items. Operating cash flow conversion was 23% of adjusted OIBDA.

[Bryan Castellani, Executive VP & CFO at Warner Music]

Free cash flow increased to $33,000,000 from a use of 57,000,000 in the prior year quarter. As of March 31, we had a cash balance of $637,000,000 total debt of $4,300,000,000 and net debt of 3,700,000,000.0 Total debt includes approximately $300,000,000 related to our acquisition of Tempo. Our weighted average cost of debt was 4.1%, and our nearest maturity date remains 2028. As I wrap up, I'd like to welcome Armen and thank Robert, our board and everyone at Warner Music Group, especially our global finance team. I'm also grateful to everyone in the investment community who supports and follows Warner Music Group so thoughtfully.

[Bryan Castellani, Executive VP & CFO at Warner Music]

It's been a pleasure working with you. With that, we will take your questions.

[Operator]

Thank Your first question comes from Michael Morris of Guggenheim Securities. Your line is open.

[Michael Morris, Senior Managing Director at Guggenheim Partners]

Thank you. Good morning. I want to ask a big picture question to start. Robert, given the challenging quarter that we had and the limited visibility, what confidence can you give investors to reinforce why do you think Warner Music remains attractively positioned with an opportunity to return on a path to the growth goals that you have put out? And maybe if I could ask just one follow-up as well.

[Michael Morris, Senior Managing Director at Guggenheim Partners]

Can you give us an update of how you're thinking about subscription streaming growth for the year at this point relative to the high single digits? And how much inter quarter volatility should investors be considering given your release slate timing? Thank you. Appreciate it.

[Robert Kyncl, CEO at Warner Music]

Thank you, Michael. So the reason, the reason we're excited, and we believe all investors should be excited, is, our strategy is I I I spoke about our strategy on the last earnings call with just three pillars to grow market share, grow the value of music with our ESPs, and grow efficiency so that we can free up more capital to reinvest into music and tech so that we can spend the flywheel for long term profitable growth. That's exactly what we've been doing. We have increased our ANR spent last year from the proceeds that we freed up, and we've done exactly the same in this fiscal year. And our investments in that area are starting to show early signs of success.

[Robert Kyncl, CEO at Warner Music]

I'll give you two I'll give you a couple examples. One, during my remarks, I mentioned our charts success, which is the biggest in a very, very long time on Spotify Global 200. In the last two years, we're up 50% in our chart share, which is incredible. In Spotify Global Daily, today, yesterday, we have five of the top 10. Same on the billboard chart.

[Robert Kyncl, CEO at Warner Music]

And then on Spotify, US daily, have six of top 10. So clearly, investments into ANR, into artists and artists songwriter development, as well as into our superstars is yielding hits, and and I'm really excited that the creative engine of the company is humming. It's also starting to translate into new release market share in The US, for example. Obviously, the biggest market. It's the home of our largest divisions, Warner Records, and Atlantic, and and seeing seeing the the early signs of success in growing market share of new leases is very, encouraging.

[Robert Kyncl, CEO at Warner Music]

And we have to make sure that we sharpen our executional focus to to make sure we do the same thing across the entire business. The second early sign is also on technology. Yesterday, we rolled out an app called WMG Pulse, which is a copilot for artist careers, which is giving them lots of transactional data about their albums, streams, audiences, and money. And it's a result of a lot of infrastructure work that we've done in terms of investing into our digital supply chain, financial transformation, and data infrastructure to collect tremendous amount of data and process it in a simple and easy to use way. And what we will do is we'll continue to roll out to more and more audit and songwriters, and we will continue to add a lot of features to this.

[Robert Kyncl, CEO at Warner Music]

So this this is just the beginning of where where this will go. So it's a new surface for us to interact with artists. So all of that together is that's our strategy. We're executing against it. We have to sharpen our focus on execution even more.

[Robert Kyncl, CEO at Warner Music]

And as you know, to your second question, as it relates to this year, we expect similar trends as in q two for the balance of the year.

[Operator]

The next question comes from Benjamin Black with Deutsche Bank. Your line is open.

[Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank]

Great. Good morning. Thank you for taking my questions, Robert. From the outside looking in, it would appear that at least some of the heavy lift has been completed as it pertains to your deals with some of your larger distribution partners, at least here in the near term. And if I'm wrong here, please correct me.

[Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank]

But I'd be interested if you could dig a little bit more into sort of your strategy to grow global market share. How do think about scaling your presence as one of the faster growing emerging markets? And how do you bring some of the success you're clearly seeing here in The U. S. Across your sort of global footprint?

[Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank]

And then secondly, just on subscription streaming, just a quick clarification question. Curious to hear what exactly happened in China? Was it just release slate driven? And can you maybe expand upon, you know, exactly what happened there and how big the impact was? And, will that persist for the for the balance of the year as well?

[Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank]

Thank you.

[Robert Kyncl, CEO at Warner Music]

Sure.

