Warner Music Group Corp (WMG) 2015 Q1 法說會逐字稿

(audio in progress) period ending December 31, 2014.

At the request of Warner Music Group, today's call is being recorded for replay purposes.

If you have an objection you may disconnect at this time.

(Operator Instructions).

Now I would like to turn today's call over to your host for today, Mr. James Steven, Executive Vice President Communications and Marketing.

You may begin.

Good morning, everyone.

Welcome to Warner Music Group's fiscal first-quarter 2015 conference call.

Both our earnings 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, Eric Levin, will discuss our financial condition and results, and then both of them will take your questions.

Before Steve's comments, let me remind you that 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 good basis for them.

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

Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainty 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.

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

Also please note that all revenue figures discuss today will be presented in constant currency.

With that, let me turn it over to Steve.

Good morning, everyone.

Thanks for joining us today.

As I mentioned on the last call, we had plenty of good news heading into the holiday season and the strength of that momentum is reflected in our results.

In the first quarter, we grew total revenue by 7%.

We grew digital revenue by 14% and we grew OIBDA by 10%.

I am very pleased with these results.

They underscore the success of our A&R activities and the speed at which we are embracing new business models.

However, as we have often said, we do not measure our performance by the metrics of a single quarter.

Our focus is on sustainable, long-term growth.

We know that the music industry will continue to evolve.

We are mindful of the ongoing macro trends such as the decline in physical and download revenue and the rapid rise of streaming.

In the first few weeks of this year, recorded music trade associations from around the world reported their market data for calendar 2014.

While some key territories saw modest growth, others experienced small declines.

When we look at the data we believe it supports an optimistic view about the current and future state of our industry.

In the US according to Nielsen SoundScan, album equivalent unit sales including physical downloads and streaming declined 2%.

This decline was due in part to a 15% drop in CD unit sales.

We were encouraged that total digital album equivalent units grew nearly 4% with a 54% increase in streaming more than compensating for a 12% decline in downloads.

It is also worth noting that vinyl unit sales grew 52% last year hitting their highest level since SoundScan began in 1991.

In Japan, the market remains challenged.

Preliminary figures suggest that total revenue contracted 4.5% in 2014 so this represents a slowing in decline relative to the prior year when the market was down double digits.

In Germany, total trade revenue increased at an accelerated rate for the second consecutive year, up 1.8% compared to 1.2% in 2013.

The rate of physical revenue decline slowed to 1% while digital grew 12% thanks to a 74% increase in streaming.

These positive trends have once again made Germany the third-largest recorded music market in the world.

In the UK, total retail revenue declined 1.6% with album equivalent units down 2.1%.

Streaming revenue grew 65%, nearly offsetting an 8% decline in physical and album downloads and a 15% decline in single track downloads.

While the conditions in each country are different, we are seeing a common thread around the world.

Whether streaming is already the dominant motive consumption or still a niche business, its growth in 2014 was consistently impressive.

This ranges from Norway where streaming jumped by 14% despite already being 75% of total revenue to Australia where streaming revenue rose 51% from a relatively small base to represent 10% of total trade revenue.

As I said last quarter, we are encouraged by the industry activity in streaming and in particular, paid models.

The positive news flow continues.

Specifically, French music streaming service, Deezer, which already has 16 million active monthly users and 6 million paid subscribers, recently filled out its geographic portfolio with the acquisition of US music subscription service, Muve.

Also as recently reported, Jay-Z is in the process of acquiring Aspiro, the owner of Nordic streaming service Wimp and high-resolution US streaming service Title.

Having one of the world's biggest stars promoting a streaming service could be yet another powerful factor to encourage mainstream adoption.

There is no doubt there is still some way to go in the digital transformation.

With so many established players are in the fray including Spotify, Google and Apple, it is just further evidence that streaming is a viable long-term model which should ultimately return the industry to meaningful global growth.

We continue to experiment with ways to further accelerate the digital transformation and generate greater revenue in both established and emerging markets.

