Warner Music Group F4Q09 (Qtr End 9/30/09) Earnings Call Transcript

| About: Warner Music (WMG)

Warner Music Group Corp. (NYSE:WMG)

F4Q09 Earnings Call

November 24, 2009 8:30 am ET

Executives

Jill S. Krutick - Senior Vice President of Investor Relations and Corporate Development

Edgar Bronfman - Chairman of the Board, Chief Executive Officer

Steven Macri - Chief Financial Officer, Executive Vice President

Michael Fleisher - Vice Chairman, Strategy and Operations

Analysts

Rich Greenfield - Pali Capital

Doug Mitchelson - Deutsche Bank

Ingrid Chung - Goldman Sachs

Operator

Welcome to the Warner Music Group’s fiscal fourth quarter earnings call for the period ended September 30, 2009. At the request of Warner Music Group, today’s call is being recorded for replay purposes and if you object, you may disconnect at any time. (Operator Instructions) Now I would like to turn today’s call over to your host, Ms. Jill Krutick, Senior Vice President of Investor Relations and Corporate Development. You may begin.

Jill S. Krutick

Thank you very much. Good morning, everyone. Welcome to Warner Music Group’s fiscal fourth quarter 2009 conference call. Both our earnings press release and the Form 10-K we filed this morning are available on our website at wmg.com.

Today Chairman and CEO Edgar Bronfman Junior will update you on our business performance and strategy. Executive Vice President and CFO, Steven Macri, will discuss our quarterly financial results and then Edgar, Steve, and Michael Fleisher, our Vice Chairman, Strategy and Operations, will take your questions.

Before Edgar’s comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. Words such as estimates, expects, plans, intends, believe, should and will, and variations of such words or similar expressions that predict or indicate future events or trends, or do not relate to historical matters, identify forward-looking statements.

Such statements include but are not limited to estimates of our future performance, such as the success of future albums, projected digital sales increases and declines in physical sales, expected expansion of the online marketplace, the success of strategic actions we are taking to accelerate our transformation as we redefine our role in the music industry, the impact general economic conditions may have on us, market share gains, and our intention to deploy our capital, including the level and effectiveness of future A&R investments.

All forward-looking statements are made as of today and we disclaim any duty to update such statements. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, and projections will result or be achieved.

Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties, and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our earnings press release and Form 10-K and other SEC filings.

We plan to present certain non-GAAP results during this conference call. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website.

With that, let me turn it over to Edgar. Thank you.

Edgar Bronfman

Thanks, Jill. Welcome, everyone and a Happy Thanksgiving to all of you. This quarter capped a year of strong progress at Warner Music. As I look back at fiscal 2009, I am very proud of what we have accomplished. Notably we gained share, expanded our digital presence, and improved our flexibility. We also continued the diversification of our revenue mix, making further progress on our goal to reposition the company by expanding our participation in growing areas of the music business. Clearly we face some significant challenges from a historically weak global economy as well as the ongoing recorded music industry transition. But with the combination focused management and a thoughtful strategy, we limited the negative impact of these challenges and saw only modest erosion in revenue this fiscal year -- no small achievement in this difficult environment.

Importantly, we recapitalized our balance sheet in May. That provides us with the flexibility to transform our company as we continue to grow our digital and non-traditional recorded music revenue while shifting away from a predominantly physical recorded music business.

Our conservative approach to managing our balance sheet, including building our cash balance, has led to a substantially improved net debt level and our ability to generate strong free cash flow provides us with greater opportunities to not only weather this transition but also prepare us for future growth.

We remain confident in our ability to execute on our strategic goal. That confidence is based on a track record of developing new music business solutions, maintaining our digital leadership position, diversifying our revenue mix, managing our costs, gaining share and delivering strong returns on our A&R investment. To that end, we have undertaken a number of initiatives to enhance our effectiveness, provide greater operating flexibility, and drive continued competitive performance.

