Universal Music Group N.V. ($UMG)

Good evening, and welcome to Universal Music Group's First Quarter Earnings Call for the period ended March 31, 2026. My name is Gavin and I will be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group; and Matt Ellis, Chief Financial Officer. They will be joined during Q&A by Michael Nash, Chief Digital Officer; and Boyd Muir, Chief Operating Officer. [Operator Instructions] As a reminder, this call is being recorded. Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements. which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section of UMG's 2025 annual report, which is available on the Investor Relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the Investor Relations page of UMG's website. Thank you, Sir Lucian. You may begin your conference.

Thank you, and thank you all for joining us. We reported today that for the first quarter of 2026, UMG had revenue growth of 8% and adjusted EBITDA growth of 4%, both of those in constant currency. This is the 19th consecutive quarter that we posted growth in both revenue and adjusted EBITDA since becoming a public company in September 2021. Our growth this quarter should be seen in the context of our exceptionally strong first quarter last year. Many of this year's biggest releases are still ahead of us. We do not manage our business quarter by quarter. Therefore, the annual picture is far more illuminating. According to recent figures from music and copyright, which tracks global market share in 2025, we achieved a 33% worldwide share in recorded music. That is our highest in 12 years as well as a 24% in Music Publishing, also our highest share ever in music publishing. Obviously, I'm thrilled about both. In the U.S., the world's largest music market, UMG ended 2025 on a 2-year high in front line market share of 37.5% according to Luminate. Before getting into our creative and operating performance, I want to discuss and address some recent capital market developments, which we announced earlier today. What we will not be discussing today is the proposal from Pershing Square that the Board of Directors received earlier this month. We will provide you with an update once the Board has made its decision. Since last year, the Board and management have been evaluating opportunities to optimize our capital allocation and to provide enhanced information to investors. The $500 million share buyback program we announced in March of this year is 1 example of the results of this review process. I have requested and the Board has approved the increase in authorized share buybacks to EUR 1 billion to include the earlier announced amount of EUR 500 million. In connection with our original share buyback authorization in March at that time, the Board also authorized the monetization of half of the company's equity stake in Spotify. As previously announced, artists will share in the proceeds. UMG's share of the proceeds will be used initially for its buyback program. This decision underscores the importance of our capital discipline, the expected returns from our buybacks and our confidence in the long-term growth of UMG as well as, obviously, the broader music ecosystem. We are also committed to give more detail in areas that are key to helping understand our business and investments. One, to help investors review the growth of our underlying businesses, we are breaking out the results of our Downtown acquisition this quarter and will continue to do so for the rest of the year. Two, along with same lines, we're providing a look back at Virgin Music's contribution to our recorded music results through 2025. Three, in addition to continuing to disclose segment EBITDA with our full and half year results, we're providing segment EBITDA this quarter and we'll continue providing that information each quarter. And four, in subsequent earnings calls, we're going to be providing greater insight into the ways we have evaluated investments in our business, whether or not they be catalogs or other significant M&A activity. Now let me turn to some updates on operative and commercial progress. Our sustained success is the result of a deliberate long-term strategy, the breadth and depth of our roster the many ways we create value with our artists and songwriters and the continued expansion of newer businesses across UMG. Underpinning that strategy is a clear view of where this industry is headed. That's why beyond our core business of building careers for artists and songwriters, we're driving additional growth in 4 interconnected ways: one, label and artist services; two, high potential markets; three, superfan initiatives; and four, of course, AI. I talked about these at length on our last call. So I won't cover each one in too much detail despite the fact that we have plenty to report. Artists and songwriter development is the soul of our business as well as our company and it remains the hardest, most valuable aspect of what we do. But at the same time, we just don't anticipate changes in the market, we shape them. and we expect ourselves to shape them. We have to constantly evolve. Last quarter, I spoke about the combination of Virgin Music Group and Downtown, bringing more than 5,000 additional business clients and more than 4 million creators in 145 countries into our own ecosystem. I want to take a step back and explain the path we took to arrive here. About 5 years ago, we foresaw a potential gap in our portfolio, something I couldn't allow. So in September 22, we launched Virgin Music Group and bought in JT Myers and Nat Pastor as co-CEOs to unify and expand our label and office services business worldwide. That is what we've done. We've grown Virgin's revenue at a 60% CAGR over the last 2 years. Then on top of that with our strategic acquisition of Downtown, we've leapfrogged our competitors to become the #2 company in the fast-growing artist and label services market. We can now confidently say what Virgin offers is best in class, a broad and flexible suite of services in high-touch support to self-service solutions. Today, we'll share more on the extraordinary performance of both our recorded music labels and our Virgin label services business over the last few years. Matt will walk you through it later. But I'd like you to come away with 2 things. First, our core record label business is very healthy. We're growing year after year at attractive rates, whilst also expanding margins. Second, our Virgin and Downtown businesses are highly complementary, growing quickly and on a path to market leadership in a growing sector. Even with this momentum, we still have lots of work to do. The next phase of our plan for Virgin is focused on empowering independent players, raising the standards of service even higher and growing our community of dynamic labels and entrepreneurs. At the same time, we see a meaningful opportunity for us to capture additional value in high potential markets. Let's look at Indonesia, for example, as 1 example. It is a population of 285 million, making it the fourth most populous country in the world, and yet it's only the 34th largest music market. So we believe there's still significant headroom for growth. In '25, 4 of the top 5 artists in the market were Indonesian. That tells you something important. To succeed in a market like this, you need sustained local investment and real local expertise, and we stay committed to that. In 2017, our recorded music market share in Indonesia was less than 10%. Today, we believe our share is more than 3x that and is now in line with our global share, positioning us as the market leader there. We've achieved this all primarily through domestic [indiscernible] as