STRATEGIC ROADMAP November 2017 1 CONTENTS P3 RECAP P5 CHALLENGES P12 ANTIDOTES P14 VISION P23 ACTIONS P38 NEXT STEPS 2 3 RECAP THE OBJECTIVE: Our objective is to create a vision, strategy and roadmap for Global Recorded Music which will enable us to inspire the organization and address the key challenges facing us today, and in the future. THE PROCESS: The Mirror: a chance for senior leadership to share their thoughts on our opportunities, challenges and operating realities, which then informed the discussions about priorities going forward. The Offsite: The Mirror, along with insight gained during the FY18 budget process and ongoing discussion with WMG Corporate / The Board, formed the basis for discussion and stimulus at the offsite meeting in mid October THE PLAN: This document summarizes the key conclusions, ideas and outputs. 4 CHALLENGES 5 CHALLENGES We’re not fully optimized for a streaming-led business where market share is the only metric that matters As competition for artists and rights intensifies, so does our risk of disintermediation Our devolved structure makes us strong locally but restricted globally The ability to understand and interact with consumers has not been developed across the organization Our workforce and our culture have not fully evolved to anticipate the changing market 6 CHALLENGES We’re not optimized for a streaming-led business where market share is the only metric that matters Scale & volume Genre & geographies “When more is more, how do we manage a volume “Urban is taking over the world right now, the numbers are fucking business AND keep what makes us special?” staggering. We are not setup to be an urban company and we need to get on this” “What is the strategy to scale our business in an access model?” “We’ve just signed a pretty hot UK rapper because we have to mirror the shift to the urban scene. Teenagers ‘pop music’ is urban, rapper now” “We make our living delivering hits. That’s the only thing there’s no bullshit around, you have hits, or not. Now we have to look at our definition of what’s a hit.” “There’s a big cultural shift towards Latin music. It’s future is incredibly bright. How do we best support that and not miss out?” “Part of Warner’s identity has been ’less is more’. In streaming based business ’more is more’. We need more priorities in a streaming world, need more guidance”. 7 CHALLENGES As competition for artists and rights intensifies, so does our risk of disintermediation Platforms or poachers? Indie & tech-based alternatives No clear value proposition ”Threat number one is the streaming platforms “Artists are more demanding […] the internet “We have to keep working on a suite of services becoming the 800 pound gorilla and is open for everyone, in a streaming world we can offer to artists to show value. It’s part of disintermediating us.” artists don’t need a record company” why people go with a global company” “How to deal with potential disintermediation. “Why Warner? What’s our unique value Foresee problematic relationships with our proposition? Our answer is not compelling partners” enough” “We have to be careful, not allow Apple and “How to sell ourselves to the artist community? Spotify to use all that data as a wedge between Tools, culture etc” a label and an artist or manager. If they can paint a more accurate picture it gives them an “What is the core proposition? Everything is opportunity to question the value we add” about amplification. That’s why an artist joins Warner Music Group.” “Streaming platforms and tech companies speaking our agenda – they have strong, visible leadership” 8 CHALLENGES Our devolved structure has left us strong locally but restricted globally Need for strategic vision, clarity and Co-ordinated execution is vital Infrastructure has not kept pace with alignment operating reality “There’s a necessity to be global in a growing “It’s stating the obvious to say we need the “I want to walk away knowing we have a global market vs fighting to survive locally” real fundamentals taken care of” vision” “Now you can promote music throughout the “The tools we have are quite clumsy” “The word is focus. Alignment, all being on the world maybe there is a big opportunity to work same page. Focus and go for it. Stick to the more globally” “We really struggle from a tech point of view, plan.” “I’d like to think we can become as efficient as a our systems are bad, our access to data is bad. This becomes more of a threat every day.” “Success is everybody with the same perception, global entity as most of us are in our local the same takeaways, the same spirit.” entities” ”Warner Music Group has overslept on IT […] all our competitors are ahead “It’s important that we identify what’s culturally “We need more global co-ordination and global of us. and commercially important to us and we agree understanding.” a smart way forward” “Better global co-ordination” ”It would be great to share learnings on a global basis, learn more from mature markets, what “GPS comes up every conference and still steps can we skip, what mistakes can we everyone thinks it’s grossly inadequate” avoid?” 9 CHALLENGES The ability to understand and interact with consumers has not been developed across the organization Impacts marketing & promo of core business No predictive process Playing catch-up on data “We’re lost as marketeers – there’s a problem in our “What do we think is the chapter that has not Most exciting is how data can help us reach to the consumer” been written yet for the music business? Can we understand the consumer, how they want to get ahead? E.g. What will the business be like consumer our music, and how to target them” “We need to make sure we are still current in how when everything is voice activated?” people consume, how we amplify.” “We need better data so we can make better marketing and A&R decisions […] all our “We must produce the best possible content, with competitors are meaningfully ahead of us” the artists, get so close to the consumer that it fits like a glove” ”We are drowning in data. Drowning rather than being able to see a clear picture of what you “Direct to consumers, that’s the big play. If you have need to do right now” direct access to 500m people, that’s worth something” “There’s no data science capability. In the absence of data science opinions rule supreme” 10 CHALLENGES Our people and our culture are not optimized for an evolving, agile future Changing skillsets A compelling proposition and experience “Can our people adapt to the future? How will our structure look in “You have to empower these people, follow them, give them the the future? How do we educate, develop and train people? Do right tools, give them an opportunity to exchange ideas” they have the skillsets required in a world dominated by streaming? I’m not sure.” “We need to own our weaknesses and challenges, rather than allow them to be excuses” “Can’t have enough creative people in your business” “The value of the company is our people […] a growing market for “It’s the people, moving people out, bringing people from the talent requires a culture that is of value to the young guys and girls outside-in – need new ideas” we need” ”Transforming to a service centre for artists requires a shift in roles “We’re hiring more in the digital space […] one of our top priorities, and expertise. Storytelling, brand strategy, virtual reality, mixed how we deal with people, what we offer, the culture, benefits and reality, social media, data insight.” lifestyle” 11 ANTIDOTES 12 CHALLENGES Five challenges Five antidotes We’re not fully optimized for a streaming-led business where market share is the only metric A streaming-first organization that matters As competition for artists and rights intensifies, A relevant, irresistible proposition to so does our risk of disintermediation artists Our devolved structure has left us strong Clarity and alignment on global strategy, locally but restricted globally priorities, communication and execution The ability to understand and interact with Harness data and insight to make us a consumers has not been developed across the more consumer-driven organization organization Our workforce and our culture have not fully A workforce and environment built for evolved to anticipate the changing market Warner's agile, always-evolving future 13 VISION 14 VISION A common thread running through our strategic priorities is the need for a clear vision of ‘why Warner?’ – what makes us unique, important and successful. We need this so that we can clearly articulate WHY we’re vital to our stakeholders – employees, artists, partners, consumers - and also help us prioritize WHAT we should focus on in order to preserve and grow that advantage. But our vision for Warner can’t just be an ‘executive summary’ of the strategic priorities, because these will change. New challenges and opportunities will always emerge for our business. Instead, our mission needs to focus on the more fundamental DNA of what already makes Warner special today, combined with what would make it even more powerful, more successful, more future-proof tomorrow. So this is based on our aspiration as well as our reality. If we do that, however our industry is disrupted next, we’re ready to win. Finally – a word on our inspiration. We talked a lot about Southwest Airlines’ success formula and we liked its simplicity, the fact it didn’t jam in EVERYTHING about the company and even deliberately left out some things that were important but maybe not distinctive, e.g.