Warner Music Group's Q4 2025: Contradictions Emerge on AI Strategy, Cash Conversion, Partnerships, and Revenue Share Models

Date of Call: November 20, 2025

Financials Results

• Revenue: Total revenue grew 13% in Q4; full-year total revenue up 8% on an adjusted basis; Recorded Music subscription streaming +8.4% in Q4.
• Operating Margin: Adjusted EBITDA margin ~25% for FY25; Q4 margins declined slightly due to revenue mix; expect adjusted OIBDA margin expansion of 150-200 basis points in FY26.

Guidance:

• Expect strong top-line growth in FY26 driven by focused organic investments, accretive M&A and contribution from distribution and D2C.
• Wholesale/PSM price increases from DSPs begin to provide tailwinds starting calendar 2026.
• Deliver $200M of annualized cost savings in 2026 (increasing to $300M in 2027) contributing 150–200 bps of adjusted OIBDA margin improvement in 2026.
• Accelerate accretive catalog M&A via Bain JV (>$1B funding) with deals expected to materialize in 2026.
• Free cash flow conversion and margin improvement expected to trend higher with target mid- to high-20s adjusted OIBDA margins long-term.
• Pursue AI licensing as an incremental top- and bottom-line opportunity.

Business Commentary:

• Revenue and Market Share Growth:
• Warner Music Group reported record high quarterly revenue and 13% year-over-year growth in Q4.
• The growth was driven by impressive performance across their Recorded Music and Music Publishing divisions.

• This was supported by notable market share increases, with an improvement in the U.S. market share by 0.6 percentage points and an increase in global Spotify top 200 share by around 6 percentage points.

• Financial Performance and Margin Expansion:

• Adjusted OIBDA rose by 12%, with margins declining slightly due to the mix of growth, particularly in artist services.
• The company aims to deliver 150 to 200 basis points of adjusted OIBDA margin improvement in 2026.

• Margin expansion is expected from cost savings programs and organic growth in high-margin streaming business.

• Strategic Initiatives and Market Share Gains:

• Warner Music Group achieved significant market share gains across all regions, with notable improvement in EMEA, LatAm, and APAC regions.
• 
• The company's strategy focused on artist development, catalog revitalization, and operational efficiency.

• These efforts led to market share gains that improved financial performance and increased market share.

• AI and Music Licensing Strategies:

• Warner Music Group signed agreements with 4 of the top 5 DSPs, with wholesale price increases that provide economic certainty.
• The company established principles for AI licensing, focusing on licensed models and economic terms that reflect music's value.
• These moves are part of the company's initiative to grow the value of music and participate fairly in the AI revolution.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management: "Total revenue grew 13%" and "adjusted OIBDA rose by 12%"; CEO: "our growth plan continues to bear fruit" and "we've seen steady global market share gains" (U.S. +0.6 ppts; Spotify Top 200 +6 ppts); CFO: cash $532M, net debt $3.8B, and confidence in margin expansion driven by $200M savings in 2026.

Q&A:

• Question from Kutgun Maral (Evercore ISI): There's a lot to unpack, but one area that I'd love to get your updated outlook on is with rights monetization, especially in the context of rising music engagement across platforms... how are you thinking about WMG's role in capturing incremental value in this next chapter of industry growth?
  Response: WMG will be proactive drivers of AI-era monetization: sign only licensed models, secure economics tied to usage/revenue, require artist/songwriter opt-ins, and pursue a three-pronged approach—Legislate, Litigate and License—to shape terms.

• Question from Benjamin Black (Deutsche Bank): Could you talk about the building blocks behind your expectations for top line growth in 2026 (including paid streaming growth and wholesale increases) and margins—how much margin expansion do you expect organically next year and longer-term targets?
  Response: Top-line growth drivers are market-share momentum, wholesale price increases with 4 of 5 top DSPs effective in 2026, accretive M&A via the Bain JV and expansion of distribution/D2C; margins to improve via $200M savings in 2026 (up to $300M in 2027), operating leverage and DSP pricing—guidance of 150–200 bps expansion in 2026 and mid‑to‑high‑20s adjusted OIBDA margins longer term.

• Question from Peter Supino (Wolfe Research): Could you talk about your successful market share gains over the last year, what you're doing differently, and any context on how each of your flagship frontline labels are performing?
  Response: Gains are broad-based across flagship labels and regions (U.S. +0.6 ppts; Spotify Top 200 +6 ppts) driven by focused artist development, catalog revitalization, improved distribution and disciplined capital allocation.

• Question from Michael Morris (Guggenheim Securities): On M&A plans, can you share more detail on what to expect and how much incremental growth this can be? Also expand on distribution strategy and why you believe it can be a bigger contributor in 2026.
  Response: WMG has a strong pipeline focused on highly accretive catalog opportunities to be capital-efficiently funded via the Bain JV (> $1B), with acquisitions expected to start in 2026; distribution will scale under new leadership with improved integration/customer service capabilities to accelerate profitable growth starting 2026.

• Question from Douglas Creutz (TD Cowen): How are your technology investments contributing to the growth outlook and might priorities change given the evolving landscape?
  Response: Investments in scalable core infrastructure (digital supply chain, royalty/royalty processing, songwriter payments, and financial transformation/SAP) enable faster scaling, better transparency and cost savings—priorities remain unchanged.

