Universal Music Grp U/Adr

Good evening and welcome to Universal Music Group's first quarter earnings call for the period ended March 31st, 2023. My name is Nadia and I'll be your conference operator today. Your speakers for today's call will be Sir Lucian Grange, Chairman and CEO of Universal Music Group and Boyd Muir, Executive Vice President, CFO and President of Operations. They will be joined during Q&A by Michael Nash, UMG's Executive Vice President and Chief Digital Officer. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. Please let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the risk factors section of UMG's 2022 annual report, which is available on its website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconvoliations are available in the press release on the Investor Relations page of UMG's website. A supplemental historical revenue fact sheet is also available on the Investor Relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference.

Thank you and greetings from Hilversum. Welcome to everyone. I'm pleased to report to you tonight on UMG's strong start to 2023. Boyd will take you through the numbers in more detail in a bit, but in brief, during the first quarter, our revenue grew 9% with recorded music up 10% and music publishing up 12%. Our adjusted EBITDA grew by 13%. Proud as I am to announce financial results as positive as these, as I said before, How UMG performs over any three-month period is merely a snapshot of a moment in time, and it does not by any means constitute the best way to understand and evaluate our business or its potential for growth or the next steps that we are taking to reach our key strategic goals. Accelerating our geographic expansion, improving the business model for streaming, Leveraging new technology, including AI, as well as the many challenges and opportunities it presents, will not be achieved overnight. We look at our business in multi-year cycles, so progress along quarterly timeframes is not immediately apparent. But what we are confident in is that there's a new cycle of growth and that has already begun. I'll say more about our strategic initiatives in a moment. But first, I want to tell you a little about what is readily apparent, and that is our undeniable consistency around the world in breaking new artists and helping established artists reach higher levels of success. This last quarter was no exception, and I'll cite just a handful of highlights to make the point. For example, UMG's Republic Records Division For the first time in the 56-year history of Billboard's 200 chart, a single label, Republic, had seven of the top ten albums. These came from a variety of a mix of genres and emerging and established stars, namely Drake, Metro Boomin, Taylor Swift, Tomorrow by Together, Janiyah Twain, Morgan Wallen, and The Weeknd. Another highlight is Morgan Wallen. His latest album has been a phenomenal hit. That album not only had the biggest streaming week ever for a country album, but it's also had the fifth biggest streaming week for any album regardless of genre. And its lead single, Last Night, spent multiple non-consecutive weeks at number one. Morgan also became the first country artist in history to have five tracks in the top 10 on the Billboard Hot 100. So far, this year in the US, UMG has had five of the six most consumed albums, with releases by Drake, Metro Boomin, Taylor Swift, and Morgan Mullan, who had two. And we also had the top four album debuts, thanks to Jimin, Together by Together, Tomorrow by Together, I'm sorry, Twice, and Morgan Mullan again. Also making history in the U.S., Carol G., who is signed to our Latin division. Her latest album became Billboard's 200th first all-Spanish language album by a female artist to hit number one, with 11 of its tracks landing on the Billboard Hot 100. In the U.K., UMG had the number one album for 10 of the first 15 weeks this year, with a wide range of different artists topping the charts. including Boy Genius, The Courtneyers, Lana Del Rey, Ellie Goulding, The Lazums, Sam Smith, Taylor Swift, Shania Twain, and U2. And in Japan, King and Prince continued to break records. Their latest single sold over a million CDs in the first week, the first time in three years that that sales threshold was crossed. Finally, our music publishing division ranked number one in Billboard's fourth quarter 2022 publishers quarterly, according to the Hot 100 chart data. This marked UMPG's third consecutive quarter, topping the list. And in doing so, it became the first publisher to hold a greater than 30% market share in three consecutive quarters since tracking began in 2014. I could go on. Frankly, I'd like to, but I think it's readily apparent. UMG's record-setting performance is the direct result of how we continue to evolve and refine both the way recording artists and songwriters are signed and developed and the way their music is marketed around the world. And by around the world, I don't just mean the world's biggest music markets. We are strategically focused on building our domestic repertoire in those music markets that possess high growth potential. Accelerating the expansion of our geographic reach through a combination of organic investment and opportunist M&A is one of the three key strategic initiatives we are laser focused on advancing. As