Hello, everyone. I'm Ben Black. I co-lead the internet research franchise here at Deutsche Bank. This morning we're really excited to welcome Warner Music to our MIT conference. Today we have Eric Levin, CFO. Eric, thank you.
No, thank you for having us, Ben.
Thank you so much for coming.
It's great to be here.
All right, let's start at, you know, a very high level here. 2022, bit of a challenging year. You know, you had a DSP reset, currency, macro uncertainty as well, then later on, a CEO transition from Steve to Robert. You know, with that sort of behind us at this point, and we look forward to 2023 and 2024, you know, what are some of the things that get you more excited about the opportunities set for Warner?
Yeah. We're excited about a really broad range of things. I think it's really important to start with Robert Kyncl, our new CEO. We, you know, we believe, and we feel good. Good strategy, a really good team, and adding Robert and his perspective from Google YouTube, which he really advanced, understood the value of music as he built a series of music products, whether it's the ad-supported product or a subscription product or a shorts product or Content ID to be able to track and pay for music properly. He really understands the music ecosystem, and he understands the importance of technology and driving it forward.
We're thrilled to have Robert Kyncl on board, looking at what we're doing, bringing some of his Google YouTube colleagues on board to help bring their skill set really be additive and take us to the next level. We're excited about the new leadership and what it's bringing to the table. Early days, but there's really huge opportunity there. We're still in a business that has really strong growth potential. Whether we're looking at subscription, where developed markets continue to grow, emerging markets have accelerated their growth. We're seeing pricing now and price increases, which we haven't seen for the prior decade, and that's a huge addition to the equation, and we believe this should be a recurring cadence, not a one-time thing.
Ad-supported has been disrupted given the macroeconomy, but we don't have tremendous visibility into this, but what we've seen before is when economies restabilize, that ad-supported streaming comes roaring back very quickly.
Yeah.
Emerging streaming platforms, social platforms, and other new ways to consume music are growing and growing very nicely. We see a really broad array of growth, and I should always say our geographic expansion and commitment to artists and music continues to fuel that. We see a really kind of exciting dynamic of growth in front of us.
Right. Certainly a lot to unpack there. Let's start with, you know, recorded music. One thing that investors have been slightly concerned about, and granted this is slightly short-term oriented, but you had share losses recently. You mentioned that was due to the softer release rate. I guess sort of a two-part question here. I think you mentioned a strong back half release rate. You know, what gives you the confidence that, you know, you will recapture lost share? You know, have you seen sort of similar share gyrations historically?
We've seen it just in the last 2 quarters. The first thing that we say and have said for a long time is we're a challenging business to overread any 1 quarter, for exactly this reason. What I'd like to start with is there's an underpinning strategy that has been working for years and continues to work. The strategy starts with, continuing to expand our reach around the world, launching operations in more markets. We're in 70-plus markets around the world now, putting out more domestic local language music in each market. As streaming rolls out more and more, domestic music is becoming more and more popular. We continue to focus on expanding our reach with our distributors. We have now hundreds of distributors, where a few years ago we had tens of distributors, and it's growing all the time.
Our reach continues to grow. We continue to focus on making our business more effective and efficient using technology. Yes, on top of that, release schedule matters and will always matter. We don't have the same product every quarter and every year. It changes. Sometimes it will connect and drive share up, and other times it will be slightly lighter. Over a longer period of time, we've been able to sustain a solid market share, consistent market share. If you just look at our, and I'm talking in fiscal years, our fiscal Q4, we outgrew the market by almost any measure. 1 quarter later, we had a slightly lighter release schedule. We slightly underperformed. If you look at the quarters on average, we performed roughly with the market.
It will vary within quarters, but over an extended period of time, has gone to the norm and generally we strive to outstrip the market. In the second half, again in fiscal year, we have really strong release schedule. Ed Sheeran is coming out with new music, Cardi B, Aya Nakamura, who is French, but a superstar in France, and I could keep the list going. That could be 10, 12, Jack Harlow, you know, 15 artists long. The release schedule just happens to be skewed towards the second half, but we feel very good about the names and the music that's coming out.
Right. Looking forward to those hitting. you know, so looking past the Sort of the share gyrations then. What's a good way to frame sort of the longer term growth profile of recorded music streaming, sort of the P versus Q equation?
