Warner Music Group Corp - Ordinary Shares - Class A Stock

Welcome to Warner Music Group's Third Quarter Earnings Call for the period ended June 30, 2026. At the request of Warner Music Group, today's call is being recorded for replay purposes and if you object, you may disconnect at any time. Now I would like to turn today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin.

Good afternoon, and welcome to Warner Music Group's Fiscal Third Quarter Earnings Call. Please note that our earnings press release, earnings snapshot and Form 10-Q are available on our website. On today's call, we have our CEO, Robert Kyncl, and our acting CFO, Lou Dickler, who will take you through our results and then answer your questions.

Before our prepared remarks, I would like 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 including metrics that are adjusted for notable items during this conference call and in our earnings materials 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 that there is a reasonable basis for them.

However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements as they are subject to a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. Information concerning these risk factors is contained in our filings with the SEC and with that, I'll turn it over to Robert.

Hello, everyone, and thank you for joining us today. We have remained focused on execution against our strategic goals, and we're proud to have delivered or over-delivered against our targets for the fifth quarter in a row. As you will have already seen in the preliminary financial results we released on Monday, this was yet another quarter of healthy top and bottom line growth led by a robust 12% increase in recorded music subscription streaming revenue on an adjusted basis. We also saw continued progress on our cost savings initiatives, and our operating leverage resulted in margin improvement and strong cash flow generation in the quarter.

Highlights include a 9% increase in total revenue rising to 11% on an adjusted basis, 15% growth in adjusted OIBDA, which led to 100 basis points of margin expansion and a 209% increase in operating cash flow that resulted in a roughly $100 million increase in our cash balance. These impressive results are a testament to the hard work of our global teams and a culture that celebrates human creativity while embracing technology shifts to future-proof our business.

Before diving deeper into performance and strategy, I'd like to provide an update on recent management changes. As you know, Armin Zerza has stepped down from his position for personal reasons, and I'd like to thank him for the lasting contributions he has made to WMG.

Lou Dickler, our Global Controller and Chief Accounting Officer, will serve as acting CFO as we conduct a search. Lou will walk you through the financial results later on. As part of these management changes, Tom Corson, Co-Chairman and COO of Warner Records will step into the role of COO of Warner Music Group.

Tom is one of the most dynamic, respected and effective executives in the music business and a fierce champion of talent. Together with Aaron Bay-Schuck, he's helped architect Warner Records resurgence, and we'll leverage his vision, disciplined execution and deep experience across the entire company as we continue to deliver for our artists and songwriters.

I want to reiterate our commitment to our previously articulated financial targets of high single-digit consolidated revenue growth, double-digit adjusted OIBDA growth, double-digit adjusted EPS growth and 50% to 60% operating cash flow conversion. These targets are supported by our long-term strategy, enduring structural changes, a focused capital allocation framework and a disciplined execution already underway.

Moving on. We continue to make great progress on our three strategic priorities: growing our share, increasing the value of music and becoming more efficient. First, growing our share. We're focused on sustainable market share growth. And year-to-date, our overall U.S. streaming share and our U.S. new release streaming share are up.

We're achieving this through intensified focus across our portfolio. We're developing the next wave of talent like Bella Kay and Stella Lefty, who recently broke into the Billboard Hot 100 top 3. And we're amplifying breakthrough stars like Sombr, PinkPantheress and Alex Warren as well as hitmakers like Kehlani and Charlie XCX, who just became the first British female artist ever to land 2 U.K. #1 albums in the same year.

We're also continuing to attract new superstar talent with Miley Cyrus recently signing to Atlantic Records and signaling that her next project is underway. Under Elliot Grainge's leadership, Atlantic share of new releases has ballooned jumping to the #2 spot on Billboard midyear report, up from the #4 spot in 2024, reflecting the label's creative renewal.

Globally, Dai Dai, Burna Boy's official World Cup collab with Shakira became the #1 song in the world, topping both the Spotify and Billboard global charts for multiple weeks. Meanwhile, Madonna's new album Confessions II debuted at #1 in the U.S. and U.K., leading the way for the 17% growth in our physical revenue in the quarter.

The successful release of her album is a true company effort as she signed to us for both recorded music and publishing. We're proud stewards of her amazing catalog, which is seeing record new audience growth, particularly with people under age 35 and now make up up to 60% of her Spotify streams.

In fact, leveraging our frontline approach to marketing our top 500 off-roster catalog artists is driving market share gains year-over-year. And as I've talked about before, our teams are also expertly using proprietary AI tools across our entire catalog of over 1 million songs to detect opportunities to optimize all of our music for streaming services and using automated workflows to fuel long-tail performance.

So we're able to give all of our musical gems, the care and attention they deserve, something that was humanly impossible a year ago. More specifically, we're utilizing AI to create new marketing content derived from our catalog, like motion arc, lyric videos and visualizers to drive engagement. And we've built a proprietary marketing identification model that helps us prioritize opportunities to drive user engagement and revenue.

A quick example, using these tools, we were able to boost Chris Rainbow's 1979 recording, Be Like A Woman from just 50,000 streams in all of 2025 to over 140 million stream so far this year. Our ability to effectively deploy end-to-end automation across our catalog represents a tremendous untapped opportunity that we will continue to build towards. We're proud of the fact that our share improvements to date have been largely organic, differentiating us from some of our peers. But we're now taking steps to accelerate and fortify these gains through disciplined, patient and return focused M&A.

For example, our joint venture with Bain has deployed $650 million in catalog acquisitions and is a strong pipeline for the future. And we've expanded our distribution business through the acquisition of independent music platform, Revelator.

Distribution is an important part of the ecosystem, and we're taking a thoughtfully balanced build-and-buy approach, which is driving profitable growth in this area. Our ADA distribution business is already a large and growing and profitable. Under Alejandro Duque's leadership, we've exported the best practices from our successful business in Latin America, where distribution deals are the norm and are applying these learnings to power our distribution across the globe.

In addition, by embedding and integrating cutting-edge Revelator cutting-edge tools, ADA will enhance its value proposition for artists and labels with next-generation digital distribution, rights management, royalty accounting and real-time analytics.

Our momentum in this space is attracting new partners. We recently signed a global distribution deal with GoDigital Music, an independent user group, bringing over 85,000 new tracks into the ADA ecosystem. We also inked distribution partnership with AIM Music, a newly founded Berlin-based independent label.

Our publishing business continues its winning streak growing 11% this quarter. Recent highlights include Raye releasing a [indiscernible] U.K. #1 album, superstar songwriter, Amy Allen, contributing to Olivia Rodrigo's #1 global smash Drop Dead and Ilya contributing to Ariana Grande's Billboard Hot 100 #1 single, Hate That I Made You Love Me.

We renewed deals with Billboard's 2026 Country hitmaker of the Year, Riley Green; and Latin Grammy winning global Spanish Superstar Quevedo, a testament to the best-in-class reputation that Warner Chappell has built over the years.

Next, turning to increasing the value of music. As you know, I've always championed the deal structures that better reflect the true value of music. And just over 2 years ago, we took a much more proactive approach to pricing. Fast forward to today, me, along with our DSP partners have evolved the industry standard to a contractual wholesale rate increases, occurring in much more regular cadence, providing us the rights holders with greater baseline certainty. This also benefits the DSPs, which are taking the opportunity to increase subscription prices while innovating to provide new offerings to their consumers.

So it's truly a win for everyone. The latest proof point in this evolution is our renew deal with Apple, which completes alignment across all of our major DSP partners around contractual PSM increases, giving us better visibility into our outlook. The success of our strategy is evidenced by the marked acceleration in our subscription streaming growth which we expect to be resilient for the years to come.

AI creates a new incremental vector to increase the value of music, and we've taken a leadership role to capitalize on the new opportunities it is unlocking. We've developed new monetization frameworks like our partnerships with Suno, Stability AI, Klay and Udio and expect our licensing deals to contribute materially to our subscription streaming revenue growth starting in fiscal '27.

As we continue to explore opportunities to partner with traditional DSPs on AI tiers, we're thinking holistically about our relationships to ensure the right deal terms are in place, including guardrails and protections for our artists and song writers. And this not only unlocks industry-wide growth, but also enables our partners to innovate, providing fans with new ways to engage with their favorite artists and songs.

On the regulatory front, we've been actively working with governments around the world to craft AI policies that protect free market licensing and resist weakening of copyright. And in the last quarter, we've seen some key wins. As a result of intense lobbying efforts at the highest levels of government, Chile again rejected the introduction of a new tech data mining exception that would have allowed AI developers to use copyrighted content to train their systems without a license. And in July, Australian Prime Minister, Albanese rejected a proposal from AI developers they would have shielded them from liability for copyright infringement.

And now on to the third priority of becoming more efficient. Our strategic reorganization, investments in technology and the continued successful rollout of our financial transformation program have enabled us to consistently deliver strong growth while cutting costs and increasing margins.

We're integrating AI to optimize revenue growth and increase productivity while leveraging AI across our functional departments, including finance, legal and HR to streamline workflows, accelerate decision-making and reduce our spend.

Our cost savings initiatives are progressing on schedule, and we have the organizational structure in place to continue transforming WMG into a more efficient and technology-enabled music company. We have an exciting release schedule ahead, including new music from Alex Warren, Sombr, David Guetta, Ravyn Lenae, Mike Towers, Teddy Swims, Tinashe, Dan and Shay, Miley Cyrus many more.

With strong momentum driven by our creative success and execution across our strategic, financial and operational priorities, we have set ourselves up for sustainable growth that will continue to be supported by a capital allocation program with clearly defined return thresholds across organic and inorganic investments, driving the value of music across tiers and platforms and disciplined cost management that drive strong margin expansion and cash flow delivery. I will now pass it over to Lou.

Thank you, Robert. For the fifth consecutive quarter, we have delivered growth in line with or better than our sustainable growth model and targets of high single-digit revenue growth and double-digit adjusted OIBDA growth. Q3 was another quarter of healthy top and bottom line performance anchored by the PSM increases and sustained global share progress that drove revenue growth. We also saw continued margin expansion as cost savings delivery and operating leverage resulted in margin improvement.

Our strong business momentum continued this quarter with the delivery of impressive results as total revenue grew 9% or 11% on an adjusted basis. Recorded Music revenue grew 9% led by subscription streaming growth of 12% on an adjusted basis. Subscription growth reflects the benefit of PSM increases, stable global market share trends and subscriber growth. Ad-supported streaming revenue was very strong and grew 10% on an adjusted basis, driven by an overall healthy ad market, supported by increased ad spending related to the World Cup and improved deal economics.

Physical revenue increased 17%, driven by strong releases in the quarter as well as catalog and carryover success. Artist services and expanded rights revenue increased 15%, driven by concert promotion revenue primarily in Japan as well as higher merchandising revenue while licensing revenue decreased 1%.

Recorded Music adjusted OIBDA increased 16% with a margin of 25.3%, an increase of 150 basis points. Music Publishing total revenue increased 11%, driven by 14% streaming growth due to continued market growth and the impact of new deals and renewals.

Sync revenue increased 7% and mechanical revenue increased 19%, while performance revenue decreased 2%. Music Publishing adjusted OIBDA increased 14% with a margin of 28.9%, an increase of 70 basis points. Total company adjusted OIBDA growth was 15% and margin expanded by 100 basis points.

Adjusted for notable items, adjusted OIBDA growth was 18% and margin expanded 130 basis points. The increase reflects revenue mix, operating leverage and cost savings delivery. Adjusted net income and adjusted EPS increased 21%.

We generated operating cash flow growth of 209% in the third quarter and for the last 9 months, our conversion ratio was 55% of adjusted OIBDA. As of June 30, we had a cash balance of $618 million, total debt of $4.7 billion and net debt of $4.1 billion.

In conclusion, we are incredibly optimistic about the future and laser focused on delivering on our targets of high single-digit revenue growth, double-digit adjusted OIBDA and adjusted EPS growth and 50% to 60% operating cash flow conversion. We remain on track to deliver margin expansion at the high end of our 150 to 200 basis points target in fiscal '26. And we continue to target margins in the mid-20s in the short term and high 20s over the long term.

With that, we will take your questions.

[Operator Instructions] Your first question comes from Clay Griffin with MoffettNathanson.

For Robert, I wanted to ask about the impact of Armin's departure. He obviously helped shape a clear narrative to investors in his arrival, coincided with more consistent results. What does his leaving the company mean for the future?

Sure. Thank you, Clay. So first, I want to say I appreciate Armin's contributions to the company, which are long-lasting, and particularly to the finance organization where he helped sharpen our focus around capital allocation, improved our forecasting and as you say, Clay, investor messaging. But all of those are deeply institutionalized in our company now. And so I'm very confident about them continuing exactly as they are. In terms of our improved performance, it's a result of a multiyear strategy that really started in 2023.

If you kind of look back, we've done two restructurings between fiscal '23 and '24 which totaled $300 million. We took it out of the business and promptly reinvested it into technology but mostly into A&R in order to drive growth.

And we've seen the fruits of that labor starting to kick in mid of fiscal '25. Then in '24, we also started in fiscal '24. We started a bold leadership changes. A good example is Elliot Grainge taking over Atlantic, Kevin Gore taking over global catalog and then last year, Alejandro Duque, taking over ADA in addition to his lifetime opportunity. And all of these leadership changes have contributed to rapid innovation and growth.

And lastly, also in fiscal '24, Carletta and her team started to devise a strategy for changing our pricing with the DSPs and that is something that we've obviously been talking about for quite some time. And in my earlier remarks, I spoke about our Apple deal, which really is a really nice bookmark to having all of our major DSPs aligned to run this.

So we had a strategy around these three points that we've been delivering on. And you're starting to see the fruit of that labor through continued strong performance over the last 5 quarters and it's providing us with better visibility, which then provides you with better visibility in our results. And I really have to say that the -- this kind of progress, having account of strategy and the account of progress is a result of an incredible roster of talent that we have, which is both artistic as well as executive and our growth strategy and underlying momentum remain really firmly intact.

Your next question comes from Benjamin Black with Deutsche Bank.

One for Robert. So market share in the U.S. was pretty weak according to the Luminate data. It doesn't seem like your results reflect that. So I guess, what are we missing? And can you perhaps explain that dynamic for us.

Yes, sure. You're missing full visibility. That's what it is. We had a great quarter, and we run a global business. So we, first and foremost, look at global metrics. However, those are not publicly available to you, which is why you can only look at the U.S. ones. Obviously, we're seeing a much more favorable impact in our global market share, and that is reflected in our results, as you say.

Furthermore, we look at year-to-date -- fiscal year-to-date impact. And if you look at the publicly disclosed metrics on U.S. streaming share, were up 0.3 percentage points. And on U.S. streaming new release share were up 0.8 percentage points. So obviously, there is lumpiness to the business quarter-to-quarter. But we look at things more long term and make sure that we're trending in the right direction.

And if you look at the last 3 years in global market share. We made a very significant improvement. And again, it's showing up in our business results. But I think the more important message here is that we've been able to accomplish all of this largely organically, which is different from our peers.

And I would say the only acquisition that you can probably say that has played some impact was our 10K acquisition, but actually most of the growth came after the acquisition. So it really counts more as organic as well.

So how do we do it? Really, there are four things that I think help us achieve this: One, capital allocation discipline across the entire portfolio; two, we have a strong pipeline management for A&R and acquisitions; three, driving audiences to our catalog would focus optimization, as I spoke about in my opening remarks; and four, building out distribution infrastructure, which helps us scale the business. And now we can accelerate all of this through M&A together with our partners at Bain as well.

So looking forward, I'm very confident due to our growth-oriented culture that is humming across all cylinders. And I'm confident in the direction for the -- and the growth of market share over the long term into the future. And we have an exciting slate ahead it was with Alex Warren and Sombr, David Guetta, Ravyn Lenae and many more.

Your next question comes from Michael Morris with Guggenheim Securities.

Robert, I wanted to follow up on the Apple announcement that you made. It's good to hear that you reached that renewal. Can you share some more color on your collaboration with these DSP partners how you justify these per subscriber minimum increases that you're able to achieve? And how does this renewal with Apple that you said it's the final one. How does this impact your outlook for the business?

Again, it's like -- it's so great to be able to look back and to the moment when we started to think about this and cook-up the strategy, which was back in 2024, and started to work on it, put it in place in '25, then it started to kick in a year later. And sequencing, every time you make a big change like this, it's really hard to sequence things to make sure people feel it's done fairly and we've navigated all of these complexities to the extent that now we have PSM increases across 88% of our subscription streaming revenue, which I really feel proud of because 2 years ago, it was 0 and big credit goes to Carletta Higginson and her team on this because they've done an incredible job.

And big credit goes to our partners. Our DSP partners are acting like partners, not adversaries. And it's a really sign of a healthy industry when you reach an equilibrium between the supplier and a buyer in this case and in a mutually beneficial way because we know each other for the future, and we just need to find the right ways to drive value.

And so I think we found it. I feel very grateful to our partners and to our teams. And when you think about the incredible value that music provides, it's all the music ever made in the past as well as in the future, for 1 low monthly fee. Of course, that fee once in a while should go up, it also goes up with added functionality, et cetera. We're working with our partners to increase all kinds of features that are added to delight consumers. So overall, I'm just delighted by our collaboration. I'll let Lou take the other part of the question.

Yes. Then on outlook, I'll just reiterate that we've got confidence in the targets we set out of high single-digit top line growth. And obviously, that is anchored by a growth in paid streaming. The double-digit adjusted OIBDA and EPS growth and then on the cash side, the 50% to 60% operating cash flow conversion. While we're not providing guidance as it relates to streaming, we do have high confidence in continued growth, and we believe we can do that in a few ways.

We expect to continue to benefit from the growth in global subscribers, which will continue. We have delivered consistent market share performance. We are very excited about the Q4 release schedule, which Robert alluded to. And we continue to see market share growth across global catalog and then with the price increases, the contractual wholesale price increases across our largest DSPs, we believe that this contributed about 3.5 percentage point growth impact to subscription streaming within the quarter.

As far as outlook for Q4, we do expect price increases to continue to flow through and are anticipating a slightly accelerated performance through Q4, which will include the impact of the Apple deal.

In addition to that, we also have growth opportunities around both organic and inorganic investments in core. We've got the Beethoven joint venture with Bain. That should -- that has additional capacity. And as we deploy more capital in that fund, we should expect revenue upside in future periods. We've got the expanded distribution through our acquisition of Revelator, which increases our capacity, and that should start to show up at the end of the calendar year.

And then finally, we've got new licensing deals with AI companies, most notably Suno and we expect that to provide nice contribution starting next fiscal year. So through all these areas, really, we're definitely excited about the opportunity ahead, and we remain confident that we can continue to deliver growth consistent with the targets we've outlined.

Your next question comes from Peter Supino with Wolfe Research.

I wanted to ask about Suno. If you could update us on the timing of that relationship and whether Suno might benefit from Spotify's -- not whether, but then soon might benefit from Spotify's new product rollout?

Sure. So one, on Suno, the plan is -- remains exactly as it was which is for them to transition to a license model later this year, and there's no change in the timing, everything is on schedule, which is great. Lou just mentioned, we expect a material revenue contributions from our AI licensing sources in fiscal '27 year. And obviously, some of that is underpinned by Suno.

There was also the Munich court decision last week which effectively confirmed the Warner Music Group contract and strategy, which has committed Suno to transition to a license model. So we're very thankful to the court to confirm our strategy. And the -- I want to pause on this a little bit and say one thing, which is the creative industry goes through transitions like this once in a while. And in mid-1950s, none of the movie studios have ever licensed anything or worked with the television industry, which was just rising. NBC, CBS, the broadcast networks, just came along and they wouldn't work with them because they feared that was entirely substitutive to the movie industry until Walt Disney was a little bit over his skis, spending a lot of money trying to build what now is known as Disneyland. But at that time, it was just a plan. And they needed more capital.

And at that time, they decided to go to ABC and strike a production deal for the world -- wonderful world of Disney. And that cash helped them complete Disneyland. And it's -- and of course, through that, they uncovered one of the greatest sources of revenue and profits for the entertainment industry, which came from the television industry.

