Welcome to Warner Music Group's Fourth Quarter Earnings Call for the period ended September 30, 2024. 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 Kyncl; and our CFO, Bryan Castellani, who will take you through our results and then we'll answer your questions. Before our prepared remarks, I'd like to refer you to the second slide of the earnings snapshot to remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results during this conference call and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release. All of these materials are posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. References to normalized revenue and adjusted OIBDA are adjusted for items that impact comparability. The details of these can be found in our filings. All forward-looking statements are made as of today and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements, because they're subject to a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that can cause actual results to differ materially from those in the forward-looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

Thanks, Kareem, and good morning, everyone, and thank you for joining us. I'm pleased with our progress, both this quarter and this year, as we've demonstrated our strength and adaptability in a highly competitive market. Today, I'll provide more context on how we're positioning the company for sustained growth and to deliver even greater value for our artists, songwriters, and shareholders. First, let me give you a quick summary of our Q4 results. These are normalized for all previously disclosed non-recurring items. We delivered an 11% jump in Recorded Music subscription streaming revenue, driven by strong releases and assisted by global subscriber growth and price increases. This was our fourth consecutive quarter of double-digit growth. Total revenue was up 6% with Recorded Music up 6%, and Music Publishing up 5%. And adjusted OIBDA grew 14% with margin increasing 150 basis points. Our robust Q4 results contributed to full-year revenue and adjusted OIBDA growth of 7% and 11%, respectively. The year was highlighted by recorded music subscription streaming growth of 12%. Our strategy is designed to enhance our ability to attract original artists and songwriters at every stage of their development. We help them realize their musical visions, cut through the noise, build sustainable careers, and grow passionate and loyal fan bases. This year, we've reimagined our organization based on the principle that simplicity and focus drive higher intensity and impact. We've done a lot of important work, which has set us up for success today and will help us grow more profitably in the future. We strengthened our presence in the US, the world's largest music market. We've shifted to a simpler and flatter organization structure to create faster and more direct channels for local talent to reach the global stage. And we reorganized key business lines such as catalog and distribution in order to deliver greater global reach. We continue to find ways to strengthen the coordination across our Recorded Music and Music Publishing divisions and we resolved many foundational infrastructure issues that will now enable our technology team to be more offensively focused. I'd like to dive a little deeper into these changes and tell you about some of the further steps we've taken this quarter. In the U.S., we have two flagship record label groups, Atlantic and Warner Records, important twin engines for growth. As part of our structural changes, we elevated Elliot Grainge to lead Atlantic. While this kind of transition is never easy, this was a seamlessly executed handover. The team has delivered first-class results for priority projects while bringing in fresh ideas, onboarding dynamic executives, and attracting exciting new artists. With a digitally native approach, the Atlantic team will expand and diversify our artist roster and increase the volume of releases. While all of this is going on, the label has kicked off our new fiscal year with a bang, APT, the collaboration between Korean Superstar Rose, who we signed just a few months ago, and Bruno Mars immediately shot to number one on the Spotify and Billboard Global charts. With this absolutely massive headline, Rose is the first female K-pop solo artist to break into the Top 10 on Billboard Hot 100. Bruno Mars is the biggest artist in the world. He has the largest reach of anyone with 130 million monthly listeners on Spotify. This week, he holds two top positions on the Billboard Global 200 chart with APT and Die With a