Welcome to the Warner Music Group’s Third Quarter Earnings Call for the period ending June 30, 2012. At the request of Warner Music Group, today's call is being recorded for replay purposes. If you object you may disconnect at any time. [Operator Instructions] Now I would like to turn today’s call over to your host, Will Tanous, Executive Vice President, Communications and Marketing. You may begin.

Good morning, everyone. Welcome to Warner Music Group’s fiscal third quarter 2012 conference call. Both our earnings press release and the Form 10-Q we filed this morning are available on our website. Today, our CEO Steve Cooper, will update you on our business performance and strategy. Our Executive Vice President and CFO, Brian Roberts will discuss our financial results and then both of them will take your questions. Before Steve’s comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. All forward-looking statements are made as of today and we disclaim any duty to update such statements. Our expectations, beliefs, 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 to differ materially from our expectations. Information concerning factors that cause actual results to differ materially from those in the forward-looking statements is contained in our earnings press release and Form 10-Q and other SEC filings. We plan to present certain non-GAAP results during this conference call. Revenue data we provide on today's call will be on constant currency basis. We provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website. With that, let me turn it over to Steve Cooper.

Good morning everyone. I appreciate you taking the time to join us this morning. While you may have seen the headline numbers in our press release, I’d like to provide some context around our results. Our release schedule began to pick up towards the end of the quarter, and while the sales associated with these releases are likely to be more fourth quarter weighted, we did achieve a number of positive metrics. While total revenue declined 1% on a constant currency basis, we grew digital revenue by 16% to $230 million or 35% of total revenue, up from 30% in the third quarter of 2011. Excluding severance, the LimeWire settlement and transaction expenses from our sale to access, we grew both OIBIDA and OIBIDA margin, and we delivered solid unlevered after tax cash flow of $68 million. Both our Pop Music Publishing and Recorded Music businesses delivered some noteworthy highlights. In Music Publishing we grew total revenue by 1% on a constant currency basis, with syncretization revenue up 3% and digital revenue up 7%. We grew OIBIDA by 18% and we expanded OIBIDA margin 4 percentage points to 19%. In Recorded Music we grew digital revenue by 15%, and on a constant currency basis, the increase in our digital revenue more than offset the decline in physical revenue. Our U.S. SoundScan performance was largely in line with the industry this quarter as our market share was stable at 18.7%. Year-to-date the industry is down less than 1% in track equivalent album units, and digital units continue to grow strongly at 9%. In the U.K., the industries total album sales continued to decline, down 13% in the quarter. On the bright side, digital albums and tracks both show continued positive momentum, up 15 and 8% respectively. We thought it would be helpful to also highlight a smaller market that has undergone a rapid digital transformation. As one of the most progressive markets in digital music, Sweden provides an interesting case study. Sweden’s music sales are up 30% year-to-date, driven by subscription revenue, which is up nearly 80% over the comparable prior year period. The strong show by subscription services actually coincided with the stabilization in the physical business. CD sales were down just 1% after declining 54% in 2011. This success can be attributed to a combination of high quality legitimate digital service, as Sweden has modified its home market, and strong copy right enforcement. While we’re not suggesting that every market will follow this trend, it does demonstrate how the combination of attractive legal consumer offerings and strong IP enforcement can produce promising results. To this end, there continues to be legislative and voluntary action on a global basis, which we hope over time will help in the fight against piracy. As another example in June, the Japanese government passed a bill, which could result in jail time, and a significant fine for downloading infringing content. And the record industry association of New Zealand announced in July that since the implementation of the country’s three strikes rule in September 2011, internet privacy rates have halved. While enforcement is important, the future of the industry will be based on providing consumers with access to innovative legitimate digital music services. And we remain dedicated to working closely with the technology community to support accomplishing this. Amazon announced in July that it will offer a license paid locker -- paid Cloud locker service called Cloud Player. With 2 significant players, Amazon and Apple now in the licensed Cloud Locker business, we believe