Welcome to Warner Music Group's Third Quarter Earnings Call for the period ended June 30, 2023. 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.

Good morning, everyone, and welcome to Warner Music Group's fiscal third quarter earnings conference call. Please note that our earnings press release, earnings snapshot and the Form 10-Q we filed this morning will be available on our website. On today's call, we have our CEO, Robert Kyncl; and our CFO, Eric Levin, who will take you through our results and then we will 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. 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's 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 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

Thanks, Kareem, and good morning, everyone, and thank you for joining. After a challenging first two quarters, we're pleased to see strong evidence of back half recovery that we told you to expect. This has been a big team effort. I'm grateful to our leadership, all of our operators around the world and all of our incredible artists and songwriters. I was happy that our Q3 results were driven by such a wide diversity of music. Strength came from many different territories, labels and revenue lines. We succeeded with artists and songwriters across the spectrum of genres and generations. And we saw the return of some of our biggest superstars, whose new music fueled fans engagement with all of their albums. In addition to improved performance in our core recorded music revenue, we also saw growth in licensing, artist services and almost all areas of publishing. I'm particularly pleased to say we're seeing our momentum accelerate into Q4. I'll provide more details. But first, let me get into our Q3 results. Total revenue grew 10% and adjusted OIBDA increased 18% with margins growing 140 basis points year-on-year. Recorded Music revenue increased 9% and streaming grew 7%, reflecting double-digit growth in subscription revenue and modest growth in ad-supported revenue. Please note that beginning this quarter when we talk about ad-supported streaming revenue, it includes revenue from emerging streaming platforms such as TikTok, Meta, Peloton and others. Music Publishing turned in yet another impressive quarter, delivering revenue growth of 16% driven by strong streaming growth of 28%. I'd like to dive a little deeper into the different projects that drove these results as they reflect the strength of our commitment to developing extraordinary talent and growing our incredible catalog. In Recorded Music, artists at all stages of their careers, global superstars and local names, new albums and timeless classics all added to our growing momentum. Ed Sheeran's sixth studio album, Subtract, hit number 1 in 11 countries and top five in 7 other countries. Melanie Martinez's third album, Portals, went top 3 in the U.S., U.K., Canada, Ireland, New Zealand and Australia, where she celebrated her first number 1 album. Both Ed and Melanie are great examples of the same phenomenon in the modern music business. New Music combined with Perring is resulting in an uptick of streams across the entire catalog. Given the cultural relevance of life and music right now, I'm pleased to say that our Latin division is on plan. Recent successes include Puerto Rico's Myke Towers, who sought to #1 on Spotify Global Top 50 with his song Lala, and Mexico's Yng Lvcas, who's monster hit, La Bebe, spent nearly 4 months in Spotify's Global Top 10. And by the way, we just signed Yng Lvcas for publishing as well. Other amazing artists that are enjoying breakout hits include Korea's aespa, Italy's Capo Plaza, Sweden's Rogefeldt, France's Nino, the U.K. PinkPantheress, the U.S.'s Bailey's Zimmerman and Australia's Budjerah. We also partnered with Chinese superstar, Jam, for her groundbreaking album, marking the first time a Mandarin pop artist has recorded a full-length Spanish release. This partnership truly highlights how languages and genres are cross pollinating. The combination of our global reach and local expertise continues to give us a competitive advantage as we lean into this trend. Equally, it was great to see how music from our incredible catalog continued to contribute meaningfully to our results. This includes major projects with renowned names such as Linkin Park and the Grateful Dead, as well as impressive carryover sales from newer artists such as Zach Bryan, Ava Max and Don Toliver. I'm also happy to say that our Q3 momentum is carrying over into Q4. Lil Uzi Vert scored his third #1 album on the Billboard 200 with Pink Tape, the first hip hop album to top the chart in 2023. Young Thug's Business Is Business peaked at #2, and Gunna's A Gift and a Curse debuted at #3 on the Billboard 200 with his lead single reaching #1 on the Spotify in the U.S. Dua Lipa's highly anticipated new track, Dance the Night, which is currently #1 on the official European Airplay chart, kicked off the campaign for Barbie The Album released on Atlantic Records. Like the movie itself, the album has been a massive global cultural event, hitting #1 in 7 countries, including the U.K., Canada, Australia, New Zealand, Netherlands, Ireland and Portugal. It is the first soundtrack ever to land 3 top 5 singles in the U.K. All in all, I'm pleased with our improvement in Q3, but we still have lots of work to do. Kudos to the whole Recorded Music team for how they partnered with our artists and worked hard to drive these results. In Publishing, we continue to see impressive results from our strategy to diversify our revenue streams, strengthen our services and mine our deep catalog. At the same time, our songwriters are contributing to massive hits, including Morgan Wallen's Last Night, Miley Cyrus' Flowers and SZA's Kill Bill, all of which reached #1 on Billboard Hot 100. And we're also seeing huge successes from Germany's Apache 207, Spain's Cavazos, the U.K.'s Dave and Mega Heart [ph] producer, Matt, to name a few. We're always expanding our publishing roster and have recently signed deals with Grammy-winning pop rockers Imagine Dragons, Ice Spice producer RiotUSA and Spanish star Ana Mena. I'd like to emphasize one other key theme today, our efforts to grow the value of music, which includes our approach to AI. We're focused on creating a virtuous cycle, where innovation, fan engagement and greater monetization thrive together, providing even