Warner Music Group Corp.

Welcome to Warner Music Group's fourth quarter earnings call for the period and fiscal year ended September 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. 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 fourth quarter and full year earnings conference call. Please note that our earnings press release, Earnings Snapshot, and Form 10-K are available on our website. On today's call, we have our CEO, Robert Kinsel, and our CFO, Armin Zerze, who will take you through our results and then we'll answer your questions. Before our prepared remarks, I would 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 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 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 hello everyone if you hopped on the call early you just got a taste of the range of our artist roster from the massive breakout track from somber to the latest chart toppers from cardi b and 21 pilots to the resurgent Google Dolls 1998 hit Iris, which currently sits in the global top 15 on Spotify. It's an incredibly exciting time to be at Warner Music Group. Against the backdrop of a rapidly changing landscape, we've improved our market share and delivered profitable growth, all while realigning our company to capitalize on the tremendous set of opportunities we have ahead. Our growth plan continues to bear fruit, and we've seen steady global market share gains over the past year. In the United States, we're up 0.6 percentage points over the prior year quarter, according to Luminate. Globally, our share of the Spotify top 200 has jumped by around 6 percentage points versus fiscal 2024, and for the entire quarter, we had the number two market share. Importantly, we're carrying this momentum into fiscal 26 as we continue to execute on our strategy. I'll dig into this in more depth, but first, let's cover our Q4 highlights. I'm pleased to say that we've seen acceleration on the top and bottom lines, driven by impressive performance across the company. Total revenue grew 13%, and on an adjusted basis, recorded music subscription streaming increased 8.4%. These results prove that our strategy is working. Let me paint you a picture from just a year ago, when both the industry and WMG were in much different place. A year ago, WMG was facing market share pressure. Today, we've laser focused our resources and investment on the highest return areas of our core music business. This has led to market share gains that have translated into strong measurable improvement in our financial performance. A year ago, the music industry was navigating the transition from just volume driven streaming growth to growth that is driven by volume and wholesale price increases. Today, our new agreements with key DSP partners better reflect music's ever growing value and provide greater certainty around our economics. A year ago, our operational structure wasn't optimized to navigate a more globalized and digital environment. Today, we focus and simplified our organization to deliver greater intensity and impact. I'm pleased with the progress that we've made, and I'm truly grateful to our leadership team and our operators across the globe and our amazing artists and songwriters for pushing WMG to new heights. All of these actions have better positioned us to execute quickly and effectively on the opportunities we see ahead and to maximize the value we deliver to artists, songwriters, fans and shareholders. Let's turn to the impressive run of hits we've been seeing with our new releases, as well as our catalog successes. On new releases, in September alone, we had back-to-back number one albums in two of the world's biggest music markets, thanks to Cardi B and Twenty One Pilots in the United States and Ed Sheeran and Biffy Clyro in the UK. On the international front, we had number ones in China, India, Finland, Italy and Spain, and on Billboard's Latin Airplay chart. And in a terrific vote of confidence, one of our legendary superstars, Madonna, has returned to where it all began for her, Warner Records, with a new album coming in 2026. The performance of our global catalog division in Q4 showcased our ability to revitalize our timeless legacy, making it relevant to a range of new audiences. A major highlight was the release of Buckingham Nicks, the long out of print 1973 album by Fleetwood Mac's Stevie Nicks and Lindsey Buckingham. A targeted marketing campaign capitalized on fan demand, sending it to number 11 on the main Billboard album chart and number six in the UK. A remarkable achievement for an album more than a half a century old. Warner Chapel continued its resurgence with our songwriters contributing to seven of Luminate's mid-year top 