Earnings Call Transcript - WMG Q3 2023

Operator, Operator

Welcome to Warner Music Group's Third Quarter Earnings Call for the period ended June 30, 2023. 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.

Kareem Chin, Head of Investor Relations

Good morning, everyone, and welcome to Warner Music Group's fiscal third quarter earnings conference call. Please note that our earnings press release, earnings snapshot and the Form 10-Q we filed this morning will be available on our website. On today's call, we have our CEO, Robert Kyncl; and our CFO, Eric Levin, who will take you through our results and then we will 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. 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's a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that can cause actual results to differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

Robert Kyncl, CEO

Thanks, Kareem, and good morning, everyone, and thank you for joining. After a challenging first two quarters, we're pleased to see strong evidence of back-half recovery that we told you to expect. This has been a big team effort. I'm grateful to our leadership, all of our operators around the world, and all of our incredible artists and songwriters. I was happy that our Q3 results were driven by such a wide diversity of music. Strength came from many different territories, labels, and revenue lines. We succeeded with artists and songwriters across the spectrum of genres and generations. And we saw the return of some of our biggest superstars, whose new music fueled fans' engagement with all of their albums. In addition to improved performance in our core recorded music revenue, we also saw growth in licensing, artist services, and almost all areas of publishing. I'm particularly pleased to say we're seeing our momentum accelerate into Q4. I'll provide more details. But first, let me get into our Q3 results. Total revenue grew 10% and adjusted OIBDA increased 18% with margins growing 140 basis points year-on-year. Recorded Music revenue increased 9% and streaming grew 7%, reflecting double-digit growth in subscription revenue and modest growth in ad-supported revenue. Please note that beginning this quarter when we talk about ad-supported streaming revenue, it includes revenue from emerging streaming platforms such as TikTok, Meta, Peloton, and others. Music Publishing turned in yet another impressive quarter, delivering revenue growth of 16% driven by strong streaming growth of 28%. I'd like to dive a little deeper into the different projects that drove these results as they reflect the strength of our commitment to developing extraordinary talent and growing our incredible catalog. In Recorded Music, artists at all stages of their careers, global superstars, and local names, new albums and timeless classics all added to our growing momentum. Ed Sheeran's sixth studio album, "Subtract," hit number 1 in 11 countries and top five in 7 other countries. Melanie Martinez's third album, "Portals," went top 3 in the U.S., U.K., Canada, Ireland, New Zealand, and Australia, where she celebrated her first number 1 album. Both Ed and Melanie are great examples of the same phenomenon in the modern music business. New Music combined with mainstream awareness is resulting in an uptick of streams across the entire catalog. Given the cultural relevance of life and music right now, I'm pleased to say that our Latin division is on plan. Recent successes include Puerto Rico's Myke Towers, who sought to number 1 on Spotify Global Top 50 with his song "Lala," and Mexico's Yng Lvcas, whose monster hit, "La Bebe," spent nearly 4 months in Spotify's Global Top 10. And by the way, we just signed Yng Lvcas for publishing as well. Other amazing artists that are enjoying breakout hits include Korea's aespa, Italy's Capo Plaza, Sweden's Rogefeldt, France's Nino, the U.K.'s PinkPantheress, the U.S.'s Bailey Zimmerman, and Australia's Budjerah. We also partnered with Chinese superstar, Jam, for her groundbreaking album, marking the first time a Mandarin pop artist has recorded a full-length Spanish release. This partnership truly highlights how languages and genres are cross-pollinating. The combination of our global reach and local expertise continues to give us a competitive advantage as we lean into this trend. Equally, it was great