All right, let's get started with our next session. Thank you, everyone, for taking the time to join us today. My name is Stephen Laszczyk, and I'm the lead analyst for the entertainment sector here at Goldman Sachs. We are excited to welcome to the Goldman Sachs Communacopia + Technology Conference, Robert Kyncl, the CEO of Warner Music Group. Robert, thanks for being with us today. Thank you. It's great to be here. Great. So let's start with a high-level question. Last year at this conference, your predecessor, Stephen Cooper, in discussing the CEO search at the time, mentioned that his successor would need to have a deep understanding of both content and technology, and a vision for how those two things could come together to monetize future opportunities in the industry. Having got the job, I'm curious if you could share with us a vision, your vision for what you pitched to the board on how content and technology can come together, and how you see that adding to what was already an attractive set of long-term growth opportunities for Warner and the industry. Yeah, so, I don't think, you know, neither of us pitched each other. It was just a natural conversation that emerged. And it emerged out of the fact that we had a shared understanding of the opportunity. I've known Len Blavatnik for a long time, over 10 years, and a lot of the board members, et cetera, so there are longstanding relationships. And we just had a shared understanding of where the industry is going and the size of it. So every person on Earth consumes music. That's pretty unprecedented for any kind of a product. Music is now incredibly well aligned with the internet, which is one of the most transformative forces in the world. So there are lots of great things happening for the industry in terms of its future. So it's kind of like it's up to us to use the opportunity. But what I think they probably saw in me was somebody who could help realize that opportunity, because you can unleash that opportunity by deeply collaborative relationship with our distribution partners and digital distribution partners, specifically. And obviously, having spent 20 years on that side of the table, I understand how the companies work, what matters to them from user standpoint, from financial standpoint, et cetera, and how to build win-win solutions for us. And so we firmly believe in that at Warner Music Group. And I think, you know, our agreement with TikTok that we announced a couple of months ago is a testament to that approach already, and not just from our side, but also I would give credit to Shou and his team for having embraced that as well. And you know, but at the same time, we're not—we're focusing also on what matters most, which is music. And you probably saw yesterday, we announced an acquisition of 51% of 10-K Projects, which is Elliot Grainge' s company, where we're bringing incredible talent, both on the artist side as well as on the executive side, into our fold. And obviously, we continue to recruit and invest into technology talent as well as set up the company. So all of that kind of, sort of comes together in order to unleash the tremendous potential that our industry offers. I certainly want to touch on a lot of those topics there. Yeah. Maybe to start in the opportunity in streaming and- Yep. We've, you know, seen over the last year some movement on pricing. It's just been a long time coming. Yep. Most recently, Spotify raised the price on their base subscription plan by $1 after being at $9.99 for the better part of the last decade. That said, I think the both of us would agree that music remains undervalued. Having sat on the other side of the industry at YouTube, I'm curious for your thoughts on why you think it took the industry so long to make the initial price move? And what's necessary, looking ahead, to get the industry to a place where it can work together to close the gap on value and price? Yeah, so, you know, yesterday, since I'm here on the West Coast, I took the opportunity to visit my old company in San Bruno, YouTube, and I spent a few hours with them, and we spoke about these topics, right? Because I know how genuine everyone is at the company about building value for users, building value for artists and songwriters. And it really comes down to the contractual relationships which are, you know, in place between us and the DSPs. And what you have to consider is that the last 15 years was exactly what should have happened, right? The industry was down, and then Daniel Ek came up with a great idea, pushed it through, made it happen. We all ended up, when I say we, on the DSP side back then, we all ended up doing a similar thing, and jointly, we built an incredible growth engine for the industry. And effectively, I call it hunting, right? We were basically hunting for users and just got, you know, 600-700 million people into a premium experience, get used to it, pay it, personalize, pay for it, payment instruments on file, and get excited about it. And it was the right thing to do. However, it doesn't mean that that is how we should approach the next 15 years. And in my opinion, we need to be more thoughtful about not just hunting, but also harvesting. We should be harvesting in regions which are going much slower and are much more mature, and we should continue to hunt in the ones that have tremendous growth opportunity and different outputs today. So it's much more thoughtful and nuanced approach to it, and it just requires a deep collaboration between us. I think this is just the beginning. Do you think the DSPs, and to your last point there, have gotten to the point where they view a lot of the domestic markets as switching from hunting to harvesting? And the genesis of my question here, and I think it's top of mind for a lot of investors, is: Do you expect continual pricing increases at the major DSPs in the major developed markets? ...So it's hard for me to predict what they're gonna do, because I don't control the retail relationship. They do. We have a wholesale relationship, so I can't really comment