Conference Transcript - WMG 2026-03-04

Cameron Manson Perron, Analyst — Morgan Stanley

All right. I think we can get started. Morning or afternoon, everyone. I'm Cameron Mance-Perron, Morgan Stanley Music Live Events Analyst. Before we get started, I want to note that important disclosures, including my personal holdings disclosures and Morgan Stanley disclosures, all appear as a handout available in the registration area and on the Morgan Stanley public website. With that, I want to welcome back to the conference Robert Kinsel, Chief Executive Officer of Warner Music Group. Robert, thanks for joining us. Thank you for having me. Robert, it's been, I think, roughly three years since you took over leadership at Warner There's obviously been a lot of changes during that time frame, both at Warner and in the I'm sure you've learned a lot, both about the industry and Warner, and made changes to Warner. When you think about the DNA of the business and what differentiates Warner Music from your major label music peers what do you think define one well I think today what

Robert Kyncl, CEO

defines us is our clearly set strategic priorities which is growing our share growing the value of music and increasing efficiency the entire company operates against those three priorities everything that we do is through the of those three things and so it's ingrained in the company and we've made huge amount of progress on each of those three areas we've grown our market share by one percentage point in the last quarter according to illuminate obviously we've grown our efficiency quite recently very significantly through restructuring and lots of investments in the underlying infrastructure and we've restructured our DSP agreements to increase the value of music so those are I would say our defining characteristics and what sets us apart is I think the you know I've refreshed a lot of the leadership team and I think today we are a leadership team that is that has an experience both in technology and restructuring and transformation as well as in artist development and it's an incredibly unique mix of people and I'm just thrilled that it's showing up in our results that this mix actually is producing you know the right result yeah

Cameron Manson Perron, Analyst — Morgan Stanley

we're gonna dig into a lot of those areas more but at a high level when you think about you know the growth opportunity at the industry level how do those attributes and warner's focus position it well that kind of succeed

Robert Kyncl, CEO

within the growth backdrop of the industry okay I think the the industry number one the industry is is healthy like if I think about the music industry and I you know released a shareholder letter yesterday and I spoke about this I spoke about the music industry being a very attractive category especially in today's world that has lots of uncertainty and wars etc and the one that's constant is that people on all sides everywhere are listening to music and it's undeterred and unchanged by what's happening in the world but it also has tremendous upside opportunity because it has not been as well as monetized as let's say film and TV so there is you know both in pricing as well as in volume and subscribers I think according to one of your competitors which will remain unnamed there will be 1.5 billion music subscribers in 2035 and our revenue for the industry will nearly double by that time and that's all before the advent of AI drives further growth so so I feel quite bullish on the industry and you know we are very well positioned for That, again, everything that we do goes against those three priorities that I mentioned. AI helps with each and every one of those. And, you know, our company has gone through lots of changes over the last three years, both organizational ones where we flattened the organization. We refreshed a lot of the leadership. We've simplified organizational structures such as combining U.S. and U.K. labels together, et cetera. But there are many, many more examples of that. And we've also invested into underlying infrastructure of the company, which may sound kind of boring, but it's actually foundational in what is happening in AI today and to be able to take advantage of that. For instance, cleaning our data and building infrastructure so the data is well organized. It's just a thankless task for quite a few years. But the big thanks is starting to come now as we're starting to use AI through the company. So we've done a lot of the heavy lifting without really getting credit for it in the past, but knowing where the world is headed, both organizationally as well as from infrastructure standpoint.

Cameron Manson Perron, Analyst — Morgan Stanley

Before we get into AI in more depth, the pace of change in the music industry was already pretty quick before these new platforms came out and before AI became kind of more central to the debate. You know, if you think back, how would you say the role of a music label evolved over the past five years? And as you look forward into the future, like, how do you think the service offering, kind of core service offering that you provide to artists changes from here?