[Robert Kyncl, CEO at Warner Music]

Thank you. So, so, yes, indeed, it's a heavy lift, as you said. And, you know, it's a steady strategy to increase the value of music through through greater certainty, around rates and alignment, with our biggest partners. As I said last time, we've been we've been making great progress on it. Our job isn't done yet.

[Robert Kyncl, CEO at Warner Music]

We continue to work through it. And it and also, as we achieve it, it takes time for it to percolate through the agreements and and and go into effect. But it is a core pillar of our strategy, and we're executing against it. And, you know, and we're very encouraged by the collaborative nature with our largest partners. As relates to developing markets, we have some great success, great leadership in in places like Mexico and Brazil, you know, two of the top 10 global markets and also high growth markets.

[Robert Kyncl, CEO at Warner Music]

So we've been we've been doing a great job driving growth over there. And we have some more opportunities in other parts of the world. You're asking specifically about China. That is a big opportunity, obviously. We have a new head of Asia starting in two months who will play a pivotal role in helping us drive growth around the largest markets in Asia.

[Robert Kyncl, CEO at Warner Music]

And, you know, in terms of the current impact from China, we expect the same trend to continue for the balance of the year.

[Operator]

The next question comes from Ketan Maral with Evercore ISI. Your line is open.

[Kutgun Maral, Director at Evercore ISI]

Good morning and thanks for taking the question. And sorry for all the focus on subscription streaming, but maybe if we kind of take a step back away from this year, I think there's a lot of excitement around the DSP renewals and how they would flow through. And now maybe it seems like more of a calendar '26 benefit. Maybe I'm wrong on that. But can you flesh out how to think about the timing of the flow through of those renewals and and how they, when we could start to see them benefit, the subscription streaming line for you?

[Kutgun Maral, Director at Evercore ISI]

And yeah, maybe I'll just leave it at that because that that's the main question we're getting.

[Robert Kyncl, CEO at Warner Music]

Yeah. Yeah. Sure. Obviously, I cannot go into the details of the of the agreements, but I would say, through your questions, you kinda nail the answer. Most clear way to say it.

[Robert Kyncl, CEO at Warner Music]

And, you know, and there's obviously still more work to do.

[Kutgun Maral, Director at Evercore ISI]

Understood. Thank you.

[Operator]

The next question comes from Batya Levi with UBS. Your line is open.

[Batya Levi, Managing Director - Communications, Media & Infrastructure Analyst at UBS Group]

Great. Thank you. Can you provide a little bit more color on what changed versus your original expectation for high single digit subscription growth? Is it mostly impact from China? Had you assumed that you would we would have some price increases?

[Batya Levi, Managing Director - Communications, Media & Infrastructure Analyst at UBS Group]

And I know that you don't disclose core growth, but tough comps is a major driver of that. If you didn't have that situation, what would be the run rate growth that we would see in subscription? And maybe just one more on the lighter release slate. Is that lighter than you had originally expected? Because I thought you were originally thinking that it would be a more linear release schedule going forward that not fluctuate as much as in the past?

[Batya Levi, Managing Director - Communications, Media & Infrastructure Analyst at UBS Group]

Thank you.

[Robert Kyncl, CEO at Warner Music]

Sure. Thank you. So there there's a our results are basically compounded through four different things. One, which is the tough comps that you mentioned from last year, and I'll let Brian chime on that later to answer your question. Two, pressure in the end market.

[Robert Kyncl, CEO at Warner Music]

Three, the lighter release schedule that you you mentioned and weakness in China. Those four compounded to to the results that we're currently seeing. As it relates to the slate, obviously, we we we always plan for growth. And sometimes, you have shifts for different creative reasons with different artists, different life situations, etcetera, that may impact the volume that's coming out. Albums may get shifted out of quarter, etcetera.

[Robert Kyncl, CEO at Warner Music]

So it's a it's a bit bit of an ebb and flow that simply happens. And so it is something that we're used to. And it is harder to predict, but it is part of our life.

[Bryan Castellani, Executive VP & CFO at Warner Music]

Yeah. And, Bhatia, thanks. I just on the tough comp, it was 13 and a half percent in the prior year quarter, so we did expect some decel. We've also stopped talking about BNP and normalizing, but that would have been a point here in this quarter as well.

[Batya Levi, Managing Director - Communications, Media & Infrastructure Analyst at UBS Group]

Got it. Thank you.

[Operator]

The next question comes from David Karnovsky with JPMorgan. Your line is open.

[Analyst]

Hi. This is Scott Hastings on for David Karnovsky. I just wanted to ask a little bit about management and some of labels. So it seems like you have some two two two different philosophies at your flagship labels now with Aaron Bajuk at Warner, who seems to have more of a long form and deliberate approach to arts management, and Elliot Grange in Atlantic now who seems to be pretty good at quickly identifying and blowing up artists. Is this the right way to understand it?

[Analyst]

And how do you think the structure will help drive market share growth going forward for WMG as a whole?

