Title

Presentation

Warner Music Group Corp. beats earnings expectations. Reported EPS is $0.45, expectations were $0.34.

Operator: Welcome to Warner Music Group’s First Quarter Earnings Call for the period ended December 31, 2024. 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.

Kareem Chin: Good morning, everyone, and welcome to Warner Music Group’s fiscal first quarter earnings conference call. Please note that our earnings press release, earnings snapshot and Form 10-Q are available on our website. On today’s call, we have our CEO, Robert Kyncl; and our CFO, Bryan Castellani, who will take you through our results and then we’ll answer your questions. Before our prepared remarks, I’d like to refer you to the second slide of the earnings snapshot to remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results during this conference call and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release.

All of these materials are posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted. References to adjusted revenue and adjusted OIBDA are adjusted for previously disclosed notable items. The details of these can be found in our press release. 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 filings with the SEC. And with that, I’ll turn it over to Robert.

Robert Kyncl: Thanks, Kareem, and hello, everyone. I’m speaking to you today from Los Angeles, where the community is recovering from the devastation of the wildfires. We continue to support the relief effort for those most in need. This past Sunday, our artists and songwriters took home Grammy Awards, including Charli XCX winning her first three, Bruno winning his 16th and Amy Allen winning the Songwriter of the Year award. It was fantastic to see everyone pull together and demonstrate the healing power of music. Our results this quarter were driven by artists and songwriters of all stages of their careers and from all corners of the world across new releases and reinvigorated catalog. Warner Music Group’s engine is strong.

We built up sustained momentum during 2024, delivering year-over-year double digit growth in subscription streaming revenue and adjusted OIBDA, while reallocating more resources to key areas like A&R investment and Warner Music Group is a crucial part of a thriving ecosystem. It’s music’s resilience, shareability and durability that makes it such a unique and valuable sector. Our results this quarter reflect the impact of temporary macro trends, both in our industry and in the global economy, and I’ll give you the headlines and Bryan will go through more detail. The following figures are adjusted for all previously disclosed notable items. You can find the details in our earnings press release. Total company revenue and adjusted OIBDA grew 41%, respectively.

Recorded music revenue grew 4% and music publishing revenue grew 7%. Within recorded music, subscription streaming grew 7%, reflecting the expected deceleration from last year’s double-digit growth as we lap the series of DSP price increases. During the quarter, we faced significant FX headwinds, largely driven by the strengthening of the dollar against key currencies such as the euro and pound. Given that more than half of our revenue is in nondollar currencies, these currency movements created a roughly 200 basis point headwind to our adjusted OIBDA margin. As all of these impacts will stabilize over time, I’d like to focus my remarks on our strategy and explain why we’re so confident about the future. Our goals are clear: increase our share of the pie, meaning market share, grow the pie itself by increasing the value of music and become more efficient providing greater cash flow, both for reinvestment and for shareholder return.

First, in terms of growing our share, you’ve often heard me talk about us becoming the best home for talent at every stage of their careers, from baby bands to veteran superstars. Our recent successes have showcased how we’re firing on all cylinders across that entire continuum, including new stars such as Benson Boone, who had the biggest song in the world last year with Beautiful Things and Teddy Swims, who had the biggest song in the U.S. with Lose Control. Regional superstars like Geolier, the most listened-to artist in Italy in 2024 or Jeff Satur, Thailand’s number one streaming artist of 2024. Global superstars, including Charli XCX, Dua Lipa, Coldplay, Myke Towers and Bruno Mars, who has become the number one artist in the world on Spotify with a record breaking 150 million monthly listeners.

Music legends from Cher to Linkin Park to Mac Miller, whose latest album in top 10 in 10 markets and finally, our irreplaceable catalog, which includes household names from likes of Fleetwood Mac, the Grateful Dead, Prince and Aretha Franklin. A great example of how catalog music can remain vital and relevant is the most recent success of Alphaville’s iconic 1984 recording Forever Young. The huge viral trend drove streams to increase over 300% in 2024 versus the prior year, and we released a new version by David Guetta, Alphaville and Ava Max reaching number two on the EU Airplay chart. I am pleased to see that so many of our recording artists are also songwriters signed to Warner Chappell, including Benson Boone, Teddy Swims, Zach Bryan, Cardi B, Dua Lipa, Madonna and the Grateful Dead.

