Warner Music Group Corp.

Welcome to Warner Music Group's first quarter earnings call for the period ended December 31st, 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.

Good morning, everyone. And welcome to Warner Music Group's fiscal first quarter earnings conference call. Please note that our earnings press release, Earning Snapshot and Form 10Q 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 second slide of the Earning 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 Earning 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 adjusted revenue and adjusted OIDA are adjusted for all previously disclosed notable items. The details of these can be found in our press release. 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 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.

Thanks, Kareem, and hello, everyone. I am speaking to you today from Los Angeles where the community is recovering from the devastation of the wildfires. We continue to support the relief effort for those most in need. This past Sunday, our artists and songwriters took home Grammy Awards, including Charlie XCX winning her first three, Bruno winning his 16, and Amy Allen winning the Songwriter of the Year Award. It was fantastic to see everyone pull together and demonstrate the healing power of music. Our results this quarter were driven by artists and songwriters of all stages of their careers and from all corners of the world across new releases and reinvigorated catalog. Warner Music Group's engine is strong. We built up sustained momentum during 2024, delivering -over-year double-digit growth in subscription streaming revenue and adjusted OYBIDA while relocating more resources to key areas like A&R investment. And Warner Music Group is a crucial part of a thriving ecosystem. It's music's resilience, shareability, and durability that makes it such a unique and valuable sector. Our results this quarter reflect the impact of temporary macro trends, both in our industry and in the global economy. And I'll give you the headlines and Brian will go through more detail. The following figures are adjusted for all previously disclosed notable items. You can find the details in our earnings press release. Total company revenue and adjusted OYBIDA grew 4% and 1% respectively. Recorded music revenue grew 4% and music publishing revenue grew 7%. Within recorded music, subscription streaming grew 7%, reflecting the expected deceleration from last year's double-digit growth as we lapped a series of DSP price increases. During the quarter, we faced significant FX headwinds largely driven by the strengthening of the dollar against key currencies such as the euro and pound. Given that more than half of our revenue is in non-dollar currencies, these currency movements created a roughly 200 basis point headwind to our adjusted OYBIDA margin. As all of these impacts will stabilize over time, I'd like to focus my remarks on our strategy and explain why we're so confident about the future. Our goals are clear. Increase our share of the pie, meaning market share. Grow the pie itself by increasing the value of music and become more efficient providing greater cash flow both for reinvestment and for shareholder return. First, in terms of growing our share, you've often heard me talk about us becoming the best home for talent at every stage of their careers. From baby bands to veteran superstars. Our recent successes have showcased how we're firing on all cylinders across that entire continuum, including new stars such as Benson Boone, who had the biggest song in the world last year with Beautiful Things, and Teddy Swims, who had the biggest song in the US with Lose Control. Regional superstars like Jio Li-A, the most listened to artist in Italy in 2024, or Jeff Satter, Thailand's number one streaming artist of 2024. Global superstars including Charlie XCX, Dua Lipa, Coldplay, Mike Towers, and Bruno Mars, who has become the number one artist in the world on Spotify with a record breaking 150 million monthly listeners. Music legends from Cher to Linkin Park to Mac Miller, whose latest album went top 10 in 10 markets. And finally, our irreplaceable catalog, which includes the household names from likes of Bleedwood Mac, The Grateful Dead, The Prince, and Aretha Franklin. A great example of how catalog music can remain vital and relevant is the most recent success of Alfaville's iconic 1984 recording Forever Young. Huge viral trend drove streams to increase over 300% in 2024 versus the prior year, and we released a new version by David Guetta, Alfaville, and Ava Max, reaching number two on the EU Airplay chart. I am pleased to see that so many of our recording artists are also songwriters signed to Warner Chappell, including Benson Boone, Teddy Swims, Zach