On previous calls I have talked about our innovative partnerships with companies such as iHeartMedia and SoundCloud.

Over the past few months, we have created four additional strategic partnerships which are all part of an expanded effort to expand our digital business.

In November we unveiled a partnership with Tencent, the Chinese technology giant.

Our deal marked the first time that a major music company had licensed the rights in its recorded music catalog to a Chinese Internet provider.

We believe that by aligning our interest with Tencent we can help accelerate the evolution of legitimate business models in China.

Our agreement with Tencent is evidence of how swiftly our team in Asia is moving to capitalize on our acquisition of the Gold Typhoon catalog which we completed just a few months earlier.

In December, we were among the first media companies to sign a deal with Vessel, a new entertainment service cofounded by Jason Kilar, the former CEO of Hulu.

Through Vessel's subscription tier, fans will be given an exclusive window for some of our music videos.

We believe that Vessel could be an important step in unlocking greater value for our content.

Just before the holidays we announced that we became a founding partner in a new venture with Interlude, a leader in interactive video technology.

This will enable us to collaborate with brands and advertisers in engaging and sophisticated ways while offering our artists new possibilities for creative storytelling.

Last month we entered into an exclusive music partnership with Snapchat's new media platform, Discover.

This transaction provides an incredible opportunity for Snapchat's massive user base to enjoy our music while simultaneously providing us with additional monetization through sponsorship and advertising.

With moves such as these, we are helping to forge new business models for our industry while growing the suite of tools and services that offer our artists opportunities they will not find with our competitors.

Now I would like to turn to recorded music and music publishing results.

In recorded music, we grew revenue by 8%, we grew digital revenue by 10%, and we grew OIBDA by 19%.

Investment in artists in all stages of their careers remains at the core of our strategy and there were many new albums which contributed to our results.

Hard rock newcomers, Royal Blood, released their debut album which reached number one in the UK and Ireland and the top 10 in Australia, New Zealand and Switzerland.

Established superstars, Blake Shelton and Slipknot, both debuted at number one on the Billboard album chart.

Idina Menzel celebrated the highest charting solo album of her career in the US.

And David Guetta hit number one in Japan as well as the top 10 in the UK and across Europe.

Furthermore, a trio of our legends made impressive showings.

Bette Midler's first new album in eight years, It's the Girls, achieved her highest debut week sales ever in the US.

Prince also made a historic return to Warner Bros.

records with two new albums, Artificial Age and Plectrumelectrum, which scored simultaneous top 10 debuts in the US.

Pink Floyd hit number one in a dozen territories with The Endless River, their first new solo album in 20 years.

In the US, we weather general market softness better than the industry as a whole.

We grew our first-quarter market share in every major category including a 1.5 point increase in total albums and approximately a 3 point increase in digital albums and a 1 point increase in digital tracks.

In the UK, we posted the biggest annual market share gain of any music company with an approximately 5 point increase in artist albums and a 3.5 point increase in singles.

We had three of the top five albums of the year including the biggest seller, Ed Sheeran's Multiply.

Six months after Ed's album was released, it returned to the number one slot in the UK, Australia and Ireland during the highly competitive Christmas sales week.

We also had plenty of holiday season highlights in Continental Europe.

Warner Music Spain celebrated the country's biggest first week sales in a decade with Pablo Alboran, while in France our weekly album chart share peaked at an extraordinary 47% in December.

In addition leading up to Christmas we had seven of the top 10 albums in Belgium and six of the top 10 in Finland.

Additionally, Scandinavia, Italy and Brazil were among the territories in which we showed meaningful market share increases in 2014.

In music publishing as you know, we recognize revenue on a cash basis.

This quarter timing of performance society distributions negatively impacted our results.

We expect this timing effect to even out over the balance of the fiscal year.

Specifically in the first quarter, total revenue declined 3%, digital revenue jumped 14%, and OIBDA declined 11%.

I am pleased to note that Warner/Chappell had significant A&R and chart successes in calendar 2014.

