Warner Music Group Corp. Q2 FY2026 earnings call

Market Share Growth - Driven by broad-based strong execution by operating units, successful implementation of contractual PSM increases, developing new talent and delivering creative success with artists/songwriters across geographies, progress in catalog monetization with always-on marketing for timeless repertoire and introducing iconic artists to younger audiences, and enhancing distribution offerings through partnerships and acquisitions like with TwoStreams and acquisition of Revelator. - Delivered year-over-year share growth in U.S. streaming and new release, with number ones from local artists globally. ### Increasing Value of Music - Seeing DSM increases contributing to subscription streaming growth, partnerships with traditional DSPs and emerging AI platforms like Suno, and premium tier offerings with AI. - AI has limited dilutive impact as reported by DSPs, and Warner Music has leadership role in creating new monetization frameworks with AI companies, ensuring copyright protection. ### Becoming More Efficient and Effective - Ongoing journey to become more efficient with strategic reorganization, focused investments in tech, and successful rollout of financial transformation program. - Second consecutive quarter of margin expansion above full-year target, with plans to use AI-driven tools for further streamlining and margin targets of mid-20s short term and high 20s longer term.

Total revenue increased 12%. Recorded music revenue grew 13%, led by subscription streaming at 15% adjusted growth and ad-supported streaming at 11% adjusted growth. Physical revenue increased 18%. Artist services and expanded rights revenue increased 33%. Music publishing revenue grew 10%. Adjusted OIBDA increased 24% with over 200 basis points of margin expansion. Recorded music catalog represents about 65% of recorded music streaming revenue.

- Expect to continue delivering on sustainable growth model with high single-digit total revenue growth, double-digit adjusted EOPTA and adjusted EPS growth, and 50% to 60% operating cash flow conversion. ### - Anticipate further PSM increases across DSPs throughout the fiscal year. ### - AI licensing deals with firms like Suno will begin to contribute materially to subscription streaming revenue growth starting in fiscal 2027. ### - Plan to achieve high end of 150 to 200 basis points margin expansion target in fiscal 26.

Q: Peter Sapino asked about what's different in market share developments and sustainability.

A: Robert mentioned it's result of long proactive work, broad-based gains, value contributing to growth, strong pipeline management, focused catalog optimization program with new always-on marketing and AI tools, and disciplined focus on distribution.

Q: Benjamin Black asked to deconstruct subscription streaming growth.

A: Armin said 15% growth broken down into around 6%-7% subscriber growth, ~3 percentage points from pricing, ~3 percentage points from market share, and ~2-3 points from easier comp, with more pricing to come, distribution acquisition of Revelator to show up later, and deals with AI companies and DSPs for growth.

Q: Jason Bezinette asked AI-related questions.

A: Robert said no dilution seen from AI generated music, Suno's license offering launch timing not specified, and no comment on when conditional DSPs might offer consumer creation off IP.

Q: Kenan Venkateshwar asked about achieving longer-term margin targets and catalog deals.

A: Armin said focus on profitable growth, continuous cost savings, operating leverage, catalog business growing share without acquisitions with high margins, and innovation and pricing to drive margins.

Q: Cutgun Murrell asked about capital deployment.

A: Armin said driving productivity, clear strategy, tight portfolio management, and culture of spending less, with returns around 20% on portfolio.

Q: Ian Moore asked about catalogs acquired through Bain JV.

A: Armin said generally don't disclose specifics but investments are in iconic high margin catalogs with attractive returns and dedicated team to grow them.

Q: Doug Cruz asked about distribution business.

A: Robert said distribution fits into portfolio management, with investments in technology and talent, acquisitions like Revelator and TwoStream, and aligning with margin objectives.

Q: Mike Morris asked about ad environment and Armin's new role.

A: Robert said ad growth different across partners, some strong, some strategic to improve, and Armin's new role reflects how he's been operating, doubling down on operational excellence and alignment with financials.