well as strong local partnerships, which are critical, complemented by 1 or 2 small acquisitions. While the market had a 14% CAGR from '21 to '25, we're growing more than 50% faster at a CAGR of over 22% for the same period. We've got several other success stories like Indonesia, and I look forward to sharing with them over time. And we can't escape looking at through the prism of opportunity in these markets and what we're doing and what we see. Our growth across our recorded music publishing and label services business is benefiting from the work we've done with our [ DSD ] partners to institute Streaming 2.0. These agreements encourage smarter customer segmentation, accelerate geographic expansion, create greater consumer value and drive ARPU growth. This quarter, we're beginning to see uplift from these agreements with more flow throughout the rest of the year. That brings us obviously to AI. We're leading the industry in working with established and emerging AI companies, employing AI and the development of new formats and leveraging music as a critical ingredient to unlock consumer adoption of new technologies as it has for Apple, Google, Meta, and other major digital platforms. On prior calls, we've discussed our growing network of responsible AI partnerships from startups like Udio and Klay; the artist tool platforms such as Splice and Stability AI to a major technology leader such as NVIDIA. Today, I'd like to highlight one important area of the multiyear collaboration with NVIDIA that we announced in January and recently highlighted at their annual GTC event, applying AI to preserve, restore and unlock the value of UMG's vast archives and library. We hope one of the world's most important music archives more than 6 million recorded music assets along with video, photography, instruments, equipment and other crucial artifacts, our archive team is world-class but the scale and complexity of this work is enormous. With NVIDIA, we see an opportunity to use AI in 2 powerful ways. First, to create a deeper understanding of the music, video and related materials stored across our vaults across so many formats dating back to the earlier 20th century, we believe it or not. Second, to accelerate high-quality restoration, digitization and discovery at a scale that would simply not be possible through traditional methods alone. This is not AI replacing artistry or expertise, it is AI helping us protect, understand and responsibly activate one of the most valuable cultural catalogs in the world of any sort. Over time, we believe this work can preserve irreplaceable assets, uncover recordings and videos that have never been commercially released and enable new products and experiences that will inspire music fans for generations to come. My closing thought on this, this is exactly the kind of responsible AI partnership we believe in protecting the artists, preserving culture and creating new value from the amazing assets already within the organization. Everything begins with our extraordinary artists and songwriters, of whom I'm so proud a group that is unmatched in their creative brilliance as well as their commercial success. This quarter, we had new releases from global stars such as Hybe BTS and [indiscernible], both of whom debuted at #1 in the U.S. and international success, including Francis Theodore. At the same time, UMG is leading the U.K.'s creative resurgence following the restructuring of our U.K. business with big hits from Olivia Dean, Sam Fender and Mumford & Sons. Q2 is off to a strong start, including much anticipated outcomes from Noah Kahan and a massive hit single from Olivia Rodrigo, which went straight to #1 in the U.K., U.S. and Australia, for example, kicking off the long-term campaign for her third Studio album for the rest of the year. As evidence of the global appeal of our office, let's look no further than this year's culturally significant Coachella Music Festival. More than 30 UMG artists performed and most impressively, all of the 3 headliners on the 3 separate nights were all UMG artists, Sabrina Carpenter, Justin Bieber and Karol G. Each of 3 all enjoyed significant uplifts in streaming numbers after their performances, but what really happened with Justin was truly historic and shows how an artist brand developed with skill and long-term vision over the years, but this is extraordinary and in an enduring power. Justin's Coachella performance underscores an important evolution in how we see the music business, why frontline and catalog are [indiscernible], in a sense, old fashion terms. It is a stunning example of how brilliant performance can be amplified globally to engage super fans and introduce a new generation to entire catalog and library. It is ignited the biggest ever streaming search tied to the festival. That surge spread across his entire catalog of 8 studio albums, all of which are UMG's, is average daily global streams, nearly quadrupled from 31 million to 113 million. The Beauty and the Beast surged to #1 globally on Spotify and Apple Music for the first time since its release 13 years ago. That's why we don't view frontline and catalog as separate entities, but as one holistic opportunity. Creating and amplifying cultural moments that activate and reactivate fan bases isn't limited to just records or live performances. Our ability to ignite music consumption across entire bodies of work has been on full display in recent quarters. Let me provide you with a couple of examples. Take our partnership with Netflix, for example. In recent months, we debuted the South by Southwest, the award-winning Noah Kahan film to coincide with the release of his new album along with a documentary on The Rise Of the Red Hot Chili Peppers called Our brother, Hillel. Together with Netflix, we've released over a dozen original series and docs, including Pop Star Academy, featuring Katseye; concert specials with the oliver Rodrigo well as Lady Gag of course and the Sundance winning Selena y Los Dinos, which is the most watched music documentary on the platform in the last 12 months, according to Nielsen. Of course, our partnerships extend beyond a single streaming platform. For example, Man on the Run, the acclaimed documentary about Paul McCartney and Wings, premiered globally on Amazon Prime in February. And coming later this year is a new CNN original hosted by Fred Armisen that will fans an unprecedented look into UMG vaults, which is a really unique insight and a format, which I think could create a new format moving into the future. It's really very, very special. Let me close with this. Over the years, my management team has built what is unquestionably the most successful music company in history. We operate a creative business in an industry that is going through breathtaking changes, a transformation that presents enormous opportunities. The signing of fresh talent, catalog acquisitions, M&A and beyond. We are confident that our breadth, scale and industry leadership give us special insight into these opportunities as well as greater ability to seize them. Our strong balance sheet provides us with the flexibility needed to act fast sometimes, but when and only when these opportunities meet rigorous financial and strategic criteria. The entire global team is laser focused on our long-term strategy. We appreciate the dialogue with all of our investors. We look forward to the conversation as we execute against the many opportunities for growth as well as the success we're creating. Well, that's my report. There you have it. That's what we did. That's what we're doing, and that's what we're going to do. So thank you. And now I'm going to turn it over to Matt. .