The latest superstar to partner with us across both set of rights is BLACKPINK’s Rose, whose debut has become the highest charting album by a K-Pop female soloist in the United States. In addition to growing our organic investment behind A&R, we continue to pull other levers in the quarter as part of our ongoing efforts to generate increased market share, including partnering with local players such as SkillBox in India, acquiring valuable catalogs like Cloud 9 and Benelux and making leadership changes, including appointing a new CEO in Japan. All of this hard work is aimed at growing our global market share. We are already seeing early positive signs as Atlantic, one of our flagship labels, increased its market share by 0.5 percentage point in the U.S. over the prior-year quarter according to Lemonade data.

At the same time, Warner Chappell continues its strong performance, landing at number two on Billboard’s year end Hot 100 Publishing chart. Second, let’s talk about how we’re aligned with our widening network of partners in growing the pie. Collaborative innovation has always been part of our DNA. We actively work with our partners to constantly evolve and to attract more customers in the music ecosystem. Whether it’s launching new formats, expanding features, adding new tiers or experimenting with business models, our collective goal is to ensure the continued growth of the pie. As that is starting to happen, our goal is to ensure that the value of music increases as the revenue pie expands. While there is still progress to be made across the industry, our recent deals, including the renewal we just inked with Spotify, represent positive momentum.

Today, we’re announcing an important new agreement that provides additional benefits for artists and songwriters as well as WMG and Spotify, enabling us to move forward collaboratively to expand the entire music ecosystem. We look forward to seeing the value of music increase as we drive growth through further innovation together with Spotify. It is our increasingly powerful combination of recorded music and music publishing rights that make our repertoire essential for any service. In 2024, our artists and songwriters contributed to nine of Billboard’s Top 10 and over half of Billboard’s Hot 100. Our music has fueled massive subscriber growth over the past sixteen years and will continue to do so. Moving on to efficiency. My mantra is focus and simplicity bring greater intensity and impact.

Through a combination of organizational changes and investments into technology, we are continuing to make the company more effective and efficient. At the same time, we’ve exited some noncore businesses in order to allocate our resources to the most accretive activities, while doubling down on our central value proposition to artists and songwriters. We’ve made real progress on these fronts, and we are delivering on schedule through our previously announced restructuring programs. As we’ve told you, our goal was to reinvest the majority of these savings into strategically important initiatives that will propel our business forward. This enabled us to increase our A&R investment by double digits last year and this year. Today, we announced the acquisition of a controlling interest in Tempo Music from Providence Equity Partners, with an option to acquire the remainder by the end of 2027.

Tempo will provide us with an evergreen catalog, which includes premium music rates to songs recorded by artists such as Bruno Mars, Twenty One Pilots, Adele, Wiz Khalifa, Florida Georgia Line and Lukas Graham. In addition to the high quality of these rights, Tempo’s robust margins and cash flow generation make for an attractive financial profile that meets our key investment criteria. We have a preexisting administration agreement with Tempo and this investment will become even more accretive as deals with other publishers roll off and we expand the scope of our direct control over the catalog. Our Tempo acquisition is a great example of our M&A strategy in action. As we become more efficient, we’re creating a virtuous cycle that will enable greater reinvestment that delivers accelerated growth.

Our long-term outlook remains intact and our confidence is based upon a healthy and evolving industry, underpinned by collaborative innovation with the DSPs, our ability to provide value to our artists and songwriters through our global services and deep expertise and focus on propelling growth through operational efficiency. Finally, we’re really excited about our upcoming new music from Lizzo, David Guetta, Jack Harlow, Jisoo, Benson Boone, Maria Becerra, [indiscernible] and Zach Bryan, as well as the excellent performance of our catalog. And with that, I’ll turn it over to Bryan.

Bryan Castellani: Thank you, Robert, and good morning, everyone. Before I get into our results, I want to remind everyone that growth rate comparisons will be in constant currency and where appropriate, I will reference growth metrics, which are adjusted for all previously disclosed notable items. There are items throughout the quarter and the year that affect comparability. We have provided additional disclosure in our earnings press release, which details the impacts from these items on a historical basis. In Q1, total revenue declined 4% and adjusted OIBDA declined 18% with a margin of 21.8%, a decrease of 390 basis points over the prior year quarter. On an adjusted basis for notable items, total revenue grew 4%, adjusted OIBDA increased 1% and margin decreased 80 basis points due to revenue mix and operational FX headwinds, partially offset by cost savings net of reinvestments.