to see how music from our incredible catalog continued to contribute meaningfully to our results. This includes major projects with renowned names such as Linkin Park and the Grateful Dead, as well as impressive carryover sales from newer artists such as Zach Bryan, Ava Max, and Don Toliver. I'm also happy to say that our Q3 momentum is carrying over into Q4. Lil Uzi Vert scored his third number 1 album on the Billboard 200 with "Pink Tape," the first hip hop album to top the chart in 2023. Young Thug's "Business Is Business" peaked at number 2, and Gunna's "A Gift and a Curse" debuted at number 3 on the Billboard 200 with his lead single reaching number 1 on Spotify in the U.S. Dua Lipa's highly anticipated new track, "Dance the Night," which is currently number 1 on the official European Airplay chart, kicked off the campaign for "Barbie: The Album" released on Atlantic Records. Like the movie itself, the album has been a massive global cultural event, hitting number 1 in 7 countries, including the U.K., Canada, Australia, New Zealand, Netherlands, Ireland, and Portugal. It is the first soundtrack ever to land 3 top 5 singles in the U.K. All in all, I'm pleased with our improvement in Q3, but we still have lots of work to do. Kudos to the whole Recorded Music team for how they partnered with our artists and worked hard to drive these results. In Publishing, we continue to see impressive results from our strategy to diversify our revenue streams, strengthen our services, and mine our deep catalog. At the same time, our songwriters are contributing to massive hits, including Morgan Wallen's "Last Night," Miley Cyrus' "Flowers," and SZA's "Kill Bill," all of which reached number 1 on Billboard Hot 100. And we're also seeing huge successes from Germany's Apache 207, Spain's Cavazos, the U.K.'s Dave, and producer Matt, to name a few. We're always expanding our publishing roster and have recently signed deals with Grammy-winning pop rockers Imagine Dragons, Ice Spice producer RiotUSA, and Spanish star Ana Mena. I'd like to emphasize one other key theme today, our efforts to grow the value of music, which includes our approach to AI. We're focused on creating a virtuous cycle, where innovation, fan engagement, and greater monetization thrive together, providing even bigger opportunities for artists, songwriters, and music fans around the world. When I arrived at WMG, one of the first priorities I identified was the push for increases in music subscription prices. I am pleased with the traction that we're getting. Last month, Tidal, YouTube, and Spotify all followed Apple, Amazon, and Deezer by upping their prices. This is the fiscally responsible thing to do for themselves and for the creative community. I'd like to thank them all for taking this important step. Back in March, I said that if we adjusted for inflation since 2011, the year that music streaming was introduced in the U.S., the price of a monthly music subscription in the U.S. should be $13.25 today. I'd like to point out that in 2011, the price of a standard Netflix plan was $7.99. It has since increased to $15.49 today. If the monthly price of a music subscription had gone up by the same proportion, it would have increased from $9.99, where it was in 2011, to $19.37 today. Let's remember that music subscription services give you access to all the music ever released and a continuously growing library for roughly the price of a single CD. You need to subscribe to 3 or 4 movie and TV services for roughly $45 a month to get anywhere near a comprehensive offer. So we see these initial price increases as an encouraging start. There is no evidence that the services are experiencing elevated levels of churn. We believe the market will bear further price increases in the future, and we're expecting that they'll arrive on a more regular cadence than in the past. Again, when I joined WMG, one of the questions I repeatedly got was about TikTok. Seven months in, I'm pleased to say we also made great progress there. Last month, we announced an expanded and significantly improved deal with them. The agreement covers the main TikTok app; the rollout of the subscription service, TikTok Music; the video editing app, Capcut; and TikTok's commercial music library. Our deal gives our artists and songwriters access to new levels of monetization, marketing, and