[Robert Kyncl, CEO at Warner Music]

Yeah. So I would say, one, as a company, we have to walk and chew gum at the same time. And, it is there are different ways, to succeed in the market. And, I I am actually very, pleased that we we don't have just a singular approach to our business, right, that we have talent that has different strengths. You've highlighted some of those, but it doesn't mean, for instance, in case of Elliott, that it's all inclusively focused on Quickets.

[Robert Kyncl, CEO at Warner Music]

Elliott's also very much focused on artist development. And and, you know, we are working much, much closer together as a leadership team across all the operators so that people also are sharing insights, not just competing with each other, but actually sharing insights together so that as a whole, as a company, we do better. So I I I think this is exactly the kind of mix of executives we need.

[Analyst]

Okay. Cool. Thank you.

[Operator]

The next question comes from Steven Lacyczak with Goldman Sachs. Your line is open.

[Stephen Laszczyk, Vice President at Goldman Sachs]

Great. Good morning. Thanks for taking the questions. Robert, could you perhaps talk a little bit more about the investments you're making in ANR? Curious what genres or markets you see the most opportunity in?

[Stephen Laszczyk, Vice President at Goldman Sachs]

Maybe how should we think about any near term, long term goals do you have on market share for Warner? And then to what extent could we expect A and R expense to increase? I think you mentioned up more than double digits last year. Any context there would be helpful. And then maybe related to that for Brian, I'd be curious just to get your latest thoughts on puts and takes on the outlook for margins this year.

[Stephen Laszczyk, Vice President at Goldman Sachs]

You have cost efficiencies, the ANR investment, and then FX, which I know has been moving a bit in in both directions. Would would just be curious of of any thoughts you have on that front. Thank you.

[Robert Kyncl, CEO at Warner Music]

Sounds good. Thanks, Steven. So let me take the first one on the investments focus. What we've been spending a lot of time on on capital allocation. And, by the way, also with Armin starting, we'll also continue to do that, you know, over the next quarter and make sure we really sharpen our focus on that.

[Robert Kyncl, CEO at Warner Music]

And the best way to think about it is that we evaluate the world based on global value of local repertoire and think about where we get the most bang for the buck in in the near and the long term. And so there's two different ways to look at the world, country lens or repertoire lens, and we're starting to shift way more towards the repertoire lens. So so that really drives how we think about the world, how we think about resourcing, and how we think about, more more sharpened capital allocation.

[Bryan Castellani, Executive VP & CFO at Warner Music]

And, Steven, it's Brian. On margins, in the quarter, what we pointed to was the revenue mix, the lower streaming growth, of of course, translated to lower margin for us. And just to point out, if you exclude BMG, our physical was up 15%, which was a bright spot. But again, that comes at lower margin. And then on the cost side, there were a couple of things that create some quarter to quarter variability.

[Bryan Castellani, Executive VP & CFO at Warner Music]

We mentioned the continued reinvestment in tech, including the launch of the app. And as well, we continue to point to investing into ANR. Even though you will see overall that was down slightly within it, our unproven ANR was up modestly in dollar terms, more than double digits on percentage terms. And that unproven gets expensed to the P and L. So those created some margin headwinds.

[Bryan Castellani, Executive VP & CFO at Warner Music]

FX, as you know, was a significant headwind Some of that did come back in Q2. But at this time, it's too early to update on any guidance. And as we said, Armen started this week, and we will come back to you on the next call with an update.

[Stephen Laszczyk, Vice President at Goldman Sachs]

Thank you.

[Operator]

This concludes the question and answer session. I'll turn the call to Robert Kinsel for closing remarks.

[Robert Kyncl, CEO at Warner Music]

Alright. So thank you all for dialing in, paying attention to our company. I I want to reiterate that, our strategy, we firmly believe in the strategy that we set ourselves on, on growing market share, growing the value of music, and growing efficiency to reinvest in music and technology and drive long term profitable goal growth, and the early signs of success through our chart share success on a global level as well as US level. And then many markets around the world are very, very encouraging and as well as our growing market share in The United States in new releases. So and I'm very pleased that we're starting to ship technology products into the hands of artists and songwriters to start paying back on some of our investments in technology and and to transform the company.

[Robert Kyncl, CEO at Warner Music]

So thank you so much, and we'll talk to you next quarter.

[Operator]

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

Participants

Analysts

• Kareem Chin, Senior VP & Head of Investor Relations at Warner Music
• Robert Kyncl, CEO at Warner Music
• Bryan Castellani, Executive VP & CFO at Warner Music
• Michael Morris, Senior Managing Director at Guggenheim Partners
• Benjamin Black, Co-Head Internet Equity Research at Deutsche Bank
• Kutgun Maral, Director at Evercore ISI
• Batya Levi, Managing Director - Communications, Media & Infrastructure Analyst at UBS Group
• Analyst
• Stephen Laszczyk, Vice President at Goldman Sachs