this space is poised for growth in the coming years. Additionally, in June, Apple launched its iTunes store in 12 new Asian markets. While iTunes was already available in Asia/Pacific countries, such as Japan, Australia and New Zealand, the expansion will allow greater access to legitimate distribution of digital music in a number of growing economies, where the iPhone and the iPad already have a larger user base. Against that backdrop, we continue to execute on our strategic plan. Part of our strategy in Music Publishing has been to continue to invest steadily in A&R, and to strengthen our presence in growing areas of the industry, such as film and TV syncretization. To that end, we are delighted to have recently acquired the masters and publishing rights for all film music, owned and controlled by Miramax. Miramax’s film catalog will expand Warner/Chappell’s existing strength as a provider of music to film and TV production companies, advertising agencies, and video games and new media companies, boosting our offerings in the growing syncretization segment. This acquisition will allow Warner/Chappell to offer one-stop sync licensing, for both songs and masters, and should also enhance our performance revenue as Miramax’s award winning catalog of films including Chicago, Gangs of New York and Good Will Hunting, is expected to have a long TV, DVD, Video Streaming and Download shelf life. On the A&R side, Warner/Chappell has recently made great strides in 2 important genres, country and urban. Our Warner/Chappell Nashville team has been having significant chart success this year, with 7 number one country songs in calendar 2012. I should note that Warner Music Nashville has also made significant strides on the recorded music side. We recently had 6 singles on the top 20 Country radio chart, our highest number in 2 decades, from artist including Blake Shelton, Gloriana, Hunter Hayes, and Jana Kramer. Warner/Chappell has also had momentum in urban, having recently landed a number of key signings. We had a share in the 4 songs that held the number one spot on the hot R&B Hip-Hop songs chart for 16 weeks running through May 25, a very significant achievement. Warner/Chappell continued to strengthen its catalog by signing a worldwide co publishing agreement with chart topping song writer, and producer Rico Love. Love’s recent achievements include winning Song Writer of the Year for the second time at the annual SESAC Pop Music Awards in May, and writing and producing 5 songs on Usher’s latest album, which debut at #1 on the billboard 200 in June. In recorded music, we’ve achieved a number of recent A&R successes as well. Linkin Park’s new album, Living Things, our top seller in the quarter, debut at number one on the Billboard 200 in June, and continues to sell well into the fourth quarter. Living Things became Linkin Park’s fifth number one album since 2000, the most #1 albums for any group during this period, according to Billboard. Flo Rida continues to have huge digital success with the first 3 singles off his recently released album Wild Ones. The singles, Good Feeling, Wild Ones and Whistle have collectively sold more than 14 million tracks worldwide. We’re also honored that multi-platinum English rock band Muse signed to Warner for both Recorded Music and Music Publishing was selected to write and perform the official song of the London 2012 Olympics games, Survival. Survival is being used internationally by broadcasters, covering the games as athletics enter the Olympics stadium and the lead up to metal ceremonies. This provides a unique opportunity and a global platform for Muse and Survival, will be included on their upcoming album, the 2nd Law. In addition to advancing the careers of our established artist, breaking new artist remains a strategic priority, Ed Sheeran, who is already a sensation in the U.K. saw his debut album enter the Billboard 200 at #5, the highest U.S. album debut, or U.K. solo artist since 2009. Warner Music Sweden recording artist Lorine, had the #1 track on 7 European charts with Euphoria, which won the prestigious Eurovision Song Contest. Euphoria also held a #3 single spot in the U.K., the highest chart position for a non-U.K. Eurovision entry, since 1987. The song was co- written by Thomas G:son, a Warner/Chappell song writer. We have a number of exciting new releases coming in our fourth quarter. As discussed on our last earnings call, iUno!, the first of Green Days trilogy of new albums will be released in September. Jack Brown Band’s latest album on Kage was released in early July, and debuted at #1 on the Billboard 200 in the U.S. Additionally, we have a meaningful release scheduled around the world, in particular, Japan will have key releases from established domestic artist, including Superfly, Kobukuro,and Tatsuro Yamashita. We continue to look forward to the fourth quarter in the next fiscal year as we work to accelerate our progress. I remain confident that our strategy of artist development, digital innovation, revenue diversification and cost management will continue to benefit us over the long-term. Now let me turn it over to Brain, to detail our financial results.

