Warner Music Group (NASDAQ:WMG) has reported a solid financial performance for the fourth quarter and the fiscal year 2024, highlighting a strategic positioning that has led to significant growth. The company's total revenue increased by 6% and adjusted Operating Income Before Depreciation and Amortization (OIBDA) grew by 14% in the fourth quarter. Over the full fiscal year, Warner Music Group saw a 7% rise in revenue and an 11% increase in adjusted OIBDA.
Key Takeaways
- WMG's recorded music subscription streaming revenue saw an 11% increase.
- The company experienced a revenue rise of 6% in recorded music and 5% in music publishing.
- Adjusted OIBDA growth was reported at 14%, with margins widening by 150 basis points.
- Subscription streaming is forecasted to continue growing in the high single digits for fiscal 2025.
Company Outlook
- Warner Music Group expects the music industry to continue growing, with subscriber penetration projected to rise from 35% to nearly 50% by 2030.
- The company is committed to annual margin expansion of 100 basis points.
- A $100 million share repurchase program has been authorized.
- WMG has an exciting release lineup for 2025, including projects from Rose, Dua Lipa, and Teddy Swims.
Bearish Highlights
- There were no specific bearish highlights mentioned in the summary provided.
Bullish Highlights
- WMG has achieved a 10 percentage point increase in market share and a top 200 position on the global Spotify (NYSE:SPOT) chart since the current CEO's tenure began.
- The company has seen positive trends in subscriber growth and penetration, as well as opportunities for wholesale pricing growth.
Misses
- The summary did not provide any specific information regarding misses or underperformance.
Q&A Highlights
- CEO Robert Kinsell emphasized the company's market share growth and the widespread distribution of music, stating it surpasses other mediums like video and text.
- CFO Brian Castellani confirmed the health of the music industry and the positive trends in subscriber growth and penetration.
Warner Music Group's strategic developments have included a restructured organizational framework to enable quicker talent channeling, an expanded global presence with a focus on high-growth markets such as India, and bolstered regional leadership in Latin America, EMEA, and APAC. The company has also made strategic acquisitions, including Cloud9 Recordings in Benelux and Apicore in Africa.
The market and artist performance have been strong, with successful releases from artists such as Rose, Bruno Mars, Coldplay, and Charli XCX. Warner Music Group has maintained a focus on artist development and the discovery of new talent, leading to number one singles and albums in various global markets.
In terms of technology and efficiency, WMG has invested in resolving legacy infrastructure issues and has stabilized and upgraded core systems. This has allowed the technology team to concentrate on driving growth and improving efficiencies.
Warner Music Group is confident in the continued growth of the music industry and remains committed to expanding its margins. The company's outlook is backed by an exciting slate of upcoming releases and a robust share repurchase program. The strategic moves and financial results outlined in the earnings call underscore WMG's position as a leading company in the music industry.
Full transcript - Warner Music Group (WMG) Q4 2024:
Conference Moderator: Welcome to Warner Music Group's 4th Quarter Earnings Call for the period ended September 30, 2024. At the request of Warner Music Group, today's call is being recorded for replay purposes. And if you object, you may disconnect at any time. Now I would like to turn today's call over to your host, Mr. Kareem Chen, Head of Investor Relations.
You may begin.
Kareem Chen, Head of Investor Relations, Warner Music Group: Good morning, everyone, and welcome to Warner Music Group's fiscal 4th quarter and full year earnings conference call. Please note that our earnings press release, earnings snapshot and Form 10 ks are available on our website. On today's call, we have our CEO, Robert Kinsell and our 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 2nd 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.
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. References to normalized revenue and adjusted OIBDA are adjusted for items that impact comparability. The details of these can be found in our filings. 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. 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 can cause actual results to differ materially from those in the forward looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert.
Robert Kinsell, CEO, Warner Music Group: Thanks, Kareem, and good morning, everyone, and thank you for joining us. I'm pleased with our progress both this quarter and this year as we've demonstrated our strength and adaptability in a highly competitive market. Today, I'll provide more context on how we're positioning the company for sustained growth and to deliver even greater value for our artists, songwriters and shareholders. First, let me give you a quick summary of our Q4 results. These are normalized for all previously disclosed non recurring items.
We delivered an 11% jump in recorded music subscription streaming revenue, driven by strong releases and assisted by global subscriber growth and price increases. This was our 4th consecutive quarter of double digit growth. Total (EPA:TTEF) revenue was up 6% with recorded music up 6% and music publishing up 5%. And adjusted OIBDA grew 14% with margin increasing 150 basis points. Our robust Q4 results contributed to full year revenue and adjusted OIBDA growth of 7% and 11% respectively.
The year was highlighted by recorded music subscription streaming growth of 12%. Our strategy is designed to enhance our ability to attract original artists and songwriters at every stage of their development. We help them realize their musical visions, cut through the noise, build sustainable careers, and grow passionate and loyal fan bases. This year, we reimagined our organization based on the principle that simplicity and focus drive higher intensity and impact. We've done a lot of important work, which has set us up for success today and will help us grow more profitably in the future.
