Warner Music Group Corp.

Welcome to Warner Music Group's third quarter earnings call for the period ended June 30, 2025. At the request of Warner Music Group, today's call is being recorded for replay purposes, and if you object, you may disconnect at any time. I would now like to turn the 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 form 10-Q are available on our website. On today's call, we have our CEO, Robert Kinsel, and our CFO, Armin Zerza, 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 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.

Thanks, Karim, and hello, everyone. Before I get into our results, I'd like to formally welcome our new CFO, Armin Serza, who joins us for his first earnings call. I look forward to partnering with him as we elevate W&G to new heights. I'm pleased to say that we've delivered a strong quarter marked by re-acceleration of growth. This was driven by a sustained and impressive showing on the charts, which is now also beginning to translate into an improvement in our global market share. all of which underscores that our strategy is working. I'll give you a brief summary of our results, and Armen will provide more detail. We saw a broad-based reacceleration with total revenue growth of 7%, reflecting growth across recorded music and music publishing. Recorded music subscription streaming grew 8.5%, adjusted for notable items. As I've mentioned to you before, We're creating a virtuous cycle by putting more money behind the music while simultaneously becoming leaner and stronger. Our tighter focus is helping fuel our progress in three strategic priorities. Growing our market share, growing the value of music, and increasing our efficiency. I am pleased to say that we have tangible proof points in each area. I'll start with growing our share. During the quarter, we've grown our recorded music market share in key regions, including the U.S., where our market share increased roughly one percentage point year over year per Luminate data. We're achieving these gains by delivering the biggest hits in the world today, developing artists who will be the superstars of tomorrow, and growing the popularity of our iconic catalog. Our recording artists held half of the top 10 on the Spotify global chart for 12 weeks and the number one spot for all but seven weeks of 2025. And right now we have seven of the top 20 spots on Billboard Global 200. We're also seeing great success from our breakout artists in an increasingly noisy and competitive environment. These new stars will highlight WMG's outstanding artist development capabilities. Atlantic's Alex Warren has held the number one spot on Billboard Hot 100 for nine weeks, and his album debuted at number one in the UK, while Warner Records' Somber reached number one on the Spotify global chart. Teddy Swims, Benson Boone, and Rosé have all remained fixtures on the charts, showing the incredible staying power of the songs that captivate fans. That is, Loose Control, released just over two years ago, has become the first song in the history of the Billboard Hot 100 to spend 100 weeks on the chart and still counting. Outside the United States, we've had number ones from Nikki Savage in Italy, Gabs in Denmark, Fidel Chaker in Mina, and Eurovision Song Contest winner JJ in Austria, among others. This is also representative of the progress we've seen on expanding our international market share. Warner Chappell continued its strong run as well, with Morgan Whalen's I'm the Problem holding the number one spot on the Billboard 200 album chart for nine weeks, Riley Greene hitting number one on Billboard country airplay chart, and Blackpink's Diplo-produced track Jump debuting atop Billboard Global 200. Today's hits will become the evergreen catalog of the future. Given that music over three years old represents roughly two-thirds of our recorded music streaming revenue, continued growth and revitalization is paramount. I'll give you just a few examples of our always-on approach to catalog marketing. Veronica Electronica, a new album of Madonna's remixes, has contributed to her career-wide streams jumping 33% this fiscal year to date. The 25th anniversary edition of Slipknot's first album has helped drive an 11% increase in the band's streams this fiscal year to date. And Fleetwood Mac's Rumors was the only catalog release on Luminate's mid-year top vinyl album sales chart. We continue to find new ways to help longtime legends cut through the noise. Last year, we revitalized our approach to the management and marketing of our so-called Off-Raster Catalog. This means we're now taking a fresh, inventive, and global approach to marketing artists who are no longer recording new music for us. As part of this effort, we brought on Orla Ree Fisher in the new role of Head of Dual Catalog Strategy. She will lead campaigns for the many stars where we represent both their recorded music and publishing catalogs, including legends from Led Zeppelin to David