Warner Music Group Corp. (WMG) Q1 2012 Earnings Report, Transcript and Summary

Welcome to Warner Music Group’s First Quarter Earnings Call for the period ended December 31, 2011. 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. As a reminder, there will be a question-and-answer session following today's presentation. [Operator Instructions] Now I would like to turn today's call over to your host, Mr. Will Tanous, Executive Vice President of Communications and Marketing. You may begin.

Good morning, everyone. Welcome to Warner Music Group's Fiscal First Quarter 2012 Conference Call. Both our earnings press release and the Form 10-Q we filed this morning are available on our website. Today, our CEO, Steve Cooper, will update you on our business performance and strategy; our Executive Vice President and CFO, Brian Roberts, will discuss our financial results; and then both of them will take your questions. Before Steve’s comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. All forward-looking statements are made as of today [Audio Gap] any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, and projections will result or be achieved. Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that can cause actual results that 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 earnings press release and Form 10-Q and other SEC filings. We plan to present certain non-GAAP results during this conference call. Revenue data we provide on today's call will be on a constant currency basis. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website. With that, let me turn the call over to Steve Cooper.

Thanks, Will. Good morning, everyone, and thanks for joining us for this call. We're pleased with the start we've had to our fiscal year. Digital revenue and OIBDA grew strongly in the first quarter. Our cash balance and free cash flow were both up, reflecting our continued focus on cash generation. And our margins expanded as we remain dedicated to aggressive cost management. This quarter's performance stemmed from solid results in both Recorded Music and Music Publishing. In Recorded Music, we continue to grow our digital business, now 31% of our worldwide Recorded Music revenue, as compared to 27% in the prior year quarter. We increased our OIBDA by 13% and improved our OIBDA margin by 2 percentage points. In Music Publishing, we grew total revenue by increasing performance in digital revenue, and we improved gross margin by nearly 3 percentage points. Our Recorded Music business outperformed the market this quarter, gaining market share in the U.S. as the industry continued to exhibit a number of positive signs. Before I walk you through some of our performance highlights this quarter, let me touch on some of the encouraging metrics we saw in calendar 2011 for the U.S. Recorded Music industry. Track-equivalent albums were up 3%, the first annual increase since 2004. Digital unit sales increased 13%, an acceleration compared to the 6% growth seen in calendar 2010. And for the first time ever, digital unit sales were larger than physical unit sales, accounting for just over 50% of all music units purchased in the U.S. The U.S. has also experienced its typical postholiday surge in digital demand this year, attributable to sales of new devices and gift card redemptions. On a global basis, IFPI, which is the International Federation of the Phonographic Industry, reported that industry-wide digital revenue grew 8% in calendar 2011 compared to 5% in 2010. This marks the first time the year-over-year growth rate has increased since IFPI started measuring digital revenue in 2004. In addition, some of the largest players in the digital music space have been quickly expanding their global reach, contributing to these strong digital trends. For example, iTunes became available in 12 additional European countries in calendar 2011. In December, iTunes and iTunes Match launched in 16 Latin American countries, a huge region driven by smartphone penetration that has historically been untapped due to piracy and a lack of high-quality digital services. Spotify launched in the U.S. and 4 new European markets in calendar 2011 and is now available in 12 countries. And the streaming service, Deezer, which has already launched in more than 45 countries, announced in December that it would be available in more than 200 countries in the next 6 months. We're also encouraged by the success of other new services such as Cricket's mobile music service called Muve, which we believe demonstrates a consumer demand for music services bundled with mobile networks. We continue to work closely with all of these services in an effort to broaden consumer access to music. We view the expansion of these and other services as encouraging for us and the rest of the music industry. With that context, I'd like to highlight some of our achievements for the quarter. Michael Bublé's album, Christmas, demonstrated the impact of a focused global marketing effort. In the December quarter, Christmas