We remain vigilant in managing our costs. We continue to fine-tune our cost structure by simplifying business processes, reducing fixed costs and converting those costs into variable ones. For example, in the September quarter, we implemented a realignment of certain operations to better balance our cost structure with our revenue profile. We are redeploying our resources to stay ahead of the transformation curve. Our goal is to selectively invest in growing areas of the business while carefully managing costs related to the sales of physical products. We took $14 million in severance charges for the quarter in connection with these efforts.

Now let me give you some highlights for this quarter and for the fiscal year. First, as result of our focused investments in A&R, marketing, and promotion, we continue to discover and develop successful artists. We once again delivered strong share performance despite a very competitive industry release slate. Of note, Warner Music gained one quarter of a percentage point over the 12-months ending September 30 to reach a 21% U.S. track equivalent album share. For the quarter, we largely sustained that share despite a surge in sales of Michael Jackson's recordings.

Second, we remain an industry leader in the important digital arena -- our fiscal year digital revenue rose 14% to $703 million, which represented 36% of our U.S. recorded music revenue, up from 28% in the prior year. Our quarterly constant currency digital revenue rose 12% to $184 million. In addition, our digital track equivalent album share advantage over physical album share in the U.S. continues to outpace other music majors.

We have been implementing new digital business models to broaden our consumer reach and to better align our interests with those of our distribution partners. We believe that this will enable us to monetize our content more effectively and overall wider range of platform.

Third, we continue to transform the company by entering into an increasing number of expanded rights deals with new artists and growing our worldwide artists services business. This strategy is giving us a greater presence in the growing areas of the music business, such as touring, fan clubs, concert promotion, merchandising, and sponsorships, which will be more meaningful to us over time.

And fourth, we continue to strengthen our music publishing business by building our artist roster and catalog and expanding our digital presence while delivering improved results.

I would like to provide you with some detail about these achievements. A&R marketing and promotion remain at the heart of our business activities. As expected, our recorded music results benefited from a strong fourth quarter release slate. The top sellers in the quarter included Michael Buble, Jay-Z, Madonna, Muse, and Paramour, in addition to three Japanese artists, [Iaka], [Kobokuro], and Super Fly.

Our momentum was particularly evident in Europe and Asia-Pacific. Warner Music had the number one album in the U.K. for three consecutive weeks during the months of September and October. Each week was led by a different artist. Muse's The Resistance was first, followed by Madonna's Celebration and Paramour's Brand New Eyes. Notably, Warner Chappell is the publisher for all three of these artists.

In Japan, a strong release scheduled triumphed in the face of continued economic softness in that territory. In contrast, we saw a weaker revenue performance in the September quarter from our U.S. recorded music business. This resulted from the tough economy, coupled with ongoing music industry transition pressures as physical declines are not being offset by digital growth.

While Warner Music remains on a multi-year transition path, we are already seeing signs of what it means to cross the digital divide. Atlantic Records turned in a stellar digital performance by posting digital revenue in excess of 50% of its U.S. physical and digital sales revenue in fiscal year 2009, in part because of this, Atlantic was able to grow both revenue and margins this year despite a very challenging market.

Looking ahead to fiscal 2010, we are optimistic about the carryover potential of our recent releases as well as our upcoming releases. For example, for the week ended October 25th, WMG distributed albums held the top four positions of the billboard 200 for the first time in 18 years. Those albums were the New Moon soundtrack, Tim McGraw Southern Voice, Michael Buble's Crazy Love, and Jay-Z's The Blueprint 3.

In the first quarter fiscal 2010, we are excited about the soundtrack from the motion picture New Moon, the second instalment from the hugely popular Twilight series. The new movie debuted on Friday and had a blockbuster opening weekend. Atlantic has leveraged the movie's promotion and the established Twilight fan base to maximize soundtrack sales and raise visibility for Warner artists such as Death Cab for Cutie, Lupe Fiasco, and Muse. An iTunes pre-sale of the soundtrack surpassed expectations, generating nearly double the sales of the Twilight soundtrack pre-sale in 2008. The pre-sale, which only included a $14.99 deluxe version of the album, was WMG's largest soundtrack pre-sale ever.