Smile, his Grammy-nominated collaboration with Lady Gaga. Other Atlantic successes include Coldplay landing their first number one album in a decade in the US, new albums from Don Toliver and The Marias, both of which continued to build strongly months after their release, and the impactful remix of Charli XCX's BRAT album and her seven Grammy nominations, including Album of the Year and Record of the Year. At the same time, the Atlantic team is bringing through the next generation of talent. Artemas reached 1 billion streams with his hit 'I Like the Way You Kiss Me.' Forrest Frank and Jordan Adetunji received their first Grammy nominations. Jazz artist Shazil, songwriter Sam Barber, and rapper Honcho are taking off. Competitive new signings include Fash for the World and 1900. Elliot and his team have an impressive ability to discover extraordinary talent across multiple genres and find fresh ways to help both established and emerging artists stand out from the crowd. At Warner Records, the team's commitment to artist development is driving hits and creating superstars. Under the leadership of Aaron Bay-Schuck and Tom Corson, the label's market share hit a new peak this year, reaching the number three position in the U.S. for current releases. They're hoping the likes of Teddy Swims, Benson Boone, and Ali Chapa will have worldwide smashes with real staying power. For example, Teddy's number one single 'Loose Control' has spent an impressive 44 weeks in the Top 10 of the Billboard Hot 100. And Ali Chapa's career streams crossed the $9 billion mark at the right old age of 22. And it's great to see that label mates Teddy and Benson are up for best new artists at the Grammys. At the same time, Warner Records has been integral to the successful resurgence of icons like Green Day, Cher, and Linkin Park, who have triumphantly returned with their first album in seven years. The first since the tragic death of lead singer Chester Bennington. The band's new album, 'From Zero,' had the most presales in WMG history, while the band embarked on a massive global tour. As I've said many times, the power of new releases drives engagement across the artist's catalog and vice versa. We created a virtuous cycle of consumption that views an uplift across an artist's entire body of work. For example, when Linkin Park's new single 'The Emptiness Machine' dropped in September, and the band's new album was announced, their streams jumped by 0.5 billion compared to the same quarter last year. I cannot stress enough how exhilarating it is to watch the creative success that both Warner Records and Atlantic are having. Through our shift to a flatter organizational structure, we've elevated our regional leadership across Latin America, EMEA, and APAC. This has created faster, more direct channels for local talent to access the global stage. This quarter, we continued to take steps that expand our presence in both mature and high-growth markets. In Japan, the second-largest music market, we appointed a new leadership duo, CEO Takeshi Okada; and Chairman Kenji Kitatani. In Korea, we launched MPLIFY, a new label focused on English language music. In Benelux, we bought a leading Indian label, Cloud 9 Recordings. In Africa, we completed our acquisition of Africori, the region's leading distribution company. And Warner Music Latina joined forces with India label Street Mob Records, an incubator of new Mexican talent. Our focus on bringing a wider array of local talent to stardom is paying off. We have vibrant music from homegrown heroes topping charts in many territories. We've had number one singles and albums by the likes of Soprano in France, Speed in Australia, Ayliva in Germany, Bien in Kenya, and Wu in Vietnam, and King in India. We've also helped our global superstars reach new heights around the world. For example, Dua Lipa became the first female artist to have two albums exceed 13 billion streams each on Spotify. Before we move on, I'd like to spotlight the territory we believe has huge global potential. With a population of 1.4 billion, India is more like a continent than a country. It has the 5th largest GDP, but it's still only the 14th largest music market in the world. That gap will continue to close in the coming years, and as it does, India will become an increasingly influential global force in the music business. The country has already seen a significant increase in paid subscribers, which have increased by almost 40% since last year, but it still has less than 2% penetration. A few weeks ago, I visited our offices in India and met with our