And I thought it's such an incredible analogy to what we're going through with AI. And it's really important that we step back, look and things holistically and work towards a better future that respects artists, songwriters, and it delivers a lot of value to consumers and to copyright holders and ultimately to investors. So overall, we think...

Sorry, excuse me, Robert, I didn't mean to interrupt you.

Yes. sorry. Okay. And anyway, so we're excited by this, and I'm very, very happy that it's happening. And in terms of Spotify. As you know, I am a huge champion of anything that is increasing the value of music and better reflecting value of music. We're very -- we don't comment on any negotiations in progress, but we're very supportive of Spotify efforts. I think what Gustav and Alex are doing is very thoughtful. And we'll share more once there is something to announce.

Your next question comes from Kutgun Maral with Evercore ISI.

Robert, I wanted to follow up on your perspectives on AI. Every platform is leaning into AI, and it seems clear that we're fast approaching a point where some of these tools can be deployed more broadly and potentially gain mainstream adoption. With that, can you expand on some of your earlier comments on how you're working with DSPs on AI protections specifically?

Yes, sure. I mean, as you know, both from my shareholder letter and our letter -- my letter when we did AI deals and when we talked internally and externally. Protecting artists and songwriters, is our top priority, right? Because it's obviously very sensitive and very personal. And it's important. Our excitement around AI is underpinned by responsibility as well, right? It doesn't work without it, which means protecting them. And we are better suited to do this than any individual is on their own any small organization on their own. So for instance, we have agreements with our distributors to very effectively take down deep fakes. They are not legally required to do that.

Nevertheless, through our relationships, both contractual as well as personal, we have it in our -- we now have it in our contractual agreements, that artists are protected this way, which is great. The DSPs are our partners, the social platforms are our partners. We've also expanded the number of deals where fully gen AI content must be identified and removed from pro rata share, right? So we're getting at this from multiple angles, and we're very, very focused on this. Because it is important, and it's part of duty that we have towards artists and songwriters.

Really, the best way to also think about where the current state of this is Deezer, who is most transparent with metrics -- publicly with metrics around this, is 90,000 tracks, AI-generated tracks uploaded every day, which is more than 50% of the daily uploads so the consumption is somewhere between 1% and 3%, and the monetization is a fraction of that.

So we're staying on top of it from a metric standpoint, from a protection standpoint, from a contractual standpoint. This is the core of what we do.

Your next question comes from David Karnovsky with JPMorgan.

Maybe two for Lou. First, can you dissect the ARM subscription streaming growth of 12%. I think you mentioned some components, but I wanted to see if you could give a full breakdown and then can you also provide any color on our ad-supported group, which I think was higher than most UMG and Spot? And how should we think about the outlook for this line?

Absolutely. Thanks for the question, David. So we did have solid subscription and ad-supported streaming growth in the quarter. If we went to deconstruct the growth of 12% on the subscription side, you'll see there are really three main items, and this is consistent with what we've talked about in prior quarters. First is we saw roughly 6% to 7% growth come from subscriber growth. Second, pricing contributed a bit more this quarter at about 3.5%, which I alluded to earlier. And then third, we believe that market share contributed a difference of roughly 1%, which is steady on a global basis and really a testament to the disciplined capital allocation approach that we've had across vintages across both new release and catalog.

We did see some slight deceleration of growth from prior quarter, which was due to a tough comp, which we called out in the last call. We said it was approximately 2% to 3%. If you were to take that out of the equation, you would see that our growth was consistent quarter-over-quarter. But to reiterate, we're seeing a shift from volume-led growth historically to now both volume and value led growth with price increases and that's driving the strong performance in the quarter.

And as Robert had alluded to, it's part of our successful strategy. On the ad-supported side, we did see an uplift in ad supported growth at 10%, which was incredibly healthy within the quarter. And that's on an adjusted basis. We are seeing great trends, healthy trends within ad-supported market, and we've got to improve DSP deal economics, which certainly contributed to the strong growth.

Q3 was elevated at 10% due to the benefit from ad spending around the World Cup within the quarter, which obviously is not recurring. And then if you look back to the prior quarter, we also had some elevated growth due to an easier comp in the prior year quarter. We expect that the ad supported growth will normalize in Q4 as we look forward and probably more in the mid-single-digit growth, which is more reflective of the underlying ad trends and more consistent with what we printed in Q1.

Your next question comes from Kannan Venkateshwar with Barclays.

Lou, maybe one more for you, which is on margins. You gave us your near-term and long-term outlooks. But could you help us with the building blocks to achieve your long-term targets? And over the course of this year, you've been trending better than your short-term targets. And so -- especially for 2026. So is it possible that you may end up higher than the high end of your guidance over the course of this year?

And then maybe one question for Robert, which is, when you look at something like Spotify remixed tier, how do you think about the risks and the opportunity? Like how do you balance both sides of the equation? And what are you actually seeing from these deals from your perspective?

So I'll take the first part on margin outlook. So we obviously had very healthy margin delivery in the quarter. We had 130 basis point improvement on an adjusted basis. We're really happy with the progress we've made to date and over the last 5 quarters as we continue to grow the business in a more profitable way.

The margin progression is really one of the key metrics that we're driving and helping to drive shareholder value, and we've made a ton of progress on that front. There's really no change in the outlook. We said it in the prepared remarks. And again, we still expect to hit the high end of the range of 150 to 200 basis points for this year.

As far as the components of margin expansion, it really comes from several areas. First, we've continued to focus on profitable growth throughout the company and the sustainable growth model is now -- it's really institutionalized within the company and the operators appreciate the need to do that because it allows them to reinvest in the company to drive growth.

Second is the continued benefit we've seen from the restructuring plan most recently the 2025 plan. We are on track to realize the $200 million of savings this year and $300 million on an annualized basis in 2027. So we'll see some uplift in margin next year for the effect of that restructuring plan. And a significant portion of that, of course, goes to operating results in OpEx.

Third is the growth in catalog. Catalog is a higher-margin business for us. It's about 2/3 of our overall revenue, so a significant driver of growth we've seen market share gains in global catalog and this business is one that we feel we can continue to grow. So -- and then finally, I guess, also on the catalog front, we also expect to start seeing more of the benefit from the Bain joint venture. We clearly are focused on acquiring high-value assets and catalogs that have growth potential. So we expect that to also contribute nicely to margin.

And then sort of the final point that I'll bring up is just on expanded distribution. That's obviously in comparison, a lower-margin business for us. We are taking a more measured approach to build profitable business. We're not looking to do low-margin deals. And to buy share, we're really taking a more measured approach and focused on driving the business to higher margins. So we think overall, we have a ton of confidence in sustaining our margin expansion, not only this year as we deliver and move towards the mid-20s margin, but also over the longer term as we drive to higher margins in the high 20s.

And before I answer your question, I just want to add something to Lou, which is -- what I think is entirely underappreciated is the fact that we've been growing at a very healthy clip, while cutting costs. We've been expanding margin, which is a very, very hard thing to do.

Nevertheless, that's what we're doing. And it's part of a multiyear strategy that we set in place. At that time, we don't have a clear conviction and confidence to tell you that exactly what it's going to be. But definitely, that was our plan. And now we have the confidence to say that's what it is, and that's what it will be. So it's really great to be able to say that.

On your question around the risks from something like the remix here on Spotify. So number one, this fits into my second priority, which is increasing the value of music. You know that. You've heard it from me a million times. One lever -- different partners will execute differently, right? So we have to be obviously flexible as it relates to how our partner wants to execute on increasing the value and on the AI because that fits their platform. That's number one.

ARPU moving ARPU up is generally one simple lever. And I think the way the way Alex and Gustav are thinking about it is thoughtful. We're supportive, and this will be incremental. Our whole point of doing these deals is to drive incremental value incremental ARPU and greater user engagement and stickiness overall with subscriptions. So we are laser-focused on this. We're excited about the opportunity, and it's great to have partners like -- that are engaging on this.

Your next question comes from Cameron Mansson-Perrone with Morgan Stanley.

Robert, earlier you mentioned capital allocation across the whole portfolio as a key driver for growing share over time. I was wondering if you could update us on whether we should impact or expect any impact to your kind of general framework or approach when it comes to investment returns. And then within that, Lou just touched on the Bain JV and the $650 million you've put to work there. Any color on hurdle rates or targets for acquisitions made through that partnership would be helpful.

Sure. Thank you. So no, we're always ready and flexible to pivot when things don't work. Currently, things are working. And we have a -- so we're -- there's no change to our approach. We are very focused on our portfolio across organic and inorganic investments. And we've really institutionalized a global deal evaluation and investment process across both recorded music and publishing and I don't mean separately, I mean all together, together across those business lines and together across all labels and all countries. So we're truly evaluating our entire global portfolio and target the highest ROI opportunities.

And if a budget is higher in one place and a lower in another one and the lower budget territory or label has a greater ROI opportunity, we rapidly shift dollars. We're optimizing our spend in this way. And our -- this approach so far has been able to generate us returns of roughly 20% on our investments. And that is really what we're targeting with Bain as well. So we don't deviate in our approach with Bain to our own internal one. It's one and the same process.

And obviously, I'm happy that we've been able to deploy $650 million against the $1.65 billion in capacity, and the focus is the same, which is iconic, high-margin catalogs with growth potential. Return threshold is the same as the one I just mentioned.

And we also must have dedicated growth plans for each transaction, right, so that we add incremental value and derisk for anything unexpected. So quite happy with all of this progress, very confident in our pipeline, which will help us drive profitable growth and continue on our amazing journey.

Your last question will come from Rich Greenfield with LightShed Partners.

I got a couple, Robert. Universal and Merlin have opted in to Spotify is coming AI tier. You've done a deal with Klay with the other labels. I'm sort of wondering -- is there anything unique to what Spotify wants to do with AI versus Clay that gives you reservations, because it seems like they're ready to go, they'd like more labels and it seems right up your alley of finding new ways of generating incremental revenue. And then sort of a broader industry topic, DSP paid subscribers always seems like a positive for Warner Music and your other label peers versus ad tier subscribers.

Spotify recently rolled out this thing Spotify Reserve and partnership with Live Nation. I'm wondering like, in theory, like getting more of your artists to want to do reserve ticketing. And I know that's on the touring side, but it seems like the more artists that work with reserve, not only does it make the fan happy but it makes the label more money, it makes the artists more money. Like it seems like a win-win all around. Is there anything I'm missing on why labels specifically Warner wouldn't be excited and your artist wouldn't be excited about getting tickets in the hands of actual fans versus ticket brokers.

Sure. Thanks, Rich. So first on your Spotify question. Yes, by the way, as I mentioned earlier on the call, we're supportive of what Alex and Gustav and Spotify are working on -- and Charlie. And we're happy -- we're actually very happy that WMG and Merlin are on board. And I just can't comment on our negotiation. But we're supportive. So there is no philosophical disconnect here.

And on your other question, we are always, always interested in anything that is increasing the value of music, as I said before. And that can take on many different permutations, whether it's ARPU increase, whether it's more engagement features, et cetera. So we just -- there's also a capacity like we are doing so many things at this company in order to drive the results that we have.

We can't do everything all at once. So we prioritize on the highest ROI opportunities very quickly, and we work through those. And it doesn't mean that our posture on some of the other ones is a negative one. We just might not have been able to get to it just yet. That's all.

Let me just rephrase the Klay question in a different way. Klay hasn't launched either nor has Spotify's with Universal and Merlin. Is it just that artists are nervous to do this? Like I'm just trying to figure out like what's the roadblock. Obviously, artists have to opt in. Are artists just not interested in opting in? Or is it just taking a lot longer than we should have normally expected?

We just haven't done our agreement yet. That's all there is to it.

I don't mean with Spotify. I meant with Klay Like Clay hasn't launched their project either, like no one has launched this AI product yet. Is it just artists aren't ready for this?

No, it's -- no. So what it takes is operationalizing the permissioning process. That's really what it is, right? And it's a bit complex, and it's laborious and we're all working through it. But it is something that we all have to go through, and we are going through. So again, it's not a statement on whether it's good or bad, positive or negative. But it's just an operational activity that every content provider has to go through in order to enable its partners, and we're in the midst of it. So that's really all that's to it.

That's all the time we have for questions. I'll turn the call to Robert Kyncl for closing remarks.

Yes. So thank you all for dialing in. I just want to reiterate that what I said in the beginning, which is our long-term strategy is working. We transformed the company over the last 3 years. We've done lots of difficult things, restructurings that got reinvested restructurings that dropped to the bottom line, both leadership changes, restructuring our pricing relationship with the DSPs.

There's a strategy here that was set in motion and it's delivering results. And we have an amazing team of executives who are growing in the same direction, driving growth, driving efficiency. And our industry is like very resilient. So we're really excited about our output and our continued performance, and we look forward to speaking with you next quarter. Thank you very much.

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

Okay. We'll get started. I'm happy to have back at the conference this year, Warner Music Group. On my left is Armin Zerza, CFO and COO. Armin, thanks so much for being here.

Thank you. Thanks for having me.

Great. So you've been at Warner Music for almost exactly a year now, initially as CFO, on top of which you've now added COO to your responsibilities. So how has your day-to-day focus changed since you've arrived? And how do you expect it to continue to evolve from here as you take on this broader operational mandate?

Yes, David, in fact, I took on most of the responsibilities that I have today very early in my job. So my focus hasn't really changed. What we are focused on and what I'm focused on as a team is ensuring that we develop and execute against plans that can deliver value to all of our key stakeholders, so our fans, our artists and songwriters, our partners and of course, us and our shareholders. And as you know, I'm personally very focused on ensuring that within that context, we deliver against our growth model, which is high single-digit or higher revenue growth, double-digit profit and EPS growth, and then stronger cash conversion.

And to do that, I've been personally engaged in a few key initiatives for the company. The first one is making sure that we have a very strong growth culture in the company. And I'm personally spending a lot of time, as we just discussed before this meeting, with our teams here in the U.S. and around the world to make sure that we have strong growth plans in place, but also the leadership and the teams to ensure that we can execute against them. So that's our first key priority.

The second one is ensuring that we work with our partners, and those are DSPs and AI companies to grow value for the industry. We still think that the industry is significantly undermonetized. So there's a huge opportunity for us to increase value. And the third one is to ensure that we drive productivity in everything we do. And interestingly, I come from gaming, and looking at the music industry, I believe that, frankly, the music industry was a little bit slow to adapt to kind of the digital reality of the business. So in my view and in our view as a company, there is years for us of additional productivity to drive going forward.

And last but not least, it's all about people, as you know. So I'm very focused on making sure that as we travel around the world, we have the right people and the right capabilities in place. So excited to be here and very confident in our plans.

Got it. So you recently reported fiscal Q2 earnings with a lot of investor focus on subscription streaming growth, which accelerated at Recorded Music from around 8.5% to 15%. I think there's a couple of different components to unpack here, but I thought we'd start with 6% to 7% growth in subscriber volumes. Can you help frame the underlying health of sub growth globally and how you view the TAM?

Yes, for sure. Well, first, I'm very happy with the progress that we are making and with our results. As you all know, we have delivered 4 quarters of consistent growth in line or ahead of our growth model, as I mentioned before. And that's really important for us because we want to deliver what we commit to you as our shareholders.

In terms of industry growth, this has been and continues to be a significant tailwind for us, frankly. Now if you just look at 2025, there were more than 800 million global subscribers to music premium services, and that was up about 10% versus '24. Now we just got yesterday the data from IFPI, which showed that in the first quarter of this calendar year, subscriber growth was up 9%, which is great to see.

So as we look to the future, we think this continues to be a significant opportunity. Penetration is still very low, as you know, in our industry, and we think we can continue to grow that with our partners on the DSP, but also on the now AI new entrant side. So we expect that by 2030, the industry will have well north of 1 billion premium subscribers. That's a growth rate of about 7% versus today.

Now that's only volume growth, remember. We're still working on pricing and tiering and any ideas are all accretive to that. So we are very confident in this tailwind that it will sustain over the long term, and that's why we're so excited about our growth plans.

So let's touch upon pricing. At earnings, you highlighted 3 percentage points of growth contribution last quarter from PSM increases as deals with a number of DSPs kicked in. I guess, first, can you help us unpack what's included in that number? And then what should roll on through the fiscal year? And then you touched upon this earlier, but just stepping back, how should we understand the price opportunity for this industry just more broadly?

I'll start with the last part of your question, and I mentioned this earlier in my remarks, this industry is dramatically undermonetized. And why do I say that? When you look at the subscription price of our industry globally, it's about $4 a month. In developed markets, it's around $6 to $8 a month. That's the value of one Starbucks coffee. So for the value of one Starbucks coffee, you get all the music in the world. I think it's unimaginable, frankly.

The other parallel I will draw is that when I left gaming in 2024, the digital gaming industry was about $200 billion in size globally. The music industry today is less than $50 billion in size. So the last time I checked, I don't know when you checked that, there's more people listening to music than playing games. So this doesn't make any sense. So we believe that there's an enormous opportunity to grow value in this industry by one, more frequent pricing; two, by innovating into premium tiers; and three, working with our partners to innovate into new business models and think about downloads that will allow consumers to do, to a certain extent, free, but then to a certain extent, also paid. So we're very excited about the opportunity going ahead in terms of not just volume growth, but also value growth.

From a pricing perspective, the 3 points of pricing that we saw in quarter 2 was primarily driven by one of our largest DSPs. So there's more to come. You should expect another bump in quarter 4 when another big DSP is increasing pricing. But in our view, that's just the start of value creation that will perpetuate over the next few years in the industry.

I should say, on your price point, I'm old enough to remember when I used to pay $17 for 10 songs, 9 of which I didn't listen to. Maybe just continuing on with subscription streaming. So market share also contributed about 2 to 3 percentage points to growth. You've described gains as coming from new releases and catalog in various regions and through a range of strategies. Can you give us some deeper insight into what's going under the hood to drive this improvement? And then we've gotten this question a bit since earnings, but how structural are these gains? And how much runway do you see for continued growth on some of these drivers?

Yes. Again, super happy with the results. We have grown share globally across vintages, across DSPs, across labels and across regions. And that broad-based growth should give you confidence that it's more sustainable over time. So it wasn't just a blip in one of our business units. What's driving that is the people and the capabilities that we have put in place across those labels, businesses, regions and vintages.

Recall, we put new leadership in place on Atlantic. We put new leadership in place on our catalog businesses, so one of our vintages. We put new leadership in place in Asia more recently to help address the opportunity in that region and so on and so forth. And we are starting to see the progress against those interventions, and we have very strong leadership in place in all of our other businesses. So the leadership, the capabilities and the teams we have around the world are really working to our advantage today.

The second thing is we have been very disciplined and continue to be very disciplined in how we allocate capital. And I've mentioned this many times in our earnings calls, what we do is we don't look at individual projects anymore, but we look at the whole portfolio of projects that we own on a rolling 12- to 36-month basis now. So we understand where are the biggest opportunities, where are the most profitable and most likely opportunities that can generate the best return. And using that framework, working with our creative teams, with our commercial teams, regional teams and operational teams, we can flow the money where the biggest and most profitable opportunities are. And that really has worked well for us and also has enabled us to grow the business while actually spending less in A&R in percent of revenue. And that's the type of productivity mindset that I mentioned before.

Last but not least, we are really confident in our future pipeline. Obviously, a lot of this is driven by our innovation pipeline or release pipeline, as we call it here. We have a very strong release pipeline. We have very good visibility on that over the next 12 to 36 months. And we have, frankly, many elements to build on. One is our M&A work that we have been doing that is starting to kick in, as you know, then all the AI work we have been doing, which is starting to kick in. And then we also just acquired Revelator, a capability in the distribution space to help us grow our business.

Having said all of this, all of our growth to date pretty much has been organic, which is also exciting. So there's many opportunities to build on that.

Just on the catalog point that represents about 65% of recorded music streaming revenue. Can you just walk through some of the scalable tools you developed there to help drive listenership of your content?

