Earnings Call Transcript - WMG Q2 2021

Operator, Operator

Welcome to Warner Music Group's Second Quarter Earnings Call for the Period Ended March 31, 2021. 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. Welcome to Warner Music Group's Fiscal Second 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, Steve Cooper; and our CFO, Eric Levin, who will take you through our results, and then we'll take your questions. Before our prepared remarks, I'd like to refer you to the second slide of our earnings presentation 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. 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 is 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 earnings press release, our Form 10-Qs, Form 10-K and other SEC filings. And with that, I'll turn it over to Steve.

Steve Cooper, CEO

Thanks, Kareem. Good morning, everyone, and thanks for joining us. As you know, we posted excellent results in our first quarter, and I'm very happy to say that trend continues to build momentum. When you consider that only the last two weeks of the prior year's quarter were affected by COVID, our results are even more impressive. At a time when our business is stronger than ever, we're lengthening our stride with chart-topping releases from many of our biggest artists and songwriters. Today, I'd like to cover three key topics: first, our quarterly results and all the great new music that's driving them; second, our expansion into new markets around the world; and finally, our use of new technologies and emerging streaming platforms to further accelerate our growth. Despite the ongoing pandemic, second quarter total revenue grew 13% year-over-year, underpinned by double-digit revenue growth in both Recorded Music and Music Publishing. Adjusted EBITDA grew by 25%. Margin improved to over 21%. Recorded Music delivered revenue growth of 13%, marked by double-digit growth in both digital and physical revenue. This growth more than offset the continued dislocation in artist services and licensing revenue. Recorded Music streaming revenue grew 20%, driven by successful new releases and strong carryover performances. Ad-supported streaming has now fully recovered and grew at a higher rate than it did pre-COVID. Revenue from emerging streaming platforms, such as Facebook, TikTok, and Peloton, is now running at $200 million on an annualized basis. Physical revenue also saw a major resurgence, growing 19% year-over-year, primarily due to an uptick in vinyl demand. Our success in the quarter spanned label groups, genres, and geographies. This growth underscored our global strength as well as the diversity of our artists and repertoire. Here are just a few high points. Atlantic scored a massive number one single on Billboard Hot 100 with 'Leave the Door Open,' the first release from Silk Sonic, the new Bruno Mars and Anderson Paak collaboration. Cardi B also widened her lead for the most number one songs among female rappers with the mega-hit 'Up.' At Warner Records, breakout star, CJ, topped Billboard's Emerging Artist Chart with his single 'Whoopty.' Meanwhile, Saweetie teamed up with Doja Cat on 'Best Friend,' hitting the top 10 on Billboard's Hot R&B and hip-hop songs chart. Elektra's Masked Wolf scored an international smash with 'Astronaut in the Ocean,' generating well over 400 million streams to date and climbing to number one in eight countries. At Warner Music Nashville, Gabby Barrett released the hit single, 'The Good Ones,' the follow up to her five-time platinum debut single, 'I Hope.' Three-time Grammy winning duo, Dan + Shay, unleashed their new smash, 'Glad You Exist,' and are currently tallying 40 million global streams per week. In Europe, The Snuts and Capo Plaza, both had number one albums. Amazingly, seven tracks from Capo's album landed in Italy's top 10. As we look to the rest of the year, our hot streak should continue with forthcoming albums from both emerging and established stars like Myke Towers, Quando Rondo, Coldplay, Silk Sonic, and Cardi B. More releases from our roster of global superstars will be dropping later this year. In Music Publishing, we delivered strong revenue growth of 12%, driven by a 33% increase in digital revenue. Performance revenue remained challenged by COVID due to the closure of bars, restaurants, clubs, and concerts. Sync was on the upswing, growing 12% as TV and film production resumed. In Q2, Warner Chappell had a share in 23 number ones across the radio, streaming, and Billboard U.S. charts. We were also honored with the ASCAP Pop Publisher of the Year award. The value proposition that Warner Chappell offers songwriters has never been more relevant. We've become the destination of choice