bigger opportunities for artists and songwriters and music fans around the world. When I arrived at WMG, one of the first priorities I identified was the push for increases in music subscription prices. I am pleased with the traction that we're getting. Last month, Tidal, YouTube and Spotify all followed Apple, Amazon and Deezer by upping their prices. This is the fiscally responsible thing to do for themselves and for the creative community. I'd like to thank them all for taking this important step. Back in March, I said that if we adjusted for inflation since 2011, the year that music streaming was introduced in the U.S., the price of a monthly music subscription in the U.S. should be $13.25 today. I'd like to point out that in 2011, the price of a standard Netflix plan was $7.99. It has since increased to $15.49 today. If the monthly price of a music subscription had gone up by the same proportion, it would have increased from $9.99, where it was in 2011, to $19.37 today. Let's remember that music subscription services give you access to all the music ever released and a continuously growing library for roughly the price of a single CD. You need to subscribe to 3 or 4 movie and TV services for roughly $45 a month to get anywhere near a comprehensive offer. So we see these initial price increases as an encouraging start. There is no evidence that the services are experiencing elevated levels of churn. We believe the market will bear further price increases in the future, and we're expecting that they'll arrive on a more regular cadence than in the past. Again, when I joined WMG, one of the questions I repeated got was about TikTok. 7 months in, I'm pleased to say we also made great progress there. Last month, we announced an expanded and significantly improved deal with them. The agreement covers the main TikTok app; the rollout of the subscription service, TikTok Music; the video editing app, Capcut; and TikTok's commercial music library. Our deal gives our artists and songwriters access to new levels of monetization, marketing and fan development features. This is the first of its kind partnership that will also mean the joint development of additional and alternative economic models as we grow the ecosystem together. I know there is interest in the specifics of our expanded relationship, but due to confidentiality provisions, we aren't at the liberty to disclose them. What I can say is this: the deal features improved monetization per MAU that is comparable to other ad-supported DSPs, fully recognizing the value of our music and how critical it is to engagement on the platform. I was glad to have as the benefit of my experience at YouTube aligning with the music industry on solutions that worked for everyone. We look forward to working with the team at TikTok along with our other partners to continue to innovate and grow the value of music. The market's adoption of subscription price increases, combined with the ongoing evolution of our key partnerships, gives us tremendous optimism for the future of streaming growth. As we turn to AI, I'd like to point out we have a long history of working together with distribution platforms to establish licensing models that drive growth and innovation. For the past 15 years, music companies and distribution platforms have partnered to grow user-generated content as a multibillion dollar revenue stream for artists and songwriters. Today, there are obvious similarities with AI. Working with our artists and songwriters, we're leaning in, moving fast and working with a network of partners, including both generative AI engines and distribution platforms. Many Warner artists are already exploring impactful ways to use generative AI to create, augment and remix their music. We have some great examples from big names on the way later this quarter. Other artists are using generative AI for visuals with the artist like metal band Disturbed and dance producer [indiscernible] and the superstar Rob of Linkin Park all creating highly impactful music videos. In addition, AI-enabled stem separation technology is giving new life to recordings by artists who are no longer with us. For example, AI has been used to isolate the vocal performance from sound recordings of legendary entertainment Sammy Davis Jr. and renowned opera singer Maria Callas as part of groundbreaking singles. We're deeply inspired by our artists’ abilities to embrace and push the boundaries of the latest technology. I'd like to highlight one of the first official and professionally AI-generated song featuring a deceased artist, which came through our ADA Latin division. Costa Rican musician Pedro Capmany has released a new duet with his dad, the legendary father of Costa Rican Rock, Jose Capmany. This is Jose's first song since 2001, the year of his tragic death. After analyzing hundreds of hours of interviews, a cappellas recorded songs and live performances from Jose's career, every nuance and the pattern of his voice was modeled using AI and machine learning. The resulting song movingly announces the arrival of Pedro's son, Jose's grandson. It also coincides with Jose's catalog being available on all streaming services for the first time. With the right framework in place, AI will enable fans to pay their heroes the ultimate compliment through a new level of user-driven content, including new cover versions and mash-ups. AI is unquestionably one of the most transformative forces in human history. Nonetheless, this technology shift is more familiar terrain than first meets the eye. Like many technologies before it, it presents massive opportunities for human creativity and innovation. Q4 is off to a strong start with amazing releases, including Barbie The Album, Burna Boy, Nino, PinkPantheress, Tiago PZK, Cali, Tiesto and Anne-Marie. And we have new music coming from Zach Bryan, Sia, Dan and Shay, David Guetta, Charlie Puth, Omar Apollo and Robin Schulz. We have a fantastic roster of artists and songwriters and a great team. We continue to invest in our expertise and infrastructure, both creative and technological, in order to create long-term success. As I said in my first earnings call, I'm a big believer in action speaking louder than words. So today, more than anything else I've said, it's our results that show we're gaining real traction. And there is a lot to be excited about in Q4 and beyond. Eric, over to you.