We strengthened our presence in the U. S, the world's largest music market. We've shifted to a simpler and flatter organization structure to create faster and more direct channels for local talent to reach the global stage. And we've reorganized key business lines such as catalog and distribution in order to deliver greater global reach. We've continued to find ways to strengthen the coordination across our Recorded Music and Music Publishing divisions, and we fixed a lot of foundational infrastructure issues that will now enable our technology team to be more offensively focused.
I'd like to dive a little deeper into these changes and tell you about some of the further steps we've taken this quarter. In the U. S, we have 2 flagship record label groups, Atlantic and Warner Records, important twin engines for growth. As part of our structural changes, we elevated LA Head Grange to lead Atlantic. While this kind of transition is never easy, this was a seamlessly executed handover.
The team has delivered 1st class results for priority projects, while bringing in fresh ideas, onboarding dynamic executives and attracting exciting new artists. With a digital and native approach, the Atlantic team will expand and diversify our artist roster and increase the volume of releases. While all of this is going on, the label has kicked off our new fiscal year with a bang. APT, the collaboration between Korean superstar Rose, who we signed just a few months ago, and Bruno Mars immediately shot to number 1 on the Spotify and Billboard Global Charts. With this absolutely massive hit, Rose is the 1st female K Pop solo artist to break into top 10 on Billboard Hot 100.
Bruno Mars is the biggest artist in the world. He has the largest reach of anyone with 130,000,000 monthly listeners on Spotify. This week, he holds 2 top positions on the Billboard Global 200 chart with APT and Die With A Smile, his Grammy nominated collaboration with Lady Gaga. Other Atlantic successes include Coldplay landing their first number one album in a decade in the U. S.
New albums from Don Toliver and The Marias, both of which continue to build strongly months after their release and the impactful remix of Charli XCX's Brat album and her 7 Grammy nominations, including Album of the Year and Record Growth of the Year. At the same time, the Atlantic team is bringing through the next generation of talent. Artemis reached 1,000,000,000 streams with his Smash It! I Like the Way You Kiss Me. Boris Frank and Jordan Adagunji received their 1st Grammy nominations.
Jazz artist, Shazelle and singer songwriter, Sam Barber and rapper, Honcho, are taking on. And competitive new signings include Flash For The World and 1900s RockRap. Elliott and his team have an impressive ability to discover an extraordinary talent across multiple genres and find fresh ways to help both established and emerging artists stand out from the crowd. At Warner Records, the team's commitment to artist development is driving hits and creating superstars. Under the leadership of Aaron Bayshock and Tom Courson, the label's market share hit a new peak this year, reaching the number 3 position in the U.
S. For current releases. They're helping the likes of Diddy Swims, Benson Boone, NLE Choppa and Zach Ryan have worldwide smashes with real staying power. For example, Fiddy's number one single, Boost Control, has been an impressive 44 weeks in the top 10 of the Billboard Hot 100. And Ali Choppa's carrier streams crossed the $9,000,000,000 mark at the ripe old age of 22.
And it's great to see that labelmates, Fetty and Benson are our best new artists at the Grammys. At the same time, Warner Records has been integral to the successful resurgence of icons like Green Day, Cher and Linkin Park, who have triumphantly returned with their first album in 7 years, the first since the tragic death of lead singer Chester Bennington. The band's new album From 0 had the most presales in WNG history, while the band embarked on a massive global tour. As I said many times, the power of new releases drives engagement around artist catalog and vice versa. We create a virtual cycle of consumption that fuels an uplift across the artist's entire body of work.
For example, when Linkin Park's new single, The Emptiness Machine, dropped in September and the band's new album was announced, their streams jumped by $500,000,000 compared to the same quarter last year. I cannot stress enough how accelerating it is to watch the creative success that both Warner Records and Atlantic are having. Through our shift to a flatter organizational structure, we've elevated our regional leadership across Latin America, EMEA and APAC. This has created faster, more direct channels for local talent to access the global stage. This quarter, we continue to take steps that expand our presence in both mature and high growth markets.
In Japan, the 2nd largest music market, we appointed a new leadership duo, CEO Takeshi Okada and Chairman Kenji Kititani. In Korea, we launched Amplify, a new label focused on English language music. In Benelux, we bought a leading indie label, Cloud9 Recordings. In Africa, we completed our acquisition of Apicore, the region's leading distribution company. And Warner Music Latina joined forces with indie label Street Mob Records, an incubator of new Mexican talent.
Our focus on bringing a wider array of local talent to stardom is paying off. We have vibrant music from homegrown heroes, shopping charts in many territories. We've had number 1 singles and albums by the likes of Soprano in France, Speed in Australia, Ileva in Germany, Bien in Kenya, Gosang in Italy, Wu in Vietnam and King in India. We've also helped our global superstars reach new heights around the world. For example, Dua Lipa became the 1st female artist to have 2 albums exceed 13,000,000,000 streams each on Spotify.
Before we move on, I'd like to spotlight a territory we believe has huge global potential. With a population of 1,400,000,000, India is more like a continent than a country. It has the 5th largest GDP, but it's still only the 14th largest music market in the world. That gap will continue to close in the coming years. And as it does, India will become an increasingly influential global force in the music business.