Bowie. At the same time, we're complementing our organic growth and increasing the value of music through M&A activity, which will be accelerated by our recently announced $1.2 billion joint venture with Bain Capital. Next, growing the value of music. The industry is increasingly focused on price driven growth, and we continue to see progress in aligning our contracts with streaming services with this new paradigm as we improve deal charts. Since February, we signed renewals with several major services that will provide greater certainty and visibility around our economics. We look forward to seeing the impact these deals will have in 2026 and beyond. In fact, you've seen Spotify announce price increases outside the U.S. earlier this week, reflective of the incredible value proposition that music subscriptions present. And as I've mentioned, we continue to work with our DSP partners on the design and implementation of superfan tiers, which demonstrate the opportunity to better monetize fandom. A critical factor in growing the value of music is to protect the rights of our artists and songwriters. We're committed to embracing AI in ways that benefit our artists, songwriters, and the broader music community. At the same time, we continue our efforts to enable free market licensing for the training of AI models and to protect the visual likeness and voice of our artists from unauthorized defects. Later this year, we expect Congress to consider legislation to implement the AI Action Plan released by the White House in July. While the plan's recommendations don't address, either positively or negatively, the issues of greatest importance to us, we will remain highly engaged throughout the process. There is a broad policy alignment across the copyright industries, including the music industry, regarding the need to maintain strong intellectual property protections in the generative AI space. And now let's turn to our third priority, improving efficiency. Last month, we announced a strategic reorganization plan that will generate $300 million of cost savings to help future-proof the company and unlock the next era of growth. We're evolving into a faster and more focused and innovative company with an even more attractive financial profile. In addition to the financial benefits, which Armin will talk about, our plan will make our company leaner and stronger by compounding our global expertise backed by improved tech tools. I've given Armin oversight of the corporate development and spread-outs teams, in addition to finance organization. Across these interdependent functions, we will take a more holistic approach to discipline and return-focused capital allocation. As part of our plan, Warner Records unveiled a dynamic new marketing setup, while Atlantic Music Group sharpened its hip-hop and R&B focus and launched a country and Americana-driven label called Atlantic Outpost. We've also appointed Alejandro Duque as president of ADA, our independent distribution arm. This expands his responsibilities as president of Warner Music Latin America. Having him in this dual role will help us bring down barriers for ADA clients, plugging them more directly into our infrastructure, and empowering them to build their businesses. We're very focused on growing our distribution business and the ADA brand through great services, flexible deal-making, and tech innovation. And finally, we've hired a new leader in APAC, Loading Phi, He joins us from a telecom giant BCCW, where he most recently served as CEO of the subsidiary Makerville, which focuses on artist management and live events, as well as COO of VIEW, its regional OTT streaming platform. Lofi was born in Hong Kong and has a long track record in scaling creative companies. He has also written hit songs under the pseudonym Yuri. We're excited about his ability to turbocharge our growth in Asia, including China and Japan. Regarding technology, we've made many improvements to our infrastructure that will help us in the long term, including upgrading our distribution supply chain and creating a new interface for our ADA clients. Additionally, we continue to make updates to our innovative artist and songwriter app, WMG Pulse, and expand its user base. We've also begun to roll out a new app for our employees called WNG1. It serves as a single source of truth across the organization, helping to streamline global collaboration across markets, increase impact for artists and songwriters, and ultimately improve efficiency. Building on our recent momentum, we have exciting music coming out from Ed Sheeran, Zach Bryan, Alex Warren, Twenty One Pilots, Somber, Cardi B, David Guetta, and many more. The success we've been seeing gives us even more confidence that we have the right strategy, as well as the expertise to accelerate it. Our mission is to grow W&G through our commitment to artisan songwriter development and more nimble organization, and focused investment. I will now pass it over to Harman.