Thank you, Robert, and good morning, everyone. Our Q3 results are reflective of a robust release slate, strong carryover from a variety of artists across different genres and geographies, easing ad comps and outstanding performance in our publishing business. As a result, we delivered solid growth across key metrics, including revenue, adjusted OIBDA and adjusted OIBDA margin. Total revenue increased 10%, reflecting growth in both Recorded Music and Music Publishing. Adjusted OIBDA increased 18% with a margin of 19% compared to 17.6% in the prior year quarter. These increases were primarily due to strong operating performance and disciplined cost management. Our margin performance in the quarter was not materially impacted by savings from our March headcount reduction as we reinvested most of the savings into technology. Although, we anticipate that we will similarly reinvest most of those savings for the balance of this fiscal year, we are raising our guidance to deliver full year margin expansion at the high end of our 50 to 100 basis point range. Recorded Music revenue grew 9%. Streaming revenue increased 7%. Subscription streaming revenue grew in the low double-digits and ad-supported increased in the low single-digits. As Robert mentioned earlier, starting Q3 and going forward, when we talk about ad-supported streaming revenue, it will be inclusive of revenue from emerging streaming platforms. Our streaming results improved in each month of the quarter as we released new music. Additionally, the market-related ad-supported headwind moderated as we lapped the pressure we began to see in the prior year quarter. Physical revenue increased 2%, driven by solid performance in the U.S. Artist services and expanded rights revenue increased by 14% due to higher content promotion and merchandising revenue. Licensing revenue increased 24% driven by growth in sync and broadcast fees. Recorded Music adjusted OIBDA increased by 16% with a margin of 20.6%. This is an increase of 130 basis points compared to the prior year quarter. Music Publishing continues to deliver strong results, posting 16% revenue growth, driven by strength in digital and mechanical. Digital revenue grew 27% and streaming revenue increased 28%, reflecting the continued growth in streaming, digital deal renewals and a revenue true-up of $9 million. We had a $17 million benefit from the CRB rate increase in the prior year quarter, and we had a $7 million benefit in the current quarter. Performance revenue decreased by 9% due to the timing of payments from collection societies. Mechanical revenue increased by 45%, primarily due to a higher share of physical sales and timing of distributions. Sync was flat due to lower commercial licensing activity, offset by copyright infringement settlements. Music Publishing adjusted OIBDA increased 32% to $74 million with margin increasing 310 basis points to 26.1%, driven by strong operating performance. In April, we successfully launched certain components of our financial transformation program in select territories. The program remains on track to meaningfully roll out in a wave-based approach and with expanded functionalities during fiscal 2023, 2024 and into 2025. Once fully implemented, we expect the program to yield annualized run rate savings of $35 million to $40 million. Q3 CapEx decreased to $33 million as compared to $35 million in the prior year quarter. Operating cash flow decreased 10% to $146 million from $163 million in the prior year quarter due to higher cash taxes and cash interest. Free cash flow decreased 12% to $113 million from $128 million in the prior year quarter. Adjusted OIBDA to operating cash flow conversion was 49% in Q3. Our goal remains to deliver an operating cash conversion of 50% to 60% over a multiyear period, and we expect to achieve this target for 2023. As of June 30, we had a cash balance of $600 million, total debt of approximately $4 billion and net debt of $3.4 billion. Our weighted average cost of debt is 4.1% and our nearest maturity date is in 2028. As we look ahead, we expect continued improvement in our results. We are working hard to execute against our plan and look forward to sharing more about fiscal 2024 on our next earnings call. Thank you to everyone for joining us today. We'll now open the call for questions.