fan development features. This is the first of its kind partnership that will also mean the joint development of additional and alternative economic models as we grow the ecosystem together. I know there is interest in the specifics of our expanded relationship, but due to confidentiality provisions, we aren't at the liberty to disclose them. What I can say is this: the deal features improved monetization per MAU that is comparable to other ad-supported DSPs, fully recognizing the value of our music and how critical it is to engagement on the platform. I was glad to have the benefit of my experience at YouTube aligning with the music industry on solutions that worked for everyone. We look forward to working with the team at TikTok along with our other partners to continue to innovate and grow the value of music. The market's adoption of subscription price increases, combined with the ongoing evolution of our key partnerships, gives us tremendous optimism for the future of streaming growth. As we turn to AI, I'd like to point out we have a long history of working together with distribution platforms to establish licensing models that drive growth and innovation. For the past 15 years, music companies and distribution platforms have partnered to grow user-generated content as a multibillion-dollar revenue stream for artists and songwriters. Today, there are obvious similarities with AI. Working with our artists and songwriters, we're leaning in, moving fast, and working with a network of partners, including both generative AI engines and distribution platforms. Many Warner artists are already exploring impactful ways to use generative AI to create, augment, and remix their music. We have some great examples from big names on the way later this quarter. Other artists are using generative AI for visuals with the artists like metal band Disturbed and dance producer Kx5 and the superstar Rob of Linkin Park all creating highly impactful music videos. In addition, AI-enabled stem separation technology is giving new life to recordings by artists who are no longer with us. For example, AI has been used to isolate the vocal performance from sound recordings of legendary entertainer Sammy Davis Jr. and renowned opera singer Maria Callas as part of groundbreaking singles. We're deeply inspired by our artists’ abilities to embrace and push the boundaries of the latest technology. I'd like to highlight one of the first official and professionally AI-generated songs featuring a deceased artist, which came through our ADA Latin division. Costa Rican musician Pedro Capmany has released a new duet with his dad, the legendary father of Costa Rican rock, Jose Capmany. This is Jose's first song since 2001, the year of his tragic death. After analyzing hundreds of hours of interviews, a cappella recorded songs, and live performances from Jose's career, every nuance and the pattern of his voice was modeled using AI and machine learning. The resulting song movingly announces the arrival of Pedro's son, Jose's grandson. It also coincides with Jose's catalog being available on all streaming services for the first time. With the right framework in place, AI will enable fans to pay their heroes the ultimate compliment through a new level of user-driven content, including new cover versions and mash-ups. AI is unquestionably one of the most transformative forces in human history. Nonetheless, this technology shift is more familiar terrain than first meets the eye. Like many technologies before it, it presents massive opportunities for human creativity and innovation. Q4 is off to a strong start with amazing releases, including "Barbie: The Album," Burna Boy, Nino, PinkPantheress, Tiago PZK, Cali, Tiesto, and Anne-Marie. And we have new music coming from Zach Bryan, Sia, Dan and Shay, David Guetta, Charlie Puth, Omar Apollo, and Robin Schulz. We have a fantastic roster of artists and songwriters and a great team. We continue to invest in our expertise and infrastructure, both creative and technological, in order to create long-term success. As I said in my first earnings call, I'm a big believer in action speaking louder than words. So today, more than anything else I've said, it's our results that show we're gaining real traction. And there is a lot to be excited about in Q4 and beyond. Eric, over to you.