sold over 6 million albums worldwide and over 2 million albums in the U.S. and was the fastest-selling album of Michael's career. Despite the fact that it was only released in late October, it ended up as the second-best selling album of the year in the U.S. and reached #1 in 13 markets around the world, including 5 weeks at #1 in the U.S. The success of Bublé's Christmas contributed to our outperformance in the quarter as compared to the rest of the industry. We also benefited from strong sales for several of our other artists, including Nickelback and The Black Keys. Our U.S. track-equivalent album units were up roughly 1% period-over-period compared to the approximate 2% decline seen by the industry. We gained 0.4 percentage points of U.S. track-equivalent album share in the quarter, the biggest increase among the majors, although our share decreased for the calendar year. Warner Music U.K. also finished the year with some impressive accomplishments. It scored 2 of the top 3 albums for 2011: Michael Bublé and Bruno Mars. And it was a strong year for artist development, as 3 of our 4 biggest albums in the U.K. were debut releases, those from Bruno, Ed Sheeran and Cee Lo Green. We expect British singer-songwriter, Ed Sheeran, a promising 360 artist to build upon his U.K. success with the U.S. tour in March. And we believe this will set up the release of his album in the U.S. later this year. These achievements helped us grow our U.K. market share this quarter, improving 2 percentage points, the only increase among the majors. And for the full calendar year, Warner Music U.K. was the only major to maintain its U.K. share. Turning to our Music Publishing division, Warner/Chappell music remains a stable performer with very attractive financial attributes. Music Publishing enjoys a highly-diversified revenue stream -- revenue streams, and we continue to develop new opportunities to exploit the value of our catalog. This quarter, we grew our Music Publishing revenue as a result of growth in both our performance and digital revenue. Synchronization revenue was flat, as strength in U.S. advertising-related revenue was offset by fall-offs in other areas, including video games. As we've mentioned in the past, we are continuing our efforts to boost our sync performance. In this regard, we are pleased to have placed Warner/Chappell songs in 8 Super Bowl commercials, including ads for Honda, Budweiser and Audi as compared to only one last year. As expected, mechanical revenue continued to decline as this category is derived solely from physical record sales. Warner/Chappell had significant A&R and licensing success in calendar 2011. Its songwriters contributed to 4 of the top 10 U.S. albums, Bublé's Christmas, Lady Gaga's Born This Way, Lil Wayne's Tha Carter IV and Lady Antebellum's Own the Night. We also controlled portions of 4 of the top 10 global digital songs and 3 of the top 10 U.S. digital songs of 2011. I'm pleased with the progress that we're making throughout our business. We continue to focus on long-term artist development, digital innovation, revenue diversification and cost-savings opportunities while remaining disciplined in our investments. On another note, I'd like to congratulate all of the Warner Music Group artists who received Grammy nominations this year and to wish them good luck at this weekend's awards ceremony. Our artists in distributed recordings received 63 nominations including Record of The Year and Album of The Year for Bruno Mars, and Best New Artist for Skrillex. Warner/Chappell songwriters received 37 nominations, including Song of the Year for Bruno Mars' Grenade. Before I turn it over to Brian, I'd like to touch on 2 topics not directly related to our results this quarter, but which have received a lot of media attention. First, I'll address the proposed transactions for the sale of EMI recorded music and EMI publishing. If either of these transactions closed, we believe it would significantly impair the competitiveness of the Recorded Music and Music Publishing markets, harming consumers, industry employees, recording artists, songwriters, physical and digital retailers and our emerging digital services. We will continue to share our view with the relevant regulatory authorities. We don't plan to make any further comments today regarding the proposed EMI sale transactions. Finally, I'd like to turn to a topic of critical importance to the U.S. economy, which is the protection of intellectual property. As widely reported, the proposed SOPA and PIPA legislation have been withdrawn. Putting aside the differences that led to the demise of these bills, creating a safe and legal environment on the Internet is in everyone's interest. As such, we remain committed to working with Congress, the U.S. administration and the tech industry to help devise effective solutions to address the very serious issue of IP piracy. With that, let me turn it over to Brian who will walk you through our financial results in more detail.