Thank you. As Lucian discussed, we are confident in our strategic plan and the growth that will drive for our business over the course of 2026 and beyond. This quarter is the first in which we are consolidating Downtown's results since the acquisition closed on February 20. With this significant expansion of our label and artist services business, we thought it was important to also provide some color on the performance of our Virgin Music business within our broader recorded music results over the past few years. We formed Virgin Music Group in late 2022 and the business' performance has been impressive. Since 2023, Virgin has grown at a 16% CAGR finishing 2025 with EUR 790 million in revenue. This represented 8.4% of our total recorded music revenue, up from 7.2% in 2023. At the same time, the remainder of our recorded music business also grew strongly, achieving a 7% revenue CAGR and an 11% adjusted EBITDA figure. On margins, we have frequently discussed mix, particularly growth of Virgin Music within the segment. Let me put quantitative support behind that. While UMG's recorded music margins were level from 2024 to '25 at 25.6%, Virgin expanded by almost a 4 percentage point in the revenue mix from 7.5% to 8.4%. This offset 20 basis points of year-over-year margin expansion in the ex virgin recorded music margin. While there are mix implications on our margin, we remain confident in our strategy to grow our artist and label services business alongside our label business in order to increase our touch points with the fast-growing independent sector. We're excited that Downtown puts significantly more weight behind these efforts. With that, let me turn to our results for the quarter. Our results are laid out in the press release, both with and without the impact of our Downtown acquisition, and I'll provide you with some additional color in my remarks. I'd remind you that all growth rates we discuss today will be in constant currency. Total revenue in the quarter grew 8.1% year-over-year to EUR 2.9 billion. The consolidation of Downtown, initial pricing benefits of Streaming 2.0 agreements, strong physical sales and healthy synchronization income all contributed to growth in recorded music and music partnership. Downtown contributed EUR 86 million to total revenue following the closing, representing 3.2 percentage points of our growth this quarter. Excluding Downtown, revenue growth was 4.9%. Adjusted EBITDA grew 3.9% in the quarter, to EUR 636 million, with EUR 3 million from Downtown and grew 3.4% excluding downtown. Margin declined 0.9 percentage points to 21.9% but this was largely related to the inclusion of downtown as well as the EUR 10 million loss in our merchandising business, which I will discuss when I go through the segment results. Excluding Downtown, adjusted EBITDA margin declined 30 basis points to 22.5%, with improvement in music publishing margin and flat recorded music margin. This was offset by the merchandising pressure I mentioned as well as an increase in corporate overhead that included spend on strategic technology initiatives. Adjusted EBITDA excludes noncash share-based compensation expense of EUR 60 million compared to EUR 58 million in the first quarter of 2025. Adjusted EBITDA also excludes EUR 5 million of integration and business transformation costs in 2026. Now let me walk through the segments, which will give you more color on our performance. Recorded Music revenue grew 8.9%, including downtown EUR 72 million contribution and grew 5.4%, excluding Downtown. Total subscription revenue grew 12.5% with Downtown contributing EUR 54 million. Excluding Downtown, subscription revenue grew 7.9%. Pricing benefits from multiple Streaming 2.0 deals, some of which are still phasing in, contributed 3 percentage points of subscription growth and ARPU weighted volume growth remained healthy. However, a lighter release schedule against both a stronger release schedule last year and a healthy competitive release slate led to front line market share declines and for over 2 percentage point offset to our subscription growth. Even so, we had high single-digit or double-digit subscription revenue growth in 5 of our top 10 markets, including the U.S. and China. As Lucian noted, 2025 was our strongest year for market share in more than a decade, and we expect the share reduction