Warner Music Group Corp (WMG) 2012 Q1 法說會逐字稿

Welcome to Warner Music Group's first quarter earnings call for the period ended December 31, 2011.

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.

As a reminder, there will be a question and answer session following today's presentation.

(Operator Instructions).

Now I would like to turn today's call over to your host, Mr.

Will Tanous, Executive Vice President of Communications and Marketing.

You may begin.

Good morning everyone.

Welcome to Warner Music Group's fiscal first quarter 2012 conference call.

Both our earrings press release and the Form 10-Q we filed this morning are available on our website.

Today our CEO Steve Cooper will update you on our business performance and strategy.

Our Executive Vice President and CFO Brian Roberts will discuss our financial results, and then both of them will take your questions.

Before Steve's comments let me remind you this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance.

All forward-looking statements are made as of today ,and we disclaim any duty to update such statements.

Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them.

However, there can be no assurance that management's expectations, beliefs, and projections will result or be achieved.

Investors should not rely on forward-looking statements because they 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 earnings press release and Form 10-Q, and other SEC filings.

We plan to present certain non-GAAP results during this conference call, revenue data we provide on today's call will be on a constant currency basis.

We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website.

With that let me turn the call over to Steve Cooper.

Thanks Will.

Good morning everyone,and thanks for joining us for this call.

We are pleased with the start we have had to our fiscal year.

Digital revenue and OIBDA grew strongly in the first quarter.

Our cash balance and free cash flow were both up, reflecting our continued focus on cash generation, and our margins expanded as we remain dedicated to aggressive cost management.

This quarter's performance stemmed from solid results in both recorded music and music publishing.

In recorded music we continued to grow our digital business, now 31% of our worldwide recorded music revenue, as compared to 27% in the prior year quarter.

We increased OIBDA by 13%, and improved our OIBDA margin by 2 percentage points.

In music publishing we grew total revenue by increasing performance in digital revenue, and we improved gross margin by nearly 3 percentage points.

Our recorded music business outperformed the market this quarter, gaining market share in the US as the industry continued to exhibit a number of positive signs.

Before I walk you through some of our performance highlights this quarter, let me touch on some of the encouraging metrics we saw in calendar 2011 for the US recorded music industry.

Track equivalent albums were up 3% the first annual increase since 2004.

Digital unit sales increased 13%, an acceleration compared to the 6% growth seen in calendar 2010, and for the first time ever digital unit sales were larger than physical unit sales, accounting for just over 50% of all music units purchased in the US.

The US has also experienced its typical post-holiday surge in digital demand this year attributable to sales of new devices and gift card redemptions.

On a global basis, IFPI, the International Federation of the Phonographic Industry, reported that industry-wide digital revenue grow 8% in calendar 2011, compared to 5% in 2010.

This marks the first time the year-over-year growth rate has increased since IFPI started measuring digital revenue in 2004.

In addition, some of the largest players in the digital music space have been quickly expanding their global reach, contributing to these strong digital trends, contributing to these strong digital trends.

For example, iTunes became available in 12 additional European countries in calendar year 2011.

In December iTunes and iTunesMatch launched in 16 Latin American countries, a huge region driven by smartphone penetration, that has historically been untapped due to piracy, and a lack of high quality digital services.

Spotify launched in the US and four new European markets in calendar 2011, and is now available in 12 countries, and the streaming service Dieser, which has already launched in more than 45 countries, announced in December that it would be available in more than 200 countries in the next six months.

We are also encouraged by the success of other new services such as cricket's mobile music service called Muve, which we believe demonstrates the consumer demand for music services bundled with mobile networks.

We continue to work closely with all of these services in an effort to broaden consumer access to music.

We view the expansion of these and other services as encouraging for us and the rest of the music industry.

With that context, I would like to highlight some of our achievements for the quarter.

Michael Buble's album Christmas demonstrated the impact of a focused global marketing effort.

In the December quarter Christmas sold over 6 million albums worldwide, and over 2 million albums in the US, and was the fastest selling album of Michael's career.

Despite the fact that it was only released in late October, it ended up as the second best selling album of the year in the US, and reached number one in 13 markets around the world, including five weeks at number one in the US.

