Q2 2021 Warner Music Group Corp Earnings Call
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Welcome to want music groups second quarter earnings call for the period ended March 31st 2021 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 now I would like to turn today's call over to your host Mr. Kareem Chin head of Investor Relations you may begin.
Good morning, everyone.
Welcome for Warner Music group's fiscal second quarter earnings Conference call.
Please note that our earnings press release earnings snapshot in the form 10-Q, we filed this morning will be available on our website.
<unk> call, we have our CEO Steve Cooper.
Our CFO, Eric will take you through our results and then we'll take your questions before.
Before our prepared remarks I'd like to refer you to the second slide of our earnings presentation to remind you that this communication includes forward looking statements that reflect current views with Warner music group about future events and financial performance.
We plan to present certain non-GAAP results. During this conference call and in our earnings snapshot slides and had provided schedules reconciling these results to our GAAP results in our earnings press release.
Also please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted.
All forward looking statements are made as of today and we disclaim any duty to update such statements or 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 will 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 to differ materially from our expectations infill.
Information 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 or form 10, Qs and form 10-K, and other SEC filings and with that I'll turn it over to Steve.
Thanks, Karim good morning, everyone and thanks for joining us.
As you know we posted excellent results in our first quarter and I'm very happy to say that trend continues to build momentum.
When you consider that only the last two weeks of the prior years quarter were affected by COVID-19. Our results are even more impressive.
At a time when our business is stronger than ever we're lengthening our stride with chart topping releases from many of our biggest artists and songwriters.
Today I'd like to cover three key topics.
First our quarterly results and all the great New music, that's driving them.
Our expansion into new markets around the world.
And finally, our use of new technologies and emerging streaming platforms to further accelerate our growth.
Despite the ongoing pandemic second quarter total revenue grew 13% year over year.
Underpinned by double digit revenue growth in both recorded music and music publishing.
Adjusted EBITDA grew by 25%.
Margin improved to over 21 per cent.
Recorded music delivered revenue growth of 13% marked by double digit growth in both the digital and physical revenue.
This growth more than offset the continued dislocation and artist services and licensing revenue.
Recorded music streaming revenue grew 20%.
Driven by successful new releases and strong carryover performances.
AD supported streaming has now fully recovered and grew at a higher rate than it did pre COVID-19.
Revenue from emerging streaming platforms, such as Facebook tick Tock and peloton is now running at $200 million on an annualized basis.
Physical revenue also saw a major resurgence growing 19% year over year, primarily due to an uptick in vinyl demand.
Our success in the quarter spanned label groups genres, and geographies this growth underscored our global strength as well as the diversity of our artist and repertoire.
Here are just a few high points.
It <unk> scored a massive number one single on the Billboard Hot 100 with leave the door open.
The first release from Silke Sonic the new Bruno Mars and Anderson pack collaboration.
Cardi B also widened her need for the most number one psalms among female wrappers with the Mega hit up.
Yeah.
At Warner Records breakout stars C. J top Billboards emerging artist chart, which is single what day.
Meanwhile, Sweden teamed up with dose should count on best friend hitting the top 10 on Billboard's Hot RMB and hip hop songs chart.
The luxuries masks Wolf scored in international Smash with astronaut and the Ocean.
Generating well over 400 million streams to date and climbing to number one in eight countries.
At Warner Music Nashville, Gabby Barrett released they hit single the good ones.
Follow up to her five times platinum Dubuque single I hope.
Three peat Grammy winning duo Dan and Shay unleash their new smashed glad you exist and are currently telling 40 million global streams per week.
In Europe, the Knutsen, coupled plaza, both had number one albums amazingly seven tracks from Cabos album landed in Italy's top 10.
As we look to the rest of the year, our hot streak should continue with force forthcoming albums from both emerging and established stars like Mike Towers, Cuando Rondo, Coldplay soap Sonic and Cardi B.
More releases from our roster of global Superstars will be dropping later this year.
In music publishing we delivered strong revenue growth and 12% driven by a 33% increase in digital revenue.
