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What changed in Warner Music Group Corp.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Warner Music Group Corp.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+443 added−458 removedSource: 10-K (2023-11-21) vs 10-K (2022-11-22)

Top changes in Warner Music Group Corp.'s 2023 10-K

443 paragraphs added · 458 removed · 363 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

118 edited+19 added−18 removed122 unchanged
Biggest changeOur Music Publishing business includes musical compositions by: • Superstars such as Madonna, William Corgan, Belly, Cardi B, Bruno Mars, Anderson Paak, Lizzo, Tones and I, Pablo Alborán, Lin Manuel Miranda, Chris Stapleton, Dan + Shay, Tayla Parx, Damon Albarn, Dave Mustaine, Katy Perry and Kacey Musgraves. • International talent such as Jonathan Lee, Tia Ray, Manuel Medrano, Melendi, Bausa, Shy’m, Tove Lo, Joaquin Sabina and Jack & Coke. 17 • Songwriting icons like David Bowie, Cole Porter, Grateful Dead, Led Zeppelin, Quincy Jones, George Michael, Marco Antonio Solís, Eric Clapton, Brody Brown, Liz Rose, Justin Tranter, busbee, The-Dream, Dr.
Biggest changeRepresentative Sample of Recording Artists and Songwriters Our Recorded Music business includes music from: • Global superstars such as Ed Sheeran, Dua Lipa, Coldplay, Cardi B, Bruno Mars, Michael Bublé, Lizzo, Kelly Clarkson, David Guetta, Kenny Chesney, Madonna, Neil Young, Red Hot Chili Peppers, Prince, Green Day, Cher, Pink Floyd, David Bowie, Fleetwood Mac, Aretha Franklin and The Smiths. • Next-generation talent including Zach Bryan, Megan Thee Stallion, Jack Harlow, Lil Uzi Vert, Fred Again.., PinkPantheress, Maria Becerra, Kenya Grace, Gayle and CKay. • International stars such as Burna Boy, Aya Nakamura, King, TWICE, Ninho, Capo Plaza, Pablo Alborán, Udo Lindenberg and Laura Pausini. 18 Our Music Publishing business includes musical compositions by: • Superstars such as Madonna, William Corgan, Belly, Cardi B, Bruno Mars, Anderson Paak, Lizzo, Tones and I, Pablo Alborán, Lin Manuel Miranda, Lil Uzi Vert, Imagine Dragons, Chris Stapleton, Dan + Shay, Tayla Parx, Damon Albarn, Dave Mustaine, Katy Perry and Kacey Musgraves. • International talent such as Jonathan Lee, Tia, Manuel Medrano, Melendi, Bausa, Shy’m, Tove Lo, Joaquin Sabina, Raye, Stromae, Jack & Coke, Marco Borreo, Danna Paola and MZMC. • Songwriting icons like David Bowie, Cole Porter, Grateful Dead, Led Zeppelin, Quincy Jones, George Michael, Marco Antonio Solís, Eric Clapton, Brody Brown, Liz Rose, Justin Tranter, busbee, Zach Bryan, Stephen Sondheim, George & Ira Gershwin and Gamble & Huff.
The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles, and through various subsidiaries, affiliates, and non-affiliated licensees and sub-publishers. We own or control rights to more than one million musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions.
The operations of our Music Publishing business are conducted principally through Warner Chappell Music, our global music publishing company headquartered in Los Angeles, and through various subsidiaries, affiliates, and non-affiliated licensees and sub-publishers. We own or control rights to more than one million musical compositions, including numerous global pop hits, standards, folk songs and motion picture and theatrical compositions.
In the case of a musical composition with words that is protected by copyright on or after November 1, 2013, EU member states are required to calculate the life of the author plus 70 years term from the date of death of the last surviving author of the lyrics and the composer of the musical composition, provided that both contributions were specifically created for the musical composition.
In the case of a musical composition with words that is protected by copyright on or after November 1, 2013, EU member states are required to calculate the 19 life of the author plus 70 years term from the date of death of the last surviving author of the lyrics and the composer of the musical composition, provided that both contributions were specifically created for the musical composition.
The MMA improves the way digital music services obtain mechanical licenses for musical compositions, requires the 8 payment of royalties to recording artists for pre-1972 sound recordings streamed on digital radio services such as SiriusXM and Pandora, and provides for direct payments of royalties owed to producers, mixers and engineers when their original works are streamed on non-interactive webcasting services.
The MMA improves the way digital music services obtain mechanical licenses for musical compositions, requires the payment of royalties to recording artists for pre-1972 sound recordings streamed on digital radio services such as SiriusXM and Pandora, and provides for direct payments of royalties owed to producers, mixers and engineers when their original works are streamed on non-interactive webcasting services.
Increasingly, we are also expanding our participation in image and brand rights associated with artists, including merchandising and sponsorships. Our labels scout and sign talent across all major music genres, including pop, rock, jazz, 12 classical, country, R&B, hip-hop, rap, reggae, Latin, alternative, folk, blues, gospel and other Christian music.
Increasingly, we are also expanding our participation in image and brand rights associated with artists, including merchandising and sponsorships. Our labels scout and sign talent across all major music genres, including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, alternative, folk, blues, gospel and other Christian music.
European Union Copyright Directive. In 2019, the European Union (“EU”) passed legislation which will rein in safe harbors from liability for copyright infringement and rebalance the online marketplace to ensure that rightsholders and recording artists are remunerated fairly when their music is shared online by user-uploaded content services such as YouTube.
In 2019, the European Union (“EU”) passed legislation which will rein in safe harbors from liability for copyright infringement and rebalance the online marketplace to ensure that rightsholders and recording artists are remunerated fairly when their music is shared online by user-uploaded content services such as YouTube.
For example, we recently acquired one of South Africa’s 9 leading independent music labels, Coleske, and music from this influential label’s recording artists and songwriters will join our repertoire and receive the support of our wide-ranging global expertise, including distribution and artist services. Differentiated Platform of Scale with Top Industry Position.
For example, we recently acquired one of South Africa’s leading independent music labels, Coleske, and music from this influential label’s recording artists and songwriters will join our repertoire and receive the support of our wide-ranging global expertise, including distribution and artist services. Differentiated Platform of Scale with Top Industry Position.
We regularly evaluate our recording artist and songwriter rosters to ensure that we remain focused on developing the most promising and profitable talent and are committed to maintaining financial discipline in the negotiation of our agreements with recording artists and songwriters. Focus on Growth Markets to Position Us to Realize Upside from Incremental Penetration of Streaming.
We regularly evaluate our recording artist and songwriter rosters to ensure that we remain focused on developing the most promising and profitable talent and are committed to maintaining financial discipline in the negotiation of our agreements with recording artists and songwriters. 11 Focus on Growth Markets to Position Us to Realize Upside from Incremental Penetration of Streaming.
In October 2018, we launched Elektra Music Group in the United States as a standalone label group, which comprises the Elektra, Fueled by Ramen and Roadrunner labels, and in December 2021, we acquired 300 Entertainment and subsequently launched 300 Elektra Entertainment, or 3EE, a frontline label group that brings together the multi-genre power of 300 Entertainment and Elektra.
In October 2018, we launched Elektra Music Group in the United States as a standalone label group, which comprises the Elektra, Fueled by Ramen and Roadrunner labels, and in December 2021, we acquired 300 Entertainment and subsequently launched 300 Elektra Entertainment, or 3EE, a frontline label group that brings together the multi-genre power of 300 12 Entertainment and Elektra Music Group.
With respect to our Music Publishing business, we have the opportunity to generate significant value by acquiring other music publishers and extracting cost savings (as acquired catalogs can be administered with little incremental cost), as well as by increasing revenues 11 through more aggressive monetization efforts.
With respect to our Music Publishing business, we have the opportunity to generate significant value by acquiring other music publishers and extracting cost savings (as acquired catalogs can be administered with little incremental cost), as well as by increasing revenues through more aggressive monetization efforts.
Acquiring and investing in businesses that are highly complementary to our existing portfolio further enables us to potentially derive incremental and new revenue streams from different business models in new markets. 10 Our Growth Strategies Attract, Develop and Retain Established and Emerging Recording Artists and Songwriters.
Acquiring and investing in businesses that are highly complementary to our existing portfolio further enables us to potentially derive incremental and new revenue streams from different business models in new markets. Our Growth Strategies Attract, Develop and Retain Established and Emerging Recording Artists and Songwriters.
We believe that our manufacturing, packaging and physical distribution arrangements are sufficient to meet our business needs. 13 Sales and Digital Distribution We generate revenues from the new releases of current artists and our catalog of recordings. In addition, we actively repackage music from our catalog to form new releases.
We believe that our manufacturing, packaging and physical distribution arrangements are sufficient to meet our business needs. Sales and Digital Distribution We generate revenues from the new releases of current artists and our catalog of recordings. In addition, we actively repackage music from our catalog to form new releases.
This includes access to a multitude of songwriters’ rooms and recording studios around the globe with more to come. 16 Marketing and Promotional Firepower We are experts in the art of amplification, with proven specialties in every aspect of marketing and promotion.
This includes access to a multitude of songwriters’ rooms and recording studios around the globe with more to come. Marketing and Promotional Firepower We are experts in the art of amplification, with proven specialties in every aspect of marketing and promotion.
We have expanded our global footprint over time by acquiring independent recorded music and music publishing businesses, catalogs and recording artist and songwriter rosters in China, Indonesia, Poland, Russia and South Africa, among other markets.
We have expanded our global footprint over time by acquiring independent recorded music and music publishing businesses, catalogs and recording artist and songwriter rosters in China, Indonesia, Poland, and South Africa, among other markets.
Assembled over decades, our award-winning catalog includes over 100,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative and gospel. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios.
Assembled over decades, our award-winning catalog includes over 150,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative and gospel. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios.
In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 100,000 songwriters and composers, with a global collection of more than one million musical compositions. Our entrepreneurial spirit and passion for music has driven our recording artist and songwriter focused innovation for decades.
In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 150,000 songwriters and composers, with a global collection of more than one million musical compositions. Our entrepreneurial spirit and passion for music has driven our recording artist and songwriter focused innovation for decades.
Over the last eight years, Access has consistently backed the Company’s bold expansion strategies through organic A&R as well as acquisitions. These strategies include investing more heavily in recording artists and songwriters, growing the Company’s global reach, augmenting its streaming expertise, overhauling its systems and technological infrastructure, and diversifying into other music-based revenue streams.
Over the last twelve years, Access has consistently backed the Company’s bold expansion strategies through organic A&R as well as acquisitions. These strategies include investing more heavily in recording artists and songwriters, growing the Company’s global reach, augmenting its streaming expertise, overhauling its systems and technological infrastructure, and diversifying into other music-based revenue streams.
Securities and Exchange Commission (the “SEC”) maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. None of the information contained on, or that may be accessed through our websites or any other website identified herein, is part of, or incorporated into, this filing.
The U.S. Securities and Exchange Commission (the “SEC”) maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. None of the information contained on, or that may be accessed through our websites or any other website identified herein, is part of, or incorporated into, this filing.
We also conduct our Recorded Music business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’ Records, Warner Classics and Warner Music Nashville. Outside the United States, our Recorded Music business is conducted through various subsidiaries, affiliates and non-affiliated licensees.
We also conduct our Recorded Music business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’ Records, TenThousand Projects, Warner Classics and Warner Music Nashville. Outside the United States, our Recorded Music business is conducted through various subsidiaries, affiliates and non-affiliated licensees.
Younger consumers typically are early adopters of new technologies, including music-enabled devices. According to IFPI’s Engaging with Music 2021 report, in 2021, the rapid emergence of short-form video, livestreaming and in-game experiences drove new opportunities in music. Of the time people spent using short-form video apps, 68% involved music-dependent videos.
Younger consumers typically are early adopters of new technologies, including music-enabled devices. According to IFPI’s Engaging with Music 2022 report, in 2022, the rapid emergence of short-form video, livestreaming and in-game experiences drove new opportunities in music. Of the time people spent using short-form video apps, 68% involved music-dependent videos.
Our major trademarks include 300 Entertainment, ADA, Asylum, Atlantic, East West, Elektra, EMP, Erato, Nonesuch, Parlophone, Reprise, Rhino, Roadrunner, Sire, Songkick, SPINNIN’ RECORDS and Warner Chappell, and their respective logos. We also use certain trademarks pursuant to a royalty-free license agreement.
Our major trademarks include 300 Entertainment, ADA, Asylum, Atlantic, East West, Elektra, EMP, Erato, Nonesuch, Parlophone, Reprise, Rhino, Roadrunner, Sire, Songkick, SPINNIN’ RECORDS, TenThousand Projects and Warner Chappell, and their respective logos. We also use certain trademarks pursuant to a royalty-free license agreement.
According to Music & Copyright, in 2021, the three largest recorded music companies were Universal Music Group, Sony Music Entertainment and us, which collectively accounted for approximately 70% of global recorded music revenues. There are many mid-sized and smaller players in the industry that accounted for the remaining approximately 30%, including independent recorded music companies.
According to Music & Copyright, in 2022, the three largest recorded music companies were Universal Music Group, Sony Music Entertainment and us, which collectively accounted for approximately 70% of global recorded music revenues. There are many mid-sized and smaller players in the industry that accounted for the remaining approximately 30%, including independent recorded music companies.
We continually add new musical compositions to our catalog and seek to acquire rights in musical compositions that will generate substantial revenue over the long term. 14 Music publishers generally receive royalties pursuant to public performance, digital, mechanical, synchronization and other licenses.
We continually add new musical compositions to our catalog and seek to acquire rights in musical compositions that will generate substantial revenue over the long term. 15 Music publishers generally receive royalties pursuant to public performance, digital, mechanical, synchronization and other licenses.
Throughout the world, each synchronization license is generally subject to negotiation with a prospective licensee and, by contract, music publishers pay a contractually required percentage of synchronization income to the songwriters or their heirs and to any co-publishers.
Throughout the world, each synchronization license is generally subject to negotiation with a prospective licensee and, by contract, music publishers pay a contractually required percentage of synchronization income to the songwriters or their heirs and to any co-publishers or other rightsholders.
According to Music & Copyright, Sony Music Publishing was the market leader in music publishing in 2021 with an approximately 25% share (reflecting its ownership of the EMI music publishing assets). Universal Music Publishing was the second-largest music publisher with an approximately 23% share, followed by us at approximately 12%.
According to Music & Copyright, Sony Music Publishing was the market leader in music publishing in 2022 with an approximately 25% share (reflecting its ownership of the EMI music publishing assets). Universal Music Publishing was the second-largest music publisher with an approximately 23% share, followed by us at approximately 12%.
All website addresses in this Annual Report are intended to be inactive textual references only.
All website addresses in this Annual Report are intended to be inactive textual references only. 21
We intend to continue to extend our technological reach by executing deals with new partners and developing optimal business models that will enable us to monetize our music across various platforms, services and devices.
We intend to continue to extend our technological reach by executing deals with new partners and developing optimal business models that will enable us to monetize our music across various formats, platforms and devices.
In addition to our music being sold in physical retail outlets, our music is also sold in physical form to online physical retailers, such as amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including streaming services such as those of Amazon, Apple, Deezer, SoundCloud, Spotify, Tencent Music Entertainment Group and YouTube, radio services such as iHeart Radio and SiriusXM and download services.
In addition to our music being sold in physical retail outlets, our music is also sold in physical form to online physical retailers, such as amazon.com, barnesandnoble.com and bestbuy.com, and distributed in digital form to an expanded universe of digital partners, including streaming services such as those of Amazon, Apple, Deezer, SoundCloud, Spotify, Tencent Music and YouTube, radio services such as iHeart Radio and SiriusXM and other download services.
Our Recorded Music business also includes Rhino Entertainment, a division that specializes in marketing our recorded music catalog primarily through reissuances of previously released music and video titles and releasing previously unreleased material from our vault.
Our Recorded Music business also includes Rhino Entertainment, a division that specializes in marketing our recorded music catalog through compilations, reissuances of previously released music and video titles and releasing previously unreleased material from our vault.
In addition, we have increased organic investment in heavily populated emerging markets by, for example, launching Warner Music Middle East, our recorded music affiliate covering 17 markets across the Middle East and North Africa (“MENA”) with a total population of 472 million people, by acquiring Qanawat, one of the largest independent distributors in MENA, and by investing in Rotana, one of the leading independent labels in MENA.