The first quarter is also benefiting from Warner Brothers' release of Michael Buble's new studio album, Crazy Love.

Underscoring our ongoing commitment to creative leadership, we are thrilled that Rob Cavalo, widely considered to be one of the top record producers in the world, has joined Warner Music. He will be an exclusive producer for Warner Music and also will provide his A&R services exclusively to us.

Let's turn now to digital recorded music revenue, one of the key drivers of future growth in recorded music business and an area in which we continue to advance. As expected, our release schedule helped drive solid sequential global digital download revenue growth this quarter. In particular, Apple's product and service strategies continue to provide more opportunities for our business. Variable pricing for single-track downloads on iTunes is a net positive to our top line digital revenue growth. The recent announced iTunes LP enables us to deliver premium digital album packaging to consumers and provides us with an opportunity to differentiate our offerings, and the momentum in iPhone sales continues to contribute to a growing global footprint for us to generate over the air download revenue through iTunes.

Our digital strategy continues to evolve and we are experimenting with multiple ways to monetize our artist content through social media sites as well as other key distribution points. To that end, we are pleased that we recently reached a new and expanded agreement with Google and its YouTube subsidiary. This agreement has recently brought WMG content back to this important service. As part of the new relationship, YouTube has improved its user experience by presenting our artist music videos with a feature rich, high quality premium player, video watch pages, and channels. We believe the new agreement with YouTube establishes a platform that provides an integrated artist focused approach and creates greater monetization opportunities with premium brand advertisers. It also gives music fans enhanced access to content they desire through links to artist websites.

Furthermore, Google is also expanding its connection to music with the launch of One Box, a search application that delivers in response to standard search queries a pre-configured set of music content and commerce links. This service enables the sampling and purchase of music with several partners, including LaLa, MySpace Music, iMeme, Pandora, and Rhapsody. We expect that One Box will drive increased music discovery and download purchasing.

Further supporting our social media strategy, Facebook recently launched a music gifting consumer offer powered by LaLal. The service is designed to enable users to purchase MP3 downloads and web songs as gifts for their friends on Facebook. Facebook users can also index and stream their own music collections from their profile pages, as well as sample and purchase new music. We are delighted to see a confluence of pioneering new services supporting our content in the expanding digital marketplace.

As new mobile products and business models are rolled out on a global basis, and as device capabilities and network technologies advance, we believe mobile revenue growth will accelerate despite declining ringtone activity in the U.S. and Europe. For example, we remain optimistic about access models as a driver of digital revenue, though they may take some time to gain meaningful traction. Access models typically bundle the purchase of a mobile device with access to music.

While most of the access models launched today have been in the mobile space, we are also excited to now be developing access models with ISPs and consumer electronics manufacturers. A compelling music proposition bundled with broadband service is being offered by Sky, a prominent U.K. ISP. Sky songs offers users unlimited streaming plus downloadable tracks and albums. Sky songs is available as both a standalone music subscription service and bundled with Sky's own broadband service.

In yet another take on the access model, we are seeing music bundled into the purchase of computers. We highlight the partnership recently announced between Dell computer and the Napster subscription and download service now owned by Best Buy. Between October 27th and January 17th, all Dell studio and Inspiron PCs sold directly by Dell in the U.S., U.K. and Germany, as well as those sold through Best Buy, will come with one full year of Napster built into the cost of the computer. The service will entitle users to unlimited on-demand PC streaming of music and five MP3s per month. Dell, Napster, and Best Buy are investing significant marketing dollars to promote the offer and we are optimistic about its potential during the holiday season.

As we mentioned earlier, we continue to transform our business within the music value chain while broadening our revenue mix in the growing areas of the music business. This remains a key element of our growth strategy and is core to the transformation of our company. Direct-to-consumer or DTC platforms are one of the key paths for partnering with our recording artists to monetize new revenue streams and artist websites remain an essential part of that strategy. Earlier this year, WMG and Cisco developed a partnership initially focused on enhancing our DTC efforts. By leveraging Cisco's innovative DTC technology, we have begun to more effectively monetize the vibrant relationship between artists and their fans without having to build infrastructure at WMG.