on what they'll do. But what I can tell you is that the model does need to evolve and but not just for our sake, also for the DSP sake. And there is tremendous opportunity anywhere you do the analysis. There is a, there's a very significant upside, which is currently nothing is structured for it currently. So I'm very, very focused on this because it, it's just that, that's what excites me. Well, well let's talk a little bit more about the streaming economic model and how that could change. There's been a lot of discussion recently around the need for the industry to adopt a new economic model around streaming and how royalties are paid out. Many, including yourself, have argued that we need to move away from a more simplistic market share model to something that's more user-centric or artist-centric based. Could you share your thoughts on why you think the economic model needs to change, what you're hoping to achieve in that change, and which model you think is most equitable? So, I think there are two really parts that are two issues at play. One is revenue per user issue, which is lagging inflation today. I, I think I've been quoted before, if you rewind back to 2011, when subscription launched in the US, so I'm not going back to when it actually launched globally. Our pricing would be $13.25 today, right? Adjusted for family plans, the ARPU actually is in the mid-$7s, right? So there's a tremendous opportunity that way. So focusing on revenue per user is, like, a very, very important part of what the industry needs to do. And I think taking a page out of Netflix's playbook is, is a smart thing for all of us to do. You've seen price innovation from $20- $22 - $20, $19, $18, $17, all the way down to $8, then back to $9, $10, and then from $10- $7, $15, and $20. Right? So the amount of work and innovation that happens around price optimization at Netflix is incredible, and I think we all have a lot to learn from that, and we should adopt it. So that's one piece. The second piece is on how you divide the pie that's there. So I'm more focused on the former issue. Me, personally, I'm more focused on the revenue per user. I'm also focused on the other part, but I view revenue per user a very, very significant opportunity for the entire industry. But how things are divided is also important, and I think the artist-centric model is something that's starting to get at that. Could you maybe expand on the artist-centric model for a moment? What does that mean to you? How do you envision that being implemented practically at the DSP level or yourselves in a DSP? I think any of these, whether, you know, any of these models, you know, require wider cooperation, right? If you're on the DSP side, obviously you don't want one partner with this, another partner with that. And so you want some kind of a scalable model that can function. So it's important that it's not just one company working on this, that it's multiple companies in the industry working on it. And I think we're starting to see that, right, quite actively. So I think it's amazing that there is a push, you know, especially amongst the major music companies, to change both sort of revenue per user as well as the pie distribution. How long do you think it would take the industry to move to this new economic model? It seems like there's a lot of moving parts within the ecosystem that need to agree. It seems like something that the outsiders that would take- Yeah a significant amount of time. So, I've been through this, I would say, about three times in my career. The first time was at Netflix between 2005 and 2007, when we're trying to actually get streaming rights, when they didn't really exist, then it was very difficult to pull off and launch streaming in 2007. So that took about a year and a half to two years to pull off. The second time was at YouTube. It's a little bit more than 10 years ago, when we sort of pushed through universal uploads, where you couldn't opt out of different platforms, so that if you upload to YouTube, it's displayed on a desktop, mobile device, which were virtually nonexistent, and television sets, which were not really well penetrated. Of course, those became massive growth drivers for the company over the following decades, with mobile and TV, you know, driving most of the consumption. And the third one was when we expanded rights at YouTube to subscription. So we had this complex ecosystem that not just music, but across all creators and media companies and everyone. So these were all incredibly complicated, and any one of those took anywhere from 12-18 months to pull off. Because you're working on a massive coordination. If you try not to be combative, you're doing this in a collaborative fashion, in deep partnership with partners and with lots of analysis and thoughtful consideration of users and all of that, takes 12-18 months to really pull it off responsibly. So kind of been through it three times. The timing is roughly similar. Can't guarantee anything, but that's kind of baseline. That's a helpful framework. On the onset, maybe switching gears a little bit. You mentioned TikTok. You recently signed a wide-ranging licensing deal with the platform that you call a first-in-its-kind partnership that allows joint development of additional and alternative economic models. Could you talk some more about the components of the deal and your hopes for how you and TikTok work together in a more collaborative way to benefit the entire industry? Yeah, so I can't really get into the details of the agreement because of confidentiality, but the important things to me and to our company was sort of the equitable treatment of our partners of similar use cases. So from revenue per mile, for instance, is important for me to look at it and feel okay if traffic moves this way or that way, and feel, like, agnostic about it. So that was, you know, one principle for me. Some of the things that matter to them and to us as well, is working on attribution. Like, how does activity on TikTok impact paid streams on DSPs, for instance? That's