team, artists, and partners, and it was very inspiring. Since launching there in 2020, we partnered with the most important local players as well as buying stakes in, and acquiring outright local music companies such as E-Positive, Divo, and Global Music Junction. Earlier this month, we made our latest move by purchasing a stake in SkillBox, a leading ticketing and live events platform. We're helping Indian stars like Diljit Dosanjh and King reach new audiences, while building loyal Indian fan bases of global talent such as Coldplay and Dua Lipa, who are both touring there in the coming months. As a result, we've seen impressive revenue growth of over 100% in fiscal 2024. And most importantly, everything we're doing means we're well-positioned to keep taking market share as India continues its explosive growth. In our catalog and distribution divisions, we've made changes that better align our expertise and resources with the growing global opportunities for artists. Previously, we were operating on a country-by-country basis, we now globalized our operations. Our dedicated centrally managed global teams enable us to share learnings, leverage best practices, and deploy technology to find efficient ways of having a greater worldwide impact. Turning to Music Publishing, the business continues to deliver impressive results. The 14% growth in total revenue on a normalized basis for the full year represents our fourth consecutive year of double-digit revenue growth. This was led by 19% streaming growth on a normalized basis. We're contributing to global hits, strengthening our services, and monetizing deeper into our catalog. Here are a few recent high points. Three of the five Grammy nominees for Songwriter of the Year are Warner Chappell writers: Amy Allen, RAYE, and Jessi Alexander. Warner Chappell is number two for a second consecutive quarter on Billboard's top radio airplay rankings and rising to number two on the Hot 100 songs chart with a 25% market share. Additionally, Warner Chappell is number one on the German half-year charts, with its writers spending 18 of 26 weeks at number one on the sales chart. Despite all this success, we are not resting on our laurels and we've continued to invest in our future growth by forging new partnerships with Analog Metaverse, the company founded by Grammy award-winning producer Salaam Remi, launching a venture with the widely respected British dance label Defected Records, and appointing new leadership in high growth territories such as Lisa Li in China and Sophia Hong in Korea. We're very optimistic about the future at Warner Music Group. We have the right team and strategy to deliver long-term profitable growth in a dynamic and thriving industry. We continue to build strong mutually beneficial relationships with our partners to grow the value of music. With penetration in mature markets expected to increase from approximately 35% today to nearly 50% by 2030, and emerging markets going from single to low double-digits over the same timeframe, music subscriber growth should remain healthy for the years to come. For reference, in the U.S., cable TV penetration is a little over 50%, and subscription penetration is approaching 50%. Highlighting that even in a mature market, music penetration is very low and has plenty of runway ahead. With both subscriber growth and opportunities for wholesale price increases, the formula for streaming growth is strong and there is plenty of room for acceleration. Our focus on efficiency has freed up capital, enabling us to increase our investments in growth opportunities. As we previously promised, we've increased our A&R investment by approximately 11% in fiscal 2024, as we continue to sign new artists and songwriters and acquire IP and catalogs, all while driving our digital transformation. As part of our investment strategy, we will consider bolt-on acquisitions that accelerate our progress while meeting our return thresholds. In addition to these investment opportunities, I wanted to note that our Board has authorized a share repurchase program of up to $100 million. The program demonstrates our confidence in the value of our company and our optimism for the path ahead. Our confidence is underpinned by the strong momentum we're carrying into 2025 with an exciting release slate that includes projects from Rose, Dua Lipa, Teddy Swims, Jack Harlow, Benson Boone, Myke Towers, David Guetta, Burna Boy, FKA twigs and more. We're excited by the opportunities ahead and look forward to delivering more culture-shaping music in 2025 and beyond. And now over to you, Bryan.