Ryan, Cardi B, Dua Lipa, Madonna, and The Grateful Dead. The latest superstar to partner with us across both set of rights is Blackpink's Rosé, whose debut has become the highest charting album by a K-pop female soloist in the United States. In addition to growing our organic investment behind A&R, we continue to pull other levers in the quarter as part of our ongoing efforts to generate increased market share, including partnering with local players, such as Skillbox in India, acquiring valuable catalogs like Cloud9 and Benelux, and making leadership changes, including appointing a new CEO in Japan. All of this hard work is aimed at growing our global market share. We are already seeing early positive signs as Atlantic, one of our flagship labels, increases market share by half a percentage point in the US over the prior year quarter, according to Lumine Data. At the same time, Warner Chappell continues its strong performance, landing at number two on Billboard's year-end Hot 100 publishing chart. Second, let's talk about how we're aligned with our widening network of partners in growing the pie. Collaborative innovation has always been part of our DNA. We actively work with our partners to constantly evolve and to attract more customers in the music ecosystem. Whether it's launching new formats, expanding features, adding new tiers, or experimenting with business models, our collective goal is to ensure the continued growth of the pie. As that is starting to happen, our goal is to ensure that the value of music increases as the revenue pie expands. While there is still progress to be made across the industry, our recent deals, including the renewal we just inked with Spotify, represent positive momentum. Today, we're announcing an important new agreement that provides additional benefits for artists and songwriters, as well as WMG and Spotify, enabling us to move forward collaboratively to expand the entire music ecosystem. We look forward to seeing the value of music increase as we drive growth through further innovation together with Spotify. It is our increasingly powerful combination of recorded music and music publishing rights that make our repertoire essential for any service. In 2024, our artists and songwriters contributed to nine of Billboard's top 10 and over half of Billboard's Hot 100. Our music has fueled massive subscriber growth over the past 16 years and will continue to do so. Moving on to efficiency, my mantra is, focus and simplicity bring greater intensity and impact. Through a combination of organizational changes and investments into technology, we are continuing to make the company more effective and efficient. At the same time, we've exited some non-core businesses in order to allocate our resources to the most accretive activities while doubling down on our central value proposition to artists and songwriters. We've made real progress on these fronts and we're delivering on schedule through our previously announced restructuring programs. As we've told you, our goal was to reinvest the majority of these savings into strategically important initiatives that will propel our business forward. This enabled us to increase our A&R investment by double digits last year and this year. Today, we announced the acquisition of a controlling interest in tempo music from Providence Equity Partners with an option to acquire the remainder by the end of 2027. Tempo will provide us with an evergreen catalog which includes premium music rights to songs recorded by artists such as Bruno Mars, 21 Pilots, Adele, Wiz Khalifa, Florida Georgia Line and Lucas Graham. In addition to the high quality of these rights, Tempo's robust margins and cashflow generation make for an attractive financial profile that meets our key investment criteria. We have a pre-existing administration agreement with Tempo and this investment will become even more accretive as deals with other publishers, roll-off, and we expand the scope of our direct control over the catalog. Our tempo acquisition is a great example of our M&A strategy in action. As we become more efficient, we're creating a virtuous cycle that will enable greater reinvestment that delivers accelerated growth. Our long-term outlook remains intact and our confidence is based upon a healthy and evolving industry underpinned by collaborative innovation with the DSPs, our ability to provide value to our artists and songwriters through our global services and deep expertise and focus on a propelling growth through operational efficiency. Finally, we're really excited about our upcoming new music from Lizzo, David Guetta, Jack Harlow, Jisoo, Benson Boone, Maria Becerra, Karana Jhula, and Zach Bryan as well as the excellent performance of our catalog. And with that, I'll turn it over to Bryan.