10 most-trained songs in the world and in the United States. And multi-Grammy winner Amy Allen held the top spot on the Billboard Hot 100 songwriters chart for nine weeks in 2025. These Q4 success stories capped off a year of achievements. During fiscal 25, our recording artists set it up the Billboard Global 200 for 22 weeks. That's 42% share of the number one spot on the chart. With Atlantic, Warner Records, and Warner Chapel, harder than ever, we're delivering success across geographies and genres. Next, I'd like to cover our focus on increasing the value of music. Streaming's growth formula is made up of three components. market share, global subscriber growth, and wholesale price. Against the backdrop of healthy subscriber growth and a market share improvement, we've also made progress on wholesale price. Since the beginning of 2025, we've signed renewals with four of the largest DSPs. All of these deals have wholesale price increases, providing certainty around economics and setting up monetization models for the future use cases. A critical component of ensuring we grow the value of music is addressing the promise as well as the potential risks of generative AI. First, we need to acknowledge the reality that generative AI technology has arrived and it is not going away. So we need to be proactive and lean into the future. The music industry is no stranger to disruption. From the invention of the phonograph to the Napster era to the rise of today's streaming ecosystem, the introduction of new technologies over many decades has posed both challenges and opportunities. AI represents another defining moment. And as always, our focus remains on protecting the rights of our artists and songwriters, while simultaneously growing new revenue streams on their behalf. With this in mind, we've developed a set of principles that will govern how we engage with AI platforms. We will only make agreements with partners who commit to licensed models while securing economic terms that properly reflect the value of music. Crucially, our artists and songwriters will have a choice to opt in to any use of their name, image, likeness, or voice in new AI-generated songs. We believe that the combined power of our music with innovative technology will drive greater engagement and interactivity for fans and will result in significant incremental revenue over time. I'm pleased to say that we've already done deals with partners like Udio, Stability AI and Clay that are consistent with these principles that I just outlined. Our ability to sign three deals with three new companies in quick succession highlights the attractiveness of the music business and the opportunity to create value through new technology. These agreements enable us to get ahead of the game, ensuring that our artists and songwriters participate fairly in the AI revolution. As I mentioned earlier, we've taken major steps to optimize our organization to drive efficiency and effectiveness all while re-accelerating growth and gaining market share. Among our recent changes are some moves designed to foster closer collaboration. We've directly aligned Atlantic and Warner Records in the UK with their counterparts in the US, creating a more seamless transatlantic approach to breaking artists globally. In Italy, we've organized our operations into two frontline labels, Atlantic and Warner Records, mirroring the label structure in the US and the UK. We've also unified our Australasia and Southeast Asia businesses to create bigger opportunities in this region. Additionally, we streamline operations and strengthen impact for artists in Central Europe by merging Benelux with Germany, Switzerland and Austria. On the tech front, we've continued to modernize our infrastructure, including strengthening our global digital supply chain to position the company for further scale and growth. We've implemented tools to help artists and songwriters make faster, smarter data-driven decisions about their careers, as well as tools for employees to be better informed and more effective. Our emerging stars are building the catalogs of tomorrow, laying the foundation for future stability, while our recent superstar releases have set us up well for 2026. In Q1, we have highly anticipated new albums from Fred again, FKA Twigs, Not For Radio, Aya Nakamura, and Robert Plant, along with deluxe album editions from Ed Sheeran, Cardi B, and Pink Pantherous. We also have new singles from Charli XCX, Charlie Puth, Jisoo, Hilary Duff, Tiesto, Alex Warren, David Guetta, and Teddy Swins, and many, many more. We're proud of the progress we've made in 2025, and I look forward to carrying this momentum into 2026 and beyond. And now I'll pass it over to Armin.