The country has already seen a significant increase in paid subscribers, which have increased by almost 40% since last year, but it still has less than 2% penetration. A few weeks ago, I visited our offices in India and met with our team, artists and partners and it was very inspiring. Since launching there in 2020, we partnered with the most important local players as well as buying stakes in and acquiring outright local music companies such as E Positive, Vivo and Global Music Junction. Earlier this month, we made our latest move buying a stake in Skillbots, a leading picketing and live events platform. We're helping Indian stars like Diljit Dosanj and King reach new audiences while building loyal Indian fan bases with global talent such as Coldplay and Dua Lipa or both during there in the coming months.
As a result, we've seen an impressive revenue growth by over 100% in fiscal 2024. And most importantly, everything we're doing means we're well positioned to keep taking market share as India continues its explosive growth. In our catalog and distribution divisions, we've made changes that better align our expertise and resources with the growing global opportunities for artists. Where previously we were operating on a country by country basis, now we've globalized our operations. Our dedicated centrally managed global teams enable us to share learnings, leverage best practices and deploy technology, find efficient ways of having greater worldwide impact.
Turning to Music Publishing, the business continues to deliver impressive results. The 14% growth in total revenue on a normalized basis for the full year represents our 4th consecutive year of double digit revenue growth. This was led by 19% streaming growth on a normalized basis. We're contributing to global hits, strengthening our services and monetizing deeper into our catalog. Here are a few recent high points.
3 of the 5 Grammy nominees for Songwriter of the Year are Warner Amy Allen, Ray and Jesse Alexander. Warner Chappell is number 2 for a 2nd consecutive quarter on Billboard's Top Radio Airplane Rankings and rising to number 2 on the Hot 100 songs chart with 25 percent market share. And Warner Chappell is number 1 on the German half year charts with its writers spending 18 of 26 weeks at number 1 on the singles chart. Despite all this success, we are investing on our laurels and we've continued to invest into our future growth by forging new partnerships with Analog Metaverse, the company founded by Grammy Award winning producer, Salaam Remi launching a venture with the widely respected British dance label Defective Records and appointing new leadership in high growth territories such as Lee Ka Li in China and Sophia Hong in Korea. We're very optimistic about the future at Warner Music Group.
We have the right team and strategy to deliver long term profitable growth in a dynamic and thriving industry. We continue to build strong, mutually beneficial relationships with our partners to grow the value of music. With penetration in mature markets expected to increase from approximately 35% today to nearly 50% by 2,030. And in emerging markets going from single to low double digits over the same time frame, music subscriber growth should remain healthy for the years to come. For reference, in the U.
S, cable TV penetration is a little over 50% and the swap penetration is approaching 50%, highlighting that even in a mature market, music penetration is very low and has plenty of runway ahead. With both subscriber growth and opportunities for wholesale price increases, the formula for streaming growth is strong and there is plenty of room for acceleration. Our focus on efficiency has freed up capital, enabling us to increase our investments in growth opportunities. As we previously promised, we've increased our ANR investment by approximately 11% in fiscal 2024 as we continue to sign new artists and subscribers and acquire IPN catalogs, all while driving our digital transformation. As part of our investment strategy, we will consider bolt on acquisitions that accelerate our progress while meeting our return thresholds.
In addition to these investment opportunities, I wanted to note that our Board has authorized a share repurchase program of up to 100,000,000 dollars The program demonstrates our confidence in the value of our company and our optimism for the path ahead. Our confidence is underpinned by the strong momentum we're carrying into 2025 with an exciting release slate that includes projects from Rose, Dua Lipa, Teddy Swims, Jack Harlow, Benson Boone, Mike Towers, David Guetta, Erna Boy, F. K. H. Wicks and more.
We're excited by the opportunities ahead and look forward to delivering more culture shaping music in 2025 and beyond. And now over to you, Brian.
Brian Castellani, CFO, Warner Music Group: Thank you, Robert, and good morning, everyone. Before I get into our results, I want to remind everyone that growth rate comparisons will be in constant currency and where appropriate I will reference normalized growth metrics. There are items throughout the quarter and the year that affect comparability. The details and adjustments relating to these items can be found in our earnings press release. In Q4, total revenue grew 3% and adjusted OIBDA increased 11% with a margin of 21.7 percent, an increase of 170 basis points over the prior year quarter.
On a normalized basis, total revenue grew 6%, adjusted OIBDA increased 14% and margin increased 150 basis points. Recorded music revenue increased 4% and grew 6% on a normalized basis, led by subscription streaming, which grew 11%, our 4th consecutive quarter of double digit growth. Ad support streaming declined by 6% as we lapped last year's TikTok renewal and saw the revenue impact of Meta (NASDAQ:META)'s exit from premium music videos. Physical revenue increased 5%, driven by strong releases in the U. S.
And Japan, while artist services and expanded rights revenue increased 3%, primarily due to higher concert promotion revenue in Japan. Licensing revenue increased 33%, driven by increased revenue from copyright infringement settlements, primarily in the U. S. And growth in broadcast use. Recorded music adjusted OIBDA increased 13% with a margin of 23.7 percent, an increase of 200 basis points.