Thank you, Robert, and good morning, everyone. Before I get into our results, I want to remind everyone that growth rate comparisons will be in constant currency and where appropriate, I will reference normalized growth metrics. There are items throughout the quarter and the year that affect comparability. The details and adjustments relating to these items can be found in our earnings press release. In Q4, total revenue grew 3%, and adjusted OIBDA increased 11% with a margin of 21.7%, an increase of 170 basis points over the prior-year quarter. On a normalized basis, total revenue grew 6%, adjusted OIBDA increased 14%, and margin increased 150 basis points. Recorded Music revenue increased 4%, and grew 6% on a normalized basis, led by subscription streaming, which grew 11%, our fourth consecutive quarter of double-digit growth. Ad-supported streaming declined by 6%, as we lapped last year's TikTok renewal and saw the revenue impact of Meta's exit from premium music videos. Physical revenue increased 5%, driven by strong releases in the U.S. and Japan, while artist services and expanded rights revenue increased 3%, primarily due to higher concert promotion revenue in Japan. Licensing revenue increased 33%, driven by increased revenue from copyright infringement settlements, primarily in the U.S. and growth in broadcast use. Recorded Music adjusted OIBDA increased 13% with a margin of 23.7%, an increase of 200 basis points. On a normalized basis, adjusted OIBDA increased 14%, and margin increased 160 basis points. Our Music Publishing results reflect the $17 million benefit from the CRB rate increase in the prior year quarter. Adjusted for that benefit, Music Publishing total revenue increased 5% while Digital increased 6%, and Streaming increased 5%. These growth rates compared against the prior-year quarter, which saw robust streaming growth of 17%, and reflect continued market and catalog growth as well as timing of payments. Sync revenue increased 15%, reflecting an increase in copyright infringement settlements, primarily in the U.S., while performance revenue decreased 2%. Mechanical revenue decreased 12% due to lower physical sales and timing of distributions. Music Publishing adjusted OIBDA grew 11% with a margin of 28.1%, an increase of 290 basis points. On a normalized basis, adjusted OIBDA increased 17% and margin increased 280 basis points. For the full year, total company revenue grew 7%, and adjusted OIBDA grew 16% with a margin of 22.3%, an increase of 180 basis points. On a normalized basis, total revenue grew 7%, and adjusted OIBDA grew 11% with a margin of 21.4%. Adjusted OIBDA margin increased 70 basis points as strong operating performance and savings from our restructuring programs were partially offset by increased investment in A&R as well as revenue mix. Recorded Music revenue increased 6%, and adjusted OIBDA grew 17% with margin expansion of 240 basis points. On a normalized basis, Recorded Music revenue increased 6% with adjusted OIBDA growth of 11%, and margin expansion of 110 basis points. These results reflect streaming revenue growth of 10%, led by strength in subscription streaming, which grew 12%. Music Publishing revenue and adjusted OIBDA both increased 11%. On a normalized basis, Music Publishing revenue increased 14%, and adjusted OIBDA increased 13%. Q4 operating cash flow decreased 10% to $304 million from $338 million in the prior year quarter. The decrease was primarily driven by the timing of working capital items, partially offset by the timing of severance payments. Free cash flow decreased 10% to $271 million from $300 million in the prior year quarter. For the full-year, operating cash flow increased 10% to $754 million and free cash flow increased 14% to $638 million. Operating cash flow conversion was 53% of adjusted OIBDA for the full year, in line with our target of 50% to 60% despite increased investment in A&R and shifts in deal timing. As of September 30th, we had a cash balance of $694 million, total debt of $4 billion, and net debt of $3.3 billion. Our weighted average cost of debt was 4.3% and our nearest maturity date remains 2028. We continue to actively manage and improve our capital structure, most recently repricing our term loan in September, which has led to continued improvements in our debt ratings with both S&P and Fitch assigning us investment grade ratings in August and September, respectively. I'd like to reiterate that as a result of actions taken in Q4 to reorganize our Recorded Music business, we now expect our restructuring plan to generate pre-tax cost savings of $260 million and we continue to expect a significant majority of these savings to be achieved by the end of fiscal 2025. Looking ahead, our strong Q4 momentum in 2024 is carrying into 2025. Subscription streaming continues to see healthy underlying trends and we expect high single-digit growth for fiscal 2025 on a multi-year basis. Additionally, our goal remains to deliver margin expansion of 100 basis points and operating cash flow conversion of 50% to 60% of adjusted OIBDA on a multi-year basis. As a reminder, there are a number of previously disclosed items that will impact comparability in Q1. Streaming growth will be impacted by the BMG digital distribution roll-off, the digital license renewal in the prior year, and the lapping of Spotify price increases. Our digital distribution relationship with BMG that was planned to roll off by the end of fiscal '24 will now continue into fiscal '25. The revenue impact in Q1 is approximately $16 million versus the prior year quarter. And the digital license renewal with one of our international partners was $27 million in the prior year quarter. Our physical distribution relationship with BMG has largely rolled off. We expect there to be an unfavorable revenue impact of $15 million to $20 million in Q1. Licensing revenue will reflect the $68 million catalog licensing agreement extension we disclosed in Q1 ‘24. Finally, Artist services revenue will reflect the exit of our owned and operated media properties, which contributed $20 million in the prior year quarter. The music industry remains healthy and we continue to see positive subscriber growth and penetration trends as well as opportunities for wholesale pricing growth. We are excited about the slate this year and look forward to delivering great music. The momentum in the business is strong and we are positioning ourselves for long-term success.