Thank you, Robert, and good morning, everyone. For those of you who have not already met, I wanted to properly introduce myself. After 20 years at Procter & Gamble, I joined Activision Blizzard in 2015, spending almost a decade there in financial, commercial and operational roles. Our focus at Activision was to create value for our players communities, employees, partners and shareholders. This experience lends itself well to the tremendous opportunity we have in the music industry and I'm extremely happy to have joined the talented team at Warner Music Group. Our primary goal is to accelerate long-term growth and value creation for artists and songwriters, fans, employees, partners and shareholders. Together with our leadership team, we have developed a strong plan to execute against the three priorities that Robert laid out. Before talking about our Q3 results, let me elaborate on this plan, which will help us to, one, invest into our core music business to accelerate revenue growth, two, increase efficiency to free up capacity to invest, and to expand operating margin, Three, level up M&A to turbocharge growth and value creation. And four, improve capital location efficiency and return capital to shareholders. First, on accelerating growth, we have conducted rigorous analysis across the globe to assess each market's repertoire value, both in terms of local growth and global exportability. As a result, we have zeroed in in key markets and genres where we will meaningfully increase investment, giving us a proprietary playbook on how to impactfully drive additional revenue and market share while taking a more holistic approach to disciplined, return-focused capital allocation. Second, in order to free up capacity and help fuel this growth and margin expansion, we have launched two key initiatives. Last month, we announced a strategic restructuring program that will deliver annualized runway savings of $300 million by the end of fiscal 2027. In addition to providing more resourcing and capital for reinvestment across the most culturally powerful and highest potential repertoire centers and making us more efficient, We expect this program to deliver margin extension of 150 to 200 basis points in fiscal 2026. Please refer to our July 1st 8K for more details. From an organizational perspective, this program will help us double down on greater growth in our core music business. This means we'll overweight our resources in the highest potential repertoire markets and genres in order to provide the most attractive returns. and will prioritize the skillset and tools in A&R and marketing that deliver the biggest impact for artists and songwriters, including by leveraging technology investments such as WMG Pulse and WMG One and our Finance Transformation Initiative, which are all starting to bear fruit. Third, on M&A, last month, We also announced a joint venture with Bain Capital for the purchase of up to $1.2 billion of catalogs across recorded music and music publishing. The JV leverages third-party capital to expand our buying power, adding even more firepower to our M&A initiatives, while also providing us with additional rights, revenue, and market share. We will manage all aspects of marketing, distribution, and administration for the acquired catalogs. Expect news of our first acquisition soon. Fourth, on capital allocation, we have a clear set of priorities. In addition to improving capital efficiency and stepping up investment into our core music business and catalog M&A, we are returning capital to shareholders. We have a $100 million buyback authorization and have announced today that we are increasing our quality dividend for the fifth year in a row to $0.19 a share, an increase of 6%. I wanted to add that we have committed to being transparent and communicative with the investor community about our progress and performance. In an effort to do this, we'll now provide updated disclosure and consistently address the items that impact year-over-year comparability. You'll find the details in our earnings release included in a simple table. Now, turning to our quarter three results. For quarter three, total revenue increased 7%, and adjusted EBITDA increased 16%. with a margin of 22.1%, an increase of 170 basis points over the prior year quarter. Adjusted for notable items, total revenue increased 8%, and adjusted oil price increased 17%, with a margin of 21.8%, an increase of 170 basis points over the prior year quarter. Recorded music revenue increased 6% or 8% on an adjusted basis, driven by growth across streaming, licensing, and artist services and expanded rights. Recorded music streaming revenue grew 3% due to subscription growth of 4% and ad support at the end of 2%. Our subscription streaming growth reflects roughly 450 basis points headwind, mostly related to a true up payment from a streaming service in a prior year quarter. Adjusting for notable items, underlying subscription streaming growth was 8.5%, which reflects our positive market share trend and chart performance. Physical revenue decreased 4% as growth from strong releases in Korea and Japan was offset by the BMG roll-off. Adjusted for the roll-off, physical revenue would have increased 4%. Artist services and expanded rights revenue increased 20% due to higher concert promotion primarily in France and Spain. while licensing revenue increased 19%, reflecting the strength in the UK and China specifically. Now, turning to music publishing, total revenue increased 9%, driven by growth across performance, mechanical, digital and sync revenue. In summary, our Q3 results reflect some of the impressive progress we have seen from our artists who have continued their hot streak across labels, vintages, and geographies. As Robert said, not only have we been riding high in the charts, but we've also seen market share gains in the U.S., where our market share was up roughly one percentage point year-over-year, based on the money data. This progress was led by our flagship labels, Atlantic and Warner Records. We are also seeing positive improvement globally across EMEA, APAC and LATAM. Despite all of our progress, there is still a lot of work to do. China and Japan, for example, represent markets with tremendous opportunity and upside. With new leadership in place for the APEC region and in Japan, we're now focused on improving our share in these very important reputable centers. Finally, turning to cash, operating cash flow decreased to $46 million from $188 million in the prior year quarter. Operating cash flow conversion was 13% of adjusted EBITDA. Free cash flow decreased to $7 million from $160 million in the prior year quarter. This is primarily driven by greater investment in ANR. Looking forward, we continue to target 50% to 60% operating cash flow conversion over a multi-year period. Also, as of 2030s, we had a cash balance of $527 million, total debt of $4.4 billion, and net debt of $3.8 billion. Our weighted average cost of debt was 4.1%. and our nearest maturity date remains 2028. In conclusion, our releases are doing very well and the outlook for 2026 and beyond is promising. We expect financial performance that more directly reflects the success of our artists and songwriters as we move past tough comparables and see uplift from our recent renewals with training services. While some of our investments and initiatives will take time to bear fruit, We are committed to revenue acceleration which, in combination with the efficiencies from our cost hearings program, will deliver margin expansion. With our updated strategy in place and more capital at our disposal, we are set up to move quickly as we create lasting value for our artists, songwriters, employees, fans, partners, and shareholders. Finally, we'd like to thank our teams around the world for all the excellent work they have been doing to deliver a strong quarter and to set us up for continued growth. With that, we take your questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Please ensure that you are not on speakerphone and that your phone is not on mute when called upon. Thank you. Your first question comes from Ben Swinburne with Morgan Stanley. Your line is open.