The success of Buble's Christmas contributed to our outperformance in the quarter as compared to the rest of the industry.

We also benefited from strong sales for several of our other Artists including Nickelback and The Black Keys.

Our US track equivalent album units were up roughly 1% period-over-period, compared to the approximate 2% decline seen by the industry.

We gained 0.4 percentage points of US track equivalent album share in the quarter, the biggest increase among the majors although our share decreased for the calendar year.

Warner Music UK also finished the year with some impressive accomplishments.

It scored two of the top three albums for 2011, Michael Buble and Bruno Mars.

And it was a strong year for artists development as three of our four biggest albums in the UK were debut releases, those from Bruno, Ed Sheeran, and Cee Lo Green.

We expect British singer-songwriter Ed Sheeran, a promising 360 Artist to build upon his UK success with a US tour in March, and we believe this will set up the release of his album in the US later this year.

These achievements helped us grow our UK market share this quarter, improving 2 percentage points, the only increase among the majors, and for the full calendar year Warner Music UK was the only music to maintain its UK share.

Turning to our music publishing division, Warner/Chappell Music remains a stable performer with very attractive financial attributes.

Music publishing enjoys a highly diversified revenue streams, and we continue to develop new opportunities to exploit the value of our catalog.

This quarter, we grew our music publishing revenue as a result of growth in both our performance and digital revenue.

Synchronization revenue was flat as strength in US advertising related revenue was offset by fall-offs in other areas including video games.

As we mentioned in the past we are continuing our efforts to boost our synch performance.

In this regard we are pleased to have placed Warner Warner/Chappell songs in 8 Super Bowl commercials, including ads for Honda, Budweiser and Audi, as compared to only one last year.

As expected, mechanical revenue continued to decline as this category is derived solely from physical record sales.

Warner/Chappell had significant A&R and licensing success in calendar 2011.

Its songwriters contributed to four of the Top Ten US albums, Buble's Christmas, Lady Gaga's Born This Way, Lil' Wayne's Tha Carter 4, and Lady Antebellum's Own the Night.

We also control portions of four of the Top Ten global digital songs, and three of the Top Ten US digital songs of 2011.

I am pleased with the progress that we are making throughout our business.

We continue to focus on long-term artist development, digital innovation, revenue diversification, and cost savings opportunities, while remaining disciplined in our investments.

On another note, I would like to congratulate all of the Warner Music Group Artists who received Grammy nominations this year, and to wish them good luck at this weekend's Awards ceremony.

Our artists and distributed recordings received 63 nominations, including Record of the Year and Album of the Year for Bruno Mars, and Best New Artist for Skrillex.

Warner/Chappell songwriters received 37 nominations including Song of the Year for Bruno Mars' Grenade.

Before I turn it over to Brian I would like to touch on two topics not directly related to our results this quarter, but which have received a lot of media attention.

First I will address the proposed transactions for the sale of EMI recorded music and EMI publishing.

If either of these transactions close, we leave believe it would significantly impair the competitiveness of the recorded music and music publishing markets, harming consumers, industry employees, recording artists, songwriters, physical and digital retailers, and our emerging digital services.

We will continue to share our view with the relevant regulatory authorities.

We don't plan to make any further comments today regarding the proposed EMI sale transactions.

Finally, I would like to turn to a topic of critical importance to the US economy, which is the protection of intellectual property.

As widely reported, the proposed SOPA and PIPA legislation have been withdrawn.

Putting aside the differences that led to the demise of these bills creating a safe and legal environment on the internet is in everyone's interest.

As such we remain committed to working with Congress, the US administration and the tech industry to help devise effective solutions to address the very serious issue of IP piracy.

With that, let me turn it over to Brian, who will walk you through our financial results in more detail.

Thank you Steve, and good morning everyone.

This is my first earnings call as a CFO with the Warner Music Group.

I am pleased to be with you all today in my new role, and look forward to speaking with many of you in the future.

This This has been a quarter of solid progress for the Company.

I would like to spend a few minutes providing color beyond what you have already heard from Steve, and seen in this morning's press release.

From a revenue perspective digital revenue showed solid increases up 16% with growth in recorded music and music publishing.