Thanks, Steve, and good morning everyone. This quarter, unlevered after-tax free cash flow increased to 68 million from 52 million in the prior year quarter. As expected, cash used in operating activities was 39 million compared to 11 million in the prior year quarter. And free cash flow was negative 46 million compared to negative 36 million in the prior year quarter, reflecting our increase in cash interest to 114 million from 88 million in the prior year quarter. Our cash balance of 219 million at June 30, is up 65 million in the fiscal year-to-date. As Steve briefly mentioned, our reported -- our reported OIBIDA numbers this quarter include, in the current quarter 17 million of severance expense, and in the prior year quarter a 12 million benefit from a significant recorded music legal settlement with LimeWire, 10 million of severance expense, and 5 million of expenses related to our sale to access industry. As a result, total OIBIDA fell 14%. However, adjusted for these items, OIBIDA was up 3 million, and OIBIDA margin expanded 1 percentage point. This quarter’s severance expense largely relates to structural changes implemented in our international recorded music business, as we remain on track to achieve our targeted cost savings of between 50 and 65 million over the 9 fiscal quarter period which began in July 2011. While our total revenue declined 1% on a constant currency basis, digital revenue grew, up 16%. We’re pleased that we continue to generate increasingly more revenue from streaming and subscription businesses, as well as from the international expansion of a number of digital music services. Subscription and streaming services account for 25% of our recorded music digital revenue in the quarter, and this revenue segment is growing at a significantly higher rate than revenue from downloads. From a geographic perspective, revenue growth in the U.S., Germany, Italy, Canada, Latin America, and parts of Asia was more than offset by weakness in France and Japan. Declines in France were largely driven by a difficult compare against the prior year quarters strong concert promotion revenue, which included tours from Christophe Mae and the Black Eyed Peas. In Music Publishing, digital revenue increased as download and subscription and some streaming revenue were strong. Syncretization revenue improved due to the timing of collections. In constant currency, this offset the decline in performance revenue, and the continued decline of mechanical revenue, which is attributed to the industry wide drop in CD sales. Softness in performance revenue related to -- is related to an industry wide reduction in U.S. radio license fees as mentioned last quarter, partially offset by improved U.S. advertizing market, stronger chart positions on the hit charts, and recent acquisitions. Music Publishing OIBIDA improved significantly, up 18% and OIBIDA margin expanded 4 percentage points as a result of a successful execution of our A&R investment and acquisition strategy, focused on investing our resources at higher margin assets. In Recorded Music, revenue declines moderated as an improvement in the release schedule and strong digital revenue growth of 15% helped to offset continued industry declines in the physical business. Digital revenue represented 54% of U.S. reported music revenue in the quarter, compared to 48% in the prior year quarter and 42% of worldwide recorded music revenue, compared to 35% in the prior year quarter. Top sellers in the quarter included Linkin Park, Jason Mraz, Germany’s Die Toten Hosen, FUN, and B.O.B. Artist services and expanded rights revenue, which includes revenue from our artist service businesses, and revenues from our participation and expanded rights associated with our recording artist, slipped 25% from the prior year quarter, as concert promotion revenue declined 37% related to touring cycles. Excluding concert promotion revenue this segment grew by 6%. Artist services and expansion -- and expanded rights revenue represented 11% of our recorded music revenue in the quarter, compared to 14% in the prior year quarter. Our Recorded Music OIBIDA declined, reflected an increase in severance payments, and affected the prior year quarter included a 12 million benefit from the LimeWire settlement. Adjusted for severance and LimeWire, recorded music OIBIDA was down 3 million, largely related to the decline in revenue. Before we move on to Q&A, I wanted to update you on our CapEx spending. We previously noted that CapEx would remain constant at about 25 million for the fiscal year. We have recently launched a new artist royalty system, and we now expect CapEx for this year to be closer to 30 million. Overall, we are encouraged by some of the promising signs we saw this quarter. Our business continues to generate strong, unlevered after-tax cash flow. Our Music Publishing remains -- Music Publishing business remains stable, digital growth remains strong, and our artist development successes in both our businesses, are laying the ground work for the future. With that operator, please open the line for questions.