[Operator Instructions] Our first question comes from the line of Benjamin Swinburne with Morgan Stanley.

Robert, you mentioned the price increases. I think you thanked the DSPs for what you described as a good start. But at least from our perspective, there's a bigger prize longer term, which is really continued movement of prices higher and really maybe a structural change to sort of the incentives that are driving the market. So I'm wondering if you could talk a little bit about your confidence in your ability or the industry's ability to really drive significant change in the incentive structure and whether or not you have a new agreement with Spotify, because there was some disclosure in their quarterly filings suggesting they've got a number of new commitments with partners. Universal announced a new agreement. So I would love to hear your thoughts on sort of the long-term changes you'd like to see the industry adopt beyond just 1 year of price increases? And also whether you can talk a little bit about your relationship with Spotify, whether anything has changed there?

Let me take it from the backwards. So no, we do not have a new deal with Spotify. So let me just clarify that upfront. We're not in relationship with the consumers. Our DSP partners are. So they are free to raise prices at any time without any contractual change. So it's not required in order to do so. I think as I look forward into the future -- obviously, you've heard me in my opening remarks talk about the value of music. And this being a first step in what I believe is a more regular cadence of increases. But let me give an example of what I think should happen more often and why. If you look at the history of Netflix and their innovation around price, it was really both on the way down and on the way up. Netflix started at $20 a month more than 20 years ago, then it went up to $22, and then it, over the course of many years, has innovated down to $19, $18, $17, $16, all the way down to $7.99. And then it started to grow it back up. And today, the standard plan is $15. I forget the name of the next plan. I hope with more family members on it, is $19, so close to $20. The level of innovation around price is incredible. And I think that the DSPs in the music space will begin on the same path, because the video services are showing us a price elasticity that consumer has that it is not resulting in elevated levels of churn. Now let me be clear. I am not suggesting that we go to $19 today. That is not what I'm saying. But what I'm pointing out is the innovation that is happening in the entertainment space, around it, the value that we all provide to users and the elasticity that is there. And we are -- we obviously want to make sure that we're working collaboratively together with our DSP partners to innovate over the next decade around this point.

And then if I could ask you a follow-up, you and/or Eric, just around margins. I mean this quarter, we really saw the business deliver the kind of growth I think we all kind of expect over time, particularly both revenue, but also operating leverage. I think there's still some question out there, Robert, about whether your appetite to sort of reinvent the organization from a technology point of view is going to cause some kind of pause in the margin story that we're seeing again this quarter. Just wondering if you could talk a little bit about the technology investments you're making and whether you think you can continue to drive operating leverage in the business over time, assuming the top line performs?

Ben, this is Eric. I'll take that. So I think the first thing to note is that we did a restructuring, reduced headcount this year, are getting meaningful savings from that. Our technology investments are really being funded by those savings, not coming out of margin. So that's the first point. The second point is at the IPO, we had a long-term projection of 100 basis points increase per year on average in margin. We have largely met that. We're saying we're going to meet that again in '23. I will say that as we look forward, we are focused on margin increases. We are working on our '24 budget now, so I don't have anything specific to say for '24. I will say that we actively -- Robert, myself, the business team actively worked on a game plan for OIBDA growth and margin improvement within fiscal '23. We're working collectively as a team. Early in the year, I said 50 to 100 basis points was realistic for this year. Now, we're confirming the high end of that range as our objective, as our goal for the year. And that is largely through active management of the business. Both revenue growth -- we saw reaccelerated digital growth in Recorded this year and extraordinary performance in our Publishing division, both with growing margins and active cost management, not just in headcount, but also areas like marketing that allow us to achieve this strong margin growth. So we as a team will continue to look at growth in the business, both top line and margin. Where exactly it will land in '24, we'll report in future quarters as we finalize our budget. But it's very much in the center of our focus.