Eric Levin, CFO

Thank you, Robert, and good morning, everyone. Our Q3 results are reflective of a robust release slate, strong carryover from a variety of artists across different genres and geographies, easing ad comps and outstanding performance in our publishing business. As a result, we delivered solid growth across key metrics, including revenue, adjusted OIBDA, and adjusted OIBDA margin. Total revenue increased 10%, reflecting growth in both Recorded Music and Music Publishing. Adjusted OIBDA increased 18% with a margin of 19% compared to 17.6% in the prior year quarter. These increases were primarily due to strong operating performance and disciplined cost management. Our margin performance in the quarter was not materially impacted by savings from our March headcount reduction as we reinvested most of the savings into technology. Although we anticipate that we will similarly reinvest most of those savings for the balance of this fiscal year, we are raising our guidance to deliver full-year margin expansion at the high end of our 50 to 100 basis point range. Recorded Music revenue grew 9%. Streaming revenue increased 7%. Subscription streaming revenue grew in the low double-digits, and ad-supported increased in the low single-digits. As Robert mentioned earlier, starting Q3 and going forward, when we talk about ad-supported streaming revenue, it will be inclusive of revenue from emerging streaming platforms. Our streaming results improved in each month of the quarter as we released new music. Additionally, the market-related ad-supported headwind moderated as we lapped the pressure we began to see in the prior year quarter. Physical revenue increased 2%, driven by solid performance in the U.S. Artist services and expanded rights revenue increased by 14% due to higher content promotion and merchandising revenue. Licensing revenue increased 24% driven by growth in sync and broadcast fees. Recorded Music adjusted OIBDA increased by 16% with a margin of 20.6%. This is an increase of 130 basis points compared to the prior year quarter. Music Publishing continues to deliver strong results, posting 16% revenue growth, driven by strength in digital and mechanical. Digital revenue grew 27% and streaming revenue increased 28%, reflecting the continued growth in streaming, digital deal renewals, and a revenue true-up of $9 million. We had a $17 million benefit from the CRB rate increase in the prior year quarter, and we had a $7 million benefit in the current quarter. Performance revenue decreased by 9% due to the timing of payments from collection societies. Mechanical revenue increased by 45%, primarily due to a higher share of physical sales and timing of distributions. Sync was flat due to lower commercial licensing activity, offset by copyright infringement settlements. Music Publishing adjusted OIBDA increased 32% to $74 million with margin increasing 310 basis points to 26.1%, driven by strong operating performance. In April, we successfully launched certain components of our financial transformation program in select territories. The program remains on track to meaningfully roll out in a wave-based approach and with expanded functionalities during fiscal 2023, 2024, and into 2025. Once fully implemented, we expect the program to yield annualized run rate savings of $35 million to $40 million. Q3 CapEx decreased to $33 million as compared to $35 million in the prior year quarter. Operating cash flow decreased 10% to $146 million from $163 million in the prior year quarter due to higher cash taxes and cash interest. Free cash flow decreased 12% to $113 million from $128 million in the prior year quarter. Adjusted OIBDA to operating cash flow conversion was 49% in Q3. Our goal remains to deliver an operating cash conversion of 50% to 60% over a multiyear period, and we expect to achieve this target for 2023. As of June 30, we had a cash balance of $600 million, total debt of approximately $4 billion, and net debt of $3.4 billion. Our weighted average cost of debt is 4.1% and our nearest maturity date is in 2028. As we look ahead, we expect continued improvement in our results. We are working hard to execute against our plan and look forward to sharing more about fiscal 2024 on our next earnings call. Thank you to everyone for joining us today. We'll now open the call for questions.

Operator, Operator

Our first question comes from Benjamin Swinburne with Morgan Stanley.

Benjamin Swinburne, Analyst

Robert, you mentioned the price increases. I think you thanked the DSPs for what you described as a good start. But at least from our perspective, there's a bigger prize longer term, which is really continued movement of prices higher and really maybe a structural change to sort of the incentives that are driving the market. So I'm wondering if you could talk a little bit about your confidence in your ability or the industry's ability to really drive significant change in the incentive structure and whether or not you have a new agreement with Spotify, because there was some disclosure in their quarterly filings suggesting they've got a number of new commitments with partners. Universal announced a new agreement. So I would love to hear your thoughts on sort of the long-term changes you'd like to see the industry adopt beyond just one year of price increases? And also whether you can talk a little bit about your relationship with Spotify, whether anything has changed there?

Robert Kyncl, CEO

Let me clarify right away that we do not have a new deal with Spotify. We're not directly in a relationship with consumers; our DSP partners are. They can raise prices whenever they choose without needing to change contracts. Looking ahead, I've emphasized the value of music, and I believe this is just the beginning of more frequent price increases. For instance, consider Netflix's pricing history. They started at $20 a month over 20 years ago, raised it to $22, and then eventually brought it down at varying rates to as low as $7.99 before increasing it again. Now their standard plan is $15, with another plan around $19. This innovation in pricing is remarkable, and I expect that DSPs in the music industry will follow a similar trajectory, especially as video services demonstrate that consumers can handle price changes without significant churn. Just to clarify, I'm not suggesting we jump to $19 immediately, but I am highlighting the innovation occurring in the entertainment sector, the value we provide to users, and the pricing flexibility available. We aim to work collaboratively with our DSP partners to innovate over the coming decade on this front.

Benjamin Swinburne, Analyst

And then if I could ask you a follow-up, you and/or Eric, just around margins. I mean this quarter, we really saw the business deliver the kind of growth I think we all kind of expect over time, particularly both revenue, but also operating leverage. I think there's still some question out there, Robert, about whether your appetite to sort of reinvent the organization from a technology point of view is going to cause some kind of pause in the margin story that we're seeing again this quarter. Just wondering if you could talk a little bit about the technology investments you're making and whether you think you can continue to drive operating leverage in the business over time, assuming the top line performs?

