When Warner Music Group employed Armin Zerza as CFO in Could 2025, the corporate was recruiting from a unique universe.
Zerza had spent a decade at gaming firm Activision Blizzard, the place he served as each CFO and Chief Business Officer and performed a key function within the agency’s $68.7 billion sale to Microsoft.
One yr later, with the COO title now added to his remit, Zerza appeared on the JPMorgan World Know-how, Media and Communications Convention on Wednesday (Could 20) and made clear that his gaming background isn’t just a biographical element – it’s the lens via which he sees the music business’s future.
Throughout a 30-minute fireplace chat with JPMorgan analyst David Karnovsky, Zerza returned to the comparability repeatedly.
The music business, at lower than $50 billion globally, is a fraction of the dimensions of the $200 billion gaming business – regardless of having extra customers. Its subscription value, at a median of USD $4 a month globally and $6 to $8 in developed markets, is “the worth of 1 Starbucks espresso.”
And, in contrast to gaming, music has been, in Zerza’s view, “a bit of bit gradual to adapt to form of the digital actuality of the enterprise.”
“In my opinion and in our view as an organization, [music has] years of further productiveness to drive going ahead,” he advised the convention.
That confidence was backed by a set of fiscal Q2 (calendar Q1) outcomes that Warner Music reported on Could 7: whole income of $1.73 billion, up 12.1% YoY at fixed forex, with recorded music subscription streaming revenues up 15% YoY.
Listed below are 5 issues we discovered from Zerza’s look on the JPMorgan Convention…
1. Catalog is 65% of Warner’s streaming income, carries 50%-plus margins – and AI instruments for the ‘lengthy tail’ are about to scale
Catalog represents about 65% of Warner Music’s recorded music streaming income. However the stat that jumped off the JPMorgan stage was the margin profile. Zerza described catalog as “not solely 65% of our enterprise [but] additionally essentially the most worthwhile a part of our enterprise,” noting that “a lot of these companies sometimes have 50%-plus margins.”
That margin determine is value holding in thoughts when contemplating the multiples being paid for catalog belongings throughout the business – together with Warner’s personal current $300 million-plus acquisition of the Crimson Sizzling Chili Peppers’ recorded music catalog through its Bain Capital three way partnership.
“[We] developed a proprietary know-how, which cannot solely determine alternatives in one of these catalogs, but additionally develop advertising belongings to drive engagements round these companies.”
Armin Zerza, Warner Music Group
Zerza defined that the corporate has cut up its catalog strategy into two halves: “One is what we name our ‘high 200’ catalogs, which signify about 50% of our enterprise. And in that a part of the enterprise, we’ve been implementing ‘always-on’ advertising.”
The opposite half of the catalog enterprise is the lengthy tail – “hundreds of catalogs, hundreds of thousands of songs that frankly people can’t contact on daily basis.”
For that portion of the enterprise, Zerza stated: “[We] developed a proprietary know-how, which cannot solely determine alternatives in one of these catalogs, but additionally develop advertising belongings to drive engagements round these companies.”
2. Zerza referred to as AI ‘the most important worth creation alternative that this business has seen for a very long time’ – and says DSP premium AI tiers are imminent
Zerza’s framing of AI leaned on the identical gaming playbook. In gaming, he argued, interactivity drives spending. AI, he believes, will deliver that dynamic to music for the primary time.
“AI will allow customers or followers to immediately have interaction with the content material of their favourite artists or bands or songwriters,” he stated. “And when you concentrate on that interactivity, we all know from different industries like gaming that the extra time individuals spend with content material, so the extra they have interaction, the extra they really spend.”
The implication: AI-powered options is not going to simply enhance the patron expertise however will “allow us to ship higher economics.”
On the prospect of DSPs launching AI-powered premium tiers, Zerza stated that Warner and its DSP companions had “all stepped again and stated, hey, how will we be sure that we take a look at our whole relationship, not simply at a brand new AI tier, in order that we will rework this whole relationship.”
He added: “I feel I’m fairly assured to say that within the close to future, one or two of these DSP companions will launch a premium AI [tier].”
“Lower than 5% of our songs signify greater than 90% of our income on DSPs. That offers you form of the thought how concentrated client conduct actually is in music.”