Yeah. Yeah. Well, we're really pleased that we can have a P versus Q conversation and not just purely a Q conversation. That in itself is a meaningful step forward. Just focusing on price for a second. One set of price increases isn't where this should end. It should be a start of something that is recurring. We've been talking about this publicly and privately for years. You know, streaming has existed for 15 years, and this is really the first set of price increases across a broad array of distributors. These are Amazon, Apple.
What we encourage is the industry to start thinking of this as something that should become normal, that they should develop the infrastructure like the video industry has, to be able to, you know, be able to connect with customers, explain the value and the continued value add, and price increases then become a normal expected part of the industry. It happens across media and beyond, music shouldn't in any way be different than that. We're thrilled it's getting started, but this should be a recurring sequence. On the quantity side, all you have to do is look at streaming penetration globally to smartphones. It's in the low to mid-teens.
If you think about the potential for streaming, which we've seen research that shows, you know, upwards of 60% penetration as being where the consumer interest is in paying. Even in developed markets that are generally in the 30%, there's enormous upside. In emerging markets which have accelerated in growth and many of them are still single-digit pen, they're just getting started on their growth curve. You think about emerging streaming, social, fitness, gaming, you know, Web3. Those areas are just a couple years old with new use cases and are just, you know, the future is wide open for growth. We can look at ad-supported, which had traditionally grown with subscription roughly in line, has been disrupted for the past 3 or 4 quarters and is actually in decline.
What we have seen with ad support in the past is it is very sensitive to macroeconomic factors. When there's macroeconomic disruption or slowdown, it gets, you know, hit really quickly. When the economy comes back, it also rebounds very quickly. That can go from being a slowing factor to an accelerating factor in a matter of a quarter or two. We can't predict what quarter 'cause we're the wholesaler.
Yeah.
The retailer, but we've seen, in the past, it come back very, very quickly. We see a series of growth vectors both across both price and quantity.
Yeah. Yeah, a lot there to dig into. You mentioned pricing. I'd be curious to hear what's the optimal scenario for Warner with respect to pricing? Is it-
Yeah.
-a price hike every year in developed markets or, sort of price action in emerging markets? You know, is there anything else you're looking for from your distributors in your, in your negotiations going forward?
Right. A good question in kind of two parts that are kind of interrelated. I'll start because Robert, our new CEO, ran.
Yeah.
at YouTube. He comes with a lot of experience and perspective, and specifically in focusing on how to build the value of YouTube and music collaboratively. You know, YouTube historically had their ad platform, but they launched a subscription platform, the Shorts platform, Content ID. What Robert really focuses on is having holistic relationships with our distributors that are driving value creation both for our distributors and for the music industry. If we're aligned with our distributors in maximizing the value, then the opportunity to develop the cadence of how that is becomes much more, I don't know if the word is flexible, but strategically aligned and easier to get to.
As far as price increases, we've always said that we think every distributor, we love that there's distributors competing, and we love that they have different product pricing, you know, strategies to reach their customers and marketing approaches and bundling approaches. Some distributors could say they wanna raise rates every year. Others could say they wanna do a higher rate increase every 2 years. They're all reasonable strategies. We are open to our distributors having different strategies, so long as they are focusing on growing the business and the business for their music partners in a very smart, strategic way.
Right. I guess sort of the other side of the coin here is what's the pushback you get from your DSP partners when you are in negotiations, particularly around pricing?
The first thing I'd say is 98%, some very, very high percent of our interaction with our distributors are super collaborative and super positive. Obviously, when there are negotiations, every negotiation has a push/pull. Like, it is just the nature of a negotiation. It's again, I think, part of why Robert's focus is about a holistic relationship, that if we're aligned in growing the industry together and growing the music ecosystem together, that there will be a way to figure out some of those smaller tactical items because the bigger picture is so much more important.
Right.
When it comes to pricing, you know, again, we're a wholesaler, so we have the tools of a wholesaler. It's our job to maximize, the value we create for our artists, so we're very focused on making sure that music is, distributed properly, across the right products, marketed effectively, and priced effectively across those. There's always a push-pull, but it is our job to be supporting the value of music consistently.
Right. Not to harp on pricing, but there's one more question I have.
Three in a row not to harp on.
it's one I get a lot from investors, and it's really about your willingness to potentially-.
Yeah.
You know, you're looking at the bigger picture here, potentially cede a little bit on the economics, on the incremental economics near term to lock in a more holistic, longer term relationship, which is characterized by, you know, multiple pricing.