Thank you, Steve, and good morning, everyone. This is my first earning calls -- earnings call as the CFO of the Warner Music Group. I'm pleased to be with you all today in my new role and look forward to speaking with many of you in the future. This has been a quarter of solid progress for the company. I'd like to spend a few minutes now providing some color behind -- beyond what you've already heard from Steve and seen in this morning's press release. From a revenue perspective, digital revenue showed solid increases, up 16% with growth in Recorded Music and Music Publishing. This was driven in part by continued growth in global digital downloads and by increasingly more significant revenue from streaming and subscription businesses. In Recorded Music, physical revenue continues to decline for the industry. Though for WMG, this was partially offset by the sales of Michael Bublé's Christmas, which skewed towards CDs. Topsellers in the quarter included Michael Bublé, Nickelback, Bruno Mars, Udo Lindenberg, Ed Sheeran and The Black Keys. Our licensing revenue declined 8% in the quarter, but we have not seen any negative signs in the underlying business. As we've discussed, our 360 business can ebb and flow with touring cycles tied to our European concert promotion business. This quarter, our 360 revenue was lower, as our concert promotion business faced a tough compare with last year's Christophe Maé tour in France. We remain confident that our 360 revenue will grow meaningfully over time. In Music Publishing, our increase in performance revenues reflects the health of the U.S. advertising market, strong chart positions and recent acquisitions, including Southside Music Publishing and 615 Music. Like in Recorded Music, digital revenue in Music Publishing benefited from growth in downloads, streaming and subscription businesses. Our total OIBDA and Recorded Music for this quarter are in part related to the strong performance of Michael Bublé's Christmas, which helped drive down marketing expense as a percentage of total revenue. Even with the slight decline in Recorded Music revenue, Recorded Music OIBDA rose 13%, and Recorded Music OIBDA margin expanded 2 percentage points to 15%. Music Publishing's flat OIBDA resulted from an increased investment in developing songwriters, which flows through the P&L. We believe the increase in songwriter investment will pay off in the long term. Following our sale of Access Industries in July, we announced targeted cost savings of between $50 million and $65 million over 9 fiscal quarters and we remain on track to achieve our target. As you may have already seen, we have added our credit agreement EBITDA calculation to the 10-Q. Many of you have been asking for this guidance in calculating this number, so we hope this new disclosure will be helpful. Turning to our balance sheet and cash flows. We are pleased that even with the $79 million cash interest payment in the quarter, we were able to grow our cash balance. Cash grew by $14 million to $168 million due to the success of our key releases and the timing of collections. Free cash flow grew to a positive $14 million from a negative $179 million in the prior year quarter. Free cash flow in the prior year quarter reflects higher cash severance and bonus payments, as well as investments in Roadrunner and 615 Music. Our schedule for the remainder -- our release schedule for the remainder of this fiscal year will be back-end weighted. Even so, we remain confident in our ability to generate meaningful free cash flow over the course of the fiscal year. Overall, we are pleased with our cost management, margin expansion this quarter and we look forward to updating you on our progress going forward. With that, operator, please open the line for questions.

[Operator Instructions] The first question is from Aaron Watts from Deutsche Bank.

A couple for me. I don't know if you can give us a little bit of color just in terms of what are the releases that are going to make the most impact in this March quarter, at least? And if there are any kind of prominent releases the rest of the first half of the year that you can talk to us about.

All right, Aaron. This quarter -- this is Steve Cooper -- this quarter is a light release schedule. And I think the results will reflect that. Obviously, release schedules are sensitive and they are subject to change. So I don't want to comment on specifics. But we do believe that overall this year, when you look at end to end, we have a strong release schedule. And we -- at least as we sit here today, are not aware of any substantial modifications to that schedule. But expect to see second quarter light, third quarter a bit light, and then it accelerates. As Brian indicated, it's back-end loaded.

Okay, now that's helpful. And then my last here is kind of more semantic. But I guess, first, any more clarity -- I know it's still early, but any more clarity on the impact of Spotify and similar services are having -- I guess not only on maybe privacy -- piracy, but also the impact on iTunes sales? And I guess based on how you get paid, are you kind of agnostic to a rental world versus a buying world for music?

