Welcome to Warner Music Group’s Third Quarter Earnings Call for the Period Ended June 30, 2020. 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. James Steven, Executive Vice President and Chief Communications Officer. You may begin.

Good morning, everyone. Welcome to Warner Music Group’s fiscal third quarter ended June 30, 2020, 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, Eric Levin, will discuss our financial condition and results. And then we will take your questions. Before Steve’s comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs 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, our Form 10-Q, Form 10-K and other SEC filings. We plan to present certain non-GAAP results during this conference call. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website. Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency, unless otherwise noted. And with that, I’ll turn it over to Steve.

Thanks, James. Good morning. First, I want to extend to everyone listening today a very warm welcome to our first earnings call as a publicly traded company. I also want to thank everyone who participated in our IPO process, making it a resounding success. And whether you’ve followed us for years or you’re just now getting up to speed, we’re very pleased to be speaking with you today. We’re holding this call during an extraordinary period of challenging change for both our country and our planet. We continue to grapple with global pandemic while, at the same time, we’re at a critical moment of reckoning with systemic inequities. I’ll speak more about these issues in a minute. But for anyone who’s new to these calls, we thought it would be a good idea to give some background on what makes WMG unique. To begin, we’re the only pure-play global music entertainment company on the planet. Warner Music is made up of 3 primary units: our Recorded Music and Music Publishing businesses and our corporate function. But we’re driven by a one company and a one team philosophy, which helps maximize the value of all our rights and all of our assets. It’s our distinctive combination of scale and nimbleness, creative innovation and financial discipline that gives us our competitive edge. We believe in investing in artist development and backing bold entrepreneurship. We don’t believe in buying market share at a loss. Equally, we don’t judge ourselves on a quarterly cycle, but rather by how we consistently perform on an annual basis. In short, we play the long game. On the Recorded Music side, our world-renowned record labels include Atlantic, Warner, Elektra and Parlophone. Our artist roster spans every musical genre led by superstars like Cardi B, Coldplay, Dua Lipa, Bruno…

Thank you, Steve, and good morning, everyone. As Steve said, total revenue was down 3.1% in constant currency. On an as-reported basis, it was down 4.5%. I’ll break this out in detail in a moment, but the key takeaway is that these results are slightly better than our expectations given the unsurprising impact that COVID had on certain aspects of our business. A big part of this is that streaming revenue continues to show double-digit increases. We remain confident that we’re well positioned for long-term growth. From an OIBDA perspective, certain adjustments are necessary to make the year-over-year comparisons more meaningful. The details are in our press release. But in the quarter, we had a charge of $440 million associated with noncash stock-based compensation under our long-term incentive plan, reflecting changes in the value of our common stock as a result of our IPO. This compares to $14 million of noncash stock-based compensation expense in the prior year quarter. We also had $86 million of IPO-related costs and $11 million of expenses related to restructuring and other transformation costs. Going forward, the long-term incentive plan awards will be accounted for as equity, and as such, will not be adjusted for fluctuations in trading value of our common stock. However, we will continue to have stock-based compensation charges for any unvested awards in the plan and for any future awards that may be issued under new clients. From this quarter on, noncash stock-based compensation expense will be excluded from adjusted OIBDA. We believe this provides a more accurate view of how we manage our business. Q3 adjusted OIBDA increased 12% to $166 million due to lower overall costs from COVID-related business disruption and active cost management. Adjusted OIBDA margin increased 2.4 percentage points to 16.4% primarily driven by revenue mix, with…

[Operator Instructions] Our first question comes from Ben Swinburne with Morgan Stanley. Your line is now open.

Hey, good morning, guys. I wanted to ask two questions. Steve, you mentioned in your prepared remarks the fact that there’s no touring, which obviously is just an enormous part of artists’ income. How is that impacting your business, your artists, both positively and negatively? I think you talked about it crystallizing your value, but obviously, it may also be impacting release schedules. Just could you talk a little bit more about the fact that not only is there no touring today, but the outlook is pretty unclear? And how we should think about that impacting your business? And then I just had one follow-up for Eric.