This was driven in part by continued growth in global digital downloads and by increasingly more significant revenue from streaming and subscription businesses.

In recorded music, physical revenue continues to decline for the industry though for WMG, this was partially offset by the sales of Michael Buble's Christmas which skewed towards CDs.

Top sellers in the quarter included Michael Buble, Nickelback, Bruno Mars, Udo Lindenberg, Ed Sheeran, and The Black Keys.

Our licensing revenue declined 8% in the quarter but we have not seen any negative signs in the underlying business.

As we have discussed, our 360 business can ebb and flow, with touring cycles tied to our European concert promotion business.

This quarter our 360 revenue was lower as our concert promotion business faced a tough compare with last year's Christophe Mae tour in France.

We remain confident that our 360 revenue will grow meaningfully over time.

In music publishing increase our increase in performance revenues reflects the health of the US advertising market, strong chart positions, and recent acquisitions, including Southside Music Publishing and 615 Music.

Like in recorded music, digital revenue and music publishing benefited from growth in downloads, streaming, and subscription businesses.

Our total OIBDA and recorded music OIBDA this quarter are in part related to the strong performance of Michael Buble's Christmas, which helped drive down marketing expense as a percentage of total revenue.

Even with a slight decline in recorded music revenues recorded music OIBDA rose 13%, and recorded music OIBDA margin expanded 2 percentage points to 15%.

Music publishing's flat OIBDA resulted from increased investment in developing songwriters, which flows through the P&L.

We believe the increase in songwriter investment will play off in the long-term.

Following our sale to Access Industries in July, we announced targeted cost savings of between $50 million and $65 million over nine fiscal quarters, and we remain on track to achieve chief our target.

As you may have already seen, we have added our credit agreement EBITDA calculation to the 10-Q.

Many of you have been asking for this guidance in calculating this number, so we hope this new disclosure will be helpful.

Turning to our balance sheet and cash flows, we are pleased that even with the $79 million cash interest payment in the quarter, we were able to grow our cash balance.

Cash grew by $14 million to $168 million due to the success of our key releases and the timing of collections.

Free cash flow grew to a positive $14 million, from a negative $179 million in the prior year quarter.

Free cash flow in the prior year quarter reflects higher cash severance and bonus payments, as well as investments in Roadrunner and 615 Music.

Our release schedule for the remainder of this fiscal year will be back end weighted.

Even so, we remain confident in our ability to generate meaningful free cash flow over the course of the fiscal year.

Overall we are pleased with cost management, margin expansion this quarter, and we look forward to updating you on our progress going forward.

With that, operator, please open the line for questions.

(Operator Instructions).

The first question is from Aaron Watts fromDeutsche Bank.

Good morning everyone, a couple from me.

I don't know if you could give us color in terms of what are the releases that are going to make the most impact in this March quarter at least, and if there were any kind of prominent releases the rest of the first half of the year that you can talk to us about?

Aaron, this is Steve Cooper.

This quarter is a light release schedule.

And I think the results will reflect that.

Obviously release schedules are sensitive and they are subject to change, so I don't want to comment on specifics, but we do believe that overall this year when you look at end-to-end we have a strong release schedule, and we at least as we sit here today are not aware of any substantial modifications to that schedule.

But expect to see second quarter light, third quarter a bit light, and then it accelerates as Brian indicated it is back end loaded.

Okay.

That is helpful.

And my last are kind of more thematic but I guess first, any more clarity, I know it is still early but any more clarity on the impact Spotify and similar services are having I guess not only on maybe piracy, but also the impact on iTunes sales, and I guess based on how you get paid are you kind of agnostic to a rental world versus a buying world for music?

Let me make a couple of comments.

There is apparently research and data that shows particularly in the Nordics where Spotify and iTunes started up at roughly the same time.

That there is no indication that either service is cannibalizing the other.

I am told research shows there are those that like to own and those that like to rent, but we haven't seen any perceptible trends with respect to that.

On your second point, what we indicated during the Road Show as we talk to potential investors, when you look at a streaming service like Spotify, which for example's sake in the United States is $10 a month, and for a premium user $120 a year, that flow of dollars is as I understand it substantially greater than the average annual purchases with respect to an iTunes user.