Well, let me make a couple of comments. There's apparently research and data that shows, particularly in the Nordex, where Spotify and iTunes started up at roughly the same time, that there's no indication that either service is cannibalizing the other. I'm told research shows there are those that like to own and those that like to rent. But we haven't seen any perceptible trends with respect to that. On your second point, what we indicated during the road show as we talked to potential investors, when you look at a streaming service like Spotify, which for example sake in the United States is $10 a month for -- and for a premium user, $120 a year. That flow of dollars is as I understand, it's substantially greater than the average annual purchases with respect to an iTunes user. So both downloads and streaming provides us with meaningful economics. I'm personally agnostic, albeit you can draw your own conclusions from the streaming payments versus the average iTunes users. Our goal is to expand through all of these various channels of distribution, people's access to music, and to do it in a legal, non-pirated way which will be good for us and for the industry in general.

Okay, now that's a helpful context to think about it. And last one for me. I appreciate you taking the questions. But you guys did a great job of cost cut controls, the publishing business looks relatively steady. I guess just as I think about the recorded business, it looks like you had a fairly solid release late in the December quarter against a relatively modest comparison the prior year. Yet recorded revenues were still slightly down, I think, on a constant currency basis. How do you get that part of the business back to consistent growth? What is it going to take? Is it just we have to wait longer for the physical declines to level out? Or I'm curious to your thoughts on how that business returns to growth.

Well, I'm curious about that also. I think that if you think about the 2 components, I think there's every expectation that physical will continue to decline and that digital will continue to grow. We've crossed the threshold of 50-50 in the United States. The rest of the world still is about 2/3-1/3. But let me see if I can put it in a slightly different context. If you go back and look at the documents that were filed with respect to our bond offering, you'll see that we estimate that the overwhelming majority of all music accessed around the world is pirated. And in fact, I think we used a number in the low-to-mid 90%. So if you think about the emergence of legitimate services, whether they are digital downloads, iTunes, whether they are streaming, Spotify, Deezer, to the extent that -- or those that are bundled over telephony. When you begin to think about just making relatively minor inroads to the piracy issue, Aaron, that begins to resolve that particular issue. I mean, if you think about piracy being in the 90s by way of percentage and you reduce that worldwide by 4% or 5% or 6%, theoretically, that doubles your revenue.

The next question is from Bishop Cheen from Wells Fargo.

Now for the question. The uptick at year end, I mean, that is your strong quarter, that December quarter. Is there anything that you have said either veiled or directly that makes us think that there is a more sustainable kind of renaissance going on in the music business, and then in Warner Music in general for 2012?

Well, I -- if you -- first of all, I apologize if you didn't have the...

When you hide the call announcement under the Access Industries' now-retired equity ticker, debt investors don't get to see the news. But that's another story for another time. Let's focus on the earnings.

All right, so, so much for my apology. Anyway, if you look at what we said for 2012, we do see a fairly aggressive expansion of both iTunes and iMatch around the globe. We see Spotify, Deezer and other streaming services continue to expand. The Cricket Muve -- don't hold me to this, but I think they expected last late summer/fall, they had 100,000 devices with the bundled music. They're now up to 500,000. And I think Cricket has actually estimated that sometime this year, they will reach 1 million, albeit please don't hold me to that, I just recall reading that. So I think when you look at the expansion of legitimate services and their ability to attract, acquire and retain subscribers that are actually paying for the subscription services, and when you begin to look at the penetration of these streaming services in telephony. By way of example, Spotify has cut a deal with Virgin Mobile in the U.K. I believe they've cut a deal with KPN in the Netherlands. And I think we should expect more of those bundling opportunities to present themselves. I think that ultimately is going to continue to drive revenue. And as I just mentioned to Aaron, we only have to nick piracy by a small number of points to begin to have, on an absolute basis, year-to-year increases in revenue. So between hopefully the ongoing growth of iTunes, Spotify, Deezer, Rhapsody, other services, the creation and introduction of new services and better, more -- better and more enforcement relative to prohibiting or inhibiting the pirating of intellectual property which, frankly, more and more countries and more and more Internet service providers are looking at, all of that I think bodes well for the industry on a long-term basis. Obviously, we have to stay current with providing the music that consumers want. And I feel confident that we can do our fair share of doing that.

That's all very helpful, useful, good color. Can I do one follow-up on 360? Have you already given color on how that is going, developing in terms of any metrics penetration of your artists' growth in 360 revenues? I believe you have to go through the Q, but you still don't break out the actual 360 revenue or economic stream?