Performance revenue remained challenged by COVID-19 due to the closure of bars restaurants, Clemson concerts sink.
Singles' day on the upswing growing 12% is television and film production resumed.
In Q2, Warner Chappell had a share in 'twenty three number once you cross the radio streaming and Billboard U S charts.
We were also honored with the ex cap top publisher of the year Award.
The value proposition that Warner Chappell offers song writers has never been more relevant.
We have become the destination of choice for exceptional talent.
We've done this by building a culture centered on growing careers and creating long term value.
With our best in class Creative services team global infrastructure and a suite of tech tools, we've been able to distinguish ourselves. This has enabled us to retain big names like Sweden sign International stars like Jorge Drexler and established partnerships with labels like Love Renaissance.
<unk>.
I've said repeatedly that music can come from anywhere and resonate everywhere.
As we continue to grow our business across the globe are focuses on culturally dynamic markets, we see called vibrant music scenes with sustained growth in music consumption.
Last year, we launched new offices in countries with massive untapped promises.
Such as India, Vietnam, Peru, and Turkey.
This year, we've continued to expand our global reach.
In Q2 alone we made investments in markets that have vast growth potential given their combined population of almost 3 billion people.
In China, we signed a multiyear licensing agreement.
And created a new joint venture label with Tencent music.
In Russia, we've extended our number one market share position through the acquisition and so hiring music now rebound rebranded as Atlantic Records, Russia.
In the Middle East, we announced our investment in partnership with Rotana, the leading independent music label in the Arab World.
In Africa, we recently appointed <unk> as.
As our operating head for South Africa, as well as strategy for the continent.
Tammy and her team will continue to focus on growing our investments in partnerships with Africa's best independent players.
They will also be providing local artists with the amplification support needed to reach global audiences.
We're focused on maximizing our artists and songwriters reach and revenue across all fandom touch points.
Whether that's a snippet on social media.
A soundtrack to an in home workout.
A live performance center, Medditors or an ft digital collectible.
These points show, how the music ecosystem is broadening and deepening its relationship with people everywhere.
Here are some recent examples of this strategy in action.
Over the last few years, we've built up a network of award winning media brands.
To further accelerate the growth and monetization of these brands, we promoted been blank to precedent to media at wheel.
Ben will lead our newly formed digital advertising creative content Division.
All of our owned and operated brands up rock song kick in the hip hop Dx will retain their editorial dependent independence and will benefit from a unified approach to AD sales and campaigns.
We recently and great engaged the creativity of the roadblocks community through to immersive experiences.
We held an album launch party for why don't we and Royal Blood performed at the Block C Awards.
Both of these experiences have drawing millions of fans, who were able to interact with virtual environments via their advertisers.
As we continue to explore new ways to connect artists and fans.
We look forward to delivering events on a more frequent and bigger scale.
Just yesterday, we announced a groundbreaking alliance and investment in wave.
Leader in virtual entertainment.
Through this partnership wave will collaborate with Wm G to develop virtual performances experiences and monetization opportunities for our global roster.
This includes exploring new forms of ticketing sponsorship and then show interactions.
We were already working on a number of really exciting events scheduled over the next year.
Yeah.
We were early to see that music, we'd be fertile ground for digital collectibles.
In 2019, we made an investment in dapper labs to creators have NBA topshop.
Last September we began to experiment in this market collaborating with downward to release too and ft. Crypto Kitties inspired by Warner Records Rock band Muse.
Last week, we announced an innovative new partnership with the world's largest avatar company genes.
This partnership will enable artists to sell exclusive digital wearables directly to their fans.
Our goal is to develop a cynic quality and environmentally conscious products that build long term fandom relationships.
While it's still early days for this space, we're enthusiastic about its potential.
Finally, I want to personally thank all of our Warner Music group colleagues artists songwriters and partners.
For their incredible contributions to helping our country company thrive over the past year.
We're confident that the music entertainment industry will emerge from the pandemic.
With a renewed spirit of inventiveness and collaboration.
All of US at W. Engine continued to look to the future with a tremendous amount of excitement and enthusiasm.