So both downloads and streaming provides us with meaningful economics.

I am personally agnostic albeit you can draw your own conclusions from the streaming payments versus the average iTunes users.

Our goal is to expand through all of these various channels of distribution.

People's access to music and to do it in a legal nonpirated way, which will be good for us and for the industry in general.

Okay.

That is a helpful context to think about it.

And last one for me, I appreciate you taking the questions.

You guys did a great job with cost controls, the publishing business looks relatively steady, I guess just as I think about the recorded business, it looks like you had a fairly solid release slate in the December quarter against a relatively modest comparison in the prior year, yet recorded revenues were still slightly down I think on a constant currency basis.

How do you get that part of the business back to consistent growth?

What is it going to take?

Is it just we have to wait longer for the physical to climb, to level out.

I am curious on your thoughts on how that business returns to growth?Thank you.

Well, I am curious about that also.

I think that if you think about the two components, I think there is every expectation that physical will continue to decline, and that digital will continue to grow.

We have crossed a threshold of 50/50 in the United States.

The rest of the world still is about two-thirds, one-third.

But let me see if I can put it in a slightly different context.

If you go back and look at the documents that were filed with respect to our bond offering, you will see that we estimate that the overwhelming majority of all music accessed around the world is pirated, and in fact I think we used a number in the low to mid-90%s.

So if you think about the emergence of legitimate services whether they are digital downloads, iTunes, whether they are streaming, Spotify, Dieser, to the extent that, or those that are bundled over telephony, when you begin to think about just making relatively minor inroads to the piracy issue, Aaron, that begins to resolve that particular issue.

I mean if you think about piracy being in the 90s by way of percentage, and you reduce that wordwide by 4% or 5% or 6%, theoretically that doubles your revenue.

That is a good point.

Okay.

Thanks a lot.

I appreciate it.

Okay.

The next question is from Bishop Cheen from Wells Fargo.

Hi.

I joined late because the call was sort of a secret.

Hopefully you will do a better job in getting the information out on Bloomberg under your ticker.

Now to the question.

The uptick at year end, I mean that is your strong quarter, the December quarter.

Is there anything that you have said either veiled or directly that makes us think that there is a more sustainable kind of renaissance going on in the music business, and in Warner Music in general for 2012?

Well, first of all, I apologize if you didn't have--

When you hide the call announcement under the Access Industry's now retired equity ticker, debt investors don't get to see the news.

But that is another story for another time.

Let's focus on the earnings.

Alright, so much for my apology.

Anyway, if you look at what we said for 2012, we do see a fairly aggressive expansion of both iTunes and iMatch around the globe.

We see Spotify, Dieser, and other streaming services continue to expand.

The Cricket Muve, don't hold me to this, but I think they expected last late summer/fall they had 100,000 devices with the bundled music, they are now up to 500,000, and I think Cricket has actually estimated that some time this year they will reach a million, albeit please don't hold me to that, I just recall reading that.

I think when you look at the expansion of legitimate services and their ability to attract, acquire and retain subscribers that are actually paying for the subscription services, and when you begin to look at the penetration of these streaming services in telephony, by way of example, Spotify has cut a deal with Virgin Mobile in the UK, cut a deal with KPN in the Netherlands, and I think we should expect more of those bundling opportunities to present themselves, I think that ultimately is going to continue to drive revenue, and as I just mentioned to Aaron, we only have to nick piracy by a small number of points to begin to have on an absolute basis year-to-year increases in revenue.

So between hopefully the ongoing growth of iTunes, Spotify, Dieser, Rhapsody, other services the creation and introduction of new services, and better and more enforcement relative to prohibiting or inhibiting the pirating of Intellectual Property, which frankly, more and more countries and more and more internet service providers are looking at, all of that I think bodes well for the industry on a long-term basis.

Obviously we have to stay current with providing the music that consumers want.

And I feel confident that we can do our fair share of doing that.

That is all very helpful, useful, good color.

Thank you.

Can I do one follow-up on 360?Have you already given color on how that is going, developing in terms of any metrics penetration of your artists' growth in 360 revenues?

I believe you, I will have to go through the Q but you still don't break out the actual 360 revenue or economic stream?