The impact of foreign exchange was pronounced in adjusted OIBDA as roughly 58% of our total revenue is in non-U.S. dollar currency. FX represented an approximately $36 million headwind to adjusted OIBDA and a roughly 200 basis points headwind-to-margin. Recorded music revenue decreased 6% and grew 4% on an adjusted basis. Subscription streaming grew 7%, an expected deceleration from Q4 as we lapped prior year price increases. Ad supported streaming declined by 7%, driven by the timing of deal renewals and content delivery with certain emerging streaming platforms. Physical revenue increased 8% due to strong new releases in the U.S., namely from Linkin Park, Rose and Charli XCX and strength in Japan and Korea, which was partially offset by the BMG roll off.

When adjusting for BMG, which had a $16 million impact in the quarter, fiscal would have grown 21%. Artist services and expanded rights revenue decreased 3%, primarily due to weakness in concert promotion revenue in France, as well as ongoing weakness in our e-commerce business EMP. Licensing revenue decreased 39% as we compare against the licensing agreement extension for an artist catalog in the prior year quarter. Net of the impact of that licensing extension, licensing revenue increased 6%. Recorded music adjusted OIBDA decreased 21% with a margin of 24%, a decrease of 450 basis points. On an adjusted basis, adjusted OIBDA was flat and margin decreased 80 basis points. Music Publishing total revenue increased 7%, while digital increased 6% and streaming increased 7%.

These growth rates compare against the prior year quarter, which saw robust streaming revenue growth of 30% and reflect continued market and catalog growth. Performance revenue grew 12%, driven by an increase in touring activity outside the U. S. and U. S. Radio activity. Sync revenue was flat, while mechanical revenue decreased 7% due to lower physical sales. Music Publishing adjusted OIBDA decreased 2% with a margin of 25.7%, a decrease of 240 basis points. Q1 operating cash flow increased 13% to $332 million from $293 million in the prior year quarter. The increase was primarily due to timing of working capital items, including the timing of payments associated with digital deal renewals. Operating cash flow conversion was 91% of adjusted OIBDA.

Free cash flow increased 12% to $296 million from $264 million in the prior year quarter. As of December 31, we had a cash balance of $802 million total debt of $4 billion and net debt of $3.2 billion Our weighted average cost of debt was 4.2% and our nearest maturity date remains 2028. I’d like to reiterate that over the last year, we focused on our core business and reduced costs along the way. As a result of actions taken over the course of the prior fiscal year, we’ve generated cost savings that we’ve been able to reinvest. As Robert mentioned, our acquisition of Tempo is a prime example of this strategy. Our restructuring program is on track and delivering results as planned. Looking ahead as the previously disclosed notable items become immaterial, we intend to simplify our disclosure and commentary to focus on our as reported and constant currency results.

We continue to expect high single-digit subscription streaming growth when adjusted for BMG for this fiscal and on a multiyear basis. As a result of the foreign exchange headwind that we expect to persist in the near term, we are unable to reaffirm our margin expansion target for this fiscal year. On a multiyear basis, our goal remains to deliver annual margin expansion of approximately 100 basis points and operating cash flow conversion of 50% to 60% of adjusted OIBDA. The music industry remains healthy, resilient and is growing with new DSP deals focused on improved monetization. We are excited about our release slate and look forward to continuing to deliver great music. Our underlying business is strong and we continue to focus on our core, while creating efficiencies to deliver long term success.

Thank you for joining us today. We’ll now open the call for questions.

Operator: Thank you. [Operator Instructions]. Our first question comes from the line of Benjamin Swinburne with Morgan Stanley. Your line is now open.

Benjamin Swinburne: Thanks. Good morning. Robert, on the new Spotify deal, I know you probably can’t get into too much specific detail, but you’ve talked a lot about trying to really create some distance between how your revenues grow from your DSP partners and their own retail pricing, which is sort of another way of asking about shifting from kind of revenue share to wholesale over time. I’m wondering if you could comment about how this deal may or may not have evolved your model in the direction that I think you’d like to see it go? Anything else you think we should be thinking about that’s important here? And then Bryan, on the currency piece, could you talk a little bit about whether that is tied to some currency risk you’re taking in your royalty deals with your artists or if this is simply that you have a high U.S. dollar overhead and corporate costs and fixed cost base and so you’re dealing with some negative leverage.