In addition, we have increased organic investment in heavily populated emerging markets by, for example, launching Warner Music Middle East, our recorded music affiliate covering multiple markets across the Middle East and North Africa (“MENA”) with a total population of 493 million people, by acquiring Qanawat, one of the largest independent distributors in MENA, and by investing in Rotana, one of the leading independent labels in MENA.
The music publishing industry is also highly competitive. The three largest music publishing companies collectively accounted for approximately 60% of the global market in 2021 according to Music & Copyright.
The music publishing industry is also highly competitive. The three largest music publishing companies collectively accounted for approximately 60% of the global market in 2022 according to Music & Copyright.
Music Publishing (16%, 14% and 15% of consolidated revenues, before intersegment eliminations, for each of the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020, respectively) While Recorded Music is focused on marketing, promoting, distributing and licensing a particular recording of a musical composition, Music Publishing is an intellectual property business focused on generating revenue from uses of the musical composition itself.
Music Publishing (18%, 16% and 14% of consolidated revenues, before intersegment eliminations, for each of the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively) While Recorded Music is focused on marketing, promoting, distributing and licensing a particular recording of a musical composition, Music Publishing is an intellectual property business focused on generating revenue from uses of the musical composition itself.
For example, according to Goldman Sachs, in 2021, approximately 58% of the smartphone users in Sweden, an early adopter market, was paid music subscribers.
For example, according to Goldman Sachs, in 2022, approximately 58% of the smartphone users in Sweden, an early adopter market, was paid music subscribers.
In 2018, the CRB issued its determination of royalty rates and terms, significantly increasing the royalty rates paid for sound recordings in the United States by SiriusXM from 2018 through 2022, and the MMA extended that increase through 2027.
Copyright Royalty Board (“CRB”). In 2018, the CRB issued its determination of royalty rates and terms, significantly increasing the royalty rates paid for sound recordings in the United States by SiriusXM from 2018 through 2022, and the MMA extended that increase through 2027.
According to Sensor Tower, TikTok was the most downloaded app globally in the first half of 2022, surpassing 3.5 billion all-time downloads. Such applications have the potential for mass adoption, illustrating the opportunity for additional platforms of scale to be created to the benefit of the music entertainment industry.
According to Sensor Tower, TikTok was the most downloaded app globally in the first half of 2023, surpassing 4.5 billion all-time downloads. Such applications have the potential for mass adoption, illustrating the opportunity for additional platforms of scale to be created to the benefit of the music entertainment industry.
Recorded Music (84%, 86% and 85% of consolidated revenues, before intersegment eliminations, for each of the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020, respectively) Our Recorded Music business primarily consists of the discovery and development of recording artists and the related marketing, promotion, distribution, sale and licensing of music created by such recording artists.
Recorded Music (82%, 84% and 86% of consolidated revenues, before intersegment eliminations, for each of the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively) Our Recorded Music business primarily consists of the discovery and development of recording artists and the related marketing, promotion, distribution, sale and licensing of music created by such recording artists.
Music publishing revenues are classified by Music & Copyright as coming from four main royalty sources: digital; mechanical; performance; and synchronization. In 2021, digital, which accounted for approximately 57% of global revenue, represented the largest component of industry revenues, while synchronization, which accounted for approximately 18%, represented the second-largest and fastest-growing component of industry revenues.
Music publishing revenues are classified by Music & Copyright as coming from four main royalty sources: digital, mechanical, performance, and synchronization. In 2022, digital, which accounted for approximately 59% of global revenue, represented the largest component of industry revenues, while performance, which accounted for approximately 18%, represented the second-largest and fastest-growing component of industry revenues.
The graphic below sets out the top ten markets and their respective revenue growth for 2021. 6 Source: IFPI We believe the following secular trends will continue to drive growth in the recorded music industry: Streaming Still in Early Stages of Global Adoption and Penetration According to IFPI, global paid music streaming subscribers totaled 528 million at the end of 2021.
The graphic below sets out the top ten markets and their respective revenue growth for 2022. Source: IFPI We believe the following secular trends will continue to drive growth in the recorded music industry: Streaming Still in Early Stages of Global Adoption and Penetration According to IFPI, global paid music streaming subscribers totaled 589 million at the end of 2022.
Human Capital As of September 30, 2022, we employed approximately 6,200 persons worldwide, including temporary and part-time employees as well as employees that were added through acquisitions. As of such date, none of our employees in the United States were subject to a collective bargaining agreement, although certain employees in our non-domestic companies were covered by national labor agreements.
Human Capital As of September 30, 2023, we employed approximately 5,900 persons worldwide, including temporary and part-time employees as well as employees that were added through acquisitions. As of such date, none of our employees in the United States were subject to a collective bargaining agreement, although certain employees in our non-domestic companies were covered by national labor agreements.
Our agreements with digital music services generally last one to three years. In fiscal year 2022, Recorded Music revenue earned under our agreements with our top three digital music accounts, Spotify, YouTube and Apple, accounted for approximately 43% of our Recorded Music revenues.
Our agreements with digital music services generally last one to three years. In fiscal year 2023, Recorded Music revenue earned under our agreements with our top three digital music accounts, Spotify, YouTube and Apple, accounted for approximately 41% of our Recorded Music revenues.
Examples of music uses that generate music publishing revenues include: Performance: performance of the song to the general public • Broadcast of musical compositions on television, radio and cable • Live performance at a concert or other venue (e.g., arena concerts, nightclubs) • Broadcast of musical compositions at sporting events, restaurants or bars • Performance of musical compositions in staged theatrical productions Digital: licensing of recorded music in various digital formats and digital performance of musical compositions to the general public • Streaming and download services Mechanical: sale of recorded music in various physical formats • Vinyl, CDs and DVDs Synchronization: use of the musical composition in combination with visual images • Films or television programs • Television commercials • Video games • Merchandising, toys or novelty items Other: • Licensing of copyrights for use in printed sheet music In the United States, mechanical royalties are collected directly by music publishers, from recorded music companies or via The Harry Fox Agency, a non-exclusive licensing agent affiliated with the Society of European Stage Authors and Composers (“SESAC”), while outside the United States, mechanical royalties are collected directly by music publishers or from collecting societies.
Examples of music uses that generate music publishing revenues include: Performance: performance of the song to the general public • Broadcast of musical compositions on television, radio and cable • Live performance at a concert or other venue (e.g., arena concerts, nightclubs) • Broadcast of musical compositions at sporting events, restaurants or bars • Performance of musical compositions in staged theatrical productions Digital: licensing of recorded music in various digital formats and digital performance of musical compositions to the general public • Streaming and download services • Social media and short-form video platforms • Graphic design and editing software and other creator tools Mechanical: sale of recorded music in various physical formats • Vinyl, CDs and DVDs Synchronization: use of the musical composition in combination with visual images • Films or television programs • Television commercials • Video games • Merchandising, toys or novelty items Other: • Licensing of copyrights for use in printed sheet music In the United States, mechanical royalties are collected directly by music publishers, from recorded music companies, via The Harry Fox Agency, a non-exclusive licensing agent affiliated with the Society of European Stage Authors and Composers (“SESAC”), or The Mechanical Licensing Collective (“The MLC”), while outside the United States, mechanical royalties are collected directly by music publishers or from collecting societies.
Although we cannot assure you that our trademark applications, even for major trademarks, will register, we endeavor to register our major trademarks in every country where we believe the protection of these trademarks is important for our business.
Trademarks We consider our trademarks to be valuable assets to our business. Although we cannot assure you that our trademark applications, even for major trademarks, will register, we endeavor to register our major trademarks in every country where we believe the protection of these trademarks is important for our business.
It also represents a small fraction of the user base for large, globally scaled digital services such as Facebook, which reported 3.0 billion monthly users as of September 2022, and YouTube, which reported over 2.5 billion monthly users as of September 2022. Additionally, Instagram reported 1.5 billion monthly users while TikTok reported 1.0 billion monthly users.
It also represents a small fraction of the user base for large, globally scaled digital services such as Facebook, which reported 3.0 billion monthly users as of September 2023, and YouTube, which reported over 2.7 billion monthly users as of June 2023. Additionally, Instagram reported 2.0 billion monthly users while TikTok reported 1.0 billion monthly users.
According to an IFPI survey, users of paid accounts as a percentage of all streaming service users rose from 38% to 47% of those surveyed between 2019 and 2021, with growth seen across all demographics.
According to an IFPI survey, users of paid accounts as a percentage of all streaming service users rose from 38% to 46% of those surveyed between 2019 and 2022, with growth seen across all demographics.
Consumer Trends and Demographics Consumers today engage with music in more ways than ever. According to the International Federation of the Phonographic Industry (“IFPI”) Engaging with Music 2021 report, global consumers spent 18.4 hours listening to music each week in 2021. Demographic trends and digital music penetration have been key factors in driving growth in music consumption.
Consumer Trends and Demographics Consumers today engage with music in more ways than ever. According to the International Federation of the Phonographic Industry (“IFPI”) Engaging with Music 2022 report, global consumers spent 20.1 hours listening to music each week in 2022. Demographic trends and digital music penetration have been key factors in driving growth in music consumption.
Our Recorded Music and Music Publishing businesses are led by entrepreneurial and creative individuals with extensive experience in discovering and developing recording artists and songwriters and managing their creative output on a global scale.
Our Recorded Music and Music Publishing businesses continue to be led by entrepreneurial and creative individuals with extensive experience in discovering and developing recording artists and songwriters and managing their creative output on a global scale.
We are largely dependent on legislation in each territory in which we operate to protect our rights against unauthorized reproduction, distribution, public performance or rental. In all territories where we operate, our intellectual property receives some degree of copyright protection, although the extent of effective protection varies widely.
We are largely dependent on legislation in each territory in which we operate to protect our rights against unauthorized reproduction, distribution, public performance or rental. In all territories where we operate, our intellectual property receives some degree of copyright protection, although the extent of effective protection varies widely. In a number of developing countries, the protection of copyright remains inadequate.
Our Music Publishing business, which includes esteemed songwriters such as Twenty One Pilots, Lizzo and Katy Perry, generated $958 million of revenue in fiscal 2022, representing 16% of total revenues. We benefit from the scale of our global platform and our local focus. Today, global music entertainment companies such as ours are more important and relevant than ever.
Our Music Publishing business, which includes esteemed songwriters such as Twenty One Pilots, Lizzo and Katy Perry, generated $1,088 million of revenue in fiscal 2023, representing 18% of total revenues. We benefit from the scale of our global platform and our local focus. Today, global music entertainment companies such as ours are more important and relevant than ever.
There also remains substantial opportunity in emerging markets, such as Brazil and India, where paid streaming penetration is low compared to developed markets. According to Goldman Sachs, paid streaming penetration for Brazil and India in 2021 was 12% and 1%, respectively. China, in particular, represents a substantial growth market for the recorded music industry.
There also remains substantial opportunity in emerging markets, such as Brazil and India, where paid streaming penetration is low compared to developed markets. According to Goldman Sachs, paid streaming penetration for Brazil and India in 2022 was 15% and 2%, respectively. China, in particular, represents a substantial growth market for the recorded music industry.
For decades, our A&R strategy of identifying and nurturing recording artists and songwriters with the talents to be successful has yielded an extensive catalog of iconic music across a wide breadth of musical genres and marquee brands all over the world.
Star-Making, Culture-Defining Core Capabilities. For decades, our A&R strategy of identifying and nurturing recording artists and songwriters with the talents to be successful has yielded an extensive catalog of iconic music across a wide breadth of musical genres and marquee brands all over the world.
For fiscal year 2020 through fiscal year 2022, we have grown as-reported revenues at a CAGR of 15% driven by secular tailwinds, organic reinvestment in A&R and strategic acquisitions, partially offset by the impact of the business disruption resulting from the COVID-19 pandemic.
For fiscal year 2021 through fiscal year 2023, we have grown as-reported revenues at a CAGR of 7% driven by secular tailwinds, organic reinvestment in A&R and strategic acquisitions, partially offset by the impact of the business disruption resulting from the COVID-19 pandemic.
Since 2011 when Access became our controlling shareholder, we have completed more than 15 strategic acquisitions. The acquisition of PLG in 2013 significantly strengthened our worldwide roster, global footprint and executive talent, particularly in Europe.
Since 2011 when Access became our controlling shareholder, we have completed a number of strategic acquisitions. The acquisition of PLG in 2013 significantly strengthened our worldwide roster, global footprint and executive talent, particularly in Europe.
Approximately 58% of the population in Sweden, where Spotify was founded, was estimated to be paid music subscribers in 2021, according to Goldman Sachs. This compares to approximately 38%, 35% and 30% for established markets such as the United States, United Kingdom and Germany, respectively.
Approximately 58% of the population in Sweden, where Spotify was founded, was estimated to be paid music subscribers in 2022, according to Goldman Sachs. This compares to approximately 41%, 38% and 34% for established markets such as the United States, United Kingdom and Germany, respectively.
For example, we quickly honed our expertise in securing placement on playlists and other valuable positioning on digital music services. Global Reach and Local Expertise As of September 30, 2022, we employed approximately 6,200 persons around the world.
For example, we quickly honed our expertise in securing placement on playlists and other valuable positioning on digital music services. Global Reach and Local Expertise As of September 30, 2023, we employed approximately 5,900 persons around the world.
Universal Music Group was the market leader with an approximately 32% global market share in 2021 after absorbing the bulk of the recorded music assets of the former EMI in late 2012, followed by Sony Music Entertainment with an approximately 21% share. We held an approximately 16% share of global recorded music revenues in 2021.
Universal Music Group was the market leader with an approximately 31% global market share in 2022 after absorbing the bulk of the recorded music assets of the former EMI in late 2012, followed by Sony Music Entertainment with an approximately 23% share. We held an approximately 16% share of global recorded music revenues in 2022.
Our Recorded Music business, home to superstar recording artists such as Ed Sheeran, Bruno Mars, Cardi B and Dua Lipa, generated $4.966 billion of revenue in fiscal 2022, representing 84% of total revenues.
Our Recorded Music business, home to superstar recording artists such as Ed Sheeran, Bruno Mars, Cardi B and Dua Lipa, generated $4.955 billion of revenue in fiscal 2023, representing 82% of total revenues.
In 2018, the enactment of the MMA in the United States resulted in major reforms to music licensing.
Music Modernization Act (“MMA”). In 2018, the enactment of the MMA in the United States resulted in major reforms to music licensing.
Many of our recording artists continue to appeal to audiences long after we cease to release their new music. We have an efficient process for sustaining sales across our catalog releases. Relative to our new releases, we spend lesser amounts on marketing for our catalog.
Many of our recording artists continue to appeal to audiences long after we cease to release their new music. We have an efficient process for sustaining sales across our catalog releases.
For our fiscal year 2022, our business generated net income and Adjusted EBITDA of $555 million and $1,196 million, respectively, implying an Adjusted EBITDA margin of approximately 20%. We believe our financial profile provides a strong foundation for our continued growth. Experienced Leadership Team and Committed Strategic Investor.
For our fiscal year 2023, our business generated net income and Adjusted EBITDA of $439 million and $1,311 million, respectively, implying an Adjusted EBITDA margin of approximately 22%. We believe our financial profile provides a strong foundation for our continued growth. Experienced Leadership Team and Committed Strategic Investor.
Dre, Stephen Sondheim, George & Ira Gershwin and Gamble & Huff. Competition In our Recorded Music and Music Publishing businesses, we compete based on marketing (including both how we allocate our marketing resources as well as how much we spend on a dollar basis) and on recording artist and songwriter signings. We believe we currently compete favorably in these areas.
Competition In our Recorded Music and Music Publishing businesses, we compete based on marketing (including both how we allocate our marketing resources as well as how much we spend on a dollar basis) and on recording artist and songwriter signings. We believe we currently compete favorably in these areas.
According to Music & Copyright, the music publishing industry generated $6.9 billion in global revenue in 2021, representing an approximate 17.6% increase from $5.9 billion in 2020 (following an increase in global music publishing revenues of 5.2% from 2019 to 2020).
According to Music & Copyright, the music publishing industry generated $8.1 billion in global revenue in 2022, representing an approximate 17.7% increase from $6.9 billion in 2021 (following an increase in global music publishing revenues of 17.6% from 2020 to 2021).
According to the Recording Industry Association of America (“RIAA”), as of September 2022, 6 out of the top 10 most followed accounts on Twitter belong to musicians, and according to YouTube, the majority of videos that have achieved more than one billion lifetime views as well as the top 10 most watched videos of all time, belong to musicians.