I guess I'd want to be careful. We're, we're always as a company said we don't negotiate in public. We try not even to talk about specific distributors. What I can give is some kind of underpinning principles to that. One is, our music has been central to the, you know, our DSPs growing enormous subscriber bases. They have done that without price increases for a decade. Nothing, and we firmly believe this, has done anything to decrease or impact the value of music. It is critical and central to their products. We, again, will firmly and aggressively, you know, support the value of music, and we see music as being an incredibly valuable component of what is driving the success of the industry.
We see pricing and price increases as something that should have been happening years ago, and there already should have been. We're in catch-up mode now, the head of the game. We will continue to advocate strongly for the value of music is, I think, the most I can say and hopefully my point was made.
No, I'm clear. Recently, there has been a discussion about potentially changing the distribution model. You know, consumption patterns have clearly changed over the last decade or so, distribution and monetization models haven't evolved with them.
Yep.
curious to, you know, are we at an inflection point? Is there something changing in the industry?
If you're talking about, which I think you are, kind of the wholesale formula or equation for how DSPs and labels and publishers share, we, by the way, we firmly agree with that. When the music when streaming started 15-ish years ago, the product put in front of the consumer was very different than what's out there today. The equation and the formula has remained largely unchanged. As that has changed, it is fair and appropriate to revisit and reevaluate the formula to see if it needs to be modernized as well. We are, we are supportive of that, we'll call it reevaluation process. It will take a minute. It's not something that one DSP and one music company can fix.
It's got to be something that we believe has to go across DSPs and become something that becomes a new, updated kind of formula or approach. It's going to take a minute to get there. We have done some experimenting. We have a deal with SoundCloud that is user-centric, as opposed to stream-centric. We know that some of our competitors have started to experiment with other DSPs as well, and we think it's a very healthy dialogue within the industry, and we will see where it plays out. We'll take a minute or two for it to play out.
Can you just double-click on the SoundCloud agreement? You said it's user-centric rather than stream-centric.
Yeah.
How?
We don't talk about individual deals too much, but I can talk about the concept of user-centric. User-centric, let's just say, for example, like one of our legacy artists, we'll just take like Led Zeppelin. Let's say that there are a certain segment of subscription base that listens to only Led Zeppelin. Who's gonna likely listen to Led Zeppelin? They'll probably be older, they'll probably be working. They may not have as much free time as a teenager. As opposed to streaming 400 streams a week, they may stream 12 streams a week.
Right.
If it's 12 Led Zeppelin songs and they're paying the same $9.99 as someone else, why would those 12 songs be less valuable than the 400 songs streamed by an equivalent? You would pay the entire wholesale to the label that's providing the Led Zeppelin music, as opposed to it being 12 out of 1 billion streams.
Right.
It tries to say that each paying unit, each user, should have their own wholesale equation.
Right.
If some listeners have different volume that they listen to, but more intensity towards certain artists, those artists shouldn't be penalized. Right. It starts to experiment with different equations.
Right.
It's not the only way to do it, but it's one way that should be trialed, and I'm sure there are others, and we are open to those others. By the way, Robert just started, so I don't think he has a conclusion what the best answer is. We have talked to him, and he is supportive of this experimentation and this debate.
Yeah. Interesting. Yeah. I mean, I only listen to 10 songs a day, $10.99 songs, $9.99.
You're driving the 100% of the value of that subscription to that individual.
Correct.
That band or artist would be theoretically undermonetized on the current equation.
Right.
This is really all about trying to ascribe value to where the value creation is-
Right
-in a better way. I think that's gonna be an open discussion and debate. It's already starting. It's already bubbling up just as you're asking, and we're doing deals, and others are doing deals. We're very interested to see where this goes, and we wanna be a part of. You know, we will be a part of that, you know, debate.
Awesome. All right. Let's just gear to emerging platform streaming deals.
Sure.
It's certainly seen as a big catalyst for you guys this year. Can you help us understand Not necessarily pinpoint the timing exactly to the day, but how should we be thinking about sort of the cadence of new deals coming?
Right
through the pipeline?
What we can say is that we did a series of renewals in 2021. Our deals are generally 2-3 years in length. Over the next 2023, 2024 period, we should see a series of renewals again. I think the question that always comes up along with that is what form will these new deals take?
That was my next question.
There you go. Traditionally these deals have been fixed price, for two reasons. One, when platforms start at early days, we generally want to help them get up and running relatively quickly and not have prolonged negotiations.
Right.