On a normalized basis, adjusted OIBDA increased 14% and margin increased 160 basis points. Our Music Publishing results reflect the $17,000,000 benefit from the CRB rate increase in the prior year quarter. Adjusted for that benefit, Music Publishing total revenue increased 5%, while digital increased 6% and streaming increased 5%. These growth rates compare against the prior year quarter, which saw robust streaming growth of 17% and reflect continued market and catalog growth as well as timing of payments. Link revenue increased 15%, reflecting an increase in copyright infringement settlements primarily in the U.
S, while performance revenue decreased 2%. Mechanical revenue decreased 12% due to lower physical sales and timing of distributions. Music Publishing adjusted OIBDA grew 11% with a margin of 28.1%, an increase of 2 90 basis points. On a normalized basis, adjusted OIBDA increased 17% and margin increased 280 basis points. For the full year, total company revenue grew 7% and adjusted OIBDA grew 16% with a margin of 22.3%, an increase of 180 basis points.
On a normalized basis, total revenue grew 7% and adjusted OIBDA grew 11% with a margin of 21.4%. Adjusted OIBDA margin increased 70 basis points as strong operating performance and savings from our restructuring programs were partially offset by increased investment in ANR as well as revenue mix. Recorded music revenue increased 6% and adjusted OIBDA grew 17% with margin expansion of 2 40 basis points. On a normalized basis, recorded music revenue increased 6% with adjusted OIBDA growth of 11% and margin expansion of 110 basis points. These results reflect streaming revenue growth of 10%, led by strength in subscription streaming, which grew 12%.
Music Publishing revenue and adjusted OIBDA both increased 11%. On a normalized basis, Music Publishing revenue increased 14% and adjusted OIBDA increased 13%. Q4 operating cash flow decreased 10% to $304,000,000 from $338,000,000 in the prior year quarter. The decrease was primarily driven by timing of working capital items, partially offset by the timing of severance payments. Free cash flow decreased 10% to $271,000,000 from $300,000,000 in the prior year quarter.
For the full year, operating cash flow increased 10% to $754,000,000 and free cash flow increased 14% to $638,000,000 Operating cash flow conversion was 53% of adjusted OIBDA for the full year, in line with our target at 50% to 60% despite increased investment in ANR and shifts in deal timing. As of September 30, we had a cash balance of $694,000,000 total debt of $4,000,000,000 and net debt of $3,300,000,000 Our weighted average cost of debt was 4.3% and our nearest maturity date remains 2028. We continue to actively manage and improve our capital structure, most recently re pricing our term loan in September, which has led to continued improvements in our debt ratings with both S and P and Fitch assigning us investment grade ratings in August September, respectively. I'd like to reiterate that as a result of actions taken in Q4 to reorganize our recorded music business, we now expect our restructuring plan to generate pre tax cost savings of $260,000,000 and we continue to expect a significant majority of these savings to be achieved by the end of fiscal 2025. Looking ahead, our strong Q4 momentum in 2024 is carrying into 2025.
Subscription streaming continues to see healthy underlying trends and we expect high single digit growth for fiscal 2025 and on a multiyear basis. Additionally, our goal remains to deliver margin expansion of 100 basis points and operating cash flow conversion of 50% to 60% of adjusted OIBDA on a multiyear basis. As a reminder, there are a number of previously disclosed items that will impact comparability in Q1. Streaming growth will be impacted by the BMG digital distribution roll off, the digital license renewal in the prior year and the lapping of Spotify price increases. Our digital distribution Our digital distribution relationship with BMG that was planned to roll off by the end of fiscal 2024 will now continue into fiscal 2025.
The revenue impact in Q1 is approximately $16,000,000 versus the prior year quarter. And the digital license renewal with 1 of our international partners was $27,000,000 in the prior year quarter. Our physical distribution relationship with BMG has largely rolled off. We expect there to be an unfavorable revenue impact of $15,000,000 to $20,000,000 in Q1. Licensing revenue will reflect the $68,000,000 catalog licensing agreement extension we disclosed in Q1 2024.
Finally, artist services revenue will reflect the exit of our owned and operated media properties, which contributed $20,000,000 in the prior year quarter. The music industry remains healthy and we continue to see positive subscriber growth and penetration trends as well as opportunities for wholesale pricing growth. We are excited about the slate this year and look forward to delivering great music. The momentum in the business is strong and we are positioning ourselves for long term success. Thank you for joining us today.
We'll now open the call for questions.
Conference Moderator: Thank you. Our first question comes from the line of Ketan Mamiral with Evercore ISI. Your line is now open.
Ketan Mamiral, Analyst, Evercore ISI: Good morning. Thanks for taking the question. I just had a high level one on the broader music industry. Looking at the labels specifically, the industry construct remains very attractive. There's healthy competition for sure, but the big three still drive roughly 2 thirds of global recorded music revenue and are must haves for any platform.