Robert Kyncl, CEO

So I actually think about this quite a lot, as you can imagine. And also having come from the outside, right, I thought about it coming in. And to put it simply, the music industry was one where stars and hits really was the main job, and that's what mattered. And today, that obviously continues to be, but there are so many more things to work You know, the industry got much more complicated, or because distributors used to be worth tens of billions of dollars. Now they're worth trillions of dollars. we used to have hundreds of millions of users now we have billions of users we used to have one type of content which was a CD or vinyl etc now there are multiple different variations of content online all of which are licensed differently they're managed differently there are takedown regimes for content so the complexity of the business has skyrocketed there's regulatory frameworks, including the ones that we're pushing through, that we have to worry about. Then, obviously, there's the advent of AI. So what it takes is much more ambidextrous organizations than in the past, which I was alluding to. I was alluding to the changes that we've made inside our company to achieve that, and we have. so you have to sort of walk and chew gum at the same time on many different things. And it just takes a different type of talent to do. and as it relates to the value proposition you know we live in the world of unlimited noise noise that is increasing so while on the one hand democratized distribution gives everybody voice on the other hand those voices are being lost in you know it's just in this tremendous noise so if you're an artist that wants to succeed on a consistent basis you need a global infrastructure of people and the technology underlying to help you actually achieve that and stay there and I think that increasingly becomes our value proposition that's one and two the other part is that in the world of AI sorting through models understanding how to negotiate with platforms setting the rules for the future and making sure that those rules are accretive to the industry, they're accretive to quality, all of that is highly sophisticated work for which you need to recruit lots of highly sophisticated people to manage that. And again, companies like ours have the ability to do that. So I think there is in general, and this may be a contrarian view, but I think there's return to scale. You need the scale of catalog, you need the scale to recruit people on the technical side. You need to scale to recruit people on the business development side. You obviously need to have the right people for artist development. It is very hard to achieve all of these things within a smaller company.

Cameron Manson Perron, Analyst — Morgan Stanley

Great. I want to dive into the priorities that you outlined, maybe starting with the value of music. I think AI is kind of central to that conversation and the prevailing debate amongst investors, I think across the entertainment ecosystem seems to be kind of coalescing around this question of whether or not the ability to leverage AI technology to create content is universally a risk to IP owners as someone with experience from pity in the video and audio world in content and distribution you know What's your view of that risk or response to that perception?

Robert Kyncl, CEO

Yeah, so I've lived through quite a few of these shifts in my career. And we draw a different conclusion here. One, in the world where most people create, which is entirely possible, right? Like that they create music, right? Because there will be tools to do that, which didn't exist before. So we believe in that world, the most content and most inputs used for that will be familiar, iconic content. And in that world, most value will accrue to that content because of attribution rather than market share distribution. So it's helping us evolve from market share-based royalty pools to attribution-based royalty pools. And it's rewarding quality, which is not where we've been in the market share-based world. So in short, in the world where most people can create, value accrues to familiar and iconic content because of attribution towards the outputs, which is clearly a destination where we want to be. And obviously, we have to do everything possible to set things so that this happens exactly the way. And we're well underway to do that. And this is because we believe this is the destination where we want to be. We've accelerated towards that destination. And, you know, we already have quite a few agreements in flight. We're working on more with our other partners. So we actually are running towards that world.

Cameron Manson Perron, Analyst — Morgan Stanley

Yeah, we'll talk about this. But do you think there are attributes, you know, for music specifically that differentiate it? in terms of AI exposure or opportunity relative to other areas of content?

Robert Kyncl, CEO

Yeah, I think, so if you, so think about it, let's say, you know, I'm not talking about professionals, but I'm talking about casual users creating content, you know, using AI and creating music content. Whenever you want anything of tremendous scale, you need to get casual users, not just pro users. And when you have casual users involved, they will they will prompt the familiar imagine today when you are uploading a video to Instagram and you want to attach a song what do you do what is your behavior you start typing a name of a song a name of an artist that is in your head because you like them or you have some kind of an association or something in mind related to that video you're not necessarily going through the recommendations of unknown artists and and I think that will be a similar behavior in terms of creating creating IP so I think in case of music it's very the IP is incredibly powerful there are also some real opportunities for you to

Cameron Manson Perron, Analyst — Morgan Stanley

kind of lean in and leverage I I you've talked about those you mentioned some in the shareholder letter that you referenced how are you folding AI into the way that Warner Music runs, and what does it enable you to do that might not have been possible or might have been just much more challenging previously?