Armin Zerza, Warner Music Group
When requested concerning the concern that AI-generated tracks flooding platforms may dilute economics for labels, Zerza pushed again, pointing to knowledge from Deezer.
He stated that on Deezer, “there are 75,000 songs uploaded day by day, there’s AI songs, day by day… which represents virtually half of the uploads.” However, he added, “these songs signify a really small share of the listening conduct, which once more reinforces the entire thought that customers don’t create relationships with songs or artists at scale. They set up relationships on a one-on-one foundation and create emotional connections.”
Zerza pointed to a stat from WMG’s personal enterprise to underline the purpose: “Lower than 5% of our songs signify greater than 90% of our income on DSPs. That offers you form of the thought how concentrated client conduct actually is in music.”
He argued this dynamic structurally favors the majors and can grow to be extra pronounced within the AI period: “As individuals begin to have interaction with this content material with AI, extra of the exercise shall be targeted on these particular belongings. In order that’s why we’re actually excited concerning the stewardship of these belongings.”
Warner has been forward-leaning in licensing AI music platforms, having struck a take care of Suno in November 2025 and with Udio the identical month.
Zerza stated that WMG’s AI agreements are “variable and accretive in nature,” which means “as these platforms develop, we develop and take part in that development. And in lots of, we even have fairness [stakes] or participation.”
3. WMG is forward of plan on margins – and Zerza says there are ‘years of productiveness to come back’
Warner Music Group delivered over 200 foundation factors of margin growth in its fiscal Q2. The corporate subsequently raised its full-year margin growth goal to the excessive finish of 150 to 200 foundation factors.
In actual fact, Zerza advised the convention that WMG’s fiscal year-to-date margin enchancment now stands at 270 foundation factors – forward of the raised goal.
He attributed the beneficial properties to a few elements: “One, targeted on what we name worthwhile development… Quantity two, value financial savings that was primarily pushed by a reorganization of the corporate from what was a really native group to a world regional native group. And… now clearly working leverage.”
WMG has focused greater than $500 million in mixed annual financial savings throughout rounds of restructuring from 2024 and 2025
“We’ve been capable of develop the enterprise whereas really spending much less in A&R [as a] % of income.”
Armin Zerza, Warner Music Group
Zerza described his strategy as a “flywheel” by which margin enchancment and money productiveness create “gasoline to take a position and on the similar time to proceed to develop margin and productiveness.” He stated: “That’s a flywheel that we’ve began to implement now about 12 months in the past and it’s actually working effectively for us.”
He stated the corporate is “very assured about our excessive 20s margin,” and advised the runway extends effectively past the present fiscal yr.
Right here, once more, the gaming comparability was current. Zerza stated the music business, in his view, had not absolutely tailored to “the digital actuality of the enterprise” – and that WMG now has “a globally built-in knowledge structure, and working processes which might be standardized so we will automate them and put AI on high of them.”
On capital allocation, Zerza stated Warner now evaluates its A&R investments on “a rolling 12 to 36-month foundation” throughout its whole portfolio quite than taking a look at particular person tasks in isolation. The consequence, he stated, is that WMG has been capable of “develop the enterprise whereas really spending much less in A&R [as a] % of income.”
4. Zerza says WMG’s public valuation ‘doesn’t mirror our underlying worth’ – and namechecked Invoice Ackman’s curiosity within the sector
Requested concerning the hole between private-market multiples for music catalogs and public-market valuations for music firms, Zerza was direct: “We agree with you that our public valuation doesn’t mirror our underlying worth, particularly given the outcomes that we’ve been delivering and can proceed to ship.”
He then made a reference that was laborious to overlook: “Pretty refined traders world wide agree with that, and also you’ve heard that lately from one massive investor as they checked out our business.”
That was certainly a nod to Invoice Ackman’s Pershing Sq., which in April launched a bid to accumulate Common Music Group in a deal that valued the corporate at $64 billion.
Ackman has argued that UMG’s inventory value “has languished” for causes unrelated to the efficiency of its music enterprise. Ackman’s projections counsel that UMG could possibly be value over $100 billion inside a number of years.
Zerza’s level was broader: that personal market traders proceed to worth music belongings at multiples that indicate confidence within the sector’s trajectory, at the same time as public markets stay extra cautious. He stated it was “really nice to see that personal valuations maintain up as a result of it exhibits that traders proceed to worth music as a gorgeous asset class.”