And structurally, you continue to see improvements with DSP price increases and the shift to artist centric royalty models. So a very healthy and encouraging backdrop. On the other hand, I think as investors have looked at the other parts of the ecosystem, a lot of value has instead accrued to the DSPs and even certain live entertainment companies in part because of a view that they're at the forefront of capturing a greater share of wallet from consumers and monetizing the growing power of music. I'm not saying that those companies are undeserving of Wall Street's optimism, but it seems like the perceived potential for the labels has lagged despite their crucial role in everything. So I don't know if it's changing the dynamics with the DSPs and ad supported tiers or a reimagined approach to super fans, but can you share your views on what the biggest opportunities for WMG are over the next few years to better participate in what seems to be a very robust growth profile for the overall music industry?
Thanks.
Robert Kinsell, CEO, Warner Music Group: Sure. Thank you. Thanks for the question. So I see this in 2 different buckets. Bucket number 1 is the obvious moves.
And in those, I'm focused on 2 big ones, which is reduction of discounts on family plans and more frequent PSM escalators. It's very simple. It comes down to these 2 levers. And they're very obvious moves for the industry, for a company like W and G, and they are not a zero sum move between us and the DSPs. They can actually be in concert with each other.
And then the second bucket is in more innovations, And that's where sort of a super fan tier like the Music Pro has been discussed a lot or other SKUs, some which may include ads, etcetera, just innovation around SKUs and audience segmentation. Those are also potential upsides for all of us. My focus is in the order that I described, which is obvious moves first, those 2 specifically, and then the innovations. And all of these things would be sort of incremental to the glide path that you guys see for the industry.
Ketan Mamiral, Analyst, Evercore ISI: Understood. Thank you.
Robert Kinsell, CEO, Warner Music Group: Thank
Conference Moderator: you. Our next question comes from the line of Benjamin Swinburne with Morgan Stanley (NYSE:MS). Your line is now open.
Benjamin Swinburne, Analyst, Morgan Stanley: Thanks. Good morning. I guess I had two questions. Robert, you gave us some helpful context around the management changes. I wonder if you could talk a little bit about what worked and is working so well at 10 ks, Elliott's label that you guys acquired last year.
That is or isn't applicable to the larger business of Atlantic. I'm thinking about things like artist discovery, marketing contract, anything that you think we should be thinking about as that he steps into obviously or has stepped into a much larger, broader and important role? And how this new structure, flatter structure translates into faster growth for the company, which maybe you're already seeing, but I would love to get some more color on all of that. And then, you and Brian both mentioned opportunities at wholesale pricing in your prepared remarks, so I figured I might as well follow-up. I think you're in the midst of your Spotify renewal right now.
So I thought maybe you could talk a little bit about your optimism to what seems like a pretty substantial change, maybe not, but seems like a substantial change to the way retail wholesale economics work? Thanks.
Robert Kinsell, CEO, Warner Music Group: Sounds good. Thank you, Ben. All right. So let me start with NK and Elliot. So when you think about the music industry today, there are obviously lots of different independent music companies, many of whom claim to do many things really, really well.
I would say you have to think everything with a great grain of salt. But one of those that surely did that was 10 ks. I know that's a fact from the numbers that both they had prior and the numbers that they have delivered in their 1st year under the WNG umbrella, which was a phenomenal growth, both on top line and bottom line. The skill set that they bring and it's not just Elliot, it's also his team. The skill set that they bring is being very digitally native.
Today, vast majority of our revenue is coming through streaming, promotion mostly happens online. You must be digitally native if you want to succeed today and in the future in the music industry. And that is important to the DNA of the company, and they have brought that. The other part that they bring is intensity. When you start a company of that size, you start from scratch, bootstrap it, you have to be incredibly intense about everything that you do.
And I love that about them. You also create strong points of view on various decisions. And I can tell you that all of these things, they touch developing artists, aspiring artists as well as superstars. Everybody wants to have broad reach, have hits, have a loyal fan basis and obviously then monetize it really well. But if you're somebody who's just starting, you need to build an audience.
If you're a superstar, you want to keep the audience. Either way, it comes to that. So this digital first mindset from 10 ks has translated really well into the company, and it also goes to their talent development. I named 2 artists who are, Boris Bracken and Jordan, who were for the first Grammys. And it's amazing to see that.
So that's one. At the same time, you have to be really great at working well in a larger organization like WMG, which means you have to have a flexible mindset and work well with others. And Elliott does that incredibly well. So I'm really, really pleased with how things are going. On your wholesale question, I think the way you asked the question was that it's not how normally things work.
I actually think that's exactly how things work in wholesale, which is wholesale prices generally go up. And it does happen in all industries. It may not have been that way in music in the past, but it is how it works in 99% of industries. So we're just trying to align with the way the world works.
Brian Castellani, CFO, Warner Music Group: And Ben, I would chime in just on the overall subscription streaming growth. Again, the backdrop is healthy. We continue to see those catalysts, whether in subscriber growth, pricing optimization as well as share. And our view is that subscribers, there's been 70,000,000 to 80,000,000 new subs brought into the ecosystem a year of late. We continue to see that being the vast driver, take that as 70%, if not more.