Robert Kyncl, CEO

So I mentioned sort of return to scale. Obviously, catalog is part of that. We have well over a million songs to manage on the DSPs. Well, it's humanly impossible to tend to every single one of those songs and make sure that every single song has all of the metadata fixed correctly, has all the right assets, and that it's optimized for the algorithms of every single platform. In an AI world, that is possible. And that's exactly what we're working on. So I look at what is driving the most revenue and profit for the company, the catalog. That is where our efforts begin with AI. and we need to automate end-to-end the optimization and marketing of our catalog and we're well underway of doing that we've been working on it for a while and it's it's it's amazing to see what happens and when you start scaling this and what we do is when we build we don't build just for catalog because on our frontline teams when they can they can pick and choose the tools to use that we build for catalog but it's good to be focused focused on one area to built, and then make sure you build it in a way so it can scale across the whole company. So that's one good example. The other one is revenue forecasting for the company. Now, in addition to people in the finance department doing that, we also have AI doing that. And now we can start comparing who's getting closer and who's right. And it just makes us better at managing our business.

Cameron Manson Perron, Analyst — Morgan Stanley

Is it changing the way you run the frontline business at all in terms of new types of support you can offer artists that might not have been possible or any changes to kind of like deal structure when you're signing a new artist?

Robert Kyncl, CEO

One good example is, again, we've developed for catalog sort of opportunity or anomaly detection model, whether it's positive anomalies or negative anomalies, because it allows you to focus your efforts. And, again, with catalog, you automate those efforts as much as possible. And in frontline, they may not be automated, but people know where to focus. So it's good. So basically the same tool can be used for frontline and basically prioritize work for highest impact. So I think the best way to manage this is to really, again, develop for one division, but make sure it's scalable everywhere. and then you create this magnetic pull across the organization to start using the tools. Another good example is we developed an automated music video QA tool. And today, and to this day, we've been doing it using people. And it takes time to do. Now with AI, it's one-tenth of the cost, one-tenth of the time. And it's super fast and high quality. As you do it for catalog with larger scale, different story. But teams on the front line suddenly would have an artist who's delivering their music video two hours before the release, and there's no time to QA it. And like, oh, we saw the presentation on the QA tool with the catalog team. Let's use that. And now you're creating, again, organic pool for people to start using the tools that you've built. So we have quite a few things like this in flight, and it's fun to see the teams start embracing it. And all of those basically get a fraction of the cost, fraction of the time, helping us amplify the value of our catalog and providing tools to amplify artists through the frontline teams.

Cameron Manson Perron, Analyst — Morgan Stanley

Another big opportunity is the deals you've signed with new AI platforms, which you mentioned earlier, including Suno and Nudeo, both of whom you obviously previously had in kind of legal crosshairs. What moved you past litigation with those platforms, and how do you think about the opportunity that those platforms can bring to artists and labels?