According to Statista, as of September 2022, 5 out of the top 10 most followed accounts on X (formerly Twitter) belong to musicians, and according to YouTube, the majority of videos that have achieved more than one billion lifetime views as well as the top 10 most watched videos of all time, belong to musicians.
In addition to our commercial arrangements with digital music services, we opportunistically invest in some of those services as well as other companies in our industry, including minority equity stakes in Deezer, a French digital music service in which Access owns a controlling equity interest, and Tencent Music Entertainment Group, the leading online music entertainment platform in China.
In addition to our commercial arrangements with digital music services, we opportunistically invest in some of those services as well as other companies in our industry, including a minority equity stake in Deezer, a French digital music service in which Access owns a controlling equity interest.
The development of our vibrant roster of recording artists has been informed by our significant experience in being able to adapt to changes in consumer trends and sentiment over time. Our creative instincts yield custom strategies for each and every one of our recording artists.
The development of our vibrant roster of recording artists has been informed by our significant experience in being able to adapt to changes in consumer trends and sentiment over time.
Our Recorded Music business’ distribution operations include WEA Corp., which markets, distributes and sells music and video products to retailers and wholesale distributors; Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors; and various distribution centers and ventures operated internationally.
Our business’ distribution operations also includes Alternative Distribution Alliance (“ADA”), which markets, distributes and sells the products of independent labels to retail and wholesale distributors; and various distribution centers and ventures operated internationally.
We believe the value proposition that streaming provides to consumers supports premium product initiatives. 7 Technology Enables Innovation and Presents Additional Opportunities Technological innovation has helped facilitate the penetration of music listening across locations, including homes, offices and cars, as well as across devices, including smartphones, tablets, wearables, digital dashboards, gaming consoles, smart speakers, exercise equipment, personal computers and connected TVs.
Technology Enables Innovation and Presents Additional Opportunities Technological innovation has helped facilitate the penetration of music listening across locations, including homes, offices and cars, as well as across devices, including smartphones, tablets, wearables, digital dashboards, gaming consoles, smart speakers, exercise equipment, personal computers and connected TVs.
Available Information Our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those forms are available free of charge through our website (investors.wmg.com) as soon as reasonably practicable after they are filed with or furnished to the SEC. The U.S.
All website addresses in this Annual Report are intended to be inactive textual references only. 20 Available Information Our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those forms are available free of charge through our website (investors.wmg.com) as soon as reasonably practicable after they are filed with or furnished to the SEC.
We also typically pay costs associated with the recording and production of music, which in many countries are treated as advances recoupable by us from future royalties.
We customarily provide upfront payments to recording artists called advances, which are recoupable by us from future royalties otherwise payable to such recording artists. We also typically pay costs associated with the recording and production of music, which in many countries are treated as advances recoupable by us from future royalties.
Whether it is an up-and-coming songwriter making music in his or her bedroom, a breakout superstar recording artist selling out stadiums or an icon looking to curate a legacy, we offer the necessary support and resources. We are not just searching for immediate hits. We scout and sign talent with the market potential for longevity and lasting impact.
Welcoming Talent We offer recording artists and songwriters numerous pathways into our ecosystem. Whether it is an up-and-coming songwriter making music in his or her bedroom, a breakout superstar recording artist selling out stadiums or an icon looking to curate a legacy, we offer the necessary support and resources. We are not just searching for immediate hits.
According to the IFPI, from 2017 through 2021, global recorded music revenue grew at a CAGR of 11%, with streaming revenue growing at a CAGR of 27% and increasing as a percentage of global recorded music revenue from 38% to 65% over the same period.
According to the IFPI, from 2018 through 2022, global recorded music revenue grew at a CAGR of 11%, with streaming revenue growing at a CAGR of 19% and increasing as a percentage of global recorded music revenue from 50% to 67% over the same period.
In connection with the digital distribution of our music, we currently partner with a broad range of digital music services, such as Amazon, Apple, Deezer, KKBox, Spotify, Telefonica, Tencent Music Entertainment Group and YouTube, and are actively seeking to develop and grow our digital business.
Our revenues are generated in digital formats including streaming and downloads, CD format, as well as through historical formats, such as vinyl albums. 14 In connection with the digital distribution of our music, we currently partner with a broad range of digital music services, such as Amazon, Apple, Deezer, KKBox, Spotify, Telefonica, Tencent Music Entertainment Group and YouTube, and are actively seeking to develop and grow our digital business.
By comparison, from fiscal year 2017 to fiscal year 2021, our recorded music streaming revenue grew at a CAGR of 22% and increased as a percentage of our total recorded music revenues from 44% to 65%.
By comparison, from fiscal year 2018 to fiscal year 2022, our recorded music streaming revenue grew at a CAGR of 16% and increased as a percentage of our total recorded music revenues from 52% to 64%.
Our History The Company today consists of individual companies that are among the most respected and iconic in the music industry, with a history that dates back to the establishment of Chappell & Co. in 1811 and Parlophone in 1896.
We believe advancements in technology will continue to drive consumer engagement and shape a growing and vibrant music entertainment ecosystem. Our History The Company today consists of individual companies that are among the most respected and iconic in the music industry, with a history that dates back to the establishment of Chappell & Co. in 1811 and Parlophone in 1896.
In addition, Warner Chappell Music boasts a diversified catalog of timeless classics together with an ever-growing group of contemporary songwriters who are actively contributing to today’s top hits.
Our creative instincts yield custom strategies for each and every one of our recording artists. 10 In addition, Warner Chappell Music boasts a diversified catalog of timeless classics together with an ever-growing group of contemporary songwriters who are actively contributing to today’s top hits.
In addition, 29% of the surveyed population had watched a music livestream such as a concert in the last 12 months, and in gaming, 31% of gamers have attended a virtual concert on platforms like Fortnite, Roblox, or Minecraft.
In addition, 32% of the surveyed population had watched a music livestream such as a concert in the last month, and in gaming, 44% of gamers have attended a virtual concert on platforms like Fortnite, Roblox, or Minecraft. Additionally, according to IFPI, growth continued in the physical market.
C opyright Royalty Board (“CRB”). In 2018, the CRB issued its determination of royalty rates and terms, significantly increasing the mechanical royalty rates paid for musical compositions in the United States from 2018 through 2022.
In 2018, the CRB issued its determination of royalty rates and terms, significantly increasing the mechanical royalty rates paid for the streaming of musical compositions in the United States from 10.5% in 2018 to 15.1% in 2022 (the “Phonorecords III Proceeding”).
Physical represented approximately 19% of global recorded music revenue in 2021, with growth in both vinyl and CD sales. Performance rights revenue represents the use of recorded music by broadcasters and public venues, and represented approximately 9% of global recorded music revenue in 2021. Downloads and other digital revenue represented approximately 4% of global recorded music revenue in 2021.
Overall, streaming grew by 11.5% in 2022 as compared to 2021. Physical represented approximately 17.5% of global recorded music revenue in 2022, with growth in vinyl sales. Performance rights revenue represents the use of recorded music by broadcasters and public venues, and represented approximately 9.4% of global recorded music revenue in 2022.
Creative Partnership Our A&R executives both champion and challenge the talent they sign, empowering them to realize their visions and evolve over time. Our longstanding relationships within the creative community also provide our recording artists and songwriters with a wide network of collaborators, which is a vital part of helping them to realize their best work.
Our longstanding relationships within the creative community also provide our recording artists and songwriters with a wide network of collaborators, which is a vital part of helping them to realize their best work. We provide the investment that gives our recording artists and songwriters the requisite time and space to experiment and flourish.
On-demand audio streaming reached 1.13 trillion streams in the United States in 2021, according to Luminate (formerly MRC Data/Billboard). The potential of global paid streaming subscriber growth is demonstrated by the penetration rates in early adopter markets.
Total (audio and video) streaming reached 617 billion streams in the United States in 2022, up 14% from 2021 according to Luminate. The potential of global paid streaming subscriber growth is demonstrated by the penetration rates in early adopter markets.
In most other territories, mechanical royalties are based on a percentage of wholesale prices for physical formats and based on a percentage of consumer prices for digital formats.
In most other territories, mechanical royalties are based on a percentage of wholesale prices for physical formats and based on a percentage of consumer prices for digital formats. In international markets, these rates are typically determined by multi-year collective bargaining agreements and rate tribunals.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf we fail to obtain appropriate relief through the judicial process or the complete enforcement of judicial decisions issued in our favor (or if judicial decisions are not in our favor), if we are unsuccessful in our efforts to lobby governments to enact and enforce stronger legal penalties for copyright infringement or if we fail to develop effective means of protecting and enforcing our intellectual property (whether copyrights or other intellectual property rights such as patents, trademarks and trade secrets) or our music entertainment-related products or services, our results of operations, financial position and prospects may suffer.
Biggest changeIf we fail to obtain appropriate relief through the judicial process or the complete enforcement of judicial decisions issued in our favor (or if judicial decisions are not in our favor), if we are unsuccessful in our efforts to lobby governments to enact and enforce stronger legal penalties for copyright infringement or if we fail to develop effective means of protecting and enforcing our intellectual property (whether copyrights or other intellectual property rights such as patents, trademarks and trade secrets) or our music entertainment-related products or services, our results of operations, financial position and prospects may suffer. 28 If we or our service providers do not maintain the security of information relating to our customers, employees and vendors and our music, security information breaches through cyber security attacks or otherwise could damage our reputation with customers, employees, vendors and artists, and we could incur substantial additional costs, become subject to litigation and our results of operations and financial condition could be adversely affected.
On November 1, 2022, Acquisition Corp. borrowed $150 million under a new tranche of its term loan facility, the proceeds of which will be used to pay the deferred purchase price of certain music and music-related assets, to pay fees and expenses relating thereto and for general corporate purposes.
On November 1, 2022, Acquisition Corp. borrowed $150 million under a new tranche of its term loan facility, the proceeds of which will be used to pay the deferred purchase price of certain music and music-related assets, to pay fees and expenses relating thereto and for general corporate purposes.
For example, our amended and restated certificate of incorporation and amended and restated by-laws collectively: • authorize two classes of common stock with disparate voting power; • permit different treatment of our Class A Common Stock and Class B Common Stock in a change of control transaction if approved by a majority of the voting power of our outstanding Class A Common Stock and a majority of the voting power of our outstanding Class B Common Stock, voting separately; • authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt; 35 • provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office once Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; • prohibit stockholders from calling special meetings of stockholders if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; • prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders, if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; • establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders; • require the approval of holders of at least 66 2/3% of the total combined voting power of the outstanding shares of our common stock to amend our amended and restated by-laws and certain provisions of our amended and restated certificate of incorporation if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; and • subject us to Section 203 of the DGCL, which limits the ability of stockholders holding shares representing more than 15% of the voting power of our outstanding voting stock from engaging in certain business combinations with us, once Access no longer owns at least 5% of the total combined voting power of our outstanding common stock.
For example, our amended and restated certificate of incorporation and amended and restated by-laws collectively: • authorize two classes of common stock with disparate voting power; • permit different treatment of our Class A Common Stock and Class B Common Stock in a change of control transaction if approved by a majority of the voting power of our outstanding Class A Common Stock and a majority of the voting power of our outstanding Class B Common Stock, voting separately; • authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to thwart a takeover attempt; 37 • provide that vacancies on our board of directors, including vacancies resulting from an enlargement of our board of directors, may be filled only by a majority vote of directors then in office once Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; • prohibit stockholders from calling special meetings of stockholders if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; • prohibit stockholder action by written consent, thereby requiring all actions to be taken at a meeting of the stockholders, if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; • establish advance notice requirements for nominations of candidates for election as directors or to bring other business before an annual meeting of our stockholders; • require the approval of holders of at least 66 2/3% of the total combined voting power of the outstanding shares of our common stock to amend our amended and restated by-laws and certain provisions of our amended and restated certificate of incorporation if Access ceases to beneficially own more than 50% of the total combined voting power of the outstanding shares of our common stock; and • subject us to Section 203 of the DGCL, which limits the ability of stockholders holding shares representing more than 15% of the voting power of our outstanding voting stock from engaging in certain business combinations with us, once Access no longer owns at least 5% of the total combined voting power of our outstanding common stock.
The rates set for recorded music and music publishing income sources through collecting societies or legally prescribed rate-setting processes could have a material adverse impact on our business prospects. 23 An impairment in the carrying value of goodwill or other intangible and long-lived assets could negatively affect our operating results and equity.
The rates set for recorded music and music publishing income sources through collecting societies or legally prescribed rate-setting processes could have a material adverse impact on our business prospects. An impairment in the carrying value of goodwill or other intangible and long-lived assets could negatively affect our operating results and equity.
Failure to comply with any of the public company requirements applicable to us could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. Risks Related to Intellectual Property and Data Security Failure to obtain, maintain, protect and enforce our intellectual property rights could substantially harm our business, operating results and financial condition.
Failure to 27 comply with any of the public company requirements applicable to us could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. Risks Related to Intellectual Property and Data Security Failure to obtain, maintain, protect and enforce our intellectual property rights could substantially harm our business, operating results and financial condition.
A termination of U.S. federal copyright rights could have an adverse effect on our Recorded Music business. From time to time, 25 authors (or their heirs) have the opportunity to terminate our U.S. rights in musical compositions. We believe the effect of any potential terminations is already reflected in the financial results of our business.
A termination of U.S. federal copyright rights could have an adverse effect on our Recorded Music business. From time to time, authors (or their heirs) have the opportunity to terminate our U.S. rights in musical compositions. We believe the effect of any potential terminations is already reflected in the financial results of our business.
All of the shares of Class A Common Stock sold in the IPO were immediately tradable without restriction under the Securities Act except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or “Rule 144.” 33 The remaining shares of Class B Common Stock outstanding subsequent to the consummation of the IPO are restricted securities within the meaning of Rule 144, but will be eligible for resale subject, in certain cases, to applicable volume, manner of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701 under the Securities Act, or “Rule 701.” Access has the right to require us to register shares of common stock for resale in some circumstances pursuant to a registration rights agreement we entered into with Access.
All of the shares of Class A Common Stock sold in the IPO were immediately tradable without restriction under the Securities Act except for any shares held by “affiliates,” as that term is defined in Rule 144 under the Securities Act, or “Rule 144.” 35 The remaining shares of Class B Common Stock outstanding subsequent to the consummation of the IPO are restricted securities within the meaning of Rule 144, but will be eligible for resale subject, in certain cases, to applicable volume, manner of sale, holding period and other limitations of Rule 144 or pursuant to an exception from registration under Rule 701 under the Securities Act, or “Rule 701.” Access has the right to require us to register shares of common stock for resale in some circumstances pursuant to a registration rights agreement we entered into with Access.
We may outsource other back-office functions in the future, which would increase our reliance on third parties. We have engaged in substantial restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost savings.
We may outsource other back-office functions in the future, which would increase our reliance on third parties. 26 We have engaged in substantial restructuring activities in the past, and may need to implement further restructurings in the future and our restructuring efforts may not be successful or generate expected cost savings.
In addition, if any new business in which we invest or which 24 we attempt to develop does not progress as planned, we may not recover the funds and resources we have expended and this could have a negative impact on our businesses or our company as a whole.
In addition, if any new business in which we invest or which we attempt to develop does not progress as planned, we may not recover the funds and resources we have expended and this could have a negative impact on our businesses or our company as a whole.
Our financial results may be adversely affected if we are unable to identify, sign and retain such recording artists and songwriters under terms that are economically attractive to us, including with respect to recording commitments, advance and royalty obligations and rights retention.
Our financial results may be adversely affected if we are unable to identify, sign and retain such recording artists and songwriters under terms that are economically attractive to us, including with respect to delivery commitments, advance and royalty obligations and rights retention.
The impact of digital piracy on legitimate music revenues and subscriptions is hard to quantify, but we believe that illegal file sharing and other forms of unauthorized activity, including stream manipulation, have a 26 substantial negative impact on music revenues.
The impact of digital piracy on legitimate music revenues and subscriptions is hard to quantify, but we believe that illegal file sharing and other forms of unauthorized activity, including stream manipulation, have a substantial negative impact on music revenues.
Globally, many government and consumer agencies have also called for new regulation and changes in industry practices with respect to information collected from consumers, electronic marketing and the use of third-party cookies, web beacons and similar technology for online behavioral advertising. 27 Our business, including our ability to operate and expand internationally, could be adversely affected if laws or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices.
Globally, many government and consumer agencies have also called for new regulation and changes in industry practices with respect to information collected from consumers, electronic marketing and the use of third-party cookies, web beacons and similar technology for online behavioral advertising. 29 Our business, including our ability to operate and expand internationally, could be adversely affected if laws or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that require changes to these practices.