With as Robert said, the glide path on pricing is, I would say, modest. And to the extent wholesale gains are had, those would provide upside to that. And then of course, on share, we're pleased on the progress we've made and we have momentum with 24 releases and overall roster and catalog and that carrying into 2025. So again, encouraged there about all the underlying trends with which we think have upside to the extent pricing optimizes sooner.
Robert Kinsell, CEO, Warner Music Group: Thank you, guys. Appreciate it.
Conference Moderator: Thank you. Our next question comes from the line of Jason Bazinet with Citi. Your line is now open.
Jason Bazinet, Analyst, Citi: Your commentary is helpful and bullish, I guess, in terms of subscriber growth and potential trends on wholesale pricing and potentially market share. I just want to ask, how likely do you think it might be that there's a headwind embedded in those three tailwinds you talked about just from geographic mix, meaning the sub growth comes from more emerging markets as opposed to developed markets. Is that a risk that you think investors should be focused on? Or do you not really think that that could present itself as a headwind? Thanks.
Robert Kinsell, CEO, Warner Music Group: So I won't answer what you should do. I'll just tell you what I do. And then you guys extrapolate from that. So I studied the video industry a lot, right, whether it's MVPDs, right, TV film, cable, satellite television or subscription video on demand as well, right, because they're extremely adjacent to what we do. And simply studying the penetrations, I got to like take 2 markets, 2 extremely opposite markets, right, United States and India.
One is the largest market in revenue, the other one is the largest market in users in the world, right? And but low ARPU, obviously. United States, the telemetry penetration is somewhere around 30%, but television is around 50%, SVOD is approaching 50%, with lots of different subscription services, obviously, investing and growing. There is a lot more to grow in the United States for music. And by the way, we're a lower priced product that gives you everything and it's like extremely fluid and easy.
So I view it that way. And then in the I almost don't want to call it emerging markets because they're really high growth markets, but the penetration there is extremely low today. And obviously, ARPU is low. But what we will see over there is we're betting on countries that have forward looking that A, have higher GDPs now, but also have movements in GDPs up in the future because higher GDP will translate into more ad revenue and because that's a function of GDP and it will translate into better conversion rates in subscriptions. So in India, it's an extremely low number of subscribers today.
In total, I think it's about 15,000,000. And on television, there's more than 100,000,000 households in India. So there's a lot of room to grow. And so I kind of look at those 2 bookends. And then it's obviously gradation in between by market, then we just study each of those markets.
So this is what's giving us confidence.
Jason Bazinet, Analyst, Citi: That's super helpful. Thank you.
Conference Moderator: Thank you. Our next question comes from the line of Benjamin Black with Deutsche Bank (ETR:DBKGn). Your line is now open.
Benjamin Black, Analyst, Deutsche Bank: Great. Thank you for taking my questions. So last year a couple of DSPs moved to an artist centric model. I'm just curious if you could give us an update on how that impacted your streaming growth? And I guess relatedly, do you think they're doing enough?
What else could they do? And what about the other larger DSPs? Why haven't all adopted an artist centric model at this point? And then just a follow-up to FamilyAds, you mentioned the large discounts embedded in these offerings. I guess in a similar vein to Ben's earlier question in your Spotify renewal, is this something that you're addressing, have you
Robert Kinsell, CEO, Warner Music Group: been able to accelerate progress here? Thank you. So let me just quickly comment on the second. I can't comment on any of our discussions with our partners. So that would not be fair to anyone, whether you're on the call or to our partners.
So I'll decline there. But on the August centric model, we're very consistent from day 1 even before it started in saying that it is an important initiative. It's we're glad that we have a foot in the door on that. And it's something that we obviously have to continually roll out and not keep it static, that it has to keep on evolving with the growing scale of the industry, right? So I don't view this as a one and done.
I view this as one and done as input in the door and then you start expanding it. And but doing it together with our partners, obviously, right? So this is a collaborative effort. So I think the you will continue to see impact from it every single year that will be increasing. But it's hard to like forward forecast exactly what that is, right?
Because it's obviously coordination across multiple different distribution partners at the same time and it's never easy. But it is exactly what we're working on. It is the right thing for artists and songwriters and they understand it. They appreciate it. And our partners also think it's a good idea.
So it's just finding the right balance for all of us. Okay. Thank you.
Conference Moderator: Thank you. Our next question comes from the line of David Karnovsky with JPMorgan (NYSE:JPM). Your line is now open.
David Karnovsky, Analyst, JPMorgan: Hi, thank you. Just on ad supported status streaming, wanted to see if you could speak to trend there just stripping out the impact of renewals or items like premium video with Meta. How should we kind of think about this line going forward? And then Brian, thanks for the multiyear outlook on margins, just kind of bringing it to 25%. I don't know if you can kind of walk through specific drivers or any phasing we could think through the year?
Thanks.
Conference Moderator: Sure.
Brian Castellani, CFO, Warner Music Group: On the ad supported, the underlying traditional what I shouldn't say is traditional ad supported because again, it's streaming and digital advertising, which is the right sector to be in. That continues to see some of the macro trends you've seen across others. We see that kind of your low mid single digits at the moment. The emerging within ad supported, as we had said earlier, we are lapping our TikTok deal and also we have done our meta renewal, which we're pleased with. We were that underlying deal continues to grow and expand.