[Operator Instructions] Our first question comes from Aaron Watts, Deutsche Bank.

Just a couple for me. I guess first, do you think -- do you see the publishing unit moving into positive top line growth, despite the drag in -- on the mechanical side? Or do you think that you can kind of continue to see it hovering here in slightly negative territory because of that?

Well Aaron, I think that notwithstanding some of their revenue lines that are under pressure. Our intent is to continue to invest in the Music Publishing business, both from an A&R perspective, as well as acquisitions to insure that we continue to have positive growth in this area. So, while recognizing the downward pressure created by mechanical, we think that other areas, syncretization and digital growth hopefully will continue to offset that downward pressure.

The other thing too, Aaron, that we have there in Music Publishing is we are -- have a conservative effort from an investment perspective, both in new sign-ins and acquisitions to seek longer-term, higher margin assets in that business. And we’ve allowed some of the shorter-term thinner margin admin deals, which have larger revenue attached to them, either expire or/and we’re not renewing them as we go forward. So that’s going to put some pressure on the Music Publishing top line, but we really believe that we’re going to be increasing -- continue to try to increase our margins there through acquisitions of -- sort of longer-term, higher margin assets.

That makes sense. And then, I’m sorry if I missed this. I think you touched on it. But if I wanted to think about your recorded music business in the quarter, I think you said it was down almost 2% on a constant currency basis. What would that have been if we exclude the concert promotion drag, or the tough comp year-over-year?

You know what, I don’t have that right in front of me. I’ll get back to you on it. I didn’t do that -- do that quick little analysis. What we do know, as I said in the script though, if I look at that one element above our business where we put concert promotion, in artist service and expanded right revenue, it’s down 25% year-over-year. If we exclude that, the revenue -- the segment grew by 6%.

Yes. So it definitely made a difference there. Okay. Perfect.

Aaron, just a recap on that. The digital growth on the Recorded Music side, when you look just at the core physical and digital business, digital growth offset the physical decline.

Okay, perfect. And then, my last one was just -- pretty interesting announcement of development from Clear Channel and Big Machine recently. And I was curious just your thoughts in terms of maybe you’re finally getting some compensation from the gestural radio guys for playing your music. And just general thoughts on that, and whether you could -- you envision that in the near future, maybe being a big contributor. The bottom line, I know an income stream you haven’t seen for many, many, many years. What’s your thoughts on that?

Well, the good news is that Bob Pittman, who is running Clear Channel, has through the Big Machine deal, acknowledge that artist and recording companies deserve to be paid. And that promotion alone may not be enough. That being said, radio broadcasters are important partners for the music business. I think there’s been a longstanding view that radio should pay to use the music, on which many of their channels were founded. However, we got to keep I mind that this is just a one-off deal, a relatively small deal. Our view has and continues to be that there should be an industry wide agreement that provides certainty and fairness to everyone. And I think that will continue to be our position and continue to be something that we press for, Aaron.

[Operator Instructions] Our next question comes from Andrew Finkelstein of Barclays Capital.

Just to come back to Music Publishing for a minute. It looks like geographic breakout, that the U.S. was actually up a lot on a percentage basis, and it was the international, I guess down, even on a constant currency basis. So I was wondering if you could give us a color on what was happening there.