With that I'll turn it over to Eric.
Thank you, Steve and good morning, everyone.
Our second quarter performance was highlighted by new releases that performed well across formats.
News acceleration in revenue from emerging streaming platforms and thoughtful cost management.
This translated into impressive growth across most key financial metrics, including strong free cash flow conversion.
Moving moving to our results from the quarter total revenue was up approximately 13% on a constant currency basis and up 17% on an as reported basis compared to the prior year quarter.
Artist services from recorded music and performance the music publishing were the areas most affected by COVID-19 due to the cancellation or postponement of Turing.
If you exclude those areas are revenue grew 16% on a constant currency basis, and 20% on an as reported basis compared to the prior year quarter.
Both adjusted OIBDA and adjusted EBITDA saw significant year over year increases, reflecting strong operating performance as we continue to shift from physical to digital.
Adjusted OIBDA increased over 21% to $255 million with margin improving to over 20%.
This improvement was driven by revenue mix lower stock based compensation and other related expenses and cost management initiatives.
<unk> EBITDA increased over 25% to $268 million with margin improving from 20% to 21, 4%.
The increase was largely due to the same factors that drove our adjusted OIBDA performance.
Please refer to our press release for calculations and reconciliations related to adjusted OIBDA and adjusted EBITDA.
In recorded music Q2 revenue increased approximately 13% over the prior year quarter.
Digital revenue grew 18% driven by a 20% increase from streaming stream.
Streaming is a category saw growth across all key components with both subscription and AD supported streaming growing double digits.
Growth in revenue from emerging streaming platform continues to meaningfully outpace the broader streaming category as Steve mentioned, we are now generating more than $200 million in.
Annualized revenue from these platforms.
Physical revenue increased by an impressive 19% driven primarily by increased demand for vinyl and releases from the from the yellow monkey, Neil Young and Fleetwood Mac.
Licensing revenue declined 12% as growth in zinc was more than offset by lower broadcast fees.
Artist services revenue, which includes tour related merchandising as well as direct to consumer E. Tailers E. M. P declined 3%.
Revenue related to concert promotion and tour related merchandising significantly declined year over year.
<unk> saw continued healthy revenue growth of over 44% of limited access to brick and mortar stores in Europe drove online shopping.
For Q2 recorded music adjusted OIBDA increased by more than 27% over the prior year quarter to $242 million due.
Due to revenue mix cost savings and the impact from our recent acquisitions adjusted OIBDA margin increased two percentage points to 22, 9%.
Music publishing revenue increased by approximately 12% of growth in digital and zinc revenue more than offset declines in performance and mechanical revenue.
Digital revenue increased by more than 33%, reflecting the continuing shift to streaming and timing of new deals with digital service providers.
Synchronization revenue increased by 12%.
Due to increasing motion picture and commercial income.
The decline in performance revenue was primarily due to COVID-19, while the decline in mechanical revenue reflects continuing shift to streaming.
Music publishing adjusted OIBDA decreased by 6% from $49 million to $46 million with margins declining from 29, 5% to 24% those declines were attributable attributed both to the timing of a nonrecurring benefit from the prior year quarter.
Well as the impact of revenue mix driven by the reduction of a reduction in high margin performance revenue due to COVID-19.
Operating cash flow grew by 74% increasing to $150 million compared to 86 million in the prior year quarter.
This improvement was driven by strong operating performance timing of working capital, including payments from certain certain digital service providers and timing of royalties free.
Free cash flow increased to $89 million from 67 million from the prior year quarter.
Capex was $20 million compared to $13 million in the prior year quarter. The increase is related to our previously announced plans to upgrade our it and finance infrastructure.
The total investment associated with our financial transformation program is expected to be about $20 million in fiscal 'twenty, one with annualized run rate savings of approximately $35 million to $40 million once fully implemented in 2000 for 2023.
For fiscal 'twenty, one we expect total capex to be in the range of $90 million to $100 million.
Cash taxes were $35 million in the quarter.
And as of March 31, we had a cash balance of $588 million.
Net debt of approximately $2 8 billion.
