Universal Music Grp U/Adr

Good evening and welcome to Universal Music Group's fourth quarter and full year earnings call for the period ended December 31st, 2025. 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, Michael Nash, Chief Digital Officer and Matt Ellis, Chief Financial Officer. They will be joined during Q&A by Boyd Muir, Chief Operating Officer. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will 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 a question, please press star followed by two. As a reminder, this call is being recorded. Please also 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 2024 annual report. which is available on the investor relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the investor relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference.

Many thanks and thank you all for joining us on today's call. As you can clearly see from our results, last year was a very good year. Our artists, songwriters, and labels once again wrapped up record-breaking successes. We made excellent progress across our strategic initiatives and continued our long, uninterrupted streak of strong financial growth. I'm pleased to report that in 2025, both revenue and adjusted EBITDA grew by nearly 9%. I must begin by highlighting the creative excellence and commercial success of our artists and songwriters. Their extraordinary music continues to shape culture across the world. Every year, the IFPI, the Recorded Music Industry's Global Trade Association, reveals the world's top selling artists. For 2025, nine out of the top 10 were UMG artists, with Taylor Swift at number one, as you let that astonishing fact sink in let me throw in another one 2025 was the third year in a row that we have represented nine out of the top ten best-selling artists on the planet the only recording artist whom we did not represent on recorded is bad bunny and he's represented by our universal music publishing division No other company has ever come even remotely close to UMG's outstanding performance year after year in developing new artists who go on to become global brands. A quick look at the 2025 lists across major platforms reveals our remarkable industry leading position. This slide highlights just a handful of them. Our extraordinary momentum continues to build with a string of recent number one albums across genres and geographies, from Taylor to Olivia Dean, King and Prince, Mrs. Greenapple, both from Japan, Stray Kids, J. Cole, and I could go on and on. As for the critical acclaim and awards, I'll briefly mention how our artists and songwriters won big at this year's Grammys. UMG artist and songwriter Kendrick Lamar was the night's biggest winner with five awards, including record of the year. Kendrick is now the Grammy's most decorated rap artist of all time with 27 awards. Olivia Dean was named Best New Artist, the fourth time in the past five years that a UMG artist has received that honor. That also is an unprecedented achievement. Billy Eilish, Lola Young, Lady Gaga, Jelly Roll, Leon Thomas and UMPG's Bad Bunny were amongst many other winners. It was also an incredible night at last week's Brit Awards at the weekend, where UMG swept the major categories. Olivia Dean took home four awards, including Artist of the Year, Album of the Year and Song of the Year. Other winners include Sam Fender, Lola Young, Dave and Jacob Boulogne. The Olivia Dean success is an indication how our UK company is developing new artists and once again delivering them to the world across all geographies. The demand for our music continues to grow. The subscriber numbers increase. So does the consumption. Industry data from Luminate shows that on-demand audio streams topped 5.1 trillion last year, an increase of nearly 10%. We unequivocally believe that the growth of the business will continue, hitting the 1 billion subscriber mark in the next few years. A multi-pronged strategy to capture this growth Of course, includes our excellence in office development, along with continued implementation of our streaming 2.0 initiatives. But we will also make bold moves in four key areas of the strategic plan, each of which will create meaningful monetization opportunities, driving growth across an entire interconnected ecosystem. And that word interconnected is very significant. So today, as I want to share with you the progress we're making in those four areas, expanding our presence in label and artist services, accelerating our efforts in high potential markets, strengthening our direct to consumer and super fan initiatives, and adding to our growing portfolio of responsible AI partnerships. The first critical area is our services to independent labels, entrepreneurs, and artists around the world. one of the fastest-growing areas of the business. Those labels operate in a diversity of markets, genres, and languages and generate meaningful revenue from artist rosters of varying sizes. As much as they differ, they share a common desire to partner with a company that provides them with the best and widest range of services. In 2021, we established Virgin Music Group, to expand our expertise and resources in this fast-growing sector, which will be further accelerated by the recent acquisition of Downtown Music. Matt will go into detail about Downtown's financials later, but for now, I will say that the combination of Virgin Music and Downtown will create a global end-to-end solution designed to meet