Warner Music Group Corp. Q3 FY2026 earnings call

Management Updates

• Armin Zerza stepped down as CFO for personal reasons; Lou Dickler (former Global Controller and Chief Accounting Officer) serves as acting CFO during the search for a permanent replacement.
• Tom Corson, previously co-chairman and COO of Warner Records, was promoted to COO of Warner Music Group to leverage his deep industry experience across the entire company.
• All prior strategic initiatives, capital allocation frameworks, and investor messaging are fully institutionalized and unchanged following management changes.

Market Share Growth & Creative Performance

• Year-to-date, overall U.S. streaming share is up 0.3 percentage points, and U.S. new release streaming share is up 0.8 percentage points, with significant long-term global market share gains over the past three years.
• Recent creative highlights include Charli XCX becoming the first British female artist to earn two UK number one albums in the same year; Miley Cyrus signed to Atlantic Records with a new project underway; Atlantic Records rose to number 2 in new release share in the 2026 Billboard Mid-Year Report (up from 4th in 2024); Burna Boy and Shakira's World Cup collaboration hit number 1 on global Spotify and Billboard charts; Madonna's Confessions 2 debuted at number 1 in the U.S. and UK, with 60% of her current Spotify streams coming from listeners under 35.
• Growth is largely organic, with disciplined, return-focused M&A to accelerate gains: the Bain joint venture has deployed $650 million in catalog acquisitions with a strong pipeline, and independent music platform Revelator was acquired to expand distribution capabilities. Recent distribution partnerships include Go Digital Music (adding 85,000 new tracks to the ADA ecosystem) and Berlin-based AIM Music.

AI Integration & Value Expansion

• Proprietary AI tools are deployed across the 1+ million track catalog to optimize streaming performance, create new marketing content (motion art, lyric videos, visualizers), and prioritize high-engagement opportunities, driving unexpected long-tail growth (e.g., Chris Rainbow's 1979 track Be Like a Woman grew from 50,000 total 2025 streams to over 140 million streams in 2026 year-to-date).
• WMG has established AI licensing partnerships with major AI platforms including Suno, Stability AI, Clay, and Udio, with new monetization frameworks expected to contribute materially to revenue starting in fiscal 2027.
• WMG has led regulatory advocacy for copyright protection in AI, securing recent policy wins: Chile rejected a proposed data mining exception that would have allowed unlicensed AI training, and Australian Prime Minister rejected a proposal that would shield AI developers from copyright infringement liability.
• Contractual per-stream minimum (PSM) wholesale price increases with major DSPs are now fully aligned across all major partners following the recent Apple deal renewal, with 88% of subscription streaming revenue now covered by these increases, driving sustainable value growth for rights holders.

Efficiency & Cost Management

• Strategic reorganization, technology investments, and the ongoing financial transformation program are driving consistent margin expansion alongside revenue growth.
• AI is integrated across functional departments (finance, legal, HR) to streamline workflows, accelerate decision-making, and reduce overhead costs.
• Cost savings initiatives are progressing on schedule; the 2025 restructuring plan is on track to deliver $200 million in savings in 2026 and $300 million in annualized savings starting in 2027.

1. Recorded Music:

• Total segment revenue grew 9% year-over-year (constant currency).
  • Subscription streaming revenue: 12% adjusted growth, driven by PSM price increases, global subscriber growth, and stable market share.
  • Ad-supported streaming revenue: 10% adjusted growth, boosted by World Cup-related ad spending and improved DSP deal economics.
  • Physical revenue: 17% growth, driven by strong new releases, catalog demand, and carryover success.
  • Artist Services and Expanded Rights Revenue: 15% growth, driven by concert promotion revenue (primarily in Japan) and higher merchandising revenue.
  • Licensing revenue: 1% decrease.
• Adjusted OIBDA increased 16% year-over-year, reaching a margin of 25.3% (150 basis points of expansion).
• This segment contributed approximately 78% of total company revenue.

1. Music Publishing:

• Total segment revenue grew 11% year-over-year (constant currency).
  • Streaming revenue: 14% growth, driven by overall market expansion and new/renewed deals.
  • Sync revenue: 7% growth.
  • Mechanical revenue: 19% growth.
  • Performance revenue: 2% decrease.
• Adjusted OIBDA increased 14% year-over-year, reaching a margin of 28.9% (70 basis points of expansion).
• This segment contributed approximately 22% of total company revenue.

