Warner Music Group Corp.

Welcome to Warner Music Group's third quarter earnings call for the period ended June 30th, 2023. 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 Chin, head of investor relations. You may begin.

Good morning, everyone, and welcome to Warner Music Group's fiscal third quarter earnings conference call. 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 Kinsel, and our CFO, Eric Levin, 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. 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's 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're 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.

Thanks, Karim, and good morning, everyone, and thank you for joining. After a challenging first two quarters, we're pleased to see strong evidence of back half recovery that we told you to expect. 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. I was happy that our Q3 results were driven by such a wide diversity of music. Strength came from many different territories, labels, and revenue lines. We succeeded with artists and songwriters across the spectrum of genres and generations, 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, artist services, and almost all areas of publishing. I'm particularly pleased to say we're seeing our momentum accelerate into Q4. 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. and modest growth in ad-supported revenue. Please note that beginning this quarter, when we talk about ad-supported streaming revenue, it includes revenue from emerging streaming platforms such as TikTok, Meta, Peloton, and others. Music publishing turned in yet another impressive quarter, delivering revenue growth of 16%, driven by strong streaming growth of 28%. 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 and growing our incredible catalog. In recorded music, artists at all stages of their careers, global superstars and local names, new albums and timeless classics all added to our growing momentum. Ed Sheeran's six studio albums subtract hit number one in 11 countries and top five in seven other countries. Melanie Martinez's third album, Portals, went top three in the US, UK, Canada, Ireland, New Zealand, and Australia, where she celebrated her first number one album. Both Ed and Melanie are great examples of the same phenomenon in the modern music business. New music combined with touring, 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 fire. Recent successes include Puerto Rico's Mike Towers, who soared to number one on Spotify Global Top 50 with his song Lala, and Mexico's Young Lucas, whose monster hit La Bebe spent nearly four months in Spotify's Global Top 10. And by the way, We just signed Young Lucas for publishing as well. Other amazing artists that are enjoying breakout hits include Korea's aespa, Italy's Capo Plaza, Sweden's Polaget, France's Nino, the UK's Pink Panther, the US's Bailey Zimmerman, and Australia's Bujira. We also partnered with Chinese superstar Jem for her groundbreaking album, marking the first time a mando pop artist has recorded a full-length Spanish release. This partnership truly highlights how languages and genres are cross-pollinating. The combination of our global reach and local expertise continues to give us a competitive advantage as we lean into this trend. Equally, it was great to see how music from our incredible catalog can continue to contribute meaningfully to our results. 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, Ivo Max, and Don Tolliver. I'm also happy to say that our Q3 momentum is carrying over into Q4. Lil Uzi Vert scored his third number one album on the Billboard 200 with Pink Tape, the first hip hop album to top the chart in 2023. Young Thug's Business is Business peaked at number two, and Gunna's A Gift and a Curse debuted at number three on the Billboard 200, with his lead single reaching number one on the Spotify in the US. Dua Lipa's highly anticipated new track, Dance Tonight, which is currently number one on the official European Airplay chart, kicked off the campaign for Barbie, the album, released on Atlantic Records. Like the movie itself, the album has been a massive global cultural event, putting number one in seven countries, including the UK, Canada, Australia, New Zealand, Netherlands, Ireland, and Portugal. It is the first soundtrack ever to land three top five singles in the UK. All in all, I'm pleased with our improvement in Q3, but we still have lots of work to do. Kudos to the whole Recorded Music team for how they partnered with our artists and worked hard to drag these results. In publishing, we continue to see impressive results from our strategy to diversify our revenue streams, strengthen our services, and mine our deep catalog. At the same time, our songwriters are contributing to massive hits, including Morgan Whalen's Last Night, Miley Cyrus' Flowers, and SZA's Kill Bill. all of which reached number one on Billboard Hot 100. And we're also seeing huge successes from Germany's Apache 207, Spain's Quevedo, the UK's Dave, and mega-hot 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, iSpices producer Riot USA, and Spanish star Anamina. I'd like to emphasize one other key theme today, our efforts to grow the value of music, which includes our approach to AI. We're focused on creating a virtual cycle where innovation, fan engagement, and greater monetization thrive together, 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. I am pleased with the traction that we're getting. Last month, Tidal, YouTube, and Spotify all followed Apple, Amazon, and Deezer by upping their prices. 