in the first quarter to gradually recover as to release slate picks up during the year. Looking ahead, we expect further pricing benefit in the coming quarters from Streaming 2.o deals signed so far with 3 of our major DSP partners. We also expect additional Streaming 2.0 deals to be signed later this year. Ad-supported streaming revenue grew 5% and grew 1.2%, excluding Downtown. We remain in a transitional period in this category and saw uneven performance across a diverse set of our top platforms in this segment. This reflects, one, audio platforms, advertising rate challenges and two, video's continuing category disruption resulted from the shift towards shortfall consumption. We continue working closely with -- we continue working closely with our partners on better monetization of ad support and engagement, and we do expect to see sustained growth over the midterm. Physical sales were strong, up 12.7% year-over-year both including and excluding Downtown. We saw particular strength in multiple acts in Japan and from BTS in the U.S. License and other revenues declined 3.6% or 5.1% excluding Downtown due to nonrecurring live income in Q1 last year. Underlying licensing revenue grew year-over-year, thanks to strong sync revenue. As Lucian mentioned, we broke out 1Q segment EBITDA and adjusted EBITDA for the first time in today's earnings press release. We plan to do this each quarter going forward, and we provided historical fact sheet with 2 years of quarterly segment results which you can find on our IR website. . Recorded music adjusted EBITDA of EUR 565 million grew 6.0% and included EUR 4 million from Downtown. Excluding Downtown, adjusted EBITDA grew 5.3% and margin was flat at 25.7%. Similar to the 2024 versus 2025 impact I discussed earlier, operating leverage driven by Streaming 2.0 price increases was offset by the impact of repertoire mix as Virgin revenue growth outpaced the rest of recorded music. . Turning to Music Publishing. Revenue grew 7.0% over the prior year quarter, including Downtown's [ EUR 14 million ] contribution and grew 4.3% excluding Downtown. The 4.3% growth was driven by 13.6% growth in synchronization revenue, thanks to stronger advertising trailers and Motion Picture income, 12% growth in mechanical revenue, helped by physical strength in Japan, 5.6% performance revenue growth. Digital revenue growth of 1.3% was impacted by a difficult comparison against last year's 17% growth which contains some timing benefits. Adjusted EBITDA of EUR 135 million grew 11.6% with a loss of EUR 1 million from Downtown. Excluding Downtown, adjusted EBITDA was up 12.4% and margin improved 1.9 percentage points to 25.3%, thanks to favorable revenue mix partially offset by ongoing higher legal fees incurred in connection with copyright enforcement. Moving on to merchandising, which was not impacted by the downtown acquisition in first quarter, merchandising revenue declined 2%, with a meaningful reduction in direct-to-consumer revenue due to the timing of product releases, which is particularly strong in the first quarter of last year. Retail sales also declined, while tour income saw strong growth, thanks to tours for Lady Gaga, [ indiscernible], Nine Inch Nails, amongst others. Merchandising adjusted EBITDA was a loss of EUR 10 million, driven primarily by seasonally lower revenue against our fixed overhead base as well as unfavorable revenue mix with a higher contribution from low-margin touring revenue. In addition, margin was impacted by a timing-related increase in marketing spend. Before turning to Q&A, I wanted to take a moment to update you on share buybacks. As Lucian mentioned, the Board has increased our share buyback authorization to EUR 1 billion. With regards to the first EUR 500 million buyback program that we announced on March 30, we have purchased just over 1.85 million shares for EUR 36 million through April '24. Our balance sheet continues to be a source of strength and gives us the ability to pursue opportunities in support of our strategy. We remain confident in our business. We continue to focus on driving long-term value and look at the business over annual and multiyear cycles as we execute against our strong and consistent strategic plan. Lucie and Boyd, Michael and I would now be happy to take your questions. Operator, we'll open the line for Q&A.