Our songwriters contributed to four of the year's top five albums in the US including Disney's Frozen soundtrack, Taylor Swift's 1989, Ariana Grande's My Everything, and Katy Perry's Prism.

In the UK, Royal Blood's debut album was the highest selling rock album debut in three years and Paolo Nutini's Caustic Love was one of the top five albums of 2014.

Over the last few years, we fostered collaborations between our songwriters and A&R staffs in the US and Sweden.

This initiative is currently producing outstanding results.

Swedish songwriters like Ilya and Tove Lo have contributed to big global hits including Ariana Grande's Problem and Ellie Goulding's Love Me Like You Do.

We continue to look for ways to strengthen and diversify our publishing portfolio.

Last month Warner/Chappell acquired the assets of Frank Gari Productions and Gari Communications.

With this acquisition, Warner/Chappell became the largest provider of news [team] music for local television in the US.

Finally, we have continued to boost the performance of our licensing business.

As a result, we have placed 14 songs from our publishing catalog and seven songs from our recorded music catalog in various Super Bowl commercials this year.

Our music was included in ads for Budweiser, Geico, Nissan and Sprint among others.

Many of you will have seen Warner Bros.

artist, Idina Menzel, perform her stunning rendition of the national anthem at the Super Bowl.

We were also proud to see Warner/Chappell's songwriter, Katy Perry and Atlantic artist, Missy Elliott, collaborate in the most-watched halftime show in Super Bowl history.

Finally, last week was our industry's biggest awards event, the Grammys.

Our artists and songwriters celebrated wins across a wide range of genres.

Highlights included Warner/Chappell winning an impresses six out of the nine best song Grammy awards.

Paramore winning their first Grammy for best rock song and Clean Bandit and Jess Glynne taking home best dance recording.

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

Thank you, Steve, and good morning, everyone.

We are pleased with our first-quarter results.

We continue to discover the greatest artists and songwriters in the world and partner with them over long and productive careers.

Our team is also very focused on cost and cash management which is evident in our working capital performance this quarter.

Our revenue results reflect strong holiday sales with 7% overall growth.

From an OIBDA perspective, certain adjustments are necessary to make the year-over-year comparisons more meaningful.

We have highlighted these in our press release but let me walk you through them.

In the quarter, we had $4 million in PLG related expenses which is down significantly from $27 million in the prior year quarter; $6 million in one-time costs related to the move to our new corporate headquarters and $4 million in expenses relating to other cost savings initiatives.

Backing out these items, adjusted OIBDA declined 3% to $116 million and adjusted OIBDA margin declined 0.7 percentage points to 14%.

This quarter we had higher investment in marketing in support of our releases.

Changes in revenue mix also impacting adjusted OIBDA margin.

The integration of PLG remains on track to deliver projected cost savings and operating synergies of around $70 million.

To date we have captured $62 million of these and expect the remainder to come over the balance of the fiscal year.

In recorded music, we delivered 8% revenue growth.

Physical revenue rose 13% aided by the releases from artists who traditionally have a higher proportion of physical sales.

Digital revenue grew 10% reflecting strong worldwide growth in streaming revenue and modest growth in download revenue.

Recorded music licensing revenue was flat and artist service and expanded rights revenue was down $3 million driven by the timing of European concert tours.

Recorded music adjusted OIBDA declined 3% to $117 million and recorded music adjusted OIBDA margin was down 1 percentage point to 16.4%.

The declines in adjusted OIBDA and adjusted OIBDA margin were driven by higher investment in marketing in support of our releases as well as changes in revenue mix which was partially offset by a decrease in PLG related expenses.

Music publishing revenue declined 3%.

As Steve mentioned, digital was a standout compensating for a decline in mechanical.

Performance declined due to the timing of collection society distributions.

Sync declined modestly.

OIBDA was down $2 million or 11% with margin down 0.5 percentage point to 14.3% as a result of the revenue decline.