Yes. This is the interesting part. Catalog is not only 65% of our business. It's also the most profitable part of our business. In fact, as many of you know, those businesses typically have 50-plus percent margins. So as a CFO and now also COO, this is the top priority, and that's why we put a dedicated leader on it. Now this business hasn't been growing for a long time. We put a dedicated leader on it about a year ago. And surprise, surprise, the business is now actually growing share and one of our key growth contributors.

Now how do we do that? We basically split the business in 2 halves. One is what we call our top 200 catalogs, which represent about 50% of our business. And on that part of the business, we've been implementing always on marketing. We've been implementing releases and so on and so forth, which are really implemented by the team that is dedicated to our catalog business and that has started to grow share in the overall business.

Now then there's a long tail of the catalog, which represents the other half of our catalog business. And these are thousands of catalogs, millions of songs that frankly, humans can't touch every day. So what we did is with all our tech investments, we developed a proprietary technology, which can not only identify opportunities in this type of catalogs, but also develop marketing assets to drive engagement around those businesses. That work just started, and we tested it. Now that we have done successful testing, we're going to roll that out at scale. So that's another growth driver for us going forward.

I guess separate to organic growth, Warner recently deployed $650 million of capital through the Bain joint venture to acquire recorded music and publishing catalogs, over $300 million announced for the Red Hot Chili Peppers library. Can you discuss a bit your framework for deals here in terms of ROI, growth synergies?

Yes, sure. First, I should say we are very happy with our partner that is Bain. Why? Because they know and understand the music industry, and they have a very similar mindset to us in terms of investments and approach. So that joint venture is really working well for us. As you mentioned, we deployed about $650 million so far.

Now we can't really talk about specific investments since we have confidentiality agreements in place. But what we can say is that all of our investments are focused on iconic high-margin catalogs where we have an ability to grow that business. And that's how we deliver the type of returns that we are talking about. And the threshold for us are 15% in developed markets and 20% in developing markets, reflecting a higher risk profile there.

And the reason why it's working is because we have a good partner. We have the right thresholds. We also have a dedicated team. So the same dedicated team that I talked about before takes on those businesses and helps us grow those businesses, and that's where we can generate real good returns. So we're really excited about the partnership. We have a great pipeline in place. And confident that this business will start to contribute meaningfully to us.

Now to put it in a perspective, in our growth model, it's about 1 point of growth. So most of our growth will still come from organic growth.

I guess when you look at the deal landscape, it seems like music industry multiples are holding up with increasing private market investments even as maybe AI concerns weigh on public market valuations. What are the private markets seeing the public markets aren't? How do you -- how does that gap get closed?

Well, first of all, we agree with you that our public valuation does not reflect our underlying value, especially given the results that we have been delivering and will continue to deliver. And frankly, I'm sure many of our investors in this room will agree with that, plus obviously, highly sophisticated investors around the world agree with that. And you've heard it recently from one large investor as they looked at our industry.

The second thing I will say, it's actually great to see that private valuations hold up because it shows that investors continue to value music assets as an attractive asset class. Now those investments are primarily focused on iconic catalogs and key artists. And frankly, if anything, we believe the value of those iconic catalogs and key artists will go up. Why? Because as people start to engage with this content with AI, more of the activity will be focused on those specific assets. So that's why we are really excited about the stewardship of those assets and the assets that we own because they will actually stay with the majors. And that's a good opportunity for us. So really excited about owning a lot of these assets.

Now how will we kind of bridge that valuation gap between our public value and the underlying value of our company? It's really by delivering consistent results. And you can see that over the past 4 quarters, we have delivered consistent results and our share price is up significantly, and we plan to continue to do the same in the future.

So Warner Music delivered over 200 basis points of margin expansion last quarter. That's ahead of the full year target, which you raised to the high end of 150 to 200 basis points. Can you put this performance into the context of your medium- and longer-term goals for profitability? And how much should we think of this growth as structural costs or AI-driven efficiencies versus operating leverage or mix shift?

The first thing I want to mention is that we are focused on overall shareholder value creation. We're not just focused on margin. And that's really important because what we're really looking for is ensuring that we grow revenue high single digit or faster, that we expand margins and improve cash productivity at the same time. And why is that important? Because by working on margin and cash productivity, we actually create the fuel to invest and at the same time to continue to expand margin and productivity. And that's a flywheel that we have started to implement now about 12 months ago, and it's really working well for us, and we'll continue to push that flywheel for years to come. So that's really our philosophy.

From a margin perspective, we are very happy with the progress that we are making. Fiscal year-to-date, we have now delivered about 270 basis points of margin improvement, which is actually ahead of our objective of 150 to 200 basis points. So that's great to see. What's driving that is, one, focus on what we call profitable growth. I've said this many times, we're not interested in just driving revenue growth. We want to see profitable growth.

Number two, cost savings that was primarily driven by a reorganization of the company from what was a very local organization to a global, regional, local organization. And I'm really proud that the team, while we did all of this, continue to accelerate growth and obviously, operating leverage. We'll do more of the same in the future because we have a big opportunity, as I mentioned, to drive more productivity, especially behind ensuring that now we have a global organization, we have a globally integrated data architecture, and operating processes are standardized, so we can automate them and put AI on top of them. That, frankly, is years of productivity to come, and we'll talk more about that in the future.

In addition to that, we talked about margin-accretive M&A, margin-accretive AI items, pricing and value creation in the industry. So we have plenty of opportunity to continue to drive margin up. We are very confident about our high 20s margin, while at the same time, making sure we continue to deliver the growth that you would expect from us.

So digging deeper into AI, you've talked recently about opportunities to work with DSPs on premium tiers that incorporate elements of AI. What's the consumer opportunity here? And assuming the technology is largely in place, what are the main gating factors to getting agreements over the finish line?

First of all, we are really excited about AI. We believe it's the biggest value creation opportunity that this industry has seen for a long time. Why is that? Because AI will enable consumers or fans to directly engage with the content of their favorite artists or bands or songwriters. And when you think about that interactivity, we know from other industries like gaming, I come from gaming, that the more time people spend with content, so the more they engage, the more they actually spend, okay? So it will not just be a great consumer experience, it will also enable us to deliver better economics. And that's why when I talk about AI deals, they are mostly variable and accretive. And accretive because people will spend more time, we'll be able to innovate with our partners into new business models that drive average pricing up over time in a way that consumers are delighted. That's obviously important.

And then the third thing is that, obviously, AI, as I mentioned before, will help us to actually deliver better services to our key stakeholders at lower cost. So we're really excited about this opportunity, what's kind of in the way of getting to final agreements. One, if we talk about DSPs, we -- and DSPs obviously think this is a critical topic based on what I just discussed. So we all stepped back and said, "Hey, how do we make sure that we look at our entire relationship, not just at a new AI tier so that we can rework this entire relationship." And those -- these type of discussions take time. But I think I'm pretty confident to say that in the near future, 1 or 2 of those DSP partners will launch a premium AI tier.

On the earnings call, Warner discussed the rather small listener share for AI-generated music to date, given the number of tracks getting uploaded daily, which I think is in the tens of thousands. How would you explain that dynamic?

Yes. David, this is not a new dynamic in our industry. Remember, many of our DSPs have publicly said that over the past many years, even before AI, the amount of content that has been uploaded to DSPs has multiplied, yet it hasn't really changed the consumer dynamics because consumers are still very focused on iconic catalogs and core or top artists. In fact, when we look at our business, less than 5% of our songs represent more than 90% of our revenue on DSPs. That gives you kind of the idea how concentrated consumer behavior really is in music. So we feel very good about our position in the industry with or without AI. AI, we think is a big value creation opportunity.

Now we also know that from Deezer, who is -- which is a DSP that is primarily French-based and owned by -- partially owned by our parent company, that there are 75,000 songs uploaded daily, that is AI songs, daily on to Deezer, which represents almost half of the uploads into Deezer, yet those songs represent a very small percentage of the listening behavior, which again reinforces the whole idea that consumers don't create relationships with songs or artists at scale. They establish relationships on a one-on-one basis and create emotional connection. So that's why we have that confidence in investing into core assets will continue to help us grow and even more so in an AI world.

A concern we've also sometimes heard from investors is that allowing remix tracks at scale could dilute economics for labels, assuming there's a required share with nonrepresented artists or someone who uses those AI tools. Is that a fair critique?

It isn't at all. In fact, quite the opposite. So when we look at remixes, which are really remixes of existing songs from an existing artist or band, we're really talking about derivative music. As I mentioned before, when people interact with derivative music of their favorite artist or band, they actually spend more time with that. They're actually going to spend more money with that, as we know from many other industries. So we actually think it's one of the biggest opportunity for us to work with our partners. And obviously, the artists and songwriters who want to opt in to create more value for the industry, so not just for us and our DSPs, but also for artists and songwriters.

So Warner has taken a lead in forging partnerships with Gen AI music platforms like Suno and Udio. I think some of your label peers seem to be moving on a more cautious path, at least based on announcements to date. Can you speak to what gives you confidence in your "pragmatic experimental approach" as you've termed it? And how should investors view financial contribution from these platforms in fiscal '27?

Yes. I did mention that we believe that AI is one of the biggest opportunities going forward. Now it's one of the biggest opportunities if we approach it responsibly, and that's important. That's what we do. That means we have key principles, which are aligned pretty much across the industry now, but certainly with our DSP and AI partners. What that means is we only license content to licensed partners, so partners with license models, where we get fair compensation and our artists and songwriters get fair compensation and where we are legally protected and our artists and songwriters are protected. That's really critical for us. All our agreements that we did to date are consistent with those principles.

The other thing that's important for us is that these agreements are variable and accretive in nature. What that means is that as those platforms grow, we grow and participate in that growth. And in many, we also have equity stakes or participation, as you know. And then two, we also make sure that we develop accretive business models, which are accretive on a by stream basis to us. And why is that? Because they were introduced already with multiple pricing tiers. In many cases, also with in-app items like paid downloads and so on and so forth. So those agreements will be not just variable to us, but also accretive to us, as I mentioned. So we're really excited about the opportunity, and that's what we're leaning forward.

Maybe switching gears a bit. You have a stated goal of 50% to 60% conversion of OIBDA to operating cash flow. Can you discuss the factors that underpin your confidence in that and how you think about managing royalty advances within that target?

Yes. I mentioned a little bit on cash conversion, but the net of it is our target is 50% to 60%. We are very focused on that. And you can see in the first half of this fiscal year, we delivered an average cash conversion ratio of about 65%. So we feel very good about the progress we are making. What's behind that is really 2 things. One is making sure that we continue to drive margin up because while we reinvest some of that margin, some of that also flows to profit and cash and obviously improve cash conversion.

Number two, we are also very, very disciplined in our capital allocation across everything we do. I talked about A&R and our global ability to look at projects now on a 12- to 36-month basis so we can actually direct capital to the biggest and most profitable opportunities. We do the same with capital spending. We do the same with all other spending in the company. We have a global view now and make sure that we allocate capital in the most efficient way. And that's really driving a significant reduction in percent of revenue on our overall capital spending and therefore, is improving our cash conversion. So we are very confident that with the plan we're currently having, we can actually improve our cash conversion over time.

I want to touch upon ad-supported. So in fiscal second quarter, you reported accelerated growth from low single digits previously to over 11% within Recorded Music. How much of this outperformance was also share related versus factors relating to the broader ad environment or agreements with emerging platforms?

Yes. So when we look at our ads business, it's basically concentrated around 2 large DSPs and our social platforms. If I talk about the 2 large DSPs, one of them is obviously an ads business, and they are growing double digit, and we have been growing share in that. So that was really also organic growth of that specific platform, accelerated by the share growth that we saw. The other DSP is very focused on improving the ads business over time. Obviously, we grew also share in that DSP, so we grew a little bit faster. But on average, we grew our ads business on DSPs actually higher than double digits, which is great to see. And we are very confident that the second partner I talked about with the focus and the management team that they have, will continue to improve that over time. So it's one of the biggest opportunities really.

And on social platforms, I mentioned this early on in my time here. We have been reworking at least one deal, and that deal was also accretive to the prior deals. So we also saw stronger growth.

Got it. So back in February, you noted that following a strategic review of Warner Chappell, you have confidence in delivering double-digit growth through several region- and discipline-specific initiatives. Can you bit -- can you discuss a bit what underlies your outlook here in the music publishing space?

Yes. I actually believe that music publishing as a business has been underappreciated for a long time. When I look at what our team did when we did our strategic review, they doubled the business in 5 years. So they grew 15% plus every single year over those 5 years, by the way, top and bottom line, just to be clear. So we are very happy with the team. We are very happy with the progress they have made. They continue to grow double digit on average every quarter, which is great to see, including last quarter.

So basically, what we're going to do going forward is, and we have talked a 5-year plan for them, is making sure that we double down on what's working, so continue to invest into their proven A&R strategy. But we are also making sure that we activate new pillars that they haven't been working on as aggressively in the past. One of them is kind of what we call regional expansion. A great example, but many more is kind of doubling down on Latin America as a region where we see big opportunities for us given the strong Recorded Music business we have there. Two is, obviously, they will benefit from all the M&A and AI deals that we're doing because publishing is, of course, part of all of those deals. So we are very excited about the opportunity. We have an amazing team there and have high confidence they can continue to deliver these type of results.

I want to touch on Warner's distribution business. Maybe first, can you help level set for investors kind of where this sits within your broader Recorded Music segment? And then can you discuss the growth opportunity here and how acquisitions like Revelator or partnerships like with TuStreams play a part in that?

Yes. So distribution is a business that represents about 45% of our industry. So it's an area we have to play in, but we have to play in a way that's profitable given our focus on profitable growth overall. There are really 2 things that we were missing to do that. One is the right leadership. And two is the right capabilities. And when we looked at leadership around the world, we identified our Latin America leader by far the best leader for that business. Why? Because Latin America is basically a distribution business as an industry. And our Latin America leader and his team have grown that business on average 15% every single year for the past 5 years at almost company average margins. And that second part is really important. So we wanted to make sure that the leader we put on that business can grow distribution, but do it in a profitable way. So that was the first part, and that leader has started to work on the business around 6 months ago.

And when we talk to that leader, we said, "Look, what's the biggest gap we have apart from leadership?" That was really capabilities. And capabilities means for us the capability to ingest content efficiently, but also to serve independent labels and artists in a highly efficient way because when you work on the business, it's by nature lower margin. You need to have a very efficient operating structure. And Revelator was really that. Revelator was basically an acqui-hire for us with not a lot of revenue attached to it. And it allows us -- or will allow us -- we're in the process of closing that transaction, will allow us to ingest content highly efficiently, but also serve artists and labels in a highly efficient way. So the combination of that, the leadership and the capabilities that we acquired will enable us to grow that business in a profitable way, so it fits kind of to our overall portfolio.

Okay. Maybe to round things out, you mentioned the pipeline a couple of times. Anything you'd want to highlight for the release slate, rest of this year, next fiscal year, how we should think about the comp set up?

Yes. I can't talk about all the release slate, but I will say that we were very happy with what we saw in quarter 2. Very, very strong release slate, including from Bruno Mars with a lot of #1s, Don Toliver, PinkPantheress and so on and so forth. And there's some notable releases in quarter 3 coming up, including from Charli XCX, Sombr, Teddy Swims, Myke Towers, PinkPantheress again. And Madonna is coming back. So I hope you have listened to some of her songs. So really excited about the opportunity. Thank you.

Great. Armin, thanks so much for being here.

Thank you.

Welcome to Warner Music Group's Second Quarter Earnings Call for the period ended March 31, 2026. At the request of Warner Music Group, today's call is being recorded for replay purposes. And if you object, you may disconnect at any time. Now I would like to turn today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin.

Good afternoon, and welcome to Warner Music Group's Fiscal Second Quarter Earnings Call. Please note that our earnings press release, earnings snapshot and Form 10-Q are available on our website. On today's call, we have our CEO, Robert Kyncl; and our CFO, Armin Zerza, who will take you through our results and then answer your questions. .

Before our prepared remarks, I'd like to remind you that this communication involves 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, including metrics that are adjusted for notable items during this conference call and in our earnings materials 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 is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements as 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 these risk factors is contained in our filings with the SEC. And with that, I'll turn it over to Robert.

Hello, everyone, and thank you for joining us today. Our strong Q2 results prove that our strategy is working with a 12% increase in total revenue, a 24% increase in adjusted OIBDA and over 200 basis points of margin expansion, we are demonstrating the benefits of our transformation. This growth is underpinned by an increase in recorded music subscription streaming revenue of 15% on an adjusted basis. .

This was bolstered by the combination of broad-based strong execution by our operating units and by the successful implementation of contractual PSM increases that began in the quarter. We continue to make progress on our 3 strategic pillars: growing our market share, increasing the value of music and becoming more efficient and effective, and we use AI to help us achieve all 3 of these, which I'll touch on throughout my remarks.

Starting with market share growth, which remains a primary objective. We're driving gains through developing new talent and delivering consistent, creative success with emerging and established artists and songwriters across multiple geographies, improved monetization of our catalog and increased focus on distribution. Our execution across all of this has delivered strong year-over-year share growth in our fiscal Q2.

Overall, U.S. streaming share grew 1.1 percentage points and U.S. new release share grew 2.7 percentage points. Our creative success is evident in recent high-profile wins, including Bruno Mars dominating 4 billboard charts simultaneously, PinkPantheress securing her first global 200 #1; and Dan Toliver, scoring his first #1 album. Like Bruno, many of our current superstars are homegrown, Dua Lipa, Charli XCX and many more. And you can go back decades in our history to artist discoveries like Led Zeppelin, Grateful Dead, Madonna, Prince and many others who have launched and sustained highly successful carriers at our labels.

Flash forward to today, we continue to introduce the world to break out chart-topping stars like PinkPantheress, Sombr, [indiscernible], The Marias and Alex Warren. These are just a few of the many examples of our outstanding track record in artist development. We've successfully transferred this capability around the world. We've delivered a string of #1s from local artists in Italy, Poland, Sweden, France, Spain and Mexico.

Our rising Mexican star [ Junior Aje ], for example, just launched at #1 on both the Spotify global and U.S. top album W charts. Turning to catalog, which represents about 65% of our recorded music streaming revenue. We've delivered growth across shallow and deep vintages. Our always-on marketing approach reimagined for today's younger generation is yielding results as we find new ways to continuously revitalize our timeless repertoire. In addition, we have great success introducing iconic artists to younger audiences through new releases. Madonna is just one great example. She became a Warner artist more than 4 decades ago, and we're about to release our 14th studio album Confessions II.

As a result of our catalog marketing campaign leading into the new album, we've seen her weekly streams increased 24% versus baseline, with under 28-year-old fans accounting for 35% of our Spotify streams. Her new duet Bring Your Love with Sabrina Carpenter, arrived last Friday and is Madonna's highest charting track yet on Spotify and fueled her biggest ever streaming day on the platform.

Additionally, our catalog is home to over 1 million tracks from more than 70,000 artists. AI tools that we've developed make it possible for us to stimulate engagement with this vast treasure trove of content, quickly and cost effectively through the use of motion art, visualizers, lyric videos and many more. At the same time, we're using our proprietary model to determine where our marketing activities should be focused. Our ability to create these assets quickly and inexpensively, combined with our focused marketing activities, enables better and deeper monetization of our catalog, ultimately amplifying our market share growth.

Enhancing our distribution offerings through strategic partnerships and investments is an important driver of our market share growth strategy. Our recent deal with TuStreams, a leading independent force in the Música Mexicana space. and our acquisition of Revelator, which Armin will discuss in more detail, not only enhance our capabilities but also help us establish a powerful pipeline of emerging talent and catalog while creating new pathways into our global ecosystem.

Our Publishing business grew 10% this quarter, continuing its strong momentum from our songwriters Mac and Scott Dittrich contributing to Bad Bunny's #1 song on the billboard Hot 100 to our deals with Grammy winner Laufey, RMB hitmaker and Grammy-winning producer [ Dray Harris ], and chart-topping singer-song Earnest, Warner Chappell [ hot street ] continues. We've also expanded our global presence by launching publishing operations in India. A brand new way for us to drive share is through long-form programming.