Our next question comes from the line of Michael Morris with Guggenheim Securities.

I wanted to ask about the TikTok agreement. There's a lot of complexity in the announcement here. So I'm hoping you can share some additional detail. As you look at the different components of this agreement, Robert, can you help us understand which elements are the most impactful to your business maybe in the near term as compared to which elements need to unfold a bit more over time? So some details there would be great. I'm also curious as to whether this deal sets any precedent for other technology partnerships that you have? And then finally, Eric, you've discussed in the past to move on some of these kind of emerging agreements from fixed payment structures into more variable agreements. So does this agreement start to compensate you more on a usage basis, particularly given just the popularity of the platform?

Sure. Go ahead you start. Go ahead start, Robert.

All right. Eric and I are shuffling with this thing. I won. So obviously, we can't share much, confidentiality, as I mentioned before. What I can tell you on the elements, obviously, I focused on value for us. And what is important to me is that whether it's in ad-supported or subscription, that we have fairness across all of our distributors so that nobody feels disadvantaged or advantaged in any way. And that we have a well-distributed distributor set of partners with all sort of feeling equal. And so that was an important tenant of the relationship with me -- with TikTok. But what I also wanted to make sure is that we focus on the users, on their users, because that is important to TikTok and any DSP for that matter. And I think it's important for music companies to focus on that equally in order to make it win-win. And I have to say that I'm very pleased with the way Shou, the TikTok CEO, has engaged and sought also a win-win deal for both sides. And I want to make sure that this impactful platform drives even more value for us in the future, because we're delivering the value to them as well. And I think we've achieved this between both parties. And -- but there's a lot of work to do for us to unleash even more opportunities, and we have a road map for that.

Yes. Let me add a few things. One is -- and again, consistent with what Robert said and how our philosophy is, having services that compete with each other that our monetization is in line so that we're not incented to support one service versus another, but to provide the best content we can across all services and let their competition in the market determine where audiences go. So we're achieving our objective as we do these deals. TikTok is an example of that. It also opens up new growth drivers as they roll out subscription services and then other products that they want to. What I will say is we have been saying for quite some time that we've had emerging streaming deals that were concluded in 2021 that we expected renewals in '23 and '24. This obviously is a substantive one of them. What we will say is that this is happening pretty much when we expected and in line with where we would have expected this to. So this is really consistent with our model and our forecast. And we're really pleased this deal concluded, and Robert said in good partnerships. So we move forward.

Our next question comes from the line of Batya Levi with UBS.

Great. Can you provide a little bit more color on the emerging platform revenue mix now and your expectations for growth over the next couple of quarters? And maybe just one question on the advertising trends. Did you start to see some improvement in the base, excluding the emerging platform? And how should we think about that going forward?

So a few -- so the first thing is, this is the first quarter -- and hopefully, this simplifies things for folks out there. We know that it's been something we've had to explain in components in the past. We're now combining the emerging streaming category and the traditional ad-supported streaming category combined, which is how we know others report this as well. We have seen improvement in the -- in that category sequentially as the market improves, specifically for ad-supported services. You see that in the reporting -- of public reporting of some of the services that we have licenses with. So we're seeing this as a continued category of improvement quarter-to-quarter. We see the emerging subset, more the social gaming subset that's continuing to show upside and opportunity and growth. And the traditional ad side, which was declining for the past year or so, really starting to come back into a positive growth environment. So across the board, we've been pleased. And again, as we've said, as I said before, we had a series of renewals that are coming up in '23 and '24. TikTok being one that we talked about publicly that was just done, noting that, that didn't affect our Q3 results, but that deal was done in our fiscal Q4 and we'll see that in our fiscal Q4.

Our next question comes from the line of Kutgun Maral with Evercore ISI.

I was hoping to follow up on the streaming revenue discussion. When I think of the DSP price increases, TikTok deal and improved ad-supported trends, at this moment, there seems to be more tailwinds to growth then maybe there has been at any other point over the last few years. I know you called out that momentum has carried into Q4. But is there any more color you can provide on if we should see another acceleration in the year-over-year growth and how high that could get to? And specifically, I realize you don't provide guidance, but are we entering a period for the next year or so when Recorded Music subscription streaming revenue growth could get closer to a low teens range compared to the double-digits in Q3?