Operating cash flow was $35 million compared with the use of cash of $52 million in the prior-year quarter.

This change is largely a result of lower cash interest payments and of working capital improvements, some of which are timing related partially offset by the final purchase price payment related to the PLG acquisition.

As of December 31, 2014, our cash balance was $145 million with a zero balance on our revolver.

CapEx came in and $24 million for the quarter.

As expected this was higher year-over-year as we finalized our corporate headquarters move and made continuous investments in IT.

We expect an increase in fiscal year 2015 CapEx relative to historical levels as we continue to invest in long-term upgrades to our IT infrastructure.

That said, we expect the spend this year to be less than the $76 million spent in fiscal 2014.

I am very encouraged by our performance this quarter and look forward to our strategy bearing fruit over the rest of the year and beyond.

We are committed to finding the appropriate balance between investment and cash and cost management to provide for strong free cash flow and to nurture the long-term health of our business.

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

(Operator Instructions).

Aaron Watts, Deutsche Bank.

Good morning, everyone.

Thanks for taking the questions.

A few from me.

I was encouraged by the revenue growth in the quarter.

I was hoping you could dig down a little bit more into what went on on the cost side.

With the synergies from the PLG acquisition flowing through as you have highlighted and the growth on the top line, I was expecting to see a little bit better margin performance.

Can you maybe just talk a little bit about more what you are investing in and what you meant by changes in revenue mix?

Thank you, Aaron.

I will highlight two things.

So one is we had a higher investment in marketing this quarter in line with our strong releases.

One thing we would expect is the marketing is front-end loaded and the continued performance of the artists that they are supporting will flow into future quarters so we expect to see continued performance in sales from that which is driven by this upfront marketing.

Two is, we actually had growth in physical this quarter and physical we know has higher costs related to production and distribution so that change in mix also has a cost impact.

So those would be the two drivers.

Is it fair to say that based on the upfront nature of some of those marketing expenditures and the fact that physical was maybe a little overweighted in the quarter that we wouldn't see this kind of margin performance continue in the quarters to come?

Is that a fair interpretation of what you are saying?

I think that is fair.

We should not interpret any longer term or sustainable margin decreases.

This is just simply related to supporting this period's artists and revenue growth and we certainly expect margin to continue to normalize throughout the rest of the year.

Okay.

As we think about your digital performance, the growth in the quarter, is that mainly being driven by downloads in the quarter or is that mainly being driven by streaming?

I guess I am kind of getting at is streaming yet a kind of material or a significant portion of your digital revenues relative to downloads for instance?

No, streaming is material.

As we said last quarter when I think we said streaming was within $1 million of download revenue, it is somewhat similar this quarter.

Streaming and digital are close to parity and streaming continues to grow quite aggressively and download actually we had a fairly stable quarter.

Okay.

On the publishing side of the house, you speak to a lot of positive trends going on in that business.

Obviously mechanical is the drag that it is.

But do you see that -- do you see the publishing side of the house returning to overall revenue growth this year and I guess that would flow through to EBITDA growth as well?

Or is mechanical going to continue to offset the good things you are doing away from that?

I think in this quarter what we see -- obviously digital continues to grow which you are right, the structural elements with mechanical kind of have a natural interplay.

Performance this quarter was down marginally.

That is simply related to the timing of distributions which we expect to reverse as we move forward this year so we do expect continued solid performance in publishing.

Last question for me.

Thanks again for taking these.

Any general thoughts you can give us on the release schedule if not specifically, maybe more just timing wise as it sits today, when we might see more kind of new releases from you versus a lighter portion of the year?

We've got a -- I think this year, Aaron, a better balanced release schedule than we had last year.

If you recall the first six months of the year last year was pretty light.

We were much stronger in the first quarter.

We will be a little lighter in the second quarter and then in the latter half of the year, we expect to continue to have a strong release schedule.

We are also hoping throughout the year this year to be showcasing a lot of tremendous new music and very talented new artists.