Well, I'll ask Brian to walk you through the economics, but we continue with respect to the 360 program that almost universally to sign our artists with respect to assigning of 360 or at least enhanced rights. That's point number one. Point number two, I believe that we are now between enhanced rights and/or 360 that something in the area of 70% or 70%-plus of our roster are contracted on that basis. Obviously, some of our older legacy acts that had been signed and extended prior to 360 haven't been converted. That's just by a way of our roster and kind of a metric background. And now I'll ask Brian to give you more color on the revenue that we're generating with respect to 360.

So, Bishop, as I said before, our 360 business given it's -- where it is in its life cycle, that revenue right now ebbs and flows for us. I said earlier that we had a tough compare in this quarter compared to the same quarter in the prior year, given the large tour that Christophe Maé had in France. We didn't have that kind of a significant tour in this quarter, and therefore, we had to drop in what we refer to in some places as nontraditional revenue, in other places, as 360 revenue, all being the same. Just from a little more depth on it, year-over-year, 360 revenue in this quarter represented 9% of Recorded Music revenue versus 8% of total revenue. And it's a big drop, as I said, from the prior year quarter, given the impact of that Christophe Maé tour last year versus this year.

The next question is from Andrew Finkelstein from Barclays Capital.

Just wanted to focus in a little bit on some of the investing and other spending for the year. I think you guys mentioned in the script that you expect a lot of free cash flow. And I'm kind of looking obviously at past years. Given the level of EBITDA and interest, it doesn't seem like there'd be a lot. So I was thinking is there a change in the level of investment in CapEx? And can you talk about those targets for this fiscal year?

Well, I can tell you, generally, that we're handling our investment in the following way. We're beginning to extend the time frame which we -- the future time frame within which we look at the business, Andrew. And the objective is to provide Music Publishing with investment capital that, as opposed to being up and down and up and down year-in or year-out, will be a steady flow at a level that Cameron Strang and his team are happy with, and which they believe is sufficient to find and develop new songwriters to in fact retain our existing roster and to acquire additional assets on a regular year-in and year-out basis. And that is a meaningful 9-digit number. On the Recorded Music side, we are also looking at the investment it takes to continue to support the long-term artist development strategy, not only in the U.S. and the U.K. but worldwide. And our A&R investments continue to be -- are consistent with, and frankly, as meaningful as they have been historically. What we are doing is -- as I think we've mentioned a couple of times, we're taking a rigorous approach to how we invest what we believe the return on those investments will be. And those that don't make it through that screen are obviously not undertaken. Secondly, we have been very diligent with respect to not only the improvements in our cost structure that were identified during the due diligence and acquisition process, those are being implemented, but we continue to look for additional opportunities to better run the business from top to bottom. And those buckets also will continue to provide free cash flow.

And the only thing I would add to that, Andrew, would be that in last year, given the sale of the company and the costs surrounding that sale to Access, we had significant costs just surrounding that. And those are clearly costs that are not repeating on an annual basis.

Right. So as maybe the first quarter spending for CapEx and investments, is that a decent run rate to think about?

Yes. If you -- reflecting run rates.

Okay. I think that was -- it was $6 million of CapEx and $7 million of acquisition of publishing, right?

Yes.

Okay. And then on the working capital side, you mentioned that also in the script. You did a lot better. It looks like there was a particularly huge swing on the -- I think it was the payables. Is there some seasonable flow change there?

The movement there -- the big movement there is in the accrued royalty area, where -- which had -- that we had lower payouts in this Q1 of '12 versus Q1 '11, which really ties back to Q4 of the prior year activity. Q4 activity in '10 was actually a little bit higher than Q4 activity in '11. And therefore, our payouts were higher prior year versus this year. So that's a big element of that, what's going on in that line, Andrew.

Okay. So for the year, working capital, how do you see it shaking out in terms of user or use of cash or...

Well I mean, the only large element I think that we have from a working capital standpoint -- not large, but a number that we'll continue to have through the year is a severance number. But otherwise, the working capital movements on the balance sheet are going to be pretty much leveled of.

Okay. And then you got severance as well -- do you anticipate any additional restructuring charges and cash -- additional cash severance beyond what you sort of booked already? Or is it...

