Warner Music Group Corp (WMG) 2026 Q1 法說會逐字稿

(introduction playing)

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 US 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 number one on Billboard 200. Meanwhile, just after his collaboration with ROSE on APT, finished at number one on the Billboard year-end global chart, Bruno Mars released his new single, I Just Might. It quickly jumped to number one on the Billboard Hot 100 and on both the Spotify US and global charts.

Bruno's long awaited first new solo album in a decade, 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 US, our focused approach is also paying off with talent resonating across markets, languages, and cultures. We scored number one 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 syncs resulted in major streaming upticks on -- and chart movement for classic songs 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 re-entering 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 six times higher than before the sync. And for David Bowie's Anthem Heroes, we saw more than 300% year-over-year increase in weekly streams and a new baseline that's 2.5 times 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. Warner Chappell songwriters contributed to half of the top 10 most streamed songs of 2025 in the US 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 artist songwriters and employees and rolling out our financial transformation program, combined with our reorganization, we have impressively been able to accelerate growth while cutting cost.

This strategic overhaul of our foundational technology infrastructure has not only enabled us to increase efficiency but has positioned us favourably 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 non-negotiable 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, Charli 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 Linkin 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 favourable 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 8-K we filed earlier today. WMG 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 favourable 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 favourable 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, (technical difficulty) 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 two, three and four. 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.

(Operator Instructions)

Michael Morris, 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 rights 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 under monetized 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 are 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.

Peter Supino, 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, we (technical difficulty), 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.

Ian Moore, 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, The 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, Don Toliver, Charlie Puth, et cetera. So across the company, we're going for it.

Cameron Mansson-Perrone, 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 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 four of our top five 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.

Benjamin Black, 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 heard.

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 (technical difficulty) 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.

Kutgun Maral, 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 delivering 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 catalog M&A that I've 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.

Batya Levi, 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 (technical difficulty) measurement.

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 five 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 (technical difficulty), who are leading this business for the tremendous achievements they've had over the past five 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 cetera, 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.

Stephen Laszczyk, 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.