Well, I will ask Brian to walk you through the economics, but we continue with respect to the 360 program that almost universally to sign our artists with respect to assigning of 360, or at least enhanced rights.

That is point number one.

Point number two, I believe that we are now between enhanced rights and/or 360, that is something in the area of 70%, or 70%-plus of our roster are contracted on that basis.

Obviously some of our older legacy acts that had been signed and extended prior to 360 haven't been converted.

That is just by way of our roster and kind of a metric background, and now I will ask Brian to give you more color on the revenue that we are generating with respect to 360.

So Bishop, as I said before, our 360 business given where it is in its life cycle that revenue right now ebbs and flows for us.

I said earlier that we had a tough compare in this quarter compared to the same quarter in the prior year, given the large tour that Christophe Mae had in France.

We didn't have that kind of a significant tour in this quarter, and therefore we had a drop in what we refer to in some places as nontraditional revenue, and other places as 360 revenue all being the same.

Just for a little more depth on it, year-over-year 360 revenue in this quarter represented 9% of recorded music revenue versus 8% of total revenue, and it is a big drop as I said from the prior year quarter, given the impact of that Christophe Mae tour last year versus this year.

That is great.

Thank you very much.

The next question is from Andrew Finkelstein from Barclays Capital.

Hi, guys.

Good morning.

Thanks for taking the questions.

Just wanted to focus in a little bit on some of the investing and other spending for the year.

I think you guys mentioned in the script you expect a lot of free cash flow, and I am kind of looking obviously at past years given the level of EBITDA and interest doesn't seem like there would be a lot.

I am thinking is there a change in the level of investment in CapEx, and can you talk about those targets for this fiscal year?

Well, I can tell you generally that we are handling our investment in the following way.

We are beginning to extend the time frame, the future time frame within which we look at the business, Andrew.

And the objective is to provide music publishing with investment capital that as opposed to being up and down and up and down year-in or year-out, will be a steady flow at a level that Cameron Strang and his team are happy with, and which they believe is sufficient to find and develop new songwriters, to in fact retain our existing roster, and to acquire additional assets on a regular year-in and year-out basis.

And that is a meaningful nine-digit number.

On the recorded music side, we are also looking at the investment it takes to continue to support the long-term artist development strategy, not only in the US and UK but worldwide, and our A&R investments continue to be consistent with and frankly, as meaningful as they have been historically.

What we are doing is as I think we mentioned a couple of times, we are taking a rigorous approach to how we invest, what we believe the return on those investments will be, and those that don't make it through that screen are obviously not undertaken.

Secondly, we have been very diligent with respect to not only the improvements in our cost structure that were identified during the due diligence and acquisition process, those are being implemented, but we continue to look for additional opportunities to better run the businessfrom top to bottom.

And those buckets also will continue to provide free cash flow.

The only thing I would add to that Andrew, would be that in last year given the sale of the Company and the costs surrounding that sale to Access, we had significant costs just surrounding that and those are clearly costs that are not repeating on an annual basis.

Right.

So is maybe the first quarter spending for CapEx and investments, is that a decent run rate to think about?

Yes.

Okay.

If you look at the reflecting run rates.

Okay.

I think it was $6 million of CapEx, and $7 million of acquisition of publishing rights?

Yes, yes.

Okay.

And then on the working capital side you mentioned also in the script you did a lot better.

It looks like there was a particularly huge swing on the, I think it was the payables.

Is there some seasonal flow change there?

The big movement there is in the accrued royalty area.

We had lower payouts in this Q1 of 2012 versus Q1 2011, which really ties back to Q4 of the prior year activity.

Q4 activity in 2010 was actually a little bit higher than Q4 activity in 2011, and therefore our pay-outs were higher prior year versus this year.

That is a big element of that, what is going on in that line, Andrew.

Okay, for the year, working capital, how do you see it shaking out in terms of use or use of cash or--?

I mean the only large element I think that we have from a working capital standpoint, not large but a number that we will continue to have through the year is the severance number.

Otherwise the working capital movements on the balance sheet are going to pretty much level off.

Okay.

Severance was the last one, do you anticipate any additional restructuring charges and additional cash severance beyond what you sort of booked already or is it--?