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 and where appropriate, I will reference growth metrics which are adjusted for all previously disclosed notable items. There are items throughout the quarter in the year that affect comparability. We have provided additional disclosure in our earnings press release, which details the impacts from these items on a historical basis. In Q1, total revenue declined 4% and adjusted EBITDA declined 18% with a margin of 21.8%, a decrease of 390 basis points over the prior year quarter. On an adjusted basis for notable items, total revenue grew 4%, adjusted EBITDA increased 1%, and margin decreased 80 basis points due to revenue mix and operational FX headwinds, partially offset by cost savings net of reinvestment. The impact of foreign exchange was pronounced in adjusted EBITDA as roughly 58% of our total revenue is in non-US dollar currency. FX represented an approximately $36 million headwind to adjusted EBITDA and a roughly 200 basis points headwind to margin. Recorded music revenue decreased 6% and grew 4% on an adjusted basis. Subscription streaming grew 7% and expected deceleration from Q4 as we lapped prior year price increases. Ad supported streaming declined by 7%, driven by the timing of deal renewals and content delivery with certain emerging streaming platforms. Physical revenue increased 8% due to strong new releases in the US, namely from Linkin Park, Rosé, and Charlie XCX, and Strength in Japan and Korea, which was partially offset by the BMG roll-off. When adjusting for BMG, which had a $16 million impact in the quarter, physical would have grown 21%. Artist services and expanded rights revenue decreased 3%, primarily due to weakness in concert promotion revenue in France, as well as ongoing weakness in our e-commerce business EMP. Licensing revenue decreased 39% as we compare against the licensing agreement extension for an artist catalog in the prior year quarter. Net of the impact of that licensing extension, licensing revenue increased 6%. Recorded music adjusted oeuvre decreased 21%, with a margin of 24%, a decrease of 450 basis points. On an adjusted basis, adjusted oeuvre was flat and margin decreased 80 basis points. Music publishing total revenue increased 7%, while digital increased 6%, and streaming increased 7%. These growth rates compare against the prior year quarter, which saw robust streaming revenue growth of 30%, and reflect continued market and catalog growth. Performance revenue grew 12%, driven by an increase in touring activity outside the US and US radio activity. Sync revenue was flat, while mechanical revenue decreased 7%, due to lower physical sales. Music publishing adjusted oeuvre decreased 2%, with a margin of 25.7%, a decrease of 240 basis points. Q1 operating cash flow increased 13% to $332 million from 293 million in the prior year quarter. The increase was primarily due to timing of working capital items, including the timing of payments associated with digital deal renewals. Operating cash flow conversion was 91% of adjusted oeuvre. Free cash flow increased 12% to $296 million from 264 million in the prior year quarter. As of December 31st, we had a cash balance of $802 million, total debt of $4 billion, and net debt of $3.2 billion. Our weighted average cost of debt was 4.2%, and our nearest maturity date remains 2028. I'd like to reiterate that over the last year, we've focused on our core business and reduced costs along the way. As a result of actions taken over the course of the prior fiscal year, we've generated cost savings that we've been able to reinvest. As Robert mentioned, our acquisition of tempo is a prime example of this strategy. Our restructuring program is on track and delivering results as planned. Looking ahead, as the previously disclosed notable items become immaterial, we intend to simplify our disclosure and commentary to focus on our as reported and constant currency results. We continue to expect high single digit subscription streaming growth when adjusted for BMG for this fiscal and on a multi-year basis. As a result of the foreign exchange headwind that we expect to persist in the near term, we are unable to reaffirm our margin expansion target for this fiscal year. On a multi-year basis, our goal remains to deliver annual margin expansion of approximately 100 basis points and operating cashflow conversion of 50 to 60% of adjusted OEBRA. The music industry remains healthy, resilient, and is growing with new DSP deals focused on improved monetization. We are excited about our release rate and look forward to continuing to deliver great music. Our underlying business is strong and we continue to focus on our core while creating efficiencies to deliver long-term success. Thank you for joining us today. We'll now open the call for questions.