This is Eric. I'm happy to take the question. So I think you are right. When you look at -- traditionally, when you look at -- I mean at the time of our IPO, just looking back a couple of years, when you looked at what's going to drive streaming growth, it was the numerical growth in subscribers, it was literally subscription growth. Now, it's a multipronged growth engine. It continues to be subscriptions, but now it's not just developed markets. Emerging markets have accelerated their growth in subscriptions pricing. We've seen in the past year pricing come pretty much across the board now for all -- virtually all substantive distributors. You're seeing emerging streaming continue to grow with positive renewals, reaffirming the category and it's potential You're seeing the traditional ad-supported streaming that was affected by economic weakness starting to improve and get back to positive growth. So we're seeing a series of growth drivers in streaming, all of which are seeing positive momentum. As far as the number that, that growth will hit in the short-term, I wouldn't want to give that forecast there. Many third-parties that publish numbers there, I would ask you to look at, study and evaluate their assumptions. But I would say that as we were -- as we're entering fiscal '20 -- almost entering fiscal '24 versus '23, the environment across the board has become meaningfully more positive and optimistic as far as the variety of growth drivers and the strength of the growth drivers. So we do agree with you that there's real positive momentum out there, Kutgun.

Our next question comes from the line of Benjamin Black with Deutsche Bank.

So Robert, on the last earnings call, you mentioned the, disconnect between sort of the value of stream from higher caliber artists and sort of the current payment model. Obviously, quite a few DSPs have raised pricing. So I guess my question here is, have you made any progress towards a more artist-centric model? And then just a quick follow-up question on TikTok -- I think when it was announced you mentioned the possibility of new revenue opportunities for your artists and your song writers and also new fandom monetization on possibilities. So what exactly are those new opportunities? Any additional color or commentary would be great there?

So on the progress around DSPs. So the -- if you sort of step back, what I highlighted before is there is sort of disparity between the value that users receive by subscribing to music services and what it costs today, right? I've like I said in multiple times versus Netflix versus inflation, et cetera that's monthly. And the need for innovating around price optimization. And what has served the industry incredibly well for the past 15 years, was this collaboration about getting hundreds of millions of people -- multiple hundreds of millions of people into the premium experience, creating playlists and having stickiness and I'm in a great value prop. I don't think that is what will serve the industry well in the next 15 years. And we will all collectively have to focus on much more innovation around audience segmentation and price optimization and without negatively impacting any of the users, I should add. And that is not a thing that happens overnight or quarter-to-quarter. It's a carefully developed and orchestrated change that we will undergo, but don't expect news on that anytime soon. It takes time to unfold. And it takes multiple parties. It takes 2 to tango in this and more than 2 in this case. And -- but I'm very much focused on it, because I do think it is the right thing for all parties involved. And it's worth undergoing and do it in the most collaborative fashion possible. I forgot there was a second part of your question, which I'll pick up. Now TikTok, I think I said earlier that I can't give too many details on TikTok because of our confidentiality agreements. So, I get a lot of questions on it every time, you have massive user engagement, which TikTok has, right? It's been very successful in creating it. It creates new opportunities, not just for that company that has the consumer, but also for companies that work with it to develop new revenue streams off of this fan engagement. And whether that fan engagement is promotional in nature or economic and e-commerce driven, all of those are the possibilities. And what I wanted to establish is having a strong agreement with TikTok that gives us the license to both go deep together and innovate in the coming years. And that's what we're doing. So we're -- I can't really share any more details on that. But other than I'm very pleased to be partnered with them to partner with Shou and his team and off and running.

Our one from the line of Douglas Creutz with Cowen & Company.

You talked a bit about some of the opportunities you've had using AI to create music. And I just wondered if you could talk a little bit about both sort of on the legal side, the rights issues that you have to negotiate with doing that. And then also just in terms of the relationships with the artists, obviously, AI has become a point of some significant tension in other entertainment fields and kind of where your discussions sit right now with respect to that?