Our first question comes from Kutgun Maral with Evercore ISI. Your line is now open.

Good morning. Thanks for taking the question. Just at a high level one on the broader music industry. Looking at the labels specifically, the industry construct remains very attractive. There's healthy competition for sure, but the big three still drive roughly two-thirds of global Recorded Music revenue and are must-haves for any platform. And structurally, you continue to see improvements with DSP price increases and the shift to artist-centric royalty models. So a very healthy and encouraging backdrop. On the other hand, I think as investors have looked at the other parts of the ecosystem, a lot of value has instead accrued to the DSPs and even certain live entertainment companies in part because of a view that they are at the forefront of capturing a greater share of wallet from consumers and monetizing the growing power of music. I'm not saying that those companies are undeserving of Wall Street's optimism, but it seems like the perceived potential for the labels has lagged despite their crucial role in everything. So I don't know if it's changing the dynamics with the DSPs and ad-supported tiers or a reimagined approach to super fans. But can you share your views on what the biggest opportunities for WMG are over the next few years to better participate in what seems to be a very robust growth profile for the overall music industry? Thanks.

Sure. Thank you. Thanks for the question. So I see this in two different buckets. Bucket number one is the obvious moves. And in those, I'm focused on two big ones, which is the reduction of discounts in family plans and more frequent PSM escalators. So it's very simple. It comes down to these two levers, and they're very obvious moves for the industry for a company like WMG, and they are not a zero-sum move between us and the DSPs, they can actually be in concert with each other. And then the second bucket is more innovations, and that's where sort of a superfan tier like the Music Pro that's been discussed a lot, or other SKUs, some which may include ads and sort of just innovation around SKUs, and audience segmentation. Those are also potential upsides for all of us. My focus is in the order that I described, which is obvious moves first, those two specifically, and then the innovations. All of these things would be sort of incremental to the glide path that you guys see for the industry.

Understood. Thank you.

Thank you. Our next question comes from the line of Benjamin Swinburne with Morgan Stanley. Your line is now open.

Thanks. Good morning. I guess I had two questions. Robert, you gave us some helpful context around the management changes. I'm wondering if you could talk a little bit about what works and is working so well at 10-K, Elliot's label that you guys acquired last year, that is or isn't applicable to the larger business of Atlantic. I'm thinking about things like artist discovery, marketing contracts, anything that you think we should be thinking about as he steps into obviously or has stepped into a much larger, broader, and important role? And how this new structure, flatter structure translates into faster growth for the company, which maybe you're already seeing, but would love to get some more color on all of that. And then, you and Bryan both mentioned opportunities in wholesale pricing in your prepared remarks. So I figured I might as well follow up. I think you're in the midst of your Spotify renewal right now. So I thought maybe you could talk a little bit about your optimism to what seems like a pretty substantial change, maybe not, but seems like a substantial change to the way retail wholesale economics work? Thanks.

Sounds good. Thank you, Ben. Let me begin with Elliot. When considering the current state of the music industry, there are numerous independent music companies, many of which claim to excel in various areas. It's important to approach these claims with some skepticism. One clear example of success is 10-K. I can confirm this from their previous figures and their impressive performance in their first year under the WMG umbrella, showing remarkable growth in both revenue and profits. The team they have brought, led by Elliot, has a strong digital focus. Currently, a significant portion of our revenue comes from streaming, and most promotions occur online. To thrive in today's music industry, a digital-first approach is crucial. This mindset is key to the company's identity. They also bring a sense of intensity; starting a company of that scale from the ground up requires a high level of dedication. I appreciate that aspect. They also have strong opinions on various decisions, which benefit both developing artists and established superstars. Everyone wants to expand their reach, create hits, cultivate loyal fan bases, and effectively monetize their efforts. Whether you’re just beginning or are already a superstar, building and maintaining an audience is essential. The digital-first attitude from 10-K has been successfully integrated into the company’s operations and talent development. I mentioned two artists, Forrest Frank and Jordan, who are pursuing their first Grammys, which is wonderful to see. At the same time, it’s vital to collaborate effectively within a larger organization like WMG, which requires adaptability and teamwork. Elliot excels in this area. I’m very pleased with the progress being made. Regarding your question on wholesale, I believe your perspective might differ from the norm. However, I think it reflects how wholesale typically functions, where prices generally increase across various sectors. While this might not have been the case in the past for music, it aligns with how 99% of industries operate. We are simply trying to adapt to the realities of the market.