As you know, they exited the premium music video licensing. And so generally, the underlying core advertising there is stable and growing. The second part of your question on margin for 2025, we continue to be committed to 100 basis points a year over a multiyear period. There's always going to be quarter to quarter timing where whether the timing of releases and marketing, how savings and when they're redeployed. But generally, we continue to see this opportunity as our business shifts more and more digital and streaming and is diversified around the world by artists, genres and so forth that, that continues to be a driver of our margin growth.
Robert Kinsell, CEO, Warner Music Group: Thanks.
Conference Moderator: Thank you. Our next question comes from the line of Devin Briscoe with Wolfe Research. Your line is now open.
Conference Moderator0: Super Fan Tiers have been a hot topic this year and I think everyone is anxiously awaiting what that product launch will look like. Are there any anxiously awaiting what that product launch will look like. Are there any details you can share about the potential features and monetization avenues you'd like to see introduced in that product launch? Is that tier something you expect all the DSPs to have potentially globally, maybe with slightly different variations? And given that these tiers will likely have a variety of features, how should we think about how you'll get paid?
Will it be similar to existing tiers today, sort of a rev split model based on engagement, where there'll be a la carte revenue streams on top of that? Anything you could share on that would be appreciated.
Robert Kinsell, CEO, Warner Music Group: Sure. Can I just clarify quickly? It cut off a little bit in the beginning. Were you asking about Music Pro?
Conference Moderator0: I was asking about Super Fan Tiers and what you'd like to see in that product and the opportunity there? Thanks.
Robert Kinsell, CEO, Warner Music Group: Sure. So I'll again, it's a little bit tough for me to answer on behalf of the retailer. It is ultimately their platform and their features. Obviously, we have to work together, but I know they've declined to answer it specifically, and so I can't do that on their behalf. But the in general, if you think about music today, it is monetized exactly the same way whether you're a super fan or whether you're not on subscription streaming.
So it's obviously an undervalued it's an under exploited opportunity for all of us. And it's if you look at the gaming industry, 80% of revenue comes from 20% of users. There are all these obvious dynamics, but that's more of a transactional model, right, rather than subscription model. So I think adding features that drive engagement, give people higher quality, more interactions, all of that, like learning from the gaming industry is a really good place to go. And I really don't want to comment on behalf of our partners about their features.
But we're engaged in all the conversations deeply. We're bullish about it. We think it's a great opportunity both for the retailers sorry, for DSPs as well as for us. And it's yet another one of those catalysts of increased growth that none of us has figured into our business.
Conference Moderator: Thank you. Our next question comes from the line of James Haney with Jefferies. Your line is now open.
David Karnovsky, Analyst, JPMorgan: Great. Thanks for taking the question. Could you just talk about the drivers of the high single digit growth in subscription streaming on a multiyear basis? What gives you that conviction? And how much of that is coming from ARPU versus subscription?
Thank you.
Brian Castellani, CFO, Warner Music Group: Yes. I'll go back to those 3 catalysts that it is subscribers, price and share. And on subscribers, as I said, we continue to see rising penetrations around the world. I think you have roughly maybe a third of penetration in developed markets that projected to go to almost half by the end of the decade. In emerging markets where massive populations, you're in the mid to maybe high single digits going to low to mid double digits over the next 4, 5 years.
So those continue to be a vast majority of what we see as the growth driver over the multiyear period, that subscriber growth. Having said that, there's I think modest assumptions in industry projections for pricing. We see opportunity there on catalyst, whether it is from things like audience segmentation and super fans and raising ARPU across DSPs, as well as wholesale pricing optimization, as Robert talked about improving on the family plan and multi user discounts, as well as the per subscriber minimums and trying to move the industry more progressively on the wholesale side, knowing full well that in many of these bundles, music, as we like to say, is an anchor tenant driving high engagement. And then on share, again, we the changes we have made, we think improve our volume, velocity, diversity of artists development, as well as our continuing to scour the market as we always do for bolt on acquisitions, whether those are IP catalog or can help us on the digital side in terms of quickening our initiatives. So a few things there that give us the optimism over the multi year period for the high single digit subscription growth.
Conference Moderator: That's helpful. Thank you. Thank you. Our next question comes from the line of Batya Levi with UBS. Your line is now open.
Conference Moderator1: Great. Thank you. Just following up on the multiyear high single digit growth in subscription revenue growth. Can we maybe talk a little bit more specifically for 2025? Should we expect a slower growth in the first half of the year and maybe improvement in the back half as you lap the price increases?
And maybe just cadence on Ardich releases, do you expect a more linear year similar to last year? Thank you.
Brian Castellani, CFO, Warner Music Group: Batya, thanks. I think what you'll see is certainly there's always going to be quarter to quarter changes there, but we do expect 25 to be comparable on the subscription side just given the drivers. And yes, we are lapping some of those price increases, so we will see some moderation. But again, we think the overall marketplace and the subscriber growth will continue to lift the subscription growth.