Eric Levin, CFO

Ben, this is Eric. I'll take that. First, I want to highlight that we've undergone a restructuring, which included a reduction in headcount this year, resulting in significant savings. These savings are funding our technology investments rather than affecting our margins. Secondly, during our IPO, we projected an average margin increase of 100 basis points per year, and we have mostly achieved that target. We anticipate maintaining that in 2023. Looking ahead, we're concentrating on improving our margins. We are currently working on our budget for 2024, so I don't have specific information to share at this moment. Additionally, Robert, myself, and the business team are collaborating on strategies for OIBDA growth and margin enhancement for fiscal 2023. Earlier this year, I mentioned that achieving a margin increase of 50 to 100 basis points was realistic, and now we are targeting the higher end of that range as our goal for the year. This will be achieved through active business management. We experienced reaccelerated digital growth in Recorded this year and outstanding results in our Publishing division, along with rising margins and effective cost management in areas including marketing, which contribute to strong margin growth. As a team, we will continue to pursue both top-line growth and margin improvement. The exact results for 2024 will be reported in future quarters as we finalize our budget, but it remains a key focus for us.

Operator, Operator

Our next question comes from the line of Michael Morris with Guggenheim Securities.

Michael Morris, Analyst

I wanted to ask about the TikTok agreement. There's a lot of complexity in the announcement here. So I'm hoping you can share some additional detail. As you look at the different components of this agreement, Robert, can you help us understand which elements are the most impactful to your business maybe in the near term as compared to which elements need to unfold a bit more over time? So some details there would be great. I'm also curious as to whether this deal sets any precedent for other technology partnerships that you have? And then finally, Eric, you've discussed in the past to move on some of these kind of emerging agreements from fixed payment structures into more variable agreements. So does this agreement start to compensate you more on a usage basis, particularly given just the popularity of the platform?

Robert Kyncl, CEO

All right. Eric and I are working on this. I won. We can't share much due to confidentiality, as I've mentioned earlier. What I can say is that I focused on value for us, and it’s important to ensure fairness across all of our distributors, so no one feels disadvantaged or advantaged. We aim to have a balanced set of distributor partners where everyone feels equal. This was a key principle in our relationship with TikTok. Additionally, I wanted to ensure we focus on their users because that's crucial for TikTok and any demand-side platform. It's also essential for music companies to prioritize that for a mutually beneficial outcome. I'm pleased with how Shou, the CEO of TikTok, has worked to establish a deal that benefits both sides. I want to ensure this influential platform generates even more value for us in the future by delivering value to them as well. I believe we've accomplished this between both parties, but there's still a lot of work ahead to unlock more opportunities, and we have a clear plan for that.

Eric Levin, CFO

Yes, let me add a few things. One is that consistent with what Robert said and our philosophy, we want to have services that can compete with each other while ensuring our monetization aligns so that we aren’t incentivized to favor one service over another. Our goal is to provide the best content across all services and let the competition in the market guide audience preferences. We are meeting our objectives as we finalize these deals, with TikTok being a prime example. This also introduces new growth avenues as they develop subscription services and other products. We have been indicating for a while that the emerging streaming deals we concluded in 2021 would likely renew in 2023 and 2024, and this is one of the significant ones. We’re pleased that this is occurring as anticipated and aligns with our model and forecast. We’re happy this deal has concluded, and Robert highlighted the importance of good partnerships as we move forward.

Operator, Operator

Our next question comes from the line of Batya Levi with UBS.

Batya Levi, Analyst

Great. Can you provide a little bit more color on the emerging platform revenue mix now and your expectations for growth over the next couple of quarters? And maybe just one question on the advertising trends. Did you start to see some improvement in the base, excluding the emerging platform? And how should we think about that going forward?