Thank you, Robert, and good morning, everyone. First, I'd like to thank our teams around the world for the tremendous work they've been doing to accelerate top and bottom line growth while we organize our company for the future. As Robert mentioned, Q4 has been a quarter of acceleration as we delivered record high quarterly revenue as well as our highest year-over-year growth in nearly two years. This reflects steady progress on market share with notable improvement in the second half of the fiscal year. In Q4, total revenue growth of 13% reflects double-digit growth across recorded music and music publishing. This was highlighted by a sequential improvement in recorded music streaming and 64% growth in artist services as WMX led merch campaigns for Oasis and My Chemical Romance. These projects demonstrate our capabilities to support our artists and capitalize on the opportunities to grow revenue streams beyond core music. More on that to come. Recorded music subscription streaming grew 8.4%, underpinned by global subscriber growth and supported by a strong market and chart share performance. As a reminder, in Calendia 2026, we will start to see the impact of wholesale price increases from our new DSP deals, which should provide incremental tailwinds. Ad-supported streaming grew 3% on an adjusted basis, driven by the performance of our music and the timing of certain DSP payments. Music publishing grew 13%, driven by double-digit growth across performance, mechanical, and sync. Adjusted OIPDA rose by 12%, and our margins declined slightly due to revenue mix, as a significant growth in artist service revenue carries a lower margin profile. For full year 2025, we delivered total revenue and adjusted OIPTA growth of 8% on an adjusted basis, reflecting our impressive recovery from the first half. This was spot-batted by high single-digit recorded music subscription streaming growth. We also achieved operating cash flow conversion of 47% as we increased our A&R investments. we remain committed to delivering our target conversion range of 50% to 60% over the long term. As of September 30, we had a cash balance of $532 million, total debt of $4.4 billion, and net debt of $3.8 billion. Our budget average cost of debt was 4.1%, and our nearest maturity date remains 2028. With our strategy in place and a clear roadmap to deliver higher, more consistent growth and drive shareholder value, we are extremely excited about the opportunities ahead. We are operationalizing the strategic pillars that Robert laid out through several key priorities and initiatives, which are shared on our last earnings call. And I'd like to provide an update on our progress. First, on investing into core music to accelerate growth, we're making progress across geographies and vintages. Recall, we prioritized investments in markets with the most attractive return profiles. As a result, we are now growing market share in every key region, including the US, the largest music market of the world. Additionally, our balanced approach to driving performance across vintages has resulted in higher new release market share than by Atlantic, as well as a jump in global catalog share. As Robert mentioned, this has improved our Spotify top 200 share by six percentage points. In addition to these investments in our core, we see tremendous opportunity to accelerate growth in distribution and direct-to-consumer. We have a large and growing distribution business today, and under new leadership, we have been building or acquiring new capabilities to accelerate profitable growth in 2026. We also see tremendous opportunities to capitalize on the passionate demand from fans all over the world for physical music and direct-to-consumer offerings. areas adjacent to our core music business. More on this in upcoming quarters. Second, on our commitment to driving efficiency to free up more capital to invest and enhance our margins, we are on track to deliver against our reorganization and related cost savings program of $200 million in annualized savings in 2026, increasing to $300 million in 2027. Third, we committed to driving incremental growth and value creation through a creative M&A. We have developed a robust deal pipeline and look forward to sharing updates in the near future. These efforts will be turbocharged in a capital efficient manner through our joint venture with Bain, but also through organic investments as we improve free cash flow. Finally, our focus on thoughtful capital allocation is delivering. as the investments we are making in the highest reputable markets, which include the US, UK, Mexico, China, and Japan, are delivering share growth. In addition, we're improving capital spend efficiency. And with the bulk of our major tech investments behind us, we should see an improvement in our free cash flow starting in 2026. Looking forward. We see an attractive formula for us to drive shareholder value and are excited to be operating in a healthy industry with an immense set of opportunities. The macro factors that underpin our outlook include robust global subscriber growth, a rising wholesale price environment underpinned by contracts that better reflect music's increasing value, new premium offerings from DSPs, NAI is emerging as an incremental top and bottom line opportunity for the music industry and our artists and songwriters. We are poised to capitalize on this environment with a strategy that will see us intensify our investments to deliver more consistent, higher growth, improve margin, and drive shareholder value. For 2026, we expect to see strong top line growth which we look to bolster through focused organic investments and initiatives in our core music business and high-impact accretive M&A, as well as contribution from adjacent areas such as distribution and direct-to-consumer offerings. In addition, we will drive bottom-line growth via operating leverage and our cost savings plan, which will contribute 150 to 200 basis points of adjusted OIPDA margin improvement. We expect savings to increase sequentially as we progress through the year. And finally, we see tremendous potential in new incremental growth areas, particularly in AI licensing deals, which we plan to discuss in future calls. In conclusion, we are proud of how we rebounded from a challenging first half in 2025 to deliver solid top and bottom line growth in the second half, with strong momentum as we head into 2026. We look forward to providing regular updates as we meet our milestones. With that, we'll 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 your phone is not on mute when called upon. Thank you. Your first question comes from Cutgun Morel with Evercore ISI. Your line is open.