So Andrew, what we’ve done there in Music Publishing and some of the recent acquisitions that we’ve done are U.S. centric acquisitions. We’ve got stronger chart positions in the U.S. as a result of some of those acquisitions, and then signings in the writer area, some that we highlighted in our comments in the script. And the other thing that we have from a European perspective is the headwinds from just a overall economic standpoint in Europe as it relates to some of the revenue lines for Music Publishing. Performance revenues in Europe, just given the broader economic issues in Europe around advertising and things like that, are under pressure. So that’s when you see -- you see growth in the U.S. and some softness in Europe.

Okay. I mean, do you think there’s sort of -- I know you’re always adding names, but is there organic growth in the U.S., even if we look through some of the acquisition activity?

Yes, because organic growth is coming from the writer signings that we’re doing that are absent the acquisition activity.

Okay. Great. And then the severance, you mentioned internationally in the recording -- I mean, could you be -- could you give us anymore feel for that? Is that part of a shift to more digital or is that out of the sort of distribution fulfillment side over there? Or where the headcount reductions are coming from internationally.

Yes. So that is related to our -- we’ll want our targeted overall cost savings of 50 million to 65 million in the restructuring of our business as a global recording music business, under the direction of Lyor. So it’s coming, Andrew, in all elements of the recorded music business in Europe.

Okay. And then I think, Steve, you mentioned that the fourth quarter would be better, or maybe you were saying that the releases that you had are contributing more in the fourth quarter. I was just -- for your physical fourth quarter, I was just wondering if you could come back to that comment, maybe give us some more color?

Well we had a -- during the third quarter, Andrew, our release schedule began to pick up. I think as I mentioned, Linkin Park released, Flo Rida released. We had some other releases in the third quarter. It started in very nice positions. I think Linkin Park debuted as #1. A number of Flo Rida singles are on fire. Zac Brown was released in the third quarter and also debuted at #1. And they continue to sell strongly into the fourth quarter. In addition, we expect some meaningful strong fourth quarter releases. So between the -- the third quarter schedule and the carryover, and the releases that we expect to hit in the fourth quarter, we think we will have through the balance of our fiscal year, very nice momentum.

Okay. Do you think you can improve on the growth that you saw in this quarter?

I don’t want to put my toe in the water and commit. I believe our momentum looks good, and I’m hopeful that we’ll have a good fourth quarter.

Okay. And then, I think you guys also mentioned -- I think you were talking about subscription, but may have missed it. I just wanted to come back that 25% of revenue -- and Brian, maybe -- I think you had said it in your remarks. And I was just hoping for just a general update on where overall subscription revenues are coming out.

Andrew, you’re right, I did say that, that subscription and streaming revenue accounted for 25% of digital revenue in the quarter. And that is a faster growing segment of our digital revenue, as compared to downloads. And we’re seeing the advent of services and Spotify has been around -- Spotify in the U.S. is gaining traction. Other Services outside of the U.S., these are service. These are now becoming larger contributors to our digital revenue as they gain traction.

So is that 25% of digital, is that just subscription, or if they’re sort of the free uses on Pandora? I mean, is that all the revenues coming off of Pandora or Spotify in that 25%, or only subscribers?

It’s subscription and streaming, yes.

Subscription and streaming? Okay. You said that continuing to be one of the fastest growing or the fastest growing portion of …

In that -- in the digital segment, yes.

Andrew, by way of example, Spotify announced in July that they now have a 4 million paid subscribers globally, which is a gain of roughly 33% from January. And they announced that between their paid subscribers and premiums, they now have 15 million active users. So -- so their conversion rate looks good, and they continue to cast a wide net by way of introducing people to the service. And hopefully they will continue to have meaningful growth rates. These are as well, and other streaming and subscription services.

We have a question from Thomas Cubeta, UBS.

I had a question for you on the artist services line. I think this is the first time you’ve broken it out. And I saw that it declined year-over-year. I was expecting to see more of growth business, can you just give us a little more color on what’s going on there, and what your outlook is going forward?