So I am pretty comfortable with where we currently stand and I look forward to releasing a lot of great music this year.

Okay.

Thanks again.

David Farber, Credit Suisse.

So I wanted to ask a couple of different questions.

First is just hoping to get a little bit better picture of the digital business.

I believe on the last quarter you guys discussed the growth rates in digital and you gave us a little bit of color around the downloads and the digital.

So maybe to the extent you are comfortable, I understand the question was somewhat asked but can you give us a little bit bitter flavor about the trajectory of that business in streaming versus digital downloads?

I have a couple of follow-ups from there.

Sure, David.

Happy to.

So what we see certainly in this quarter is streaming continuing to grow quite assertively and we continue to see those trends.

So Spotify I think has announced that they are over 15 million page streaming subs and growing at an accelerated rate.

And so those market trends and we see the results here, are going quite well.

In this past quarter, downloads were quite stable supported in part by our strong release schedule and high-performance or even over performance in that market.

So going forward we are extremely optimistic in the digital trends driven by the strength of streaming.

Understood.

And then I think one question we continue to get from investors is sort of the margin impact.

I think you guys have been very consistent in saying overall pretty much the same if not potentially better for streaming.

Just trying to understand maybe the cash flow characteristics, do they change to you given the money coming in for the recording is not delivered to you at once?

Just can you talk a little bit about the cash flow characteristics of the streaming side versus the digital downloads?

And then to the extent you can talk about the acquisition you made in the quarter, any sort of metrics around either contribution or multiple would be helpful.

Then just had a follow-up on the balance sheet.

Thanks.

If you look at the metrics, David, we see a range.

If you look at a single download versus streaming or an album download streaming, it looks to us based upon the area of the world that with a single we've got a relationship of somewhere between 120 to 160 to 1 streams to download and that range times 10 would apply to a total equivalent album statistic.

As Eric said, from what we can see of the services, they are -- particularly Spotify adding paid subscribers at a very accelerated rate and we would expect that as both subscribers and people in their funnel use this music that sometime in the not-too-distant future the number of streams will outweigh the number of downloads on those ratios and those lines will cross.

And as we mentioned since it is digital as compared to physical, we get better margins through the process.

What specific acquisition were you referring to?

I thought you were making mention to the one in Gari.

Gari is a production music operation and they provided for news programs around the United States, the theme music.

They are the largest theme music production music company in the United States.

That being said, it is not a gigantic business and while we think that it will add to our NPS and our bottom line in a nicely positive direction, it won't be a very substantial needle mover.

But it is an area of the music publishing business that we have invested in historically and where we want to have a greater presence and this allows us to do it.

But it is not by any stretch of the imagination a big needle mover, David.

Okay, got it.

That is helpful.

The last question was I noticed parsing through the Q this morning as quickly as I could that you guys drew down on the revolver to the tune of $100 million and then just simply repaid it intra-quarter.

I am just curious what was sort of the reason for using that versus cash and do you anticipate needing -- or will look to use the revolver throughout the next year?

Any thoughts around that and then that is it for me?

Thanks.

Well, we used the revolver for certain short-term working capital needs.

When there is periods of significant payment, we just use that in the short term.

It is always our objective to use that as modestly as possible and manage using our own organic and internal cash flow and we manage working capital aggressively here and we are pleased to be able to say that we have zero revolver use at the end of the quarter and that remains a target of ours.

Got it.

Just to be clear, do you intend to use it at all for the upcoming year or any thoughts around that?

We may use it periodically in short-term working capital periods but again, our objective is over thrust of the year and long term to be able to rely on our own cash flow but from time to time we may use it.

Okay.

Very good.

Thank you for the help and the questions and answers.

Take care.

Davis Hebert, Wells Fargo Securities.

Good morning, everyone.

Thanks for taking the questions.

I appreciate the commentary on physical that it was higher.

I realize the release schedule was favorable to some artists that are more weighted toward the fiscal product.

Just curious your thoughts around the outlook for physical.