Warner Music is the first entertainment company to use Cisco's new EOS platform. We have exceeded our goal of launching a dozen EOS artist sites by the end of '09. We believe our partnership with Cisco will greatly enhance our ability to create, manage, and grow online communities while also increasing opportunities to drive revenue from DTC sales and online advertising around artist content.

As we previously mentioned, we continue to diversify our recorded music revenue. Today, the overwhelming majority of contracts we signed with new recording artists are expanded rights deals.

One of our principal strategic goals is to maximize the results of our distinctly valuable Warner Chappell music. Warner Chappell is the world's third largest music publishing company and enjoys a stable diversified revenue stream from its extraordinary library of songs. This quarter, mechanical revenue, which has typically been pressured from declining sales of physical recorded music product, rose 38% to $62 million on a constant currency basis. Mechanical revenue increased because Warner Chappell realized a $25 million revenue and $7 million OIBDA benefit from an agreement reached by the U.S. recorded music and music publishing industries which will result in the payment of mechanical royalties accrued in prior years by record companies.

On the A&R front, Warner Chappell has been active and continues to invest in talented songwriters to support the development of our music publishing catalog. We have seen consistently strong returns from this approach. Recently Warner Chappell signed Jacob Dylan in the U.S. for both his solo work and his work as part of The Wallflowers. We also entered into a deal with Dave Grohl, the front man and write for The Foo Fighters and the former drummer from Nirvana, which includes administration of Nirvana's Smells Like Teen Spirit as well as many top Foo Fighter songs.

Before moving on to our financials, I wanted to provide a short update on two public policy issues. First is the status of the Performance Rights Act. The effort to enact that legislation reached a milestone last month, culminating in approval by the Senate Judiciary Committee. The legislation has now successfully passed both the House and Senate judiciary committees, something that has not been achieved in years past. Second, the issue of an ISP's responsibility for the content flowing over its network remains core to the policy objectives of content businesses. Content businesses are striving for voluntary negotiations with ISPs in the U.S. to achieve their cooperation in combating online piracy. Abroad, aggressive governmental actions are being taken to enlist the ISPs' help in this important fight. Most visibly, France has enacted a so-called three strikes policy and the U.K. has confirmed its intention to introduce the digital economy bill to address this key issue. We remain focused on enacting the Performance Rights Bill and on the adoption of graduated response programs. Success on one or both of these could be of great benefit to the music industry.

Now I'd like to turn it over to Steve who will run through the financials before Michael, Steve and I take your questions.

Steven Macri

Thank you, Edgar and good morning, everyone. Today I will cover some of the key financial highlights for the quarter and fiscal year. All the revenue data I am about to discuss is on a constant currency basis. Looking at the income statement for the three months ended September 30, 2009, we reported revenue of $861 million, a 5% increase year over year. As expected, the revenue growth primarily reflects our back-end weighted release schedule.

For the quarter, international revenue grew 18% while domestic revenue declines 7%. That strong international revenue reflects our success building local recorded music repertoire in countries like Japan and France, as well as other parts of Europe. Our international performance also highlights the diversification of our revenue base. For example, this quarter's results reflect the performance of our European concert promotion business.

Quarterly digital revenue grew 12% to $184 million, or 21% of total revenue. That is up from 20% of total revenue in the prior year quarter. Digital revenue improved 3% sequentially, further reflecting the strength of this quarter's release schedule. About two-thirds of our digital revenue was generated in the U.S., one-third was generated in the rest of the world.

Operating income before depreciation and amortization, or OIBDA, was $120 million this quarter versus $134 million in the prior-year quarter. OIBDA margin declined 2 percentage points to 14%. This quarter's results include the previously mentioned $14 million in severance charges for our realignment.

Looking at the different business segments for the quarter, recorded music revenue increased by 4% to $709 million. Growth in international recorded music revenue of 24% more than offset declines in domestic recorded music revenue of 15%. Revenue was strong in both Europe and Asia, with an impressive release schedule in Japan and chart success in Europe.