It would be helpful to understand the piece there. Thanks.

Robert Kyncl: Thanks, Ben, and good morning. And thank you for acknowledging that we can’t get into the details. But what I’ll say is that, as I said in my opening remarks and on previous calls, we’re focusing on a three-pronged strategy, which is increase our share of the pie, market share, our work day to day. We gave the example of Atlantic progress in the last quarter, to increase the pie itself, which is where our deals with the DSPs go, and then efficiency. So on sort of increasing the size of the pie, I’m very happy with our progress and with this deal. It’s obviously important that we do that, that we’re doing this in conjunction with our distribution partners. And as we said on this strategy, it’s never easy. There’s always transition time to it.

It’s one of those things that we need to still roll out through the entire industry. But I’m happy to say that we now have two deals, which are headed in this direction, which is Amazon and Spotify. So now there’s more work to do with others and for all of this to cycle through, but this is a really great step in the right direction. So very happy. Okay.

Bryan Castellani: And Ben, it’s Bryan. On the foreign exchange, it is not to do with the royalty. It is, as you noted, about 58% of our revenue is non-dollar currency. So it really is the in period exposure that runs through OIBDA. This was an unusual quarter as the dollar strengthened materially post election. We do of course have hedging programs that allow us to focus more on the underlying operation, but the hedging runs through other income and expense below OIBDA. So it really has to do with just that non-dollar exposure in period.

Benjamin Swinburne: Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Michael Morris with Guggenheim Securities LLC. Your line is now open.

Michael Morris: Thank you. Good morning. I want to ask you two about the announcements from this morning and congratulations. First to follow-up on Ben’s question, you did mention a number of things, new fan experiences, further paid subscription tiers. Can you talk at all about the timing of these things coming through, when we could at least start to see it? And maybe to expand on your last answer, can you have different types of products with different distribution partners so that you don’t need sort of every domino to fall? Or is it something that you need agreements with all your large partners in order to move forward on the product or new ideas? So that’s the first question. And then second, just on Tempo, can you speak a little bit about what changes with the size of your ownership stake now in terms of what you couldn’t do before that you can do now and also how it might impact your financials? Thank you, guys.

Robert Kyncl: Sure. Thank you. Thanks, Michael. So no, we don’t need every single partner for everything to happen all at once, but there are certain principles of fairness that we apply to anything that we do. So we want to make sure that we roll out any kind of changes, consistently and fairly to everyone, but we don’t need everybody at the same time. There’s a lot of different ways to grow the ecosystem formats, business models, tiers, bundles, and the best way for us to continue to expand the pie is to lean into those, and as long as we’re growing the value of music correctly with them, we’re very happy, which we are. On Tempo, having more control over the catalog and obviously ownership is always the best because you can focus on all kinds of rights expansions — rights monetization strategies that maybe if you don’t have full control, you can’t as you have to go for permission.

So we now have control. And secondly, with each year, we have not had entire 100% distribution of all titles inside Tempo. Each year, as the distribution agreements with other publishers and labels expire, they will come to us. So this deal has growth built into it, which will be accretive. So it’s we really love this deal and, love to do many more of those. I want Bryan to take the other question — the other point.

Bryan Castellani: Well, I think Robert answered it. Again, the Tempo transaction was really in our wheelhouse. We had been partners with them from the beginning and high-quality assets at high margin. It’s probably about 80% music publishing and 20% recorded music. But as Robert said, it gives us more control, expands our admin and distribution relationship and more will revert to us over time.

Michael Morris: Thank you.

Robert Kyncl: Thank you.

Operator: Thank you. Our next question comes from the line of Benjamin Black with Deutsche Bank. Your line is now open.

Benjamin Black: Great. Thank you. Thanks for the question. So the ad supported side of the house still appears to be choppy. I’m curious what you’re expecting going forward? And other than putting out great content, are there any levers sort of in your control that you could pull to drive faster growth? And second question is on your emerging platform deals. Were there any new announcements this quarter? And also TikTok is obviously a big partner of yours. In the event that they are banned, how should investors think about potentially sizing the headwinds of the ad supported line? Thank you.

