Michael Morris

Michael Morris questioned the Experiences segment's outlook, asking why the full-year guidance wasn't raised more significantly, the potential for growth in fiscal '26, and whether the demand softness in China was deteriorating.

Answer

CFO Hugh Johnston noted a strong outlook, with Q3 and Q4 bookings at Walt Disney World up 4% and 7% respectively, and stated that full-year growth would likely be at the 'higher end' of the 6-8% guided range. He confirmed that the situation in China is not worsening, with attendance remaining strong despite lower per-capita spending. He deferred specific commentary on fiscal '26 growth.

Michael Morris asked for an update on Experiences bookings for the second half of the year. He also questioned the Direct-to-Consumer profit outlook, pointing out that the strong Q1 result implies significantly slower growth for the remainder of the year to meet the annual guide.

Answer

CFO Hugh Johnston confirmed that forward bookings for the Experiences segment remain positive and are up for the summer. For Direct-to-Consumer profitability, he reiterated the full-year guidance of over $1 billion. He acknowledged the strong start but deemed it premature to raise the outlook after only one quarter, while leaving open the possibility of over-delivering.

Michael Morris asked about the expected growth in content spending for fiscal 2025 and beyond. He also inquired about the long-term return on Experiences investments, specifically the balance between driving capacity expansion versus enhancing pricing power.

Answer

CEO Robert Iger indicated plans for selective content investment in international markets like EMEA and APAC, but only after technology improvements are in place to reduce churn and maximize ROI. CFO Hugh Johnston confirmed that modest incremental content growth is modeled in. For Experiences, Johnston explained that the projected returns are based on a balance of both increased attendance and pricing power, with the flexibility to adjust the strategy as they learn.

Michael Morris asked Bill Ready to contextualize 'deepening engagement per user' and its role as a leading indicator for UCAN growth, and about the runway and key drivers for international growth.

Answer

CEO Bill Ready clarified deepening engagement refers to search, curation, clicks, and actions, with more searches per user and 5x growth in clicks to advertisers over three years. He confirmed user behavior is a leading indicator for monetization, especially in UCAN, and highlighted the successful export of the UCAN playbook for international growth, with shopping ads as a key driver.

Michael Morris asked for context on 'deepening engagement per user' and its role as a leading indicator for UCAN growth, and about the runway and key drivers for continued elevated international growth.

Answer

CEO Bill Ready explained that deepening engagement per user refers to increased searches, curation, clicks, and actions, with searches per user and clicks to advertisers growing significantly. He affirmed that user behavior is a leading indicator for monetization, outlining UCAN growth opportunities in full catalog penetration, mid-market/SMBs, and AI bidding alignment. For international, Bill highlighted the successful export of the UCAN playbook, leading to strong ARPU growth and shopping ads now comprising 30% of international revenue, indicating many years of runway.

Michael Morris asked about how the Netflix partnership for licensing Spotify's video podcasts enhances video growth ambitions and whether there's a risk of declining Spotify engagement or Netflix building a competing service.

Answer

Gustav Söderström, Co-President, CPO, and CTO, reiterated excitement for video podcasts, noting significant uptake (390M users, 54% YoY increase) and nearly 500,000 video podcasts. He explained the partnership strengthens Spotify's creator offering by providing distribution on Netflix, which is good for podcasters and creates revenue opportunities, aligning with the ubiquity strategy. He emphasized that creators choose where to be, and the partnership enhances the creator offering.

Michael Morris of Guggenheim Securities asked for an update on the new video podcast offering, specifically regarding creator adoption rates and the level of user engagement on TV platforms.

Answer

Co-President & CPTO Gustav Söderström reported strong early results, with about 70% of eligible creators opting into the new video offering, exceeding expectations. He noted that podcasts are increasingly becoming video-centric and affirmed that the company continues to invest heavily in the TV experience as an important part of its ubiquity strategy.

Michael Morris from Guggenheim Securities questioned the expected investment level for artificial intelligence initiatives and the potential impact on the company's margin profile.

Answer

CEO Daniel Ek described the AI investment as highly disciplined and not CapEx-intensive. He explained that spending is usage-based, which correlates with value creation like engagement and retention. While Spotify is willing to accept short-term margin trade-offs for significant user benefits, the approach will not be 'reckless.'