Great good morning and thanks for taking the question. There's a lot to unpack, but one area that I'd love to get your updated outlook on is with rights monetization, especially in the context of rising music engagement across platforms. We've seen the pace of innovation and product rollouts across the DSPs accelerate meaningfully and everyone from the streaming services to artists to even a ticketing platforms like Ticketmaster is exploring new ways to leverage AI. all with the goal of driving deeper engagement. That said, there's an ongoing debate between those who see the labels as uniquely positioned to benefit from these innovations and those who believe that the labels will remain maybe more passive beneficiaries and therefore not necessarily see upside. So, Robert, you've already touched on parts of this, but as you've gone through the latest round of DSP renewals and clearly continue to engage with other partners across the ecosystem, How are you thinking about WMG's role in capturing incremental value in this next chapter of industry growth? Thank you.

Thank you. I will start with the word incremental that you just mentioned. We see this as an incremental opportunity for not just for WMG, but for the music industry as a whole. Secondly, we are determined and have decided that we're the drivers, not the passengers of this incremental opportunity. The reason for that is this space is moving lightning fast. There's a great demand for IP. There's a great demand for stardom. And companies like ours who are working to represent both of those need to drive this change. That's exactly what we decided to do. I posted a blog post last night in case not all of you got a chance to read it, please do. It's listed on our website and it outlines our principles under which we focus and guide our deal making in the age of AI. There are three simple principles. We'll do agreements with partners who commit to licensed models. We'll do it on economic terms that properly reflect the value of music. And what I mean by that is that our deal terms are tied to usage and revenue growth. And importantly, that artists and songwriters have the opportunity and right to opt in for any new songs that implicate their name, image, likeness, and voice. We see this as an incremental opportunity because the past has shown us that changes like this always create one. If you go back 20, 25 years with the democratization of distribution, It has unlocked unlimited shell space, which has unlocked deep personalization of music for users, which has unlocked growth in volume of people signing up for subscription services and enjoying them. And it has unlocked tremendous value in catalogs and music IP overall for all of us. So it has been a net positive force that has created a lot of value. We see AI as the democratization of creation. And we believe that it brings what we've lacked, which is interactivity, which is generally correlated with value creation. If you look across all kinds of media industries, the more lean forward you are with your content, whether you're focused on it and watching it, or whether you're interacting with your hands and your fingers, or whether you go in person and engage, the value per hour goes up. That's why we're focused on it. That's why I believe this is a tremendous incremental opportunity for us. And we are going to be in the driver's seat. In terms of our approach, in addition to our three principles, our strategy is simple. We have three Ls, legislate, litigate, and license. And you're familiar with our legislation efforts, like the No Pays Act that we're working on in DC. on the litigation front we're also familiar with various lawsuits which have been out there but we use those first two in order to achieve the third which is license because that is the most powerful lever to chart the path for the future for our artists and songwriters to drive the incremental value and to make sure that we have our fair and correlated share of the usage and revenue driving so we're really excited about this the company's energized and um onward

It's very helpful. Thank you.

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

Great. Good morning. Thank you for taking my questions. Last two for Armin. Armin, could you talk about the building blocks behind your expectation for top line growth in 2026? Gareth J. Maybe dig into how you're thinking about paid streaming growth, you know just given the the broader expectation for wholesale or purse of minimum increases beginning in in Canada 2026 and then secondly on on on margin, you know cost savings aside. How much margin expansion do you expect to deliver organically next year? I mean, what's your longer term margin target? Perhaps sort of talk us through the puts and takes in achieving that as you look to drive incremental revenue growth in lower margin areas like distribution and DTC. Thank you very much.