the evolving needs of independent artists, entrepreneurs, and rights holders at every stage of their development. The combined company will offer a broad, more flexible suite of services ranging from high touch to self-service platforms, including digital and physical distribution, marketing, business intelligence, neighboring rights, synchronization, royalties, as well as publishing rights management. Our last acquisition of this magnitude was in 2011, which of course was EMI. At that time, we saw the value that others did not and doubled down on the traditional A&R and catalogue business. Today, 15 years later, that acquisition is universally acknowledged as one of the most successful and strategically important in the history of the music industry. I firmly believe that our acquisition of Downtown will be as transformational. It creates a scalable and profitable engine of growth that also elevates UMG's core label publishing and super fan businesses, enabling us to better cover the entire music industry. It is no small matter that downtown also expands UMG's global footprint, collectively serving more than 5,000 business clients and more than 4 million creators in 145 countries. That last point leads us to the second critical area of our strategic plan, our growing geographical expansion into high potential markets. UNG's approach is to create a compelling array of business solutions that offer multiple ways for artists, labels, and entrepreneurs to engage with us. Always in compliance with our strict investment criteria, we partner with the best of them and then deepen the partnership over time. Here's an example of our strategy in action. In India, Universal Music had operated a multi-label structure for years, already offering artists a compelling choice of brands. Earlier this year, we supplemented that choice by investing in Excel Entertainment. Excel is the leading film and digital content studio in a country where original soundtracks remain at the heart of the fast-growing music market. The deal gave UMG global distribution rights to Excel's future soundtracks, while our publishing division became Excel's exclusive music publishing partner, and the two companies will launch a dedicated Excel music label. On top of this, Through Downtown and Virgin Music Group, we now service approximately 100 clients in the region, including new deals with Punjabi label Just Records and South Indian label Millennium Records. When you take a step back, you can see how UMG has built multiple points of entry into the Indian market. Each of our business units operate with its own unique creative and commercial expertise. but also has access to UMG's powerful global systems and resources. As a result, our ability to capture growth efficiently is increasing. This is an approach that is working well in many other dynamic, highly populated markets, including China. Moving on to our third key strategic effort, I'm very bullish about superfans, as you all know. Given the enormous demand for great products and exciting experiences, we believe this segment is massively under-monetized. Our own D2C business has grown to 1,600 online stores and generates hundreds of millions of dollars in revenue. This only scrapes the surface of our potential. We will further scale our D2C business by stimulating an entire category of third-party superfan platforms, each with its own distinctive approach and model. These will operate alongside the premium tiers being developed by the traditional DSPs as well as what we're creating and how we're creating an ecosystem in which special events, experiences, and products will entice super vans in both the virtual and physical worlds. As more common competition develops, more innovation will result. Connectivity to fans will increase, and the opportunities to drive monetization will continue to multiply. We recently announced two partnerships in this space. The first is with Stationhead, a live music segment platform that connects artists and fans through real-time listening experiences, community interaction, and integrated commerce. With over 250 UMG artist events in 2025, Stationhead contributed billions of premium UMG artist streams on subscription platforms across millions of active users. Their week of release listening parties contributed to 11 number one albums, across the entire industry. They've executed very successful fan campaigns for UMG, artists such as Sabrina Carpenter, Billie Eilish, Ariana Grande, K-pop Demon Hunters, Nicki Minaj, Olivia Rodrigo, and many others. The second partnership is with Even, which provides superfans with early access to music, exclusive content, and community features. Interscope artist J. Cole, for example, used Even for multiple direct-to-fan campaigns including the 10th anniversary of Forest Hills Drives and the pre-release strategy for his latest album. Both projects leveraged Even's white label solution to reach hundreds of thousands of fans and sell millions of dollars of physical product. The Even campaign was a significant factor in the fall off his new album debuting at number one in the US. We don't need to develop a new platform, but both Stationhead and Even integrate directly into UMG's current architecture and its direct to consumer architecture, capturing fan data and fostering a deeper relationship between artists and fans. Superfan opportunities are rapidly evolving and we will be right there at every step of their evolution. This