Sure, and good morning, nice to chat with you. Well, live has obviously been negatively impacted by the pandemic. But it is provided for us the opportunity to pivot far more quickly into live streaming and virtual concerts. We have been experimenting with it for some time, but we have now taken meaningful additional steps to support our artists and to support their loss of live revenue with this digital reinterpretation of live. So it has hastened our move into the live streaming world. It’s hastened our move into the virtual concert world. And I would expect that in the future, our activity in those areas are going to expand. So that’s one positive. Another positive that we have found is that with the shutdown of live, it’s become more important for our artists and for us to have consistent engagement with their fan base, both by way of their existing music, but as importantly, producing new music. And we’ve seen with many of our artists around the globe an uptick in the output of new music, both from our established and new artists, and that’s been good news. The downside is that, obviously, there are certain operations that require our people to be in either our video studios or other’s video studios and that’s been a bit difficult. But slowly but surely, we see that returning. And hopefully, over the next few months, given our network of studios, both recording and video and the protocols that we put in place to keep them safe and sound, that business will begin to normalize over the next 3, 6, 9, 12 months. So all in all, we have provided what I would call really a very safe harbor environment for artists where they can continue to work, to collaborate, to write songs, to produce music.

Thanks, Steve. And Eric, just as we think about fiscal fourth quarter, is there a way for you to help us think about sort of the year-over-year trends we saw in Q3 and how they may translate into Q4? So trying to understand if COVID is sort of as is in the fourth quarter on your business as we saw in Q3? Or anything you can tell us about sort of the near-term trends? Thanks.

I mean we – thanks, Ben. We don’t give guidance, so it’s hard for me to be very specific. We can certainly say that we’re extremely kind of pleased that streaming continues, specifically subscription streaming continues its strong trends and strong double-digit growth on our business. Every market around the world is in a different stage of either recovery and opening or cautiousness around opening. So every market around the world’s going to be on a different time frame. So we’re continuing to monitor very closely each market. But what we can say is that we’re working very diligently to maximize the performance of each of our businesses, each of our revenue streams in each market around the world, given market conditions. And we’re managing costs to make sure we’re spending where it will have the most impact. So I think that’s directionally kind of what I can say there, Ben.

Thanks, Eric. Thank you.

Thank you.

Our next question comes from Heath Terry with Goldman Sachs. Your line is now open.

Great, thanks. I hate to be a little repetitive, but I actually want to dig into the live events piece, too. But I kind of want to go in a bit of a different direction, more longer term. And Steve, really curious sort of how you’re thinking about the opportunity. To the extent that your artists are going to be in this position of sort of reduced touring revenues for an extended period of time, given the investments that you’ve made in technology platforms and in merchandising, how do you see the opportunity for Warner to do more in supporting what may be a much bigger, more robust online event environment? And potentially, whether that means investing far more significantly in technology platforms or marketing opportunities for your artists? Just really curious, somebody who’s been in the industry for as long as you have, sort of how you potentially see that as a bigger, longer-term shift that maybe this pandemic is accelerating. And then, Eric, if you don’t mind, just really curious if you could help us a bit with sort of the pace of streaming growth across the quarter. It sounds like from what you said that May and June growth was a bit slower than April. Curious if there’s any sort of reason that you could share with us on that? And to the extent that there’s anything that you can say about sort of how that’s trended into July, that would also be really helpful.

So why don’t I go first? There is this old phrase that nature abhors a vacuum. And the loss of live because of the pandemic has created a vacuum. And I think that, that’s a situation where we will do all that we can to begin to fill it. I think that people’s habits change over time. I think the pandemic and the isolation has created changes in habits, changes in behavior. People are becoming more used to live streaming to virtual concerts and it’s an area that I believe presents both a short, intermediate and long-term opportunity for us. And so my expectation is that our operators, with the support of corporate, will be doing more and more in those areas. And I expect it by way of what we offer our artists. I expect that those capabilities and our offerings to expand to fill that vacuum, Heath.

Great. And I’ll take the second question. So on the pace of streaming, Heath, it’s really been quite stable. I mean we would describe Q3 as consistently double digits with – throughout the period, so quite stable. And then as we look forward, we continue to be extremely optimistic about the ongoing strength of streaming and its continuing capabilities, specifically of paid streaming, to continue its growth profile.

Great. Thank you, both.

Thanks, Heath.