On January 20th we completed an amendment to our term loan credit agreement. The amendment extends the maturity from November one 2020 free to January 22028, and removes a number of negative covenants in April we refinanced our five 5% notes through the issuance of three.
$325 million of incremental term loan b, reducing our blended cost of debt to three 4% and extending our maturities.
In closing we.
We're extremely proud of our first half results and look forward to delivering an exciting slate of new music over the rest of the year.
We thank you for joining our call today.
We'll now open the call to questions.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please stand by while we compile the Q&A last day.
Our first question comes from pet them Tomorrow with RBC capital markets. Your line is open.
Good morning, Thank you for taking the question and congratulations on the results, particularly with the strong streaming momentum I know you don't give guidance, but going forward as you look at what seems to be an increasingly competitive landscape with some large players aggressively pursuing acquisitions are you concerned about your outlook going forward.
Thanks.
Thanks for the question kicked in.
The short answer is not at all we're really very confident about our competitive position.
And I think the Q2 results are really a great signal of what's to come through this year and beyond.
It's important to recognize that.
We are we are reporting these revenues and EBITDA.
While we have maintained really rigorous financial discipline.
We're one of the few music companies in the world that can really both buy and build any of universe of opportunity that's exploding right now.
That's true for our Anr with everyone from emerging artists and songs, writing talent to global Superstars and music collections. It.
It's true for our M&A activities look at our investments in territories, like Russia, and Africa or the acquisition of owned and operated channels like E on P&I MGN.
It's true for our technology.
Where our tools like our proprietary anr apps soda tone or a partnerships with innovative brands like roadblocks genius or waived.
Continue to grow bottom line is we have what everybody wants which is the best music in the world.
And what continues to make US unique is the combination of our scale and agility.
We've really got a a.
A number of really incredible releases coming over the rest of the year.
So I expect our momentum to grow and to be Frank.
The whole organization.
As we see what we've got teed up and as we begin to come out of COVID-19.
Really really fired up.
Thank you that's great.
Thank you. Our next question comes from Andrew <unk> with Jefferies. Your line is open.
Yes, hi, Thank you for taking my question I guess.
I just wanted to kind of see.
If you couldnt expand on some of these new opportunities.
The announcements with Genie and wave how should we think about the Tam opportunity for virtual fan engagement and kind of as a follow up of all the.
New kind of opportunities that you've laid out social virtual platforms from music exercise and all these other things like which one which one gets you most excited thank you.
Steve do you want to take that or.
I'll take the first part then you should chime in right.
Right.
First of all thanks for the.
For the.
Question Andrew.
You know we we've got.
Great expectations.
For the investments, we make and we make investments.
From the perspective of how can knees.
Help us amplify music how can these investments amplify.
Our touch points with fandom.
How can these investments.
Us create and monetize.
New revenue streams.
For our artists if.
If you look at the investments we're making.
They track in many ways.
Eyeballs in years.
Billions of people around the world.
That are that are developing creating and living in meta versus.
And when you look at a number of our recent investments all of them are.
Focused on us having the tools the technology and the access to these new world's Andrew which we expect to continue to grow. These worlds, we expect to continue to grow at meaningful double digit numbers.
So this is consistent.
With us.
US wanting to ensure that.
We are able to.
The effectively operate.
On every fandom touch point.
That should and will become available to our artists and songwriters.
Hopefully that answers your question from a strategic perspective.
No absolutely.
If I can add to that just from a.
Perhaps the Tam and financial standpoint, so one of the things that we.
Talk about as you know three years ago. These emerging forms of streaming revenue was approximately zero.
One quarter ago, we said on an annualized basis, the revenue was running at about $150 million.
Now this quarter, we're saying it's running on an annualized basis of 200 clients that are growing rapidly and growing more diverse as Steve said.
On your question about Tam.
Because it's much more challenging but exciting in many ways to do it to compare this to say subscriptions, where your Tam as your smartphone universe here. Your Tam is your smartphone universe that you potentially have multiple touch points and therefore multiple opportunities to monetize music within one smartphone.