Thank you. Good morning. I guess two questions. It's clear that you guys are focused on accelerating growth and you're reallocating resources around the company. At the same time, you've obviously taken a lot of cost out. So there's some tension there in terms of less investment but more targeted investments. If you could elaborate a little bit on the strategy changes that you've made and how we should expect those changes in resource allocations to sort of drive financial performance. And then I would just love to hear if you have anything interesting to share on sort of the general – generative AI topic and how you're leveraging that at the company, given I know it's a focus area for you. We'd be interested. Thank you.

All right. Thank you, Ben. Great to hear from you. So, first, I want to say that we're really happy with the progress that we're making. not only succeeding in the charts, but starting to see that translating into market share, especially in the United States, as I mentioned, plus one percentage point per luminate. In order to sustain the growth in the future, we need to do better with more. How are we going to do that? First, we're going to free up a lot more capital through our reorganization. So our reorganization is strategic not only for being more efficient, but also for our growth. Second, we'll level up our M&A and accelerate growth through that activity. Key part of that is our $1.2 billion joint venture with Bain Capital. We're focusing our resource allocation on the markets with the highest potential for growth globally to accelerate growth again. And fourth, we have the right leadership in place in the US, Europe, Latam. And just today, we announced the last piece of the puzzle with Lo-Fi being appointed as the leader of APAC. So across these four points, we feel really strongly about our plan. It's already in flight. We're starting to see the results of it. And all of that is capped by our ongoing discussions with the DSPs, which include commitments around PSMs and obviously our discussions around superfan tiers to further increase the value of music. On your second question around GenAI, there's a lot of work across the company on this topic. It has many tensions, but one of the things I can, one example I can give you is we've last quarter, we've launched our WMG Pulse app for artists and songwriters, which shows them all of their streaming information, song information, audience information, and money. And that is one of the areas where we are working on applying Gen AI to drive further insights that would be very difficult to do timely with people. And Gen AI can help us provide insights about what is happening for the artists all around the world on all the DSPs and what are the actions they should be thinking. So we're really excited about that. This is just one example. There are many others and stay tuned to hear more about it in the future. Thanks Robert. Appreciate it.