a very important thing to figure out, and it's in TikTok's interest, and it's in our interest to do. So those are the things that we work on together, and there are many, many more. But so it's, it goes beyond financials- Mm-hmm. -to basically build smart business together, and I think that's exactly the approach that I want to have with all of our partners. Are there certain products or services that you're planning to collaborate with TikTok with, that consumers or investors could expect to see at some point in the-? Yeah, we have lots of plans in the future, and obviously, it depends on their development cycles. But that's... For me, what's important is that our teams get deeper and deeper together and just start collaborating on new things that develop, and some of them work out. I don't mean between us, but in general, some of them become successful and some of them don't. Mm. But the pace of innovation is important, and that we try different new things, so. Warner Music recently reported third quarter results that showed a strong re-acceleration in revenue growth for the company. And on the call, you mentioned that business momentum would further accelerate into the fourth quarter. Could you talk about some of the main drivers of that re-acceleration in revenue, and what gives you confidence that that momentum will continue to accelerate or continue to build momentum into the fourth quarter? Yeah, so I should start, you know, really with our catalog. I kind of view it as a natural resource of the company. It's incredible, deep, historic, and continues to deliver, and continues to grow. So that's an incredible baseline that we have, and so that is what's giving us tremendous confidence for the future. Having said that, we continue to replenish the catalog with signing, obviously, new artists, and releasing songs from existing artists. We had a lot of success in the past quarter with breaking new stars. We have lots of new stars, Aespa, Burna Boy, Zach Bryan just hit number one on Billboard 200. It's incredible. And, so we're having really great traction in that regard. But we also have lots of superstars who've returned and have been releasing their songs. Ed Sheeran is a great example of that. And, and whenever that happens, their catalog also lifts at the same time. So catalog is working on its own, and then we have new releases coming out, whether it's the new artists or returning stars. We have both shallow and deep catalog with us, and it just rises even further. So all of those things start working in unison together. And while we're doing that, we've obviously been having a great stride in publishing, where Guy and Carianne have been executing incredibly well. So that continues, and audit services also had very positive momentum. So yeah, things have been good. Just to confirm, so the Spotify price increase and the TikTok deal, those will start to layer in as well over the next- Yeah ... quarter or two? I forgot to mention those important things. Yes. Yes, those will start coming online as well. Great. Maybe pivoting a little bit and talking about investments in the core business. You mentioned A&R as one of them, but could you maybe expand a little bit on how you're prioritizing investments in the core business to drive future growth at Warner Music? A&R, technology, you mentioned on the onset as well. How do you see those investments really coming together over the next year? So, I generally think about three areas that we invest in. First one is artists and songwriters, and within that, it's either new or established, right? So it's sort of two different types. They have different risk profiles, obviously, right? If you're established, there's more predictability. New, it's riskier. So, that's that, and we continue to do that, you know, both on the recorded side as well as on publishing. Two, you do M&A for companies, whether it's for talent or for the roster, or for catalog itself. 10K announcement yesterday is a great example of that. And then the third piece is investment in technology to make the company more efficient, more effective, and work at greater scale. So I kind of think of these three buckets in that order, and that's our framework. Could you talk a little bit more about the investments in technology? I know it's been a- Sure ... big question from investors. Coming in earlier this year, you mentioned that you were focused on the technology- Yep -side of the equation. You know, coming from YouTube- Yep ... I'm sure there's a lot at the top of mind for you. What does that roadmap look like, and then what are the core areas that you're looking to invest in? Yeah. So I don't think I'll be foreshadowing roadmap of it. But, you know, one of the things I said in the beginning, right? The industry is exciting, or is exciting to me, because it's the most universally appealing content, and it's incredibly well aligned with the internet. Which means that we, you know, the company has to invest into technology to continue to take advantage of the internet, and I'm not talking about direct to consumer. What I'm saying is the way we function, how we harness data, and all of those things that make us smarter. So in order to harness this tremendous opportunity that's there, the company has to become more and more digital in every sense possible. So, you know, all of our technology investments are going into that. However, what I've said before, and what we've done, is they're self-funded. So, we've done obviously some restructuring earlier in the year. Part of that went towards funding our technology costs. And, the plan is to continue to self-fund our technology investments. Mm. So, that is it. Yeah. You mentioned self-funding, so that's this year. It also seems like a commitment for- Right. for a few years as well. That's the plan. Can you maybe talk a little bit about the progression of margins, maybe as it relates to that? Sure. How you see those investments in technology, which- Yeah -appears to be self-funded in A&R, give that- It does not appear. It is. Does not appear to be