Eric Levin, CFO

This is the first quarter where we've combined the emerging streaming category with the traditional ad-supported streaming category, which should make things clearer for everyone. In the past, we've had to explain these in separate components. We have observed sequential improvement in that category as the market recovers, particularly for ad-supported services, as reflected in the public reporting from some of our licensed services. We view this as a category that continues to improve each quarter. The emerging social gaming subset continues to show potential for growth, while the traditional ad side, which had been declining for about a year, is starting to show positive growth again. Overall, we are pleased with these developments. Additionally, we have several renewals upcoming in 2023 and 2024. One notable deal is with TikTok, which we announced publicly and completed in our fiscal Q4; however, it did not impact our Q3 results, but we will see the effects in Q4.

Operator, Operator

Our next question comes from the line of Kutgun Maral with Evercore ISI.

Kutgun Maral, Analyst

I was hoping to follow up on the streaming revenue discussion. When I think of the DSP price increases, TikTok deal, and improved ad-supported trends, at this moment, there seems to be more tailwinds to growth than maybe there has been at any other point over the last few years. I know you called out that momentum has carried into Q4. But is there any more color you can provide on if we should see another acceleration in the year-over-year growth and how high that could get to? And specifically, I realize you don't provide guidance, but are we entering a period for the next year or so when Recorded Music subscription streaming revenue growth could get closer to a low teens range compared to the double-digits in Q3?

Eric Levin, CFO

This is Eric. I'm happy to take your question. You're correct that historically, during the time of our IPO, the primary factor driving streaming growth was the increase in subscribers and subscription numbers. Now, however, we have a more complex growth strategy. While subscriptions remain important, emerging markets have also significantly ramped up their subscription pricing. Over the past year, we've seen universal pricing increases among almost all major distributors. Emerging streaming continues to expand with positive renewals, highlighting the category's growth potential. Traditional ad-supported streaming, which faced challenges due to economic downturns, is starting to recover and demonstrate positive growth again. We're witnessing multiple growth drivers in streaming, all showing positive trends. Regarding short-term growth expectations, I prefer not to provide specific forecasts. I encourage you to examine and evaluate the figures published by various third parties. That said, as we approach fiscal 2024 compared to 2023, the overall environment appears significantly more positive and optimistic, thanks to a variety of strong growth drivers. We share your view that there is genuine positive momentum currently.

Operator, Operator

Our next question comes from the line of Benjamin Black with Deutsche Bank.

Benjamin Black, Analyst

Robert, during the last earnings call, you noted the gap between the value of streams from top-tier artists and the existing payment model. Many digital streaming platforms have increased their pricing. So, have you made any headway towards a more artist-focused model? Also, regarding TikTok, you previously mentioned potential new revenue streams for your artists and songwriters, as well as opportunities for monetizing fan engagement. Can you elaborate on what those new opportunities are? Any further insights would be appreciated.

Robert Kyncl, CEO

Regarding the progress with digital service providers, I want to point out that there's a noticeable difference between the value that users gain from music services and their current costs. I've mentioned before that comparing these services to Netflix or inflation shows the need for innovation in pricing strategies. For the past 15 years, the industry benefited from bringing hundreds of millions of people into premium experiences with playlist creation and good value, but I believe this approach may not sustain us over the next 15 years. We need to focus more on innovation in audience segmentation and pricing optimization, ensuring that it doesn't negatively affect users. This is not a quick process; it requires careful planning and collaboration among multiple stakeholders. Don't expect immediate updates—this transformation will take time and coordination. As for TikTok, I can't disclose too many details due to confidentiality agreements. However, it's important to recognize the significant user engagement that TikTok enjoys, which opens up numerous opportunities, not just for TikTok itself but also for companies collaborating with it to create new revenue avenues. This engagement can be promotional or economic, including e-commerce. My goal is to establish a strong partnership with TikTok that allows us to work closely and innovate in the years to come. While I can't share more specifics right now, I'm excited about the partnership and our collaboration with Shou and his team.

Operator, Operator

Our last question comes from the line of Douglas Creutz with Cowen & Company.