Last quarter, we announced a multiyear first-look deal with Netflix to produce documentaries. And today, we announced a multiyear first-look deal with Paramount to produce theatrical live action and animated feature films. I'd like to give big thanks to our partners at Unigram and at William Morris Endeavor, who helped us structure both partnerships, and I look forward to our continued collaboration. These agreements represent new and exciting ways to tell amazing stories about the lives, music and legacies of our most popular artists and songwriters.

In doing so, we're introducing them to new fans all around the world. building their brands and expanding engagement with their music. Moving to our next pillar of growing the value of music. When I joined the company, I identified the need to increase the value of music. Today, we're doing this in a number of ways. These include PSM increases, deals with emerging AI platforms like Suno and premium tier offerings with traditional DSPs that feature AI. We've made meaningful progress in several of these areas.

First, after more than a decade of volume-driven growth, we're now seeing PSM increases, which contributed to our mid-teens subscription streaming growth in the quarter. These increases provide greater certainty around our economics, irrespective of retail pricing. Beyond traditional streaming, AI represents an important step towards enhancing the value of music.

There has been a lot of discussion about whether AI will have an accretive or dilutive impact on our industry. Numerous DSPs have reported that the ever-growing volume of AI music being uploaded is seeing very limited engagement and therefore, has minimal dilutive impact. And of course, we're closely aligned with our DSP partners to ensure that contractual protections are in place to prevent or limit dilution.

We've taken the leadership role in creating new monetization frameworks with emerging AI companies, and our pragmatic experimental approach will deliver new revenue streams. Our partnership with Suno serves as a proof point for AI and incremental value creation. Suno's 2 million subscribers are paying an average of $12.50 per month, clear evidence of the willingness of super fans to pay more for interactivity.

Not only are we building an ongoing consumption-based revenue model that enables us to scale as our partners do, we are also ensuring that AI models respect copyright, name, image, likeness and voice to protect our artists and songwriters. Implementing clearly drawn boundaries is enabling us to harness AI technology for license models that ensure fair compensation to artists and songwriters.

In fact, we were just named one of Time Magazine's 100 most influential companies for our leadership through this AI era. Additionally, we're actively engaged with our traditional DSP partners to launch new AI-powered premium tiers that will benefit our artists and songwriters by allowing fans to engage more deeply with our music. We continue to believe that our industry-leading and thoughtful approach to AI will drive one of the biggest incremental value creation opportunities for our industry and look forward to sharing updates on future initiatives.

Turning to becoming more efficient and effective. Our ongoing journey to become more efficient is unlocking our ability to invest more in our core business. This drives our market share growth, which translates into improved top and bottom line acceleration and cash generation and ultimately, shareholder value. We're not shying away from making tough decisions and doing the difficult foundational work necessary to drive a step change in our operational effectiveness.

Our strategic reorganization and focused investments in tech as well as the successful rollout of our financial transformation program have enabled the profitable growth that is reflected in our results. For the second consecutive quarter, we have now delivered margin expansion above our full year target of 150 to 200 basis points, further proof that our strategy is working.

We're excited about our release schedule, which includes new music in Q3 from Charli xcx, Lizzo, Alex Warren, Sombr, Tiësto, Teddy Swims, Kehlani and many more. In summary, our momentum is strong, our strategy is working, and there's a lot of runway. We're driving successful results by focusing on our 3 strategic pillars: growing market share, increasing the value of music and becoming more efficient and effective while using AI to power all 3. The building blocks are in place to deliver on our growth targets. And we've established a growth culture to continue our momentum and to accelerate long-term value creation for our artists, songwriters and shareholders.

Before I hand it over to Armin, I want to share that adding tomorrow, in addition to continuing to serve as our CFO, he will also serve as our COO. His expanded remit will now include corporate development, central marketing, business and market intelligence and [ WMX ]. And I wanted to thank Armin for the impact he has had on the organization and business in a short period of time, and I look forward to continue partnering with him to deliver operational excellence, growth and value creation. Congrats, Armin. Over to you.

Thank you, Robert. In my new expanded role. I look forward to partnering with you and the team to continue driving top and bottom line growth while strengthening our operational, commercial and financial excellence at the company. I also wanted to start by thanking our teams for delivering an exceptional second quarter and first half of the fiscal year.

We are seeing incredibly strong business momentum. Our second quarter was highlighted by acceleration in revenue growth, robust margin expansion and strong cash generation. This is the fourth consecutive quarter where we have delivered growth in line with or above our sustainable growth model, led this quarter by a step change in growth in subscription streaming revenue. Total revenue grew 12% in the quarter, reflecting double-digit increases across both Recorded Music and Music Publishing. Recorded Music revenue grew 13%, led by subscription streaming, which accelerated to 15% growth on an adjusted basis.

Ad-supported streaming also strong, grew 11% on an adjusted basis. Both subscription and ad-supported streaming benefited from healthy market growth and global market share gains. Subscription streaming also saw the benefit of PSM increases. Physical revenue increased 18%, driven by strong releases in the quarter, as Robert discussed.

Artist services and expanded rights revenue increased 33%, driven by concert promotion revenue primarily in France as well as higher merchandising revenue. Music Publishing revenue grew 10%, led by 16% streaming growth. Total company adjusted OIBDA growth was 24% and margin expanded by 230 basis points ahead of the high end of our full year target for the second quarter in a row, reflecting strong operating leverage, subscription streaming growth and cost savings delivery.

In an ongoing effort to provide greater transparency and visibility around our performance, we'll be disclosing adjusted net income and adjusted EPS moving forward. In the second quarter, adjusted net income increased 41% and adjusted EPS of $0.44 increased 38%. We generated operating cash flow growth of 83% in the second quarter. And through the first half of the year, our conversion ratio is at 66% of adjusted OIBDA.

As of March 31, we had a cash balance of $741 million total debt of $4.7 billion and net debt of $4 billion. In summary, our strategy is working and our teams are executing with excellence. Looking forward, we are well positioned to continue delivering on a sustainable growth model, which is anchored in high single-digit total revenue growth, double-digit adjusted OIBDA and adjusted EPS growth and 50% to 60% operating cash flow conversion as a percentage of adjusted OIBDA.

As Robert mentioned, we'll achieve this by focusing on our 3 strategic pillars to drive future growth, which I will discuss in more detail. First, on growing our market share, our priority remains investing into our core business, organically and inorganically to accelerate shareholder value creation. We do this by focusing our investments on first the most valuable repertoire markets with the highest growth potential globally. Second, high-margin accretive catalogs also leveraging our joint venture with Bain; and third, distribution capabilities, which enable us to serve the independent artist community profitably.

We have made significant progress against each of these areas. On organic investments, we are growing market share broadly across DSPs, labels and regions, with the exception of APAC, where we just recently appointed a new leader. On inorganic investments, following the upsizing of a joint venture with Bain, I'm pleased to share that the joint venture has deployed $650 million to acquire a number of heavyweight catalogs, which have an attractive return profile. We continue to maintain a strong pipeline of potential opportunities and look forward to sharing more updates in the future.

On distribution, we have signed an agreement to acquire cutting-edge independent digital music platform Revelator, a move the aligns with our approach to pursue bolt-on acquisitions that elevate our distribution offering. With cloud-based tools that streamline operations, and financial reporting for artists and labels and distributors, revelator will provide powerful infrastructure to help us better serve the critically important independent community. This will be an accelerate for profitable distribution revenue growth and market share expansion.

Importantly, across our portfolio of organic and inorganic investment, we have now institutionalized a globally coordinated deal evaluation and investment process. This process involves our creative, commercial and operating teams and allows us to look across our entire global portfolio of global potential investments to target the largest and highest ROI opportunities. This disciplined approach to capital allocation has enabled us to generate returns for approximately 20% on these investments.

Finally, in addition to driving enhanced shareholder value through our investments, we continue to return capital to shareholders through a quarterly dividend and opportunistic share buyback program. Second, we see increasing the value of music as critical to growing our company. We are pursuing innovative partnerships with traditional DSPs and emerging AI platforms to several avenues, including, first, PSM increases on existing tiers; second, licensing agreements with innovative emerging AI platforms; and third, collaborating with scaled DSP partners on the AI-centric premium tiers.

In quarter 2, we began to see the impact of these PSM increases, which contributed 3 percentage points to a subscription streaming growth of 15% on an adjusted basis. Additional PSM increases across other DSPs will roll in throughout the balance of the fiscal year, providing further support for this important metric. In addition to driving value through existing streaming tiers, we see AI as an important driver of future growth as we partner with both AI platforms and existing DSPs and higher ARPU offerings.

Our recent licensing deals with leading AI platforms including, Suno, which is currently generating $300 million in annualized revenue and has announced that it is planning to launch its fully licensed offering later this year will begin to contribute materially to our subscription streaming revenue growth starting in fiscal 2027. At the same time, we are actively engaged with our largest DSP partners around AI-centric offerings that will support higher-priced premium tiers, enhancing consumer experience and value creation for our industry.

Third, turning to becoming more efficient and effective. We are focused on, first, our ongoing cost savings program; second, driving profitable growth with a priority on cost streaming growth and third, operating leverage. I do want to spend some time today on our organizational redesign and related cost savings initiatives. They're not only delivering on schedule, but at the same time accelerating growth, which is a testimony to our team's execution of excellence around the world.

Based on this, we now expect to achieve the high end of 150 to 200 basis points margin expansion target in fiscal '26. The success of this reorganization has made identifying and driving cost efficiency as part of our organization's DNA. We will share more details about our ongoing cost savings initiatives in the coming quarters. But at a high level, the implementation of our global regional local organization model, and ongoing transition to a more standardized data architecture and operating processes enables us to leverage AI more effectively across the company for process automation and better real-time decision-making.

This, in turn, has been freeing up more resources to focus on value-added work, ultimately leading to incremental growth at lower cost. As an example, we have started on this journey with our finance team, leveraging our financial transformation initiative to use AI tools for advanced real-time forecasting and reporting, which has significantly accelerated decision-making. Again, based on the progress we have seen here, we plan to use new AI-driven tools more to further streamline finance and other functions.

These tools, in combination with our relentless focus on profitable growth, will contribute to our margin targets of mid-20s in the short term and high 20s over the longer term, further improving cash flow productivity. In closing, successful execution across our 3 strategic pillars namely, growing market share, increasing the value of music and becoming more efficient and effective has enabled us to accelerate profitable growth, creating a flywheel effect that frees up more capital to invest at attractive returns, driving better results and enhanced shareholder value creation.

At the same time, we are leading the industry in AI initiatives, which we believe will be a material contributor to our top and bottom line growth starting in fiscal '27. All of this, combined with highly disciplined capital allocation and return thresholds as well as a rigorous cost and cash management, gives us confidence in our ability to continue delivering against our sustainable growth model in fiscal year '26 and beyond. We remain excited about the prospect of creating significant shareholder value and look forward to providing updates on our progress.

With that, we'll take your questions.

[Operator Instructions] Your first question comes from Peter Supino with Wolfe Research.

An important piece of your conference call, your prepared remarks was your successful market share developments. And looking back at the last year, you had several quarters of improved market share. And so I wanted to ask you if you could expand on your prepared remarks about what you're doing differently? And how much of that feels sustainable versus the result of things, smart decisions done in the past that might not be part of a repeatable process?

Thank you, Peter. So before I answer your question, I want to take a small pause and recognize where our company is today, after years of doing hard unsexy foundational work after making tough organizational decisions and redesigns and just doing lots of really tough, difficult decisions, while growing the business, we have now hit our stride. You can see it, you said it yourself, fourth consecutive quarter of growth, printing solid numbers. I would say the numbers today are far more than solid, amazing.

And it feels really good to be at Warner today because none of this is short term. This is a result of long, proactive work. And our team is amazing. Our infrastructure is getting stronger and stronger. We buy when we need to, but we do it prudently. So we're not overspending and -- are having amazing creative success. We're firing on all cylinders. And it is amazing to be able to say that. And it's amazing to have the team that we have that underpins all of this.

Our gains are not in one region or one country or one sales channel. It's broad-based other than APAC, as Armin mentioned. That is amazing to be able to say and value is contributing to growth in addition to volume. That is amazing to be able to say.

All of the things that we set out to do, we're doing, and they're showing up in our numbers and they're showing up in our creativity. Our disciplined capital allocation is yielding results, strong leadership is yielding results. And we feel incredibly confident about the present and about the future.

So looking forward, we're really confident about our prospects because of 3 things. One, we have a very strong pipeline management. And what that means is we're looking at new release, catalog, our deals, acquisitions, partnerships, all of that holistically. And when we do that, we deploy resources to the best possible ROI opportunities. We have a very focused catalog optimization program in flight and it is yielding results.

Catalog is 65% of our revenue, therefore, very important. It deserves all the attention that it gets. And we have a -- within that, we have a new always-on marketing approach, we imagine for today's young people. We are introducing iconic artists to do younger generations through new releases, and we've developed AI tools that help us manage not only small sliver of top few hundred titles in our catalog, but the entire thing through the use of AI.

And we also have developed a model that helps us prioritize all this work. So it is amazing to be able to drive gains this way. And three, we have a very disciplined focus and strong focus on distribution. It's been a meaningful contributor to our growth. We continue to build features. We acquired Revelator to accelerate in that area. And we've had a lot of success signing the partnerships. So all of this makes us confident about the future and why we'll continue to grow and gain share.

Your next question comes from Benjamin Black with Deutsche Bank.

I have one for Armin, please. Could you deconstruct your subscription streaming growth performance? How much did PSM increases market share. Sort of the fact that you had a somewhat easier compares in the prior year contribute? And then looking ahead, how should we think about the growth rate there for the rest of the year?

Ben, well, first, I want to start with where Robert started and say a big thank you to the team for the progress we've been making and a consistent growth we're now delivering top and bottom line. It's incredible to see the broad-based progress, not just on growth but also on margin and cash. So thank you again to our team around the world.

To your question, Ben, If I deconstruct 15% growth, first, if you look at subscriber growth around the world, we think that's around 6% to 7%, Pricing this quarter, as I mentioned, was contributing to about 3 percentage points of growth. Then we think market share was about 3 percentage points of growth. You mentioned the lower base last year. We also think that's worth about 2 to 3 points. If we take that out, we probably delivered about 12% to 13% growth on an apples-to-apples basis.

We are very excited about the growth that we have been delivering, as Robert and I mentioned. But we think there's many more opportunities going forward to continue to deliver growth for the company because, remember, this is really just based on subscriber growth and pricing. One, there is more pricing to come over the course of the year as we went before. Two, there's really no contribution from M&A in our numbers.

And as you know, we have just deployed $650 million from our Bain joint venture, and that will come to fruition over time. Two, as Robert mentioned, we have been acquiring a distribution capability to a company called Revelator that will start to show up later this calendar year. And then last but not least, we have done several deals with AI companies. And we're in the process of doing deals with DSPs to grow our business profitably, not just in DSPs in higher tiers, but also with new AI companies. So really excited about the opportunity going forward. And I'm very confident that we can continue to deliver numbers that are consistent and are higher with our sustainable growth model.

And congratulations on your expanded role.

Your next question comes from Jason Bazinet with Citi.

I just had 3 AI questions for Robert. First, you mentioned in your prepared remarks your agreement sort of limit dilutive impact from AI generated use. But have you seen any so far? Second, is there any update you can give us on when you think Suno might launch their license offering? And any color you can give us on when you think traditional DSPs might take advantage of the agreements with you to offer consumers the ability to create their own songs off of your IP?

So obviously, we're prudent in all of our negotiations and we're building protections into those. But to answer your question directly, no, we have not seen dilution. We've been expanding our share consistently for the last 4 quarters. And so we have not been affected by it. Also, if you -- I'll just use public data from Visa and Apple, if you look at it, when these are 75,000 AI-generated tracks, uploaded every day, which makes up roughly 44% of daily uploads, but really, it results in 1% to 3% of streams and even much, much smaller fraction of royalties like tiny.

And 85% of those streams are actually being fraudulent. So no, no impact. And on Apple, it's less than 0.5% of listening. Just 2 public stats that I can quote that exist out there. So we feel good about that. And in general, we think that consumers will like offerings that blend creation and consumption, which is why our DSP partners are looking into it, and we're talking to them about creating that. And we love that future because it increases engagement with content, with artists and songwriters and it drives ARPU. So it's a positive development for us. So we're excited about it, nothing new to announce, but we're working on it with our partners.

Your next question comes from Kannan Venkateshwar with Barclays.

So Armin, maybe one for you. Can you provide bridge on how you will achieve your longer-term margin targets and efficiency plans? And how much did savings versus operating leverage contributed to margin performance in Q2? And then maybe longer term, I mean, some of these market share gains you guys have had over the course of 3 quarters. Can -- how much can catalog deals help you make this structural and sustain this over time? Because in the industry, market shares tend to be mean-reverting over longer time periods. So can you actually sustain this over time?

Kannan, let me start with margin. So on the margin side, we're obviously very happy with the progress. Fiscal year-to-date, we're delivering ahead of our targets. And we're now confident to increase our projection for the year to the high end of our target. In terms of drivers, the first one is really focus on profitable growth. I said this many times, it's really important for us to ensure that we grow each of our businesses in a highly profitable way. And you see that in the streaming growth that we're delivering across the company. The second one is a continuous ongoing focus on cost savings, and I mentioned this in my prepared remarks, there's really a culture of productivity now in the company that we're excited about not just for the purpose of productivity, but also to be able to reinvest into growth and accelerate the shareholder value creation, as I mentioned.

And the third one is we're very disciplined in making sure that we don't add people when we grow all the time that we drive operating leverage. That will continue in the next years to come, not just next year. In addition to that, we have additional drivers that we are leveraging. One. You mentioned our catalog business. Catalog is not just about acquisitions. Robert talked about that, it's 65% of our business. And we are now growing share on our catalog business without any acquisitions. And that's really critical to understand, this is a business which can grow for years to come at very, very high above average margins as part of our profitable growth strategy.

The second big area we are focused on is how do we innovate and create new business models and drive pricing up. Robert has been championing pricing for the industry for many years. It's finally happening. And frankly, has also been championing us leaning forward on AI, and we believe that starting next year, we'll see material benefits from that, not just on our growth, but also on our margin.

So I'm very confident that our margin targets are achievable. Frankly, our margins in our industry are way too low. When I started here, it was in the low 20s. As you can see, fiscal year-to-date we're around 24%. So we're getting towards the short term, mid-20s target. I'm very confident we can get to the high 20s target in the medium to long term.

On your question on catalog, frankly, M&A is a very small contributor overall. What's more important for us over the long term is that we find new and innovative ways to grow catalog. One of the larger ones that we are acquiring and growing now. But also, as Robert mentioned in the long term, where we are not just leveraging human manpower, but also AI to make sure we identify the opportunities and then support them. So net, we're really confident about the prospects that we have for our entire business.

The next question comes from Kutgun Maral with Evercore ISI..

Maybe for Armin. Congrats on the expanded remit. I wanted to see if you could talk about your approach to capital deployment. What has enabled you to deliver returns in line with your targets. And what processes have you implemented since during a year ago?

Thank you, Kutgun. In simple terms, we are driving productivity in everything we do. We're seeing the same approach to capital allocation. And how do we do that? It's really focused on 3 things: one, making sure we have a clear strategy and a clear growth model, we call it SGM or sustainable growth model. Two, ensuring that we manage our portfolio tightly as a company; and then three, creating a culture where people feel proud about spending less, including on A&R deals or M&A deals. Let me talk about each of them. On the strategy side, our priority is very simple. Invest in our core music business organically and inorganically and ensure that we are focused on The Largest repertoire markets around the world where we see the biggest growth potential.

And as we do that, also ensure we look at the biggest and most profitable and most realistic opportunities. That's number one. The 2 on portfolio and portfolio management, we are very focused on not just one individual deal, we are much more focused on ensuring that we optimize our portfolio overall. The benefit of that is like you as an investor, you're not investing in just one company, you're investing in a portfolio of companies. The benefit of that one the outcome of our investment is much more predictable. So we actually know pretty well what the impact on top line growth is, bottom line growth in cash, cash conversion.