Our next question comes from Brian Russo with Crédit Suisse. Your line is now open.

Good morning. Thanks for taking the questions. One for Steve and then a follow-up for Eric. So for Steve, a question on music videos since Facebook has the – launched officially licensed music videos and so has Snapchat as you mentioned in your opening remarks. So we know that YouTube is sort of notorious for paying what I’ll call below-market rates for their videos. What should we be assuming about the royalty rates for these other platforms? And do you see this as a revenue source that can potentially move the needle over the next several years? And then for Eric, just again, another follow-up on streaming. Curious in terms of, again, the near-term outlook. Is the launch of like Taylor Swift’s new album something that we should expect to affect the growth rate of your streaming revenue? Any color there would be helpful. Thanks.

Okay. Brian. So on the first point – sorry, I seem to have a frog in my throat this morning. On the first point, one of the things that we told our potential equity investors on our road show is we look to do two things: a, revenue diversification; and b, when we see new economic models emerging, to support those models and their growth in the short term by establishing both an operating and economic relationship with them that allows them better opportunities to boost their growth and by us taking that posture as they grow than sharing in their success differently as we renew our deals over time. Our expectation is that these alternate distribution paths, particularly the social platforms, will over time be significant revenue contributors to Warner music.

Understood.

Great. And I’ll take the second piece on the near-term outlook of streaming. Again, we don’t give guidance, but we do kind of – I can kind of describe our philosophy, and philosophy is that we have a very broad portfolio of music and releases globally. And we target continued growth of our business regardless of release schedules. Thanks, Brian.

Appreciate it. Thank you.

Our next question comes from Richard Greenfield with LightShed. Your line is now open.

Hi, thanks for taking the question. When you think about competition, I guess I’d love your view because I think, Stephen, when you gave your opening, you talked about new competition from Facebook and Snapchat. And I sort of think of those very differently than I think about a Snapchat – sorry, about a Spotify or an Apple Music. I sort of think of that as they’re licensing a different form of music. And when you think about sort of the core streaming service of those Spotify, Apple Music, Amazon, et cetera, could you just give us an update on sort of what’s happening competitively across the world? Obviously, we see Spotify’s results, but we don’t really see the others. Could you give us a sense of what’s happening with the other sort of competitors to Spotify and what you’re seeing in various markets?

Sure. I can’t give you specifics, but what I can tell you is, broadly speaking, and Eric can give you more specifics, but broadly speaking, streaming continues to enjoy very robust growth, both in developed and in emerging markets. So that’s number one. And there, I’m talking about the traditional streamers: Spotify, Apple, YouTube, Amazon. We’re also seeing that there are new competitors, as you indicated, coming into the market. These social platforms, even though they are – they serve a different purpose than a YouTube or a Spotify, but they have discovered that music is, as we’ve always believed, relevant and important to virtually everybody on the planet and they are developing within their own ecospheres their own models for the utilization in music, and we expect that to continue, not only on social platforms, but when you look at other routes of distribution like fitness. You see it with Peloton. So we think that’s great from both a competitive as well as a revenue diversification point of view. We think the growth both in – from traditional streaming as well as these new models will continue at a very nice pace for the foreseeable future. And we see in new emerging models that we haven’t seen any substantial growth yet from and new ones popping up every day that music is more often than not becoming a foundational building block. So we continue not only to be excited about traditional streaming, these new large platforms sort of utilizing music, but also the future where new models emerge weekly, monthly that utilize music. So we continue to be very excited about our future.

So maybe just – that’s very helpful. Could you just maybe give us some way of framing? I think for the quarter, you reported streaming revenue globally was up like 9%. That obviously includes both the dedicated streaming as well as the – these are social streamers, I guess, as you just called them. Is there any way to think about how much of that is driven by the core streamers versus the new sort of – the new avenues of monetization?

Eric, can you take that?

Yes. This is Eric. So our Reported Music streaming grew in constant currency 11%, which we think is a very good way to look at it. And I would say that the – what we’ll call traditional streamers continue to be, by far, the largest proportion of our revenue. So for that level of double-digit growth requires the traditional streamers to have continued strong growth, which I would describe as supplemented by the emerging forms of streaming, which are, as Steve mentioned earlier, are expanding but are a smaller piece of the pie. So the opportunity for them to have that kind of significant impact is over the longer term as they get more and more scale.