Douglas Creutz, Analyst

You talked a bit about some of the opportunities you've had using AI to create music. And I just wondered if you could talk a little bit about both sort of on the legal side, the rights issues that you have to negotiate with doing that. And then also just in terms of the relationships with the artists, obviously, AI has become a point of some significant tension in other entertainment fields and kind of where your discussions sit right now with respect to that?

Robert Kyncl, CEO

Yes. So as you can imagine, we are deeply engaged with our distribution partners as well as with the generative AI engines. So it's like sort of 2 fronts that we're having lots of discussion and collaboration around. I always view this as both defensive and offensive. And that is one of the reasons I mentioned in my opening remarks, some of the great progress we're making around generative AI with some of our artists. And there's a lot more that is happening behind the scenes that I have not talked about. And because it's a creative tool. However, the thing that is important is that artists have a choice because there are some that may not like it, and that's totally fine. And then there are some that will embrace it, and that's also fine. And we have to make sure that we ensure that they have a choice and that something is not done to them but is done with them. And so, that is my utmost priority here because there's nothing more precious to an artist than their voice and protecting their voice is protecting their livelihood and protecting their persona. So, I want to make sure that we deliver on that. And at the same time, we deliver on opportunities that the tools can provide them.

Operator, Operator

Our next question comes from the line of Sebastiano Petti with JPMorgan.

Sebastiano Petti, Analyst

Eric, I understand you mentioned not being able to provide details on 2024 margins, but could you clarify the progress of the financial transformation program? Specifically, what was the percentage impact in the last quarter? Was it significant? How do you foresee it advancing through 2025? Additionally, as you look ahead to 2024, are there any comparable factors from this year in relation to 2022 that we should be aware of, particularly regarding reported margin expansion? It seems that 2023 may perform better than expected on a reported basis. Lastly, while discussing the emerging streaming platform, it's great to see it aligning with an ad-supported model. Can you provide an update on the revenue from the emerging streaming platform for this quarter and how it compares to the ad-supported growth you previously mentioned?

Eric Levin, CFO

Thank you for your questions, Sebastiano. It's good to connect with you. I'll address your points as I see three main areas of inquiry. First, regarding financial transformation, we want to convey that the initiative is now live. Several markets are successfully implementing the new technology, which is exciting. We have modified our launch schedule to take place in phases over fiscal years '23, '24, and '25. This approach ensures that we can provide adequate support and attention to each market segment as they transition, aimed at ensuring success. As we implement this, we are also making sure that the new processes and tools are used effectively, supported by proper training and controls. The launch plan is thorough and strategically phased over time, which will bring benefits along with it. Most of the significant benefits will be realized once the technology is fully adopted globally, with some benefits expected in '24, albeit modestly, and larger gains anticipated in '25. We expect robust benefits for fiscal '26 once everything is operational. You raised questions about margins, and while I might not have fully grasped everything, I can say that the surge in digital and streaming revenue in the latter half of '23, which is high-margin, has been a significant advantage. Our careful cost management is helping us reach the upper end of our expected range, which we have aimed for in previous years, noting that each year can vary. I don't have an exact analytical comparison on hand, but we consistently seek opportunities to hit that high end based on the mix of distributed content versus owned artist services, which tends to change annually. In terms of our budget for '24, we will assess the revenue profile and margins closely to develop the best plan for the year, with a focus on margin growth as a priority. Lastly, regarding your question about emerging streaming and ad-supported categories, we can provide some insights. In terms of emerging streaming, there weren't any significant new deals in '23, but the TikTok deal will start in Q4. This segment has shown solid growth, continuing into the teens, while ad-supported revenue is improving and moving back towards growth as well. I hope this provides the clarity you’re looking for, Sebastiano.

Operator, Operator

Our next question comes from the line of Matthew Thornton with Truist Securities.

Matthew Thornton, Analyst

Most of my questions have been addressed. I have a few housekeeping inquiries. Given the timing of the recent price increases across the DSPs, I assume we won't see the full impact until the calendar fourth quarter, corresponding to the fiscal first quarter. I want to confirm if that's a reasonable assumption. Additionally, for Eric regarding publishing and streaming, there seem to be some factors at play with renewals, revenue adjustments, and CRB impacts. I believe there was also a copyright infringement settlement related to Sync. I'm interested in understanding how to balance these items to determine the net impact of any one-time events for the quarter. Any insights would be appreciated.