evolution is being supercharged by AI, which leads us to obviously the fourth focus of our strategic discussion. Our embrace of responsible AI technologies continues to be very aggressive. We're forging partnerships across a spectrum of artist creation and fan engagement initiatives. And they're two separate initiatives. I'm very aware that a large swathe of the investment community looks at the intersection of AI and media and sees only some of the risks. I want to be very clear. We fundamentally disagree with that view. We believe AI represents an unprecedented commercial opportunities for UMG and our artists in both the near and the long term. We're working tirelessly to shape the business models and the legal and legislative frameworks that will form the foundation of a responsible AI ecosystem. I encourage people to spend time to really understand the work that's being done and the opportunities that lie ahead. Personally, I've never really been more energized about the possibilities that we are pursuing. And once again, we face another exciting transformation. Here are just a few of the things that I'm excited about. On our last call, we discussed our agreements with Udeo and Stability AI. Not long after that, we announced our licensing agreement with Clay Vision. Clay's large music model is trained entirely on licensed music. It will evolve AI experiences for super fans while respecting the rights of artists and songwriters. We're excited about this company's vision and applaud their commitment to ethicality in generative AI music. In December, We then revealed we're also collaborating with Splice, the world's most popular music creation platform. Together, we're building a roadmap for the development of commercial AI tools rooted in creative control and sonic excellence. Last month, we unveiled the first of its kind alliance with NVIDIA, the world leader in AI computing. Our shared ambition is to transform and enrich the music experience for billions of music fans around the world. This collaboration will cover everything from artist tools to music discovery to fan engagement. NVIDIA articulated the relationship perfectly when they said, we're entering into an era where a music catalog can be exploited like an intelligent universe, conversational, contextual, and genuinely interactive, and we'll do it the right way, responsibly, with safeguards that protect artists' work, ensure attribution, and respect copyright. How phenomenal. Our work with NVIDIA will be a multi-year partnership, and like our other AI initiatives, create significant win-win potential in market-led solutions. Our strategy for these AI deals is informed by a significant amount of consumer research, both our own and third party. We're just not sticking our finger in the wind. Our insights team recently conducted a global study on consumer attitudes towards AI and music. The key takeaway is that consumers want AI driven by human intent or AI as an enhancement of and not as a replacement for human creativity. Plus consumers are asking for transparency with respect to how AI is used in the creation of music. This research underscores our belief that AI isn't just an incremental revenue opportunity. it's going to introduce entirely new formats. The superfan AI experiences I mentioned earlier at just the beginning, we foresee entirely new AI formats that will offer fans greater personalization, hyper-personalization, and social expression through artist-centric music experiences. Given the high level of interest in AI from both the creative and investor communities, I've asked Mike Nash, who you know well, our Chief Digital Officer, to present more on this and more detail later on this important, important topic. So that we can see how excited we are. What I've covered in my remarks today is only a fraction of what we're executing every day at UMG. With an artist roster and a music catalogue that are the envy of the industry, We're also the biggest driver of new subscribers to the DSPs. And because we've earned a unique level of credibility and influence, working with both established and emerging innovators, we continue to expand our already broad portfolio of revenue streams. Our vision is a stronger, more connected, and ever-growing ecosystem that is attracting new entrepreneurs, expanding our full global footprint accelerating our D2C business, creating new products and experiences, and leveraging AI to take music to places fans can barely imagine and in ways in which they can barely imagine. In short, we're designing and building a strong foundation for a profitable and exciting future for our artists and our songwriters, for our company, for the industry, and obviously for our shareholders. We're extremely confident about the path ahead look forward to a really strong 2026. now on that basis of excitement and optimism let me hand it over to michael and then we'll hear from matt thank you thank you lucien i'll take a few moments to discuss in more detail how we're advancing the best interests of our artists and their fans with our ai strategy while promoting innovation