self-funded, it is self-funded. I just wanna be clear about it, and will continue to be. Look, we've been since we've gone public, we've expanded our margin, and we've increased our dividend. We'll continue to do that, and we'll invest in technology at the same time, and we'll invest in artists and songwriters at the same time. Let's pivot and talk a little bit- Like clear? Yeah, very clear. Let's talk a little bit about the international strategy. Warner has invested in growth by buying record labels, especially in emerging markets, to help geographically diversify the business. Why is international expansion and diversification an important strategic priority for Warner Music? And could you give us an update on the strategy for international expansion, particularly in emerging markets, and how you see- Yeah ... M&A as a component of that over the next couple of years? So look, personally for me, what's happening because of the internet is exciting. I grew up in a small country, right, in Europe, in Czechoslovakia. So, you know, any small country that can take advantage of a global marketplace, it's an incredible thing. And I think you're seeing that play out in music tremendously. You know, the music industry really used to be very Anglo-American industry, then exported its content everywhere, and effectively, all of the territories were in marketing arms for that content. What you're seeing today, because of the internet, is that there's tremendous amount of talent all around the world that resonates with people all around the world, not just in their own countries. And to me, that's like, you know, again, going back to the beginning of the total addressable market and the opportunity. To me, this is the exciting part, when you start unleashing creativity everywhere. And I think now the real job is to find that great talent that can resonate, not just in their country, but, you know, expands all around the world and punches above its weight class. And that is effectively what we started to focus on quite a few years ago. That's why we've made investments in different companies around the world, and it's been paying off. And, you know, you see markets like India, Africa and MENA growing, you know, in 40s, 30s, and 20s, all respectively. So obviously there's tremendous amount of growth. Smaller base, lower ARPU, that's nevertheless important. Their GDPs, as they rise, all of that will contribute to increase in monetization. But what's really exciting is that you can find talent there today that streams really well in the U.S. or Germany or, you know, other places around the world. That's exciting. So our teams are very much focused on that. What does success look like for you in international markets? Is it accreting market share to a certain level? Is it, at this point, maybe a land and expand strategy in some of those core markets that you mentioned? Where is the focus over the next one to- Great stars and hits from around the world. Me finding the talent that resonates around the world is gold, it's beautiful. And I think it's great for the world, too, because it just sort of brings this cross-pollination. It gives people something, something in common, and it's great for business. So that's what excites me. I wanna touch on the topic of the year, which is undoubtedly artificial intelligence and some of the opportunities and threats around it. It's been a few months since most of us have had the opportunity to digest a lot of the initial headlines of AI. Could you maybe unpack some of the main opportunities that you see to leverage AI across your business and potentially some of the threats that you see on the industry? Yeah ... more, more broadly? So it really reminds me of UGC from about 15 years ago or so. When I joined YouTube early on, we had a lot of issues related to that, which I had to work on sorting. But we did. And we built, you know, a very large multi-billion-dollar business for our partners from fan-uploaded content of their copyrights. You know, they was using their copyrights. And it required technology and deal making and partnership and all of that, and we applied it all and built it. And I see AI as UGC with super tools. Mm. Right? Which is a tremendous creation tools at your fingertips and large catalogs of IP that you can use in order to do that. So I think we just need to follow that playbook. And when I say we, I mean both the platforms as well as us, as well as the gen AI engines. And we'll, you know, we'll build even a larger business from that. Now, having said that, there may be artists who may not be okay with that, and therefore, we need to set it up in a way so that artists have a choice. They must have a choice because it's their voice, and their voice is personal, and their voice is their living, and it's everything. And so it must be respected. And again, that's why our collaboration with our partners is really, really important, and make sure that we lean in in the most thoughtful manner. Could you maybe unpack some of those conversations- Sure. you're having with the partners around AI? Copyright infringement is- Yep. -is a big priority, especially for the artists. Monetizing the- Mm-hmm. - the IP and the rights on your side - Sure. is a big priority. Where are we at in the latter of those conversations with the DSPs, the platforms? We're at the beginning of it because lots of things are evolving really fast, and we're all trying to come up with the right frameworks. But it's like, literally all of those decisions and all of those discussions just remind me of what I went through 15 years ago, or even longer. And because they're all similar issues to wrestle with. Now they're just maybe at greater scale and speed, basically. And the important thing to consider or to keep in mind is that users generally are not thinking this is bad, or they're trying to do something bad. They're being fans. They want to engage with the content. They love these artists, their voices, et cetera. So it doesn't begin with a negative thought. It begins, actually, with a very positive