Universal Music Group

understand how you're getting to the nine, and, you know, we're tracking all your calculations. But with respect to the big picture, when we discussed the capital markets day, we expect CAGR over the midterm of eight to 10% presented a comprehensive plan for how we're going to execute against that guidance. Streaming 2.0, which Lucian went into some significant detail in his presentation earlier on the call, And we've executed two major deals with Amazon and Spotify that demonstrate how this execution plan is going to unfold. In terms of expectations, our updated consumer research in the global subscription market tracks to the financial results that we just reported, this 9% range. Let me be specific there and also give you a little bit of update on what we talked about in terms of growth expectation capital markets day. Our research shows that global subscriptions, which means the payers, grew just over 9 percent in 2024. And in terms of geographic mix, 45 percent of current subscriber base is in the developed markets, and 55 percent is now sitting in the high-growth markets, including China. That roughly corresponds to the picture that we painted at Capital Markets Day. Going forward on a global basis, We see expansion in the total addressable market in the TAM at about 230 million. Capital markets day, we talked about a total addressable market in the neighborhood of 220 million. So the updated research shows an even larger consideration set that breaks down about one-third in developed markets and two-thirds in emerging markets, again, roughly corresponding to the picture that we painted in Capital Markets Day. So everything that we're seeing in terms of the results we just reported for the fourth quarter for the year, supported by the consumer research, is extending the picture that we articulated at Capital Markets Day. And in fact, you know, we see some basis for even more optimism in terms of the expansion of the total addressable market. Now, in terms of progress on superfan and on the super premium tier, and we talked to Capital Markets Day about preliminary information that Spotify had provided and also about the very exciting experimentation with the super VIP tier by Tencent in China. With the most recent announcements by Spotify in terms of the fact that they're working now to develop a beta, they're committed to launching the tier that's going to be at a higher price point, including enhanced features. We're excited about that development. We're in conversations with all of our partners about super premium tiers. We think this is going to be an important development in terms of segmentation of the market. We don't have too much more to add there except to point back to the consumer research that identifies an opportunity with scope about 20% of current subscriber base. That's the target for the super premium tier with a mix of different product configurations. And we do expect the platforms are going to compete on product with differentiated super premium tier offers. So we're not necessarily looking for standardization there. I think that's about all that we're prepared to discuss at this point. Obviously, the plans of our partners are still confidential and will unfold over the course of 2025.

And Michael, maybe I could say something to Michael. Just to clarify a little thing, which is that Michael's maths were that it's 7%, but if you then basically if you then discount or you take out the impact of the drag from fitness platforms is 8%, not 9%. So, Michael, Boris, your math was right at the 8%. The only thing I would actually add, however, is, again, we're into this kind of narrative about quarters. Any single quarter can be influenced by a vast number of factors from market conditions to what happened in the previous year, the timing of deal renews, revenue classifications, various accounting M&A. So all I'm just, I'll continue to, and you'll hear me say this on and on and on, so maybe forgive me, but the reality is, is there are going to be differences by quarter by quarter. And then please, please, please try to encourage you to look at slightly longer, longer time horizons.

Thank you. The next question goes to Omar Medeiros of Wells Fargo. Omar, please go ahead.

Good evening, and thank you for taking my questions. Maybe first, Lucien, with new deals now in place with Spotify and Amazon that incorporates elements of your streaming 2.0 concepts and better align incentives for labels and DSPs, how do you expect the pace of product innovation to accelerate going forward? And maybe just as a follow-up and along the same thinking, in the past you've mentioned specific examples from new features from YouTube, such as collaborative playlists and elements of gamification. How should we think about some of these new features driving lower churn and potentially better conversion rates to paid peers? And what are some key categories that you expect DSPs to focus on over the next 12 to 24 months? Thank you.

Good question. I think in a way you gave yourself the answer. Bundling, the stickiness of music, the opportunities we have to improve ARPU in various regions around the world with different product offerings, the evolution of Streaming 2.0, our investment and how that sits with our investment in local artists around the world, it fuses into the relationships and how we set our deals with the DSPs and it's all part of the conversations that we've referred to at Capital Markets Day repeatedly about what the superfan will look like, the importance of having global as well as local and regional hits, and the entire improvement in the ecosystem with all of the DSPs. They've all got their own nuances, their own businesses, their own hardware, their own software. As we know, some are trial, it's about a trial period, some are ad funded. But this, it's the stickiness of our music and our libraries and our catalog and our global reach which is why we're able to actually build the ecosystem. I don't know if that answers your question specifically, but it's a combination of many, many things.

I would just add to expand a little bit that when you look at the next wave of innovation that we expect on product with what we're describing as super premium tier and some conversations already public, about the elements of that equation. You know, when you look at what's happening with Spotify and with Amazon around audiobook bundling, and we like what that does in terms of, as Lucien was saying, subscriber retention and also expanding the market, adding new subscribers. We've talked about research that indicates 60% of the audiobook subscribers in the U.S. are not music subscribers, so there's a clear opportunity to address with product bundling. you know recent announcements like Alexa Plus with Amazon where you have you know with the most prominent use case for you know voice you know interactive platform Alexa being you know music and music consumption and all the enhancements in terms of personalized music experience you know more relevant queries you know being able to surface music discovery in new ways and you know in interoperability with the home environment, with smart home setups. These are just a few examples. There's a continuing wave of innovation that we've seen really transform our business and transform the digital landscape, in particular over the last decade. And we anticipate that that's going to continue as the market grows.