We will have more recording of severance and more cash severance as we continue to implement the targeted $50 million to $65 million worth of cost savings. So you'll see some charges in the quarters as we go out.

And the cash will flow from there?

Yes.

You're next question is from Thomas Cubeta from UBS.

I have a question for you on the 360 revenue. I was wondering -- you talked about what percentage of Recorded Music it is. I want to know how we actually see that flow through the financial statements. And then secondly, you talked about the year being back-half weighted. Is that tied to your outlook for touring? What do you guys see in terms of touring for the summer season?

Why don't you tackle the...

So just from a flow-through -- from a flow-through from a P&L standpoint, our 360 or nontraditional revenue flows through revenue line and is reflected in the physical and the other lines of our P&L. So there are elements tied to the different rights that we've secured under our artist agreements, elements tied to the concert promotion businesses and the touring surrounding that flow through those line items.

And is it right to think that the 360 artists are also on your -- you have them for publishing also? Or is that not right?

There are -- within the right -- the suite of rights from a 360 perspective for our recording artists, we're acquiring or securing passive rights in their publishing. Warner/Chappell would have a direct right in their publishing, other than 360 when the recording artists were getting passive rights in their publishing income streams.

But, Thomas, said differently while if they are -- if they're not a artist signed on the Music Publishing side, while we did that passive flow-through, we also have artists that are signed not only on the Recorded Music side but the Music Publishing side. By way of example, Bruno Mars. There are also any number of well-known artists that are signed on our publishing side that are not signed on our Recorded Music side. And it has been a -- I guess, it's been a historical phenomena in this industry that as artists are emerging -- or as they start on one side versus the other, that those rights are typically -- have been typically chased on a separate basis. The Publishing versus Recorded Music. We do, however, within Warner ensure that both sides of our business are in regular and productive conversations so that we see as many opportunities as humanly possible to do it on both sides of the fence.

And with the second part of your question there, Thomas, is about touring and what it looks like from a schedule perspective. I don't have the schedule for touring as it relates to our businesses in that in Europe. But I will say that those touring businesses will do tours for both artists that are Warner music artists and artists that are non-Warner music artists. So it's a broad-based business.

I know touring's been a little bit soft in the last few years. Is your outlook more positive this summer, just generally speaking?

I actually don't have and I don't think Brian has the data with us today to really answer that, Thomas. I can tell you some other large touring organizations have indicated that they have a relatively strong slate. If that's any indication as to how the softness is either bottoming out or turning around.

Your next question is from Adam Spielman from PPM America.

Just 2 questions, one on Recorded Music and one on Music Publishing. On Recorded Music, could you just -- obviously, the business has evolved. It was ringtones, downloads, now it's shifting into there's more streaming. Can you give us any sense of how the pie looks within digital now versus maybe a year or few years ago?

So I think even now, Adam, the digital pie for Recorded Music is still skewed toward the download business, the traditional -- what is now the traditional iTunes download business. And it's more than 50% of that revenue is still tied to that income stream. The other elements of it though, the Spotifys, the Deezers, they are -- they continue to come on strong and continue to have growth. I think you'll eventually see that those lines cross. But right now the lion's share of that business is still in the download business.

So maybe 80% of Recorded Music digital or something like that is download?

It's not that significant, no.

Okay. And then second question, just on Music Publishing. Looking back last year, there was -- and looking at some of the variable results, there was discussion of royalty reserves and there was a low-margin contract, a low-margin administration deal. I guess there was a change in the radio payments. So just -- as we go into this year, is there anything material that you see that would drive results to vary a lot? Or are we kind of in a I guess a more stable environment for publishing this year?

I think from a Warner/Chappell perspective, we're in a more stable environment. The business itself went through some transition last year in 2 ways. We hired -- we acquired a company and hired a new CEO. And then within a few weeks of his joining the company, we entered into discussions to sell the entirety of the company. So there was some volatilities just around all those transactions. I know that we spoke in the past about the loss of the large administration agreement with respect to the Warner Bros. studio, which had a large impact on revenue and a very small impact on retained OIBDA. That's now cycled through. It cycled through all the numbers. Last year, Warner/Chappell as you could see from the cash flows, we made investments in both third-party acquisitions. We acquired Southside, we acquired 615, which was in addition to our production music library portfolio. And we also went and acquired rights internally from songwriters to bring greater stability to that. And as Steve said earlier, Warner/Chappell, along with Cameron, is now in a place where we have come to the proper level of investment. And the strategy is now to invest that level consistently through the period to drive more normal results within publishing and drive the kind of growth that you see in this quarter's results.