for exceptional talent. We've done this by building a culture centered on growing careers and creating long-term value. With our best-in-class creative services team, global infrastructure, and a suite of tech tools, we've been able to distinguish ourselves. This has enabled us to retain big names like Saweetie, signed international stars like Jorge Drexler, and established partnerships with labels like Love Renaissance. I've said repeatedly that music can come from anywhere and resonate everywhere. As we continue to grow our business across the globe, our focus is on culturally dynamic markets. We seek out vibrant music scenes with sustained growth in music consumption. Last year, we launched new offices in countries with massive untapped potential such as India, Vietnam, Peru, and Turkey. This year, we've continued to expand our global reach. In Q2 alone, we made investments in markets that have vast growth potential, given their combined population of almost three billion people. In China, we signed a multi-year licensing agreement and created a new joint venture label with Tencent Music. In Russia, we've extended our number one market share position through the acquisition of Zhara Music, now rebranded as Atlantic Records Russia. In the Middle East, we announced our investment and partnership with Rotana, the leading independent music label in the Arab world. In Africa, we recently appointed Temi Adeniji as our operating head for South Africa as well as strategy for the continent. Temi and her team will continue to focus on growing our investments and partnerships with Africa's best independent players. They will also be providing local artists with the amplification support needed to reach global audiences. We're focused on maximizing our artists' and songwriters' reach and revenue across all fandom touchpoints, whether it's a snippet on social media, a soundtrack to an in-home workout, a live performance in a metaverse, or an NFT digital collectible. These points show how the music ecosystem is broadening and deepening its relationship with people everywhere. Here are some recent examples of this strategy in action. Over the last few years, we've built up a network of award-winning media brands. To further accelerate the growth and monetization of these brands, we promoted Ben Blank to President of Media at WEA. Ben will lead our newly formed digital advertising creative content division. All of our owned and operated brands, UPROXX, Songkick, and HipHopDX, will retain their editorial independence and will benefit from a unified approach to ad sales and campaigns. We recently engaged the creativity of the Roblox community through two immersive experiences. We held an album launch party for Why Don't We, and Royal Blood performed at the Bloxy Awards. Both of these experiences have drawn millions of fans who were able to interact with virtual environments via their avatars. As we continue to explore new ways to connect artists and fans, we look forward to delivering events on a more frequent and bigger scale. Just yesterday, we announced a groundbreaking alliance and investment in Wave, the leader in virtual entertainment. Through this partnership, Wave will collaborate with WMG to develop virtual performances, experiences, and monetization opportunities for our global roster. This includes exploring new forms of ticketing, sponsorship, and in-show interactions. We're already working on a number of really exciting events scheduled over the next year. We were early to see that music would be fertile ground for digital collectibles. In 2019, we made an investment in Dapper Labs, the creators of NBA Top Shot. Last September, we began to experiment in this market, collaborating with Dapper to release two NFT CryptoKitties, inspired by Warner Records rock band, Muse. Last week, we announced an innovative new partnership with the world's largest avatar company, Genies. This partnership will enable our artists to sell exclusive digital wearables directly to their fans. Our goal is to develop authentic, quality, and environmentally conscious products that build long-term fandom relationships. While it's still early days for this space, we're enthusiastic about its potential. Finally, I want to personally thank all of our Warner Music Group colleagues, artists, songwriters, and partners for their incredible contributions to helping our company thrive over the past year. We're confident that the music entertainment industry will emerge from the pandemic with a renewed spirit of inventiveness and collaboration. All of us at WMG continue to look to the future with a tremendous amount of excitement and enthusiasm. With that, I'll turn it over to Eric.