Do you feel like that growth is sustainable or should we expect to see year-over-year declines in the coming quarters?

Again as you have noted, Davis, it is really driven to a large extent by release schedules and whether the artists have been historically physically oriented versus digitally oriented.

If you put aside the specifics of a release schedule, I think the expectation is that physical will continue to decline just generally as people move to other forms of enjoying music, in particular streaming.

Now that being said, there is a very bright spot in physical which is vinyl and year-over-year that is up more than 50% and what we see is because of the quality of the vinyl, the interest in collecting vinyl, we expect that to continue.

We would expect also kind of niche bright spots with CDs which are the collector edition and high res CDs notwithstanding we expect the CD market to continue to contract.

That being said, the demise has been predicted for years and we believe that while contracting it will have a very long tail.

Understood.

I would imagine vinyl although seeing robust growth is still a relatively small percentage of your physical business?

Yes, it is.

It is.

And I also appreciate all the commentary on streaming.

You mentioned a lot of the players that are involved now, Apple, Google, some pretty big heavyweights, Spotify.

I am just curious, do you favor any sort of format or player or do you take the view that no matter who wins we win because it is becoming quite a crowded space.

Well, I don't think we -- we as content providers don't favor a particular platform.

Our preference is obviously subscription versus free or subscription versus premium.

And we continue to regularly interact with our distribution partners about what they are or aren't doing to encourage people moving to subscription-based listening formats.

With respect to platforms, we don't have a preference of one over the other per se.

And the copyright office put out a very long report on the future of the music licensing.

Just curious your thoughts, can that benefit you if those in fact become the law of the land or the CRB takes the same view?

Well, I don't think we agree with all of the conclusions.

By way of example the full federalization of pre-72 sound recordings or compulsory licensing for noninteractive use of our compositions.

We think though that it was thoughtful and it was well written and it is looking at this area is certainly a step in the right direction.

Understood.

Okay.

When you say -- on your release schedule you said lighter versus heavier.

Just curious what is that in relation to, is that year-over-year like if we are looking at next quarter being lighter, is that versus Q2 2014?

I don't want to go into it specifically.

It is not lighter in my view relative to last year.

It is certainly lighter relative to the first fiscal quarter and this has incidentally been, it has been typical at least our release schedule for the last few years.

Heavier first quarter, lighter second quarter and then building up to heavier in the third and fourth quarter.

Understood.

Last one for me just on cash uses this year, any update on how your CapEx might be looking for the fiscal year?

I think last year our CapEx was $76 million and I think our historical run rate in the mid-30s.

We certainly expect this year to be below the $76 million last year.

It will be up marginally or it will be somewhat above the 35 and I think there's two reasons.

One is we are completing this quarter our office move at 1633 Broadway and that is wrapping up and that has some CapEx expense this year.

That is now behind us and we also continue to look at and continue to move forward with some IT upgrades which have long-term benefits to our business and think it is worth noting there that with those IT initiatives, we absolutely look at them on a return on investment basis and we expect them to pay off over the mid- and longer-term.

Great.

I appreciate all the color.

Thank you.

Michael McCaffery, Shenkman Capital.

Thank you.

I just wanted to clarify the comments made to Davis on the physical increase this quarter.

Do you view that more as an anomaly versus -- I know some countries still have a fairly strong physical business.

If I understood your answer to Davis, it sounded like the expectation is you are not going to see the strength you saw in physical this quarter and future quarters this year but I just wanted you to clarify that.

Yes, I think that again it is really highly dependent on our release schedules but I think just to clarify to your initial point, when you look at the composition in music globally, roughly 60% on a global basis is still physical and downloads.

So that while we see very rapid growth in streaming, we don't forget and hopefully you guys don't forget that physical and downloads remain for the foreseeable future still a very, very, very, very, very important components of music globally.

There are a number of markets by way of example, Japan, which is the world's number two market and Germany, which is the world's number three market, that are still highly physical and while the digital transformation streaming is beginning to take hold in those markets, we expect them to be physically oriented for the foreseeable future.