Well, first of all, hi, Ben. We are first very, very happy with the results we delivered. in the last two quarters not just the last quarter um and as it relates to streaming uh we believe that these results are pretty much reflective of what we should expect in the first quarter of 26. now to your question on additional growth building blocks uh starting in calenda at 27 sorry 26 there are a few that i'd like to mention the first one is that In addition to the market share momentum that we have seen in global subscriber growth, we will of course benefit from the contractual wholesale price increases that we have agreed now with several top VSPs. As Robert mentioned, we have actually agreements now with four of the five top VSPs in 2026 to start to increase wholesale prices starting in calendar year 26. The second area is that in addition to the investments that we have been doing on high ROI markets and projects, we have a very robust pipeline of accretive M&A that will start to materialize in 2026, including on many projects that we have been working on throughout joint venture with Bain. The third area is that We are working or have been working on expanding adjacent areas. One area I'd like to mention is distribution. As you know, we have a new leader there and we've done a lot of work to better understand how we can accelerate growth in this area. We really now feel confident that we can accelerate growth in that area starting in Calendia 26. And last but not least, there are many update opportunities that are not included in our guide. like premium offerings from ESPs. And obviously, AI is an opportunity, as Robert just discussed. Finally, from a leadership perspective, we are very confident that we have leadership in place across the company that will help us deliver and accelerate growth. But to your margin question, Ben, we have a very strong program to improve margin over time. The first program we are implementing is a big strategic reorganization. And as you have seen, while we're doing this reorganization, we're actually accelerating growth. That program will deliver $200 million of savings in fiscal year 26 and up to $300 million in fiscal year 27. So we're actually very, very comfortable with our guide of margin expansion of 150 to 200 basis points next fiscal year. In addition to that, we will improve margin through operating leverage. There are a few areas which we are leveraging. The first one is as we accelerate our high margin streaming business, margin will improve. The second one is through our work on accretive M&A, especially catalog M&A, which is higher margin accretive businesses will improve margin. And last but not least, TSP pricing will float through the margin. So now we're really, really confident in our margin building book, not just from a cost savings perspective, but also overall from our organic perspective. In fact, in the mid to long term, we are targeting margins in the mid to high 20s. And you shouldn't be surprised about that when you look at our EBITDA margins in fiscal year 2025, we closed 2025 with an EBITDA margin of about 25%. As you know, EBITDA includes our normalized cost savings. We're now basically delivering over the next couple of years. And so you should expect over time that our adjusted EBITDA will approach our adjusted EBITDA margins in the mid-20s, and then we'll start to move them back to between the growth margins.

Thank you. Very, very helpful.

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

good morning i wondered if you would talk about your successful market share gains over the last year maybe discuss what you're doing differently and if you could provide any context on how each of your flagship frontline labels are performing thank you sure thank you uh so first uh i'm just pleased to say and keep on reiterating that our strategy is working uh it's great for it to show up in the results and and see the progress that we're making

You know, our market share hasn't grown just in one or two places. It's really been broad-based across both our flagship labels as well as all of our regions. In the U.S., we've increased by 0.6% in the U.S. year-on-year in Q4-25. This is according to Luminate. And we had similar improvement around the world in EMEA, LATAM, and APAC. and plus six percentage points on Spotify top 200 and fiscal 25. And notably, we've occupied the number two spot for nearly half the year there, which is incredible. So it is really great to see the company firing on all cylinders creatively, as well as financially. And it really has come down to a lot of focus on artist development, which obviously has been there for a long time. It's in our DNA and we continue to lean into it. But we also focus on Our distribution business, we focus on our catalog. We've had a lot of success in terms of revitalizing our catalogs, seeing the success of Buckingham Nicks, which was originally released in 1973, being number 11 on Billboard Album Chart and number six in the US. It's incredible to see the power of IP and what it is that we can do with it. In terms of our returning artists, Cardi B and Twenty One Pilots being number one with our albums in the US and Ed Sheeran and Biffy Clyro in the UK. And obviously, you know, I mentioned our artist All Open Stories with Alex Warren. you know, spending 10 weeks on number one, at number one on Billboard Hot 100 and Global 200, and Sombra hitting number one on Spotify Global Chart, and Setter for three, set in the top three for over 10 weeks. So it's just broad-based. you know, artist development, returning artists, catalogs, all regions, all divisions. So it's just been a lot of work that really started to hit together. And, and we just, we have really focused on our operations, making sure that we're making the right decisions around capital allocation. And, and that we have strong pipelines, both for our artists releases, as well as for M&A, as Armin mentioned. So our playbook is working and our investment as our investment is a key priority in markets and it's really bearing fruit.