The next question comes from Michael Morris with Guggenheim Securities. Your line is open.

Thank you. Good morning. I appreciate it. Robert, I wanted to ask you one on subscription streaming. I think, you know, you just reported about 8.5% core growth in the quarter. You mentioned a couple areas of incremental momentum, artist share, and some distribution renewals going forward. So, you did provide midterm growth subscription growth guide in the past in the 8 to 10% range. You're already there, so this bodes well. Can you just talk about how you're thinking about the future performance relative to that guide and whether there are any sources of non-recurring strength this quarter? And then, Armin, welcome. Appreciate your insights, including the margin expansion goals. My question is, are there opportunities to improve the cash conversion, whether or not that's a priority for you and the management team? And maybe if you could just help us kind of prioritize your capital allocation goals, that would be very helpful. Thanks.

Thanks, Michael. I'll start with a capital allocation question that you had. And let me talk about our capital allocation priority first before I talk about cash conversion. From a capital allocation perspective, we have seen great returns investing in our business. So that's our first priority, is investing in our core music business. And as Robert mentioned, we'll do this more thoughtfully now, prioritizing key global repertoire markets and genres. Second, we will step up investment in M&A, investment in music catalogs, also leveraging our reasonably announced venture with Bain. And then third, as I said in my prepared remarks, we are focusing on returning capital to shareholders through buyback and dividend. And you just saw our dividend announcement. From a cash conversion perspective, this is a critical, not just a key focus area for management. Our target has been and continues to be 50% to 60% cash conversion. And we have seen in the past three years we have been at the high end of this range. Going forward, we feel very strong about our plan. We have many different initiatives to continue to drive and improve that. The first one is obviously our cost savings plan, which will not only improve margin and enable investment, but also improve cash conversion. The second one is we are very focused on A&R spending efficiency. We mentioned already that we are very focused on prioritizing our spending on our core music business, number one, but also on core repertoire markets, with global potential. And then third, you know, we've spent a lot of capital to deliver against our tech and finance transformation initiative. As we go through this investment, that investment will normalize over time. So because of all that, we feel very confident about our capital allocation priorities and cash conversion targets, and also very focused on continuing returning capital to our shareholders. Now to your second question about streaming, I'll probably take that too. First of all, we are very happy with the results we had this quarter. We saw growth across the world with share growth in the U.S. across both Warner Records and Atlantic, which was critical for us. On an adjusted basis, as you have mentioned, we have seen 8.5% paid streaming growth. Now, as we look forward, we are very confident about our future because, one, the company is in a healthy place now, and, two, the industry is in a very healthy place. Now, when we think about long-term growth, we believe that our adjusted quarter three results are very reflected of those healthy dynamics. So the investment that we've been making is really not showing up in market share and growth. But as we look forward, there are a lot of tailwind for us. The industry continues to grow, and as you know, it's a little bit more resilient to changes in the economy. Second, as you know, we'll see the impact from our BSP renewals next year. Third, we have now more ammunition to invest into that growth behind our savings program. Fourth, we have M&A that will consume more aggressively, including with the Trump venture with Bain. And at least there's upside potential through the super premium tier that we're working on with RDFB. So, Ned, we feel very confident about our future prospects and look forward to discussing those more with you in the future. Thank you. Appreciate it.