Therefore, we can much more particularly invest and double down on our growth strategy. The second important outcome for us is that as we look at our portfolio of deals versus not just individual deals, we can actually work operating and creative teams to ensure that we look at how do we optimize our portfolio and don't just chase one expensive deal. Now the third component that I mentioned is all about culture and operations. I'm being proud about spending less and ensuring we deliver better returns.

We are now working with our creative commercial and operating teams to ensure that we review our portfolio basically every other week now and have a view of somewhere between 12 to 36 months, to ensure they understand and develop a culture of how do we ensure that we spend less money to ensure that we deliver the growth. And that culture really is penetrating the entire company that we approach these days, and we are very confident with the outcome. As I mentioned in our -- in the prepared remarks, we are delivering returns that are about 20% across our portfolio.

Your next question comes from Ian Moore with Bernstein.

Maybe for Armin. Can you detail the expected annualized revenue and adjusted EBITDA contribution you expect for the catalogs you've acquired through the Bain JV aND maybe any return targets for those assets?

Yes. We generally don't disclose specifics around those deals since we have confidentiality agreements in place. But what I can say is, we are very, very happy with our partner and the progress we are making. As I mentioned in my prepared remarks, we have deployed about $650 million of the $1.65 billion of [indiscernible] capacity that we have. Those investments are very focused on iconic high-margin catalogs.

And importantly, those catalogs where we see growth potential because important for us to ensure that we deliver above-average returns. The return thresholds are very much the same that I just discussed on E&I investment. So we make them part of our overall portfolio analysis. And those returns are very attractive for us and our shareholders. And then finally, what's also important for us is not just to acquire those catalogs, but it's actually equally more important to ensure that we have a dedicated team in place that can grow those catalogs. And Robert did something that I think was brilliant. He actually appointed a global catalog leader with [ Kevin Goh ], who's been growing our catalog share over the last 12 months, and that's excellent to see because it's high-margin businesses that we love to grow.

Your next question comes from Doug Creutz with TD Cowen.

One for Robert. I get questions from clients sometimes about the attractiveness of distribution businesses, given that at least notionally, they're lower margin. Could you talk a bit about how your distribution business fits into your overall business strategy in terms of economic value creation and maybe address how Revelator TuStream deals fit into that strategy.

So first, I think Armin mentioned the importance of portfolio management, and it doesn't mean just a portfolio of deals but also a portfolio of deal types, right? So we're very focused on this 2-dimensional portfolio management. And obviously, distribution within that second dimension of the deal types plays a significant role. It's a large part of the industry. And we've been investing into it on the technology side. We've been investing into it on the talent side. We've appointed about a year ago, Alejandro to run ADA, our distribution arm. And Alejandro has actually 2 jobs, ADA and Latin America. And Latin American market is very distribution heavy market.

So he's cut his teeth on that and he has managed to run that territory on the margin, which is the same as our companies. And so he is the right person for the job, and he's already a year into it, he's proven it. So it takes talent, technology, partnerships, the whole village to really deliver this. But what really underpins it is our holistic portfolio management and making sure that were driving growth in distribution while also achieving our margin objectives, which are obviously important.

And Armin has outlined those both on the short term as well as longer term. We also focus on acquisitions, but we're very prudent in the way we deploy capital in those. One of those is Revelator, obviously, which is technology and capability acquisition and the other one was TuStream that we mentioned earlier, which is focused on the Mexican music and has a very significant position there. So overall, we're very happy with our progress here. We have great momentum, very strong growth rate, and it fits into our margin profile as discussed with you.

Your next question comes from Mike Morris with Guggenheim Securities.

I wanted to ask you first about the comment about the strong ad environment that you noted and showed up in your numbers. I'm curious if you can expand on that because there's certainly been some inconsistency in growth across the industry and with the Middle East conflict. Are you seeing strength from any particular partners or geographies? And I'd love to hear any outlook for the sustainability there?

And then second, if I could, Armin, congratulations on the expanded role. I'd like to direct the question to Robert. Robert, how do you see Armin further contributing to the business success with this new role? And also, how do you make sure that the financial function, which he's been instrumental in strengthening remains strong.

Okay. So let me take the ad question, Mike. So it's different across partner. There are some partners that have very, very strong ad revenue growth. That's the comment around the market. And we are growing share in that partners. Obviously, we're seeing even stronger growth -- there are some partners that are not doing well yet in that, although there's a strategic intent to improve that. And I'm sure you know who I'm talking about. And we're actually very confident that, that specific partner will do that. So we actually hopeful that they can contribute more to growth in the future to continue to accelerate it.

We're also growing share in that platform. And then last but not least, [indiscernible] more on the DSP side. We feel very good about the future prospects. On the social platform side, as you know, we did a new deal with one of our partners, and that's also contributing to ad growth. So a lot of that is structural. And we also believe that one of our partners will do a much better job in the future. And therefore, we're so confident this will become a bigger contributor to our growth in the future.

And it's really important because we have billions of consumers that we serve around the world. So with that, I'm going to hand it over to Robert to talk about my work plan for the next...

Well, actually, I love this because I can do Armin's 360 review in front of everybody in a fully transparent manner. So this is fun. So first, Michael by the way, great question. You should know, I don't make decisions suddenly. So this is something that actually has kind of been in practice. So this is nothing new. It's just a title change that's reflecting that we've been operating. Armin has added responsibilities along the way over the last 12 months, one by one. We don't make any change, didn't make an announcement, nothing is just kind like things have to work.

And now we've hit our stride. We feel really strong about what it is that we do here, how we got here and more importantly, prospects for the future. And we really feel like we need to double down on operational excellence across the company and simplification, which then leads to a lot of automation through AI, which allows us to deliver more for artists and songwriters with the same team. and grow our business rapidly. So having a strong alignment between our financials, our budget management, forecasting it's just very, very closely tied to the operation of the company and a role like that makes sense.

So it's just reflective of how we've been already operating, so just making it official. That's it.

That is all the time we have for questions. I'll turn the call to Robert Kyncl for closing remarks.

All right. So in closing, Again, it feels great to be at Warner. It feels great to work hard for years and now have consistent delivery and accelerating and it feels great to have confidence about the future. And as you guys know, I don't say this lightly. This is truly a work of a lot of people around the company. This is -- these are not isolated incidents, it's systemic and we have a growth-oriented culture in the company, very entrepreneurial, but at the same time, mindful that we need to deliver on our margin expansion, at the same time, have a profitable growth. And that we have to innovate, innovate, innovate for the sake of our artists and songwriters and shareholders. So with that, thank you for your confidence. Thank you for your time, and we'll see you next time.

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

All right. I think we can get started. Good morning or afternoon, everyone. I'm Cameron Mansson-Perrone, 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 Kyncl, Chief Executive Officer of Warner Music Group. Robert, thanks for joining us.

Thank you for having me.

Robert, it's been, I think, roughly 3 years since you took over leadership at Warner Music. There's obviously been a lot of changes during that time frame, both at Warner and in the industry. 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 defines Warner?

Well, I think today, what 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 3 priorities. Everything that we do is through the lens of those 3 things. And so it's ingrained in the company, and we've made a huge amount of progress on each of those 3 areas. We've grown our market share by 1 percentage point in the last quarter according to Luminate. Obviously, we've grown our efficiency quite recently and 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 -- 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 the right results.

Yes. We're going to dig into a lot of those areas more. But at a high level, when you think about the growth opportunity at the industry level, how do those attributes and Warner's focus position it well to kind of succeed within the growth backdrop of the industry?

Look, I think the industry -- number one, the industry is healthy. Like if I think about the music industry, and I 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, et cetera. And the one thing 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 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 I feel quite bullish on the industry. And we are very well positioned for that. Again, everything that we do goes against those 3 priorities that I mentioned. AI helps with each and every one of those. And our company has gone through lots of changes over the last 3 years, both organizational ones where we flattened the organization. We refreshed a lot of the leadership.

We've simplified our organizational structure 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 an infrastructure standpoint.

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. If you think back, how would you say the role of a music label evolved over the past 5 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?

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 matters. And today, that obviously continues to be, but there are so many more things to work on. The industry got much more complicated. Our biggest 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, et cetera. 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. And obviously, there's advent of AI. So what it takes is much more ambidextrous organizations than in the past and which I was alluding to the changes that we've made inside our company to achieve that, and we have. And 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, we live in a world of unlimited noise and noise that is increasing. So while on the one hand, democratized distribution gives everybody a voice; on the other hand, those voices are being lost in 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 the scale to recruit people on the business development side. Obviously, you need to have the right people for artist development. It is very hard to achieve all of these things within a smaller company.

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 in the video and audio world in content and distribution, what's your view of that risk or response to that perception?

Yes. 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'll 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 a market share-based royalty pools to attribution-based royalty pools. And it's rewarding quality, which is not where we've been in a market share-based world.

So in short, in a 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 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.

Yes. We'll talk about this. But do you think there are attributes for music specifically that differentiated in terms of AI exposure or opportunity relative to other areas of content?

Yes. I think -- so if you -- so think about it, let's say, I'm not talking about professionals, but I'm talking about casual users, creating content, 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 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 I think there will be a similar behavior in terms of 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 kind of lean in and leverage AI. 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 you might not have been possible or it might have been just much more challenging previously?

So I mentioned sort of return to scale. Obviously, catalog is part of that. We have well over 1 million songs to manage on the DSPs. Well, it's humanly impossible to tense 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 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 then our frontline teams, 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 build and then make sure you build it in a way so you 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.

Yes. 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?

One good example is, again, we develop 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, right? 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. right? So it's good. So basically, the same tool can be used for frontline and basically prioritize work and 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 1/10 of the cost, 1/10 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 frontline suddenly would have an artist who's delivering their music video 2 hours before the release and there's no time to QA 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 pull 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.

Another big opportunity is the deals you've signed with new AI platforms that you mentioned earlier, including Suno and Udio, 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?

So I'm consistent in saying that we have a 3L strategy, which is litigate, legislate and license. And the first 2 are in the service of the third. And that's the perfect example with Suno and Udio. We've 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. Two, we're willing to license and transition to a license model 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 release, 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 the 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.

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?

So I'll start with the last, which is the value of music, right? So if you think about it, the music industry has benefited from subscription tremendously, right? The industry is 30% bigger than it was at the height of CD era, fantastic. However, at the same time, on an inflation adjusted, we're roughly at $0.50 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 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 spend.

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 -- you should expect that those offerings will make its way to the DSPs in 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.

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 that could differentiate the creator content, the content creators.

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, right, which obviously we cannot do. But when people are creating and they're using familiar iconic IP to create, it will unleash a whole new economy because 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 TikTok all the way to the longest of Martin Scorsese movies or James Cameron movies or Super Bowl Halftime Show, right? 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.

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 maybe on the fence? What's your message to them?

Yes. I meet with quite a few artists and talk about it. And look, the right answer here is do what's right for you. It's very hard to force anybody to -- like there's no reason to force people to do anything, right? This has to be a voluntary effort. So 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, right, based on -- and by the way, we have both, right?

Charlie Puth just became Chief AI or Music Officer at an AI company. Obviously, Charlie is embracing it, right? 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 purist and they're all about human creation and nothing else. And that's also great. So we're agnostic about it with our artists.

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?

Obviously, I can't go into the details, but I'll give you some of the broad strokes, which are important. I think the -- for instance, today, you see a bunch of news about news organizations doing AI deals, right? And those are done on a flat fee basis. That is not the case with us. 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 shelf life of 100 years, completely different thing.

So for us, it's all about negotiating the outputs and our revenue share on the output so that when our partners are growing, we're growing. When we're growing, our artists and shareholders are growing, right? It's like it ties -- 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 and at least in the lifetime. And so we have to have ongoing participation in the revenue stream.

How do you think about -- I think there's a question of how assigning 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 what 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?

Yes. I don't think any of this has worked out yet, like what defines what. But clearly, we have many artists, our own artists that are leaning into AI very heavily. We do songwriter camps, Warner Chappell, our publishing division, the songwriter camps that -- where lots of songwriters get together. Two most recent songwriter camps were very AI-focused for us. And 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. When I -- 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, right? 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. And -- 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 be willing to spend way more money on music than they had the opportunity to do so far, and we want to grow that.

Yes. How do you think about -- you talked about it on your last earnings call 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?

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 needed the rights. So we had to add that. Then we wanted to build a subscription, so we had to get those rights. Then we wanted to get into shorts, we had to get those rights. So each time with innovation and product evolution, the rights needed to expand. And each and every time we had to go to our partners and figure out how we expand the rights. This is just another one of those steps. It's nothing new. It's a process that -- I use YouTube as an example, but the same thing holds true for Spotify.

First, they're a subscription, then they added advertising. It was kind of like the opposite of YouTube, right? Now they added video, right? So like each of those things keep on evolving, and we're used to that. Like that is our job to do. So yes, this is just another step in value creation for both sides, by the way. And yes, we just have to grow the overall pie and grow the incremental pie and life will be great for everybody.

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, how do you -- what can Warner do to support an ecosystem where rates moving in the direction that you'd like to see it?

So the -- like if you -- again, this goes to the opportunity, right? 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 have been before. But it only points to the opportunity. So I think instead of having like 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. Yes, it's also going to increase on the retail side. There is 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 it's -- again, this is not a rocket science. It's not a new and super unique thing to our industry. But it's one that we need certainty around rates going forward. We decided that 1.5 years 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, right, which has been 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 2 prongs, which is certainty around rates and artist-centric and moving the floor up.

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?

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? It's not just like a little raise or sunshine somewhere. It's like actually the sun is shining all around pretty much. That's one.

Two, we've tightened our capital allocation, much, much more focused on the highest impact opportunities and taking more of a repertoire potential lens rather than a market-based lens to things.

Three, we have a very strong pipeline -- 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, right, 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 ambidexterity -- dexterity, 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 deal.

Yes. 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. What's -- is it the org changes? Is it technology? What's allowing you to execute on the efficiency so well?

I wish I could say that there's like a silver bullet and one thing that enables it. It's a series of -- it's the compound impact of a lot of different changes. So talent is definitely one. Measurement is another, right? Like 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 a much more strengthened infrastructure and a clear vision for the future on what to do and marching against it as one team.

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

Thank you so much. Thank you for your support.

Welcome to Warner Music Group's First Quarter Earnings Call for the period ended December 31, 2025. At the request of Warner Music Group, today's call is being recorded for replay purposes. And if you object, you may disconnect at any time.

Now I would like to turn today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin.

Good afternoon, and welcome to Warner Music Group's Fiscal First Quarter Earnings Call. Please note that our earnings press release and snapshot are available on our website, and we plan to file our Form 10-Q on February 9. On today's call, we have our CEO, Robert Kyncl; and our CFO, Armin Zerza, who will take you through our results and then answer your questions.

Before our prepared remarks, I would like to remind you that this communication involves 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, including metrics that are adjusted for notable items during this conference call and in our earnings materials, 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 that there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements as they are subject to a variety of risks, uncertainties and other factors that can cause actual results that materially differ from our expectations. Information concerning these risk factors is contained in our filings with the SEC.

And with that, I'll turn it over to Robert.

Thanks, Kareem, and hello, everyone. Greetings from Los Angeles, where we celebrated the successes of our artists and songwriters at the Grammys this past weekend. In fact, you just heard songs from our winners, Kalani, FKA Twigs, Turnstile as well as Bruno Mars, who gave two incredible performances at the show. Our momentum continues as we delivered a third consecutive quarter of strong profitable growth.

Total revenue increased 7%, led by 9% growth in recorded music subscription streaming on an adjusted basis. Total adjusted OIBDA increased 22% and margin increased 310 basis points. It's clear that our strategy is working as we continue to deliver on the three key components of our plan: growing our share, growing the value of music and driving efficiency. I'll talk about our progress on each front and then I'll explain how we plan to leverage AI to further accelerate progress towards each of these three goals.

Our strong Q1 results reflect a steady market share improvement we've been delivering. We saw approximately 1 percentage point of U.S. streaming market share growth over the prior year quarter, with strength across new releases and catalog, and our market share on Spotify's top 200 chart is up 3 percentage points fiscal year-to-date.

We started the year with a bang as we released Zach Bryan's new album With Heaven on Top, sending it to #1 on Billboard 200. Meanwhile. Just after his collaboration with ROSE on APT, finished at #1 on the Billboard year-end global chart, Bruno Mars released his new single, I Just Might. It quickly jumped to #1 on the Billboard Hot 100 and on both the Spotify U.S. and global charts. Bruno's long awaited first new solo album [ in indicate ], The Romantic drops on February 27. Both Zach and Bruno are signed to us for recorded music and music publishing which is a true testament to our One Warner approach.

Outside the U.S., our focused approach is also paying off with talent resonating across markets, languages and cultures. We scored #1 in France, Italy, Spain, the Netherlands, Finland, Korea and China and also on the Billboard Latin Airplay chart.

Turning to our global catalog division, we've taken a new strategic approach that's also driving our share, including an always-on marketing philosophy that ensures we keep artist brands alive and fresh with new generations across all forms of media. And we continue to find powerful sync placements to fuel consumption of our catalog and introduce our iconic catalog to new fans. An example is this season's Stranger Things on Netflix, where [ sings ] resulted in major streaming upticks on -- and chart movement for classic once from legends like Prince, David Bowie and Fleetwood Mac. Momentum from a placement in the show's finale drove a more than 600% year-over-year increase in weekly streams following the premier of the finale on Prince's 1984 hit, Purple Rain, which led to reentering the billboard Hot 100 for the first time in over a decade.

Importantly, we've seen baseline weekly streams of Purple Rain settle to a new baseline that's 6x higher than before the sync. And for David Bowie's anthemic Heroes, we saw more than 300% year-over-year increase in weekly streams and a new baseline that's 2.5x higher than before the sync. Amazing results, as you can see.

In Publishing, we focused on accelerating our proven A&R strategy by building and acquiring high-margin IP, executing admin and sub publishing deals and growing revenue through AI partnerships. One of [ Chapelle's ] songwriters contributed to half of the top 10 most streamed songs of 2025 in the U.S. and a huge congrats to Amy Allen, who won Songwriter of the Year at the Grammys for the second year in a row.

Turning to growing the value of music. We're now seeing the impact of the deals we've reshaped with the DSPs last year. These agreements are finally shifting the industry toward price-driven growth that better reflects the ever-increasing value of music to users and providing us with greater economic certainty. I'm also pleased to announce we renewed our deal with TikTok, resulting in an improved deal economics.

Moving to our third priority of improving efficiency. Through our investments in technology over the past few years, such as overhauling our supply chain, building new tools for other songwriters and employees and rolling out our financial transformation program, combined with our reorganization, we have impressively been able to accelerate growth while cutting costs. This strategic overhaul of our foundational technology infrastructure has not only enabled us to increase efficiency but has positioned us favorably to leverage AI across our three strategic priorities: growing share, growing the value of music and efficiency. That, combined with our management team's deep tech and transformation experience, uniquely positions us to capitalize on this tremendous opportunity.

Starting with growing share, we're quickly deploying AI to accelerate new artist discovery and enhance and automate our marketing. This enables us to scale our marketing efforts beyond what's humanly possible, a transformational step for a large rights holder like us. We have an attractive opportunity to better monetize one of our most cherished assets: our extensive music catalog of over 1 million recordings that includes some of the most iconic songs ever recorded. With the use of AI, we can quickly and inexpensively generate assets like motion art and music videos and others that stimulate greater exposure and engagement with our catalog at scale.

At the same time, we're developing tools to amplify the creativity of our artists. And we've been hosting workshops and songwriting camps to help our creators leverage the latest technologies to hone their work, cut through the noise and build fandom in today's fast-moving world.

We also see a clear and tangible opportunity to leverage AI against our second priority, which is to increase the value of music by leaning into partnerships with new entrants such as Suno and Udio as well as our digital service providers that provides fans with the opportunity for deeper engagement at higher-priced tiers, and we're already in discussions with some of them. By taking an early and aggressive approach to embracing new technologies, we are authoring ethical guidelines that will enable us to protect and super serve artists and songwriters, while creating incremental opportunities for the entire ecosystem.