[Operator Instructions] And your first question comes from the line of Jason Bazinet from Citi.

6 I just had a basic question on AI. It feels like when digital first started, most of the record labels were all on the same page as the DSP has got off the ground. In this AI world, it feels like there's not as much harmony among the labels, I guess, I'd say. And so I guess if you could just comment, a, is that a fair characterization? And then b, what are the key differences that you see in your industry discussions today in terms of where this should go and could go?

Jason, thank you for your question, Michael Nash here. So with respect to industry harmony, first of all, as market leaders we're looking to develop partnerships. We make our own deals. We forge our path out of the pursuit of the interest of our artists. And we believe that we've done a very effective job of activating a number of different partnerships, as Lucian articulated in his earlier comments. I think that you've seen, for example, a new service like Klay obtained licenses from multiple partners. There have been announcements service -- new service entrepreneurial initiative that we did the first deal with Udio subsequently was able to get a partnership in place with other music companies and enterprises and they're moving forward with their plans as they obtain greater industry support. And I think you've also seen strong industry action with respect to litigation. And taking a very strong position with respect to artists rights and interests. And I think you've seen with respect to conversations with government and lobbying strong kind of industry alliance with respect to core issues in terms of regulation and in terms of legislation. So we questioned the general characterization that there are differences of opinion that would constitute a fragmentation industry cluster. Now you may be specifically referencing the fact that a company like [ Suno ] that we're involved in litigation against has one license partner right now and other music companies haven't licensed that partner. I think that, that is kind of the exception that proves the rule. In general, I think that it's more a story of industry opportunity that a number of companies are gravitating towards. But again, too, and where I started, our perspective is that we're providing leadership in this area. We're forging partnerships in the interest of our artists that we think promote benefits for the entire ecosystem. And that's an approach to market development that we're very comfortable with.

It's Lucian, I would like to add, I think you need to look at it through this lens that each company Some of them are developing products and tools around creation and some of them around creation and distribution. And there's different stages in their development. So some of them are startups that you've never heard of. And there are others that are established platforms that we're creating different AI products with. And we -- I can tell you, we'll be in the process of announcing what they are and who they're with the established platforms. So as I said, I think you've got to look at it through 2 different prisms, different companies doing different things in different ways. And that's the huge difference that there was when we started looking at digital music in the cloud and what became ad-funded and then to premium subscription.

Your next question comes from the line of Ed Young from Morgan Stanley. .

You've talked to a 3-point benefit from pricing in the quarter. Can you give some color on how we should think about the benefits of that as we go through the year in more of these wholesale 2.0 agreements roll in? I just wanted a follow-up on the rationale for the Spotify stake sale. Obviously, the shares of Spotify are far from the highs. And given you have a unique viewpoint to judge the prospects for the industry, I just wondered if you could elaborate on why now is the right time.

Yes. Thanks for the questions. So I'll start with the second 1 first and then come back to the pricing question. The Spotify sale is really a case of looking at the best use of where we want to spend money. Right now, we see that our shares are provided good value for us and then how we finance that activity. We'll obviously look at the right time to execute that sale over the course of the remainder of the year here, and we'll find the best way to do that. But what you should read into it is our confidence in our prospects going forward. We talked about the dislocation in value on the last call. And we certainly believe that's the case. And so that's why we kicked off the buyback programs. And we discussed using some of these Spotify shares to fund that. But as you noticed, what we said, we're already selling a part of that. We have tremendous faith in the existing ecosystem. We look forward to continuing to partner with everyone across the ecosystem and the opportunities across the ecosystem going forward are very strong. On the question about the pricing benefit, as we said, we saw the first phase of those kick in, in the first quarter. They provided a 3-point benefit. As I also said, some of them had a full effect in the first quarter. Others of them were phasing in, and so we should expect to see that uptick a little bit further as we go into the rest of the year. And of course, then there's the opportunity for other players that we haven't yet announced deals with to get those executed as well. So as we think about the rest of the year, we get the full quarter impact in Q2 of the ones we already discussed and then additional items from there, Michael. I see if there's anything you want to add to that?

I think that's a pretty good assessment. I would just underscore that the Streaming 2.0 deals that we've done so far only represent a portion of all subscribers not all the wholesale price increases applied to all geographies on the same time frame. Some partners are going to be raising prices in certain geographies going forward, under deals we've already done, and we expect to see further benefits in the coming quarters from new deals that we're signing. So as we pick up in terms of market share and as we experience more benefit from Streaming 2.0 deals, we do expect to see further growth in subscription.