Bryan Castellani: So Ben, it’s Bryan. I’ll take the ad supported piece. And as you know, that’s two parts. There is the emerging platforms that you hit on and the ad supported. On the emerging platforms, as we said, that was impacted by deal timing and content delivery in the prior year. I don’t believe there were anything new there in the quarter in terms of new announcements or deals. On the ad supported, obviously, that’s macro driven. We have less influence and it is impacted by a number of players. We do expect that to stabilize over time, but it is going to be macro driven. And then the second part of your question on TikTok.

Robert Kyncl: I’ll take it. Obviously, nothing new to report. We have an excellent relationship with TikTok and the team, works really well together. And obviously, there’s a lot of uncertainty for them themselves. But if you think about as exposure of potential ban on our deal this year, it’s muted. So not much to worry about. But obviously, we hope for good resolution between the parties. But this is one of those things that we have zero control over, so we do not worry about and we don’t have much exposure to it. So, focused on growing up share of the pie and growing the pie in other areas.

Operator: Thank you. Our next question comes from the line of Kannan Venkateswar with Barclays. Your line is now open.

Kannan Venkateswar: Thank you. So starting with subscription streaming, this is high single-digit growth that you guys referenced in the prepared remarks. Is that cadence roughly even this year? Is that impacted by release calendars? How should we think about that over the course of the year? And then on the margin comment, obviously, FX is something that’s beyond your control. So the impact of that is understandable. But when you think about the cost cutting initiatives that you have underway, is there room for you to leverage that maybe a little bit more and offset some of these impacts? And also, you’ve invested some of these cost savings into other initiatives within the company. Would be good to understand operationally what those investments what kind of capabilities they add going forward? Thank you.

Bryan Castellani: Yes. Kannan, it’s Bryan. I’ll take the first part. So on subscription streaming, the 7% we had signaled last quarter, we would be lapping the price increases in the prior year. And so we expected a deceleration and it really was subscriber driven. And even with just that, I think we hit the low end of our guidance at 7%. And so that speaks to, I would say, the continued health and resiliency of the underlying growth in subscription that we see. And then these recent deals point to opportunity for price and improvement and better monetization, which adds support and conviction for us. In terms of your question on slate, the slate is doing well. We continue to look forward to a number of new releases as well as the catalog.

And so we do expect it to continue to perform well there. And then on your point on margin and just the cost reductions, yes, those are having an impact. The margin guidance for the year is impacted really by the foreign exchange being the driver of not being able to get to 100 basis points. And then on the operational and investments, Robert can expand on it, but our restructuring program is on track, is working. Tempo is a good example of investing in music, continue to invest in technology and digital skills and platforms, whether it’s our supply chain, whether it’s our insights, whether it’s applications, those are some of the things we’re focused on.

Robert Kyncl: Yes. I think I’ll just maybe pick up your example of supply chain. We have both digital and physical supply chain, and we’ve been investing into making it much more efficient and stable so that we can have much higher volume throughputs on it without adding additional headcount. And so this is like one small example of it. Other example would be investing into standardization and standard workflows, which can be automated as much as possible. So there’s a lot going on, Kannan, that started to bear fruit already, as I mentioned, and a lot of things that are going on that will bear fruit with every single quarter and every single year. So we continue to do so because we see we have a line of sight to create ROI on it.

Bryan Castellani: And Kannan, I just want to reiterate that the currency headwinds we’re seeing are a headwind to the margin this year. Currency does stabilize over time, and so we would expect that to come back. But we’re in a moment here where I think we’ve seen a pretty variable move in the dollar. And I think just in post-election to December, we saw an 8% appreciation. So it’s unusual, but we do expect it to stabilize over time.

Kannan Venkateswar: Thank you.

Operator: Thank you. Our next question comes from the line of Rich Greenfield with LightShed Partners. Your line is now open.

Rich Greenfield: Thanks for taking the question. Robert, you’ve got a long history in digital media and it’s generally — the Internet just broadly is generally winner take most and it certainly appears like Spotify is rapidly rising to that sort of winner take most level, iterating product, new product offerings, bundles. I’m just wondering when you look at like Apple, they seem like they’ve sort of, I don’t know, it feels like they’ve sort of given up on music innovation. Amazon Music certainly hasn’t done much in innovation. TikTok Music’s gone. Google and YouTube are certainly active outside the U.S., but don’t seem really active or visible in the U.S. And I’m just wondering like sort of with less competition on the DSP side, what can you do or how does that affect you and how are you thinking about stimulating more competition among DSPs?