To reiterate on my blog post from November, WMG is harnessing AI as fuel for music industry growth guided by several nonnegotiable principles. One, our partners must commit to license models; two, the economic [ terms ] must properly reflect the value of music; and three, artist and songwriters must have a choice to opt in to any use of their name, image, likeness and voice in new AI-generated recordings. The latest example of these principles in action is our recently signed deal with Suno, the leader in AI music.

And when it comes to our third pillar, efficiency, as I mentioned earlier, over the last three years, we laid the infrastructure foundation for us to effectively deploy AI across many different departments across the company. This includes departments such as legal, finance and HR to further increase our efficiency and effectiveness. AI is leading to an explosion in creative and commercial possibilities that will create even greater demand for original talent. Shifts in culture and tastes have and will always be defined by real artistry, identity and vision that define the strongest creative brands. In adhering to our principles, we are protecting and supporting our artists and songwriter's original creativity, increasing fan engagement and unlocking even greater value for the entire industry.

We are well positioned to capitalize on a healthy and growing industry. Momentum is strong, and we're seeing creative success that is translating to steady market share improvement, progress in economic terms with major DSPs and deals with existing and new innovative platforms that will leverage the use of AI to drive a step change in the value creation for the industry.

And finally, we have a steady stream of releases from new and established stars dropping every week for the rest of Q2. Be sure to look out for new music from Bruno Mars, Charlie xcx, Kalani, Hilary Duff, Sombr, Alex Warren, Fred Again, Charlie Puth, Tiesto and many more.

And now I'll pass it over to Armin.

Thank you, Robert, and good afternoon, everyone. I'd like to thank our teams for a very strong start to the year. It's rare to see a company undergo such significant transformation in such a short time frame while delivering accelerated growth and profitability. Yet, we've accomplished just that and it's a testament to the incredible work of our employees. It's an exciting time at the company with lots of momentum and opportunities ahead of us.

When I arrived, we're committed to delivering against three key metrics, which we view as essential to creating shareholder value. First, accelerating revenue and share growth; second, driving margin expansion; and third, improving cash flow. This is now our third consecutive quarter of profitable growth, underpinned by healthy margin expansion and cash flow generation. Encouragingly, our performance was broad-based, demonstrating strength across divisions and market share gains in key regions and by consistently delivering on a sustainable growth model, which is anchored in high single-digit total revenue growth, double-digit adjusted OIBDA growth and 50% to 60% operating cash flow conversion, we have established a solid baseline for how we expect our business to perform. In short, we're doing exactly what we promised and are just getting started.

I will provide details on how we will accelerate on the solid foundation in a moment. But first, I want to talk about the key drivers of our performance in Q1. Total revenue growth of 7% reflects solid performance across Recorded Music and Music Publishing. This was highlighted by sequential improvement in Recorded Music streaming led by subscription streaming growth of 11% or 9% when adjusted for notable items. Ad-supported streaming grew 4%, driven by strong performance from traditional DSPs. Physical declined 11% due to a difficult comparison in the prior year quarter, which saw releases from Linking Park as well as in Japan and Korea. Artist Services and Expanded rates revenue increased 13%, driven by concert promotion revenue primarily in France. Music Publishing revenue grew 9%, which reflects the impact of [ MLC ] historical match royalties in the prior year quarter. Adjusting for this notable item, Publishing grew 15% and saw double-digit growth across performance, mechanical, sync and streaming. Adjusted OIBDA rose by 22%, and our margin increased by over 300 basis points, reflecting the operating leverage that is inherent in our business as well as the benefit of our cost savings program and favorable movements in FX rates. These factors also drove robust operating cash flow growth of 33% for a conversion ratio of nearly 100% of adjusted OIBDA. Accordingly, we saw a significant increase in our cash balance, which grew by more than $200 million since last quarter to $751 million.

These results are just the beginning and our focus is on accelerating growth by our strategic priorities and initiatives, which include: first, investing into our core organically and inorganically; second, expanding opportunities for music monetization by continuing to work with traditional streaming partners, and building their capabilities, forging the partnerships and making investments necessary to win with AI; and third, driving margin and cash flow through a combination of top line growth, operating leverage and cost efficiencies.

First, on investments in our core. Our refined approach to capital allocation and investment is clearly working as we are seeing more consistent, broad-based results driven by resilient and growing market share. As we have said in the past, we are using M&A as an accelerant with a focus on high-quality, accretive catalog acquisitions. We have a robust and growing pipeline of opportunities, which has led us to increase the capacity of our joint venture with Bain as detailed in the [indiscernible] we filed earlier today. WG and Bain have increased our equity commitment by $100 million each and expect to maintain the existing equity to debt ratio, which will increase the JV's total capacity from $1.2 billion to approximately $1.65 billion. You can expect some exciting announcements coming in the near future as we plan to deploy a significant portion of the JV's total capacity by the end of this fiscal year. This combination of organic and inorganic investments will fortify our core, giving us greater scale to capitalize on favorable industry trends as well as emerging opportunities like AI that will lean heavily on iconic content.

Which leads me to expanding opportunities for monetization. Now that we have fortified our core business through more favorable terms with traditional streaming partners, we are focused on leveraging AI to drive significant incremental top and bottom line growth to benefits of our artists, songwriters and shareholders. Understandably, this topic has been a focus of investor attention with the right range of views. Robert and I believe that AI is a tremendous opportunity for the music industry when executed ethically and responsibly. Our priorities have been to, first, invest into and forge partnerships to establish terms early and in a way that artists, songwriters, labels and publishers are protected and fairly compensated; second, design business models with our partners that are consumption-based and accretive to current ones; and third, with the capabilities to drive increased engagement with our treasure trove of recordings and compositions.

Our recently completed AI deals with Suno, Stability, [indiscernible] and Udio are based on its principles and have the potential to unlock significant incremental revenue at accretive economics. Importantly, in all of our deals will be compensated on a consumption basis, ensuring that our economic scale as our partners business grow. Also, our partners' offerings will result in higher ARPUs, reflecting the interactive nature of the platforms.

We were the first major label to sign a deal with Suno, the market leader in generative AI music content. Suno is already earning several hundred million dollars of annual revenue and is empowering music fans to create and play with music in groundbreaking ways. Through an innovative partnership we entered into last fall, we, Suno and most importantly, our artists and songwriters will begin to reap the benefits of our music in fiscal year '26 while also showing what the future of music looks like. We expect this partnership to be a material top and bottom line growth driver starting in fiscal 2027.

Our goal is to maximize fan's ability to engage more deeply with the music they love. So of course, we are also exploring opportunities with our large DSP partners to incorporate the AI tools that will enhance their consumer offerings. Doing so in ways that are consistent with our principles for ethical and responsible use of AI represents the potential for significant industry value creation. And as Robert mentioned, the impact from AI-generated assets that spike engagement by catalog can be a significant one. Using AI to quickly and cost effectively create motion art, which can boost attractive push on DSPs and marketing and other assets that are derived from our catalog, such as remixes and music videos will enable us to drive incremental revenue much more effectively.

Finally, AI will be an advantage for us on the cost side as well, aligning with our initiatives to operate more efficiently to accelerate margin and cash flow growth. The use cases will range from music production, where many of our artists and songwriters are already leveraging these tools to more analytically driven, precise deployment of marketing dollars as well as more real-time forecasting and analytics. Further, on driving efficiency, I'm pleased that our cost savings plan is delivering on schedule and is on track to contribute 150 to 200 basis points to margin in fiscal '26 as we work to drive even greater efficiency through the use of AI and improving the operating leverage in our business, we believe that the margin in the mid-20s is achievable in the short term and have a longer-term goal to deliver margins in the high 20s. We will provide you with an update on our path to meaningful margin expansion as our brands evolve in the upcoming quarters.

One housekeeping item, I'd like to note, with the roll-off of BMG, digital distribution revenue now largely completed, we intend to provide year-over-year adjustment for the remainder of the fiscal 2026. As disclosed in our notable items table in the earnings press release, the impact in Q1 is $6 million, and we estimate the impact for the remainder of the fiscal year to be approximately $10 million each in quarter 2, 3 and 4. All the other notable items in fiscal year '26 have been disclosed previously, and as usual, you can find these items in our press release.

In summary, we are very optimistic about the road ahead. With greater certainty around DSP deal terms, more consistent market share performance and our refined approach to capital allocation, our path to accelerating growth in 2026 and beyond is clear. The key components of this will include a strong release slate, anchored by big new releases from Bruno Mars, Zach Bryan and many others. Contractual PSM increases starting in Q2 and laying in throughout the balance of fiscal 2026. Acquisitions of high-quality accretive catalogs as well as of bolt-on capabilities that will accelerate our distribution and e-commerce businesses and AI partnerships and initiatives resulting in a material contribution to revenue and margin in fiscal 2027.

We look forward to providing regular updates as we continue to achieve our goals. With that, we'll take your questions.

Your first question comes from Michael Morris with Guggenheim.

I'd like to ask each of you for some more detail about your AI comments. Robert, first, can you expand a bit on your philosophy as it relates to the deals that you have made with those AI partners you referenced? I'm particularly interested in how your approach differs from the approaches of some of your peers and why you've chosen that path.

And for Armin, can you provide some more detail about the financial impact that you're expecting to see from the deals? Regarding the economic terms, can you clarify, are these per stream payments similar to DSPs? Or will Warner Music participate in the subscription revenue of the AI platforms themselves? It would be great to get some clarity on that.

All right. Thanks, Mike. So I'm not going to comment on what our competitors are doing, but I'll explain what we do. And let me take one step back, which is everything we do in AI is not just about deals. It's actually going against all three of our priorities of growing share, growing the value of music and growing our efficiency. And I highlighted some of that in the monologue earlier on, but there's a lot of work that we are doing to grow our share using AI around assets and discovery catalog monetization and creativity.

In terms of increasing the value of music, we clearly see a path to audience segmentation because creation is the ultimate expression of fandom. So for us to superfan tiers over the future will all include AI functionality to create. And our partnerships with the four companies that we mentioned are key to establishing how we would like to see this market to evolve and what it is that we do with our existing partners with whom we obviously have to take our holistic relationship into consideration as well to make sure the business grows healthily for all of us.

And the third party is efficiency that we touched on earlier as well. We are -- we have deployed AI across finance, legal, marketing, HR and more. There's a lot more to do, but we're humming across the company and against all three of our priorities.

As it relates to double clicking on the deals, very clearly, we've outlined our principles, which is, I think, a model that companies have to license -- have licensed models. They have to reflect properly the value of music, which means we have to be really happy with the commercial terms, which we are. And three, artists have to have the right to opt in for the use of their name, image, likeness and voice and derivative content. And that is what drives us.

The important thing here is that if you want this market to grow and evolve healthily, it is important to strike the right balance. And what I mean by that is not being black and white in how we see the world, but actually finding the shades of gray of the right equilibrium between what the user wants and what we, the rights holders and artists and songwriters want. And if you get that right, then you actually build a very large business and create a lot of value. And if you are black and white about it, then likely you won't. And there are past attempts in the space of media that kind of prove that. One of those examples is the TV Everywhere initiative, roughly 20, 25 years ago, where all the media companies had a very -- sort of rigid and [ pragmatic ] approach to how their content would show up on the Internet. And that obviously didn't work. And in the meantime, and it allowed companies like Netflix where I worked at that time to run faster and gain market share basically online.

And two, DRM music basically slow down the adoption of streaming services. So the decline post-Napster era could have been shorter have we been a little bit more flexible about it.

So we at Warner have learned from the past, where we believe we found the right equilibrium in our deals, and we're very much focused on making sure that we're protecting our artists and songwriter's right and that we're creating tremendous value for our shareholders. So this is the opportunity that we're seizing and we do believe that we have it right.

Thanks, Robert. I'm going to start with where you closed. We believe this is one of the biggest opportunities for value creation. It allows us to provide better experiences to our friends who will now be able to interact with our content. It actually allows us to deliver better services to our artists and songwriters as Robert mentioned. And it allows us to actually deliver better economics.

You all know that Music is one of the most undermonetized industries in the world. And this is a tremendous opportunity now that fans engage more with our content to increase ARPU. And I've worked in gaming for about a decade and we have a similar experience in gaming when gaming moved from physical to a digital experience, and gamers started to interact with games more and communicate more with each other. Then we had an opportunity not only to engage our players more. But we also had the opportunity to introduce multiple different business models. And that's what we -- that's what our partners are intending to do here. And you see that the services that have been launched or about to launch, they will all will happen at multiple subscription tiers. They will all introduce digital items services over time. As a consequence, ARPU on the industry will dramatically increase. And in fact, as Robert mentioned, we don't think that growth only happen just with our new innovative AI partners, we also believe that our current partners will start to introduce higher tiers. In fact, when you think about engagement with content, that's the best opportunity to engage a super fan. And superfan typically spend more time engage more and spend more on our content.

So in that, we believe, is a tremendous opportunity. And then there is a question, Mike, on the deals. First, we believe the impact next fiscal year will be material for us. Why? We have signed a deal with the largest partner. Their revenue is already multiple hundred million dollars. They continue to grow, and our revenue share is strong. So we will see a material impact next fiscal year.

Second, the deals have been designed on a variable and accretive basis, as I mentioned, were because we will grow as those platforms grow [ and accretive ] because we'll grow ARPU.

And last but not least, we have designed this in a way to protect our artists and songwriters who all will benefit from all the increase in the revenue and the accretive nature of that revenue. So that's how we think about it.

The next question comes from Peter Supino with Wolfe Research.

A couple of related questions on your financial outlook. I wondered if you could talk in greater detail about the coming year from two perspectives. First, about your paid streaming growth and how that outlook corresponds to your DSP deals inked in 2025? And then parallel on the financial outlook, if you could talk about potential growth accelerants that may be in your plan and how much incremental growth those could contribute to the outlook.

Yes. Thanks, Peter. I'll answer that question. First, as we discussed in our prepared remarks, we're very happy with the progress that we're making. And I want to thank our teams, again, for the excellent work they have been doing despite the major reorganization. We now delivered three quarters of consistent high single-digit growth in revenue and streaming and obviously, with [indiscernible], which means we're winning in the marketplace.

Now at the same time, we have improved margin and cash flow. And why is that important for us because I committed to you that we're going to improve shareholder value creation. And we do that by accelerating revenue growth, improving margin and improving our cash flow productivity.

Now looking forward, as you know, we're not providing guidance, but we have many opportunities to accelerate growth from here. First, we know now with the PSM increase is that we are starting to see that volume-led subscription streaming growth will evolve to volume and value-led growth. And on top of that, we believe this is the best opportunity now with AI to introduce super premium tiers.

Secondly, we're making strong progress with our investments in our organic business, but we're also making strong progress with M&A. As we announced today, we are increasing the capacity of our joint venture with Bain from $1.2 billion to about $1.7 billion. And we are doing that because we have developed a very, very strong pipeline, which will start to announce in the remainder of this calendar year.

Thirdly, we have an opportunity to grow in areas that we haven't grown fast frankly in the past. One is distribution and the other one is DTC, is a direct-to-consumer, both in physical and merchandising. We have talked to this in the last call, so I'm not going to beat the horse this time.

And then last but not least, we have a tremendous opportunity to step change growth in this industry with AI, as I mentioned before. So net, we are very, very confident about our momentum and the growth that we can deliver for our shareholders, but also for artists and songwriters and our employees.

The next question comes from Ian Moore with Bernstein.

Robert, you've been delivering market share improvement for several consecutive quarters now. Can you maybe talk to us a little about what you're doing differently to drive that consistent growth and how sustainable you believe that performance is?

Sure. Thanks, Ian. So First, I want to repeat that it's actually -- the positive thing here is that it's broad-based. It's happening across regions and business units. The place where we have the most amount of work to do still is Asia. And obviously, there, we've changed leadership both in Japan as well as across the entire region. So we know what to do. We've got the right people there, but it takes some time, but we're working on that hard. But other than that, all of our business units are growing at a very, very healthy clip, and it's showing up in the results.

If you go back to 2024, we've done a significant restructuring back then. And at that time, we told you that we would reinvest the proceeds of that restructuring into growth through technology and investments into A&R. And those materialize through fiscal '25. And so you're starting to see the results of that. Then when you layer on top of it the much, much sharper capital allocation that Armin mentioned earlier, our strong pipeline of initiatives that we're managing across the company. Our leadership overhaul in many business divisions, it is -- it does start paying dividends, and that's where we are. That's why we're very pleased to see our consistent performance. We -- we're really firing on more cylinders that there are. And all of it is underpinned by our incredible ability of artist development that is showing up through the fact that we consistently are finding new amazing artists that break through the clutter in a very noisy world on a global stage, Alex Warren, [ Marias ], Sombr, et cetera.

And on top of it, we have an incredible slate just even if you look at Q2, right, with Bruno Mars, Zach Bryan, Charlie xcx, Kalani, Hilary Duff, [indiscernible], Charlie Puth, et cetera. So across the company, we're going for it.

The next question comes from Cameron Mansson-Perrone with Morgan Stanley.

Two, if I could. First, trying to maybe approach some of what you've discussed already from a different angle. Both of you have kind of talked about AI tools and a premium or a super fan offering as being potentially tied together or related. I'm curious, when you think about your traditional DSP partners, whether you're having conversations with those partners to that effect already or how those conversations might be evolving?

And then separately, there's been some pricing announcements recently from Spotify and from Amazon. Maybe if we take Spotify as an example, given their scale. How do you expect to benefit from that pricing this year? And then I think they left the basic tier pricing unchanged, whether there's any consideration in terms of impact to Warner from that dynamic, I'd appreciate it.

Sure. So on the first part of the question, yes, we're in discussions with our partners. As we mentioned before, AI provides a tremendous opportunity for engagement of users who are listening to music to now create. And basically [indiscernible] audience segmentation strategy and premium tiers.

Again, it was very important for us to establish our terms with independent players in the market, which we've done with four of them. There was a very clear strategic move on our part. And so we are ready to engage, and we are talking to our partners, our DSP partners.

As it relates to the second part of it, our strategy is always to -- sorry, when I started, I was always saying, "Music is undervalued. We need to increase prices." and its value that half the rate of video. It's -- so whenever we see a price increase, obviously, we're happy, obviously, or grateful. However, our job is to create certainty, the certainty of our rates, and that's what we told you last year that we would do, and that's exactly what we did. And we now did it with 4 of our top 5 DSPs. And if a year ago, I also told you, it was actually on this earnings call, if I also told you that a year later, we would consistently be growing at high single digits before any of those PSM increases kick in, you would probably put a massive premium on our valuation because it's an incredible feat that's -- that we've accomplished that.

So we're really excited about our relationship with our partners, both existing as well as new. We're excited about the direction of the industry, both in terms of volume as well as price with the audience segmentation strategy. And we just think we can create a lot of value together.

The next comes from Benjamin Black with Deutsche Bank.

Maybe a two-parter for Armin. So the recent results demonstrate that your investment philosophy is working. So how are you approaching capital allocation differently when evaluating deals? And secondly, can you provide an update on your M&A plans? Why did you increase the capacity of your Bain and JV? and how much do you expect to deploy this fiscal year? It seems like a lot of the major labels have announced financing partnerships on UMG, for instance. So what does all this capital flowing into the space actually signal?

I guess it shows the opportunity, Ben. On the investment philosophy, you and I have talked this before, but for the audience here, we have moved from basically looking at individual deals to looking at our entire deal portfolio. And why is that important? If you're an investor, we want to understand the landscape of opportunities out there, and that's exactly what we do with our deal portfolio. We do thousands of deals a year. So it's really important for us to understand what deals are the best ones for us to put our money behind. But we also bought these more promising ones to put our money behind. We have now created a deals office that has a view of all those deals over multiple years, which not only allows us to prioritize the best deals but also gives us much better visibility of what the impact of those deals are on future revenue, some future growth and share growth and future margin and future cash flow which, in turn, allows us to optimize our investment flow over time. That's why you see the results, you're seeing growth, share growth, margin expansion and cash flow productivity.

Now obviously, we are doing all of this in collaboration with our creative teams and operators. This is not just a financial exercise, and we'll review bi-weekly now with our creative teams and our operators and our leaders in the regions and our entire deal portfolio and ensure that the creative and operating voices are hurt.