That’s extremely helpful. Thank you, Eric.

Thank you.

Our next question comes from Jessica Reif Ehrlich with Bank of America Securities. Your line is now open.

Good morning. Thank you. Universal Music – Universal’s recent Spotify deal, let me put it that way, it just seems somewhat different than yours given the two-sided marketplace tools. Can you access similar terms and services for marketing data and analytics? And do you want to? And then also on kind of a second question. You’ve talked a lot about how important global is for you, of course. Can you talk a little more deeply or can you drill a little deeper into which markets are showing the best growth? Obviously, this would be in streaming. But where do you think the greatest potential for upside still remains? And then finally, just can you touch on TikTok and how this – how important of a platform is this? How did the shutdown in India affect you and all of these potential outcomes in the U.S. like how important is it for you? And what would you like to say? Thank you.

So let me first address Spotify, then I’ll address growth in TikTok. We have experimented with Spotify tools, Marquee and other tools. And if we choose to utilize them, we can utilize them on the same basis as our substantial competitors. So we look at all of these tools, we look at marketing not as an expense, but as an investment. And so when we expend marketing dollars, we look at how and where and when we get the best return on investment. If we find that’s a Spotify tool, we utilize it. If we find it’s other approaches, we utilize them. What we don’t do is utilize tools where we don’t get sufficient return on investment, Jessica. So that’s number one. Number two, we see robust growth for the foreseeable future coming from both the developed markets, North America, Western Europe and very robust growth from emerging markets. Obviously, the emerging markets have a different model because of however you measure it, their GDP, the per capita income, the number of people that are categorized as middle class, on and on and on. But what we do see is even with a more compacted economic model in those emerging markets, it has – streaming has had a meaningful reduction in piracy where we would get a 100% of zero. So the growth, the conversion of people, even if it’s on the free side, is converting people out of piracy into something that ultimately allows them to convert into premium utilization. And that’s good for the music industry and it’s good for the streamers. With respect to TikTok, TikTok is a – it is not really a – it’s not a social platform. It’s an app where the creators are the audience, the audience are the creators. And what we find, it is a source of discovery, both by way of new music and A&R. So from that perspective, it’s very important to us. Economically, it is much more in the start-up category. And because of the economics in India, it will not, in the short term, have a meaningful impact on our revenue. Hopefully, that answers your question.

Thank you.

Our next question comes from Michael Morris with Guggenheim. Your line is now open.

Thank you. Good morning. Two questions from me. The first one has to do with podcasting. The market, investors have had a lot of enthusiasm for some of the investment that Spotify, in particular has made in podcasting. I’d love to hear your current thoughts on how growth in podcasting for Spotify impacts your economic relationship with them, both on the subscription side and your participation there and also on the advertising side, whether they are carving pieces of that out that they’re keeping and not sharing with you. My second question is on margins and the opportunity for margin expansion, and specifically, how you are thinking about investment in A&R going forward, whether that’s an area where you expect to get scale over time or whether it’s something that the growth in investment would keep pace with your top line, and what the priorities are on the A&R side? Thank you.

So I’ll take the first, Michael, and Eric will take the second. So first of all, we’re very happy that Spotify is investing in podcasting. It gives them an opportunity to create another vertical that they can create not only an ad-free service around, but presumably, over time, a premium service. I believe personally that there will be people that come to Spotify for a podcast and stay for music, and that there will be people that come to Spotify for music and stay for a podcast. It does not impact our economics, either on the free side or the subscription side. But hopefully, what it will do is create appeal to a broader audience. And if you remember your Venn diagrams, I’m sure that there will be a overlap in those Venn diagrams that drive people from podcasting to music and music to podcasting. I also believe that, that being said, that Spotify’s basic foundation stone or basic foundation will always be music, Michael. I don’t see that changing anywhere near the foreseeable future. Hopefully, that’s responsive to your question, and I’ll turn it over to Eric on the other piece.