Eric Levin, CFO

Thank you, Steve, and good morning, everyone. Our second quarter performance was highlighted by new releases that performed well across formats, continued acceleration in revenue from emerging streaming platforms, and thoughtful cost management. This translated into impressive growth across most key financial metrics, including strong free cash flow conversion. Moving to our results in the quarter. Total revenue was up approximately 13% on a constant currency basis and up 17% on an as-reported basis compared to the prior year quarter. Artist services and Recorded Music and performance in Music Publishing were the areas most affected by COVID due to the cancellation or postponement of touring. If you exclude those areas, our revenue grew 16% on a constant currency basis and 20% on an as-reported basis compared to the prior year quarter. Both adjusted OIBDA and adjusted EBITDA saw significant year-over-year increases, reflecting strong operating performance as we continue to shift from physical to digital. Adjusted OIBDA increased over 21% to $255 million with margin improving to over 20%. This improvement was driven by revenue mix, lower stock-based compensation and other related expenses, as well as cost management initiatives. Adjusted EBITDA increased over 25% to $268 million with margin improving from 20% to 21.4%. The increase was largely due to the same factors that drove our adjusted OIBDA performance. Please refer to our press release for calculations and reconciliations related to adjusted OIBDA and adjusted EBITDA. In Recorded Music, Q2 revenue increased approximately 13% over the prior year quarter. Digital revenue grew 18% driven by a 20% increase in streaming. Streaming as a category saw growth across all key components with both subscription and ad-supported streaming growing double digits. Growth in revenue from emerging streaming platforms continues to meaningfully outpace the broader streaming category. As Steve mentioned, we are now generating more than $200 million in annualized revenue from these platforms. Physical revenue increased by an impressive 19%, driven primarily by increased demand for vinyl and releases from The Yellow Monkey, Neil Young, and Fleetwood Mac. Licensing revenue declined by 12% as growth in sync was more than offset by lower broadcast fees. Artist services revenue, which includes tour-related merchandising as well as direct-to-consumer e-tailer EMP, declined by 3%. While revenue related to concert promotion and tour-related merchandising significantly declined year-over-year, EMP saw continued healthy revenue growth of over 44% as limited access to brick-and-mortar stores in Europe drove online shopping. For Q2, Recorded Music adjusted OIBDA increased by more than 27% over the prior year quarter to $242 million due to revenue mix, cost savings, and the impact from our recent acquisitions. Adjusted OIBDA margin increased 2 percentage points to 22.9%. Music Publishing revenue increased by approximately 12% as growth in digital and sync revenue more than offset declines in performance and mechanical revenue. Digital revenue increased by more than 33%, reflecting the continuing shift to streaming and timing of new deals with digital service providers. Synchronization revenue increased by 12% due to increasing motion picture and commercial income. The decline in performance revenue was primarily due to COVID, while the decline in mechanical revenue reflects continuing shift to streaming. Music Publishing adjusted OIBDA decreased by 6% from $49 million to $46 million with margins declining from 29.5% to 24%. Those declines were attributable to the timing of a nonrecurring benefit from the prior year quarter as well as the impact of revenue mix, driven by the reduction of high-margin performance revenue due to COVID. Operating cash flow grew by 74%, increasing to $150 million compared to $86 million in the prior year quarter. This improvement was driven by strong operating performance, timing of working capital, including payments from certain digital service providers, and timing of royalties. Free cash flow increased to $89 million from $67 million in the prior year quarter. CapEx was $20 million compared to $13 million in the prior year quarter. The increase is related to our previously announced plans to upgrade our IT and finance infrastructure. The total investment associated with our financial transformation program is expected to be about $20 million in fiscal '21 with annualized run rate savings of approximately $35 million to $40 million once fully implemented in 2023. For fiscal '21, we expect total CapEx to be in the range of $90 million to $100 million. Cash taxes were $35 million in the quarter. And as of March 31, we had a cash balance of $588 million and net debt of approximately $2.8 billion. On January 20, we completed an amendment to our term loan credit agreement. The amendment extends the maturity from November 1, 2023, to January 20, 2028, and removes a number of negative covenants. In April, we refinanced our 5.5% notes through the issuance of $325 million of incremental term loan B, reducing our blended cost of debt to 3.4% and extending our maturities. In closing, we are extremely proud of our first half results and look forward to delivering an exciting slate of new music over the rest of the year. We thank you for joining our call today, and we'll now open the call to questions.

Operator, Operator

Our first question comes from Kutgun Maral with RBC Capital Markets.