As one user could you.
Use social media, but also likes to have live streams.
Participating games, whether it's meta versus or otherwise and.
With genius utilize their avatars they could also.
Collect and Ftes.
And as you can see from the range of partnerships that we've put together some are areas that are active in monetizing and well distributed already and others are really looking to the future and activating new forms of Nf teased, whether it's with dapper, where we've done some crypto kidneys for the bad news or new Activations that we're looking.
Net.
Getting our artists.
On you know gini with avatars or working with wave on live streams and new ways to monetize the opportunity to expand this universe.
Really limited by the ability to create new products and to continue the tremendous momentum to monetize and we're excited about what's happening here and really focused on growing this universe. So thank you.
No. Thank you for the thank you for the detailed answers appreciate it.
Thank you. Our next question comes from Ben Swinburne from Morgan Stanley. Your line is open.
Thanks, Good morning.
Maybe two questions Eric I know you guys don't give guidance, but I'll take a stab at it because <unk> had a strong first half of the year and this year I think you guys talked about back in November being back half weighted obviously you did see I think was at 13% constant currency growth this quarter with some COVID-19 headwinds and <unk>.
What about the release schedule in the back half so do you think.
Ex FX revenue growth accelerates in the back half of the year versus what we've seen in the first half that's the first.
And then Steve.
You mentioned, Vince promotion and sort of your initiatives and media.
It got a decent amount of press coverage I guess most of US don't think about Warner as of Advair.
Advertising business in terms of actually selling ads and creating branded content I was just wondering if you could talk about the strategy in <unk>.
If you can size the opportunity or if that's a business that you have today that maybe is bigger than we realized just any color would be great. Thank you both.
Sure Eric volume should go first and then I'll I'll respond.
So I appreciate your shop guidance.
We don't book.
Certainly give color.
You know at the beginning of this year, we said we expected a strong second half release schedule.
And we continue to.
Expect to have a strong second half, we'll reschedule, we've already seen singles coming out from Cardi B and so Sonic Bruno Mars interest in park collaboration Theres more great music coming out that Steve mentioned earlier.
Earlier in his talk so we're very excited about the second half of the year, we think the momentum and growth trajectories that we've been.
Continuing to build even through COVID-19, we force.
We were fully managing our business for growth going forward, although we don't give guidance. We're very excited about the second half of the year, but thank.
Thank you.
So then we're through with respect to advertising.
Excuse me.
Excuse me.
We've been in.
Yes.
You know with all the pollen.
Conveyance speak anymore between them between the Parliament and video we saw day.
We've been in the AD sales business for quite some time.
We have a and AD sales seat on Youtube, where where you are very active.
And we have we have developed.
Product for brands on a regular basis.
What we've done.
Historically.
Is.
Our operations have been engaged.
One by one in the in the AD selling and the brand the brand support space.
What we're now doing.
Is consolidating.
All of our AD sales.
All of our brand.
Support and production capabilities.
Under one leader.
So that we will have a unified integrated package.
From one from the Warner Music group.
By way of supporting agencies brands.
And frankly crossovers with our artist roster.
So so we are evolving.
The way we approach those markets.
In order to give them one stop shopping so to speak then.
Got it and I presume that means do you think that business would grow faster and be more substantial over time as a result of these changes.
Yes, yes, because it is it will be.
Our strategies will be unified.
Presentations will.
We'll be far more effective and efficient.
And we will give agencies brands and others, the ability to search and select across our global portfolio.
So both on a global and regional basis, it should make us a much stronger.
<unk> magnet.
For attracting revenue ad revenue.
Thank you.
Thank you. Our next question comes from Michael Morris with Guggenheim. Your line is open.
Thank you good morning, guys I have two questions maybe first one for Eric is really about the long term.
EBITDA profit margin opportunity you guys have had great expansion there.
And you've talked about your discipline I'm curious I mean, it's just it is a very competitive industry you need to appeal to.
Artists and.
Things of that nature, it's transparent I mean, how do you see the opportunity for EBITDA margin expansion over time and as it does it.