2 is they generally don't have the systems or infrastructure to track and report variable deals. Variable deals require pretty significant systems when you wanna track both. Again, this is multimedia. This is often video with audio or graphics with audio or a game with audio. Sometimes videos have 2, 3, 4 songs within them. Sometimes a song could have 7 writers. If it has 4 songs and 7 writers, you now have 20. You need pretty, you know, tailored to, you know, well, you know, thought through systems. We encourage these emerging streaming platforms to develop these systems. Some of them have. YouTube Shorts has said they have this capability. Our deal with Meta, not the full deal, but the user-generated part has this. Some of the more scaled platforms are starting to develop variable capability.
We're encouraging the other. Remember, we literally have hundreds of, you know, distributors, some large, some small, in this emerging category. If they don't have the systems, I don't think we're gonna have much of a choice but to do another round of fixed deals. If they have developed the systems, it gives us the capability to negotiate a variable deal, which is our preference.
Yeah.
I think we expect it will take several cycles to get to something fully variable. As this new cycle, we will try to make progress, but it requires the counterparty to have developed the infrastructure to support variable.
From the counterparty's perspective, is their preference fixed versus variable, or are you generally aligned?
It's hard for me to speak for them. What I can say is that if a platform is in significant growth mode, their equation has to include where they want to deploy resources. Do they want to deploy resources to enhance their consumer-facing product to win in what I'm sure for them is also a competitive world where they have to keep enhancing their product? Do they wanna look inwards to develop the infrastructure to work with their trading partners?
Right
-in the ideal way? I suspect that our distributors would be as aligned than we are to have deals that pay, that payout is tied to actual market performance and ideally revenue. I think everyone gets fully aligned that way. We do understand in some cases that platforms are focused on competing and growing, and we want them to compete and grow. Some cases, especially earlier stage companies, may not have the resources that a Google, YouTube, or a Meta does.
Right.
We still have to find ways to get across that line. We're just appreciative that it might take more than one cycle.
Right. Okay. TikTok, it's a name that we've all heard of and comes up in a lot of my conversations, you know. You know, one of the things I wanna focus on is Resso, or let's call it...
Yeah
TikTok Music. It appears to me at least that they have global aspirations for music distribution. How do you think the launch of Resso, you know, with music across all three major labels?
Yeah
-is going to impact the adoption of paid music services more broadly?
I'll take a step back and talk about, just to reiterate what I said before about Robert's philosophy. Again, as someone that built up a DSP and took an ad-supported service and then launched a subscription service, not totally dissimilar to what we're seeing here, he always comes back to a holistic view. Is this a partner whose focus is on growing their business and the music business collaboratively together? If it is, the rollout of their products is accretive to the industry and therefore in our best interest as well as theirs, and creates the right environment for a good, you know, aligned negotiation.
If there are things that cause a divergence then, I'm not saying what is or isn't the case in TikTok and Resso, but I'm saying philosophically, then any discussion or negotiation would have to happen in that context, in the context of who are we really fully aligned, is this really... It's not our job to help our partners grow their business unless they're also growing the music business. If someone has a strategy that is somehow destructive to the value of the music industry, we have to be really cautious about that and negotiate with that context in mind. It's our job to learn each of our counterparts strategies, how they're gonna incorporate and grow their business and music hopefully alike, and then within that, figure out the right way for us to negotiate and contribute for music and what the right compensation is.
It really has to take form within that broader approach.
Right. Right. I guess one of the follow on that I have is, it's one I get from folks as well, is there's a concern that when TikTok comes into the market as a traditional DSP partner of yours, that they'll undercut pricing and that could disrupt this, you know, the really strong story that you're talking about in terms of, you know, tremendous sort of pricing upside potential across the industry.
Again, hard to talk about one individual distributor, but again, going back to kind of our underpinnings and philosophy. One is, I'll start with, we are very pro-competition. We like to put distributors into the market that are gonna increase competition. Competition creates a focus and sharpens each of our distributors focus on growing their business, signing up more subscribers, adding value to their product. All of that is really positive and sharpens the industry and helps it grow overall. We also have to be careful about, we don't control retail pricing for our distributors, we control wholesale pricing.
We are very thoughtful about making sure that we are for our business, we don't speak for our competitors, setting up our wholesale pricing so that there is a stable, you know, consistent, you know, ecosystem for our partners to compete, not necessarily for one to have an advantage of the other. We have said that our major DSPs, our major partners deals are within a very narrow band of each other.
Right.
That is a way to reinforce that we are certainly trying to create a level playing field from what we can do at a wholesale level.