We will have more recording of severance and more cash severance as we continue to implement the targeted $50 million to $65 million worth of cost savings, so you will see some charges in the quarters as we go out.

And the cash will flow from there?

Yes.

Okay, great.

That is it for me, thanks.

The next question is from Thomas Cubeta from UBS.

I have a question on the 360 revenue.

I was wondering, you have talked about what percentage of recorded music it is.

I want to know how we actually see that flow through the financial statements, and secondly you talked about the year being back half weighted.

Is that tied to your outlook for touring?

What are you guys seeing for touring in terms of the summer season?

Thanks.

Why don't you tackle the --

So just from a flow through the P&L standpoint, our 360 or nontraditional revenue flows through revenue line, and it is reflected in the physical and the other lines of our P&L.

So there are elements tied to the different rights that we have secured under our Artist agreements, elements tied to the concert promotion businesses, and touring surrounding that.

That flowed through those line items.

And is it right to think that the 360 Artists are also on your, you have them for publishing also, or is that not right?

Within the suite of rights from a 360 perspective for a recording artists, we are securing passive rights in their publishing.

Warner/Chappell would have a direct right in their publishing, under the 360 with the recording artists we are getting passive rights in their publishing income streams.

Okay.

So but Thomas, said differently while if they are not an artist signed on the music publishing side, while we get that passive flow through, we also have artists that are signed not only on a recorded music side, but the music publishing side.

By way of example, Bruno Mars.

There are also any number of well known artists that are signed on the publishing side, that are not signed on the recorded music side, and it has been, I guess it has been a historical phenomena in this industry, that as artists are emerging, or as they start on one side versus the other, that those rights are typically, have been typically chased on a separate basis.

The publishing versus recorded music.

We do, however, within Warner ensure that both sides of our business are in regular and productive conversations, so that we see as many opportunities as humanly possible to do it on both sides of the fence.

And the second part of your question there, Thomas, is about touring and what it looks like from a schedule perspective.

I don't have that schedule for touring as it relates to our businesses in Europe, but I will say that those touring businesses will do tours for both artists that are Warner Music artists and artists that are nonWarner music artists.

It is a broad based business.

I know touring has been a little bit soft the last couple of years.

Is your outlook more positive this summer, just generally speaking?

I actually don't have and I don't think Brian has the data with us today to really answer that, Thomas.

I don't.

Okay.

I can tell you some other large touring organizations have indicated that they have a relatively strong slate.

If it that is any indication as to how the softness is either bottoming out or turning around.

Okay.

Thank you.

The next question is from Adam Spielman from PPM America.

Thank you.

Just two questions.

One on recorded music and one on music publishing.

On recorded music could you just obviously the business has evolved, it was ring tones and downloads, and now shifting into there is more streaming.

Can you give us any sense of how the pie looks within digital now versus maybe a year or a few years ago?

So I think even now Adam the digital pie for recorded music is still skewed toward the download business, the traditional, what is now the traditional iTunes download business.

It is more than 50% of that revenue is still tied to that income stream.

The other elements of it though, the Spotifys, the Diesers, they continue to come on strong, and continue to have growth.

I think you will eventually see that those lines cross, but right now the lion's share of that business is still in the download business.

So maybe 80% of recorded music digital or something like that is download?

It is not that significant, no.

Okay.

Second question just on music publishing looking back last year, and looking at some of the variability in results, there was discussion of royalty reserves, and there was a low margin contract, a low margin administration deal, and I guess there was the change in the radio payments.

Just as we go into this year, is there anything material that you see that would drive results to vary a lot, or are we kind of in I guess a more stable environment for publishing this year?

I think from a Warner/Chappell perspective we are in a more stable business environment.

The business itself went through some transition last year in two ways.

We acquired a company and hired a new CEO, and then within a few weeks of his joining the Company we entered into discussions to sell the entirety of the Company, so there was volatility just around all of those transactions.

I know we spoke in the past about the loss of the large administration agreement with respect to the Warner Brothers Studio, which had a large impact on revenue and a very small impact on retained OIBDA.

That has now cycled through.

We have cycled through all the numbers injuries number.