Have a lid on it by virtue of that transparency.
And then my second topic is around the.
The international investments that you made.
Three three that you pointed out there are pretty different in nature.
And I'm, hoping maybe you can expand a little bit on the magnitude of the opportunity.
For each independently.
And then also just what you bring in is it a matter of you bringing.
Your existing sort of artist catalog.
And having new.
Avenues to exploit that is it more a matter of you being able to go into these markets.
Help discover and expand the catalog or expand the roster.
Just curious as to what the growth path is for for those investments. Thank you.
Sure I can take this.
So on our long term EBITDA margin.
We have been consistent that as we look out call it.
334 years that we think low perhaps low to mid Twenty's EBITDA margin.
Is realistic.
When we started to communicate that is before we really knew the impact of COVID-19 and how long it would last.
We are already.
In 2019, our EBITDA margin or adjusted EBIT margin was 19%.
This quarter, it's 21, 4% so we've already moved into low twenties.
There are couple of reasons for that one is.
Some of the COVID-19 revenue streams.
Some of the revenue stream from COVID-19 some of the revenue streams that have been curtailed because of COVID-19, mostly related to live our tour merch business, notably in the U S. In our concert promotion businesses.
In Europe, which are not huge as a percentage of our total business are low but they are also low margin businesses don't have a huge effect on EBITDA, but if the revenues are in the short term curtailed they provided short term upward lift to adjusted EBITDA.
Our underlying business with the exception of that is running pretty much right on what we expected along the plans we expected as the.
The business moves to be more and more digital we expect in recorded music that to drive a natural margin uplift and we're seeing that.
And we're also managing a series of cost savings initiatives, we have a global cost savings program, that's working with our corporate art music publishing in recorded music divisions to find efficiencies related to items that automation.
And we are funding impact from that we are generating new policies to make sure.
<unk> from real estate or travel.
<unk> reduced not just from the short term when we're out of the office from COVID-19, but in the long term when we return.
And as we've mentioned, we also have our financial transformation that once fully online that's going to save us $35 million to $40 million a year. The combination of all these even as we return from COVID-19 and live comes back hopefully later this year and into 'twenty two will allow us to manage our business we believe success.
Italy and maintain margins in the low twenties, and we will continue to work for us to be our long term and then continue from there to look for opportunities to continue to even improve it from there, but we are managing on the plans that we have expected. We're always looking for technologies that allow us to drive further efficiency.
Through our business and I'm sure we'll be managing this hard for the next several years and even beyond.
With our investments.
This quarter, we've had several types of investments. So we have international investments, which you mentioned and investments in the digital future.
This quarter our investments in Zara.
Which's wasn't independent Russell label, but now is operating as Atlantic, Russia, just cements our position as the number one.
Layer in Russia.
Really allowing us to just broaden our anr broaden our roster allow us to further drive music into a fast growing market that we're truly excited about some of our other international investments specifically in areas like the Middle East and Africa, We just see as high growth markets for the future where streaming.
And digital is really coming online and so whether it's chocolate city in Nigeria that allows us to have local repertoire on the ground there or our investment after Corey distributed in the market just extends our reach and allows us to build.
Our our foothold in an expanding market with repertoire and distribution capabilities and similarly in the middle East We've launched offices. So that we have owned and operating labels throughout the middle East We opened operations in Beirut that works Pan Regional we've launched our label group in Turkey.
Our relationship and Rotana allows us to both have a strong partnership with the leading player in the market, but also have global distribution rights to their music outside of the mid east region, allowing us to take advantage of that rapidly growing.
Segment of the market. So we continue to look for opportunities.
Opportunities to find emerging markets that are coming online with streaming and invest in their growth as the monetization opportunities become real.
We are really very focused on.
Investing where there's a financial returns. So we've really tried to identify fast growing markets and invest into that growth.
Noting we've also doing investments in the digital ecosystem.
And you know obviously, we've invested in roadblocks and we're doing.
A lot with them to experiment with livestreams and how to activate those with monetization wave Genie is these are some of the leaders in the digital ecosystem and we really want to be in on the front edge, making sure that music is getting all the attention it deserves.