thought. It may end up being something that the artist doesn't like, which is why they must have a choice, you know, in the whole thing. But it begins with a positive note, and I think that is the approach to take for all of us, right? Say: Okay, this is people want to engage with IP. Therefore, IP holders will likely benefit tremendously. You know, large IP holders will likely benefit tremendously in the world of generative AI because of that. But, so anyway, so I just take a positive lens to developing it. It doesn't mean that I'm not in favor of Carda, I am, and definitely artist choice. But, it's all in the very early innings of development, but, you know, we all have to move fast. Mm-hmm. And what about on the risk side of AI? I I feel like investors- Mm-hmm. realize the potential of AI, at least for the music industry, around the Yep ... the deepfake Drake song that came out in the spring. How do you view the strength of your protections on copyright infringement? Yep. The litigation that surrounds that? What needs to be put in place? So, the way I think about it is, you have three parties here. You have the government, you have the consumption platforms, and you have the generative AI engines. Regulation always takes time. I've spent a lot of time working on that, on the other side, and it's like no matter what the intent is, it takes time, right? It's like things don't happen super fast in government. So you have to expect that. Gen AI engines will, you know, continue to evolve. There's a race between all of them, right? To be as fast as possible. Everybody's spending a lot of money on GPUs, that will continue. I think the primary responsibility today sits with the consumption platforms, right? Especially the open consumption platforms, where the content will end up. Because no matter what, somebody creates new content with a third-party tool, they will want to get views or streams somewhere, and they'll go to large platforms. So my focus is, first and foremost on the large consumption platforms, to make sure that they have practices in place that help us, protect the artist's choice and have the right attribution and the right monetization framework. Exactly what we did with the UGC. So, just slightly different, you know, more advanced and, faster, but, the playbook is very similar. Got it. I wanna turn to leveraging capital allocation. Warner Music's balance sheet is in a attractive position currently. It's sub-three-turn net leverage, and at the same time, you're set to generate a substantial amount of free cash flow over the next couple of years. I'm curious, what are your top priorities for capital allocation today? Is ramping shareholder returns, you know, a part of that, an increasing part of that, you think, over the next couple of years? I think it's. It goes back to those three things which I mentioned, which is artists and songwriters, right? Whether it's new or established, both on publishing, you know, publishing and, and recorded. Two, M&A with companies. Three, technology. In that order, right? And it's just, and it's just a machine just that keeps going. And, and obviously, doing it within our investment guidelines and, and our return framework, and that's it. So it's not. It's not really a complicated set of priorities. Fair enough. We just, we just execute against it. More of the same, it sounds like, since you got here. It's more of the same, and you know, I always say a company that has to change a strategy every year- Mm. I don't know, I would be kind of worried or steady, right? Like, we see our opportunity, we see the path, we see what kind of needs to happen, opportunities with increasing revenue per user, opportunities with thinking how the pie is divided, new experiences, new partners. And at the same time, you know, like, we have to do it within the right financial mindset, and that's the focus. So it's a very steady strategy that is not changing, and we just have to continue to execute on it with excellence, and it will be great for all of us. Maybe sticking with the high-level theme to close it out here with a few more minutes. You've been nine months on the job as a CEO. Already a lot has changed. Eight. 8 months on the job as a CEO, a lot has already changed from subscription streaming prices increasing, to a new deal with TikTok, to the AI coming front and center. Curious, as you look ahead, what do you think is going to surprise investors the most about the industry and Warner in particular over the next year? So, yeah, I just kind of told you that, you know, we have a steady strategy. Want to make sure that we execute really well on it. My goal is to kind of be boring and not surprise you. And, because I think, you know, surprises for shareholders are not great unless they're, like, tremendously positive surprises. But I think saying what you're gonna do and then doing it, I think is gold. And I think that's what we need to do. And just keep on doing that year after year. So, my goal is to really not surprise you. However, what I generally see in the press and in the financial community is this sort of zero sum fight of corporate titans type of approach and discussion about us and the DSPs. I don't see it that way, because I don't think that's a great way to build long-term value for either of us. So, I guess what I hope is that the surprise for all of you guys is, deeply, you know, our deeply collaborative approach. And, and that, that is not a zero-sum game, and that is not, you know, war between the music companies and, and the DSPs, but instead it's a sort of joint business plans that we're building and, and trying to grow the, A, delight users, right? The users that they have. And, B, grow shareholder value, both their shareholder value as well as our shareholder value. And, I think that, you know, maybe that will become the surprise and, and, and the tenor of all of the conversation changes in general. Robert, that's a great place to end. Thank you for taking the time today. All right. Thank you. Thanks. Great seeing you all. Thank you. Appreciate it.