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. Back in March, I said that if we adjusted for inflation since 2011, the year that music streaming was introduced in the US, the price of a monthly music subscription in the US should be $13.25 today. I'd like to point out that in 2011, the price of the standard Netflix plan was $7.99. It has since increased to $15.49 today. 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 $19.37 today. Let's remember that music subscription services give you access to all the music ever released in a continuously growing library for roughly the price of a single CD. You need to subscribe to three or four movie and TV services for roughly $45 a month to get anywhere near a comprehensive offer. So we see these initial price increases as an encouraging start. There's 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. Again, when I joined WMG, One of the questions I repeatedly got was about TikTok. Seven months in, I'm pleased to say we also made great progress there. Last month, we announced an expanded and significantly improved deal with them. The agreement covers the main TikTok app, the rollout of the subscription service TikTok Music, the video editing app CapCut, and TikTok's commercial music library. Our deal gives our artists and songwriters access to new levels of monetization, marketing, and fan development features. This is the first of its kind partnership that will also mean the joint development of additional and alternative economic models as we grow the ecosystem together. I know there is interest in the specifics of our expanded relationship, but due to confidentiality provisions, we aren't at a liberty to disclose them. What I can say is this. The deal features improved monetization per MAU that is comparable to other ad-supported DSPs, 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 aligning with the music industry on solutions that work for everyone. 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 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 a long history of working together with distribution platforms to establish licensing models that drive growth and innovations. For the past 15 years, music companies and distribution platforms have partnered to grow user-generated content as a multi-billion dollar revenue stream for artists and songwriters. Today, there are obvious similarities with AI. 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. Many Warner artists are already exploring impactful ways to use Generative AI to create, augment, and remix their music. We have some great examples from big names on the way later this quarter. Other artists are using Generative AI for visuals, with artists like metal band Disturbed and dance producer Riton, and the superstar rock band Linkin Park all creating highly impactful music videos. In addition, AI-enabled stem separation technology is giving new life to recordings by artists who are no longer with us. For example, AI has been used to isolate the vocal performance from sound recordings of legendary entertainer Sammy Davis Jr. and renowned opera singer Maria Callas as part of groundbreaking sync deals. We're deeply inspired by our artists' abilities to embrace and push the boundaries of the latest technologies. 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. Costa Rican musician Pedro Campany has released a new duet with his dad, the legendary father of Costa Rican rock, Jose Campany. This is Jose's first song since 2001, the year of his tragic death. After analyzing hundreds of hours of interviews, acapellas, recorded songs, and live performances from Jose's career. Every nuance and a pattern of his voice was modeled using AI and machine learning. The resulting song movingly announces the arrival of Pedro's son, Jose's grandson. 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 compliment through a new level of user-driven content, including new cover versions and mashups. AI is unquestionably one of the most transformative forces in human history. Nonetheless, this technology shift is more familiar terrain than first meets the eye. Like many technologies before, it presents massive opportunities for human creativity and innovation. U4 is off to a strong start with amazing releases, including Barbie the album, Burnaboy, Nino, Pink Pantherous, Tiago PZK, Kali, Tiesto, and Anne-Marie. And we have new music coming from Zach Bryan, Thea, Dan and Shay, David Guetta, Charlie Puth, Omar Apollo, and Robin Schultz. We have a fantastic roster of artists and songwriters and a great team. We continue to invest in our expertise and infrastructure, both creative and technological, in order to create long-term success. As I said on my first earnings call, I'm a big believer in action speaking louder than words. So today, more than anything else I've said, it's our results that show we're gaining real traction, and there's a lot to be excited about in Q4 and beyond. Eric, over to you.