Eric Levin, CFO

Thanks, Matthew. I'll start with the second question, as it effectively balances out to zero. The two major factors in Publishing were the revenue adjustment in streaming and the finalized CRB for records 3, which has now clarified the backlog revenue impact. The revenue adjustment was a positive factor. The CRB did also contribute positively this quarter, but compared to the previous year, which was $10 million higher, it ultimately balances out to zero. The streaming revenue growth of 28% in publishing reflects that once you account for all the adjustments, so they essentially cancel each other out. Regarding the price increases on the recorded side, I would expect to see the complete benefits of those in fiscal '24. For instance, Spotify's recently announced rate increase requires a few months to implement and reflect in our figures. Therefore, I anticipate that the effects of these price increases will be seen in fiscal '24, and realistically not in Q4 '23.

Matthew Thornton, Analyst

And maybe I could sneak one more on housekeeping as well, Eric. The lower variable marketing spend that you talked a little bit about in the release. I just wanted to kind of double-check if that's something that's sustainable or if that's something that needs to come back a little bit. Any color there as well?

Eric Levin, CFO

I think it's too soon for me to make a definite statement on that. It largely depends on the release schedule and which markets are targeted, as some markets have a greater need for local music and higher marketing demands when products are launched with partners, which can create efficiencies in marketing. Therefore, it hinges on the release schedule for next year. This year, we are actively evaluating and managing costs, including marketing. Moving forward, we will continue to assess and manage these aspects with great discipline. However, I wouldn’t want to commit to a specific permanent reduction in variable marketing just yet. I can say that we are focused on managing and improving margins, and that will remain a key tool for us.

Operator, Operator

Our next question comes from Stephen Laszczyk with Goldman Sachs. Your line is open.

Stephen Laszczyk, Analyst

I was wondering if you could maybe talk a little bit more about the momentum you saw in market share in the third quarter on the back of some strong releases, especially if there's anything you can say around perhaps the cadence or magnitude of those trends? And then maybe looking ahead, could you maybe give us an update on how the release slate stacks up in the back half of this year versus what we saw in the first half?

Robert Kyncl, CEO

Certainly. First, I'd like to highlight that we had a successful release schedule with plenty of momentum and achievements. Alongside that, our catalog has performed well, which I greatly value. We have been successfully executing on both new releases and catalog. Looking ahead to the next quarter, we have an exciting line-up. We began the quarter strong with successful releases from Lil Uzi Vert, Gunna, Young Thug, Kelly Clarkson, aespa, and the hugely popular Barbie Soundtrack. Our upcoming schedule for Q4 and the remainder of the year also looks robust, with numerous promising new releases from artists like Burna Boy, Nino, PinkPantheress, Tiago PZK, Cali, Tiesto, Anne-Marie, and many more. Additionally, we have new music from Zach Bryan, Dan and Shay, Sia, David Guetta, Charlie Puth, Robin Schulz, among others. Activity is high, our team is performing exceptionally, and I’m pleased that we have regained momentum and continue to grow. It's difficult for me to provide guidance for 2024, but I want to acknowledge that Guy and Carianne have performed exceptionally well over the last four years at Warner Chappell, running an efficient and effective operation. They've broadened our services and have done an excellent job of maximizing the potential of our extensive catalog of over 1 million songs. Their operational expertise is evident in the results. I work closely with them to plan for the future and ensure we maintain our momentum, but I can't make any predictions for 2024 at this time. I want to express my gratitude to the entire company and our teams, especially for their efforts in the last quarter and this ongoing quarter. It's encouraging to see that our music is resonating and generating positive outcomes. Thank you.

Operator, Operator

I'd like to hand the call back over to Robert Kyncl for closing remarks.

Robert Kyncl, CEO

So I want to thank you all for taking the time out of your day to dial in to our call for all of your thoughtful questions and for challenging us on things. And again, I'm very appreciative to the entire team at Warner Music Group, and I look forward to our next earnings call with you. Have a great morning.

Operator, Operator

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