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

Good morning, and thank you for taking my questions. Robert, In an environment where it's harder to break new stars, Warner seems to be sort of having real success that's showing up in your new release market share. You mentioned Illuminate data. We've seen our own analysis here. Can you talk a little bit about what's driving this success and how sustainable is it? And Armin, you guys mentioned the new JV with Bain, $1.2 billion at the outset. Can you just talk? about the decision to partner versus going on your own? Are there opportunities to expand the partnership? And in the current RAID environment, you know, how do you think about the opportunity set around catalog acquisitions? Thank you very much.

Sure. Thanks, Ben. So, yes, indeed. And, you know, today's environment is very noisy, right, and many different platforms, mass amounts of content. And in general, for all kinds of companies, it has been hard to generate hits and stars, etc. So for us to be able to sustain on a quarter after quarter basis, incredibly high charting of our artists is something that we are absolutely thrilled about. And our company is humming on all cylinders creatively. Ultimately, we've invested into A&R, we've invested into our executives, and this chart success is starting to show up in market share success, which is obviously very important and it's the proof of our underlying results. The playbook, as we mentioned, is to continue to do that in the highest potential repertoire markets to drive these kind of results. And the artist development is something that has always been the DNA of Warner. If you look back to Bruno Mars, Ed Sheeran, Coldplay, you know, there are so many artists that we have worked with for so long to develop them, Dua Lipa. And so we're really thrilled that the artists we're charting in the world today are the ones that we have developed recently in this increasingly noisy environment. Why is that happening? It's our executives, our people. We have a really amazing team of people who have the skill, which is very unique. And as I mentioned before, we have leadership in place. That's really great in the U.S., LATAM, and EMEA. And we just completed the leadership in APAC. So we feel really good about our team, feel really good about the future. And this is also one of those things that, proves that the value of major music companies is here to stay. Because in this environment, to succeed globally, it's extremely hard. We need to have global infrastructure and local expertise, which is what we have, and it's showing up. So I'm really thrilled about the progress we're making, and I'll hand it over to Armin to address the Bain question.

Yeah, thanks for the question. The summary is that we are focused on growth, margin, and cash. And acquiring catalogs does really all of that. So the JV is really a critical building block for us in our long-term strategy to accelerate the acquisition of catalog business. And the good news is that we found a partner with experience in this industry. So we're very happy with the partner. And obviously, as you know, we've seen it in our disclosure, we maintain 50% ownership of the catalogs that we acquire and we will operate It will be basically by managing all aspects of marketing, distribution . This is a key building block for us, and we are very happy about the partnership.

Thank you very much.

The next question comes from Peter Sapino with Wolf Research. Your line is open.

Hi, good morning. A question for Armin and one for the team. Armin, if you would expand on the announcement that was made a month ago regarding cost savings, if you could just talk about the organizational changes that you're making as part of that cost savings program and maybe detail the largest areas or opportunities for cost reductions. And for the team, during this Q&A, you've discussed your interest in stepping up mergers and acquisitions possibly expanding the use of joint ventures. That topic reminds me of organic growth, and I wonder if you could talk about the pros and cons of providing more specificity on organic growth and underlying financial trends in the business ex-M&A going forward. Thank you.