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

Thank you. Thanks for the details and for taking my questions. I wanted to follow up on some of the growth components. that you highlighted as we look into 26 and beyond. First, on your M&A plans, Armin, you alluded to M&A as a potential accelerant to growth in the coming year. Can you share more detail on what we can look forward to and how much of an incremental growth driver this can be for you? And then also you just mentioned distribution as a strategic focus area and a potential driver of growth as early as 26 as well. So can you expand on this a bit? What changed about your strategy, if anything, and what gives you confidence that this can be a bigger contributor to growth in the coming year? Thanks.

Thank you. So on the M&A side, we have a very strong pipeline in place. which, as I mentioned, we expect to start to materialize starting in Calendia 26. As you probably know, we are focused on a few large opportunities where we as a publisher can add value in a way that creates value not just for artists and songwriters, but also in a way that delivers a strong return for us. The key focus simply is our couple of businesses out there in the market. why because they are highly accretive and they offer deliver top and bottom line growth We'll do this in a very capital-efficient way, as we mentioned before, by our joint venture with Bain, which will provide us with more than a billion dollars of funding, and it's obviously a key neighborhood to accelerate growth in this area. Now, from a status perspective, we've been working very well with Bain as a partner, and we are very pleased with the progress that we've been making. So we'll hear from us soon, starting in 2016, about some of those acquisitions, which gives us confidence that this can accelerate growth, in addition to the other building blocks I discussed before. From a distribution perspective, distribution is a significant part of our industry and very often a source of new talent. And in fact, we haven't talked too much about this, but we actually have a large growing and profitable distribution business today. And as we have announced before, we have recently appointed a new leader with Alejandro, who, as you know, has been leading our Latin America business for many years. And as you probably know, this business is heavily distribution focused, yet Alejandro and his team grew this business double digit and frankly at attractive margins for a long time now. So really encouraged by what he has done with his business and therefore he is the perfect leader for distribution business. We spent a lot of time with him to better understand what we need to win in this marketplace, not just in Latin America and in the US, but also globally. And we have spent quite some time now to build capabilities that allow us to provide better customer service on the one hand, but also to integrate clients faster and more efficiently so we can grow this business profitably. So we're now at a point where we are really, really confident that we can accelerate growth on this business, particularly starting in 2026. Now, having said all of this, as I talked before many times, we're looking at our business from a portfolio planning perspective. So we'll do this in a way that grows our business on the one hand, but also enhances margin. So both these strategies are really perfect for a portfolio strategy to accelerate growth and enhance margin over time.

Thank you. Appreciate it.

The next question comes from Doug Krutz with TD Cowen. Your line is open.

Hey, thank you. Robert, I know one of your priorities has been to make sure that companies investing in the right technologies to position for future growth. And I wondered if you could share some color on how those investments are contributing to the growth outlook you've laid out today. And then also, you know, whether some of those priorities might be changing given the rapidly evolving landscape. Thank you.

Sure. Thank you. Yeah, the priorities are not changing. They remain the same. uh we're focused on uh you know as you think about our business it's a large-scale business with lots of skus lots of albums lots of songs lots of artists and uh and they have to be managed across large number of dsps and so we're in a high volume business and it requires infrastructure uh solid strong infrastructure that is scalable And so we focused on that. We strengthened our digital supply chain, sped up our songwriter payments, introduced more transparent accounting. In publishing, we stabilized and upgraded our core systems, which would include royalty processing and sync licensing systems. And we're nearly fully alive with our financial transformation initiative, which unlocks a whole host of benefits and a better and more insightful P&L, more transparency for artists and songwriters, etc. So we've really focused a lot on core infrastructure so that we can accelerate the business and handle the volume. Armin mentioned the deal pipelines that we have, whether it's organic ones or M&A, all of that requires infrastructure. So we've been focusing on that, preparing the company for growth, and that will continue. And we've made a lot of progress in that area. So that's why we feel confident about our acceleration.