And number two, obviously, this is behind our strategy to invest into the core business. We're really focused on making and ensuring that all of our investments are focused either organically or inorganically to our core business.

Now on M&A, which is the inorganic part of that, we are seeing tremendous opportunities around the world to invest into highly attractive and margin-accretive catalog businesses, both on the [indiscernible] side. Because of the pipeline that we have been developing, which is very attractive for us, we've expanded basically the scope of the JV from $1.2 billion to $1.7 billion, as I said. Also, I have to say that we have a great partner with Bain. The leader who is working with us has experience in the industry to identify opportunities and working them together, which gives us really a competitive edge relative to some of the other partners that are out there.

So net-net, we're very, very happy with the progress, and you see it in our results.

The next question comes from Kutgun Maral with Evercore ISI.

Armin, I wanted to follow up on the margin color you provided. I think it would be helpful if you could provide a bridge on how you get to your longer-term margin target? What are the building blocks? And how do you expect them to contribute? And then given this outlook, why is 50% to 60% operating cash flow conversion, the right target? Is it possible that you could deliver more?

Well, thank you, Kutgun. First, I want to reiterate that our focus is on driving total shareholder return. So while we are improving margin and cash flow, obviously, one of our key priorities also accelerate revenue growth and better to [indiscernible] against that, too. And I don't want to lose the fact that we're really making sure that we want to be balanced across all of those three priorities.

Now on the margin progress, we are very, very happy with the progress. In fact, we're making progress faster than I expected. You saw our first quarter results, where our margin is up more than 300 basis points to 25%. And it's really driven by three key items. One is the reorganization and cost savings related to that. Two is the acceleration of high-margin streaming growth. And three is the operating leverage we get behind that.

Now as we look forward, we'll work on the same drivers, but there also new drivers that we can leverage. The first one is the DSP pricing and tiering that Robert just mentioned. The second one is the high-margin [indiscernible] I just talked about. And the third one is, and in my view, it's going to be one of the most discontinuous one is accretive AI revenue that will continue to accelerate over the next few years.

So we're really, really bullish about our margin, and I think a margin target in the mid- to high 20s is very realistic for our industry. And by the way, it's important for us, why? Because this will give us and gives us today more flexibility to invest into the business.

On your M&A question, I alluded to that when I talked about Bain, we are really excited about the opportunities around the world -- as it travel around the world, there are opportunities everywhere in every corner of the market. And that -- we'll do that both in terms of working with our partner, Bain. But we're also looking at other opportunities, including opportunities where we acquire capabilities to accelerate some of our business. So net, we feel very, very good in that area, too.

That's great. And I just wanted to make sure to follow up -- and sorry if I missed it. Anything in more detail around the 50% to 60% operating cash flow conversion as we look out further and if you could out deliver on that possibly?

On cash flow, it's interesting. We delivered almost 100% cash flow conversion in the first quarter which shows you how strong our capital allocation model works. And there's also some benefit from lower capital spending as we normalize some of the tech spending we did in the past that Robert alluded to, to get ready for this AI push that we are doing now. Looking forward, we will continue to work on those drivers, but also continue to improve margin, which will improve cash flow.

Now is there an opportunity that on a quarterly basis, we'll see higher conversion than the 50% to 60% target that we declared? For sure, and you've seen it just last quarter. But at the same time, we want to retain some flexibility to invest into the business to accelerate growth. We have so many opportunities to invest into, as I mentioned before. And while we are very disciplined, we want to maintain the flexibility. So at this point, we're not changing that target. It may change over time, possibly, but at this point, we're not ready to do that.

The next question comes from Batya Levi with UBS.

Great. Can you talk about the underlying performance that you're seeing at music publishing. I think you mentioned the One Warner approach and how we should think about longer-term growth for this business? And second one, maybe a follow-up. Can you give us a sense on the response from artists and their willingness to update opportunities with AI platforms? And maybe some thoughts on how you get comparable with an open studio approach that you have with the Suno deal versus a walled garden to protect attribution and to [indiscernible]?

Well, thank you, Batya. I'll take the first part of your question, and Robert will take the second part. On Publishing, we are very, very happy with the performance. In fact, we just did a strategic review of the business and if you look at the business over the long term for the past 5 years, we have doubled the business top and bottom line. And I want to take the opportunity to thank the entire team, but also leadership at publishing [indiscernible], who are leading this business for the tremendous achievements they've had over the past 5 years.

Now looking at the more recent past, that we have seen double-digit growth in publishing for the past three quarters. And as you see last quarter, we take out a onetime at them from last year, we delivered 15% growth. So again, an amazing performance.

Looking forward, we reviewed the plan as part of this strategic review with the team, and they have many, many opportunities to continue that growth profile but also accelerate it. The first one is we will double down like we do in other parts of our business on the proven A&R strategy that the team has. And by the way, we have enough more firepower to do that than in the past. Secondly, we'll double down in region, specifically developing regions, where we have seen strong traction behind investments that we're doing, specifically in Latin America. Thirdly, we'll also obviously leverage our Bain joint venture and the increased capacity we have also in our publishing business as highly attractive catalog in that area, too. And last but not least, that business will also benefit from acceleration in growth by the AI partnerships we are doing.

So in summary, we're really confident that we can continue to deliver double-digit growth in that business. And by the way, also continue to improve margins. So we're very, very confident about the business and the leadership we have there.

All right. I'll take the second part. I guess two questions there. One, on the artist and songwriter engagement, it's been surprisingly high. It's a -- if you think about it, a lot of artists and songwriters are curious about the future. They hear and read about these things, and many of them want to get involved early on. So just the other day, I had two of them, two separate when they visit in the office and talk about how they can get involved and kind of be, sort of, in the detail of it with us. We are talking to many of our artists, their attorneys, their managers, et cera, to make sure that they understand everything as they have questions. So our outreach has been quite extensive. And we think that underpins what we do, right? We need to be in constant communication, make sure that we're clear, that we're making sense of things, and they were offering tools to those who want to use them. So we've been pleasantly surprised with the engagement.

In terms of your question on walled gardens, I think this issue is getting painted too much in black and white, which is what I mentioned before. From my experience, both working at Netflix and YouTube over 20 years, having gone through a bunch of changes and lots of difficult decisions and understanding the industry is beyond music, black and white is never the answer. If you're building lots of value, strong consumer offerings, you have to find the right point, the right equilibrium point in the shades of gray. And that is the art. That is what we do. And in our company, we obviously have the benefit of that experience. But it is -- we're focused on value creation for artists, songwriters, us, our shareholders, and we're focused on protection of our artists and songwriters and we're focused on making sure that users can engage with them in ways that they want. And it's never easy, but it is worth it to do the hard work of finding the equilibrium that creates this value, and we think we got it right.

So -- and again, I will just repeat what I said before, which is there are plenty of examples from the past where the black and white solutions fail. And so we're focused on getting it right.

The next question comes from Stephen Laszczyk with Goldman Sachs.

Robert, you mentioned the renewal of the deal with TikTok in your prepared remarks. I was curious if you'll be willing to speak maybe more about some of the priorities that you feel like you advanced in the new deal. And then as you look out ahead here, I was curious if there was any other deals of this kind where you feel like you might be able to meaningfully advance the narrative in favor of your artists?

Thank you. So first I want to say that we're very happy with our partnership with TikTok in general. There's a lot of collaboration between us around our artist releases. Many of our artists are extremely popular on TikTok, and we utilized it quite a lot as we're launching new records, and we're very happy with our new deal. Obviously, I cannot disclose the deal terms of it, but it contains structural changes that better reflect the value of music, which we're happy about. And also, our deals are never just about money. They're also about data promotion, insights and all the things that can help advance our business overall.

But having said all that, as a percentage of revenue, it's in a lower single digits for the company. So it's not like material to our fortunes every day.

And then any deals on the horizon of similar kind that you feel like you might be able to have advanced on the back of TikTok?

Nothing immediately on the horizon. We're very focused on advancing our AI initiatives across the board. As I said, the -- we see it as a great value creation tool and making sure that we get things right with our current DSP partners, taking our holistic relationship with them into consideration, making sure we deliver on, obviously, our second priority with them, which is increasing the value of music on a consistent basis. And as part of that, adding AI into the mix to further accelerate that.

That is all the time we have for questions. I'll turn the call to Robert Kyncl for closing remarks.

Okay. Well, I want to thank you for spending time with us today. I want to reiterate our happiness with the company being in steady state, consistent delivery, three quarters in a row with strong outlook, strong initiative pipeline and that through many of the things that are happening, you realize that we do what we say. Whether it's PSM increases, whether it's margin expansion, whether it's consistent growth, we said what we would do, and we did it. And we continue to do it, and we'll continue to do that. So it's a pleasure to be able to say that and have the confidence to say that. And the reason I have it is Armin and I went through it on the call. There are so many things that we have improved in the company. All the work that we've done over the past few years is starting to pay off, and we're incredibly excited about the future. So thank you for your time, and have a great day.

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

Welcome to Warner Music Group's Fourth Quarter Earnings Call for the Period and Fiscal Year Ended September 30, 2025. At the request of Warner Music Group, today's call is being recorded for replay purposes. And if you object, you may disconnect at any time.

Now I would like to turn today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin.

Good morning, everyone, and welcome to Warner Music Group's Fiscal Fourth Quarter and Full Year Earnings Conference Call. Please note that our earnings press release, earnings snapshot and Form 10-K are available on our website. On today's call, we have our CEO, Robert Kyncl; and our CFO, Armin Zerza, who will take you through our results, and then we'll answer your questions.

Before our prepared remarks, I would 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 statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that 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.

Thanks, Kareem, and hello, everyone. If you hopped on the call early, you just got a taste of the range of our artist roster from the massive breakout track from[indiscernible] , to the latest chart toppers from Cardi B and 21 pilots to the resurgent Google Dow's 1998, which currently sits in the global top 15 on Spotify. It's an incredibly exciting time to be at Warner Music Group. Against the backdrop of a rapidly changing landscape, we've improved our market share and delivered profitable growth, all while realigning our company to capitalize on the tremendous set of opportunities we have ahead.

Our growth plan continues to bear fruit, and we've seen steady global market share gains over the past year. In the United States, were up 0.6 percentage points over the prior year quarter according to Luminate. Globally, our share of the Spotify top 200 has jumped by around 6 percentage points versus fiscal 2024. And for the entire quarter, we had the #2 market share. Importantly, we're carrying this momentum into fiscal '26 as we continue to execute on our strategy.

I'll dig into this in more depth but first, let's cover our Q4 highlights. I'm pleased to say that we've seen acceleration on the top and bottom lines, driven by impressive performance across the company. Total revenue grew 13% and on an adjusted basis, recorded music subscription streaming increased 8.4%. These results prove that our strategy is working.

Let me bring you a picture from just a year ago when both the industry and WMG were in a much different place. A year ago, WMG was facing market share pressure. Today, with laser focused our resources and investment on the highest return areas of our core music business. This has led to market share gains that have translated into strong measurable improvement in our financial performance. A year ago, the music industry was navigate on the transition from just volume-driven streaming growth to growth that is driven by volume and wholesale price increases. Today, our new agreements with key DSP partners better reflect music's ever-growing value and provide greater certainty around our economics.

A year ago, our operational structure wasn't optimized to navigate a more globalized and digital environment. Today, we focus and simplified our organization to deliver greater intensity and impact. I'm pleased with the progress that we've made. And I'm truly grateful to our leadership team and our operators across the globe and our amazing artists and songwriters for pushing WMG to new heights. All of these actions have better positioned us to execute quickly and effectively on the opportunities we see ahead and to maximize the value we deliver to artists, songwriters, fans and shareholders.

Let's turn to the impressive run of hits we've been seeing with our new releases as well as our catalog successes. On new releases. In September alone, we had back-to-back #1 albums in 2 of the world's biggest music markets, thanks to Cardi-B and 21 pilots in the United States and Sharon and [indiscernible] the U.K. On the international front, we had #1 in China, India, Finland, Italy and Spain and on Billboard's Latin Airplay chart. And in a terrific vote of confidence, one of our legendary superstars Madonna has returned to where it all began for her Warner Records with a new album coming in 2026. The performance of our global catalog division in Q4 showcased our ability to revitalize our timeless legacy, making it relevant to a range of new audiences.

A major highlight was the release of Buckingham next to long out-of-print 1973 album by Fleetwood Mac, TV next and Lindsey Buckingham. A targeted marketing campaign capitalized on fan demand, selling it to #11 on the main Billboard album chart and #6 in the U.K., a remarkable achievement for an album more than half a century old. Warner Chappell continued its resurgence with our songwriters contributing to 7 of Luminate's midyear top 10 most seasons in the world and in the United States. And multi-Grammy winner, Amy Allen, held the top spot on the Billboard Hot 100 songwriters chart for 9 weeks in 2025. These Q4 success stories capped off a year of achievements.

During fiscal '25, our recording artists set up the Billboard Global 200 for 22 weeks. This 42% share of the #1 spot on the chart with Atlantic, Warner Records and Warner Chappell, harder than ever, we're delivering success across geographies and genres.

Next, I'd like to cover our focus on increasing the value of music. Streaming's growth formula is made up of 3 components: market share, global subscriber growth and wholesale price. Against the backdrop of healthy subscriber growth and a market share improvement, we've also made progress on wholesale price. Since the beginning of 2025, we've signed renewals with 4 of the largest DSPs. All of these deals have wholesale price increases, providing certainty around economics and setting up monetization models for the future use cases. A critical component of ensuring we grow the value of music is addressing the promise as well as the potential risks of generative AI.

First, we need to acknowledge the reality that generative AI technology has arrived, and it is not going away. So we need to be proactive and lean into the future. The music industry is no stranger to disruption from the invention of the phonograph to the Napster era to the rise of the day streaming ecosystem, the introduction of new technologies over many decades as opposed both challenges and opportunities. AI represents another defining moment. And as always, our focus remains on protecting the rights of our artists and songwriters while simultaneously growing new revenue streams on their behalf. With this in mind, we've developed a set of principles that will govern how we engage with AI platforms. We will only make agreements with partners who commit to licensed models while securing economic terms that properly reflect the value of music. Crucially, our audits and songwriters will have a choice to opt in to any use of their name, image, likeness or voice in new AI-generated sales. We believe that the combined power of our music with innovative technology will drive greater engagement and interactivity for fans and will result in significant incremental revenue over time. I'm pleased to say that we've already done deals with partners like Udio, stability AI and [indiscernible] that are consistent with these principles that I just outlined.

Our ability to sign 3 deals with 3 new companies in quick succession highlights the attractiveness of the music business and the opportunity to create value through new technology. These agreements enable us to get ahead of the game, ensuring that our artists and song getters participate fairly in the AI revolution. As I mentioned earlier, we've taken major steps to optimize our organization to drive efficiency and effectiveness, all while reaccelerating growth and gaining market share. Among our recent changes are some moves designed to foster closer collaboration. We directly align Atlantic and Warner records in the U.K. with their counterparts in the U.S. creating a more seamless transatlantic approach to breaking artists globally. In Italy, we've organized our operations into 2 frontline labels Atlantic and Warner records, mirroring the label structure in the U.S. and the U.K. We've also unified our Australasia and Southeast Asia businesses to create bigger opportunities in this region. Additionally, we streamlined operations and strengthened the impact for artists in Central Europe. -- by merging Benelux with Germany, Switzerland and Austria.

On the tech front, we've continued to modernize our infrastructure, including strengthening our global digital supply chain to position the company for further scale and growth. We've implemented tools to help auditors and songwriters make faster and smarter data-driven decisions about their careers as well as tools for employees to be better informed and more effective. Our emerging stars are building the catalogs of tomorrow, laying the foundation for future stability, while our recent Superstar releases have set us up well for 2026.

In Q1, we have highly anticipated new albums from Fredegan, [ FKA Twiks ] not for Radio, anacamura and Robert Plant, along with Deluxe album additions from Aceron, Cardi B and PinkPantheress. We also have new singles from Charlie XCX, Charlie Puth, Gesu, Hillary Duff, Tiesto, Alex Foran, David GiaantenySwins and many, many more. We're proud of the progress we've made in 2025, and I look forward to carrying this momentum into 2026 and beyond.

And now I'll pass it over to Armin.

Thank you, Robert, and good morning, everyone. First, I'd like to thank our teams around the world for the tremendous work they have been doing to accelerate top and bottom line growth while we organize our company for the future. As Robert mentioned, Q4 has been a quarter of acceleration as we delivered record high quarterly revenue as well as our highest year-over-year growth in nearly 2 years. This reflects steady progress on market share with notable improvement in the second half of the fiscal year.

In quarter 4, total revenue growth of 13% reflects double-digit growth across recorded music and music publishing. This was highlighted by a sequential improvement in recorded music streaming and 64% growth in Artist Services, WMX led merch campaigns for Oasis and my chemical enrollments. These projects demonstrate our capabilities to support our artists and capitalize on the opportunities to grow revenue streams beyond Com Music, more net to come. Recorded music subscription streaming grew 8.4%, underpinned by global subscriber growth and supported by our strong market and charge share performance.

As a reminder, in calendar year 2026, we will start to see the impact of wholesale price increases from our new DSP deals which should provide incremental tailwinds. At [indiscernible] the streaming grew 3% on an adjusted basis, driven by the performance of our music and the timing of certain DSP payments. Music Publishing grew 13%, driven by double-digit growth across performance, mechanical and[indiscernible] . Adjusted OIBDA rose by 12% and our margins declined slightly due to revenue mix as the significant growth in Artist service revenue carries a lower margin profile.

For full year 2025, we delivered total revenue and adjusted OIBDA growth of 8% on an adjusted basis, reflecting our impressive recovery from the first half. This was spotted by high single-digit recorded music subscription streaming growth. We also achieved operating cash flow conversion of 47% as we increased our A&R investments. We remain committed to delivering our target conversion range of 50% to 60% over the long term. As of September 30, we had a cash balance of $532 million, total debt of $4.4 billion and net debt of $3.8 million.

Our weighted average cost of debt was 4.1% and our nearest maturity date remains 2028. With our strategy in place and a clear road map to deliver higher, more consistent growth and drive shareholder value, we are extremely excited about the opportunities ahead. We're operationalizing the strategic pillars that Robert laid out with several key priorities and initiatives, which are shared on our last earnings call, and I'd like to provide an update on our progress.

First, on investing into [indiscernible] music to accelerate growth, we're making progress across geographies and vintages. Recall, we prioritized investments in markets with the most attractive return profiles. As a result, we are now growing market share in every key region, including the U.S., the largest music market of the world. Additionally, our balanced approach to driving performance across vintages has resulted in higher new release market share at Atlantic as well as a jump in global catalog share. As Robert mentioned, this has improved our Spotify Top 200 share by 6 percentage points.

In addition to these investments in our core, we see tremendous opportunity to accelerate growth in distribution and direct to consumer. We have a large and growing distribution business today and under new leadership. We've been building or acquiring new capabilities to accelerate profitable growth in 2026. We also see tremendous opportunities to capitalize on the passionate demand from fans all over the world for physical music and direct-to-consumer offerings. Areas adjacent to our core music business, more on this in upcoming quarters.

Second, on our commitment to driving efficiency to free up more capital to invest and enhance our margins. We are on track to deliver against our reorganization and related cost savings program of $200 million in annualized savings in 2026, increasing to $300 million in 2027. Third, we are committed to driving incremental growth and value creation through accretive M&A. We have developed a robust deal pipeline and look forward to sharing updates in the near future. These efforts will be turbocharged in a capital-efficient manner through our joint venture with Bain, but also through organic investments as we improve free cash flow.

Finally, our focus on thoughtful capital allocation is delivering. As the investments we are making in the highest reporter markets, which include the U.S., U.K., Mexico, China and Japan are delivering share growth. In addition, we're improving capital spend efficiency and with the bulk of our major tech investments behind us. We should see an improvement in our free cash flow starting in 2026.