On margins, you specifically asked about A&R, but I’ll answer margins broadly but also touch on A&R. So one of our core strategies has been and continues to be to continue to invest organically in our own growth, and A&R is a cornerstone of that. So we continue to invest and broaden our releases of music around the world as an important cornerstone to continuing to grow our business in a growing marketplace, certainly over the long term. But margins in generally, we do see a formula and plan for expansion and that has twofold: one is as Recorded Music continues to shift from physical formats to streaming formats has a natural margin uplift; and two, we are very actively in cost management mode. To give a couple of examples, one is we’re well underway with our global financial transformation where we’re moving over the next two years at cloud-based SAP S/4HANA solution. And once that is live, we have plans to save $35 million to $40 million a year. We also have started, and we started last year, actually a transformation office, a dedicated transformation office reporting directly to Steve that’s focused on looking at opportunities to drive efficiencies through technologies and other tools throughout the business. And we expect to start seeing opportunities to drive business benefits as well as cost savings starting in 2021 from that office. So margin expansion is important to us, but we continue to invest in A&R to help fuel our business growth. Thanks Michael.

Thank you both.

Our next question comes from Matthew Thornton with [indiscernible] Securities. Your line is now open.

Hey, good morning everyone. Thanks for taking the questions. Maybe two quick ones if I could. I guess one for Steve. Do you see opportunity to leverage some of the DSP partners to drive just better growth in ticketing over time, whether that’s for live events or streamed concerts as you kind of talked about earlier as well as merchandising and memorabilia? I’m just wondering if there’s opportunity to kind of leverage those partners to drive maybe accelerated growth in those verticals, which have been fairly stable for quite a long time. And then just, secondly, maybe one for Eric, on the cost rationalization programs. You talked about the financial systems one as well the other that I think was more back office and real estate that starts next year. Any change to just the absolute amounts you’re targeting versus several months ago as well as just kind of the time line that you communicated a couple of months back? Just curious if we’re on track there or any updates there. Thanks guys.

Thanks for the questions, Matthew. So we’re constantly looking at opportunities to better support our artist opportunities. So we look at, on a regular basis, the interfaces with any number of platforms and what we can do better by way of driving music, merch, ticketing, so on and so forth. We are – and we – as I said, we’re in regular discussions with these platforms about how can we expand this, how can we be more productive doing that. So we do look at it. We do, in certain instances, see opportunities. In other instances, frankly, with our wholly owned sites or wholly owned apps, we find that we can create because of the focus on a specific mission with specific artists, oftentimes drive additional revenue better than these large DSPs. But yes, we’re looking all the time.

Great. And Matthew, on the question related to cost, I would say that we remain focused and managing to the same plans that we were related to both our financial transformation and our broader transformation office. I think it’s worth noting that working remotely and being in the COVID-affected environment requires different ways to work on those initiatives, and in some cases, different ways of delivering those initiatives. But we’ve made those adjustments and remain totally comfortable and committed in delivering the transformations that we’ve been working diligently towards.

Thanks guys. I appreciate it.

Our next question comes from Kannan Venkateshwar with Barclays. Your line is now open.

Thank you. So I guess a couple. I mean, firstly, I think during the prepared remarks, I think one of the comments that was made was four out of five artists this quarter were – top-performing artists were those who released albums new or were new artists. Does that change – just from a margin perspective, does that help margins because you do recognize COGS upfront from that? And so how does that change the cadence, if at all, going forward? And secondly, your marketing cost, excluding SBC, seems to have come in lower. The SG&A costs, excluding SBC, seems to have come in lower largely because of lower marketing. Is that a cadence output? Or is there something that we can expect on a sustained basis going forward as well? Thanks.

I can take that. So what I would say is I wouldn’t look to four of the top five artists being new to uniquely have an effect on margin. We have a very broad and global portfolio and so it’s really the portfolio of music that we’re releasing, marketing, the mix that is going to affect margins. So the top five artists are meaningful, but we have such a deep, broad global array of artists that it’s – that I would look – that we’re going to – that you’d have to look much deeper than that to really see a margin impact. So I wouldn’t focus on the top five for margin purposes. On marketing, what I would say is on a ongoing basis, we’ve had a pretty stable investment in marketing. It’s been growing with revenue, and we would expect to continue to grow with revenue as we continue to drive more and more music into the marketplace over time that our marketing supports that. We have said that this quarter, and we will manage quarter-to-quarter in a COVID-affected world to make sure the spend that we’re putting into the market is generating the appropriate return, and we’ll adjust spend where appropriate. And that adjusting of spend will be across all attributes of spend. It will be across marketing. It will be across travel. It will be across infrastructure and overhead. And so I would just say that this quarter, we evaluated the appropriate level of spend to drive the revenue and make sure that we were managing costs yet still delivering the right marketing impact.