You control wholesale, which is clearly a key input into what pricing ultimately shakes out. All right. Let's move on to sort of the ad-supported side of the business. Totally understood we have transitory macro challenges-
Yeah.
-to a sense right now. It appears that your growth rate or the level of decline that you're seeing right now may be slightly more severe than your peers. I'm curious what's going on there. Could it be potentially slate related?
No. I'm really glad you asked that question because-
Yeah.
It's a misconception. We are not underperforming our peers. We report differently, our ad-supported number is, or our ad-supported decline is gonna look differently than our competitors because it is just different basis. Let me explain. I can give a couple of comps. I'll start with UMG. UMG reports ad-supported and what we call emerging streaming combined. Ad-supported is in decline. Emerging streaming is still growing nicely. When you aggregate them, the aggregate number grows. I think some people are comparing UMG's number, which combines those two, to our ad-supported. For our ad-supported, we separate emerging streaming and ad support. Our ad-supported is more YouTube and YouTube-like players. Our ad-supported is in decline. Our emerging streaming is growing. When you put it together and compare it to Universal's numbers, they're almost identical. Literally, like, identical.
There's really no difference between us and our peers. When you look at Spotify's ad-supported, that's not all music, right? They have areas such as podcasting that are newer, smaller, and are probably still showing growth. They're so early in their cycle, so it creates a non-comparable comparison. When you compare us to pure ad-supported players in the market like YouTube is declining. Their increase in the rate of decline this quarter roughly matched ours. We think that what's happening to our ad-supported is 100% consistent with what's happening in the market overall. It's just that our numbers and those that people compare us to are reported on different basis.
Right. Understood. Then looking past the macro challenges, again, sort of perhaps not a PMQ question, but how should we be thinking about sort of steady state growth of ad-supported?
Ad-supported in the normal environment, which we haven't seen for a while, ad-supported and subscription streaming grew very much in lockstep. They were growing at roughly the same rate on a consistent basis. Since COVID hit, there have been a series of almost like sawtooth up and downs. When COVID hit ad-supported is just a, it's in our business, a leading indicator of economic disruption in a broader way. When COVID hit, ad-supported came down really quickly. When the economy stabilized in 2020, ad support came back. 2021, when the economy started to stabilize, ad support didn't just come back, it came roaring back onto its original curve, just down and literally grew from almost, I think, 50% 1 quarter coming back.
Now, with the kind of new set of macroeconomic challenges, we're seeing an ad-supported downturn again. I don't have a crystal ball. I suspect when the economy starts to stabilize, that ad-supported has the potential to come roaring back again. Ad-supported, longer term, and subscription have been growing at roughly the same rate, but ad-supported is so sensitive to macroeconomic factors that it just sawtooth up and down, unfortunately. We're looking forward to it stabilizing. The good news is we see this as a pricing, not consumption thing, meaning that the ad rates are coming down because companies are paring back their marketing budgets as they are affected by this. When they start to feel better about their business, we'll start to release, you know, ad dollars again, which will bring the rate back, and consumption continues to be strong.
Great. Okay, let's move over to the publishing side of the business.
Yes.
Chappell, you know, a real bright spot for you guys.
Yeah.
You know, often overlooked, to be quite fair, I'm not sure why.
Agreed.
What's the source of that sort of relative durability in trends? I mean...
I think there's two things. One is, on the recorded music side, we talk about release schedule. There's not really a release schedule on the publishing side. There certainly are songwriters and composers, creating songs and putting them into other artist releases all the time. Warner Chappell's songwriters put music across everyone's releases, not just Warner Music Group's releases. Their songwriters' releases are very hedged, which means that there's much more of a, much less kind of release schedule equivalent to sensitivity, we see more stability in that.
Two is, our leadership team that we brought in to Chappell about three years ago, Guy Moot and Carianne Marshall, have done an extraordinary job of expanding the business, expanding its reach and monetization, expanding globally more, but also really focusing on building capabilities to drive monetization, building a new sync set of tools and team to proactively be selling into commercials, TVs, films, to maximize our music's reach into the market. They have a team they call Creative Services, whose job is to evaluate and mine opportunities in our catalog so that our catalog is not something that is being monetized passively in the market.
It's being monetized really proactively, whether it's pitching it to be re-recorded, whether it is putting it into new products, whether it's creating documentaries around our artists and their catalogs, whether it's anniversaries, where artists should be celebrated and revisited. They're creating opportunities that are driving monetization up. It's a really proactive lean-in approach that has been supportive of what is a great array of both catalog and new songwriters and composers, plus this focus on monetization and push and outreach on, you know, all of our music. Been really effective in showing what we think are terrific results.