Let me address your organizational question first. This is a critical program for us because we wanted to make sure that we create an organization that helps us drive our growth aspirations, but at the same time obviously also deliver savings to create capacity to invest in the business and expand marketing. And frankly, as we went through the work as a team, we had to ground ourselves a little bit in the reality of our industry, which is that, you know, music is global. But at the same time, we are operating in 70 markets around the world. So as we designed the organization, it was really important for us to have, on the one hand, the local expertise to discover new talent in those 70 markets and many more markets around the world. But at the same time, also have the global scale to elevate local talent globally. So to deliver against that, we have developed a very thoughtful, global, regional, local organizational model. And the net of it is that we are investing more money, but also more resourcing in key markets in our frontline business, so in our marketing tools, which are all focused on discovering artists and songwriters, as well as driving our catalog business. At the same time, we are scaling our global and regional services behind the tech investment that we've been making over the last three years. And the balance of that was very important for us. All of this was enabled by tech investment, as I mentioned, over the past three years, so we're very, very happy with that. Not only because they enable us to scale organization and services more, but also provide better services to artists and songwriters, like with our WP Cult app. Now, as we move to the next phase of the tech investment, I mentioned before that we will normalize external spend more consistent with the market, so we expect savings there. We're also scaling our non-people spend more consistent with the new, more efficient organization design. So in summary, we think we've got a very, very balanced organization design that helps us drive the local opportunities by globalizing artists, but also drive cost savings to the bottom line. We have said before, that we expect from this about 150% point of marketing expansion next fiscal year.

I'll take the organic growth part of the question. So, you know, as we've said numerous times on this call, obviously we're having a lot of creative success with new releases. That's part of our organic growth. You know, the day-to-day A&R activities, finding artists, developing them, making them global superstars. That's all in the works, and we're doing an incredible job there. In my opening remarks, I mentioned our always-on catalog approach with some of the examples like Veronica, Electronica, and Slipknot, etc. You know, we are focusing on marketing our catalog the same way we do Frontline. and making sure that that is growing. It's two-thirds of our business. That is what organic growth is about. And all of that is underlined by our relationships with DSPs and most certainly around pricing rather than wishful thinking. around price increases. So we feel really good about the industry growth. We feel very strongly about our own organic growth. And as Armin mentioned, layering on aggressive but responsible M&A capabilities augmented by the JD with Bain is just giving us extra firepower upon accelerating. Thanks very much.

Mm-hmm.

The next question comes from Cutgun Meral with Evercore ISI. Your line is open.

Good morning, Anne. Thanks for taking questions. Two topics, if I could. One on ad-supported streaming at Recorded Music and a high-level question specific to Armin. So, first, on ad-supported streaming, is there any more you can share on how we should think about the trends at that line going forward across, you know, the more traditional core ad-supported business as well as emerging platforms? And on the emerging front, is there anything you could call out in terms of the recent renewals you may have had with some partners or what the renewal pipeline heading into 2026 looks like? I know you don't talk about specific partners, but it's been, I think, about two years since the TikTok deal was announced, so I wanted to check in there. And then for Armin, you've been with the company for several months now, and it certainly seems like you've hit the ground running based off of some of the recent news flow. I'd be curious to hear some of your early observations in the CEP. and maybe what made you interested in joining the music industry and WMG more specifically. Thank you.

Thanks for the question. I'll start with my impressions. First, I'm super impressed with the management team here in New York, but also around the world. We have, I believe, one of the best creative teams that you can imagine you know here in the us in europe latin america now also with the appointment of new leaders in asia second you know this is a super attractive industry the industry has been growing for many years but there are also a lot of opportunities that i felt that i could work on with the teams here based on my experience in another media industry the gaming industry um second um you know dsp contracts as robert mentioned provide us more certainty in the future and third is a business that is not much more healthy so we have a lot of opportunity ahead of us so in that context my key priorities were to make sure that i helped the team to first make sure that we have more capacity to invest into the business and we're doing that with our savings program which will not just accelerate growth but also expand margin. Secondly, I also want to make sure I leverage my M&A experience from the park, which is extensive at P&P and at Activation, to help accelerate M&A and not just organic growth here. And then third, there's a lot of opportunity to improve capital allocation by prioritizing spending against the biggest and most profitable opportunities. So, Ned, I saw the opportunity, I saw the impact I could have here on the business, and I'm super excited to be here, and I think we have tremendous opportunity to create value for our shareholders, but also for our artists and songwriters and employers here. On your question on the ads business, you know, when we look at the ads business, there's actually two parts to it. One is our core DSP business, where we're actually growing our ads business, And as the biggest DSP platform mentioned last week, there's a lot of opportunity to accelerate further. The biggest challenge is really in the short-form video content business, and that's a challenge for the industry. We need to work with the industry together with those partners. But it's a lot of work for us to continue to improve that over time, and we're not done with that work. There's a lot of opportunity ahead of us.