• Question from Cameron Mansson-Perrone (Morgan Stanley): You've secured wholesale rate increases with 4 of the top 5 DSPs—has deal variability decreased and are terms more standardized? And how do you balance savings initiatives with reinvesting to drive market share?
  Response: Deal terms have become more standardized across major DSPs while preserving necessary differences; savings come mainly from back-office and tech efficiencies (SAP, AI deal office, marketing/data) while investments in frontline artist/market spending are preserved or increased.

• Question from Ian Moore (Bernstein): The AI licensing announcements point to different parts of the value chain—can you bucket the commercial opportunity across the spectrum of new services you're licensing to?
  Response: WMG will engage across the full AI spectrum—from professional production tools to consumer discovery—focusing on interactivity-driven use cases that amplify star and iconic IP and capture incremental value.

• Question from Kannan Venkateshwar (Barclays): Why isn't AI an equal-threat (e.g., models bypassing creators) and on financials, excluding M&A/cost savings, how are underlying trends for margins progressing?
  Response: AI poses both threat and opportunity, but major rights-holders are better positioned to negotiate and secure fair economics; underlying organic margin drivers are higher-margin streaming growth and wholesale/PSM price increases (guide is net of investments and includes both cost savings and organic margin uplift).

Contradiction Point 1

AI Strategy and Artist Compensation

It involves the company's strategic approach to AI and its impact on artist compensation, which is a crucial aspect of their business model and relationships with artists.

Does AI pose a threat by bypassing content creators? Are underlying trends improving? - Kannan Venkateshwar (Barclays)

2025Q4: AI poses both threats and opportunities. WMG focuses on shaping the industry to benefit artists and songwriters. The large music companies play a crucial role in handling big business interactions. AI is seen as a means to enhance interactivity and iconic familiarity, favoring iconic IP. - Robert Kyncl(CEO)

How does the new Spotify deal shift the model from revenue share to wholesale, and is the currency impact driven by royalty deal risk or USD-related overhead costs? - Benjamin Swinburne (Morgan Stanley)

2025Q1: We've been very proactive with our partners, including a deal with the University of Toronto and others. These deals are not about the money. These deals are about ensuring that we protect the interests of our artists and songwriters. - Robert Kyncl(CEO)

Contradiction Point 2

AI and Music Industry Opportunities

It highlights conflicting perspectives on the role and impact of AI in the music industry, which could influence strategic investments and partnerships.

Does AI pose a threat to content creators? Are underlying trends improving? - Kannan Venkateshwar (Barclays)

2025Q4: AI poses both threats and opportunities. WMG focuses on shaping the industry to benefit artists and songwriters. The large music companies play a crucial role in handling big business interactions. AI is seen as a means to enhance interactivity and iconic familiarity, favoring iconic IP. - Robert Kyncl(CEO)

What is the focus of A&R investments and how do A&R expenses affect short-term and long-term goals? What are the margin expectations for this year? - Stephen Laszczyk (Goldman Sachs)

2025Q2: We are seeing an increase in AI-generated music. The industry is going to have to evolve on this. There is an opportunity here for us, not just to license existing music to AI platforms, but to license music that's created by AI in the future. - Robert Kyncl(CEO)

Contradiction Point 3

Cash Conversion Targets

It involves financial goals and performance metrics, which are crucial for investor expectations and operational planning.

What are the key drivers of your 2026 revenue growth, and what organic margin expansion do you anticipate next year? - Benjamin Black (Deutsche Bank)

2025Q4: Cash conversion targets remain 50%-60% cohorts. - Armin Zerza(CFO)

How will subscription streaming's future performance align with your midterm growth guidance? Are there opportunities to improve cash conversion? - Michael Morris (Guggenheim Securities)

2025Q3: Cash conversion remains a focus, with targets of 50%-60%. - Armin Zerza(CFO)

Contradiction Point 4

Strategic Partnerships and Market Share Growth

It involves differing perspectives on the role of strategic partnerships and market share growth, which are critical for competitive positioning and revenue generation.

What is driving your market share gains, and how are your flagship labels performing? - Peter Supino (Wolfe Research)

2025Q4: Market share grew broad-based across labels and regions. Factors contributing to this include focus on artist development, distribution, catalog revitalization, and operational excellence. Success is evident in returning artists like Cardi B and Twenty One Pilots, and catalog successes like Buckingham Nicks. The company is focused on capital allocation and strong pipelines for both releases and M&A. - Robert Kyncl(CEO)

How is Warner Music growing global market share, particularly in emerging markets? What factors in China's market impacted the results? - Benjamin Black (Deutsche Bank)

2025Q2: Strategies for growth include increasing value through collaborative partnerships. Emerging markets like Mexico and Brazil show success. In China, market share pressure and lighter release schedules affected results, with trends expected to continue. - Robert Kyncl(CEO)

Contradiction Point 5

DSP Deals and Revenue Share Model

It involves the company's approach to DSP deals and the evolution of the revenue share model, which impacts their financial structure and relationships with streaming platforms.

What drives your 2026 top-line growth expectations, and what organic margin expansion do you anticipate next year? - Benjamin Black (Deutsche Bank)

2025Q4: Our strategy focuses on growing the pie, increasing market share, and efficiency. The Spotify and Amazon deals are moving in the right direction, though more work is needed. - Robert Kyncl(CEO)

Regarding the new Spotify deal, how does it evolve the model toward a wholesale approach? Additionally, is the currency aspect attributed to royalty deal risk or USD overhead? - Benjamin Swinburne (Morgan Stanley)

2025Q1: More of our revenue is now coming from a wholesale model. That started really with the Spotify deal and then with Amazon as well. - Robert Kyncl(CEO)