Robert Kyncl: Good question, Rich. It’s simply through doing what we’re doing with Spotify and with Amazon, which is enabling a lot more experimentation because ultimately — and I know this from I was sleeping on the other side when I was at YouTube, all of these companies want to innovate. Whether people from the outside think that’s true or not, they all want to innovate. They want to grow. And so what it takes is having the ability and the rights to do it. When you’re dealing with copyright, obviously, there’s lots of different limitations, and you need an able and willing partner to do that. And we are that partner. And so we’re leaning into it heavily. And this is the best way for us to do our part in increasing the share of the pie that I was mentioning by helping them innovate and giving them the bits and permissions to do it and at the same time grow the value of music.

And so I think we can do it in a great way that is a really great, peaceful coexistence that drives value for both.

Rich Greenfield: And are you seeing anyone else in the space like an Apple or an Amazon wanting to do things like super premium or super fan that Spotify is sort of focused on?

Robert Kyncl: I think there are actually even more ideas than that, but and they’re different. And I think what ultimately ends up being great is if people come up with their own variants of products that may be slightly different from each other, but they’re similar enough that they’re anchored on music, and that’s where we provide the anchor value. So, yes, obviously, YouTube is very active, alongside with Spotify. Amazon is very active and Apple is starting to as well.

Rich Greenfield: Thank you.

Operator: Thank you. Our next question comes from the line of Kutgun Maral – Evercore ISI. Your line is now open.

Kutgun Maral: Great. Good morning. Thanks for taking the questions. One on Superfans and one on subscription streaming, if I could. First on Superfans, monetization over there, it seems to be a relatively untapped area that the industry has talked a lot about, but it maybe still hasn’t leaned into. How are you thinking about the path to drive innovation with Superfans? And I only ask the question because the press release with Spotify seems to reference a number of new opportunities and I didn’t know if that extended specifically to this area as well. And Bryan, if I could follow-up on the recorded music subscription streaming piece, can you unpack the trends in the quarter just a little bit more because to your point, the deceleration shouldn’t have been a surprise to anyone given that you’re lapping the DSP price increases.

But the 6.6% was still on lower end of high singles. You mentioned subscriber trends earlier in your answer. Anything more to call out there since those trends presumably impact the rest of this year as well? And I’m just trying to better understand the dynamics because your comps get harder in the next two quarters, but perhaps that’ll be more than offset by what’s going on with Spotify and Amazon along with maybe some contributions from Tempo. So any help would be appreciated. Thank you.

Robert Kyncl: So I’ll take the first question on Superfan. So, and it also dovetails a little bit, Rich’s question. I think there will be different variants of this from different partners. We’re looking at it both on our own homegrown strategy as well as one through our distribution partners. And it’s an area that has not been figured out, which is a good thing, right? It’s a greenfield for everyone. What we do know is that there are a lot of people willing to — who are extremely passionate about a certain number of artists, and they’re willing to spend a lot of money to attend in person experiences, buy merchandise, buy all kinds of experiences, and interact with artists. So we know the engagement is there. Obviously, the model has also changed from region to region.

It’s obviously been well documented, what the success of that is in in Asia that everybody is trying to bring here. So a lot of different companies with efforts around it, and we want to participate in innovation around this, and we are, but it hasn’t been cracked by anyone. But it doesn’t mean that we’ll stop or we’ll continue because we know directionally the demand is there, just the experiences to match it. And so that’s really nothing else new to report on that. Bryan on second piece.

Bryan Castellani: Yes. On the subscription streaming, as I said and we had signaled last quarter, we did expect the pricing deceleration. And the driver the vast majority of what we see driving the subscription stream is subscriber growth and volume. Over time, as pricing improves, again, as that improves, we would expect that to be additive to it. And then our market share, as we’ve said, we’re pleased with how the slate is performing and the strong catalog. So we continue to see there the vast majority being subscription and volume and over time pricing being additive.

Kutgun Maral: Understood. Thank you both.

Operator: Thank you. Our next question comes from the line of Batya Levi with UBS. Your line is now open.

Batya Levi: Great. Thank you. Just couple of clarification questions. One, on the guidance for the high single digit growth on the subscription side. Does that include the new deals that you’ve signed including Tempo? And maybe on the margin side, if the current FX holds, is 1Q performance a good run rate for the year? Or are you still expecting some efficiencies to flow in? And maybe just the final one, the Spotify deal on the Publishing side, can you talk about how it compares versus the old CRB rates in the U.S. and other regions? Thank you.