Thank you. To ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Benjamin Swinburne with Morgan Stanley. Your line is now open.

Thanks, good morning. Robert, on the new Spotify deal, I know you probably can't get into too much specific detail, but you've talked a lot about trying to really create some distance between how your revenues grow from your DSP partners and their own retail pricing, which is sort of another way of asking about shifting from kind of revenue share to wholesale over time. I'm wondering if you could comment about how this deal may or may not have evolved your model in the direction that I think you'd like to see it go. And anything else you think we should be thinking about that's important here. And then, Brian, on the currency piece, could you talk a little bit about whether that is tied to some currency risk you're taking in your royalty deals with your artists, or if this is simply that you have a high US dollar kind of overhead in corporate costs and fixed cost base, and so you're dealing with some negative leverage. Be helpful to understand the piece there, thanks.

All right, thanks, Ben, and good morning. And thank you for acknowledging that we can't get into the details of this video. But what I'll say is that, as I said in my opening remarks and on previous calls, we're focusing on a three-pronged strategy, which is increase our share of the pie market share, our work -to-day, we gave the example of Atlantic, progress in the West quarter, to increase the pie itself, which is where our deals with the DSPs go, and then efficiency. So on sort of increasing the size of the pie, I'm very happy with our progress and with this deal. It's obviously important that we do that, that we're doing this in conjunction with our distribution partners. And as we said on the strategy, it's never easy. There's always transition time to it. It's one of those things that we need to still roll out through the entire industry. But I'm happy to say that we now have two deals which are headed in this direction, which is Amazon and Spotify. So now there's more work to do with others and for all of this to cycle through. But this is a really great step in the right direction. So very happy.

And then it's Brian, on the foreign exchange, it is not to do with the royalty. It is, as you noted, about 58% of our revenue is non-dollar currency. So it really is the in-period exposure that runs through OEBRA. This was an unusual quarter, is the dollar strengthened materially post-election. We do, of course, have hedging programs that allow us to focus more on the underlying operation, but the hedging runs through other income and expense below OEBRA. So it really has to do with just that non-dollar exposure in the period.

Okay, thank you.

Thank you. Our next question comes from the line of Michael Morris with Guggenheim Securities, LLC. Your line is now open.

Thank you, good morning. I wanna ask too about the announcements from this morning and congratulations. First, to follow up on Ben's question. You did mention a number of things, new fan experiences, further paid subscription tiers. And can you talk at all about the timing of these things coming through, when we could at least start to see it, and maybe to expand on your last answer, can you have different types of products with different distribution partners so that you don't need sort of every domino to fall, or is it something that you need agreements with all your large partners in order to move forward on the product or new ideas? So that's the first question. And then second, just on tempo, can you speak a little bit about what changes with the size of your ownership stake now in terms of what you couldn't do before that you can do now, and also how it might impact your financials? Thank you guys.

Sure, thank you. Thanks, Michael. So, no, we don't need every single partner for everything to happen all at once, but there are certain principles of fairness that we apply to anything that we do. So we want to make sure that we roll out any kind of changes consistently and fairly to everyone, but we don't need everybody at the same time. There's a lot of different ways to grow the ecosystem, formats, business models, tiers, bundles, and the best way for us to continue to expand the pie is to lean into those, and as long as we're growing the value of music correctly with them, we're very happy, which we are. On tempo, having more control over the catalog, and obviously ownership is always the best because you can focus on all kinds of rights expansions, rights monetization strategies that maybe if you don't have full control, you can't, as you have to go for permission. So we now have control, and secondly, with each year, we have not had an entire 100% distribution of all titles inside tempo. Each year, as the distribution agreements with other publishers and labels expire, they will come to us, so this deal has growth built into it, which will be accretive. So we really love this deal, and love to do many more of those. I'll take the other question.

Well, I think Robert answered it. Again, the tempo of the transaction was really in our wheelhouse. We had been partners with them from the beginning, and high-quality assets at high margin. It's probably about 80% music publishing and 20% recorded music, but as Robert said, it gives us more control, expands our admin and distribution relationship, and more will revert to us over time.

Thank you. Thank you.

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

Oh, great. Yeah, thank you. Thank you for the question. So the ad support side of the house still appears to be choppy. Curious what you're expecting going forward, and other than putting out great content, are there any levers in your control that you could pull to drive faster growth? And the second question is on your emerging platform deals. Were there any new announcements this quarter? And also, TikTok is obviously a big partner of yours. In the event that they are banned, how should investors think about potentially sizing the headwinds of the ad-supported line? Thank you.