Non-traditional recorded music revenue represented about 8% of our total quarterly revenue. That was up from about 5% in the prior year period. This revenue growth was driven by positive effects of summer concerts and festivals on our European concert promotion business.

Recorded Music digital revenue grew 11% from the prior year quarter to $171 million or 24% of total Recorded Music revenue. That is up from 22% in the same period last year. Domestic Recorded Music digital revenue grew 6% to $105 million, or 34% of domestic Recorded Music revenue. That's compared to 27% in the same period last year.

Recorded Music OIBDA declined 4% to $96 million, and due to continued cost management efforts, recorded music OIBDA margin remained flat at 14%, even with the $14 million in severance charges for our realignment.

Moving on to our music publishing business for the quarter, music publishing revenue grew 12% over the prior year to $162 million. These results include the previously mentioned mechanical royalties revenue benefits. Digital revenue grew 46% to $16 million, due to the timing of cash receipts and the shift in recorded music market from physical sales to digital sales.

Performance revenue grew 5% but continued pressures in the advertising business resulted in a 25% drop in synchronization revenue. Nevertheless, for the full year synchronization revenue grew 2%.

Music publishing OIBDA was $59 million, up 9% from $54 million in the prior year quarter. OIBDA margin expanded to 36% from 35%, driven by the previously mentioned industry-wide mechanical royalties agreement.

Turning to our balance sheet and cash position, we intend to continue to deploy our successful conservative balance sheet strategy, improving our free cash flow, and building cash. Additionally, we will continue to maintain a very selective posture towards M&A spending and we plan to sustain our current levels of A&R investment.

In the quarter, we had free cash flow of $20 million versus $100 million in the prior year quarter. As anticipated, operating cash flow declined due to high receivables tied to our back-end weighted release schedule. Our free cash flow is calculated by taking cash from operations of $36 million, less capital expenditures of $12 million, less net cash paid for investments of $4 million.

As expected, our quarterly net interest expense increased to $49 million versus $42 million in the prior year quarter, due to the change in interest rates related to our refinancing in May.

Turning now to taxes, for the three months ended September 30, 2009, we had income tax expense of $20 million on pretax income from continuing operations of $2 million. Our net cash tax payments for the quarter were $18 million.

We generated a net loss from continuing operations of $18 million or $0.12 per diluted share, which includes $0.09 per diluted share from the $14 million in severance costs. That compares to the prior quarter's income from continuing operations of $6 million or $0.04 per diluted share.

Turning now to our full-year results, revenue of nearly $3.2 billion declined a moderate 3% despite continuing economic retail pressures and despite the recorded music industry's ongoing transition. This year, international revenue grew 4% while domestic revenue declined 12%. Full-year digital revenue grew 14% to $703 million, or 22% of total revenue. That is up from 18% of total revenue in the prior year.

OIBDA of $397 million declined 16% while OIBDA margin was 13% compared with 14% last year. Even after using $335 million of cash to help repay our senior secured credit facility in May, we ended the year with a solid cash balance of $384 million. That's up sequentially from $345 million in June.

As of September 30, 2009, we reported net debt of $1.56 billion versus net debt of $1.85 billion in the prior year period. Our tax expense for fiscal 2009 was $50 million, compared with $49 million last year.

As a reminder, as a matter of policy, we do not provide financial guidance. We are excited about our fiscal year 2010 release schedule. Nevertheless, we remind you that quarterly fluctuations in our recorded music release schedule and associated marketing and promotional expenses are a normal part of our business. Fiscal 2010 is likely to be another challenging year as the volatile global economy together with the ongoing recorded music industry transition are likely to continue to affect our results. Given this backdrop, our conservative approach to managing our costs and our balance sheet gives us the flexibility to optimize results

Now I would like to turn the call back to Edgar for closing remarks.