And Ben, I would chime in just on the overall subscription streaming growth. Again, the backdrop is healthy. We continue to see those catalysts, whether in subscriber growth, pricing optimization as well as share. And our view is that subscribers, there have been 70 million to 80 million new subs brought into the ecosystem a year of late. We continue to see that being the vast driver. Take that as 70%, if not more with, as Robert said, the glide path on pricing is, I would say, modest. And to the extent wholesale gains are ahead, those would provide upside to that. And then, of course, on share, we're pleased with the progress we've made and we have momentum with 2024 releases, and overall roster and catalog and that carrying into 2025. So again, encouraged there about all the underlying trends, which we think have upside to the extent pricing optimizes sooner.

Thank you, guys. Appreciate it.

Thank you. Our next question comes from the line of Jason Bazinet with Citi. Your line is now open.

Your commentary is helpful and bullish, I guess, in terms of subscriber growth and potential trends on wholesale pricing and potentially market share. I just wanted to ask, how likely do you think it might be that there's a headwind embedded in those three tailwinds you talked about just from geographic mix, meaning the sub-growth comes from more emerging markets as opposed to developed markets? Is that a risk that you think investors should be focused on or do you not really think that could present itself as a headwind? Thanks.

So I won't answer what you should do. I'll just tell you what I do. And then…

Okay.

I closely analyze the video industry, which includes MVPDs, TV films, cable, satellite television, and subscription video on demand, because they are very related to our business. By comparing two contrasting markets, the United States and India, we see the U.S. as the largest market by revenue, while India has the largest user base, albeit with a low ARPU. In the United States, penetration levels are about 30%, with television nearing 50%, as various subscription services continue to invest and expand. This indicates significant growth potential for music in the U.S., especially since our product is competitively priced and user-friendly. In what are often referred to as emerging markets, though I prefer to call them high-growth markets, penetration is currently very low. Here, ARPU is also low, but we are optimistic about countries with rising GDPs, as this will likely increase ad revenue and improve subscription conversion rates. For instance, India has about 15 million subscribers today, while there are over 100 million television households, highlighting considerable growth opportunities. I see these two markets as endpoints on a spectrum, and we analyze each market to build our confidence.

That's super helpful. Thank you.

Thank you. Our next question comes from the line of Benjamin Black with Deutsche Bank. Your line is now open.

Thank you for the opportunity to ask my questions. Last year, a few DSPs transitioned to an artist-centric model. I'm interested in hearing how that has influenced your streaming growth. Additionally, do you believe they are doing enough? What more could they consider? Also, why have larger DSPs not adopted an artist-centric approach yet? Lastly, regarding your earlier mention of a significant discount included in these offerings, in terms of your Spotify renewal, is this a matter you are addressing, and have you made any progress? Thank you.

Sure. So let me just quickly comment on the second. I can't comment on any of our discussions with our partners. So that would not be fair to anyone, whether you're on the call or to our partners. So I'll decline that. But on the artist-centric model, we're very consistent from day one, even before it started, in saying that it is an important initiative. We're glad that we have a foot in the door on that, and it's something that we obviously have to continually roll out and not keep it static; that it has to keep on evolving with the growing scale of the industry, right? So I don't view this as a one-and-done. I view this as one-and-done isn't put in the door and then you start expanding it. And but doing it together with our partners, obviously. So I think you will continue to see impact from it every single year that will be increasing. But it's hard to, like forward forecast exactly what that is, right, because it's obviously coordination across multiple different distribution partners at the same time and it's never easy, but it is exactly what we're working on. It is the right thing for artists and songwriters. And they understand it; they appreciate it. And our partners also think it's a good idea. So it's just finding the right balance for all of us.

Thank you.

Thank you. Our next question comes from the line of David Karnovsky with J.P. Morgan. Your line is now open.

Thank you. Just on ad-supported status streaming, wanted to see if you could speak to trends there just stripping out the impact of renewals or items like premium video with Meta. How should we kind of think about this line going forward? And then, Bryan, thanks for the multiyear outlook on margins, just kind of bringing it to '25. I don't know if you can kind of walk through specific drivers or any phasing we could think through the year? Thanks.