Kutgun Maral, Analyst

Congratulations on the results, particularly with the strong streaming momentum. I know you don't give guidance, but going forward, as you look at what seems to be an increasingly competitive landscape with some large players aggressively pursuing acquisitions, are you concerned about your outlook going forward?

Steve Cooper, CEO

Thanks for the question, Kutgun. The short answer is not at all. We're really very confident about our competitive position, and I think that Q2 results are really a great signal of what's to come through this year and beyond. It's important to recognize that we are recording these revenues and EBITDA while we have maintained really rigorous financial discipline. We're one of the few music companies in the world that can really both buy and build in a universe of opportunity that's exploding right now. That's true for our A&R with everyone from emerging artists and songwriting talent to global superstars and music legends. It's true for our M&A activities. Look at our investments in territories like Russia and Africa or the acquisition of owned and operated channels like EMP and IMGN. It's true for our technology, where our tools, like our proprietary A&R apps, Sodatone, or our partnerships with innovative brands like Roblox, Genies or Wave continue to grow. Bottom line is we have what everybody wants, which is the best music in the world. And what continues to make us unique is the combination of our scale and agility. We've really got a number of really incredible releases coming over the rest of the year. So I expect our momentum to grow, and to be frank, the whole organization as we see what we've got teed up and as we begin to come out of COVID is really, really fired up.

Operator, Operator

Our next question comes from Andrew Uerkwitz with Jefferies.

Andrew Uerkwitz, Analyst

I guess I just want to kind of see if you couldn't expand on some of these new opportunities. The announcements with Genies and Wave, how should we think about that TAM opportunity for virtual fan engagement? And kind of as a follow-up of all the new kind of opportunities that you've laid out, social, virtual platform for music, exercise and all these other things, like which one gets you most excited?

Eric Levin, CFO

Steve, do you want to take that? Or do you want me to take that?

Steve Cooper, CEO

Yes. Yes, I'll take the first part, then you should chime in. First of all, thanks for the question, Andrew. We've got great expectations for the investments we make, and we make investments from the perspective of how can these help us amplify music? How can these investments amplify our touchpoints with fandom? How can these investments help us create and monetize new revenue streams for our artists? If you look at the investments we're making, they track, in many ways, the eyeballs and ears of billions of people around the world that are developing, creating, and living in metaverses. And when you look at a number of our recent investments, all of them are focused on us having the tools, the technology, and the access to these new worlds, Andrew, which we expect to continue to grow. We expect to continue to grow at meaningful double-digit numbers. So this is consistent with us wanting to ensure that we are able to effectively operate on every fandom touchpoint that should and will become available to our artists and songwriters. Hopefully, that answers your question from a strategic perspective.

Andrew Uerkwitz, Analyst

Yes, absolutely.

Eric Levin, CFO

If I can add to that just from perhaps a TAM and financial standpoint. So one of the things that we talked about is three years ago, these emerging forms of streaming revenue were approximately zero. One quarter ago, we said on an annualized basis, the revenue was running at about $150 million. Now this quarter, we're saying it's running on an annualized basis at $200 million. They are growing rapidly and growing more diverse, as Steve said. On your question about TAM, it's much more challenging but exciting in many ways to compare this to, say, subscriptions where your TAM is your smartphone universe. Here, your TAM is your smartphone universe, but you potentially have multiple touch points, and therefore, multiple opportunities to monetize music within one smartphone, as one user could use social media, but also like to have live streams, participate in games, whether it's metaverses or otherwise, and with Genies utilize their avatars, they could also collect NFTs. And as you see from the range of partnerships that we put together, some are areas that are active in monetizing and well distributed already, and others are really looking to the future and activating new forms of NFTs, whether it's with Dapper, where we've done some CryptoKitties for the band Muse or new activations that we're looking at. Getting our artists on Genie with avatars or working with Wave on live streams and new ways to monetize, the opportunity to expand this universe is really limited by the ability to create new products and continue the tremendous momentum to monetize. And we're excited about what's happening here and really focused on growing this universe. So thank you.

Operator, Operator

Our next question comes from Ben Swinburne with Morgan Stanley.