Robert Kyncl, CEO

So, you know, I'm consistent in saying that we have a 3L strategy, which is litigate, legislate, and license. And the first two are in the service of the third. and that's the perfect example with Suno and audio we've you know litigated first our calculus was simple which is they're having traction with users which is a very it's a difficult thing to do right so when you build something that has a lot of users and grows really fast you have to pay attention to we're willing to license and transition to a licensed model you know to adhere to our principles and three we were very happy with the economics that we achieved with them so it sets the business up well to be incremental to all of our efforts and projections that we have and when you have that then you want that partner to succeed and the way we view it is today on Suno according to the last numbers released, you have 2 million subscribers paying $300 million a year, which is $12.50 per month per user, which is more than what people are paying to listen to music. I think that is supporting our thesis about not only participating in listening, but also growing our business through creation and participating in creation, which is incremental to our underlying growth. and the opportunity to grow an audience segment and get people who are really passionate about music to start creating and spending $12.50 per month. And whether that remains a number for the future or not is somewhat irrelevant. The point is, because it's $150 a year, which is incredible, but it's somewhat irrelevant. The point is, it's incremental to what is happening in music today. And it's growing at a rapid pace. So, of course, we embrace it, and of course we want it to succeed. And we obviously welcome the rest of the industry to come on board.

Cameron Manson Perron, Analyst — Morgan Stanley

How do you think that level of interactivity relative to maybe not fully lean back, but definitely more passive listening experience of kind of the legacy DSPs, how do you think that interactivity changes consumer behavior over time, and what does it mean for the value of music?

Robert Kyncl, CEO

So I'll start with the last, which is the value of music. So if you think about it, the music industry has benefited from subscription tremendously. The industry is 30% bigger than it was at the height of CD era. However, at the same time, on an inflation-adjusted, were roughly at 50 cents on the dollar to where we were on a per-user basis at that time. Now, less users, right, but still. We know that there were people willing to spend that kind of money per year. And that is an opportunity that we as an industry have not captured to date. We only captured, you know, sort of the volume opportunity, but not the audience segmentation value opportunity. And it was there then, it is there now. Suno is proving it right, right, with their $12.50 per month spent. So, of course, it makes sense that that model also takes hold on the DSPs, whether it's YouTube, Apple, Spotify, et cetera, Amazon, et cetera, Tencent. So we see this as a tremendous opportunity. For us, with those partners, we have large lucrative relationships between us, so we have to negotiate everything in context of those overall relationships for different companies, Sony, Universal, us, and others. It comes at different times because of where our deals are. But I would expect, or you should expect, that those offerings make its way to the DSPs in the not-too-distant future and help grow the business even past what we're all projecting today. So we're encouraged by what Suno has proven, and we like to see it spread across all of the DSPs to capture the opportunity. It will delight users, which is great, and we love that. And it helps grow the industry into much greater heights than we all imagined.

Cameron Manson Perron, Analyst — Morgan Stanley

Any takeaways from YouTube that you'd share in terms of thinking about who listens or watches relative to who posts or engages more actively? Like what differentiates the content creators?

Robert Kyncl, CEO

Well, I think the opportunity in creation that I'm talking about is way bigger than what we all had imagined. Because on YouTube, in the partner program, most of the successful and big creators in the partner program, they don't necessarily love to use our music. Because when we claim the music, we cut in the revenue, et cetera, right? So it's not really used. So music could be so much bigger than what it is had we not charged for it over there, which obviously we cannot not do. But when people are creating and they're using, you know, familiar, iconic IP to create, it will unleash a whole new economy because, you know, we'll cut in on the subscription level of it so the user won't have to worry about it individually. and it will unlock a massive amount of consumption and revenue. So what I know from YouTube is that music is very popular. People like to embed it in their videos. It's been that way from the early days of YouTube to early days of TikTok and Instagram, et cetera. Music makes all video better, from the shortest of TikToks all the way to the longest of Martin Scorsese movies or James Cameron movies or Super Bowl halftime show. so we know it's there and people want to create with that and as long as we have the right economic model around it it's an accretive revenue stream to the industry

Cameron Manson Perron, Analyst — Morgan Stanley

You've spoken in the past about how important it is that these platforms and models are often structured in terms of how artists participate I'd guess that most artists fall pretty firmly into one camp or the other as it relates to discomfort versus enthusiasm toward AI, but what's your message to artists in your portfolio who may be more open or may be on the fence? What's your message to them?