Understood. Thank you.

The next question comes from Rich Grenfield with Lightcheck Partners. Your line is open.

Hi. Thanks for taking the question. Robert, there's been a lot of, I think, industry confusion over what this super premium or super fan experience should be. Your friends at Universal certainly started talking about it a couple of years ago, and Daniel at Spotify started talking about it. It seems like the industry has struggled to figure out what the product actually should be. At the same time, we're seeing, you know, if I look at something like SoundCloud, people love sort of interacting and playing with music. There's all of these new AI startups where people are sort of manipulating music. And I guess the question is, do you think we can evolve from what the super fan experience might have been, which was like higher quality audio or, you know, chat with the artist or, you know, tickets to a concert? And may it actually evolve to something that involves sort of interactive music or some form of AI interaction and just, Big picture, where do you see this going? Thank you.

Well, first, I think maybe we should invite you to our product session together with the DSPs because, you know, I know you have a lot of passion and expertise on this. I'm half joking only. But you're right. It's been something that's been discussed for a while. Obviously, there's nothing new to announce today, but we are in deep discussions with our partners. You're also right about interactivity, right? Obviously, anything on the Internet is not only personalized, but also interactive in many different ways. And those are the things to leverage. I don't have anything new to announce today, but be sure that we are in deep discussions with our partners to evolve it because the opportunity is there. We all want to capture it. It makes sense for both the DSPs as well as us, the music companies and for artists and songwriters. So everybody wants to get it right and capture this opportunity. So we're excited about it and we're busily working on it. Thank you. And I'm happy to join anytime. All right. Sounds good. We'll take you up on it.

Your final question will come from Doug Cruz of TD Cowan. Your line is open.

Thank you, Armin. Welcome back to the entertainment industry. A question for you. While you were at Activision, when I think about your time there, one of the things I think that that company was really great at was realizing the full value of its content through its negotiations with its digital distribution platform partners. How does that experience inform your mental model about how to approach your relationships with your platform partners here at WMG? Thank you.

Great question. So I have two comments here. One, you know, it's interesting to see how industries evolve over time. And what I mean with that is that to recall in the gaming industry, we used to have very few price points until free-to-play showed up. We basically catered to every different price point in the world. So basically playing along the demand curve. It feels like the music industry is at the point today where we offer very few products at very limited price points. And super premium tier is obviously one opportunity to cater to a more premium consumer. But I'd argue there are many, many more opportunities for us to deliver better and premium price products to our fans and to our community. And, you know, we are having conversations, obviously, with our partners. And I will tell you that the partners also see those opportunities. And in many cases, you know, people from the gaming industry actually joined those partners. So they see it in a similar way. Now, the devil is in the detail on all of this. It's really all about execution. Because when we play along the price curve, we have to make sure that we offer great value to consumers. And that's the work that's ahead of us. So be assured that we're very focused on this. because there's tremendous opportunity to deliver growth, but also value for our consumers in India, and that's how we'll approach that.

That is all the time we have for questions. I will turn the call to Robert Kinsel for closing remarks.

Well, thank you all for joining today. I just want to close by saying we are really excited about the progress that we're making in an industry that has healthy dynamics, that we're starting to see our creative excellence translate into market share growth and important markets and drive our revenue, and that we have a very strong plan to continue to accelerate this growth in the future and on to execution. Thank you so much. Have a great day.

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