Edgar Bronfman

Thanks, Steve. We are pleased with our progress in the past year despite the dual challenges of a weakened global economy and a recorded music business that is going under a fundamental transition. Over the course of the new fiscal year, our priorities will continue to evolve but remain centered on optimizing and transforming our business. In doing that, I would like to reiterate five critical areas on which we will continue to focus: one, manage our balance sheet by generating significant free cash flow while wisely controlling our overhead costs and other expenses; two, fortify our digital leadership through the execution of our current business and for the development of additional business models; three, focus on enhancing the value and growth of Warner Chappell; four, expand partnerships with artists and nurture relationships with consumers to monetize businesses that represent growing segments of the music business; and five, continue to invest in A&R while maximizing our margin potential in our core recorded music and music publishing businesses.

We have made substantial progress but we also recognize we still have a significant way to go. We are confident that we are in the process of building the most progressive company in the music industry today and while also continuing to execute effectively in our core business, are establishing the framework for sustainable long-term growth. Michael, Steve and I look forward to answering your questions. Thank you, Operator, and please open it up for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from Rich Greenfield from Pali Capital.

Rich Greenfield - Pali Capital

When you look at the $14 million restructuring charge you took, could you give us a sense of how much that will benefit your cost structure in 2010 and how quickly you will begin to see those benefits or did you already start to see them in the fourth quarter, the fiscal fourth quarter? Two, corporate expense -- you know, Edgar, you talked about how you are really focused on reducing costs. Curious, it looks like corporate expense was up a lot from like $20 million to $35 million in the fourth quarter. Just curious what is going on there and whether we should expect that type of trend rate going forward or whether that will come back down in 2010.

And then just lastly on music publishing, if you back out the one-time item and the currency impact, it looks like music publishing worldwide was down about 5.5% organically in the fiscal fourth quarter and just curious how you think about the trends in music publishing for yourself and for the industry as you move into 2010. Thanks.

Edgar Bronfman

I'm going to let Steve answer the first two questions. I'll try and take a shot at the publishing question.

Steven Macri

With regard to the restructuring, it's more of a realignment of resources from our physical business to our growing artist services and digital businesses, so I would not expect to have any significant savings in the short or medium term.

With regard to corporate expenses, it's really just a timing of expenses in the fiscal year. For the full year, corporate expenses are actually down versus fiscal 2008, about $3 million and actually down about $7 million from fiscal 2007.

Edgar Bronfman

And I think we are going to continue to see for a little bit publishing sort of treading water in terms of growth. We've got this sort of ongoing mechanical pressure now combined with pressure on advertising revenues in sync, supported by growth in digital and performance. Difficult to call when those advertising pressures abate but I can tell you that I am very, very pleased with the team we've got at Warner Chappell. I think we are doing a great job in terms of share, thought that's difficult to measure in the publishing industry, and I think we've got some real momentum in our core businesses but again, we are seeing these macro trends on sync and on mechanicals which does abate the rate of growth at which we can grow the business for now.

Operator

Your next question is from Doug Mitchelson from Deutsche Bank.

Doug Mitchelson - Deutsche Bank

I am curious, what -- a few questions. One, what is Atlantic doing right that the other labels are lagging with in terms of its exposure to digital revenue as its primary source?

Edgar Bronfman

Well, it's obviously always difficult in the creative industry to put your finger on any one thing. But what I can tell you is, is that I have always believed that a key executive management team is critical to success and the team at Atlantic has gelled together and that is not just the leadership of Craig Holman and Julie Greenwald but the entire Atlantic team and staff, and a very -- and they have employed a very disciplined financial strategy. And that allows Atlantic to focus very strongly on the artist that it believes in and not to be -- to spend too much time on artists that don’t have that kind of potential.

Atlantic has had the last three years are the most successful years in the history of Atlantic Records last -- this 2008 was the greatest year in Atlantic's history, 2009 is even ahead of 2008. So it is the rebuilding of our artist roster but most importantly it is the right executive team with the right management underneath them and disciplined focused financial approach which is really bearing fruit at Atlantic.