Robert Kyncl, CEO

I'm in with quite a few artists and talk about it. The right answer here is do what's right for you. It's very hard to force anybody to... There's no reason to force people to do anything. This has to be a voluntary effort. We're there to set the rules of the road, build the rails, make sure it all works the right way, that we cut into the revenue correctly, that we help build the pie, expand the pie together with our partners, whether it's newcomers or DSP partners, and then artists either come in or they don't. By the way, we have both. Charlie Puth just became chief AI or career music officer at an AI company. Obviously, Charlie is embracing it and there are quite a few others and then there are other artists who just don't want to touch it at all and they're purists and they're all about human creation and nothing else and that's also great so we're agnostic about it with our artists

Cameron Manson Perron, Analyst — Morgan Stanley

any I recognize you might be limited in what you can share here but any color on how rights remuneration for artists works with these platforms

Robert Kyncl, CEO

obviously I can go into the details but I'll give you some of the broad strokes which are important I think For instance, today you see a bunch of news about news organizations doing AI deals, and those are done on a flat-fee basis. That is not the case with us. It's precisely the opposite. We're done all on a variable basis. And the reason for that is with news, the news has a shelf life of 24 hours. Our content has a shelf life of 100 years. Completely different thing. So for us, it's all about negotiating the outputs and our revenue share on the outputs so that when our partners are growing, we're growing. When we're growing, our artists and shareholders are growing. It's like it goes directly into their royalty pool and gets paid out. So for us, it's a completely different setup from other industries because the shelf life of our content is nearly infinite, at least in a lifetime. And so we have to have ongoing participation in the revenue stream.

Cameron Manson Perron, Analyst — Morgan Stanley

How do you think about, you know, I think there's a question of, you know, how signing AI artists, I don't know how you would characterize that or define that. To your point, some artists are leaning into it really heavily, and so do they suddenly become an AI artist? I'm not sure where you define the lines, but would you, how do you think about that? Would you ever sign an AI artist? What defines an AI artist?

Robert Kyncl, CEO

Yeah, I don't think any of this has worked out yet. what defines what but clearly we have many artists our own artists that are leaning into AI very heavily we do songwriter camps Warner Chapel our publishing division the songwriter camps where lots of songwriters get together two most recent songwriter camps were very AI focused for us so we're seeing what tools they're using and how they're using it see how we can help And so we're embracing it. Again, as a company, we see it as a value creation driver for the industry in general and definitely for Warner Music Group. On the artist and songwriter level, it has to be purely voluntary. So we have to be agnostic that way. Here, we're biased to use it as a driver. Here, we're agnostic with them. And that's it. Again, we've got to walk and chew gum at the same time and execute against that. But what's exciting for me is that as the company is growing, we now have an additional new growth driver that we've uncovered and that is starting to support the thesis that we have around audience segmentation. And some people will be going to spend way more money on music than they had the opportunity to do so far. And we want to grow that.

Cameron Manson Perron, Analyst — Morgan Stanley

How do you think about, you talked about it on your last earnings call to make for the broader audience. How do you think about the AI's influence or how it impacts your agreements and relationships with your legacy DSP partners?

Robert Kyncl, CEO

Look, if you, I'll go back to my YouTube experience. When I joined, we were in an ad-supported business on a desktop. then we needed to go to mobile we need the right so we have to add that then we wanted to build a subscription so we have to get those right then we want to get into shorts we have to get those right so each time you know with innovation and product evolution the rights needed to expand and each and every time we have to go to our partners and figure out how we expand the right set this is just another one of those steps it's nothing new it's a process that, you know, I use YouTube as an example, but the same thing holds true for Spotify. You know, first, you know, they're a subscription, then they added advertising. It was kind of like the opposite of YouTube, right? Now they add a video. It's like each of those things keep on evolving, and we're used to that. Like, that is our job to do. So, yeah, this is just another step in value creation for both sides, by the way. And, yeah, we just have to grow the overall pie and grow the incremental pie, and life will be great for everybody.