If growth in streaming revenue levels off or fails to grow as quickly as it has over the past several years, our business may experience reduced levels of revenue and operating income. 20 We are substantially dependent on a limited number of digital music services for the online distribution and marketing of our music, and they are able to significantly influence the pricing structure for online music stores and may not correctly calculate royalties under license agreements.
If growth in streaming revenue levels off or fails to grow as quickly as it has over the past several years, our business may experience reduced levels of revenue and operating income. 22 We are substantially dependent on a limited number of digital music services for the online distribution and marketing of our music, and they are able to significantly influence the pricing structure for online music stores and may not correctly calculate royalties under license agreements.
If a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition. 37 ITEM 1B.
If a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition. 39 ITEM 1B.
Therefore, although reductions in our debt ratings may not have an immediate impact on the cost of debt or our liquidity, they may impact the cost of debt and liquidity over the medium term and future access at a reasonable rate to the debt markets may be adversely impacted. 30 Risks Related to Our Controlling Stockholder Access continues to control us and may have conflicts of interest with other stockholders.
Therefore, although reductions in our debt ratings may not have an immediate impact on the cost of debt or our liquidity, they may impact the cost of debt and liquidity over the medium term and future access at a reasonable rate to the debt markets may be adversely impacted. 32 Risks Related to Our Controlling Stockholder Access continues to control us and may have conflicts of interest with other stockholders.
Such third party may have conflicts of interest with the interests of other stockholders. 32 Risks Related to Our Common Stock The dual class structure of our common stock and the existing ownership of Class B Common Stock by Access have the effect of concentrating voting control with Access for the foreseeable future, which will limit or preclude the ability of our other stockholders to influence corporate matters.
Such third party may have conflicts of interest with the interests of other stockholders. 34 Risks Related to Our Common Stock The dual class structure of our common stock and the existing ownership of Class B Common Stock by Access have the effect of concentrating voting control with Access for the foreseeable future, which will limit or preclude the ability of our other stockholders to influence corporate matters.
Access could elect to cause us to enter into business combinations or other transactions with any business or businesses in our industry that Access may acquire or control, or we could become part of a group of companies organized 31 under the ultimate common control of Access that may be operated in a manner different from the manner in which we have historically operated.
Access could elect to cause us to enter into business combinations or other transactions with any business or businesses in our industry that Access may acquire or control, or we could become part of a group of companies organized 33 under the ultimate common control of Access that may be operated in a manner different from the manner in which we have historically operated.
These translations could result in significant changes to our results of operations from period to period. Prior to intersegment eliminations, 54% of our revenues related to operations in foreign territories for the fiscal year ended September 30, 2022. From time to time, we enter into foreign exchange contracts to hedge the risk of unfavorable foreign currency exchange rate movements.
These translations could result in significant changes to our results of operations from period to period. Prior to intersegment eliminations, 54% of our revenues related to operations in foreign territories for the fiscal year ended September 30, 2023. From time to time, we enter into foreign exchange contracts to hedge the risk of unfavorable foreign currency exchange rate movements.
We expect to increase revenues and cash flow through a business strategy which requires us, among other things, to continue to maximize the value of our music, to significantly reduce costs to maximize flexibility and adjust to new realities of the market, to continue to act to contain digital piracy and to diversify our revenue streams into growing segments of the music entertainment business by continuing to capitalize on digital distribution and emerging technologies, entering into expanded-rights deals with recording artists and by operating our artist services businesses.
We expect to increase revenues and cash flow through a business strategy which requires us, among other things, to continue to maximize the value of our music, to significantly reduce costs to maximize flexibility and adjust to new realities of the market, to continue to act to contain digital piracy and to diversify our revenue streams into growing segments of the music entertainment business by capitalizing on digital distribution and emerging technologies, entering into expanded-rights deals with recording artists and operating our artist services businesses.
Our status as a controlled company could make our Class A Common Stock less attractive to some investors or otherwise harm our stock price. 36 Our amended and restated certificate of incorporation includes provisions limiting the personal liability of our directors for breaches of fiduciary duty under the DGCL.
Our status as a controlled company could make our Class A Common Stock less attractive to some investors or otherwise harm our stock price. 38 Our amended and restated certificate of incorporation includes provisions limiting the personal liability of our directors for breaches of fiduciary duty under the DGCL.
We performed an annual assessment, at July 1, 2022, of the recoverability of our goodwill and indefinite-lived intangibles as of September 30, 2022, noting no instances of impairment. However, future events may occur that could adversely affect the estimated fair value of our reporting units.
We performed an annual assessment, at July 1, 2023, of the recoverability of our goodwill and indefinite-lived intangibles as of September 30, 2023, noting no instances of impairment. However, future events may occur that could adversely affect the estimated fair value of our reporting units.
The inability to receive dividends from our subsidiaries could have a material adverse effect on our business, financial condition, liquidity or results of operations. 28 The subsidiaries of the Company have no obligation to pay amounts due on any liabilities of the Company or to make funds available to the Company for such payments.
The inability to receive dividends from our subsidiaries could have a material adverse effect on our business, financial condition, liquidity or results of operations. 30 The subsidiaries of the Company have no obligation to pay amounts due on any liabilities of the Company or to make funds available to the Company for such payments.
If our indebtedness is accelerated, we cannot be certain that we will have 29 sufficient funds available to pay the accelerated indebtedness or will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.
If our indebtedness is accelerated, we cannot be certain that we will have 31 sufficient funds available to pay the accelerated indebtedness or will have the ability to refinance the accelerated indebtedness on terms favorable to us or at all.
In the 34 past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company.
In the 36 past, following periods of volatility in the market price of a company’s securities, class action litigation has often been instituted against the affected company.
Streaming revenue is important because it has offset declines in downloads and physical sales and represents a growing area of our business. According to IFPI, streaming revenue, which includes revenue from ad-supported and subscription services, accounted for approximately 94% of digital revenue in 2021, up approximately 2% year-over-year.
Streaming revenue is important because it has offset declines in downloads and physical sales and represents a growing area of our business. According to IFPI, streaming revenue, which includes revenue from ad-supported and subscription services, accounted for approximately 95% of digital revenue in 2022, up approximately 2% year-over-year.
As a result, our results can be affected not only by general industry trends, but also by trends, developments or other events in individual countries, including: • limited legal protection and enforcement of intellectual property rights; • restrictions on the repatriation of capital; • fluctuations in interest and foreign exchange rates; • differences and unexpected changes in regulatory environment, including environmental, health and safety, local planning, zoning and labor laws, rules and regulations; • varying tax regimes which could adversely affect our results of operations or cash flows, including regulations relating to transfer pricing and withholding taxes on remittances and other payments by subsidiaries and joint ventures; • exposure to different legal standards and enforcement mechanisms and the associated cost of compliance; • difficulties in attracting and retaining qualified management and employees or rationalizing our workforce; • tariffs, duties, export controls and other trade barriers; • global economic and retail environment; • longer accounts receivable settlement cycles and difficulties in collecting accounts receivable; • recessionary trends, inflation and instability of the financial markets; 21 • higher interest rates; and • political instability.
As a result, our results can be affected not only by general industry trends, but also by trends, developments or other events in individual countries, including: • limited legal protection and enforcement of intellectual property rights; • restrictions on the repatriation of capital; • fluctuations in interest and foreign exchange rates; • differences and unexpected changes in regulatory environment, including environmental, health and safety, local planning, zoning and labor laws, rules and regulations; • varying tax regimes which could adversely affect our results of operations or cash flows, including regulations relating to transfer pricing and withholding taxes on remittances and other payments by subsidiaries and joint ventures; • imposition of a global minimum tax rate, including by the Organization of Economic Co-operation and Development (“OECD”); • exposure to different legal standards and enforcement mechanisms and the associated cost of compliance; • difficulties in attracting and retaining qualified management and employees or rationalizing our workforce; • tariffs, duties, export controls and other trade barriers; • global economic and retail environment; • longer accounts receivable settlement cycles and difficulties in collecting accounts receivable; 23 • recessionary trends, inflation and instability of the financial markets; • higher interest rates; and • armed conflicts or political instability.
We derive an increasing portion of our revenue from the licensing of music through digital distribution channels. We are currently dependent on a small number of leading digital music services. In fiscal year 2022, revenue earned under our license agreements with our top three digital music accounts, Spotify, YouTube and Apple, accounted for approximately 40% of our total revenue.
We derive an increasing portion of our revenue from the licensing of music through digital distribution channels. We are currently dependent on a small number of leading digital music services. In fiscal year 2023, revenue earned under our license agreements with our top three digital music accounts, Spotify, Google/YouTube and Apple, accounted for approximately 41% of our total revenue.
Governments could enact new legislation or could make regulatory determinations that affect the terms of our contracts with recording artists and songwriters. Some recording artist and songwriter groups, particularly in Europe, are urging governments to intervene in the music streaming business in ways that could affect the terms agreed in our contracts with them.
Governments could enact new legislation or could make regulatory determinations that affect the terms of our contracts with recording artists and songwriters. Some performer groups, particularly in Europe, are urging governments to intervene in the music streaming business in ways that could affect the terms agreed in our contracts with artists and songwriters.
A substantial portion of our revenue comes from the distribution of music which is potentially subject to unauthorized consumer copying and widespread digital dissemination without an economic return to us, including as a result of “stream-ripping.” In its Engaging with Music 2021 report, IFPI surveyed 43,000 people to examine the ways in which music consumers engaged with recorded music across 21 countries.
A substantial portion of our revenue comes from the distribution of music which is potentially subject to unauthorized consumer copying and widespread digital dissemination without an economic return to us, including as a result of “stream-ripping.” In its Engaging with Music 2022 report, IFPI surveyed 44,000 people to examine the ways in which music consumers engaged with recorded music across 22 countries.
If the value of the acquired goodwill or acquired indefinite-lived intangible assets is impaired, our operating results and shareholders’ equity could be adversely affected. We also had $2.239 billion of definite-lived intangible assets as of September 30, 2022.
If the value of the acquired goodwill or acquired indefinite-lived intangible assets is impaired, our operating results and shareholders’ equity could be adversely affected. We also had $2.353 billion of definite-lived intangible assets as of September 30, 2023.
Of those surveyed, 30% had used illegal or unlicensed methods to listen to or download music, and 14% had used unlicensed social media platforms for music purposes, the leading form of music piracy. Organized industrial piracy may also lead to decreased revenues.
Of those surveyed, 30% had used illegal or unlicensed methods to listen to or download music, and 17% had used unlicensed social media platforms and mobile apps for music purposes, the leading form of music piracy. Organized industrial piracy may also lead to decreased revenues.
As of September 30, 2022, our total consolidated indebtedness, net of premiums, discounts and deferred financing costs, was $3.732 billion, all of which ranks senior to our Class A Common Stock.
As of September 30, 2023, our total consolidated indebtedness, net of premiums, discounts and deferred financing costs, was $3.964 billion, all of which ranks senior to our Class A Common Stock.
These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. As of September 30, 2022, we had 137,199,200 outstanding shares of Class A Common Stock and 377,650,449 outstanding shares of Class B Common Stock.
These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. As of September 30, 2023, we had 138,344,724 outstanding shares of Class A Common Stock and 377,650,449 outstanding shares of Class B Common Stock.
Further, we would have been able to borrow up to $296 million under our Revolving Credit Facility (as defined later in this Annual Report) as of September 30, 2022 (after giving effect to approximately $4 million of letters of credit outstanding under our Revolving Credit Facility as of September 30, 2022).
Further, we would have been able to borrow up to $298 million under our Revolving Credit Facility (as defined later in this Annual Report) as of September 30, 2023 (after giving effect to approximately $2 million of letters of credit outstanding under our Revolving Credit Facility as of September 30, 2023).
FASB ASC Topic 360-10-35 (“ASC 360-10-35”) requires companies to review these assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. No such events or circumstances were identified during the fiscal year ended September 30, 2022.
Financial Accounting Standards Board (“FASB”) ASC Topic 360-10-35 (“ASC 360-10-35”) requires companies to review these assets for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. No such events or circumstances were identified during the fiscal year ended September 30, 2023.
As of September 30, 2022, our total consolidated indebtedness, net of premiums, discounts and deferred financing costs, was $3.732 billion.
As of September 30, 2023, our total consolidated indebtedness, net of premiums, discounts and deferred financing costs, was $3.964 billion.
As of September 30, 2022, the Company has granted members of its Board of Directors a total of 248,040 shares of restricted and unrestricted common stock pursuant to the Omnibus Incentive Plan.
As of September 30, 2023, the Company has granted members of its Board of Directors a total of 280,945 shares of restricted and unrestricted common stock pursuant to the Omnibus Incentive Plan.
Government intervention in the music streaming business could have an adverse effect on our business, financial condition and results of operations. Fulfilling our obligations incident to being a public company is expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.
Fulfilling our obligations incident to being a public company is expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.
While our operations in Russia do not constitute a material portion of our business, a significant escalation or expansion of the conflict's current scope, increased or sustained economic disruption, sanctions or countersanctions, further devaluation of the local currency or increased cyber-related disruptions could make it difficult to deliver our content, increase costs, and have an adverse effect on our results of operations.
While our operations in Russia and Israel do not constitute a material portion of our business, a prolonged continuation, significant escalation or expansion of these conflicts’ current scope, increased or sustained economic disruption, sanctions or countersanctions, further devaluation of local currencies or increased cyber-related disruptions affecting these countries or adjacent territories could make it difficult to deliver our content, increase costs, and have an adverse effect on our results of operations in these areas.
If those net undiscounted cash flows do not exceed the carrying amount, we would perform the next step, which is to determine the fair value of the asset, which could result in an impairment charge. Any impairment charge recorded could negatively affect our operating results and shareholders’ equity.
If those net undiscounted cash flows do not exceed the carrying amount, we would perform the next step, which is to determine the fair value of the asset, which could result in an impairment charge.
Our ability to operate effectively could be impaired if we fail to attract and retain our executive officers. We compete with other music entertainment companies and other companies for top talent, including executive officers. Our success depends, in part, upon the continuing contributions of our executive officers, however, there is no guarantee that they will not leave.
We compete with other music entertainment companies and other companies for top talent, including executive officers. Our success depends, in part, upon the continuing contributions of our executive officers, however, there is no guarantee that they will not leave.
As of September 30, 2022, we had $1.920 billion of goodwill and $145 million of indefinite-lived intangible assets.
As of September 30, 2023, we had $1.993 billion of goodwill and $149 million of indefinite-lived intangible assets.
Copyright Act . The U.S. Copyright Act provides authors (or their heirs) a right to terminate U.S. licenses or assignments of rights in their copyrighted works in certain circumstances.
We face a potential loss of catalog to the extent that our recording artists or songwriters have a right to recapture rights in their recordings or musical compositions under the U.S. Copyright Act . The U.S. Copyright Act provides authors (or their heirs) a right to terminate U.S. licenses or assignments of rights in their copyrighted works in certain circumstances.
If we acquire, combine with or invest in other businesses, we will face risks inherent in such transactions.
Any impairment charge recorded could negatively affect our operating results and shareholders’ equity. 25 If we acquire, combine with or invest in other businesses, we will face risks inherent in such transactions.
For example, our business may be further adversely affected by technological developments that facilitate the piracy of music, such as Internet peer-to-peer file sharing, by an inability to enforce our intellectual property rights in digital environments and by a failure to further develop successful business models applicable to a digital environment. 22 Our results of operations, cash flows and financial condition are expected to continue to be adversely impacted by the coronavirus pandemic.
For example, our business may be further adversely affected by technological developments that facilitate the piracy of music, by an inability to enforce our intellectual property rights in digital environments and by a failure to further develop successful business models applicable to a digital environment. 24 Our ability to operate effectively could be impaired if we fail to attract and retain our executive officers.
The enactment of legislation limiting the terms by which an individual can be bound under a “personal services” contract could impair our ability to retain the services of key artists. California Labor Code Section 2855 (“Section 2855”) limits the duration of time any individual can be bound under a contract for “personal services” to a maximum of seven years.
Governments, including states in the United States, have enacted or considered enacting legislation limiting the duration that an individual can be bound under a “personal services” contract, which could impair our ability to retain the services of key artists and songwriters.
In August 2019, we announced that we were beginning a financial transformation initiative to upgrade our information technology and finance infrastructure, including related systems and processes. There has been a delay in the timing of the transformation initiative as a result of the disruption from COVID-19.