Michael Morris from Guggenheim Partners questioned the outlook for subscription streaming growth, noting that the current 8.5% core growth already meets the mid-term guide, and asked new CFO Armin Zerza about priorities for capital allocation and opportunities to improve cash conversion.

Answer

CFO Armin Zerza outlined capital allocation priorities as: 1) investing in the core music business, 2) stepping up M&A, and 3) returning capital to shareholders. He affirmed the 50-60% cash conversion target, driven by cost savings and A&R efficiency. Regarding streaming, he expressed confidence in future growth, citing industry health, upcoming DSP renewal benefits, and potential from super-fan tiers.

Michael Morris from Guggenheim Partners questioned the sustainability of the 8.5% core subscription streaming growth and asked about capital allocation priorities and opportunities to improve cash conversion.

Answer

CFO Armin Zerza outlined capital allocation priorities as: 1) core music business investment, 2) M&A, and 3) shareholder returns. He affirmed the 50-60% cash conversion target, supported by cost savings and A&R efficiency. He expressed confidence in future streaming growth, citing DSP renewals, M&A, and potential from super-fan tiers.

Michael Morris inquired about the potential timing for new fan experiences and subscription tiers mentioned in the Spotify announcement and asked how the increased ownership stake in Tempo Music changes WMG's strategy and financial profile.

Answer

CEO Robert Kyncl stated that new product rollouts with partners don't require all DSPs to move in unison. Regarding Tempo, he explained that greater control allows for expanded rights monetization and that the deal has built-in growth as existing third-party distribution agreements expire and revert to WMG. CFO Bryan Castellani added that the Tempo catalog is approximately 80% music publishing and 20% recorded music.

Michael Morris asked for reassurance on Warner Music Group's long-term growth strategy amid a challenging quarter and requested an updated outlook for full-year subscription streaming growth.

Answer

CEO Robert Kyncl expressed confidence in WMG's three-pillar strategy: growing market share, increasing the value of music, and improving efficiency for reinvestment. He pointed to early successes, such as a 50% increase in Spotify global chart share and the launch of the WMG Pulse artist app, as proof the strategy is working. Kyncl stated that the trends seen in Q2 are expected to persist for the remainder of the fiscal year.

Michael Morris asked for details on the progress of third-party ad partnerships versus the new Roku Ads Manager, questioning if they are complementary or cannibalistic, and also inquired about current macroeconomic advertising trends.

Answer

Founder, Chairman & CEO Anthony Wood explained that the two initiatives are complementary, with Roku Ads Manager opening up a new market of smaller, performance-based advertisers, while third-party DSPs serve larger, traditional video advertisers. President of Roku Media Charlie Collier added that the strategy diversifies demand, noting the recent upfront was very positive and that the market is increasingly seeking performance from TV advertising.

Michael Morris inquired about the specific drivers for the guided 16% Q1 platform revenue growth, including the role of third-party DSPs, and asked for an assessment of the potential impact from Walmart's acquisition of VIZIO.

Answer

CFO Dan Jedda stated that both streaming service distribution (SSD) and advertising are driving strong Q1 growth, with advertising expected to grow faster. CEO Anthony Wood and President of Devices Mustafa Ozgen addressed the VIZIO acquisition, expressing confidence in continued household growth and their strong retail position, noting Roku is the #1 TV OS and has wide distribution beyond Walmart.

Michael Morris of Guggenheim Securities asked if Netflix sees a path to creating additional service tiers based on content types, such as live sports, as its content library broadens.

Answer

Co-CEO Greg Peters said he would 'never say never' but emphasized that the current bundled approach provides great value and simplicity for members. He outlined key principles guiding their model: member choice, accessibility for new members, and ensuring reasonable returns to reinvest in the business. While open to evolution, he expects the all-inclusive bundle to remain a core feature of the Netflix offering for the foreseeable future.

Michael Morris of Guggenheim Securities, LLC asked if Netflix might introduce additional service tiers based on content type, or if all content will remain available in existing plans.

Answer

Co-CEO Greg Peters stated he would 'never say never' but emphasized that the current all-inclusive bundle provides great value and simplicity for members. He expects this model to remain a core feature of their offering for the foreseeable future, guided by principles of member choice, accessibility, and business returns.