Yes. So as you can imagine, we are deeply engaged with our distribution partners as well as with the generative AI engines. So it's like sort of 2 fronts that we're having lots of discussion and collaboration around. I always view this as both defensive and offensive. And that is one of the reasons I mentioned in my opening remarks, some of the great progress we're making around generative AI with some of our artists. And there's a lot more that is happening behind the scenes that I have not talked about. And because it's a creative tool. However, the thing that is important is that artists have a choice, because there are some that may not like it, and that's totally fine. And then there are some that will embrace it, and that's also fine. And we have to make sure that we ensure that they have a choice and that something is not done to them that is done with them. And so, that is my utmost priority here, because there's nothing more precious to an artist than their voice and protecting their voice is protecting their livelihood and protecting their persona. So, I want to make sure that we deliver on that. And at the same time, we deliver on opportunities that the tools can provide them.

Our next question comes from the line of Sebastiano Petti with JPMorgan.

Eric, just trying on this one here. You said you wouldn't give us any color on '24 in terms of margins, but can you help us unpack maybe the phasing in of the financial transformation program? What if -- could you perhaps highlight what percentage or what you saw in the quarter? Was it material? Maybe how that will phase in through '25? And as you're looking into '24, anything that we should keep in mind in terms of comps this year relative to '22, which will perhaps normalize inside of 2024, thinking about the reported margin expansion, what that kind of looks like more on a like-for-like basis and '23 seems to be better -- better than perhaps -- coming in on a reported basis. And then I guess another kind of cleanup question here while just on the emerging streaming platform, great that it's going to be combined with ad-supported going forward to align with peers. But could you give us an update on the underlying emerging streaming platform revenue perhaps in the quarter and trying to parse that out against the true underlying ad-supported growth, I think you called out?

Okay. A lot of questions packed in there, Sebastiano. Nice to hear from you. All right. Let me try to tackle that. I think I've got 3 groups of questions. So one is financial transformation -- what we're trying to communicate there is a few things. 1 is that it's launched. It is live. We have several markets now using the new technology successfully, and that is fantastic. It is working and functional in a few markets. What we have done is adjusted our launch schedule to come in waves across fiscal '23, '24 and into fiscal '25. This will allow us to make sure that we have the proper support and hyper-care as each segment of markets is rolled out to make sure that it is successful. And that as we do this, we have the ability to use the new processes and tools successfully with the right training, the right controls. So it's a very thorough launch plan phasing over time. As we roll out, the benefits will roll in with it. Obviously, a substantial portion of the benefits happen when it is global. So some of the benefits will roll in, in '24, although a very modest amount, larger in '25. And once it's rolled out in '25, the benefits we expect to be robust for fiscal '26. You asked the questions about margin, I'm not sure 100% got it. What I will say about fiscal '23 is that the acceleration of digital and streaming revenue in the second half of '23, which is high-margin revenue is a great boost and our active cost management is allowing us to meet the high end of the range, which is what we've been looking at in prior years, not every year is exactly the same. I don't have an analytical like-for-like comparison sitting in front of me. But every year, we are looking for the opportunities to achieve the high end of the range, depending on the mix of releases distributed versus owned artist services and its rate of growth, which is lower revenue every year has a slightly different profile. But as we look at and we'll look at in the '24 budget, look at the profile of '24s revenue and the margins of that revenue and build the best plan for the year, we can with margin growth as one of the things we are actively managing. Your last question was now that we're reporting emerging streaming and ad-supported together, I think you want us to give some color on each piece. What we'll say is that in emerging streaming, there were no notable new deals in '23, the TikTok deal -- I'm sorry, in Q3 of '23. The TikTok deal commences in Q4. The category in emerging streaming continue to grow nicely, I would say, well into the teens and as supported continued to show sequential improvement heading back towards growth. And so hopefully, that gives you the color that you want Sebastiano.

Our next question comes from the line of Matthew Thornton with Truist Securities.

Most of mine have been answered. So a couple of housekeeping questions, if I could. I think given the cadence of the recent price increases across the DSPs, I would assume that we probably don't see the full run rate impact of that until the calendar fourth quarter, so fiscal first quarter. I just want to make sure that, that's a fair assumption. And then maybe for Eric, in the publishing side of things and streaming, I think there's a couple of puts and takes between renewals and a revenue true-up and some CRB impact. And I think there was a copyright infringement settlement within Sync. I'm just kind of curious how to net those out in terms of what the -- maybe the net impact from some of those one-time items might have been in the quarter. Any color there would be helpful?