Robert Kinsell, CEO, Warner Music Group: And let me take the answer on the releases. I mean, there's a lot in the hopper from Coldplay, Rose, Lincoln Park, Charli XCX, Little Uzi Vert, CK, Mary J. Blige, Zagg (NASDAQ:ZAGG) Ryan, if you get a threat again, I could keep going. So there's a lot that we have in the pipeline. Obviously, things can move around across quarters.
But one of my big areas of focus is top of the funnel on our pipeline, whether it's deals on the distribution side or releases and making sure that there's enough volume in our pipes to allow for movements back and forth between different quarters. And obviously, that's combined with creative success on the charts, which we have had, it translates into results.
Conference Moderator1: Great. Thank you.
Conference Moderator: Thank you. Our next question comes from the line of Steven Laszuk with Goldman Sachs (NYSE:GS). Your line is now open.
Jason Bazinet, Analyst, Citi: Hey, great. Thank you. 2, if I could. First for Robert, on newer forms of music monetization, maybe away from social media or short form video, I'm curious if you see any opportunity for other categories to come into the picture over the next year or 2 that might be able to move the needle on emerging revenue, streaming revenue growth? And then for Brian on free cash flow conversion, just curious if there's any puts or takes worth calling out as we think about operating or free cash flow conversion heading into next year?
Thank you.
Robert Kinsell, CEO, Warner Music Group: Yes. So thanks, Stephen. So one, I'll answer this a little bit more broadly, which is music always music is the most widely distributed medium of any kind, more than video, more than text, more than anything. And because of that, it becomes a soundtrack to everyone's lives. And because of that, it deserves it always finds a way for next new revenue stream.
So your question is 100% spot on. The question is how often those come and how successful they become. I have 2 to 3 new revenue streams sketched out, but nothing that I would be prepared to speak about publicly because that would be a little bit premature. But it is exciting to actually see when you look at the engagement of people around the world with music, when you see lots of different distribution partners that we have, when we have a lot of label partners distributing through us, lots of artists, there are many different opportunities to monetize than we do today. But there's nothing that we can offer in terms of specific just yet.
But your question is so spot on because it always does happen in music. And so I am allocating some portion of my time to developing these things as well.
Brian Castellani, CFO, Warner Music Group: And on the free cash flow conversion, we continue to see on a full year basis 50% to 60% operating cash flow conversion there. Obviously, there is some seasonality in our year just based on the timing of deals as well as payments. But otherwise, we see it largely consistent year to year.
Jason Bazinet, Analyst, Citi: Great. Thank you, both.
Conference Moderator: Thank you. Our last question comes from the line of Jessica Reif Ehrlich with Bank of America (NYSE:BAC) Securities. Your line is now open.
Conference Moderator2: Thank you. I guess one follow-up and one question. On the wholesale pricing, obviously, very important piece of the financials. Are you looking for I know you're looking for price increases, but I'm not sure how you're saying anything about structural changes. So if you could comment on that.
And then also, you've made a lot of tech investments since you've come to the company, Robert. Can you talk about like kind of what you've seen from those investments and what you will see at the results and then what's left to go?
Robert Kinsell, CEO, Warner Music Group: Sure. Sounds good. So on the first one on the wholesale prices. So if you think about it, all of the conversations in the past have translated have really been done through retail pricing. So you have wholesalers like us talking about retail pricing.
And I just don't think that's right. We're wholesalers, therefore we should talk about wholesale prices. Whatever happens with the retail prices is not what we control. Therefore, like that is not how we should think about the business. So I'm very much focused on the things that we control and we learn from other industries, you know, how they work.
So if you look at the television industry, Jessica, you're obviously extremely familiar with how retail pricing works and it's obviously similar in many other different industries. So that's why you see us talking about wholesale rather than retail. And on the technology investments, over the last 12 to 18 months, we focused on fixing a lot of legacy infrastructure issues that we had in the company, And we've stabilized and upgraded a lot of our core systems, which were burdened by a significant amount of technology debt. So we focused a lot on things like royalty processing systems for publishing or royalty statements for clients, sync licensing systems that allow us to drive more revenue and look into the black boxes and obviously our digital supply and infrastructure. So there's a lot of foundational investments that we made.
And now as I said in my opening remarks, now the team is able to start focusing much more offensively on driving growth and efficiencies.
Conference Moderator: Thank you. I would now like to turn the call back over to Robert Kinsell for closing remarks.
Robert Kinsell, CEO, Warner Music Group: All right. So thank you, everyone. Thanks for your engagement, all of your questions, which were great. We are I said one thing in my opening remarks that it's really exhilarating to see the creative engines of Warner Records and Atlantic humming at the same time. We are up 10 percentage points in market share and top 200 on global Spotify chart since the time that I started with the company.
And it's just great to see this continual improvement in relevance, creating hits, creating stars and having 2 large engine twin engines of growth in the biggest market in the world humming. That doesn't mean that we're resting on our laurels. We continue to invest and we continue to look inward, look at further efficiencies so that we can keep on delivering on what we said, which is our margin improvement and at the same time increasing our growth into the future. So thank you so much for your support, for your attention and look forward to talking to you in the future.
Conference Moderator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.