Robert Kyncl: So obviously, we can’t get into details of the deal that we mentioned before, but rest assured that protecting artists’ and songwriters’ rights is our number one priority, and we feel very happy with this deal.

Bryan Castellani: Yes. And Batya, on subscription, the Tempo deal will mainly be Music Publishing. And so we continue to believe in our guidance there and the drivers I had just mentioned. On margin, again, we continue to our restructuring and savings are working to continue to reinvest in the business, Tempo being an example of that as well as the technology items Robert and I spoke about earlier.

Batya Levi: Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Stephen Laszczyk with Goldman Sachs. Your line is now open.

Stephen Laszczyk: Hey, great. Thanks for the questions. Robert, maybe a follow-up on the Spotify deal again. I appreciate you can’t go into much detail, but curious if there’s anything in this new deal that gives you greater commitments or control into wholesale pricing, that’s something that you’ve spoken about in the past. And then one for Bryan on just FX and margin. You called out the 200 basis point impact on margin this quarter. Curious how we should be thinking about that going forward? And then just any other help you can give us in the cadence of margin throughout the year and the puts and takes we should consider? Thank you.

Robert Kyncl: Yes. So doing the dance of not going into great detail. This deal gives us a lot of confidence. We always focus on when we go into these deals is achieving certainty, not hope, and we have that.

Bryan Castellani: And Stephen, on foreign exchange and margin, again, that really is the drag on achieving our 100 basis points. And the operational piece of it, we think is immaterial the rest of the year. The year-to-year foreign exchange headwinds are about 2% to 3% on revenue and OIBDA. But again, we expect these to moderate over time. And our hedging programs, as I said before, we do, over a four-quarter basis, hedge about 50%, and but that shows up down another income below adjusted OIBDA.

Stephen Laszczyk: Got it. Thank you both.

Operator: Thank you. Our next question comes from the line of Jessica Reif Ehrlich with Bank of America Securities. Your line is now open.

Jessica Reif Ehrlich: Thanks. Maybe two questions. On the new coming tiers, can you talk a little bit about who would bear the cost of the super-premium deal? Like how do the artist get compensated? And then secondly, can you provide any color on how you’re thinking about the video catalog monetization that you talked about in the press release?

Robert Kyncl: Sorry, Jessica. Just to clarify, what do you mean on the second question?

Jessica Reif Ehrlich: You alluded to like both music and video catalog monetization. So I’m just wondering how you’re thinking about video.

Robert Kyncl: Oh, got it. Got it. Okay. Thank you. Okay. So on the sort of super premium experiences, who would bear the cost? Obviously, consumers pay a higher price. And then we just have power, even though it splits the way we’re used to them. So it’s the consumer who’s obviously getting better product and a lot more value. On the video front, obviously, you’ve seen more and more video on Spotify, probably if you’re using it, and this segment paves the weight for more of it from us and others. So, I think you’ll see just increasing format expansion. And this goes to what I mentioned before, our formats, our tiers, our bundles, our business models, all of these things that we can do with DSPs in order to grow the pie. And so you’re effectively asking a question on the format, and that is inside the deal.

Jessica Reif Ehrlich: And then maybe just one last follow-up. Will these services be offered globally or primarily in like the bigger market?

Robert Kyncl: I would say that’s a question for them but again, having these trends working on the other side, the intent is always to go global over time, right? The expansion may be country by country or regional, but the intent is always one good thing at the end.

Jessica Reif Ehrlich: Thank you.

Operator: Thank you. I would now like to hand the call back over to Robert Kyncl for closing remarks.

Robert Kyncl: All right. So thank you so much for attending today’s call. Really appreciate your attention and care. I want to reiterate that our three-pronged strategy is grow the pie together with our DSP partners by innovation, take larger share of the pie through our work on market share and focus mainly on efficiency and use technology a lot in order to drive it, standardization and technology. And through those three prongs, we’re confident in our growth outlook for the future and for the industry. And we’re really happy with our progress, both on the Amazon and Spotify deals, which set a new direction where we’re headed, need to roll through the rest of the industry. And we’re obviously happy about our reinvestment of our freed-up funds to fund something like Tempo, which is accretive, high margin and has both short term as well as increasing long term impact. So thank you so much. Have a great day.

Operator: This concludes today’s conference call. [Operator Closing Remarks].