“It’s really nice to see that personal valuations maintain up as a result of it exhibits that traders proceed to worth music as a gorgeous asset class.”
Armin Zerza, Warner Music Group
His remark lands at a time when personal market exercise in music rights has reached a fever pitch. Sony Music Publishing agreed this month to accumulate Blackstone’s Recognition Music Group – the previous Hipgnosis portfolio – in a deal reportedly valued at as much as $4 billion. And BMG and Harmony confirmed their merger in late April, making a mixed entity valued at near $15 billion.
Zerza argued that AI will solely enhance the worth of the catalogs held by firms like Warner: “As individuals begin to have interaction with this content material with AI, extra of the exercise shall be targeted on [iconic catalogs and key artists]. In order that’s why we’re actually excited concerning the stewardship of these belongings and the belongings that we personal as a result of it can really favor the majors.”
As for closing the hole between WMG’s public valuation and its underlying worth, Zerza stated the reply was execution: “It’s actually by delivering constant outcomes. And you’ll see that over the previous 4 quarters, we’ve delivered constant outcomes and our share value is up considerably, and we plan to proceed to do the identical sooner or later.”
5. Publishing and distribution are positioned as ‘underappreciated’ development vectors – and WMG insists on margin self-discipline in its indie distribution push
Zerza made the case that each Warner Chappell Music and WMG’s distribution enterprise are undervalued by the market.
On publishing, he stated: “I really consider that music publishing as a enterprise has been underappreciated for a very long time.”
He pointed to Warner Chappell’s observe report over the previous 5 years below the management of Man Moot and Carianne Marshall: “After I take a look at what our [publishing] crew did once we did our [recent] strategic evaluate, they doubled the enterprise in 5 years. In order that they grew 15%-plus each single yr over these 5 years, by the best way, high and backside line, simply to be clear.”
He added: “They proceed to develop double-digit on common each quarter, which is nice to see, together with final quarter.”
Going ahead, Zerza stated Warner Chappell will “double down on what’s working” whereas activating new development pillars, together with regional growth – with Latin America highlighted as a territory “the place we see huge alternatives for us, given the robust recorded music enterprise we’ve there.” Publishing may also profit from WMG’s M&A and AI offers, he stated, “as a result of publishing is, after all, a part of all of these offers.”
On distribution – a enterprise Zerza stated “represents about 45% of our business” – the message was that WMG intends to compete, however solely on phrases that defend its margin profile.
“It’s an space we’ve to play in, however we’ve to play in a approach that’s worthwhile given our deal with worthwhile development total,” he stated.
“they grew 15%-plus each single yr over these 5 years, by the best way, high and backside line.”
Armin Zerza on Man Moot and Carianne Marshall‘s report operating Warner Chappell
The emphasis on profitability ran all through his distribution feedback. He revealed that WMG appointed its Latin America chief – Alejandro Duque – to run the worldwide distribution effort particularly as a result of that crew had “grown that enterprise on common 15% each single yr for the previous 5 years at virtually firm common margins.”
He harassed: “That second half is absolutely necessary. So we wished to be sure that the chief we placed on that enterprise can develop distribution, however do it in a worthwhile approach.”
On the know-how aspect, the acquisition of Revelator – introduced in April – is designed to provide WMG the infrastructure to serve unbiased artists and labels at scale with out eroding margins within the course of.
Zerza described the deal as “principally an acqui-hire for us, there’s not lots of income connected to it,” however stated it “will permit us to ingest content material extremely effectively, but additionally serve artists and labels in a extremely environment friendly approach.”
He was direct about why effectivity issues on this phase: “Whenever you work on [a] enterprise that’s by nature decrease margin [like distribution], it’s worthwhile to have a really environment friendly working construction.”
Past natural development and distribution, the Bain Capital three way partnership continues to be a contributor. Zerza confirmed the JV has deployed about $650 million thus far, with investments targeted on “iconic high-margin catalogs the place we’ve a capability to develop that enterprise.”
The return thresholds for this premium catalog M&A line are 15% in developed markets and 20% in creating markets.
Zerza famous, nevertheless, that “most of our development will nonetheless come from natural development,” versus M&A.Music Enterprise Worldwide