We are continuing our financial transformation initiative, launched in August 2019, to upgrade our information technology and finance infrastructure, including related systems and processes. The timing of global deployment has been delayed as the size and scale of this global system implementation requires rigorous system testing and data validation to ensure go-live readiness.
Such legislation could result in certain of our existing contracts with artists being declared unenforceable, or may restrict the terms under which we enter into contracts with artists in the future, either of which could adversely affect our business, results of operations and financial condition.
Government intervention in the music streaming business or enactment of legislation affecting the terms of our contracts with our artists and songwriters could have an adverse effect on our business, financial condition and results of operations.
Removed
On March 11, 2020, the COVID-19 outbreak (also referred to as “COVID”) was declared a global pandemic by the World Health Organization. The pandemic has had and will have an adverse effect on our results of operations, cash flows and financial condition.
Added
The competition to sign songwriters and acquire copyrights to music and then collect fees for the use of the music in various forms of media is also intense.
Removed
The virus outbreak resulted in disruptions in manufacturing and physical supply chains, and resulted in mandated closure of physical retailers, requirements that people stay in their homes and delays in the release of new recordings from artists with a more physical consumer base.
Added
In addition, on October 7, 2023, Hamas led attacks against Israel. In response to the attacks, Israel formally declared war on Hamas and the armed conflict in Israel and Gaza is ongoing.
Removed
It temporarily ended and has continued to limit live concert tours, adversely impacting our concert promotion business and our sale of tour merchandise. It made it more difficult for artists to engage in marketing efforts around the release of their new recordings which, in some cases, led to our decision to delay the release of those recordings.
Added
We have at-will employment contracts with a number of our executives, including our Chief Executive Officer and Chief Financial Officer and, therefore, these employees are free to leave at any time subject to certain notice provisions.
Removed
It delayed the release of new recordings by impeding the types of collaboration among artists, songwriters, producers, musicians, engineers and studios which are necessary for the delivery of those recordings.
Added
To address these implementation requirements, we are deploying our new technology platform in a wave-based approach. In 2023, we successfully launched certain components of our new technology platform in select territories in two successful waves in April and August and will continue to deploy the platform to remaining territories through fiscal year 2024 and into fiscal year 2025.
Removed
We also experienced a decline in licensing revenue and, to a lesser extent, ad-supported digital revenue in our Recorded Music business and synchronization, performance and ad-supported digital revenue in our Music Publishing business.
Added
In March 2023, we announced a restructuring plan, primarily consisting of headcount reductions, for which we incurred restructuring charges of approximately $40 million.
Removed
To the extent the COVID-19 pandemic continues to adversely affect our business, results of operations, cash flows or financial condition, it may also have the effect of heightening other risks described in this section.
Added
Also, despite the potential benefit of AI, the potential for AI-generated music has also introduced new challenges for protecting our intellectual property and other rights of our artists and songwriters.
Removed
Given the uncertainty around the extent and timing of the potential future spread or mitigation of the virus and around the imposition or relaxation of protective measures, we cannot at this time reasonably estimate the impact to our future results of operations, cash flows and financial condition.
Added
These challenges include new forms of intellectual property infringement through the unauthorized reproduction of copyrighted works and the name, images, likeness and voices of our artists and songwriters to “train” AI applications and to create unauthorized derivative works.
Removed
In fiscal year 2022, we did not have an employment agreement with our CEO. However, we have an employment agreement with our new CEO and other executive officers and they and other members of management are participants in our equity plans.
Removed
In addition, the size and scale of this global system implementation requires us to invest more time performing the rigorous system testing and data validation to ensure go-live readiness.
Removed
In 1987, Subsection (b) was added, which provides a limited exception to Section 2855 for recording contracts, creating a damages remedy for record companies.
Removed
In March 2021, a California Assembly Member introduced a bill (AB 1385) that sought to repeal Subsection (b). The bill was withdrawn in April 2021, but a similar bill was reintroduced in February 2022 and was ultimately rejected by the California State Senate in June 2022.
Removed
The repeal of Subsection (b) and/or the passage of legislation similar to Section 2855 by other states could materially adversely affect our business, results of operations and financial position. We face a potential loss of catalog to the extent that our recording artists or songwriters have a right to recapture rights in their recordings or musical compositions under the U.S.
Removed
If we or our service providers do not maintain the security of information relating to our customers, employees and vendors and our music, security information breaches through cyber security attacks or otherwise could damage our reputation with customers, employees, vendors and artists, and we could incur substantial additional costs, become subject to litigation and our results of operations and financial condition could be adversely affected.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed4 unchanged
Biggest changeRegardless of the outcome, litigation could have an adverse impact on the Company, including the Company’s brand value, because of defense costs, diversion of management resources and other factors and it could have a material effect on the Company’s results of operations for a given reporting period. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 38 PART II
Biggest changeRegardless of the outcome, litigation could have an adverse impact on the Company, including the Company’s brand value, because of defense costs, diversion of management resources and other factors and it could have a material effect on the Company’s results of operations for a given reporting period. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 40 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−0 removed7 unchanged
Biggest changeThe quarterly intervals below are based on the Company’s 52-week fiscal year in which each reporting period ended on the last Friday of the respective reporting period. 39 The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast, future performance of our Class A Common Stock. 6/3/20 6/26/20 9/25/20 12/24/20 3/26/21 6/25/21 9/24/21 12/31/21 4/1/22 7/1/22 9/30/22 Warner Music Group Corp. $ 100 $ 102 $ 91 $ 126 $ 114 $ 127 $ 149 $ 148 $ 136 $ 99 $ 95 S&P 500 Index 100 98 108 119 127 134 139 146 141 125 119 NASDAQ Composite Index 100 102 116 129 132 142 149 156 148 125 120 Securities Authorized for Issuance Under Equity Compensation Plans See Item 12.
Biggest changeStarting with the 2023 fiscal year, the quarterly intervals below are based on the Company’s modified fiscal year in which each reporting period ends on the last day of the calendar quarter. 41 The comparisons in the graph below are based on historical data and are not indicative of, nor intended to forecast, future performance of our Class A Common Stock. 6/3/20 6/26/20 9/25/20 12/24/20 3/26/21 6/25/21 9/24/21 12/31/21 4/1/22 7/1/22 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 Warner Music Group Corp. $ 100 $ 102 $ 91 $ 126 $ 114 $ 127 $ 149 $ 148 $ 136 $ 99 $ 95 $ 121 $ 116 $ 91 $ 111 S&P 500 Index 100 98 108 119 127 134 139 146 141 125 119 123 132 143 137 NASDAQ Composite Index 100 102 116 129 132 142 149 156 148 125 120 113 136 156 152 Securities Authorized for Issuance Under Equity Compensation Plans See Item 12.
The following graph shows a comparison of the cumulative total return on our Class A Common Stock from June 3, 2020 (the date our Class A Common Stock commenced trading on the Nasdaq Global Select Market) through September 30, 2022 with the cumulative total return of the Standard & Poor’s 500 Index (“S&P 500 Index”) and the Nasdaq Composite Index over the same period, assuming the investment of $100 in our Class A Common Stock and in each index on June 3, 2020 and the reinvestment of dividends in each of our Class A Common Stock and each index.
The following graph shows a comparison of the cumulative total return on our Class A Common Stock from June 3, 2020 (the date our Class A Common Stock commenced trading on the Nasdaq Global Select Market) through September 30, 2023 with the cumulative total return of the Standard & Poor’s 500 Index (“S&P 500 Index”) and the Nasdaq Composite Index over the same period, assuming the investment of $100 in our Class A Common Stock and in each index on June 3, 2020 and the reinvestment of dividends in each of our Class A Common Stock and each index.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ITEM 6. [RESERVED] 40
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ITEM 6. [RESERVED] 42
Because many of our shares of Class A Common Stock are held by brokers and other institutions on behalf of individuals and entities, we excluded the total number of beneficial owners represented by these record holders. As of November 16, 2022, there were 7 stockholders of record of our Class B Common Stock.
Because many of our shares of Class A Common Stock are held by brokers and other institutions on behalf of individuals and entities, we excluded the total number of beneficial owners represented by these record holders. As of November 15, 2023, there were 8 stockholders of record of our Class B Common Stock.
The Company's Class B Common Stock is not listed on any stock exchange nor traded on any public market. Holders of Record As of November 16, 2022, there were approximately 14 stockholders of record of the Company's Class A Common Stock.
The Company's Class B Common Stock is not listed on any stock exchange nor traded on any public market. Holders of Record As of November 15, 2023, there were approximately 15 stockholders of record of the Company's Class A Common Stock.
Added
Through September 30, 2022, the quarterly intervals below are based on the Company’s 52-53 week fiscal year in which each reporting period ended on the last Friday of the respective reporting period.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

183 edited+53 added−60 removed178 unchanged
Biggest changePrior to the termination of the Management Agreement, the Company incurred costs associated with the Management Agreement of approximately $7 million for the fiscal year ended September 30, 2020, which was recorded within selling, general and administrative expenses in the accompanying consolidated statements of operations. 45 RESULTS OF OPERATIONS Fiscal Year Ended September 30, 2022 Compared with Fiscal Year Ended September 30, 2021 and Fiscal Year Ended September 30, 2020 Consolidated Results Revenues The Company’s revenues were composed of the following amounts (in millions): For the Fiscal Year Ended September 30, 2022 vs. 2021 2021 vs. 2020 2022 2021 2020 $ Change % Change $ Change % Change Revenue by Type Digital $ 3,305 $ 3,105 $ 2,568 $ 200 6 % $ 537 21 % Physical 563 549 434 14 3 % 115 26 % Total Digital and Physical 3,868 3,654 3,002 214 6 % 652 22 % Artist services and expanded-rights 767 599 525 168 28 % 74 14 % Licensing 331 291 283 40 14 % 8 3 % Total Recorded Music 4,966 4,544 3,810 422 9 % 734 19 % Performance 159 122 142 37 30 % (20) -14 % Digital 563 436 337 127 29 % 99 29 % Mechanical 50 49 48 1 2 % 1 2 % Synchronization 172 144 119 28 19 % 25 21 % Other 14 10 11 4 40 % (1) -9 % Total Music Publishing 958 761 657 197 26 % 104 16 % Intersegment eliminations (5) (4) (4) (1) 25 % — — % Total Revenues $ 5,919 $ 5,301 $ 4,463 $ 618 12 % $ 838 19 % Revenue by Geographical Location U.S.
Biggest changeWhile our operations in Russia do not constitute a material portion of our business, a significant escalation or expansion of the conflict's current scope, increased or sustained economic disruption, sanctions or countersanctions, further devaluation of the local currency or increased cyber-related disruptions could make it difficult to deliver our content, broaden inflationary costs, and have an adverse effect on our results of operations. 47 RESULTS OF OPERATIONS Fiscal Year Ended September 30, 2023 Compared with Fiscal Year Ended September 30, 2022 and Fiscal Year Ended September 30, 2021 Consolidated Results Revenues The Company’s revenues were composed of the following amounts (in millions): For the Fiscal Year Ended September 30, 2023 vs. 2022 2022 vs. 2021 2023 2022 2021 $ Change % Change $ Change % Change Revenue by Type Digital $ 3,322 $ 3,305 $ 3,105 $ 17 1 % $ 200 6 % Physical 507 563 549 (56) -10 % 14 3 % Total Digital and Physical 3,829 3,868 3,654 (39) -1 % 214 6 % Artist services and expanded-rights 744 767 599 (23) -3 % 168 28 % Licensing 382 331 291 51 15 % 40 14 % Total Recorded Music 4,955 4,966 4,544 (11) — % 422 9 % Performance 173 159 122 14 9 % 37 30 % Digital 669 563 436 106 19 % 127 29 % Mechanical 63 50 49 13 26 % 1 2 % Synchronization 167 172 144 (5) -3 % 28 19 % Other 16 14 10 2 14 % 4 40 % Total Music Publishing 1,088 958 761 130 14 % 197 26 % Intersegment eliminations (6) (5) (4) (1) 20 % (1) 25 % Total Revenues $ 6,037 $ 5,919 $ 5,301 $ 118 2 % $ 618 12 % Revenue by Geographical Location U.S.
This division includes a rebranded WEA commercial services & marketing network (formerly Warner-Elektra-Atlantic Corporation, or WEA Corp.), which markets, distributes and sells music and video products to retailers and wholesale distributors, as well as acting as the Company’s media and creative content arm.
This division includes a rebranded WEA commercial services and marketing network (formerly Warner-Elektra-Atlantic Corporation, or WEA Corp.), which markets, distributes and sells music and video products to retailers and wholesale distributors, as well as acting as the Company’s media and creative content arm.
Digital revenue increased by $200 million, or 6%, as a result of the continued growth in streaming services, which was affected by market-related slowdown in ad-supported revenue, $31 million in downloads and other digital revenue from the Copyright Settlement, strength of releases including current year releases from Ed Sheeran and Silk Sonic as well as carryover success from Dua Lipa, Ed Sheeran and Bruno Mars.
Digital revenue increased by $200 million, or 6%, as a result of the continued growth in streaming services, which was affected by the market-related slowdown in ad-supported revenue, $31 million in downloads and other digital revenue from the Copyright Settlement, strength of releases including current year releases from Ed Sheeran and Silk Sonic as well as carryover success from Dua Lipa, Ed Sheeran and Bruno Mars.
Download and other digital increased by $19 million due to the Copyright Settlement, partially offset by continued shift to streaming services. U.S. Recorded Music artist services and expanded-rights revenue increased by $66 million, primarily driven by higher merchandising revenues. Increases are also attributable to the increase in U.S.
Download and other digital revenue increased by $19 million due to the Copyright Settlement, partially offset by the continued shift to streaming services. U.S. Recorded Music artist services and expanded-rights revenue increased by $66 million, primarily driven by higher merchandising revenues. Increases are also attributable to the increase in U.S.
The increase in general and administrative expense was primarily due to higher variable compensation expense related to strong operating performance, employee-related costs and legal expenses for the Copyright Settlement, partially offset by lower restructuring.
The increase in general and administrative expense was primarily due to higher variable compensation expense related to strong operating performance, employee-related costs and legal expenses for the Copyright Settlement, partially offset by lower restructuring costs.
The Additional Notes have identical terms as (other than the issue date and the issue price) and are fungible with, and treated as a single series of senior secured debt securities with, the 3.000% Senior Secured Notes issued on August 12, 2020 (the “Original Notes”). 65 2.250% Senior Secured Notes On August 16, 2021, Acquisition Corp. issued and sold €445 million in aggregate principal amount of its 2.250% Senior Secured Notes due 2031 (the “2.250% Senior Secured Notes”) under the Senior Secured Base Indenture, as supplemented by the Fifth Supplemental Indenture, dated as of August 16, 2021, among Acquisition Corp., the guarantors party thereto and the Trustee (the “2.250% Supplemental Indenture”).
The Additional Notes have identical terms as (other than the issue date and the issue price) and are fungible with, and treated as a single series of senior secured debt securities with, the 3.000% Senior Secured Notes issued on August 12, 2020 (the “Original Notes”). 2.250% Senior Secured Notes On August 16, 2021, Acquisition Corp. issued and sold €445 million in aggregate principal amount of its 2.250% Senior Secured Notes due 2031 (the “2.250% Senior Secured Notes”) under the Senior Secured Base Indenture, as supplemented by the Fifth Supplemental Indenture, dated as of August 16, 2021, among Acquisition Corp., the guarantors party thereto and the Trustee (the “2.250% Supplemental Indenture”).
Additionally, during any twelve month period prior to July 15, 2023, the 2.750% Senior Secured Notes may be redeemed pursuant to a Secured Notes Redemption. 3.000% Senior Secured Notes On August 12, 2020, Acquisition Corp. issued $550 million in aggregate principal amount of its 3.000% Senior Secured Notes under the Senior Secured Base Indenture, as supplemented by the Third Supplemental Indenture, dated as of August 12, 2020, among Acquisition Corp., the guarantors party thereto and the Trustee (the “3.000% Supplemental Indenture”).
Additionally, during any twelve month period prior to July 15, 2023, the 2.750% Senior Secured Notes may be redeemed pursuant to a Secured Notes Redemption. 68 3.000% Senior Secured Notes On August 12, 2020, Acquisition Corp. issued $550 million in aggregate principal amount of its 3.000% Senior Secured Notes under the Senior Secured Base Indenture, as supplemented by the Third Supplemental Indenture, dated as of August 12, 2020, among Acquisition Corp., the guarantors party thereto and the Trustee (the “3.000% Supplemental Indenture”).