Last year Warner/Chappell as you can see from the cash flow we made investments in acquisitions we acquired Southside, we acquired M15, which was an addition to our production music library portfolio, and also went and acquired rights internally from songwriters to bring greater stability to that.

As Steve said earlier Warner/Chappell along with Cameron is now in a place where we have come to the proper level of investment, and the strategy is now to invest that level consistently through the period to drive more normal results within publishing, and drive the kind of growth that you see in this quarter's results.

Okay.

And finally, just tying back to an earlier question, just trying to understand the puts and takes on cash.

The CapEx number and that $7 million investment number you think that kind of covers the business through this year, those kind of numbers?

Yes, multiply those by four you are looking at an annual run rate for us.

Right.

And then not to nail you down too tightly on restructuring charges, but for some reason some number like 25 sticks out.

Did I make that up, or did you guys indicate that along the Road Show process?

Cash restructuring for this year?

No, that is not a number that we have disclosed anyplace.

What I said earlier I think in response to a question that Andrew was asking is that you are going to see severance, P&L charges and cash severance through the fiscal year.

All with the thought to execute against the $50 million to $65 million worth of targeted savings that we have discussed before.

And you don't care to help to guide at all what that cash number might be this year?

Not right now.

Okay.

Thank you.

The last question comes from Todd Morgan from Oppenheimer.

Thank you.

You made some helpful comments on digital, and I wanted just to follow up on one area.

It looks like digital was up 15% in the recorded music segment, that is a very strong number if I look back at my notes.

It was 8% in the fourth quarter last year, and 6% for the full year.

Can you just help us understand some of the relevant components of the drivers?

I know you sort of laid them out, but for example is this more a factor of a strong release performance in the quarter driving downloads?

And in particular, if you talked also about sort of an expected lighter release schedule over the next several quarters, through I guess the second, third quarter, should we expect that this kind of digital revenue growth could continue?

Thanks.

Well, I think that, are first of all, just with, it is ironic that in the fourth quarter in particular by Buble believe it or not, is more highly physical than digital.

I don't recall the exact percentage, but he had substantially more physical albums as I recall than digital equivalent.

Even in the fourth quarter, Todd, the digital growth really wasn't dependent upon, frankly, our strongest release.

I think you do see in the fourth quarter typically strong digital growth, primarily because one of the go-to particularly for parents giving to kids, one of the go-to holiday presents are these gift cards, either from Apple, or other services, and you typically see a surge in those sales, and then subsequent to particularly Christmas I guess a surge in their redemption.

So there is an element of seasonality, but I think that we continue to believe that with the ongoing proliferation of smartphones or smart devices, and with the ongoing optionality of the customers, consumers now have whether it be iTunes, or one or more of these emerging digital services, which provide them with music in the way, shape and form they want to receive it, that we think digital growth will continue to be strong.

And just to add to that what Steve said, the penetration of those types of devices we all did see Apple's numbers and the number of new devices that were activated in that period, and with gift card redemptions as we said earlier in the script, we enjoyed some benefit in the digital growth.

One other point which again I think we made during our Road Show, Todd, but maybe it merits rementioning when you look at the streaming services, and you, or in fact when you look at downloads, while there is always a current release component, and in many instances a current release component pulls along additional catalog sales, particularly with the streaming services, 24/7/365 there is a meaningful catalog component to those services that is almost mutually exclusive from any particular quarter's release schedule.

And that Warner as you know, as well as the other majors have very, very substantial catalogs.

So a good deal of this growth is going to come from the fact that they are streaming, that more streaming services are emerging, and they are highly dependent upon access to ours and other's catalogs.

Okay.

So it doesn't sound like there is really any kind of a sort of one-time new market launch, or even this low base of streaming revenues that you are coming off of that are really driving that, it really sounds more like something that you can sustain at these sorts of levels?

Knock on wood.

Well, good luck then.

Thanks.

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

Well, thanks, everybody.

I appreciate your time, and I hope since this is a little bit into the new year everyone had a wonderful holiday season, and I wish you the best for 2012.

Thanks for joining us.

Have a wonderful day.

Bye bye.

Bye now.

That concludes today's coverage, you may disconnect at this time.