Ben Swinburne, Analyst

Maybe two questions. Eric, I know your company doesn't provide guidance, but I'll make an attempt because you've had a strong first half of the year. This year, you've mentioned that the second half is expected to be weighted more heavily. You achieved 13% constant currency growth this quarter despite some challenges from COVID. You've also discussed the release schedule for the latter half of the year. Do you anticipate that, excluding foreign exchange effects, revenue growth will accelerate in the second half compared to the first half? That's my first question. Then, Steve, you brought up Ben's promotion and your media initiatives, which received considerable press coverage. Most of us don't usually associate Warner with an advertising business in terms of selling ads and creating branded content. Could you elaborate on your strategy and whether you can quantify the opportunity? Is this a business that might be more significant than we previously understood? Any insights would be appreciated.

Eric Levin, CFO

Sure.

Steve Cooper, CEO

Eric, why don't you go first? And then I'll respond.

Eric Levin, CFO

Yes. So I appreciate your shot at the guidance, Ben. We don't give the guidance, but certainly give color. At the beginning of this year, we said we expected a strong second half release schedule, and we continue to expect to have a strong second half release schedule. We've already seen singles coming out from Cardi B and Silk Sonic, Bruno Mars, Anderson Paak collaboration. There's more great music coming out that Steve mentioned earlier in his talk. So we're very excited about the second half of the year. We think the momentum and growth trajectory that we've been continuing to build even through COVID, we were fully managing our business for growth going forward. Although we don't give guidance, we're very excited about the second half of the year, Ben.

Steve Cooper, CEO

So Ben, regarding advertising, we have been in the ad sales business for quite some time. We have a strong presence in ad sales on YouTube and actively develop products for brands. Historically, our operations have focused on ad selling and brand support individually. Now, we are consolidating all of our ad sales, brand support, and production capabilities under one leader to create a unified, integrated offering from Warner Music Group for agencies, brands, and our artist roster. We are evolving our approach to provide a one-stop shopping experience, so to speak, Ben.

Ben Swinburne, Analyst

Got it. And I presume that means you think that business would grow faster, would be more substantial over time as a result of these changes? Or.

Steve Cooper, CEO

Yes, because strategies will be unified. Presentations will be much more effective and efficient. We will provide agencies, brands, and others with the ability to search and select from our global portfolio. This should enhance our ability to attract revenue, specifically ad revenue, both globally and regionally.

Operator, Operator

Our next question comes from Michael Morris with Guggenheim.

Michael Morris, Analyst

I have two questions. The first one is for Eric regarding the long-term EBITDA or profit margin opportunity. You have demonstrated significant expansion in this area and discussed your discipline. I'm curious about the competitive nature of the industry, as you need to appeal to artists, and the transparency that comes with that. How do you view the potential for EBITDA margin expansion over time? Is there a ceiling on it due to this transparency? My second question pertains to the international investments you've made. The three you mentioned are quite different, and I would like you to elaborate on the scale of the opportunity for each one independently. Additionally, how does this relate to your existing artist catalog? Is it about finding new avenues to leverage it, or does it involve entering these markets to help discover and expand your catalog? I'm interested in understanding the growth potential for these investments.