I just want to add to that. Obviously, this also helps us scale many of our services globally. It was a key enabler also for the cost savings program that we discussed last time.

The next question comes from Cameron Manson Peron with Morgan Stanley. Your line is open.

Thank you and good morning. You highlighted having deals with four of the top five DSPs and having secured kind of wholesale rate increases across all of those platforms. I'm wondering, Robert, you've talked in the past about kind of the benefits of variability in licensing terms across platform partners and that being positive with regard to facilitating experimentation. Is that still, would you say that's still the case across the new platforms that you've locked in deals with, or have we reached kind of more of a standardized type of deal structure at this point in time?

Thanks. Can I just clarify a question? You were talking about existing DSPs or new platforms? They exist in the four of the five larger existing ones. Right. And the question is on... Sorry, I couldn't really fully understand the question.

I was really just trying to, yeah, really just trying to clarify, you know, in the past you've talked about the benefits of having kind of variation in your DSP deals. I'm wondering if that's still the case or if there is more standardization kind of in conjunction with locking in wholesale rate increases.

Got it. Thank you. Thank you for the clarification. Look, generally, when you begin, you have different partners, which have different objectives, and you strike slightly different deals. As time goes by, businesses grow, things standardize more, so do the deal terms. Obviously, different platforms are slightly different. Some have free funnels, some don't, et cetera, so that kind of variability. However, we strive for a fair marketplace where our partners pay the same prices for the content that we license to them. So consistency is very important for us and making sure that no partner feels disadvantaged versus another one and that we have a very healthy competition on fair and square terms. So, there's much more standardization in place than it was in the past.

Got it. And then if I could follow up on the market share gains that you've had and been able to deliver on this year, how do you think with regard to the savings initiatives, like how do you balance those two in terms of trying to deliver on your savings initiatives and reinvesting to continue to drive market share gains in the future? Thanks.

Yeah, maybe I can take that. We're very focused on ensuring that we actually invest more in our core repertoire markets and key genres, as well as in the most promising projects. So from a savings perspective, we are not cutting our spending on the front line, as we call it. So we're actually increasing in our investments. The savings are mostly reflective of us becoming more efficient on the back office side. Robert mentioned technology as a key enabler. So I'll give you a few examples. In finance, we have just introduced SAP. And we're obviously dealing with millions of transactions. This will enable us to become more efficient as a finance organization. In marketing, as we kind of organize our data, we're leveraging more and more the standard data set we have to drive marketing efficiencies. On deal-making, we're now introducing AI. We actually have introduced a real office globally and working with an AI company to help us optimize our deal making. So think about the savings really coming from becoming more operational efficient as a company and back off its savings, which we leverage to invest more in the most promising markets, more in the most promising artists, and more in the most promising genres. And that's really how we balance this.

Got it. That's helpful. Thank you.

The next question comes from Ian Moore with Bernstein. Your line is open.

Hi, thank you. So looking through the AI licensing announcements that have come out in the past couple of weeks, looks like these services kind of point to different, very different parts of the value chain. You got some professional grade production tools in there, some more like listening discovery platforms. I was wondering how you could, you know, if you could maybe bucket the commercial opportunity you see across like the spectrum of new services that you're licensing to. Thank you.