Total Company:

• Total revenue grew 9% (11% adjusted) year-over-year.
• Adjusted OIBDA grew 15% overall (18% adjusted for notable items), with 100 basis points (130 basis points adjusted) of margin expansion.
• Adjusted net income and adjusted EPS grew 21% year-over-year.
• Operating cash flow grew 209% year-over-year, with a 55% adjusted OIBDA conversion rate for the first nine months of fiscal 2026.

• Management reaffirms its long-term core targets: high single-digit consolidated revenue growth, double-digit adjusted OIBDA growth, double-digit adjusted EPS growth, and 50% to 60% operating cash flow conversion from adjusted OIBDA.
• WMG remains on track to deliver 150 to 200 basis points of total fiscal 2026 margin expansion at the high end of the target range, and may outperform the high end of this guidance. Near-term margin targets are mid-20s, with a long-term target of high 20s.
• PSM price increases across all major DSPs contributed 3.5 percentage points of subscription streaming growth in Q3, with a slightly accelerated contribution expected in Q4 including the full impact of the new Apple deal.
• Ad-supported streaming growth is expected to normalize to mid-single-digits in Q4 after Q3's 10% growth driven by non-recurring World Cup ad spending.
• Additional revenue upside is expected from future deployments of the Bain joint venture's remaining acquisition capacity, expanded distribution from the Revelator acquisition starting in late calendar 2026, and material contributions from AI licensing deals starting in fiscal 2027.

• Forward-looking results are subject to general market risks, uncertainties related to streaming subscriber growth trends, ad market fluctuations, and regulatory changes that could impact copyright protections for music, particularly around AI training and use.
• Quarter-to-quarter performance can be lumpy due to release schedules and difficult annual comparisons, which can impact short-term growth metrics.
• Operational complexity in building artist permissioning frameworks for AI-generated content can delay the rollout of new AI-related product offerings.
• Uncertainty around adoption and consumption levels of AI-generated content, and potential impacts on revenue share for existing licensed music, remains a monitored risk.

Q: What is the impact of former CFO Armin Zerza's departure on WMG's strategy and future performance?

A: Management noted that all of Armin's contributions, including sharper capital allocation, improved forecasting, and investor messaging, are fully institutionalized in the company. The consistent strong performance of the last five quarters stems from a multi-year strategy launched in 2023, including restructuring, leadership changes, and DSP pricing strategy, that remains firmly in place with an unchanged trajectory.

Q: Why does public U.S. Luminate data show weak WMG market share, when WMG's results are strong?

A: Management explained that analysts only have visibility into U.S. data, while WMG is a global business that has earned significant long-term global market share gains. Public data confirms WMG's U.S. streaming and new release streaming share are up year-to-date, and quarter-to-quarter lumpiness is normal; WMG focuses on long-term trends, which are positive. Organic growth driven by disciplined capital allocation, strong A&R pipeline, catalog optimization, and expanded distribution is driving share gains, with M&A acting as an accelerator.

Q: What is the impact of the completed Apple deal renewal, which aligned PSM increases across all major DSPs, on WMG's growth outlook?

A: Management confirmed 88% of WMG's subscription streaming revenue now benefits from PSM increases, up from zero two years ago. WMG reaffirmed confidence in its existing long-term targets, with the price increases contributing 3.5 percentage points of Q3 subscription growth, and a slightly accelerated contribution expected in Q4. Additional upside will come from remaining Bain JV acquisition capacity, Revelator distribution expansion starting late 2026, and AI licensing contributions starting fiscal 2027.

Q: What is the timing and outlook for WMG's AI licensing deal with Suno, and what is WMG's stance on Spotify's new AI product offerings?

A: The Suno licensing transition remains on schedule for late 2026, with material revenue contributions expected in fiscal 2027, and a recent Munich court decision confirmed WMG's contractual strategy. WMG supports Spotify's efforts to launch new AI-powered tiers that increase the value of music, but does not comment on ongoing negotiations, and expects incremental value and higher ARPU from properly structured deals.

Q: What is WMG's capital allocation framework for M&A, specifically for the Bain joint venture, and have there been any changes to return thresholds?

A: There is no change to WMG's approach: the company evaluates all organic and inorganic opportunities globally across all business units, shifting capital to the highest return-on-investment opportunities. The Bain joint venture follows the same 20% target return hurdle rate as WMG's internal investments, focusing on iconic, high-margin catalogs with built-out growth plans; $650 million of the $1.65 billion total capacity has been deployed to date, with a strong pipeline remaining.