Yeah. Sounds like fairly durable going forward.
That's the plan. The management team didn't just do what I would say one set of things and then relax. They continued to lean in to opportunities on a go-forward basis. We're really excited about what's happening at Chappell.
Fantastic. I guess somewhat relatedly, interest rates are spiking. I'm actually in the process of buying a home, so I know it firsthand. Has the calculus around the catalog acquisitions changed at all? Have you seen a shift-
Right.
in the competitive landscape?
What I would say is our calculus hasn't changed, but the market has. We have always been the same, and we have always looked at things and done deals with the same criteria. We always look for double-digit returns and double-digit IRRs. We always look for catalogs that aren't just passive buys, but ones where our operating teams can drive incremental value. When we see those two criteria, we get very interested, and we will pursue those.
Great.
What had happened kind of in, we'll call it kind of the COVID era, were two things. One, initially, artists couldn't tour, so they were potentially looking for new revenue streams, and interest rates got very, very low.
Right.
Pure financial players were entering the market with very low cost of capital, bidding up the prices of catalogs, which enticed more catalogs to come into the market. As interest rates are high, to your point, and as touring's back, we're seeing a more normal rate of catalogs coming to market, much lower than it had been. Even before COVID, there were some catalogs that would be available periodically. We're seeing a much more normalized availability of catalogs. We continue to evaluate them with the same criteria we always did. We will certainly do some catalog acquisitions, but we had found, like, the Bowie catalog and the Bruno Mars catalog, which we've acquired in successive years, were unique opportunities. Those don't come up every year, but we will continue to look to see what does come up.
It's certainly been slower in the past six to nine months than it had been for the preceding years.
Yeah. All right. Fantastic. In the interest of time, let's move on to margins. It's obviously a big topic for you.
Yep.
I think you guys spoke about leveraging tech to become more efficient.
Yep.
Can you just dig a little bit deeper into that? What exactly are you referring to?
I think this is again, I can bring it back to Robert and, you know, what he did at Google YouTube, where he invested in technology to roll out new products into the market, but also to develop Content ID to be able to track music consumption, to be able to develop better deals and more trust with music companies. Robert, some of the things that Robert has done right away, have brought in two of his colleagues from Google YouTube. He brought in Ariel Bardin as President of Technology, and he brought in Tim Matusch as Head of Strategy. What they will be doing with the existing management team is looking at opportunities to be able to make our business more efficient and also drive growth.
What those will be, we're talking about it, people that have joined us, in some cases, two weeks ago.
Right.
It's gonna take a moment, but we're already starting the process and the conversations and the evaluation, and I think we're all very excited about the kinds of one, the capabilities we have that are now new and much more akin to what big tech has as opposed to a traditional music company. There's a real, I think it's real game-changing in that way. Where the specific opportunities are discovered and where the focus is gonna take a moment.
Okay. Then, related to margin, I think you mentioned 50 to 100 basis points of margin expansion. Was that a comment for 2023 specifically, or is that sort of your longer term outlook on an annual basis?
Thank you for asking that . It's a comment on 2023. As we've talked about throughout our talk today, some of the areas and we can point to ad-supported that have become more sensitive, affect, make our ability to forecast with precision margin growth a little less predictable. For instance, we've often said part of our formula for margin growth, I might as well just say it, is our digital business, which are high margin growing, while our physical business, which is lower margin declining, is margin accretive. That plus cost and overhead control, including our financial transformation, creates an environment for, you know, strong margin growth. We've been in a period the last few years where some streams like ad-supported are harder to predict whether they're growing or declining.
For the past three quarters, ad-supported has been declining, which pushes down short-term the rate of margin growth when ad-supported comes back, has the potential to create a very favorable. We still see margin growth. We still see solid margin growth in 2023, because of the dynamics I'm specifically pointing at ad-supported, we just wanted to taper expectations a bit.
Right.
When we see ad-supported start to stabilize and hopefully rebound and grow, may create an environment for very favorable margins, but we'll have to deal with that when we get there, when we see how the macroeconomic environment changes.
Right. I mean, we could continue this conversation for a long time, but we're actually at time, so I wanna keep you on schedule, Eric.
Well, this was great, Ben. I really appreciate the time. I appreciate the thoughtful questions. It's been fun.
Yeah.
Let's do it again.
Absolutely.
Good.
Welcome you back next time.
Absolutely. Pleasure.