We have an extensive production music catalog collectively branded as Warner Chappell Production Music. 43 Music Publishing revenues are derived from five main sources: • Digital: the rightsholder receives revenues with respect to musical compositions embodied in recordings distributed in streaming services, download services, digital performance and other digital music services; • Performance: the rightsholder receives revenues if the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations (e.g., bars and restaurants), live performance at a concert or other venue (e.g., arena concerts and nightclubs), and performance of music in staged theatrical productions; • Mechanical: the rightsholder receives revenues with respect to musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs and DVDs; • Synchronization: the rightsholder receives revenues for the right to use the musical composition in combination with visual images such as in films or television programs, television commercials and video games as well as from other uses such as in toys or novelty items and merchandise; and • Other: the rightsholder receives revenues for use in sheet music and other uses.
We have an extensive production music catalog collectively branded as Warner Chappell Production Music. 45 Music Publishing revenues are derived from five main sources: • Digital: the rightsholder receives revenues with respect to musical compositions embodied in recordings distributed in streaming services, download services, digital performance and other digital music services; • Performance: the rightsholder receives revenues if the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations (e.g., bars and restaurants), live performance at a concert or other venue (e.g., arena concerts and nightclubs), and performance of music in staged theatrical productions; • Mechanical: the rightsholder receives revenues with respect to musical compositions embodied in recordings sold in any physical format or configuration such as vinyl, CDs and DVDs; • Synchronization: the rightsholder receives revenues for the right to use the musical composition in combination with visual images such as in films or television programs, television commercials and video games as well as from other uses such as in toys or novelty items and merchandise; and • Other: the rightsholder receives revenues for use in sheet music and other uses.
Other (income) expense 2022 vs. 2021 Other income for the fiscal year ended September 30, 2022 primarily includes foreign currency gains on our Euro-denominated debt of $151 million, currency exchange gains on our intercompany loans of $34 million and unrealized gains on hedging activity of $10 million, partially offset by aggregate realized and unrealized losses of $49 million related to equity investments.
Other income for the fiscal year ended September 30, 2022 primarily includes foreign currency gains on our Euro-denominated debt of $151 million, currency exchange gains on our intercompany loans of $34 million and unrealized gains on hedging activity of $10 million, partially offset by aggregate realized and unrealized losses of $49 million related to equity investments. 2022 vs. 2021 Other income for the fiscal year ended September 30, 2022 primarily includes foreign currency gains on our Euro-denominated debt of $151 million, currency exchange gains on our intercompany loans of $34 million and unrealized gains on hedging activity of $10 million, partially offset by aggregate realized and unrealized losses of $49 million related to equity investments.
Additionally, at any time prior to December 1, 2024, the 3.750% Senior Secured Notes may be redeemed pursuant to an Equity Redemption at a redemption price equal to 103.750% of the principal amount of the 3.750% Senior Secured Notes redeemed, plus accrued and unpaid interest, subject to the same provisos as the 3.875% Senior Secured Notes Equity Redemption.
Additionally, at any time prior to December 1, 2024, the 3.750% Senior Secured Notes may be redeemed pursuant to an Equity Redemption at a redemption price equal to 103.750% of the principal 69 amount of the 3.750% Senior Secured Notes redeemed, plus accrued and unpaid interest, subject to the same provisos as the 3.875% Senior Secured Notes Equity Redemption.
Expressed as a percentage of revenue, general and administrative expense remained constant at 16% for each of the fiscal years ended September 30, 2022 and September 30, 2021. Selling and marketing expense increased by $54 million, or 7%, to $792 million for the fiscal year ended September 30, 2022 from $738 million for the fiscal year ended September 30, 2021.
Expressed as a percentage of revenue, general and administrative expense remained constant at 16% for each of the fiscal years ended September 30, 2022 and September 30, 2021. 53 Selling and marketing expense increased by $54 million, or 7%, to $792 million for the fiscal year ended September 30, 2022 from $738 million for the fiscal year ended September 30, 2021.
We are unable to accurately predict when these amounts will be realized or released. * Because the timing of payment, and even whether payment occurs, is dependent upon the timing of delivery of albums and musical compositions, the timing and amount of payment of these commitments as presented in the above summary can vary significantly. 72 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The SEC’s Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical.
We are unable to accurately predict when these amounts will be realized or released. * Because the timing of payment, and even whether payment occurs, is dependent upon the timing of delivery of albums and musical compositions, the timing and amount of payment of these commitments as presented in the above summary can vary significantly. 75 CRITICAL ACCOUNTING POLICIES AND ESTIMATES The SEC’s Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical.
Our ability to borrow funds under the Revolving Credit Facility may depend upon our ability to meet the leverage ratio test at the end of a fiscal quarter to the extent we have drawn a certain amount of revolving loans.
Our ability to borrow funds under the Revolving Credit Facility may depend upon our ability 71 to meet the leverage ratio test at the end of a fiscal quarter to the extent we have drawn a certain amount of revolving loans.
A reconciliation of consolidated OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp. is provided in our “Results of Operations.” 41 Use of Constant Currency As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue and OIBDA on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods.
A reconciliation of consolidated OIBDA to operating income (loss) and net income (loss) attributable to Warner Music Group Corp. is provided in our “Results of Operations.” 43 Use of Constant Currency As exchange rates are an important factor in understanding period to period comparisons, we believe the presentation of revenue and OIBDA on a constant-currency basis in addition to reported results helps improve the ability to understand our operating results and evaluate our performance in comparison to prior periods.
Assembled over decades, our award-winning catalog includes over 100,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative and gospel. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios.
Assembled over decades, our award-winning catalog includes over 150,000 songwriters and composers and a diverse range of genres including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative and gospel. Warner Chappell Music also administers the music and soundtracks of several third-party television and film producers and studios.
We also conduct our Recorded Music business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’ Records, Warner Classics and Warner Music Nashville. Outside the United States, our Recorded Music business is conducted in more than 70 countries through various subsidiaries, affiliates and non-affiliated licensees.
We also conduct our Recorded Music business through a collection of additional record labels including Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Nonesuch, Parlophone, Reprise, Sire, Spinnin’ Records, TenThousand Projects, Warner Classics and Warner Music Nashville. Outside the United States, our Recorded Music business is conducted in more than 70 countries through various subsidiaries, affiliates and non-affiliated licensees.
These obligations have been presented based on the principal amounts due as of September 30, 2022. Amounts do not include any fair value adjustments, bond premiums, discounts or unamortized deferred financing costs. (2) Operating lease obligations primarily relate to the minimum lease rental obligations for our real estate and operating equipment in various locations around the world.
These obligations have been presented based on the principal amounts due as of September 30, 2023. Amounts do not include any fair value adjustments, bond premiums, discounts or unamortized deferred financing costs. (2) Operating lease obligations primarily relate to the minimum lease rental obligations for our real estate and operating equipment in various locations around the world.
We have integrated the marketing of digital content into all aspects of our business, including A&R and distribution. Our business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music- 42 centered destinations.
We have integrated the marketing of digital content into all aspects of our business, including A&R and distribution. Our business development executives work closely with A&R departments to ensure that while music is being produced, digital assets are also created with all distribution channels in mind, including streaming services, social networking sites, online portals and music- 44 centered destinations.
The Company’s revenue recognition process involves several applications that are responsible for the initiation and processing of transactions in order to recognize revenue in accordance with the Company’s policy and ASC 606. 73 Revenues from the sale or license of Recorded Music products through digital distribution channels are typically recognized when sale or usage occurs based on usage reports received from the customer.
The Company’s revenue recognition process involves several applications that are responsible for the initiation and processing of transactions in order to recognize revenue in accordance with the Company’s policy and ASC 606. 76 Revenues from the sale or license of Recorded Music products through digital distribution channels are typically recognized when sale or usage occurs based on usage reports received from the customer.
In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 100,000 songwriters and composers, with a global collection of more than one million musical compositions. We classify our business interests into two fundamental operations: Recorded Music and Music Publishing.
In addition, Warner Chappell Music, our global music publishing business, boasts an extraordinary catalog that includes timeless standards and contemporary hits, representing works by over 150,000 songwriters and composers, with a global collection of more than one million musical compositions. We classify our business interests into two fundamental operations: Recorded Music and Music Publishing.
GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Accordingly, Adjusted EBITDA should be considered in addition to, not as a substitute for, net income (loss) and other measures of financial performance reported in accordance with U.S. GAAP. 69 The following is a reconciliation of net income (loss), which is a U.S.
GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Accordingly, Adjusted EBITDA should be considered in addition to, not as a substitute for, net income (loss) and other measures of financial performance reported in accordance with U.S. GAAP. 72 The following is a reconciliation of net income, which is a U.S.
Borrowings under the Revolving Credit Agreement bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in the borrowing currency in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Revolving LIBOR”) plus 1.875% per annum, or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) the overnight federal funds rate plus 0.5% and (z) the one-month Revolving LIBOR plus 1.00% per annum, plus, in each case, 0.875% per annum; provided that, for each of clauses (i) and (ii), the applicable margin with respect to such loans is subject to adjustment upon achievement of certain leverage ratios as set forth in a leverage-based pricing grid in the Revolving Credit Agreement.
Borrowings under the Revolving Credit Agreement bear interest at Acquisition Corp.’s election at a rate equal to (i) the rate for deposits in the borrowing currency in the London interbank market (adjusted for maximum reserves) for the applicable interest period (“Revolving SOFR”) plus 1.875% per annum, or (ii) the base rate, which is the highest of (x) the corporate base rate established by the administrative agent from time to time, (y) the overnight federal funds rate plus 0.5% and (z) the one-month Revolving SOFR plus 1.00% per annum, plus, in each case, 0.875% per annum; provided that, for each of clauses (i) and (ii), the applicable margin with respect to such loans is subject to adjustment upon achievement of certain leverage ratios as set forth in a leverage-based pricing grid in the Revolving Credit Agreement.
The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services, the CRB Rate Benefit of $20 million, $7 million in downloads and other digital revenue from the Copyright Settlement and timing of new digital deals, partially offset by a shift in the collection of certain writer’s share income from certain digital service providers.
The increase in digital revenue is primarily due to increases in streaming revenue driven by the continued growth in streaming services, the CRB Rate Benefit of $20 million, $7 million in downloads and other digital revenue from the Copyright Settlement and timing of new digital deals, partially offset by a shift in the collection of certain writers’ share income from certain digital service providers.
In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to Adjusted EBITDA ratio, which we refer to as the Leverage Ratio, under the Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended September 30, 2022. The terms and related calculations are defined in the Revolving Credit Agreement.
In addition, the reconciliation includes the calculation of the Senior Secured Indebtedness to Adjusted EBITDA ratio, which we refer to as the Leverage Ratio, under the Revolving Credit Agreement for the most recently ended four fiscal quarters, or the twelve months ended September 30, 2023. The terms and related calculations are defined in the Revolving Credit Agreement.
(i) Reflects expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions for the three and twelve months ended September 30, 2022. Certain of these cost savings initiatives and transactions impacted quarters prior to the quarter during which they were identified within the last twelve-month period.
(i) Reflects expected savings resulting from transformation initiatives and the pro forma impact of certain specified transactions for the three and twelve months ended September 30, 2023. Certain of these cost savings initiatives and transactions impacted quarters prior to the quarter during which they were identified within the last twelve-month period.
On May 4, 2021, certain covenants set forth in our Revolving Credit Facility were suspended, including the restriction on incurring certain additional indebtedness, based on the determination that the total indebtedness to EBITDA ratio is below the required threshold 68 specified therein.
On May 4, 2021, certain covenants set forth in our Revolving Credit 73 Facility were suspended, including the restriction on incurring certain additional indebtedness, based on the determination that the total indebtedness to EBITDA ratio is below the required threshold specified therein.
We test our goodwill and other indefinite-lived intangible assets for impairment on an annual basis in the fourth quarter of each fiscal year as of July 1. We performed a qualitative assessment for our reporting units and other indefinite-lived intangible assets in fiscal 2022.
We test our goodwill and other indefinite-lived intangible assets for impairment on an annual basis in the fourth quarter of each fiscal year as of July 1. We performed a qualitative assessment for our reporting units and other indefinite-lived intangible assets in fiscal 2023.
We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021 which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual report). 2021 vs. 2020 We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021, which represents the premiums paid for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual Report).
We recorded a loss on extinguishment of debt in the amount of $22 million for the fiscal year ended September 30, 2021 which represents the premiums paid 55 for early redemption and unamortized deferred financing costs in connection with the redemption of the 5.500% Senior Notes and the 3.625% Senior Secured Notes (as defined later in this Annual Report).
This section provides an analysis of our results of operations for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020. This analysis is presented on both a consolidated and segment basis. • Financial condition and liquidity.
This section provides an analysis of our results of operations for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021. This analysis is presented on both a consolidated and segment basis. • Financial condition and liquidity.
In addition, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, we may seek to refinance the Senior Credit Facilities or our outstanding debt or debt securities with existing cash and/or with funds provided from additional borrowings. 71 Contractual and Other Obligations Firm Commitments The following table summarizes the Company’s aggregate contractual obligations at September 30, 2022, and the estimated timing and effect that such obligations are expected to have on the Company’s liquidity and cash flow in future periods.
In addition, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, we may seek to refinance the Senior Credit Facilities or our outstanding debt or debt securities with existing cash and/or with funds provided from additional borrowings. 74 Contractual and Other Obligations Firm Commitments The following table summarizes the Company’s aggregate contractual obligations at September 30, 2023, and the estimated timing and effect that such obligations are expected to have on the Company’s liquidity and cash flow in future periods.
U.S. Recorded Music revenue increased by $246 million, or 12%. The primary driver was the increase of U.S. Recorded Music digital revenue of $118 million driven by the continued growth in streaming services and the Copyright Settlement. U.S. Recorded Music streaming revenue increased by $99 million, or 7%.
The primary driver was the increase of U.S. Recorded Music digital revenue of $118 million driven by the continued growth in streaming services and the Copyright Settlement. U.S. Recorded Music streaming revenue increased by $99 million, or 7%.
GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended September 30, 2022, for the twelve months ended September 30, 2021 and for the three months ended September 30, 2022 and September 30, 2021.
GAAP measure of our operating results, to Adjusted EBITDA as defined, for the most recently ended four fiscal quarters, or the twelve months ended September 30, 2023, for the twelve months ended September 30, 2022 and for the three months ended September 30, 2023 and September 30, 2022.
This section provides an analysis of our cash flows for the fiscal years ended September 30, 2022, September 30, 2021 and September 30, 2020, as well as a discussion of our financial condition and liquidity as of September 30, 2022.
This section provides an analysis of our cash flows for the fiscal years ended September 30, 2023, September 30, 2022 and September 30, 2021, as well as a discussion of our financial condition and liquidity as of September 30, 2023.
Music Publishing revenues were $513 million and $378 million, or 54% and 50% of consolidated Music Publishing revenues, for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.
U.S. Music Publishing revenues were $513 million and $378 million, or 54% and 50% of consolidated Music Publishing revenues, for the fiscal years ended September 30, 2022 and September 30, 2021, respectively.
The financial data for fiscal years ended September 30, 2022, 2021 and 2020 have been derived from our consolidated financial statements included elsewhere herein.
The financial data for fiscal years ended September 30, 2023, 2022 and 2021 have been derived from our consolidated financial statements included elsewhere herein.
(4) We have minimum funding commitments and other related obligations to support the operations of various investments, which are reflected in the table above. Other long-term liabilities, which are not included in the table above, include $8 million and $12 million of liabilities for uncertain tax positions as of September 30, 2022 and September 30, 2021, respectively.
(4) We have minimum funding commitments and other related obligations to support the operations of various investments, which are reflected in the table above. Other long-term liabilities, which are not included in the table above, include $13 million and $8 million of liabilities for uncertain tax positions as of September 30, 2023 and September 30, 2022, respectively.
Recent Accounting Pronouncements Refer to Note 2 to our consolidated financial statements included elsewhere herein for more information regarding recently issued accounting pronouncements. 75
Recent Accounting Pronouncements Refer to Note 2 to our consolidated financial statements included elsewhere herein for more information regarding recently issued accounting pronouncements. 77
Financing Activities Cash provided by financing activities was $188 million for the fiscal year ended September 30, 2022 compared to cash used in financing activities of $61 million for the fiscal year ended September 30, 2021 and cash used in financing activities of $316 million for the fiscal year ended September 30, 2020. 61 The $188 million of cash provided by financing activities for the fiscal year ended September 30, 2022 consisted of proceeds from debt issuance of $535 million, which was used to fund the acquisition of a business and music-related assets, partially offset by dividends paid of $318 million, taxes paid related to net share settlement of restricted stock units of $6 million, deferred financing costs of $5 million, cash paid to settle deferred and contingent consideration of $7 million, distributions to noncontrolling interest holders of $6 million and other for $5 million.