Cameron Manson Perron, Analyst — Morgan Stanley

You talked at the top about the success that the industry has seen from a volume perspective. As we think about that other side of the equation, the rate question, what can Warner do to support an ecosystem where rates are moving in the direction that you'd like to see it?

Robert Kyncl, CEO

Again, this goes to the opportunity. on an inflation-adjusted basis, we're way below where we should be in general. At the same time, we're incredibly grateful that we're 30% bigger on aggregate than we had been before. But it only points to the opportunity. So I think instead of having an adversarial tone to it, it's all about how do we maximize this industry? How do we grow faster, create more incremental revenue streams? And I spoke about the increasing complexity of the business. Yeah, it's also going to increase on the retail side. There's more slices that we can offer in order to satisfy people who want to spend more money on music. And we have to be, A, very determined about it, and, two, flexible in many other ways to allow different partners with different objectives to achieve their objectives. But at the same time, we have to be fair to all of them to make sure that all partners are on equal footing with their pricing, et cetera. So, again, this is not a rocket science. It's not a new and super unique thing to our industry. But it's one that, you know, we need certainty around rates going forward. We decided that a year and a half ago, started to put into place about a year ago. It's all in flight. And certainty around rates is important and how they evolve into the future. And I'm really pleased that that's what we've achieved. And we'll continue on that path. At the same time, we've also achieved artist-centric, which has been a very strategically very important thing to do. And now we have to focus on evolving that with the evolving landscape of the music industry. So it's kind of like two prongs, which is certainly around rates and artist-centric and moving the flora.

Cameron Manson Perron, Analyst — Morgan Stanley

I want to make sure to hit on your other priorities. Your second one is increasing share. I think we've seen in streaming revenue growth over the last few quarters, evidence even externally of some real momentum on that front. What would you point to in terms of the drivers of that success? And then as investors think about that outlook going forward, what gives you confidence in kind of the stability of that momentum over time?

Robert Kyncl, CEO

So, one, the market share growth actually is pretty broad-based, with both catalog as well as new releases within that across geos we have a bit more work to do in asia but in general everywhere else in the world we've done quite well so the broad-based part is very important right there's not just like a little rays of sunshine somewhere it's like actually the sun is shining all around pretty much that's one two we've we've tightened our capital location much much more focused on the highest impact opportunities and taking more of a repertoire potential lens rather than a market-based lens, two things. Three, we have a very strong pipeline initiative, initiative pipeline, whether it's on A&R or on M&A, and we're executing against that with high speed and tenacity. So all of those things start showing up. At the same time, we managed to kind of jump to the third priority, cut cost. and become much more efficient while we're accelerating the business. And to me, this is like another one of those things that I think differentiates us from many other companies because everybody was telling me, this is not possible. You're going to start cutting costs. You're going to decelerate. And we've actually achieved the opposite. So I think the resilience of the team, the ambidextrity that I was describing before is showing up here. And I think for any company to start cutting costs and accelerating their revenue and increasing the value of their underlying product, it's a great feeling.

Cameron Manson Perron, Analyst — Morgan Stanley

To follow up on that last efficiency priority, you mentioned at the top the organizational changes that you've made. You also called out on the last earnings call this idea of kind of always-on marketing and the ability to leverage AI to do that and resurface your catalog. At the same time, we've seen pretty strong operating leverage from sales and marketing. Is it the org changes? Is it technology? What's allowing you to execute on the efficiency so well?

Robert Kyncl, CEO

You know, I wish I could say that there's like a silver bullet and one thing that enables it. It's the compound impact of a lot of different changes. So talent is definitely one. Measurement is another. We built a lot of different ways to measure our impact and our outcomes, which we didn't have before. It's cadence of operations that contributes to that. So no silver bullet, but simply said, great management team combined with much more strengthened infrastructure and a clear vision for the future on what to do and marching against it as one team.

Cameron Manson Perron, Analyst — Morgan Stanley

Yeah, great. Robert, that brings us to time, but thanks for joining us.

Robert Kyncl, CEO

Thank you so much. Thank you for your support.