Michael Morris of Guggenheim asked if Netflix might introduce additional service tiers based on content type, such as live sports, or if all content will remain available in the existing plans.

Answer

Co-CEO Greg Peters stated that while he would 'never say never,' the company believes its bundled approach offers great value and simplicity. He expects the current model of providing all content within existing plans will remain an important feature for the foreseeable future, guided by principles of member choice and accessibility.

Michael Morris asked for details on the upcoming FOX 1 direct-to-consumer service, including its pricing, target market, and potential partnerships, and also requested an outlook on fiscal year 2026.

Answer

Executive Chair and CEO Lachlan Murdoch stated that FOX 1's pricing will align with wholesale rates to be fair to distributors and will target the 'cordless' market to avoid cannibalizing traditional pay-TV. He confirmed partnerships are planned. CFO Steve Tomsic noted that fiscal 2026 will lack political ad revenue but also the Super Bowl's net cost, with tailwinds from FOX News, Tubi, and affiliate fees. The key variable will be the balance of investment between Tubi and the FOX 1 launch.

Michael Morris asked for more detail on the strength in Fox News advertising, its sustainability, and the influx of new advertisers. He also questioned the strategy behind the Tubi Super Bowl livestream, its goals, and any associated costs or technical concerns.

Answer

Executive Chair and CEO Lachlan Murdoch attributed the Fox News advertising strength to record ratings that have attracted over 100 new national clients, a trend he sees continuing. Regarding the Tubi Super Bowl stream, he described it as a low-cost, high-reward opportunity to capture valuable first-party data, drive user registration, and provide a significant marketing platform for Tubi.

Michael Morris asked for Fox's perspective on Comcast's potential separation of its cable network business and whether the recent moderation in pay-TV subscriber declines suggests the industry is nearing a bottom.

Answer

Executive Chair and CEO Lachlan Murdoch stated that a potential Comcast separation would not affect Fox, highlighting the deep synergies across Fox's own platforms. He affirmed his belief in a subscriber floor for the core pay-TV package. CFO Steve Tomsic added that while pricing drove recent affiliate revenue growth, the moderation in subscriber declines was a helpful trend.

Asked if subscription growth could exceed the guided range once a major pricing cycle begins, and inquired about UMG's interest in stand-alone, direct-to-consumer artist products versus super-fan tiers within DSPs.

Answer

Executives confirmed that growth would likely be higher than the guided 8-10% CAGR range during periods of price increases, as growth is expected to come in waves. On the super-fan question, they view direct artist e-commerce as complementary to a broader super-premium strategy with platforms. They see significant opportunity in super-premium tiers across large subscriber bases, citing Tencent Music's success in China as a positive empirical example.

Inquired about the timing of 'Streaming 2.0' updates, whether UMG would prefer shifting to exclusive wholesale pricing models with DSPs, and the potential business impact from TikTok shutting down its music service.

Answer

The company declined to share confidential strategy or a specific timeline for 'Streaming 2.0' updates. They explained their current pricing models are already sophisticated but that they are considering all options. Regarding TikTok, they viewed the shutdown of its music service as a question for TikTok, noting that TikTok continues to be a successful driver of discovery for other subscription platforms.

Michael Morris asked if strong D2C viewership growth is a leading indicator for future revenue acceleration and requested the company to size the financial benefit from the Super Bowl and political advertising in 2024.

Answer

CFO Naveen Chopra confirmed that strong viewership is seen as a leading indicator for future monetization through both reduced churn and potential price increases. Regarding the 2024 OIBDA impact, he explained that the Super Bowl was a meaningful contributor in Q1 2024, and that full-year 2025 adjusted OIBDA would likely be down slightly on a reported basis but would grow materially when excluding the Super Bowl and political ad impact.

Michael Morris requested more detail on the Charter partnership's Q3 impact and asked if the strong Q3 EBITDA performance would flow through to the full year or be offset by incremental Q4 costs.

Answer

CFO Naveen Chopra noted that while it's still early, the company is pleased with the Charter bundle's performance. He clarified that Q3's outperformance was driven by DTC marketing efficiency and that while Q4 has some cost headwinds, the vast majority of the Q3 beat is expected to flow through to the full-year results.