Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Subscription streaming revenue grew by 14% on a normalized basis, driven by subscriber growth and price increases.
- Music publishing revenue increased by 9%, with streaming revenue up 12% on a normalized basis.
- Total adjusted OIBDA increased by 8%, with margin growth of 130 basis points.
- Strong performance in catalog optimization, with significant contributions from both new releases and deep catalog.
- Successful artist development, with new artists like Benson Boone achieving global success and topping charts.
Negative Points
- Recorded music revenue decreased by 1%, impacted by lower physical and artist services revenue.
- Ad-supported revenue showed minimal growth, increasing only by 1%, due to a challenging ad market.
- Physical revenue decreased by 4% due to the timing of releases and strong prior year comparisons.
- Artist services and expanded-rights revenue decreased by 26%, driven by lower merchandising and concert promotion revenue.
- Meta's decision to no longer make premium music videos available will result in a $10 million quarterly revenue impact starting in Q4.
Q & A Highlights
Q: Some of your peers have called out pressure points on the streaming outlook as it relates to a slowdown in subscriber growth at certain DSPs. Can you share more on the trends you're seeing at recorded music subscription streaming and the outlook ahead?
A: Robert Kyncl, CEO: The demand side of our business is very resilient and strong. We're not seeing any change in our revenue mix. We continue to see growth driven by subscriber growth, price optimization, and the evolution of royalty models. Overall, I'm very bullish on streaming.
Q: On the recorded music reorganization, how might these moves impact the financials over the coming years?
A: Robert Kyncl, CEO: The reorganization will help us achieve a flatter structure, compound our strength in the US, and strengthen our central operations. This is a strategic decision, not a cost-saving exercise, so it's too early to speak to any financial impact.
Q: Can you confirm if you lapped any price increases in fiscal Q3 and how we should think about the upcoming roll-offs?
A: Bryan Castellani, CFO: We're at the end of lapping the YouTube price increases and still have a bit of lapping of Spotify. There are also geographic and tier mixes around the world that can influence it.
Q: Can you elaborate on your expectations for the upcoming release slate into the back half of the year?
A: Robert Kyncl, CEO: We have music coming from Coldplay, David Guetta, Benson Boone, Myke Towers, Cher, Fred Again, Diljit Dosanjh, and many others. Our catalog performance is strong, and we are firing on all cylinders across new releases, shallow catalog, and deep catalog.
Q: Can you unpack some of the drivers of the sequential acceleration in subscription streaming growth?
A: Bryan Castellani, CFO: The acceleration was driven by consistent subscriber growth across top DSPs, some impact from price increases, and a strong slate of new releases and carryover from prior ones.
Q: What are your thoughts on the role of the ad-supported tier at some DSPs and the idea of windowing?
A: Robert Kyncl, CEO: Advertising is in the right market, being addressable and on digital platforms. While ad-supported revenue fluctuates with GDP, it's important for a healthy funnel to grow subscriptions. Any changes would need to be done in concert with our DSP partners.
Q: How do you view the risks and opportunities around generative AI technologies?
A: Robert Kyncl, CEO: We prioritize platforms where content is consumed, generative AI engines, and governments. We're making progress with regulation and are focused on defending our IP and artists' rights. There's nothing new to report on the Suno and Udio lawsuits.
Q: How do you think about the potential for Apple to launch an ad-supported music service?
A: Robert Kyncl, CEO: I'm open to experimenting with any partners to drive growth. While there's nothing new to share on Apple, I'm willing to explore unique offerings that can drive more growth.
Q: Can you discuss the impact of the Meta deal and the opportunities for incremental growth across emerging streaming platforms?
A: Bryan Castellani, CFO: While Meta has moved away from premium music video licensing, our relationship with them remains strong. Emerging streaming platforms continue to be a growth category, and we're excited about the opportunities they present.
Q: What are your views on the total addressable market for the industry over the long term?
A: Bryan Castellani, CFO: The penetration of music subscriptions is still low, with a lot of headroom to grow from 700-800 million subscriptions today to well over 1 billion over the next five years. There's also more sophistication and optimization to be done on price and audience segmentation.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