Sure. So first, I'd like to say it's a very energizing moment. uh in the industry when you see so many new companies popping up attracting venture capital uh you know we have not had this in the last 10 to 15 years uh all of the players that have been established in the first decade really and now there's a crop of new companies new investment new excitement new talent just tremendous momentum so we decided that we are going to seize this opportunity we're not going to be a passenger we're going to be the driver because it is important to get in early set the terms and define the future for us rather than let other people define it for us. That means that this will cut across all the different segments that you highlighted. There may be professional content, there may be user content. There's all kinds of consumption, creation. It's certainly a lot of work for our teams, but it's very exciting and energizing. And the opportunity that we see is one of interactivity. Interactivity is something that drives value. It's been proven over and over, whether it's in the video gaming industry, even going to a concert is interactive. The revenue per hour is always higher when somebody is looking at something with their eyes and using their fingers and their hands to create something. So the value gets created and will capture it. And what happens is also that There's a very, very high correlation between interactivity and iconic familiarity. It thrives on it. What does that mean? It means that stars will get bigger, and that will benefit from this trend, and that iconic IP will benefit from this trend. So we're focusing on all of the elements here, and we want to make sure that we capture this incremental and expansive opportunity. And I think of it a bit more like user generated content early on on YouTube that started, and it was seen as a threat. And in fact, it has actually developed in something that was very, very positive and commercially successful for all parties involved. So we're very excited about this and we're open for business. Thank you.

Your next question comes from Kenan Venkat with Barclays. Your line is open.

Thank you. Robert, maybe just uh following up uh on that point and maybe presenting a little bit of a pushback to see what your reactions could be but why isn't ai a threat to an equal measure uh given that you know obviously your content can be used yours and other label content can be used to create new forms of content or at least the models can be trained on it and over the longer time horizon that could completely bypass, you know, content creators theoretically. And that's obviously a big debate. So I would love to get your reaction on that. And then more on the financial. I mean, if you look at the guidance for next year in terms of margin expansion, I think the growth in EBITDA that's implied by that is roughly equal to or, you know, most of the growth seems to be coming from the cost cuts. And so in terms of operating leverage, Would be great to understand, I mean, the underlying trends, excluding things like M&A, for instance, or cost savings, how you guys are trending. If we could just get some more details, that would be helpful. Thank you.

Sounds good. I'll take the first part, and Armen will take the second. So, of course, with every change, every technology change, there's always a threat and an opportunity. The market decision of distribution was a threat. Everybody was predicting our demise and sidestepping the major music companies. And obviously, the opposite has proven to be true over time. And we believe the same happens here. Of course, we look at the threat that this could pose in terms of dilution, et cetera. But at the same time, we need to focus on how do we actually turn this into an advantage for all of us and drive the value of the industry and the value that we provide. It's also important to know that, and I've said this many times before, the value of the large music companies and the contribution that we have to the industry is rising, not declining. With all of these challenges, this is becoming a much more of a big business to big business interaction. It is very hard for individual creators to deal with large technology companies. It is much better for these matters to be handled by large music companies, large IT companies who have the capabilities, the know-how, the technology, the scale to ensure the right outcomes. So we view this as this is our role. Our role is to shape the industry and make sure that it benefits artists and songwriters as well as us and our shareholders.

Armin? On the margin, I think it's important to note that our guide is of course after investments we make into the business. It's really a net margin guide. The guide is also mostly focused on two areas. One is the cost savings program that we deliver and two is the organic margin growth that we plan to deliver. There's really three drivers that will help us do that. One is as we start to accelerate our streaming business, that is a higher margin business that is actually driving margin growth already for us. Two, PSM price increases will go to the bottom line and will help us improve margin. And three, there are certain inner value areas. So think about this as a net margin guide. But the biggest organic drivers for us will be one, streaming growth, and two, the PSM price increases as well. Thank you.

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

Thank you for your attention today. I just want to reiterate that it's evident from our results that our strategy is working. It's a labor of quite a few years of work, both on the technology front, on the investment front, on artist development, administration. It's really all divisions at the company have been firing on all cylinders. And it's great to see it all come together through sustained growth, market share expansion. on top of it now us accelerating and seizing the opportunity to shape the ai future and create new incremental business that will be set up the right way for the future to capture the right possibilities both creative and economic for artists and songwriters and our shareholders thank you so much for being here talk to you in 90 days this concludes today's conference call thank you for joining you may now disconnect