Your next question comes from the line of Peter Supino from Wolfe Research.

I'd like to follow up on the last question about retail pricing and ask you several streamers announced U.S. price increases during the first quarter. And I don't -- I'd like to better understand the way those retail pricing actions by streamers in the United States transmit to your streaming revenue in terms of timing and magnitude and whether there's a chance of an acceleration in your business in the next quarter or 2, unless that sounds like an overly short-term question, I think the relationship between retail pricing, DSP minimums and modeling your revenue growth is a really important multiyear question for many of your constituents. And if you've got time for it, I'd also like to ask you a question about your buybacks. We welcome the announcement, and I'm curious if you'd make a longer-term comment about how Universal thinks about cash in excess of what's required to invest in the business, what the multiyear capital proposition to investors is.

Peter, this is Michael Nash. I'll take the first question with respect to retail pricing relates to wholesale revenue. We maintain a multipronged model with respect to the new deals that we're doing and our established deals. So we capture revenue both on the basis of an underlying per subscriber minimum and also with a percentage of retail, which means that if there's a price increase above what's anticipated based on the wholesale as translated through by the per subscriber minimum that we would participate. We are generally speaking, doing deals where we look to fairly and comprehensively participate in the value that our artist content brings to our partners' platforms. So if you're looking for proportionality, the proportionality should be ballpark. But keep in mind that there are the different mechanisms that go into the wholesale model construct. And as we do additional deals, we expect to layer in more benefits from pricing over time. I think we've already described some of the complexities in terms of the scope of deals that we've done the new deals we anticipate doing, the differences in terms of geography and timing that relate to how you'll see those pricing benefits in our subscription revenue over the course of 2026.

Thanks, Michael. Peter, on your question about buybacks and how we think about it longer term, I mean, consistent with how we've described the business for a good period of time now. And I think it starts with the fact that we have the business we have today because we've had the flexibility to consistently invest in the business, take advantage of opportunities when they come up and be in a position to, therefore, execute on our long-term strategy. In terms of within the capital allocation framework, that means we're constantly focused on making sure we build the best frontline roster of artists. You see what we do in the catalog space when it makes sense in M&A as well. Our dividend continues to be very important to our shareholders and a significant amount of capital gets returned every year to shareholders through that mechanism. And then when we see the opportunities through buybacks, as you've seen over the last month now, when there's flexibility to do so, that we will go ahead and do that. So we've talked for a long time now about buybacks being certainly something we think about in the capital allocation program, and we're proud to now be in a position where we can have demonstrated that, that is an important piece of it. So we'll continue analyzing what are the best uses of our capital going forward to build on the remarkable base that we have today, so that we continue to be the best and leading music company going forward.

I'd like to add one other thing, Matt, to go back to part of the original question. I think you have to look at Streaming 2.0 in terms of what underpins it as a business strategy. It's smarter consumer segmentation that allows us to grow geographically according to which markets have more or less domestic or international repertoire. We talked about Indonesia. We talked about -- we've spoken to you about Japan. Very, very strong domestic repertoire markets. And it's going to provide -- providing greater consumer value and general ARPU growth for everybody. So when we talk about the ecosystem, we talk about everybody. All of these phase in, in different times over the course of the individual's respective agreements, and they all come up at different times. There is small operators and global operators and local operators and partnerships, and they come over in a sequence in terms of how they get executed. And as I keep saying to you can't -- we can't evaluate the full value of all this on a quarter-by-quarter basis because we talk about internally the catch-up bottle. And sometimes when you turn -- trying to pull tomato catch-up come on to your plate, nothing comes out and then you leave it there for a few minutes, and then the whole bottle [indiscernible] out all over everything. And I think that we've got used to looking at our revenue and as the -- how the deals get executed and how we negotiate with them and how we're changing the paradigm with all of these players worldwide. So elevated economics, different products, new consumer experiences and a sequence on how they come on stream, no pun intended .

Your next question comes from the line of Michael Morris from Guggenheim Securities, LLC.

I want to ask about 2 topics, one on AI and one on the financials. First, on AI, Spotify yesterday made a comment that they believe there is a lot of opportunity out there for creators who want to use AI tools, but no one is addressing that right now, and they don't think existing artists should be left out of AI. So my question there is, do you agree with this that existing artists are being left out of AI and maybe in a little more detail, how are your artists using AI tools currently? And what would you like them to have that maybe they don't currently have? So that's the first question. And then second, just on the financials, there's a question about the amount of leverage that you are using and whether you could more effectively use the balance sheet. So I'd love to just hear your point of view on what the proper use of leverage is as you run the business going forward.