Thank you. The next question goes to Julian Roche of Barclays. Julian, please go ahead.

Yes, good evening, everybody. Thank you for taking my question. The first one is on Q4, going back to substreaming, if it would be possible to have some color between volume and price. I'm thinking that price was about 1%, but anything you could tell us there would be great. And then the second question is that my understanding is that your contract with DSP is that you are paid the highest of one per stream, two percentage retail price, and three fixed amount per sub. My understanding is that in the new contract you recently signed with Spotify and Amazon, the fixed amount per sub will go up at one point. So is my understanding correct? And can you give us some indication of the timing of that increase? Is end of year or beginning of next in the right ballpark? Thank you.

Julian, thank you for your questions. Let me take the second one first. We're not prepared to disclose confidential details around any timing associated with our expectations on ARPU. We took a very clear position at Capital Markets Day about streaming 2.0. and the growth not only of the total market, the number of subscribers, but also growth of revenue. So I think we've been pretty clear there about our intentions. You're right that we typically have three different prongs of revenue capture and we're paid on a greater of basis. And as we work to grow revenue, we're obviously going to be working with that formulation

And and so that's part of the apparatus, but we're not really prepared at this point to go into any further detail regarding specifics In terms of I mean in terms of Q4 if I could just maybe I can address that the the ARPU in terms of price increase I think I referenced it already what I said is that there is the minimus price increases in in Q4. So, you know, really the growth you see is the growth in terms of subscriber growth and in our relevance in terms of how we capture share.

Thank you. The next question goes to Lisa Yang of Goldman Sachs. Lisa, please go ahead.

Hi, thanks for taking my question. Just one on the subscription streaming growth going forward. I appreciate we shouldn't look so much into quarterly volatility, but with the new deals you announced, how should we think about the potential variability of growth on the annual basis over the coming years? So I know you give an average of 8% to 10% CAGR, but should we think about certain years where you have a deal step up. When you have a deal, the step up could be, I don't know, 10 to 12% of the years you could grow around each single digit, or we should be really within that range of eight to 10 going forward, just to have a sense of, yeah, the bumpiness of volatility we should expect going forward. And I think the second question, I just want to clarify, so 24, there were, you know, there was a billion of investments, which obviously help you with your Should we be expecting similar levels, so a billion as well, per year over the coming years? And could you maybe give us a bit more, Colin, of when we should expect some form of P&L impact, or when do you expect to see some payback on those investments? That would be helpful. Thank you.

Hi, this is Boyd. In terms of how do we look into the future for subscription and streaming, we haven't given any guidance on streaming in the sense of streaming being advertising funded. We remain, as we have been for the last while, somewhat cautious on ad funded. Until such time, as we see a broader... pattern of growth both geographically and across a range of of partners that we remain remain conscious and and there's another aspect to this which is there is a um a kind of format evolution going on here between you know premium music video and and shorter form content and you know the advertising products around the shorter form um content need to further evolve in order to fully kind of capture the the revenue opportunity there. So some caution on ad funded streaming goes. On subscription, we're pretty clear. We've said that through from 2023 through 2028, we see an average CAGR over that period for subscription between 8 and 10%, and we have said, please don't expect this to be completely linear. You know, it's likely to come in waves exactly as you, you know, exactly as you as you pointed out. And anyway, so I think that's probably, you know, enough on the outlook for subscription and streaming. You know, on the strategic investments, you know, our capital allocation policy is, you know, first and foremost, investing into you know, our artists throughout the world and, you know, that purely kind of operational aspect. Then the second part, which is I think perhaps what you were alluding to, you know, is really the investments that we make more M&A related. You know, we've emphasized two kind of priorities that, you know, the first priority, not necessarily in terms of importance, but, you know, firstly, you know, is investment in those geographies which are evolving where we see the consumption pattern shifting towards paid subscription. We're looking at our relative share in those geographies. We want to ensure that we are positioned in those markets at a similar level to how we are positioned in the more evolved markets. So that M&A, we will pursue it. And also there, you know, there's M&A in relation to other strategic initiatives, you know, and we, you know, 2024, you know, highlighted, you know, I called out, you know, our investment in complex network, which is taking us into, you know, the zone where, you know, music meets culture meets commerce and e-commerce and having the relationship with the superfan. So we are going to, first and foremost, you know, invest into the future growth of our business. And, you know, I think we should actually, you should actually expect similar investment levels in the next few years to what was the situation in 2024.

But I think, to start the way, I think there's a significant story in terms of what happened in the past over the last three, four, five decades insofar as a lot of the markets and regions where we're investing are where there was no investment because there was massive piracy and there was no protection for copyright and IP. So where markets evolved through music in the cloud and digital distribution and global platforms like Amazon, Apple, Spotify, et cetera, et cetera. Where they go, we go with them hand in hand investing in local talent. Now, there are some markets where there are enormous libraries and catalogs of labels that were created decades ago, which we can actually put into our M&A strategy with them to continue to invest in their business as the markets, it's more than, you couldn't even say that they just rebound. They actually now exist for the first time ever. So there's distribution, there was what was physical piracy, and now we're able to, with all the data, we're able to actually identify exactly what the audience and what the consumer actually wants in these markets. Whereas before, we were running and operating blindfold in terms of the direction in which we were going because we didn't know what the demand was. And also, there was actually no way in which to actually distribute it other than a very patchy form of distribution, which was in today's market completely antiquated a bit. And that's the reason why.

Thank you. That's all the questions that we have time for today. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.