Okay, thank you.

Thank you, Kannan.

Our next question comes from Tim Nollen with Macquarie. Your line is now open.

Great, thanks very much. I just wonder – a couple of quick questions for Eric, please. If you could elucidate the difference between the U.S. and the international growth rates in the quarter? It looks like, if my numbers are right, international was only down a couple percent. U.S. was down much more like 7%. Just wondering why that is? And then I don’t know if you provide this, but would it be possible to get an advertising-related revenue figure? I think Spotify’s number was down about 20% for ad-supported revenues in its quarter. It would make sense that yours would be something similar. Is there any comment on that, please?

Great. So I would just say that U.S. is impacted by areas such as physical and artist services, which affect the overall revenue growth trends. So those are some of the areas that declined related to COVID that had an impact and those are going to have a bit of a U.S. orientation in this quarter. We don’t break out ad-supported streaming from subscription streaming. I would just say directionally that the trends were subscription streaming growth has continued to be robust and ad-supported streaming has been affected is appropriate to say. Clearly, businesses that are pulling back on their marketing budgets and not doing as much advertising affects ad-supported streaming, and that would flow through our numbers as well, but we don’t release a specific percentage.

Yes, makes sense. Thank you.

Thank you.

Our next question comes from John Belton with Evercore. Your line is now open.

Yes, thanks for the questions. Two quick ones. First, just kind of taking everything you’ve just gone through on the margin side. When you look at margins reported by your peers, are there significant reporting differences and business mix differentials that maybe suggest it’s not a great comparison? Or do you think ultimately, given all the transformation plans you have in the process, you could close the gap and generate margins similar to what your peers are reporting? And then, secondly, probably for Steve, on the M&A environment and the impact of COVID, how is the pandemic impact on what you’re seeing on potential deals, potential publishing catalogs available for purchase? Any color there would be interesting. Thanks.

So I’ll take the margin one. So we’re very comfortable with where our margins currently are relative to our peers, but we are very focused on expanding our margins from where we are. And we have outlined our kind of strategy, which includes the cost management of our infrastructure. I described our programs before, which will both allow us to generate cost savings, but also have more scalability with our infrastructure. And the continued shift from physical to streaming will also give us margin directionally ongoing and long-term margin improvement. So we’re very comfortable with the direction of our margins, how we’re managing it and our opportunities for upside.

Great. And on the M&A part, John, we are seeing a lot of opportunities. And where we believe that we can execute a rational, financially and operationally disciplined deals, we move forward on them and we try and close. I will say this that the market is, looks to me, somewhere between crazy and really, really crazy. And we’ve got a real cost of capital. So we continue to be very financially disciplined on one side and very disciplined when we look at these operations so that we know that they can be reasonably and thoughtfully integrated even as a stand-alone unit into the envelope under the Warner Music Group. But we are not allowing COVID to screw up our brains and make us lose our wraparound, which is financial discipline.

Understood. Thank you.

Our next question comes from Jason Bazinet with Citi. Your line is now open.

Just a quick question for Mr. Levin. If COVID didn’t happen, how much better do you think your revenues would have been in the quarter?

Really hard to answer hypotheticals, but I think we can kind of just look at it not numerically but structurally. And if you look just at Recorded Music first and you look at ad-supported streaming, which clearly was affected; you look at sync, which clearly was affected; you look at artist services, both merch and touring, which were dramatically affected; physical, which was declining, but the acceleration has declined. Although streaming is 70% of our revenue, our largest and fastest-growing source of revenue, these other areas other than physical were all businesses and revenue streams that were growing. So clearly, there’d be a significant opportunity for growth as we were doing prior to COVID. On Publishing, you’d have a similar dynamic. Performance was growing. Sync in Publishing grew in our fiscal first half of the year, 17% in Publishing. So the dynamics for growth prior to COVID and without COVID, obviously, were very strong and favorable. And over the past several years, we’ve been having a double-digit revenue CAGR. So clearly, COVID has had a material impact. That said, we’ve said, longer term, as you look – as COVID recedes in the future, we still feel very good about the long-term prospects and growth potential of our business. We don’t really see that any of these areas have been affected – or that their long-term potential has been inhibited or affected by this.