Yes. So what’s driving -- what we had before, we had that on the line called nontraditional. And physical -- it was on the line physical lever, it’s becoming a more meaningful element of our revenue base. So we decided to break it out. We’ve been talking about the expanded rights that we’re getting with our artist agreements in signing 360 deals, and it’s really being driven by the rights that we’re getting, associated with our 360 rights around participations in artist ticketing, artist touring, merchandizing, and then the other elements of it are the concert promotion businesses that we’ve acquired in Europe. Principally, I know the one thing that we talked about, the year-over-year comp which if you recall is what’s going on in France, which is the business that we have there called New. Last year they had big tours by Christoff Mae and the Black Eyed Peas, that did recur this year, and therefore we have a downtick in just in that line item.

Your next question is from Adam Spielman of PPM America.

I have 2 questions. One, just at a high level, it seems like with moderate top line declines you can keep EBITDA flat to slightly growing. Is that -- do you have confidence going forward, that whatever happens to the top line or there’s a debate about when it turns and how it turns to growth. Do you feel like you continue to have a lot of levers to pull on the cost side to keep the profit line doing what it’s been doing, is the first question.

Well, it’s a good question. I think 2 things. One, with respect to the top line, Adam, the good news is we now seen over 6 or 7 orders. What looks to be a stabilization of -- the stabilization of the industry by way of sales. And as we continue to report, digital in United States and I think that it may well happen this year in the U.K. Digital is eclipsing physical, and the increases in digital are now equal to or offsetting the declines in physical. And the good news about that transition, which I’m sure you can appreciate, is that digital revenue, because of the lack of attendant cost of physical product, distribution, returns on and so forth, is in fact a richer revenue stream. And so this transition or the global transition from physical to digital in fact is very good for the industry. So -- so that is -- that is, if you will, a built in lever, that that transition is providing for us. We -- we are very conscience of our cost structure. We do have levers that we can pull. And in fact, the management team is on top of reviews and tweaks those levers so it’s appropriate throughout the year, to produce the results that we require to have a successful long-term business. And I’m confident that with what appears to be the stabilization of the industry in general, a continued shift from physical to digital, and the quality of our management team, and their ability to stay on top of our business day in and day out, will allow us to maintain a viable long-term economic model.

All right. The second question is, just maybe for Brian, just trying to understand. We have this adjusted EBITDA number, we’re adding back a lot of stuff. I get it. We’re just trying to get down to actual cash, and just want to make sure. I’m thinking for the line items. You point out CapEx, should now be running 30 million.

Yes.

Is that -- that excludes like kind of these ongoing publishing, whatever you want to call them, acquisition of publishing rights, is that correct?

Yes. Yes it does. Yes.

What about -- okay, what about artist advances? Is that inclusive in the CapEx number?

No, that’s not in the CapEx number. You’d see that in the working capital movement.

That’s working capital?

Yes.

Okay. And then are there additional kind of -- I think you talked about it, at least over the years there’s been additional kind of out right catalog acquisitions, or acquisitions that are almost part of the business. Is that separate from the publishing rights, or is that kind of rolled in there?

Kind of like acquisitions. I mean, we’ve done both in Recorded Music and Music Publishing. Recently our acquisition activity has been around the Music Publishing space.

Okay. And then, a lot of the restructuring is ultimately -- it’s got ongoing cash requirements, is that right? You’ve got to pay severance and leases.

Yes, yes. I mean, the -- the -- we’ve taken the charges in this year, and there’s some cash effects. The majority will be this year, but then there’s some going out.

Thank you. And at this time, we are showing no further questions.

Thanks, everybody. I appreciate you taking the time to join us today. I hope you enjoy the balance of your summer, and have a wonderful Labor Day holiday. And we’ll talk to you in a few months. Bye.

Thank you. That does conclude today’s conference. You may disconnect at this time.