Looking forward, we see an attractive formula for us to drive shareholder value and are excited to be operating in a healthy industry with an immense set of opportunities. The macro factors that underpin our outlook include robust global subscriber growth and rising wholesale price environment underpinned by contracts that better reflect music's increasing value, new premium offerings from DSPs. AI is emerging as an incremental top and bottom line opportunity for the music industry and our artists and songwriters. We are poised to capitalize on this environment with a strategy that will see us intensify our investments to deliver more consistent, higher growth, improve margin and drive shareholder value.

For 2026, we expect to see strong top line growth which we look to bolster through focused organic investments and initiatives in our core music business and high-impact accretive M&A as well as contribution from adjacent areas such as distribution and direct-to-consumer offerings.

In addition, we will drive bottom line growth via operating leverage and our cost savings plan, which will contribute 150 to 200 basis points of adjusted OIBDA margin improvement. We expect savings to increase sequentially as we progress through the year. And finally, we see tremendous potential in new incremental growth areas, particularly in AI licensing deals, which we plan to discuss in future calls.

In conclusion, we are proud of how we rebounded from a challenging first half in 2025 to deliver solid top and bottom line growth in the second half with strong momentum as we head into 2020. We look forward to providing regular updates as we meet our milestones.

With that, we'll take your questions.

[Operator Instructions] Your first question comes from Kutgun Maral Evercore ISI..

Great. There's a lot to unpack, but one area that I'd love to get your updated outlook on is with rights monetization, especially in the context of rising music engagement across platforms. We've seen the pace of innovation and product rollouts across the DSPs accelerate meaningfully and everyone from the streaming services to artists to even ticketing platforms like Ticketmaster, exploring new ways to leverage AI, all with the goal of driving deeper engagement. That said, there's an ongoing debate between those who see the labels as uniquely positioned to benefit from these innovations and those who believe that the labels will remain maybe more passive beneficiaries and therefore, not necessarily see upside.

So Robert, you've already touched on parts of this, but as you've gone through the latest round of DSP renewals and clearly continue to engage with other partners across the ecosystem. How are you thinking about WMG's role in capturing incremental value in this next chapter of industry growth?

Thank you. I will start with the word incremental that you just mentioned. We see this as an incremental -- sorry, we see this as an incremental opportunity for not just for WMG but for the music industry as a whole. Secondly, we are determined and have decided that were the drivers, not the passengers of this incremental opportunity. The reason for that is this space is moving lightning fast. There's a great demand for IP. There's a great demand for State and companies like ours who are working to represent both of those need to drive this change. And that's exactly what we decided to do. I posted a block close last night in case not all of you got a chance to read it, please do. It's listed on our website, and it outlines our principles under which we focus and guide our dealmaking in the AI.

There are 3 simple principles. We'll do agreements with partners who commit to licensed models. We'll do it on economic terms that properly reflect the value of music. And what I mean by that is that our deal terms are tied to usage and revenue growth. And importantly, that artists and songwriters have the opportunity and right to opt in for any new songs that implicate their name, image, likeness and voice. We see this as an incremental opportunity because the past has shown us that changes like this always create one.

If you go back 20, 25 years, with the democratization of distribution. It has unlocked unlimited shore space, which has unlocked deep personalization of music for users, which has unlocked growth and volume of people signing up for subscription services and enjoying them. And it has unlocked tremendous value in catalogs and music IP overall for all of us. So it has been a net positive for us that has created a lot of value. We see AI as the marketization of creation, and we believe that it brings what we've lacked, which is interactivity, which is generally correlated with value creation. If you look at across all kinds of media industries, the more lean forward or with your content, whether you focused on it and watching it. or whether you're interacting with your hands and your fingers or whether you go in person and engage the value per hour goes up. That's why we're focused on it. That's why I believe this is a tremendous incremental opportunity for us. and we are going to be in the driver seat.

In terms of our approach in addition to our 3 principles, our strategy is simple. We have 3 health legislate, litigate and license. And you're familiar with our legislation efforts like the OpEx that we're working on in D.C. on a litigation front. We're also familiar with various lawsuits which have been out there. But we use those first 2 in order to achieve the third, which is licensed because that is the most powfullever. To chart the path for the future for our artists and songwriters to drive the incremental value and to make sure that we have our fair and correlated share of usage and revenue driving. So we're really excited about this. The company is energized and onward.

The next question comes from Benjamin Black with Deutsche Bank.

For Armin, I mean could you talk about the building blocks behind your expectations for top line growth in 2026. Maybe dig into how you're thinking about paid streaming growth, just given the broader expectation for wholesale or parts of minimum increases beginning in calendar 2026. And then secondly, on margins, cost savings aside, how much margin expansion do you expect to deliver organically next year I mean what's your -- what's your longer-term margin target, perhaps sort of talk us through the puts and takes in achieving that as you look to drive incremental revenue growth in lower-margin areas like distribution and DTC?

First of all, Ben, we are, first, very, very happy with the results we delivered in the last 2 quarters, not just the last quarter. And as it relates to streaming, we believe that these results are pretty much reflective of what we should expect in the first quarter of '26. Now to your question on additional growth building blocks starting in calendar sorry, '26. There are a few that I'd like to mention. The first one is that in addition to the market momentum that we have seen in global subscriber growth we will, of course, benefit from the contractual wholesale price increases that we have agreed now with several top SSPs.

As Robert mentioned, we have actually agreements now with 4 of the 5 top 20 starting to start to increase wholesale prices starting in calendar '26. The second area is that in addition to the investments that we have been doing on high ROI markets and projects. We have a very robust pipeline of accretive M&A that will start to materialize in 2026 including on many projects that we have been working on through our joint venture with Bain.

The third area is that we are working or have been working on expanding adjacent areas. One area I'd like to mention is distribution. As you know, we have a new leader there, and we've done a lot of work to better understand how excellent can accelerate growth in this area. We now feel confident that we can accelerate growth in that area starting in calender '26.

And last but not least, there are many upside opportunities that are not included in our guide like premium offerings from ESPs. And obviously, AI as an opportunity, as Robert just discussed. Finally, from a leadership perspective, we are very confident that we have no leadership in place across the company that will help us deliver and accelerate growth. But to your margin question, Ben, we have a very strong program to improve margin over time.

The first program we are implementing is a big strategic reorganization. And as you have seen, while we're doing this reorganization, we're actually accelerating growth. That program will deliver savings in its fiscal year '26 and up to [indiscernible] fiscal year '27. So we're actually very, very comfortable with our guide of margin expansion of 160 basis points next fiscal year. In addition to that, we will improve margins through operating leverage. There are a few areas which we are leveraging. The first one is as we accelerate our high-margin streaming business. Margin will improve. The second one is through our work on accretive M&A, especially catalog M&A which is higher margin accretive businesses will improve margin. And last but not least, ESP pricing will flow through the margin. So net, we're really, really confident in our margin drilling books from a cost savings perspective. but also overall from an organic perspective.

In fact, in the mid- to long term, we are targeting margins in the mid- to high 20s. And you shouldn't be surprised about that. When you look at our EBITDA margins in fiscal year '25, we closed '25 with an EBITDA margin of about 25%. As you know, EBITDA includes our normalized cost savings. We're now basically delivering over the next couple of years. And so you should expect over time that our OIBDA will approach adjusted EBITDA margins in the mid-20s and then we'll start to do that to contain the growth margins.

The next question comes from Peter Supino with Wolfe Research.

I wondered if you would talk about your successful market share gains over the last year. Maybe discuss what you're doing differently? And if you could provide any context on how each of your flagship frontline labels are performing. .

Sure. Thank you. So first, I'm just pleased to say and keep on reiterating that our strategy is working. It's great for it to show up in the results and see the progress that we're making our market share hasn't grown just in 1 or 2 places. It's really been broad-based across both our flagship labels as well as all of our regions in the U.S. We've increased by 0.6% in the U.S. year-on-year in Q4 '25. This is according to Luminate. And we had similar improvement around the world in EMEA, LatAm and APAC. And plus 6 percentage points on Spotify top 200 in fiscal '25. And notably, we've occupied the #2 spot for nearly half the year there, which is incredible. So it is really great to see the company firing on all cylinders creatively as well as financially. And it really has come down to a lot of focus on artist development, which obviously has been there for a long time. It's in our DNA, and we continue to lean into it. But we also focus on our distribution business. We focus on our catalog. We've had a lot of success in terms of revitalizing our catalogs, [indiscernible] of Buckingham.

Next, which was originally released in 1973 and being #11 on Billboard Album Chart and #6 in the U.S. it's incredible to see the power of IP and what it is that we can do with it in terms of our returning artists Cardi B and 21 pilots beginning #1 with our albums in the U.S. and at Sharon and if Claro in the U.K. And obviously, I mentioned our [indiscernible] stories with Alex Baron spending 10 weeks on a #1 on Billboard Hot 100 and Global 200 and Saber hitting #1 on Spotify global chart. And so there are for 3 set in the top 3 for over 10 weeks. So it's just broad-based, Artis development, returning artists, catalogs, all regions, all divisions. So there's just been a lot of work that really started to hit together. And we just -- we have really focused on our operations, making sure that we're making the right decisions around capital allocation.

And that we have strong pipelines, both for our artist releases as well as for M&A, as Armin mentioned. So our playbook is working, and our investment is our investment is a key priority in market, and it's really bearing fruit.

The next question comes from Michael Morris with Guggenheim Securities.

I wanted to follow up on some of the growth components that you highlighted as we look into '26 and beyond First, on your M&A plans, Armin, you alluded to M&A as a potential accelerant to growth in the coming year? And can you share more detail on what we can look forward to -- and how much of an incremental growth driver this can be for you? And then also, you just mentioned distribution as a strategic focus area and a potential driver of growth as early as '26 as well. So can you expand on this a bit. What changed about your strategy, if anything? And what gives you confidence that this can be a bigger contributor to growth in the coming year. .

So on the M&A side, we have a very strong pipeline in place, which, as I mentioned, we expect to start to materialize starting in -- as you probably know, we are focused on a few large opportunities where we, as a publisher can add value in a way that creates value not just for artist and songwriters but also in a way that delivers a strong return for us. The key focus simply is our catalog business or a couple of businesses out there in the market. Why? Because they are highly accretive and therefore, deliver to and bottom line growth. We'll do this in a very capital-efficient way, as we mentioned before, by our joint venture with Bain which will provide us with more than $1 billion of funding and it's obviously a key name to accelerate growth in this area.

Well, from a status perspective, we've been working very well with Bain as a partner, and we are very pleased with the progress that we have been making. So we'll hear from us soon starting in , but some of those acquisitions, which gives us confidence that this can accelerate growth in addition to the other building blocks I discussed before. From a distribution perspective, distribution is a significant part of our industry and very often a source of new talent. And in fact, we haven't talked much about this, but we actually have a large growing and profitable distribution business today. And as we have announced before, we have recently appointed a new leader with [indiscernible] Alejandro, who, as you know, has been leading our Latin America business for many years. And as you probably know, this business is heavily distribution focused yet under and his team grew this business double digit, and frankly, at attractive margins for a long time now.

So really encouraged by what he has done with his business, and therefore, he is the perfect leader for our distribution business. We have spent a lot of time with him to better understand what we need to win in this marketplace not just in Latin America and U.S. but also globally. And we have spent quite some time now to build capabilities that allow us to provide better customer service on the one hand, but also to integrate clients faster and more efficient so we can do this business profitably. So we're now at a point where we are really, really confident that we can accelerate growth on this business, particularly starting in 2026.

Now having said all of this, as I talked before many times, we're looking at our business from a portfolio banking perspective. So we do it in a way that grows our business on the one hand, but also enhances margin. So net, both this strategy are really perfect for [indiscernible] to accelerate growth and enhance market in that time.

The next question comes from Doug Creutz with TD Cowen. .

Robert, I know one of your priorities has been to make sure the company is investing in the right technologies to position for future growth. And I wondered if you could share some color on how those investments are contributing to the growth outlook you've laid out today? And then also whether some of those priorities might be changing given the rapidly evolving landscape?

Sure. Thank you. Yes. The priorities are not changing. They remain the same. We're focused on -- as you think about our business, it's a large-scale business with lots of SKUs, lots of albums, lots of tone, clouds of artists, and they have to be managed across large number of DSPs. And so we're in a high-volume business, and it requires infrastructure, solid strong infrastructure that is scalable. And so we focused on that. We strengthened our digital supply chain sped up our solar payments, introduced more transparent accounting.

In publishing, we stabilized and upgraded our core systems, which would include royalty processing and sync licensing systems, and we're nearly fully live with our financial transformation initiative, which unlocks a whole host of benefits and a better and more insightful P&L, more transparency for audience matters, et cetera. So we've really focused a lot on core infrastructure so that we can accelerate the business and handle the volume.

Armin mentioned the deal pipelines that we have, whether it's organic ones or M&A, all of that requires infrastructure. So we've been focusing on that, preparing the company for growth, and that will continue. And we've made a lot of progress in that area. So that's why we feel confident about our acceleration.

I just want to add to that. Obviously, this also helps us scale many of our services globally is a key enabler also for the cost savings program that we discussed last time.

The next question comes from Cameron Mansson-Perrone with Morgan Stanley.

You highlighted having deals with 4 of the top 5 DSPs and having secured kind of wholesale rate increases across all of those platforms. I'm wondering, Robert, you've talked in the past about kind of the benefits of variability in licensing terms across platform partners and that being a positive with regard to facilitating experimentation. Is that still -- would you say that's still the case across the new platforms that you've locked in deals with or have we reached kind of more of a standardized type of deal structure at this point in time? .

Sorry, can I just clarify a question? You were talking about existing DSPs or new platform? The rest into 4 of the 5 larger existing ones?

Right. And the question is on -- sorry, I couldn't really fully understand the question.

I'm really just trying to -- yes, really just trying to clarify. In the past, you've talked about the benefits of having kind of variation in your DSP deals. I'm wondering if that's still the case or if there is more standardization kind of in conjunction with locking in wholesale rate increases?

Got it. Thank you for the clarification. Look, we generally, when you begin -- you have different partners, which have different objectives and you strike slightly different deals. As time goes by, businesses grow things standardize more, so do the deal terms. Obviously, different platforms are slightly different. Some have prefunnels, some don't, et cetera. So that kind of variability. However, we strive for a fair marketplace where people -- where our partners pay the same prices for the carton that we licensed to them. So consistency is very important for us and making sure that no partner feels disadvantaged versus another one that we have a very healthy competition on [indiscernible] term. So there's much more standardization in place than it was in the past.

Got it. And then if I could follow up on the market share gains that you've had been able to deliver on this year. How do you think with regard to the savings initiatives, like how do you balance those 2 in terms of trying to deliver on your savings initiatives but -- and reinvesting to continue to drive market share gains in the future.

Yes, maybe I can take that. We are very focused on ensuring that we actually invest more in our core markets and key shares as well as in the most promising projects. So from a savings perspective, we are not cutting our spending on the front line, as we call it. So we're actually increasing in our investments. The savings are mostly reflective of us becoming more efficient on the back office side. Robert mentioned technology as a key enabler. So I'll give you a few examples. In finance, we have just introduced SAP, and we're obviously bidding with millions of transactions. This will enable us to become more efficient as a financing organization. In marketing as we kind of organize our data, we are leveraging more and more the standard data set we have to drive marketing efficiencies on deal making and we're now introducing AI, we actually have introduced a new office globally and working with an AI company to help us optimism or deal making. So think about the savings really coming from becoming more operational efficient as a company and backoffice savings, which we leverage to invest more in the most promising markets, more on the most promising arts and more and the most promising goes. And that's really how we balance this.

The next question comes from Ian Moore with Bernstein.

So looking through the AI licensing announcements that have come out in the past couple of weeks, looks like these services kind of point to different -- very different parts of the value chain. You got some professional grade production tools in there, some more like listening discovery platforms. I was wondering how you could -- if you could maybe bucket the commercial opportunity you see across like the spectrum of new services that you're licensing to.

Sure. So first, I'd like to say it's a very energizing moment in the industry. When you see so many new companies popping up attracting venture capital. We have not had this in the last 10 to 15 years. All of the players that have been established in the first decade really. And now there's a crop of new companies, new investment, new excitement, new talent, just tremendous momentum. So we decided that we are going to seize this opportunity. We're not going to be a passenger, we're going to be the driver because it is important to get in early, set the terms and define the future for us rather than let other people define it for us. That means that this will cut across all the different segments that you highlighted there may be professional content, there may be user content. There's all kinds of consumption creation.

It's certainly a lot of work for our teams, but it's very exciting and energizing. And the opportunity that we see is one of interactivity. Interactivity is something that drives value. It's been proven over and over, whether it's in the video gaming industry, even going to a concert is interactive. The revenue per hour is always higher when somebody is looking at something with their eyes and using their fingers and their hands to create something. So the value gets created and we'll capture it. And what happens is also that there's a very, very high correlation between interactivity and iconic familiarity. It thrives on it. What does that mean? It means that stars will get bigger and that will be benefit from this trend and that iconic IP will benefit from this trend. So we're focusing on all of the elements here, and we want to make sure that we capture this incremental and expensive opportunity.

And I think of it a bit more like user cumulated content early on YouTube that started and it was seen as a threat. And in fact, it has actually developing something that was very, very positive and commercially successful for all parties involved. So we're very excited about this, and we're open for business.

Your next question comes from Kannan Venkat with Barclays.

Robert, maybe just following up on that point and maybe presenting a little bit of a pushback to see what your reaction to be, but why isn't AI a threat to an equal measure given that obviously, your content can be used. Your another label content can be used to create new forms of content or at least the models can be trained on it. And over the longer time horizon that could completely bypass content creators theoretically. And that's obviously a big debate. So I would love to get your reaction on that. And then more on the financials.

I mean if you look at the guidance for next year in terms of margin expansion, I think the growth in EBITDA that's implied by that is roughly equal to or most of the growth seems to be coming from the cost cuts. And so in terms of operating leverage, would be great to understand. I mean, the underlying trends, excluding things like M&A, for instance, or cost savings, how you guys are trending? If you could just get some more details, that would be helpful.

Sounds good. I'll take the first part, and Armin will take the second. So of course, with every change, every technology change, there's always a threat and an opportunity. The market decision of distribution was a threat. Everybody was predicting our demise and sidestepping the major music companies. And obviously, the opposite has proven to be true over time. And we believe the same happens here. Of course, we look at the threat that this could pose in terms of dilution, et cetera. But at the same time, we need to focus on how do we actually turn this into an advantage for all of us and drive the value of the industry and the value that we provide. It's also important to know that -- and I've said this many times before, the value of the large music companies and the contribution that we have to the industry is rising, not declining.

With all of these challenges, this is becoming a much more of a big business to big business interaction. It is very hard for individual creators to deal with large technology companies that is much better for these matters to be handled by large music companies, large IT companies who have the capabilities and know-how, the technology, the scale to ensure the right outcomes. So we view this as this is our role is to shape the industry. and make sure that it benefits artists and songwriters as well as us and our shareholders.

Yes, on the margin, I think it's important to note that our guide is, of course, after investments we make into the business, it's really a net margin guide. The guide is also mostly focused on 2 areas. One is the cost savings program that we delivered into the organic margin growth that we plan to rebound. There's really 3 drivers that will help us do that. One is as we start to accelerate our streaming business that is a higher-margin business that is actually driving margin growth already for us to price increases will go to the bottom line and will have us improve margin. And three, there are certain interval areas. So think about this as a net margin guide. But the biggest organic drivers for us will be on streaming growth and to the PSM price increases that were [indiscernible].

So that is all the time we have for questions.

I will turn the call to Robert Kyncl for closing remarks.

So thank you for your attention today. I just want to reiterate that it's evident from our results that our strategy is working. It's a labor of quite a few years of work, both on the technology front, on the investment front, on artist development administration. It's really all divisions at the company have been firing on all cylinders, and it's great to see it all come together through a sustained growth, market share expansion. And on top of it now is accelerating and seizing the opportunity to shape the AI future and create new incremental business that will be set up the right way for the future to capture the right possibilities both creative and economic for artists and songwriters and our shareholders. Thank you so much for being here. Talk to you in 90 days.

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