The $188 million of cash provided by financing activities for the fiscal year ended September 30, 2022 consisted of proceeds from debt issuance of $535 million, which was used to fund the acquisition of a business and music-related assets, partially offset by dividends paid of $318 million, taxes paid related to net share settlement of restricted stock units of $6 million, deferred financing costs of $5 million, cash paid to settle deferred and contingent consideration of $7 million, distributions to noncontrolling interest holders of $6 million and other for $5 million.
We expect to issue the 3.750% Senior Secured Notes on November 24, 2021 under the Senior Secured Base Indenture, as supplemented by the Sixth Supplemental Indenture, dated as of November 24, 2021, among Acquisition Corp., the guarantors party thereto and the Trustee (the “3.750% Supplemental Indenture,” together with the Senior Secured Base Indenture, the 3.875% Supplemental Indenture, the 2.750% Supplemental Indenture, the 3.000% Supplemental Indenture and the 2.250% Supplemental Indenture, the “Secured Notes Indenture”).
We issued the 3.750% Senior Secured Notes on November 24, 2021 under the Senior Secured Base Indenture, as supplemented by the Sixth Supplemental Indenture, dated as of November 24, 2021, among Acquisition Corp., the guarantors party thereto and the Trustee (the “3.750% Supplemental Indenture,” together with the Senior Secured Base Indenture, the 3.875% Supplemental Indenture, the 2.750% Supplemental Indenture, the 3.000% Supplemental Indenture and the 2.250% Supplemental Indenture, the “Secured Notes Indenture”).
We had $1,918 million and $1,880 million of royalty payables in our balance sheet at September 30, 2022 and September 30, 2021, respectively. In many instances, the Company commits to pay our recording artists and songwriters royalties in advance of future sales. The Company accounts for these advances under the related guidance in FASB ASC Topic 928, Entertainment—Music (“ASC 928”).
We had $2,219 million and $1,918 million of royalty payables in our balance sheet at September 30, 2023 and September 30, 2022, respectively. In many instances, the Company commits to pay our recording artists and songwriters royalties in advance of future sales. The Company accounts for these advances under the related guidance in FASB ASC Topic 928, Entertainment—Music (“ASC 928”).
We are continuing our financial transformation initiative, launched in August 2019, to upgrade our information technology and finance infrastructure, including related systems and processes, for which we currently expect upfront costs to be approximately $185 million, which includes capital expenditures of approximately $80 million.
We are continuing our financial transformation initiative, launched in August 2019, to upgrade our information technology and finance infrastructure, including related systems and processes, for which we currently expect upfront costs to be approximately $235 million, which includes capital expenditures of approximately $100 million.
There were no loans outstanding under the Revolving Credit Facility at September 30, 2022.
There were no loans outstanding under the Revolving Credit Facility at September 30, 2023.
We had $875 million and $830 million of advances in our balance sheet at September 30, 2022 and September 30, 2021, respectively. We believe such advances are recoverable through future royalties to be earned by the applicable recording artists and songwriters.
We had $1,101 million and $875 million of advances in our balance sheet at September 30, 2023 and September 30, 2022, respectively. We believe such advances are recoverable through future royalties to be earned by the applicable recording artists and songwriters.
(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $9 million and $40 million related to our finance transformation and other related costs for the three and twelve months ended September 30, 2022, respectively, as well as $10 million and $33 million for the three and twelve months ended September 30, 2021, respectively.
(f) Reflects costs associated with our transformation initiatives and IT system updates, which includes costs of $14 million and $48 million related to our finance transformation and other related costs for the three and twelve months ended September 30, 2023, respectively, as well as $9 million and $40 million for the three and twelve months ended September 30, 2022, respectively.
On August 12, 2022, the Company’s board of directors declared a cash dividend of $0.16 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid on September 1, 2022.
On August 14, 2023, the Company’s board of directors declared a cash dividend of $0.17 per share on the Company’s Class A Common Stock and Class B Common Stock, as well as related payments under certain stock-based compensation plans, which was paid on September 1, 2023.
Investing Activities Cash used in investing activities was $824 million for the fiscal year ended September 30, 2022 compared to $638 million for the fiscal year ended September 30, 2021 and $219 million for the fiscal year ended September 30, 2020.
Investing Activities Cash used in investing activities was $300 million for the fiscal year ended September 30, 2023 compared to $824 million for the fiscal year ended September 30, 2022 and $638 million for the fiscal year ended September 30, 2021.
Corporate Expenses and Eliminations 2022 vs. 2021 Our operating loss from corporate expenses and eliminations increased by $8 million to $221 million for the fiscal year ended September 30, 2022 from $213 million for the fiscal year ended September 30, 2021, which primarily includes increased expenses related to transformation initiatives and employee related costs, including the impact of an additional week, partially offset by recovery of previously incurred legal expenses for the Copyright Settlement.
Our OIBDA loss from corporate expenses and eliminations increased by $50 million to $251 million for the fiscal year ended September 30, 2023 from $201 million for the fiscal year ended September 30, 2022 due to the operating loss factors noted above. 2022 vs. 2021 Our operating loss from corporate expenses and eliminations increased by $8 million to $221 million for the fiscal year ended September 30, 2022 from $213 million for the fiscal year ended September 30, 2021, which primarily includes increased expenses related to transformation initiatives and employee related costs, including the impact of an additional week, partially offset by recovery of previously incurred legal expenses for the Copyright Settlement.
Based on contractual obligations and the Company’s expected release schedule, off-balance sheet aggregate firm commitments to such talent approximated $469 million at September 30, 2022. The aggregate firm commitments expected for the next twelve-month period based on contractual obligations and the Company’s expected release schedule approximates $306 million at September 30, 2022.
Based on contractual obligations and the Company’s expected release schedule, off-balance sheet aggregate firm commitments to such talent approximated $383 million at September 30, 2023. The aggregate firm commitments expected for the next twelve-month period based on contractual obligations and the Company’s expected release schedule approximates $236 million at September 30, 2023.
International Recorded Music digital revenue increased due to an $88 million, or 6%, increase in streaming services, which was partially offset by an unfavorable impact of foreign currency exchange rates of $88 million. International Recorded Music licensing revenue increased by $12 million due to synchronization and other licensing revenue, partially offset by the unfavorable impact of foreign currency exchange rates.
International Recorded Music digital revenue increased due to an $88 million, or 6%, increase in streaming services, which was partially offset by an unfavorable impact of foreign currency exchange rates of $88 million.
For example, our S&P corporate credit rating improved from B in 2017 to BB+ in July 2021 with a stable outlook, and our Moody’s corporate family rating improved from B1 in 2016 to Ba3 in 2020. In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 3.5% as of September 30, 2022.
For example, our S&P corporate credit rating improved from B in 2017 to BB+ in July 2021 with a stable outlook, and our Moody’s corporate family rating improved from B1 in 2016 to Ba2 in April 2023. In addition, our weighted-average interest rate on our outstanding indebtedness has decreased from 10.5% in 2011 to 4.1% as of September 30, 2023.
Cost of revenues Music Publishing cost of revenues was composed of the following amounts (in millions): For the Fiscal Year Ended September 30, 2022 vs. 2021 2021 vs. 2020 2022 2021 2020 $ Change % Change $ Change % Change Artist and repertoire costs $ 620 $ 493 $ 418 $ 127 26 % $ 75 18 % Total cost of revenues $ 620 $ 493 $ 418 $ 127 26 % $ 75 18 % 2022 vs. 2021 Music Publishing cost of revenues increased by $127 million, or 26%, to $620 million for the fiscal year ended September 30, 2022 from $493 million for the fiscal year ended September 30, 2021.
Cost of revenues Music Publishing cost of revenues was composed of the following amounts (in millions): For the Fiscal Year Ended September 30, 2023 vs. 2022 2022 vs. 2021 2023 2022 2021 $ Change % Change $ Change % Change Artist and repertoire costs $ 681 $ 620 $ 493 $ 61 10 % $ 127 26 % Total cost of revenues $ 681 $ 620 $ 493 $ 61 10 % $ 127 26 % 2023 vs. 2022 Music Publishing cost of revenues increased by $61 million, or 10%, to $681 million for the fiscal year ended September 30, 2023 from $620 million for the fiscal year ended September 30, 2022.
Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2020 were composed of U.S. revenues of $1,479 million and international revenues of $1,426 million, or 51% and 49% of total digital revenues, respectively.
Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2022 were composed of U.S. revenues of $1,983 million and international revenues of $1,885 million, or 51% and 49% of total digital revenues, respectively.
Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2021 were composed of U.S. revenues of $1,769 million and international revenues of $1,772 million, or 50% of total digital revenues for each of U.S. and international revenues.
Prior to intersegment eliminations, total digital revenues for the fiscal year ended September 30, 2023 were composed of U.S. revenues of $1,993 million and international revenues of $1,998 million, or 50% of total digital revenues for each of U.S. and international revenues.
Based on the Senior Secured Indebtedness to EBITDA Ratio of 3.02x at September 30, 2022, the applicable margin for Eurodollar loans would be 1.625% instead of 1.875% and the applicable margin for ABR loans would be 0.625% instead of 0.875% in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement).
Based on the Senior Secured Indebtedness to EBITDA Ratio of 2.84x at September 30, 2023, the applicable margin for Eurodollar loans would be 1.375% instead of 1.875% and the applicable margin for ABR loans would be 0.375% instead of 0.875% in the case of 2020 Revolving Loans (as defined in the Revolving Credit Agreement).
As of September 30, 2022, we had recorded goodwill in the amount of $1.920 billion, including $1.456 billion and $464 million for our Recorded Music and Music Publishing businesses, respectively, primarily related to the Merger and PLG Acquisition. As of September 30, 2022, we had recorded indefinite-lived intangible assets of $145 million.
As of September 30, 2023, we had recorded goodwill in the amount of $1.993 billion, including $1.529 billion and $464 million for our Recorded Music and Music Publishing businesses, respectively, primarily related to the Merger and PLG Acquisition. As of September 30, 2023, we had recorded indefinite-lived intangible assets of $149 million.
Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 84% and 16% of total revenues for the fiscal year ended September 30, 2022, respectively, and 86% and 14% of total revenues for the fiscal year ended September 30, 2021, respectively.
Prior to intersegment eliminations, Recorded Music and Music Publishing revenues represented 82% and 18% of total revenues for the fiscal year ended September 30, 2023, respectively, and 84% and 16% of total revenues for the fiscal year ended September 30, 2022, respectively.
In addition, the Senior Term Loan Credit Agreement provides the right for individual lenders to extend the maturity date of their loans upon the request of the Term Loan Borrower and without the consent of any other lender.
The loans outstanding under the Senior Term Loan Facility mature on January 20, 2028. In addition, the Senior Term Loan Credit Agreement provides the right for individual lenders to extend the maturity date of their loans upon the request of the Term Loan Borrower and without the consent of any other lender.
Prior to intersegment eliminations, U.S. and international revenues represented 46% and 54% for the fiscal year ended September 30, 2022, respectively, and 45% and 55% for the fiscal year ended September 30, 2021, respectively. 46 Total digital revenues after intersegment eliminations increased by $327 million, or 9%, to $3,866 million for the fiscal year ended September 30, 2022 from $3,539 million for the fiscal year ended September 30, 2021, which includes $38 million in downloads and other digital revenue from the Copyright Settlement.
Total digital revenues after intersegment eliminations increased by $327 million, or 9%, to $3,866 million for the fiscal year ended September 30, 2022 from $3,539 million for the fiscal year ended September 30, 2021, which includes $38 million in downloads and other digital revenue from the Copyright Settlement.
Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the fiscal years ended September 30, 2022 and September 30, 2021. 2021 vs. 2020 Total selling, general and administrative expense decreased by $448 million, or 21%, to $1,721 million for the fiscal year ended September 30, 2021 from $2,169 million for the fiscal year ended September 30, 2020.
Expressed as a percentage of revenue, distribution expense remained constant at 2% for each of the fiscal years ended September 30, 2023 and September 30, 2022. 2022 vs. 2021 Total selling, general and administrative expense increased by $141 million, or 8%, to $1,862 million for the fiscal year ended September 30, 2022 from $1,721 million for the fiscal year ended September 30, 2021.
(b) Reflects net losses (gains) on sale of securities and divestitures. (c) Reflects severance costs and other restructuring related expenses. (d) Reflects unrealized losses (gains) due to foreign exchange on our Euro-denominated debt, losses (gains) from hedging activities and intercompany transactions. (e) Reflects mainly transaction related costs and mark-to-market adjustments of an earn-out liability related to a transaction in 2021.
(b) Reflects net losses (gains) on sale of securities and divestitures. (c) Reflects severance costs and other restructuring related expenses. (d) Reflects unrealized losses (gains) due to foreign exchange on our Euro-denominated debt, losses (gains) from hedging activities and intercompany transactions. (e) Reflects mainly transaction related costs.
Fiscal Year Ended September 30, 2022 2021 2020 Cash provided by (used in): Operating activities $ 742 $ 638 $ 463 Investing activities (824) (638) (219) Financing activities 188 (61) (316) Operating Activities Cash provided by operating activities was $742 million for the fiscal year ended September 30, 2022 compared to $638 million for the fiscal year ended September 30, 2021 and $463 million for the fiscal year ended September 30, 2020.
Fiscal Year Ended September 30, 2023 2022 2021 Cash provided by (used in): Operating activities $ 687 $ 742 $ 638 Investing activities (300) (824) (638) Financing activities (325) 188 (61) Operating Activities Cash provided by operating activities was $687 million for the fiscal year ended September 30, 2023 compared to $742 million for the fiscal year ended September 30, 2022 and $638 million for the fiscal year ended September 30, 2021.
The current fiscal year included an additional week, primarily reflected in Recorded Music streaming revenue and $38 million in Recorded Music and Music Publishing downloads and other digital revenue from the settlement of certain copyright infringement cases (the “Copyright Settlement”).
The prior fiscal year included an additional week, primarily reflected in Recorded Music streaming revenue, and $38 million in Recorded Music and Music Publishing downloads and other digital revenue from the settlement of certain copyright infringement cases (the “Copyright Settlement”). The increase includes $111 million of unfavorable currency exchange fluctuations.
Expressed as a percentage of Music Publishing revenue, Music Publishing OIBDA margin increased to 24% for the fiscal year ended September 30, 2022 from 23% for the fiscal year ended September 30, 2021. The increase was due to strong operating performance, partially offset by the unfavorable impact of foreign currency exchange rates.
Expressed as a percentage of total revenue, OIBDA margin increased to 18% for the fiscal year ended September 30, 2022 from 17% for the fiscal year ended September 30, 2021 due to strong operating performance, partially offset by unfavorable foreign currency exchange rates.
International Recorded Music revenue increased by $176 million primarily due to increases in artist services and expanded-rights revenue of $102 million, digital revenue of $82 million and licensing revenue of $12 million, partially offset by the decrease in physical revenue of $20 million.
Excluding the unfavorable impact of foreign currency exchange rates, International revenue increased by $436 million, or 16%. International Recorded Music revenue increased by $176 million primarily due to increases in artist services and expanded-rights revenue of $102 million, digital revenue of $82 million and licensing revenue of $12 million, partially offset by the decrease in physical revenue of $20 million.
The increase in operating income was due to the factors that led to the increase in OIBDA, partially offset by higher amortization as noted above. 2021 vs. 2020 Our operating income increased by $838 million to $609 million for the fiscal year ended September 30, 2021 from operating loss of $229 million for the fiscal year ended September 30, 2020.
The increase in operating income was due to the factors that led to the increase in OIBDA and lower amortization, partially offset by higher depreciation as noted above. 2022 vs. 2021 Our operating income increased by $105 million to $714 million for the fiscal year ended September 30, 2022 from $609 million for the fiscal year ended September 30, 2021.
Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 12% for the fiscal year ended September 30, 2022 from 13% for the fiscal year ended September 30, 2021. 2021 vs. 2020 Music Publishing selling, general and administrative expense increased by $13 million, or 15%, to $100 million for the fiscal year ended September 30, 2021 as compared to $87 million for the fiscal year ended September 30, 2020.