So Ben, it's Brian. I'll take the ad-supported piece, and as you know, that's two parts. There is the emerging platforms that you hit on and the ad-supported. On the emerging platforms, as we said, that was impacted by deal timing and content delivery in the prior year. I don't believe there were anything new there in the quarter in terms of new announcements or deals. On the ad-supported, obviously that's macro-driven. We have less influence, and it is impacted by a number of players. We do expect that to stabilize over time, but it is gonna be macro-driven. And then the second part of your question on TikTok.

I'll take it. Obviously nothing new to report. We have an excellent relationship with TikTok and the team, work really well together. And obviously there's a lot of uncertainty for them themselves. But if you think about as exposure of potential ban on our deal this year, it's muted. So not much to worry about. But obviously we hope for a good resolution between the parties. But this is one of those things that we have zero control over. So we do not worry about, and we don't have much exposure to it.

So focused on growing up share of the pie and the growing the pie in other areas.

Thank you. Our next question comes from the line of Ken and Vicka Teshwar with Barclays. Your line is open.

Thank you. So starting with subscription streaming, is this high single digit growth that you guys referenced in the prepared remarks, is there cadence roughly even this year? Is that impacted by the release calendars? How should we calculate that? I think about that over the course of the year. And then on the margin comment, obviously FX is something that's beyond your control. So the impact of that is understandable. But when you think about the cost cutting initiatives that you have underway, is there room for you to leverage that maybe a little bit more and offset some of these impacts? And also you've invested some of these cost savings into other initiatives within the company. Would be good to understand operationally what those investments, what kind of capabilities they add going forward. Thank you.

Yeah, it's Brian. I'll take the first part. So on subscription streaming, the 7% and we had signaled last quarter, we would be lapping the price increases in the prior year. And so we expected a decel and it really was subscriber driven. And even with just that, I think we hit the low end of our guidance at 7%. And so that speaks to, I would say the continued healthy health and resiliency of the underlying growth and subscription that we see. And then these recent deals point to opportunity for price and improvement and better monetization, which adds support and conviction for us. In terms of your question on slate and the slate is doing well, we continue to look forward to a number of new releases as well as the catalog. And so we do expect it to continue to perform well there. And then on your point on margin and just the cost reductions, yes, those are having an impact. The margin guidance for the year is impacted really by the foreign exchange being the driver of not being able to get to a hundred basis points. And then on the operational and investments, Robert can expand on it, but our restructuring program is on track, is working. Tempo is a good example of investing in music, continue to invest in technology and digital skills and platforms, whether it's our supply chain, whether it's our insights, whether it's applications, those are some of the things we're focused on. Yeah, I think

I'll just maybe pick up your example, supply chain, we have both digital and physical supply chain. And we've been investing into making it much more efficient and stable so that we can have much higher volume throughput on it without adding additional headcount. And so this is like one small example of it. Other example would be investing into standardization and standard workflows, which can be automated as much as possible. So there's a lot going on that started to bear fruit already, as I mentioned, and a lot of things that are going on that will bear fruit with every single quarter and every single year. So we continue to do so because we have a line of sight to create ROI on it.

And can I just wanna reiterate that the currency headwinds we're seeing and are a headwind to the margin this year, currency does stabilize over time. And so we would expect that to come back, but we're in a moment here where I think we've seen a pretty variable

move in

the dollar. And I think just in post-election to December, we saw an 8% appreciation. So it's unusual, but we do expect it to stabilize over

time.

Thank you. Thank you. Our next question comes from the line of Rich Greenfield with LightShed Partners. Your line is now open.

Thanks for taking the question. Robert, you've got a long history in digital media and it's generally the internet just broadly is generally winner take most. And it certainly appears like Spotify is rapidly rising to that sort of winner take most level, iterating product, new product offerings, bundles. I'm just wondering when you look at like Apple, they seem like they've sort of, I don't know, it feels like they've sort of given up on music innovation and Amazon music certainly hasn't done much in innovation. TikTok music's gone. Google and YouTube are certainly active outside the US, but don't seem really active or visible in the US. And I'm just wondering like sort of with less competition on the DSP side, what can you do or how does that affect you and how are you thinking about stimulating more competition among DSPs?