Michael, thank you for your questions. Let me first address the question with respect to Spotify and established artists and AI tools. I think at the specific comments that you're referencing, which we were encouraged to hear follow-up on the earlier earnings call where Spotify talked about being hungry and excited with respect to AI derivative product. And they said that they saw great demand for different superfan segments. We commented at the time that we were very aligned with that viewpoint. What they specifically talked about yesterday, Spotify management reaffirmed that they want to take this AI opportunity to existing creators with derivatives of existing IP. They said we have the capabilities and technologies we need, we are the right company to solve this problem. And we see exactly the same potential. So I think that we're specifically talking about our category of products. So we've indicated our consumer research suggests there is a lot of interest in. These are products that allow remixing, they'll allow mash-ups, they allow custom songs that enable hyperpersonalization and co-creation experience with existing IP and existing artists. And that relates to the fact that our research says that much more than any interest in just generic AI output, what consumers want is AI that makes music service work better, better discovery, better personalization and gives them a deeper relationship with the artist So we see the kind of products that Spotify was referring to really directed at the super fan opportunity that our research suggests is very significant. So that's something that we very much agree with and support in terms of an outlook. We see the same opportunity there. Then in terms of AI tools in general, we're very supportive and been working directly with technology partners and deals that we've announced to develop tools for artists, ethically artist tools that are developed with artists in the driver seat, artist tools for artists that compensate artists. So that's really at the heart of agreements we've announced with Stability AI and with Splice and it's part of what we are looking to focus on with NVIDIA. So we're very interested from the standpoint of enabling creation with ethical tools advancing the opportunities for artists. And then in terms of services enabled by AI for products that are leveraging existing IP, working with existing artists. That's an opportunity we very much believe in.

[indiscernible]. I'd like to add one other thing, that artist concerns over format evolution are not new to us. We have the [ T-shirt ]. And they're entirely, totally understandable. But I kind of quite like part of your question because in terms of what Spotify said, and I haven't heard it. But in a way, it's a sort of a call to arm in terms of what the potential change in the formats are and how we, as a company, and in partnership with our artists and talent can navigate through the various format evolutions we've done it before with them, and we'll do it again with them. And I think that the fact that all of these global major partners are focusing on this makes the point that it's an addition of our business and revenue. And there's nothing substitutional about whatsoever. And that change takes a period of time, and it's completely totally understandable because we are at one level talking about creativity and human imagination, but we have to work with our DSP platforms as well as ourselves internally to respect it.

Michael, on your question on leverage, as we've said in the past. We don't look to manage to a fixed target. We certainly believe leverage is an important part of our balance sheet and how we use it. from the company. It's also part of how we think about maintaining a strong balance sheet that gives us the flexibility to invest through the cycles when opportunities arrive. So we believe maintaining the balance sheet strength allows us to continue investing when others pull back. And this historically has been a source of very significant competitive advantage. And so you'll continue to see us find that right balance between using leverage, providing shareholder returns and positioning the company so that we continue to invest when the opportunities arise, that allow us to build a great platform that we already have. And you should expect to see us continue doing that going forward. .

Your next question comes from the line of Clay Griffin of MoffettNathanson. .

Great. Thank you. Matt, you mentioned in the prepared remarks in terms of the Recorded Music EBITDA margins. But just maybe if you could speak to all else equal, i.e., apart from the mix considerations, how do you expect the wholesale price increases that you've laid out here today to flow through to segment EBITDA level?

Yes. Thanks for the question, Clay. So certainly, as we see those price increases, those contribute to the opportunity for margin expansion as we talked about a little bit, hopefully gave you a little more color where you can see how we talk about mix effect plays out. But underneath that mix effect, you see that recorded music has been expanding margin and that certainly continues and price increases absolutely contribute to how we see that. You have that combined with a very strong growth in the volumes of subscription customers. Since we last spoke to you a few weeks ago, we saw the global numbers that the total market for subscribers globally reached $837 million last year, over a 9% increase year-over-year. So we continue to see good volume growth globally when you add the wholesale price increases on top of that, it certainly gives us an opportunity to continue to grow our EBITDA on the recorded music business.

Your next question comes from the line of Adrien de Saint Hilaire from BofA.

Regarding the Spotify stake, if you were to sell it at the current share price, how much [ clickage ] would there be in terms of tax and proceeds to artists? And second question, given the volatility that we see on front line, could you consider pivoting your strategy towards being more of a, if I may say, a catalog only business and improve the monetization of that catalog. And then maybe a last one, if I may. You talked about a market share loss of a 200 basis points impact, do you think that's going to like another major record company? Or is that going to like independents and potentially AI artists? .