an organization, we never stand still. We never rest on our laurels. The result is unmistakable. the billions and billions of our artists' streams that fans across the globe enjoy 24 hours a day. That remarkable fan engagement underscores the pressing need to redefine the streaming model in a manner that appropriately rewards those artists whose music drives fans to engage and remain engaged on platforms in the first place. As I mentioned on our last call, the development of this model what we call the artist-centric model, is underway. One of the issues that this new model is designed to address is the flood of content on platforms that fans neither want nor choose to consume. Here's an example from one music platform's own publicity, it's closed data, of the 9 million content uploaders on that platform. Yes, 9 million. 8.3 million. More than 92% of them have fewer than 1,000 monthly listeners, and only 2% are quote-unquote professional or professionally aspiring artists. As I said, the music by our artists drives meaningful engagement on these platforms. Yet the majority of content hosted on these platforms represents an insignificant percentage of what is actually consumed. And included in that oversupply is also AI-generated content. Not many people realize that AI has been a major contributor to this content oversupply already. Most of this AI content on DSPs come from the prior generation of AI, a technology that is not trained on copyrighted IP and thus produces very poor quality output with virtually no consumer appeal. However, the recent explosive development in our generative AI will, if left unchecked, both increase the flood of unwanted content posted on platforms and create rights issues with respect to existing copyright law in the US and other countries, as well as laws governing trademark, name and likeness, voice impersonization, and the right of publicity. We have provisions in our commercial contracts that provide additional protections. Unlike its predecessors, much of the latest generative AI is trained on copyright material, which clearly violates artists' and labels' rights and will put platforms completely at odds with the partnerships with us and our artists and the ones that drive success. Should platforms traffic in this kind of music, they would face the additional responsibility of addressing a huge volume of infringing AI-generated content. Any way you look at it, it's oversupply. Whether or not AI is created is simply bad. Bad for artists, bad for fans, and bad for the platforms themselves. That's where our artist-centric model can come in. With the right incentive structure in place, platforms can focus on rewarding and enhancing the artist-fan relationship, and at the same time, evaluate the user experience on their platforms by reducing the sea of noise, better highlighting the artists and the music their customers care about most, and eliminating unauthorized, unwanted, and infringing content entirely. But let me be clear, as with every technological advance, it would be foolish and short-sighted to view AI as nothing but a threat. On the contrary, we do view AI, when properly developed and employed, as a powerful tool for our future. In fact, we're already employing AI in a variety of ways, identifying new audiences for our artists, optimizing the production, mixing, and mastering of recordings, and enhancing the quality of music experiences, such as immersive sound. In fact, we hold several patents in these kinds of AI applications already. I'm confident that in the service of artists, AI will meaningfully accelerate our business in the years to come. But since unchecked generative AI, and I repeat, generative AI, poses many dangers. We are also leading the industry in an effort to ensure that AI thrives as a technology that embraces, rather than threaten, humans' creativity, and one that will evolve as an ethics-based technology that protects the rights of artists, their livelihoods, the creative ecosystem, and culture as a whole. In addition to exploring other options in this rapidly developing area, UMG is actively cultivating ethical AI opportunities by seeking to partner with leading AI music companies and by advocating with early-stage AI companies as their own technology unfolds. We'll have more to announce in this space in the future. This approach is at the heart of the cross-industry human artist campaign of which we are a founding member. Its membership has grown at breathtaking speed over the last few weeks. Today it includes not only musical organizations and artist groups representing songwriters, composers, publishers, independent and major labels, but also more than 80 organizations across sport, journalism, photography, voice actors, and labor unions as well. Even as we work to exploit the promise of this technology, we are reminding lawmakers and governments everywhere of the critical need to protect and defend the rights of human creators in every walk of life and industry. With its rapid growth, the coalition is poised to speak authoritatively on how AI can develop in ways that give birth to new creative and commercial opportunities while strengthening the creative ecosystem. We must never fail to recognize the unique and irreplaceable role of human artistry in culture and the arts.

Let me turn to this.