Eric Levin, CFO

Sure. I can take these. Regarding our long-term EBITDA margin, we believe that, looking ahead three to four years, a low to mid-20s EBITDA margin is achievable. Back in 2019, before we fully understood the impact of COVID, our adjusted EBITDA margin was 19%. Currently, it stands at 21.4%, indicating we have already moved into the low 20s. There are several reasons for this. Some revenue streams have been affected by COVID, particularly in our live tour merchandise business in the U.S. and concert promotion in Europe. Although these areas are not significant in terms of our total business, they are low-margin segments. Their short-term revenue declines have provided a temporary boost to our adjusted EBITDA. Excluding those impacts, our underlying business is performing according to our expectations. As we transition to a more digital approach, we anticipate that Recorded Music will naturally enhance our margins, which we are currently observing. We are also implementing various cost-saving initiatives across our corporate, Music Publishing, and Recorded Music divisions, identifying efficiencies through automation. We're seeing positive results from these efforts, including new policies to reduce costs related to real estate and travel, not just during COVID but also in the long term once we return to the office. Additionally, our financial transformation, once fully operational, is projected to save us $35 million to $40 million annually. We believe that this combination will help us manage our business effectively and maintain margins in the low 20s as we recover from COVID and as live events hopefully return later this year and into 2022. We are committed to this as our long-term goal and will continue seeking opportunities to improve further. We're consistently exploring technologies that enhance efficiency in our operations, and we will persist in these efforts for the coming years and beyond. This quarter, we've made several types of investments, including international ones and those in the digital future. Our investment in Zhara, now operating as Atlantic Russia, strengthens our position as the leading player in Russia, enabling us to expand our A&R efforts and roster while driving music into a rapidly growing market. In addition to Russia, we view international investments in regions like the Middle East and Africa as high-growth markets for the future, particularly as streaming and digital platforms are becoming more prominent. For instance, our involvement with Chocolate City in Nigeria allows us to establish a local presence, while our investment in the Africori distributor enhances our reach and foothold in these expanding markets through local repertoire and distribution capabilities. In the Middle East, we've established offices and launched owned and operated labels, including a regional operation in Beirut and a label group in Turkey. Our partnership with Rotana not only strengthens our position with a key market player but also provides global distribution rights for their music outside the region, allowing us to capitalize on this rapidly expanding segment. We are always on the lookout for emerging markets embracing streaming and are committed to investing in their growth as monetization opportunities materialize. Our focus is on areas that promise financial returns, and we are also investing in the digital ecosystem. For example, our investments in Roblox allow us to explore live streaming and monetization strategies, alongside our partnerships with companies like Wave and Genies, which are leaders in the digital space. We aim to ensure that music receives the attention it deserves while developing long-term monetization models that benefit fans and reward our artists. We are actively engaged across all these fronts.

Operator, Operator

Our next question comes from Jessica Reif Ehrlich with Bank of America.

Jessica Reif Ehrlich, Analyst

A couple of questions. First, physical was surprisingly strong. Was that all Japan? And what's the outlook for physical in general? And then secondly, Music Publishing, it feels like there's still a deal a day that's been going on for a couple of years. Can you talk about your appetite for Music Publishing at this point, given elevated acquisition multiples? And you had some acquisitions in the last couple of quarters. How much did that contribute this year? How much is, I guess, organic growth versus how much did acquisitions add?

Eric Levin, CFO

Sure. Steve, I can address some of this, and you can add your strategic insights afterward. In terms of physical music, we experienced a 19% growth this quarter, marking a strong performance. Vinyl continues to be a growing segment within physical music. We are focusing on upcoming releases and events to fully capitalize on that potential. One significant success was The Yellow Monkey release in Japan. Additionally, we have had great successes with our catalog, including Fleetwood Mac's 'Rumours' and Neil Young's classic albums, which have helped us engage with this market. However, we need to remain cautious about the overall physical market as CDs continue to decline. There are opportunities for strong quarters based on the release calendar, yet it's reasonable to anticipate an overall decline in physical sales. We are committed to maximizing its potential, particularly in the vinyl market, which is a promising long-term growth area. Regarding Music Publishing, I’ll address that last since I believe Steve might want to add to it. Earlier this year, the transactions we completed contributed $11 million to adjusted EBITDA, showcasing robust growth even excluding these. In Music Publishing, we operate as a full-service provider through Warner Chappell. We are involved in signing songwriters early in their careers, assisting them in honing their songwriting, connecting them with co-writers, and helping them pitch their work to prominent artists. We are not just acquirers; we focus heavily on development, which is vital to Warner Chappell's operations. We are also disciplined investors, thoroughly examining market opportunities and only closing deals that meet our financial return criteria. Our ability to evaluate opportunities across various genres and global markets has allowed us to identify numerous attractive investment prospects. While many deals are ongoing, we will only pursue those that align with our return expectations compared to other opportunities. We are not lacking in appealing investment options to drive Warner Chappell's growth.