Okay. And finally, just tying back to those earlier questions, just trying to understand the puts and takes on cash. The CapEx number and that $7 million investment number, you think that kind of covers the business due this year, those kind of numbers?

Multiply those by 4, you're looking at an annual run rate for us.

Right. And then not to -- you're down too tightly on restructuring charges, but for some reason, some number like 25 sticks out. Did I make that up? Or did you guys indicate that along the road show process cash restructuring for this year?

No. That's not a number that we've disclosed at any place. What I said earlier I think in response to a question that Andrew was asking is that you're going to see severance P&L charges and cash severance through the fiscal year, all with the thought to execute against the $50 million to $65 million worth of targeted savings that we've discussed before.

All right. And you don't care to help to guide at all what that cash number might be this year?

No. Not right now.

The last question comes from Todd Morgan from Oppenheimer.

You made some helpful comments on digital, and I wanted just to follow up on one area. It looks like digital was up 15% in the Recorded Music segment. That's a very strong number. If I look back at my notes, it was I guess, what, 8% in the fourth quarter last year and 6% for the full year. Can you just help us understand some of the relevant -- the components of the drivers? I know you sort of laid them out. But for example, is this more a factor of a strong release performance in the quarter driving downloads? And in particular, if you talked also about sort of an expected lighter release schedule over the next several quarters, through I guess second, third quarter, should we expect that this kind of digital revenue growth could continue?

Well, I think that -- first of all, just with -- it's ironic that in the fourth quarter in particular, Bublé, believe it or not, is more highly physical than digital. I don't recall the exact percentage, but he had substantially more physical albums as I recall than digital equivalents. So even in the fourth quarter, Todd, the digital growth really wasn't dependent upon frankly our strongest release. I think you do see in the fourth quarter a typically strong digital growth primarily because one of the -- kind of one of the go-to, particularly for parents giving the kids, one of the go-to holiday presents are these gift cards, either from Apple or other services. And you typically see a surge in those sales. And then subsequent to particularly Christmas, I guess, a surge in their redemption. So there is an element of seasonality. But I think that we continue to believe that with the ongoing proliferation of smartphones or smart devices and with the ongoing optionality that customers now have. Consumers now have, whether it be iTunes or one or more of these emerging digital services which provide them with music in the way, shape and form they want to receive it, that we think digital growth will continue to be strong.

And just to add to that of what Steve said, the penetration of those types of devices, we all did see Apple's numbers and the number of new devices that were activated in that period. With gift card redemptions, as we said earlier in the script, we enjoyed some benefit in the digital growth.

Yes, one other point which again I think we made during our roadshow talk, but maybe it merits re-mentioning, when you look at the streaming services and you -- or in fact when you look at downloads, while there's always a current release component, and in many instances, a current release component pulls along additional catalog sales. Particularly with the streaming services, 24/7, 365, there is a meaningful catalog component to those services that is almost mutually exclusive from any particular quarter's release schedule. And that Warner as you know, as well as the other majors, have very, very substantial catalogs. So a good deal of this growth is going to come from the fact that they are streaming, that more streaming services are emerging, and they are highly dependent upon access to ours and others' catalogs.

Okay. So it doesn't sound like there's really any kind of sort of one-time new market launch or even this low base of streaming revenues that you're coming off of that are really driving that. It really sounds like it's more something that you can probably sustain at these sorts of levels.

Knock on wood.

I'd now like to turn the call back over to Steve Cooper for closing statements.

Well, thanks, everybody. I appreciate your time, and I hope since this is a little bit into the new year, everyone had a wonderful holiday season, and I wish you the best for 2012. Thanks for joining us, and have a wonderful day. Bye-bye.

Bye now.

That concludes today's conference. You may disconnect at this time.