Good question, Rich.

It's simply through doing what we're doing with Spotify and with Amazon, which is enabling a lot more experimentation because ultimately, and I know this from, I was sleeping on the other side when I was at YouTube, all of these companies want to innovate whether people from the outside think that's true or not, they all want to innovate, they want to grow. And so it just takes, what it takes is having the ability and the rights to do it. When you're dealing with copyright, obviously there's lots of different limitations and you need an able and willing partner to do that. And we are that partner. And so we're leaning into it heavily.

And this is the best way for us to do our part in increasing the share of the pie that I was mentioning by helping them innovate and giving them the rights and permissions to do it and at the same time grow the value of music. And so I think we can do it in a great way that is a really great peaceful coexistence that drives value

for both. And are you seeing anyone else in this space like an Apple or an Amazon wanting to do things like super premium or super fan that Spotify is sort of focused on?

I think there are actually even more ideas than that, but, and they're different. And I think what ultimately ends up being great is if people come up with their own variants of products that may be slightly different from each other, but they're similar enough that they're anchored on music. And that's where we provide the anchor value.

So,

yeah, you know, obviously YouTube's very active. I won't say it's Spotify, Amazon is very active

and Apple is starting to as well.

Thank you. Thank you. Our next question comes from the line of Cutgun Moral with Evercore ISI. Your line is now open.

Great, good morning. Thanks for taking the questions. One on super fans and one on subscription streaming if I could. First on super fans, monetization over there seems to be a relatively untapped area that the industry has talked a lot about, but maybe still hasn't leaned into. How are you thinking about the path to drive innovation with super fans? And I only ask the question because the press release with Spotify seemed to reference a number of new opportunities and I didn't know if that extended specifically to this area as well. And Brian, if I could follow up on the recorded music subscription streaming piece, can you unpack the trends in the quarter just a little bit more because to your point, the de-fail shouldn't have been a surprise to anyone given that you're laughing at the SP price increases, but the .6% was still on the lower end of high singles. You mentioned subscriber trends earlier in your answer. Anything more to call out there since those trends presumably impact the rest of this year as well? And I'm just trying to better understand the dynamics because your comps get harder in the next two quarters, but perhaps I'll be more than offset by what's going on with Spotify and Amazon along with maybe some contributions from Tempo. So any help would be appreciated. Thank you.

All right, so I'll take

the first question on super fan. So, and it also does a little bit reach this question. I think there will be a different variance of this from different partners. We're looking at it both on our own homegrown strategy as well as one throughout distribution partners. And it's an area that has not been figured out, which is a good thing. Right, it's a green field for everyone. What we do know is that there are a lot of people willing to, who are extremely passionate about a certain number of artists, and they're willing to spend a lot of money to attend in-person experiences, buy merchandise, buy all kinds of experiences and interact with artists. So we know the engagement is there. Obviously the models also change from region to region. It's obviously been well documented with the success of that in Asia that everybody's trying to bring here. So there are a lot of different companies with efforts around it. And we want to participate in innovation around this, and we are. But it hasn't been cracked by anyone. But it doesn't mean that we'll stop, we'll continue because we know directionally the demand is there, just the experiences to match it. And so that's really it. Nothing else new to report on that.

Brian, on the second piece. Yeah, Kirk, on the subscription streaming, you know, as I said, and we had signaled last quarter, we did expect the pricing to decel. And you know, the driver, the vast majority of what we see driving the subscription streaming is subscriber growth and volume. Over time, you know, as pricing improves, again, as that improves, we would expect that to be additive to it. And then our market share, as we've said, we're pleased with how the slate is performing and the strong catalog. So we continue to see there the vast majority of the demand subscription and volume. And over time, pricing being additive.

I understand, thank you both.

Thank you. Our next question comes from the line of Batia Levy with UBS, your line is now open.