Steve Cooper, CEO

Yes. Jessica, I think Eric touched on all of the high points. But we have been engaged in these acquisitions. As importantly, we are providing an array of services to many of these acquirers because most of the people coming into this market are making these investments are pure financial players. But the fact of the matter is that these assets have to be managed. And one of the services we provide is actually the management of these portfolios to these third-party buyers. So I'd like to point that out. Number two, when we emphasize our financial discipline, it's not only what we have to do to grow the top line and the bottom line, but it's also to ensure that our cash flow from operations remains very, very healthy. And one of the things we are really thoughtful and disciplined about is not buying assets at multiples that will create or severely crimp cash flow from operations. So when we look at our metrics and we look at the multiples that some of these deals go at, very candidly, we look at those deals and say we can't make them work. And we can't make them work because we've got a real cost of capital. We pay dividends to our shareholders. We've got to maintain a healthy cash flow from operations. So if we can't figure out how to really optimize in all of the right ways some of these deals in the marketplace, we just take a pass. Hopefully, that answers your question.

Operator, Operator

Our next question comes from Todd Juenger with Sanford Bernstein.

Todd Juenger, Analyst

I have just one topic I would like to discuss. I'd love to hear Steve's thoughts, and I think Eric might have some input as well. The topic is data, particularly in our increasingly digital world where various business and channel partners are creating data repositories about listeners, fans, and artists. Streaming services are generating their own data, ticketing services and event managers are accumulating data, especially in a post-COVID landscape, and social and gaming platforms are also collecting significant amounts of data. I assume you have your own first-party data as well. My question revolves around the perception among investors that this data is very valuable. Is that true? Do you see substantial value in any of this data? Are some pieces particularly valuable to you, while others may be somewhat redundant or merely nice to have? Eric, for the financial audience, if this data is indeed valuable, how are you accessing it? Are you ever explicitly purchasing data sets, or are you securing access through partnerships and various agreements? How do you ensure that data access is included in your agreements with your partners?

Steve Cooper, CEO

So Eric, I'll start, and then you can add your thoughts. Todd, regarding Warner Music Group, we handle 2 billion lines of data daily, and that number is increasing. It's not just the amount of data that's crucial; it's what we can extract from it to obtain useful information and insightful analysis. When people refer to data as oceans, they truly mean vast expanses. The challenge lies in organizing that data. For instance, looking at the Pacific Ocean, while it’s significant to analyze just the top layer, we need to be able to categorize and extract valuable insights from deep down, all the way to the Marianas Trench. Data, when not organized and analyzed with the right tools, loses its value. We receive data daily from numerous sources. While everyone collects their own data, our strength lies in aggregating information from across platforms. We pull data from Live Nation, Spotify, Apple, YouTube, Deezer, Facebook, TikTok, and many others. Although these platforms can analyze their own data, we encompass a wider view, as we can explore every aspect of the dataset. One of the services we offer to our artists and songwriters is data aggregation, aided by our internal data scientists who help us extract meaningful insights. When data is organized properly, it becomes incredibly valuable. This enables us to enhance our marketing and promotional efforts by understanding where our artists' fans are, what they desire, and what they expect. In short, data, when managed appropriately, holds significant value. One of our guiding principles in negotiations is that without data, there's no deal. Eric, feel free to add anything.

Eric Levin, CFO

The only thing I want to add is that we do have a series of tools that utilize all this data to empower our decision-making and assist our experts in making efficient choices in real-time. We have Sodatone, our A&R tool, which enables our A&R executives to identify emerging music and artists who are just starting out, helping us determine which ones to meet and possibly sign and develop. We also have OPUS, our marketing tool, which helps us analyze music currently in the market to decide the best ways to promote it, ensuring we use our marketing resources efficiently to enhance music performance. Steve mentioned our artist portals, which allow artists to monitor their music's performance and market presence. Additionally, we have song-pitching tools and sync tools. In total, we have a comprehensive set of tools that draw on both internally generated and externally sourced data to ensure we operate our business as effectively as possible. We continuously upgrade our data and tools to guarantee we are leveraging them to achieve tangible results.

Operator, Operator

Our next question comes from Matthew Thornton with Truist Securities.