That’s helpful. And if I can just ask one follow-up. When you said ad-supported was impacted, I always assumed that your revenues were a function of the hours streamed on ad-supported, not a function of the ad revenue that streaming service generates?

Well, every deal is different. We don’t comment on specific deals. But we certainly do have deals where we get a percentage of the ad revenue.

Okay. Thank you very much.

Our next question comes from Todd Juenger with Sanford Bernstein. Your line is now open.

Hi. Thanks. I know we’re way over time here, so I’ll keep it to one, probably for Eric. Kind of picking up Kannan’s question. I’d love if you would be so kind to help us understand a little better the unit economics on catalog or what’s called catalog; however you define that, versus, I guess, what I’ll call new releases. Anything you can tell us about sort of the margin profiles and differences amongst that and generally proportionately how your mix stands between catalog and new releases? And I’m sorry, finally along that, one might believe catalog might be actually growing as a share in this current era of lack of new releases as much as normally, and that would maybe be good for margins. Is there anything you can do to support that and keep that growing for your benefit and those artists’ benefits? Thanks.

I would say that both catalog and new release have strong margin profiles and it’s certainly true that new releases will, in some cases have advances. By the way, sometimes catalogs will as well. But so long as we’re recouping those advances, and we generally recoup at high rates, the underlying economics of deals can be strong on both. So I would just make that point. The mix of new and catalog in streaming, certainly one of the things that we’ve continued to say is that traditional catalog and shallow catalog have always made up the majority of streams, but that new releases are hugely important part of it and that new releases also create the shallow and eventually deep catalog of the future. So new releases are critical fuel that both grows the opportunity to grow market share in the short-term, but also continues to replenish the catalog in the longer term. And then, lastly, has COVID, which I think is what you’re asking, affected the share of catalog? Certainly, it has, to some degree. It certainly affected listening patterns. People are listening; different communities are listening differently than they were before. There’s less commuting, more home listening. So it’s definitely different patterns. But I would also say we continue to – our artists continue to write, record and release music. And we continue to be very focused on driving new music into the market and maintaining that presence even through this COVID environment. So hopefully, that helps, Todd.

It does. And I know I squeezed three into one, so sorry about that and thank for indulging. Thanks everybody.

We appreciate it. Thank you.

And our last question comes from Ivan Feinseth with Tigress Financial Partners. Your line is now open.

Thank you for taking my questions and congratulations on good performance in a difficult time. I guess my question is for Steve. Do you see an opportunity to like sign and develop podcast artists, I guess for lack of a better word?

We are looking at the podcast ecosphere, and we currently, with a number of our recording artists, create podcasts. That being said, the economics of podcasting remain pretty opaque. And while we are prowling around that space, we haven’t really found anything yet, Ivan that has really caught our eye.

Okay. Currently, there are people who just – I understand the podcast from like performers, which makes sense, but for people who obviously are just podcasters or have certain niches, there could be an opportunity. I just wanted your thoughts on that?

Yes, there might be. We just – we keep looking at the economic model of podcasting to figure out whether or not there’s something that makes sense for us to do and whether or not there’s something that can really be done at scale. And we’re going to continue to look at it. Obviously, we’re in the content, the intellectual property and the artist business. And you’re right, there may be opportunities. We just haven’t seen the right ones yet, Ivan.

Okay. Thank you very much.

You’re more than welcome. Have a great day.

That concludes today’s question-and-answer session. I’d like to turn the call back over to Steve for closing remarks.

Well, again, I want to thank everybody for joining us today. I want to welcome again our new shareholders. Hopefully, this has been an informative session, and we look forward to chatting with you again after our fourth quarter. So I hope everybody stays safe and sound and especially sane as we continue to kind of work our way through this crazy world today. So thanks, everybody, and we’ll speak to you soon. Bye-bye.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.