Great, thank you. Just a couple of clarification questions. One on the guidance for the high single digit growth on the subscription side. Does that include the new deals that you've signed, including tempo? And maybe on the margin side, if the current effects holds, is one queue performance a good run rate for the year or are you still expecting some efficiencies to flow in? And maybe just the final one, the Spotify deal on the publishing side, can you talk about how it compares versus the old CRV rates in the US and other regions? Thank you.

Go on. Well,

obviously

we can't get into the details of the deal that we mentioned before, but rest assured that protecting artists and songwriters' rights is our number one priority

and

we

feel very

happy

with this deal.

Yeah, Batia, on subscription, the tempo deal will mainly be music publishing. And so, we continue to believe in our guidance there and the drivers I had just mentioned. On margin, again, we continue to, our restructuring and savings are working to continue to reinvest in the business, tempo being an example of that, as well as the technology items Robert and I spoke about earlier.

Thank you. Thank you. Our next question comes from the line of Stephen Lasik with Goldman Sachs. Your line is now open.

Hey, great, thanks for the questions. Robert, maybe a follow-up on the Spotify deal again. Appreciate you can't go into much detail, but curious if there's anything in this new deal that gives you greater commitment or control into wholesale pricing. That's something that you've spoken about in the past. And then one for Brian on just FX and margin. You called out the 200 basis point impact on margin this quarter. We're curious how we should be thinking about that going forward and then just any other help you can give us on the cadence of margin throughout the year and the puts and takes we should consider. Thank you.

Yeah, so doing the dance of not going into great detail, we have this deal gives us a lot of confidence. We always focus on what do we go into these deals is achieving certainty,

not hope. And we have that.

And Stephen on foreign exchange and margin. Again, that really is the drag on achieving our 100 basis points. And the operational piece of it, we think is immaterial the rest of the year, the year to year foreign exchange headwinds are about two to 3% on revenue and OYBRA. But again, we expect these to moderate over time. And our hedging programs, as I said before,

we do

over a four quarter basis hedge about 50%. And that shows up down another income below adjusted OYBRA.

Got it. Thank

you both.

Thank you. Our next question comes from the line of Jessica Reif-Ehrlich with Think of America Security. She'll line is now open.

Thanks. Maybe two questions on the new coming years. Can you talk a little bit about who would bear the cost of the super premium year? Like how did the artists get compensated? And then secondly, can you provide any color on how you're thinking about the video catalog monetization that you talked about in the press release?

Sorry, Jessica, just to clarify, what do you mean on the second question?

You alluded to both music and video catalog monetization. So I'm just wondering how you're thinking about video.

Oh, got it, got it. Okay, thank you. Thanks for referring. Okay, so on the sort of super premium experiences, who would bear the cost? Obviously consumers pay a higher price. And then we just have power splits the way we're used to them. So it's the consumer who's obviously getting better product and a lot more value. On the video front, obviously you've seen more and more video on Spotify, probably if you're using it. And the segment pays the weight for more of it from us and others. So I think you'll see just increasing format expansion. And this goes to what I mentioned before, there are formats, there are tiers, there are bundles, there are business models, all of these things that we can do with DSPs in order to grow the pie. And so you're effectively asking

a question on the format and that is inside the deal.

And then maybe just one last follow up. Will these services be offered globally or primarily in like the bigger markets?

I would say that's a question for them. But again, having the experience working on the other side, the intent is always to go global over time. The expansion may be country by country or regional, but the intent is

always one thing at the end.

Thank you. Thank you. Thank you. I would now like to hand the call back over to Robert Kinsel for closing remarks.

All right, so thank you so much for attending today's call. Really appreciate your attention and care. I wanna reiterate that our three-pronged strategy is grow the pie together with our DSP partners by innovation, take a larger share of the pie through our work on market share and focus greatly on efficiency and use technology a lot in order to drive it, standardization and technology. And through those three prongs, we're confident in our growth outlook for the future and for the industry. And we're really happy with our progress, both on the Amazon and Spotify deals, which set a new direction for where we're headed and need to roll through the rest of the industry. And we're obviously happy about our reinvestment of our free-up funds to fund something like Tempo, which is a creative high margin and has both the short term as well as increasing long-term impact. So thank you so much. Have a great day.

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