Expressed as a percentage of Music Publishing revenue, Music Publishing selling, general and administrative expense decreased to 11% for the fiscal year ended September 30, 2023 from 12% for the fiscal year ended September 30, 2022. 2022 vs. 2021 Music Publishing selling, general and administrative expense increased to $112 million for the fiscal year ended September 30, 2022 from $100 million for the fiscal year ended September 30, 2021.
The Secured Notes rank senior in right of payment to Acquisition Corp.’s existing and future subordinated indebtedness; rank equally in right of payment with all of Acquisition Corp.’s existing and future senior indebtedness and any future senior secured credit facility; are effectively senior to Acquisition Corp.’s unsecured senior indebtedness to the extent of the value of the collateral securing the senior secured obligations; and are structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any of Acquisition Corp.’s non-guarantor subsidiaries (other than indebtedness and liabilities owed to Acquisition Corp. or one of its subsidiary guarantors (as such term is defined below)). 66 Guarantees and Security The obligations under each of the Revolving Credit Facility, the Senior Term Loan Facility and the Secured Notes Indenture are guaranteed by each direct and indirect U.S. restricted subsidiary of Acquisition Corp., other than certain excluded subsidiaries.
The Secured Notes rank senior in right of payment to Acquisition Corp.’s existing and future subordinated indebtedness; rank equally in right of payment with all of Acquisition Corp.’s existing and future senior indebtedness and any future senior secured credit facility; are effectively senior to Acquisition Corp.’s unsecured senior indebtedness to the extent of the value of the collateral securing the senior secured obligations; and are structurally subordinated in right of payment to all existing and future indebtedness and other liabilities of any of Acquisition Corp.’s non-guarantor subsidiaries (other than indebtedness and liabilities owed to Acquisition Corp. or one of its subsidiary guarantors (as such term is defined below)).
(in millions, except ratios): Twelve Months Ended September 30, Three Months Ended September 30, 2022 2021 2022 2021 Net Income $ 555 $ 307 $ 150 $ 30 Income tax expense 185 149 37 22 Interest expense, net 125 122 31 29 Depreciation and amortization 339 306 82 79 Loss on extinguishment of debt (a) — 22 — 10 Net losses (gains) on divestitures and sale of securities (b) 9 (3) — — Restructuring costs (c) 22 29 11 18 Net hedging and foreign exchange (gains) losses (d) (195) 11 (67) (20) Transaction costs (e) 8 10 — 5 Business optimization expenses (f) 54 42 11 12 Non-cash stock-based compensation expense (g) 39 45 5 12 Other non-cash charges (h) 23 5 11 30 Pro forma impact of cost savings initiatives and specified transactions (i) 32 45 5 10 Adjusted EBITDA $ 1,196 $ 1,090 $ 276 $ 237 Senior Secured Indebtedness (j) $ 3,607 Leverage Ratio (k) 3.02x ______________________________________ (a) Reflects loss on extinguishment of debt, primarily including tender fees and unamortized deferred financing costs.
(in millions, except ratios): Twelve Months Ended September 30, Three Months Ended September 30, 2023 2022 2023 2022 Net Income $ 439 $ 555 $ 154 $ 150 Income tax expense 170 185 58 37 Interest expense, net 141 125 36 31 Depreciation and amortization 332 339 79 82 Loss on extinguishment of debt (a) 4 — — — Net losses (gains) on divestitures and sale of securities (b) (42) 9 — — Restructuring costs (c) 58 22 9 11 Net hedging and foreign exchange (gains) losses (d) 43 (195) (37) (67) Transaction costs (e) 3 8 3 — Business optimization expenses (f) 68 54 24 11 Non-cash stock-based compensation expense (g) 49 39 8 5 Other non-cash charges (h) — 23 (1) 11 Pro forma impact of cost savings initiatives and specified transactions (i) 46 32 7 5 Adjusted EBITDA $ 1,311 $ 1,196 $ 340 $ 276 Senior Secured Indebtedness (j) $ 3,726 Leverage Ratio (k) 2.84x ______________________________________ (a) Reflects loss on extinguishment of debt, primarily including tender fees and unamortized deferred financing costs.
Total streaming revenue increased 9% driven by growth across Recorded Music and Music Publishing. Recorded Music streaming revenue included the impact of a new deal with one of the Company’s digital partners.
Total streaming revenue increased 9% driven by growth across Recorded Music and Music Publishing. Recorded Music streaming revenue included the impact of a new deal with one of the Company’s digital partners. The growth in Music Publishing includes the impact of $20 million resulting from the CRB Rate Benefit.
The overall increase in Music Publishing revenue was mainly driven by digital, synchronization and mechanical revenue growth, partially offset by lower performance and other revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.
The overall increase in Music Publishing revenue was driven by growth across all revenue types, including digital, performance, synchronization and mechanical revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above.
This compares to $3.346 billion of debt (which is net of $37 million of premiums, discounts and deferred financing costs), $499 million of cash and equivalents (net debt of $2.847 billion) and $31 million of Warner Music Group Corp. equity at September 30, 2021. Cash Flows The following table summarizes our historical cash flows (in millions).
This compares to $3.732 billion of debt (which is net of $41 million of premiums, discounts and deferred financing costs), $584 million of cash and equivalents (net debt of $3.148 billion) and $152 million of Warner Music Group Corp. equity at September 30, 2022. Cash Flows The following table summarizes our historical cash flows (in millions).
Net income (loss) 2022 vs. 2021 Net income increased by $248 million to $555 million for the fiscal year ended September 30, 2022 from $307 million for the fiscal year ended September 30, 2021 as a result of the factors described above. 2021 vs. 2020 Our net income increased by $777 million to income of $307 million for the fiscal year ended September 30, 2021 from a loss of $470 million for the fiscal year ended September 30, 2020 as a result of the factors described above.
Net income 2023 vs. 2022 Net income decreased by $116 million to $439 million for the fiscal year ended September 30, 2023 from $555 million for the fiscal year ended September 30, 2022 as a result of the factors described above. 56 2022 vs. 2021 Net income increased by $248 million to $555 million for the fiscal year ended September 30, 2022 from $307 million for the fiscal year ended September 30, 2021 as a result of the factors described above.
Russia-Ukraine Conflict On February 24, 2022, the geopolitical situation in Eastern Europe intensified with Russia's invasion of Ukraine, and the sanctions and other measures imposed in response to this conflict have increased global economic and political uncertainty.
Such costs are included in selling, general and administrative expenses in the accompanying consolidated statements of operations. Russia-Ukraine Conflict On February 24, 2022, the geopolitical situation in Eastern Europe intensified with Russia's invasion of Ukraine, and the sanctions and other measures imposed in response to this conflict have increased global economic and political uncertainty.
Music Publishing streaming revenue increased by $90 million, or 39%. The increase in synchronization revenue of $19 million is due to higher commercial and television income. Performance revenue increased by $18 million driven by recovery from COVID disruption and mechanical revenue increased by $1 million.
Music Publishing streaming revenue increased by $90 million, or 39%. The increase in synchronization revenue of $19 million is due to higher commercial and television income.
Cost of revenues Our cost of revenues was composed of the following amounts (in millions): For the Fiscal Year Ended September 30, 2022 vs. 2021 2021 vs. 2020 2022 2021 2020 $ Change % Change $ Change % Change Artist and repertoire costs $ 1,960 $ 1,780 $ 1,560 $ 180 10 % $ 220 14 % Product costs 1,120 962 773 158 16 % 189 25 % Total cost of revenues $ 3,080 $ 2,742 $ 2,333 $ 338 12 % $ 409 18 % 2022 vs. 2021 Our cost of revenues increased by $338 million, or 12%, to $3,080 million for the fiscal year ended September 30, 2022 from $2,742 million for the fiscal year ended September 30, 2021.
Cost of revenues Our cost of revenues was composed of the following amounts (in millions): For the Fiscal Year Ended September 30, 2023 vs. 2022 2022 vs. 2021 2023 2022 2021 $ Change % Change $ Change % Change Artist and repertoire costs $ 1,998 $ 1,960 $ 1,780 $ 38 2 % $ 180 10 % Product costs 1,179 1,120 962 59 5 % 158 16 % Total cost of revenues $ 3,177 $ 3,080 $ 2,742 $ 97 3 % $ 338 12 % 2023 vs. 2022 Our cost of revenues increased by $97 million, or 3%, to $3,177 million for the fiscal year ended September 30, 2023 from $3,080 million for the fiscal year ended September 30, 2022.
The overall increase in Music Publishing revenue was driven by growth across all revenue types, including digital, performance, synchronization and mechanical revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above. 2021 vs. 2020 Music Publishing revenues increased by $104 million, or 16%, to $761 million for the fiscal year ended September 30, 2021 from $657 million for the fiscal year ended September 30, 2020.
The overall increase in Music Publishing revenue was driven by growth in digital, performance and mechanical revenue, partially offset by lower synchronization revenue, as described in the “Total Revenues” and “Revenue by Geographical Location” sections above. 2022 vs. 2021 Music Publishing revenues increased by $197 million, or 26%, to $958 million for the fiscal year ended September 30, 2022 from $761 million for the fiscal year ended September 30, 2021.
Prior to intersegment eliminations, U.S. and international revenues represented 45% and 55% of total revenues for the fiscal year ended September 30, 2021 and 43% and 57% of total revenues for the fiscal year ended September 30, 2020, respectively.
Prior to intersegment eliminations, U.S. and international revenues represented 46% and 54% for the fiscal year ended September 30, 2022, respectively, and 45% and 55% for the fiscal year ended September 30, 2021, respectively.
Our OIBDA loss from corporate expenses and eliminations decreased by $279 million to $195 million for the fiscal year ended September 30, 2021 from $474 million for the fiscal year ended September 30, 2020, due to the operating loss factors noted above. 60 FINANCIAL CONDITION AND LIQUIDITY Financial Condition at September 30, 2022 At September 30, 2022, we had $3.732 billion of debt (which is net of $41 million of premiums, discounts and deferred financing costs), $584 million of cash and equivalents (net debt of $3.148 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $152 million of Warner Music Group Corp. equity.
Our OIBDA loss from corporate expenses and eliminations increased by $6 million to $201 million for the fiscal year ended September 30, 2022 from $195 million for the fiscal year ended September 30, 2021 primarily due to the operating loss factors noted above. 63 FINANCIAL CONDITION AND LIQUIDITY Financial Condition at September 30, 2023 At September 30, 2023, we had $3.964 billion of debt (which is net of $38 million of premiums, discounts and deferred financing costs), $641 million of cash and equivalents (net debt of $3.323 billion, defined as total debt, less cash and equivalents and premiums, discounts and deferred financing costs) and $307 million of Warner Music Group Corp. equity.
Interest expense, net 2022 vs. 2021 Our interest expense, net, increased to $125 million for the fiscal year ended September 30, 2022 from $122 million for the fiscal year ended September 30, 2021 due to higher principal balance due to the issuance of senior secured notes to partially fund the acquisition of a business and music-related assets. 53 2021 vs. 2020 Our interest expense, net decreased by $5 million, or 4% to $122 million for the fiscal year ended September 30, 2021 from $127 million for the fiscal year ended September 30, 2020.
Interest expense, net 2023 vs. 2022 Our interest expense, net, increased to $141 million for the fiscal year ended September 30, 2023 from $125 million for the fiscal year ended September 30, 2022 due to higher principal balance related to the issuance of incremental Senior Term Loan Facility and higher interest rates, partially offset by interest income. 2022 vs. 2021 Our interest expense, net, increased to $125 million for the fiscal year ended September 30, 2022 from $122 million for the fiscal year ended September 30, 2021 due to higher principal balance due to the issuance of senior secured notes to partially fund the acquisition of a business and music-related assets.
The increase of $36 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year, partially offset by the impact of a higher proportion of the pre-tax income being earned in the United States in the current year and the change in the UK statutory tax rate recognized in the prior year. 2021 vs. 2020 Our income tax expense increased by $126 million to $149 million for the fiscal year ended September 30, 2021 from $23 million for the fiscal year ended September 30, 2020.
The increase of $36 million in income tax expense is primarily due to the impact of higher pre-tax income in the current year, partially offset by the impact of a higher proportion of the pre-tax income being earned in the United States in the current year and the change in the UK statutory tax rate recognized in the prior year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

8 edited+0 added−4 removed4 unchanged
Biggest changeInterest Rate Risk We had $3.772 billion of principal debt outstanding at September 30, 2022, of which $1.145 billion was variable-rate debt and $2.627 billion was fixed-rate debt. As such, we are exposed to changes in interest rates. At September 30, 2022, 70% of the Company’s debt was at a fixed rate.
Biggest changeAs of September 30, 2023, the Company had no outstanding hedge contracts. Interest Rate Risk We had $4.002 billion of principal debt outstanding at September 30, 2023, of which $1.313 billion was variable-rate debt and $2.689 billion was fixed-rate debt. As such, we are exposed to changes in interest rates.
As of September 30, 2022, other than as described below, there have been no material changes to the Company’s exposure to market risk since September 30, 2021. Foreign Currency Risk Within our global business operations we have transactional exposures that may be adversely affected by changes in foreign currency exchange rates relative to the U.S. dollar.
As of September 30, 2023, other than as described below, there have been no material changes to the Company’s exposure to market risk since September 30, 2022. Foreign Currency Risk Within our global business operations we have transactional exposures that may be adversely affected by changes in foreign currency exchange rates relative to the U.S. dollar.
If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases for services. Our inability or failure to do so could harm our business, financial condition or results of operations. 76
If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases for services. Our inability or failure to do so could harm our business, financial condition or results of operations. 78
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As discussed in Note 16 to our consolidated financial statements included herein, the Company is exposed to market risk arising from changes in market rates and prices, including movements in foreign currency exchange rates and interest rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As discussed in Note 17 to our consolidated financial statements included herein, the Company is exposed to market risk arising from changes in market rates and prices, including movements in foreign currency exchange rates and interest rates.
Further, as of September 30, 2022, based on the amount of the Company’s fixed-rate debt, a 25 basis point increase or decrease in the level of interest rates would decrease the fair value of the fixed-rate debt by approximately $34 million or increase the fair value of the fixed-rate debt by approximately $34 million.
Further, as of September 30, 2023, based on the amount of the Company’s fixed-rate debt, a 25 basis point increase or decrease in the level of interest rates would decrease the fair value of the fixed-rate debt by approximately $32 million or increase the fair value of the fixed-rate debt by approximately $33 million.
Based on the level of interest rates prevailing at September 30, 2022, the fair value of the Company’s fixed-rate and variable-rate debt was approximately $3.181 billion.
Based on the level of interest rates prevailing at September 30, 2023, the fair value of the Company’s fixed-rate and variable-rate debt was approximately $3.525 billion.
To manage interest rate risk on $1,145 million of U.S. dollar-denominated variable-rate debt, the Company has entered into interest rate swaps to effectively convert the floating interest rates to a fixed interest rate on a portion of its variable-rate debt. As a result, as of September 30, 2022, 91% of the Company’s debt was effectively at a fixed rate.
To manage interest rate risk on $1,313 million of U.S. dollar-denominated variable-rate debt, the Company has entered into an interest rate swap to effectively convert the floating interest rate to a fixed interest rate on a portion of its variable-rate debt. As a result, as of September 30, 2023, 80% of the Company’s debt was effectively at a fixed rate.
In addition, as of September 30, 2022, we have the option under all of our floating rate debt under the Senior Term Loan Facility to select a one, two, three or six month LIBOR rate.
At September 30, 2023, 67% of the Company’s debt was at a fixed rate. In addition, as of September 30, 2023, we have the option under all of our floating rate debt under the Senior Term Loan Facility to select a one, two, three or six month SOFR rate.
Removed
As of September 30, 2022, the Company had no outstanding hedge contracts. The fair value of foreign exchange contracts is subject to changes in foreign currency exchange rates. For the purpose of assessing the specific risks, we use a sensitivity analysis to determine the effects that market risk exposures may have on the fair value of our financial instruments.
Removed
For foreign exchange forward contracts, we typically perform a sensitivity analysis assuming a hypothetical 10% depreciation of the U.S. dollar against foreign currencies from prevailing foreign currency exchange rates and assuming no change in interest rates.
Removed
As we have no hedge contracts outstanding as of September 30, 2022, the fair value of the foreign exchange forward contracts would have no impact.
Removed
Hypothetically, even if there was a decrease in the fair value of the forward contracts, because our foreign exchange contracts are entered into for hedging purposes, these losses would be largely offset by gains on the underlying transactions.

Other WMG 10-K year-over-year comparisons