Doug Mitchelson - Deutsche Bank

And then the second area, you mentioned [a tough economy] in both in your press release and your prepared remarks related to the U.S. but didn’t really emphasize at all related to international. Of course, international results were very strong but did you see an economic impact internationally as well?

Edgar Bronfman

I think we frankly saw macroeconomic pressures more pointedly in Japan in 2009 than we did in Europe but clearly the economy waived everywhere but I would say that culturally, Europe tends to roll with the punches maybe a little bit better than the U.S., which has more pronounced highs and lows, and certainly Japan was affected by the global economic woes that began in the fall of 2008.

Doug Mitchelson - Deutsche Bank

Okay, fair enough and then I think lastly, just sort of the carry-forward impact from the [inaudible] agreement, that wasn’t just a one-time impact this quarter, right?

Edgar Bronfman

I'm sorry, Doug, the last question?

Doug Mitchelson - Deutsche Bank

In terms of the new [mechanical] agreement, Edgar, that -- the September quarter, does that have a carry-forward impact [the next few quarters as well]?

Edgar Bronfman

Steve, do you want to sort of answer that for Doug?

Steven Macri

It will have somewhat of a carry-forward impact but the vast majority of the benefit is really the release of old royalty payables that were accrued on the recorded music industry's balance sheets that are getting freed up with this agreement, so I wouldn’t anticipate any significant benefits in the next fiscal year.

Doug Mitchelson - Deutsche Bank

Okay, so it was really sort of a catch-up a little bit?

Steven Macri

It's really a catch-up of old royalty payables.

Doug Mitchelson - Deutsche Bank

And then one more question, either one of you, is there a flow-through -- in fact, I think you mentioned that Madonna, as you release a new album, you've got the entire catalog library to sell. Can you give us a sense of what the flow-through impact was this go-around in terms of how many library albums she sold when the new album hits?

Edgar Bronfman

Doug, I don’t think we've got that statistic but I can tell you certainly internally since we've released the Michael Buble album with the old Michael Buble albums doing extremely well, and that's pretty consistent with what we have seen historically in the physical world as well.

Doug Mitchelson - Deutsche Bank

All right, so as Madonna continues to release throughout [inaudible]?

Edgar Bronfman

I think it's reasonable to expect that.

Doug Mitchelson - Deutsche Bank

Thanks a lot.

Operator

Your next question comes from the line of Ingrid Chung from Goldman Sachs.

Ingrid Chung - Goldman Sachs

We've seen some subscription music or music for rent business models struggle a bit. Do you think a subscription business in music has the same chance of succeeding as the straight download business model does? Or do you think it always has to be bundled in with data or some form of that?

Edgar Bronfman

Well, I guess what I would say, Ingrid, is that I think the subscription services that have struggled so far have struggled for a number of reasons. Some of the, the quality of the service, some of the is the awareness of consumers. I think the early adopters, and I think we are still in the early games of the digital business, are people who want to sort of replicate their ownership experience in the digital world and that is why the download model is so attractive to them.

I do think that there are huge numbers of un-monetized music consumers who will be able to have access to music in large quantity or small, depending on their preference for more or less money, depending on the model, when combined with devices, computers, et cetera. And I think that will be a significant area of the music industry going forward.

In terms of subscription alone, there aren’t too many subscription alone businesses out there and I think the real opportunity for music, as I said, is to be -- is to take advantage of the extraordinary scale in the mobile industry and the computer industry and in ISPs generally to give those consumers music packages which appeal.

Ingrid Chung - Goldman Sachs

Okay, great. So you see it as being pretty different than from video, which is consumed more on a subscription basis than music? What do you see as the key differences between music and video that -- to explain this difference?

Edgar Bronfman

Well, first of all, video for many years was a transaction only business. You would go to the theater or et cetera and a great deal of video business is for free as an advertising supported model. There's no advertising supported model whatsoever in the music industry to date to speak of.

So there are traditionally very great differences between how music is paid for and how video is paid for and of course, there's a real difference in how video is consumed and how music is consumed because by and large, video is a much longer format.

The subscription business for video really grew out of improved reception. Let's remember the subscription business for video is really a cable --

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