Matthew Thornton, Analyst

I have a couple of quick questions. First, regarding Spotify's price increase, do you have any insights or expectations on whether other digital service providers will follow that trend? Also, why might price increases from these providers not align with your streaming business? That’s my first question. The second question is about live music. There’s been some discussion about pent-up demand related to theme parks and similar venues as we emerge from COVID. Do you have any evidence of pent-up demand for live concerts and festivals? Any insights on that would be appreciated.

Steve Cooper, CEO

Well, I'll share my thoughts first, and then Eric can elaborate on the financial implications. Let’s start with the second question. There seems to be a consensus that there is pent-up demand for live events. You might have noticed the sold-out crowd in New Orleans recently for the UFC championships. We've seen large crowds at various managed events in the past few months. When New Zealand reopened for live concerts, there was a noticeable surge in demand. Thus, it's reasonable to conclude that pent-up demand exists. However, I also believe that over the past year or so, we should anticipate some behavioral changes. For instance, if historically 100 people wanted to attend a concert, there might now be about 10 to 20 who have lingering concerns about attending live events and large crowds. Many may continue to prefer the habits formed during COVID, such as watching live streams or virtual concerts and engaging in different ways. So, while pent-up demand is present, behavioral shifts may occur due to ongoing uncertainties surrounding COVID. Regarding price increases, Spotify has announced several increases for various offerings in emerging and developing markets, and recently in the U.S. and U.K. Users often build their libraries and playlists on these platforms, creating a sense of stickiness. As Spotify and potentially others try out these price increases, if they don’t encounter significant churn, which we haven’t observed so far, I believe we can expect other digital service providers to raise their prices as well. It’s important to note the significant disparity between audio and video pricing. Although audio may never completely match video in pricing, we expect that over time, the gap will narrow.

Eric Levin, CFO

No. Steve, I thought you covered it very well.

Matthew Thornton, Analyst

I guess just. Question for Eric. Is there any reason that when a DSP raises prices, it wouldn't have a corresponding impact on your business? I just want to clarify that.

Eric Levin, CFO

Thank you. I would just say we don't talk about specific DSP deals. So I don't want to get granular, but I would say, in general, when retail rates go up in the market that in general, we would expect to share and participate in that incremental upside, yes.

Operator, Operator

Our last question comes from Jason Bazinet with Citi.

Jason Bazinet, Analyst

Your business is intriguing because it was in decline for many years as physical sales fell, and now you're experiencing growth as the digital transition takes shape. What can be challenging in this context is understanding the full-year impact, particularly if you have several successful records or artists on your roster. How does it translate into growth, such as market share gains or losses? Should I think of it as a best-case scenario providing one or two percentage points and a worst-case scenario acting as a headwind or tailwind in any given year? Is that a reasonable estimate?

Eric Levin, CFO

Thank you, Jason. I would say that the music industry is definitely evolving, and while I haven't been involved for 20 years, my experience of 7 years provides some insights. Music has become increasingly global. We release music in 50 markets worldwide, and strong releases in countries like Japan and Germany can have a significant impact. We have various ways to promote music and drive performance in the market. We have global superstars who can influence the global music scene, but we also invest in local and regional talent as well as new artists that we are continually developing. Our approach encompasses a diverse portfolio across different genres and artists at various stages of their careers. We take pride in identifying, developing, and marketing the next generation of superstars and nurturing long-term relationships with them as they build their careers. This effort spans across Asia, Latin America, Europe, and, of course, the U.S. and U.K. I believe that individual artists can influence the market by a point or so. However, we consistently focus on a broad and deep portfolio each year, ensuring we release quality music. If we do that, we are confident in our ability to achieve the performance and growth we aim for, and we have seen this success over the past 7 to 8 years.

Operator, Operator

I would now like to turn the call back over to Steve Cooper for closing remarks.

Steve Cooper, CEO

So again, I want to thank everybody for taking the time to join us today. And please, everyone stay safe, and have a really good time enjoying Cinco de Mayo. We'll talk to you in a few months. Bye-bye.

Operator, Operator

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