Look at this in an entirely different way. I don't know how many times that we have to keep saying we cannot view the release schedule through the prism of 90 days. We're comparing where we were against a very successful Q1 last year and artists are human beings, they make music and they create and they deliver according to when they're ready and also all our frontline record companies are looking at a multitude of operational issues about when to release, when they're available, what other releases there are in the marketplace, shifts in consumer behavior, et cetera, et cetera. I've said several times that I think that we need to look at ourselves as very much as a portfolio approach to our market share in catalog incidentally, I think we've had our record market share . And everything that we do around artists, new artists is -- and I gave the Justin Beber, example just earlier, Justin works in our library and catalog that just indeed performances and records that were created 13 years ago. And this is the nature of a company of this size with the breadth of its roster and new artists, established artists and how their new music and the quality of their new music drives their catalog and drives the past. And again, I think you have to look at this through a 12-year-old music fan is discovering new things for the first time. And that is what music and the cloud has given and there's everything between our deep catalog as well as our new artist. It's just everything that we stand for and everything that we work with the artists to actually create. And you see that in the kind of numbers and the growth that we've shown.

Yes. So Adrien, if I maybe go through your questions back with the market share impact that we discussed on our results in the first quarter, you asked if that was other labels or dependence on AI. Clearly, it's not AI volume. And as we spent a good amount of time on our last call, there is far more conversation about AI use that there is a reality of what people are listening to. And we saw no impact from that in the quarter. Any different than what we saw last year that Michael spent a good amount of time [indiscernible] walking you through. I'll let him add anything you want to say on that in a minute. In terms of your question about would we pivot to be more of a catalog business. I would say, just go back to Lucian's prepared remarks where he spent time talking about the specifics of what we do and the value it creates working with artists as they create music. That is who we are and who we will continue to be. And then finally, on the Spotify stake, as we said consistently since Spotify did their initial listing 9 years ago now, our position remains the same as it does it. We will have some distribution to our artists that's consistent with our royalty policies when we have monetized the shares, we consistently said we will share proceeds, we'll continue to do so. Also, as you think about the net proceeds, you need to think there will be a tax impact in there as well. So we look forward to letting you know where we have, in fact, monetized those shares and what the net amount that's coming to UMG will be.

One final thing that is important new music drives our catalog. And when we call those artists on roster -- artists that are still signed to the company and have a contribution to make and are exciting. And conversely, new artists that you haven't heard of tomorrow are actually creating our catalog of the future. So it's a complete virtuous circle of revenue and human imagination.

Let's just add a couple of points on the AI dilution point, which I think Matt addressed very comprehensively Keep in mind that last year, as the flood of AI content was rising to the point where tens of thousands of tracks, 1/3 of all uploads as Lucian pointed out, we had our highest recorded music market share since 2013 according to music and copyright. So I think there's empirical disproof of the idea that a market share issue is tied to AI dilution. And keep in mind, as we pointed out on the last earnings call, we're very confident we have substantial countermeasures in place to the platforms, anti-fraud and AI dilution, monetization thresholds, AI infringement and misappropriation protections. All those things we think comprehensively address this issue.

Our last question today comes from the line of Will Packer from BNP Paribas.

Any firstly, when it comes to AI products with your DSP partners, we've heard quite a lot today about your alignment and areas where you're working together. But could you give us a bit of a help in understanding some of the challenges. Is it the walls of the sandbox, i.e., consumer rights to share? Is it the split of economics. It's a particularly important catalyst for the industry as it can help dispel the AI bear case, perhaps more than start-up. So would love to hear what areas of potential friction? And then secondly, in terms of the hopes of an inflection around ad streaming, our short-form video headwinds here to stay until we get new deals? Or is there anything you can do to improve trends there?

So with respect to AI products and alignment and what the challenges are, we've done multiple deals with partners that are planning to launch products later this year. I mean we have announced deals with Udio and with Klay. In terms of what we foresee, it's a broader opportunity, and we've talked about super premium tiers. Now AI is really core to that proposition with respect to current DSP. Technology road map development is something that progresses over time. But there's a lot of activity in this area. We're supporting that activity. We expect to announce new deals going forward. So I don't think that there are challenges that are roadblocks that are unusual limitations here beyond what you would typically see in platforms evolving to innovate to take advantage of new opportunities. With AI, you may have some greater complexities in terms of the nature of the technology challenge because this significant transformation in terms of the consumer offer. So you may see a greater requirement in terms of resources to be able to execute technology road maps. But I wouldn't characterize anything that we foresee in our conversations with our partners as being challenges that translate into roadblocks.

As there are no further questions, I would like to thank our speakers for today's presentation, and thank you all for joining us. This concludes today's conference. You may now disconnect.