Thanks, Matthew. So I'll take the second one first, because they pretty much net out to 0. The 2 most substantive things in Publishing was the revenue true-up in streaming and the CRB on a records 3, which has now been finalized at the kind of backlog revenue impact now that it's able to be calculated. The revenue true-up was a positive. The CRB, although there was a positive this quarter. The prior year was a positive -- it was $10 million more. So when you net that all out, it all nets to 0, the streaming revenue growth of 28% in publishing is about what it is once you net out all those true-ups. So it's really kind of negate each other. On the price increases on the recorded side, I would really say to expect the benefit of those or the full benefit of those in fiscal '24. And Spotify's announced rate increase as an example, it takes a few months to execute, rollout to their consumers and then roll that into our numbers. So, I'd expect to see the price increases roll through our numbers in fiscal '24, not I don't think realistically in Q4 '23.

And maybe I could sneak one more on housekeeping as well, Eric. The lower variable marketing spend that you talked a little bit about in the release. I just wanted to kind of double check if that's something that's sustainable or if that's something that needs to come back a little bit. Any color there as well?

I'd say it's too early for us or me to make a definitive statement there. I think some of that depends on the release schedule, which markets it skewed towards some markets have higher need to break local music and a higher marketing demand when some products come out in -- with partners or partnerships of how they're released it creates efficiencies in marketing. So it depends on the release schedule for next year. Obviously, as you see from this year, we're very actively looking at evaluating and managing costs, including marketing. And as we look forward, we will continue to -- with great discipline, evaluate and manage those. But I wouldn't want to yet call a specific permanent lower variable marketing. I will say that we're very actively looking to manage and improve margins, and that is one of the significant tools that you have to use.

Our next question comes from Stephen Laszczyk with Goldman Sachs. Your line is open.

I was wondering if you could maybe talk a little bit more about the momentum you saw in market share in the third quarter on the back of some strong releases, especially if there's anything you can say around perhaps the cadence or magnitude of those trends? And then maybe looking ahead, could you maybe give us an update on how the release slate stacks up in the back half of this year versus what we saw in the first half?

Sure. So first, I want to point out that we had -- we obviously had a great release slate with lots of momentum and lots of success. But at the same time, our catalog has also delivered, which is something that I tremendously appreciate. So it was -- we're kind of been firing on both engines, new release and catalog. We have a great slate for the next quarter. There's -- I would say the best way to think about this is that we entered the quarter with great success with Lil Uzi Vert, Gunna, Young Thug, Kelly Clarkson, aespa, and the Barbie Soundtrack, obviously, is a huge blockbuster. So our entry into the quarter has been great and our slate looks also very, very strong for Q4 and the rest of the year. There's lots of great new releases coming up from Burna Boy, Nino, PinkPantheress, Tiago PZK, Cali, Tiesto, Anne-Marie and so on and on and on. So -- and we have some new music coming from Zach Bryan and Dan and Shay, Sia, David Guetta, Charlie Puth, Robin Schulz, et cetera. So there's a lot of activity. The team is firing on all cylinders. And I'm just glad that we have reaccelerated and that we continue.

Great. And maybe just a longer-term question on the publishing business. You're seeing some great momentum on that side of the house. I was wondering if you can maybe talk a little bit more about the diversification and services strategy that you're pushing through in that business? And to what degree we maybe could expect similar outperformance on the publishing side over the course of '24?

Yes. I mean it's hard for me to guide for '24, just to sort of be in line with Eric on that. But what I can say is that Guy and Carianne have done a tremendous job over the past 4 years with Warner Chappell and run a very efficient and effective machine. They've diversified our services. They mine the catalog incredibly well. And we have 1 million -- more than 1 million songs that we're focusing on monetizing. And that takes some machine to do. And they're incredible operators and their results are really speaking for themselves. So obviously, I work with them very closely to set this up for the future and make sure that we continue, but I'm not prepared to guide on that into '24 as of today. But overall, I just want to close by saying I'm very grateful to the whole company to our teams, Hassel in the last quarter and in the current quarter, and it's great to see music speaking for itself and delivering the results. Thank you.

I'd like to hand the call back over to Robert Kyncl for closing remarks.

So I want to thank you all for taking the time out of your day to dial in to our call for all of your thoughtful questions for challenging us on things. And again, I'm very appreciative to the entire team at Warner Music Group, and I look forward to our next earnings call with you. Have a great morning.

This concludes today's conference call. Thank you for your participation. You may now disconnect.