We had in the first quarter, releases where any number of our artists have historically been physically oriented and that was in large part attributable to our physical sales in the first quarter.

While we could see that in future quarters, we continue to believe that the overall trends will be a decline in physical, both in the US and globally but with different contracting curves around the world, Michael.

And I guess second, when you mentioned making an effort to have a more balanced release scheduled throughout fiscal 2015 versus 2014, can you give us a sense for how much of that is leveraging Parlophone catalog -- re-releasing older Pink Floyd and that type of stuff versus your new artists as an effort to balance it out?

In other words using access to content that you may not have had a year ago?

We certainly when we acquired Parlophone, we acquired a fantastic catalog of artists, both global artists and local artists with respect to the European operations of EMI that we picked up.

And we are certainly making every effort to introduce those catalog components into our global release schedules, both global artists and local artists.

That being said as we mentioned, the investment that we make in our current active roster and the investment we make in discovering and bringing to the world new artists and their music, continues in an unabated fashion.

I would expect that our catalog sales will continue to be 35% or 40% of our annual recorded music sales, somewhere in that area for the foreseeable future.

And just to be clear, is that 35% to 40%, is that significantly higher than it was pre-Parlophone?

I don't believe so but we can get back to you on those statistics because keep in mind with Parlophone, we picked up not only a catalog but any number of prominent artists, Coldplay, David Guetta, Pablo Alboran to name a few.

So we had a nicely balanced business there inclusive of the fantastic Parlophone catalog.

Okay.

The partnerships that you mentioned, the four key partnerships, when do you expect those to start to add to revenue in a material way?

Is that going to be a fiscal 2015 event?

We are hopeful that it will be sooner as opposed to later but candidly putting aside Tencent, which we know will add to fiscal 2015 revenue, when we look at Snapchat, Interlude and Vessel, these are new and innovative approaches to the utilization of music and a monetization thereof and I think it is just too soon to tell.

The good news is all of these innovators, whether it be Snapchat, whether it be Interlude or Vessel recognize that as part of their approach to creating these very new and interesting business models is the inclusion of music and that per se reinforces our view that these new models in conjunction with streaming should hold for the music industry a very bright future.

Okay.

You had mentioned a couple of the key movements in the digital space as far as acquisitions are concerned.

Do you feel like there needs to be a consolidation amongst this wide array of me to streaming services and if so, does that ultimately help you guys?

I think that if you look at any industry, virtually any industry, we think competition is not only healthy, it is necessary.

That being said, in an industry where there are many, many, many, many people competing for the same customer, there is ultimately some degree of consolidation and it wouldn't surprise me on a personal not a company point of view note that over time we see that happen in the streaming world.

Okay.

Final question if you can just speak to your thoughts around potential refi of the 13.75% notes, the call option becomes available to you later this year, between that cash building up over the course of the year, possible prepayments on the term loan.

Can you just talk about planned uses of cash and or how you are thinking about that holding company note right now?

Well, on the hold co notes, I can't give you a specific answer.

What I can tell you is we are always acutely aware of the structure of our balance sheet and the cost of our capital and we are always looking at how we can have more efficient capital structures at lower cost.

Maybe to ask the same question slightly differently, are you comfortable building cash or is there a point at which too much cash if there is not an ample acquisition opportunity that you would look to do some type of voluntary debt repayment?

Listen, we are always looking to take excess cash and utilizing it in the way that it strengthens our business for the long haul.

If we don't have growth opportunities and we have balance sheet management opportunities, we will look to utilize the cash in that way.

But we will see where we stand later in the calendar year before we make any balance sheet decisions.

Very good.

Thank you very much.

Thank you.

I will be turning the conference call back over to your speakers for closing remarks.

If there are no further questions, thanks everyone for joining us today.

I hope you all stay warm and we will speak to you in a few months.

Thank you.

Thank you.

That does conclude today's conference.

You may all disconnect at this time.