Sure. Regarding ad-supported streaming, it's important to note that this area encompasses streaming and digital advertising, which is where we want to be. We're currently observing some macro trends that reflect a low to mid-single-digit growth. In this ad-supported space, we are moving past our TikTok deal and have successfully renewed our partnership with Meta, which we are pleased about. This foundational deal continues to grow and expand. As you are aware, they have exited the premium music video licensing, so overall, the core advertising remains stable and is on a growth path. As for your question about margins for '25, we are dedicated to achieving a 100 basis point improvement annually over a multiyear timeframe. There will always be variations from quarter to quarter, influenced by factors like the timing of releases and marketing expenditures, as well as when savings are reinvested. However, we are optimistic about our prospects as our business increasingly transitions to digital and streaming, while diversifying globally across various artists, genres, and more, which will continue to drive margin growth.

Thanks.

Thank you. Our next question comes from the line of Devin Brisco with Wolfe Research. Your line is now open.

Superfan tiers have been a hot topic this year, and I think everyone is anxiously awaiting what that product launch will look like. Are there any details you can share about the potential features and monetization avenues you'd like to see introduced in that product launch? Is that tier something you expect all the DSPs to have potentially globally, maybe with slightly different variations? And given that these tiers will likely have a variety of features, how should we think about how you'll get paid? Will it be similar to existing tiers today, sort of a rev split model based on engagement, where there be a la carte revenue streams on top of that? Anything you could share on that would be appreciated.

Sure. Can I clarify quickly? It cut off a little bit at the beginning. Were you asking about Music Pro?

I was asking about superfan tiers and what you'd like to see in that product and the opportunity there. Thanks.

Sure. It's a bit challenging for me to speak on behalf of the retailer since it's ultimately their platform and features. We do work together, but they've chosen not to provide specific answers, and I can't do that for them. Generally speaking, music is monetized in the same way regardless of whether someone is a superfan or not on subscription streaming. This presents an underappreciated opportunity for all of us. In the gaming industry, for instance, 80% of revenue comes from 20% of users, showing clear dynamics at play, although it's more of a transactional model than a subscription one. Therefore, incorporating features that enhance engagement and provide higher quality interactions, particularly by taking cues from the gaming industry, is a promising direction. While I prefer not to comment on our partners’ features, we are actively involved in deep discussions and are optimistic about the prospects. We believe this will benefit both the retailers and us, serving as another catalyst for growth that hasn't yet been fully integrated into our business strategies.

Thank you. Our next question comes from the line of James Heaney with Jefferies. Your line is now open.

Great. Thanks for taking the question. Could you just talk about the drivers of the high single-digit growth in subscription streaming on a multiyear basis? What gives you that conviction? And how much of that is coming from ARPU versus subscription? Thank you.

I'll go back to the three main drivers: subscribers, pricing, and market share. Regarding subscribers, we continue to see increasing penetration globally. Currently, about one-third of developed markets are penetrated, which is expected to rise to nearly half by the end of the decade. In emerging markets, where there are large populations, the penetration is in the mid to high single digits, projected to increase to low to mid double digits over the next four to five years. This will largely drive our growth in subscribers over the coming years. Additionally, we have modest expectations in industry pricing projections but see opportunities for improvement through audience segmentation, targeting super fans, and enhancing average revenue per user across digital service providers. This includes refining family plans and multi-user discounts, as well as minimum per-subscriber thresholds to advance the industry in wholesale pricing. We understand that in many bundles, music serves as a fundamental component driving high engagement. As for market share, we believe the changes we've implemented enhance our volume, velocity, and diversity in artist development, alongside continual market exploration for strategic acquisitions, whether they involve intellectual property or digital solutions to accelerate our goals. These factors contribute to our optimism for sustained high single-digit subscription growth over the multi-year period.

That's helpful. Thank you.

Thank you. Our next question comes from the line of Batya Levi with UBS. Your line is now open.

Great. Thank you. Just following up on the multiyear high-single-digit growth in subscription revenue growth. Can you just maybe talk a little bit more specifically for '25? Should we expect slower growth in the first half of the year and maybe improvement in the back half as you lap the price increases? And maybe just cadence on artist releases: do you expect a more linear year similar to last year? Thank you.