I'll do that by addressing two topics that are critical to better understanding the risks and benefits of AI for our business. The first topic is the perception of risk of AI revenue dilution and the thoughtful measures we've taken to neutralize any negative impact. The second topic relates to consumer receptivity to responsible AI innovation. First, misunderstandings have resulted from anecdotal press reports that AI generated content has somehow overtaken the charts. Nothing could be further from the truth. Stories about number one AI songs have been reported based on digital download charts, where 2,500 units of a $0.99 legacy product can manufacture a chart number one. As you can see from the data on this slide, a handful of anecdotes have been completely over-extrapolated. We assembled this top 10 of chart-debuting AI acts as identified by Billboard and Luminate. Consumption of this top 10 has been immaterial. The Most Streamed Act didn't break into the top 7,000 globally in 2025, and the Number 10 Act didn't break into the top 92,000. In the aggregate, the most prominent AI content barely registers, even in the leading market for this English language repertoire, totaling less than one, excuse me, totaling less than 50 one-hundredths of a percent of the streams of the top 50,000 artists in the U.S. last year. Some commentators say, that's right now. What about the future? We don't have to theorize about the future of AI saturation as it's become a marketplace reality with 60,000 AI tracks being uploaded a day at present. What impact is any streaming of these tracks having on our revenue? Most of this content is AI swap or fraud fodder associated with royalty diversion schemes. 85% of AI streams on one representative platform, Deezer, were identified as fraud and then excluded from royalty pool allocation. Apple recently reported that its efforts to address the flood of AI uploads included exclusion of 2 billion fraudulent streams last year. Platforms like Spotify have also outright removed tens of millions of spamming AI tracks from their services. Despite the huge volume of AI uploads, the aggregate organic consumption of AI content by actual consumers is less than half of 1% based on the best available data. That's consumption. What about revenue? It's important to take into account all three aspects of our deals to protect us from a revenue perspective. In addition to one, anti-fraud provisions, there's two. DEMONETIZATION OF GENERIC AI SLOT UNDER UMG ARTIST CENTRAL AGREEMENTS. AND THREE, ANTI-AI DELUTION PROVISIONS IN NUMEROUS UMG AGREEMENTS WE PREVIOUSLY ANNOUNCED AND DISCUSSED. ANTI-AI DELUTION STIPULATIONS GENERALLY MEAN THAT PURE AI GENERATED CONTENT SIMILAR TO OTHER NON-MUSIC CONTENT IS REMOVED FROM THE CALCULATION OF SHARE OF STREAMS BY THE DSP FOR PURPOSES OF DETERMINING OUR ARTIST ROYALTIES. THEREFORE, While we remain vigilant in addressing infringing AI services, we're seeing no indication that AI royalty dilution is a material issue for UMG from a revenue perspective. When you take into consideration the significant opportunities to commercialize AI innovation through new products and services that Lucien outlined, and the empirical data demonstrating insignificant and comprehensively mitigated risk, Thoughtful analysis will conclude that the impact AI will have on our business will be overwhelmingly net positive. The data on this slide makes it very clear that consumers are rejecting AI slop and bakery. What do they want from AI innovation is applied to their music experience instead. That's the second topic I'll address with another set of data points. As Lucia noted, UMG conducts rigorous consumer research on strategic topics. Related to the highlights he covered, here you see some key findings that emerged from a survey of 28,000 consumers conducted in 13 countries, representative of the global music marketplace. Use of AI is fast becoming mainstream, with 54% of global consumers expressing familiarity. Not surprisingly, the predominant use case is search, and among those users, nearly half report conducting music-based queries, such as what to listen to, what merch is available for my favorite artists, What concerts are near me? We see this as an early indication of the promise of AI that it holds for elevating discovery, recommendation, and contextualization as AI becomes more integrated into music services. The vast majority of consumers continue to prioritize human artistry. They want clear disclosure in AI labeling, and most seek transparency, safeguards, and ethicality in AI music development and deployment. Confirming what the consumption data told us on the prior slide, by an almost seven-to-one ratio, consumers expressed disinterest versus interest in so-called AI artists. In fact, over two-thirds of consumers want to be able to block purely AI-generated music entirely. In the U.S., where AI awareness is highest, nearly three-fourths of consumers want to block AI. With this backdrop of attitudes and preferences, let's focus on music applications. Roughly half of consumers under 45 express interest in AI for music, predominantly interest in AI for enhancement of music experience, meaning deeper personalization of the experience and customization of music, restoring, remixing, and reinterpreting favorite songs, and interactive and co-creative music experiences. These emerge as key triggers of consumer interest and perceived value. The expression of interest translates into some of the most important components we are focused on with the partners Lucien highlighted in development of innovative new AI music services. What consumers are rejecting and what they want to embrace will define the business landscape of significant opportunity for UMG moving forward with AI innovation. And with that, I'll turn it over to Matt.