Thank you, Batya. We anticipate that there will be some fluctuations from quarter to quarter, but we expect subscription growth in '25 to be steady, particularly due to various factors. We are adjusting for previous price increases, which may lead to some moderation. However, we believe the overall market and subscriber growth will continue to support subscription growth.

And let me take the answer on the releases. I mean, there's a lot in the hopper from Coldplay, Rose, Linkin Park, Charli XCX, Little Zever, CK, Mary J. Blige, Zach Bryan, and more. So there's a lot that we have in the pipeline. Obviously, things can move around across quarters, but one of my big areas of focus is top of the funnel on our pipeline, whether it's deals on the distribution side or releases and making sure that there is enough volume in our pipes to allow for movements back and forth between different quarters. And obviously, when that's combined with creative success on the charts, which we have had, it translates into results.

Great. Thank you.

Thank you. Our next question comes from the line of Stephen Laszczyk with Goldman Sachs. Your line is now open.

Hey. Great. Thank you. Two, if I could. First for Robert, on newer forms of music monetization maybe away from social media or short-form video, I'm curious if you see any opportunity for other categories to come into the picture over the next year or two that might be able to move the needle on emerging revenue, streaming revenue growth? And then for Bryan on free cash flow conversion, just curious if there's any puts or takes worth calling out as we think about operating or free cash flow conversion heading into next year. Thank you.

Thank you, Stephen. To address your question more broadly, music is the most widely distributed medium, surpassing video and text. This extensive reach allows it to serve as a soundtrack to our lives and creates opportunities for new revenue streams. Your question hits the mark; the challenge lies in the frequency and success of these streams. I have two to three new revenue streams in mind, but I’m not ready to discuss them publicly as it feels a bit premature. It's exciting to observe global engagement with music, our numerous distribution partners, and multiple label collaborations. There are many potential monetization opportunities beyond what we currently have, although I can't provide specific details at this time. Your inquiry is very relevant because this trend in music continues. I am also dedicating some of my time to develop these opportunities.

And on the free cash flow conversion, we continue to see on a full-year basis, 50% to 60% operating cash flow conversion there. Obviously, there is some seasonality in our year just based on the timing of deals as well as payments. But otherwise, we see it largely consistent year-to-year.

Thank you. Our last question comes from the line of Jessica Reif Ehrlich with Bank of America Securities. Your line is now open.

Thank you. I have a follow-up and a question. Regarding wholesale pricing, it’s a key part of the financials. Are you seeking price increases, and have you mentioned any structural changes? If you could elaborate on that. Additionally, you've made significant tech investments since you joined the company, Robert. Can you discuss the impact of those investments, how we will see them reflected in the results, and what remains to be done?

Sure. So regarding wholesale prices, our previous discussions have primarily focused on retail pricing, which is not really appropriate for us as wholesalers. We should be addressing wholesale prices since retail prices are outside our control. I'm concentrating on aspects of the business that we can influence and learning from how other industries operate. For example, the television sector, which you're familiar with, has similar retail pricing dynamics. That's why we emphasize wholesale over retail. As for our technology investments in the past 12 to 18 months, we have concentrated on resolving various legacy infrastructure issues, stabilizing and upgrading our core systems burdened by significant technology debt. We've made substantial improvements in areas like royalty processing systems for publishing, client royalty statements, and sync licensing systems, which enable us to generate more revenue and gain insights into our operations. We've laid down a solid foundation, and now, as I mentioned in my opening remarks, the team is set to focus more proactively on driving growth and improving efficiencies.

Thank you. I would now like to turn the call back over to Robert Kyncl for closing remarks.

Thank you, everyone, for your engagement and your great questions. I mentioned earlier that it's really exciting to see the creative teams at Warner Records and Atlantic working together. Since I joined the company, we have increased our market share by 10 percentage points in the Top 200 on Global Spotify charts. It's encouraging to see this ongoing improvement in relevance, with the creation of hits and stars, alongside the two significant growth engines in the largest market in the world. However, we are not complacent; we continue to invest and seek further efficiencies to achieve our goal of improving margins while fostering future growth. Thank you for your support and attention, and I look forward to our future conversations.

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