<unk> Activations, both are reaching millions of people around the world, but also finding the right long term.
Monetization model, that's supposed to satisfying to music fans.
And rewarding to our artist so we're really kind of engaged across all of these fronts.
Okay.
Thank you ex.
Thank you. Our next question comes from Jeff currently.
Thanks, Amanda your line is open.
Thank you good morning, a couple of questions first physical was surprisingly strong.
That all Japan, and what's the outlook for fiscal in general.
And then secondly music publishing it feels like there's still a deal a day.
That's been going on from a couple of years can you talk about your appetite for.
Music publishing at this point given elevated.
Acquisition multiples and you had some acquisitions.
Last couple of.
Which did that contribute.
You know how much is.
I guess organic growth first is accurate.
Much did acquisitions add.
Sure.
Steve If you want I can tackle some of the sudden you could add on whatever strategic colors. So physical.
<unk>.
Look we had a 19% growth quarter of a strong growth quarter from physical.
Vinyl as a growth segment within physical and so we're looking for releases and Activations to really untapped.
Unlock that potential some of that was Japan, specifically the yellow monkey release was very strong in Japan, but we've also had terrific released re releases from our catalog of Fleetwood Mac rumors and from Neil Young's classic releases that allowed us to tap into that market as well.
Overall, I think we still have to be cautious about physical the CD market is still in decline.
There are an opportunity based on release schedule to have strong quarters, but I would say overall, we should expect physicals in decline, but we will be working very hard to maximize its potential both through Cds, but especially in vinyl which is a long term attractive market that's growing.
In music publishing why don't I tackle that last because I suspect people Wanna add onto that on M&A is the transactions. We did earlier this year Jessica.
Contributed $11 million to adjusted EBITDA. So we had a strong growth quarter excluding those.
But obviously there were additive as well and I would just say in music publishing that.
We are a full service operator, and with Warner Chappell, we both are able to sign up.
Songwriters very very early in their careers help them develop their song writing skills pair them with other co writers help them pitch their songs two superstar artist. So we are not just an acquirer. We are active in developing and that is a huge part.
Of our business at Warner Chappell, but we're also very disciplined investor we.
We do look at the deals that come in the market. We do close deals when they have the proper financial return and because we're able to look at deals across all genres across all geographies around the world. We have found no shortage of attractive investments to make but yes. There are a lot of deals happening there and if the deal ever again.
The point that we think the return profile is attractive to us relative to our other opportunities relative to our return thresholds that we will pass them find other deals we were not finding a shortage of attractive investment opportunities to continue to grow Warner Chappell business.
Steve I don't know if there's anything you want to add but I think I yeah.
Yes, Jessica I think.
You know Eric touched on all of the high points.
Yes.
But we have been engaged in.
These acquisitions also importantly, we are providing an array of services to many of these acquirers b.
Because most of the people coming into this market are making are making that are making these investments are pure financial players.
But to talk to the matter is that these assets pop can be managed.
One of the services we provide.
Is actually the management of these portfolios to these to these third party buyers so.
I'd like to point that out.
Number two.
When we emphasize our financial discipline.
It's not only.
You know, what we have to do to grow the topline and the bottom line.
But it's also to ensure that.
Our cash flow from operations remains very very healthy.
And one of the things.
We are really thoughtful and disciplined about.
Is not flying.
Assets at multiples.
That will create or severely crimped.
Cash flow from operations.
So so when we look at our metrics.
And we look at the multiples that some of these deals go out.
Very candidly, we look at those deals and say, we can't make them work.
We can't make them work, because we've got a real cost to capital.
We paid dividends to our shareholders.
We've got to maintain healthy.
Cash flow from operations did it did it did it so.
So if we can figure out.
How to really optimize in all of the right ways.
Some of these deals in the marketplace.
We chose to take a pass.
Hopefully that answers your question.
Thank you. Our next question comes from Todd Juenger with Sanford Bernstein. Your line is open.
Hi, Thanks, and good morning, I've got really just one topic.
Probably love to hear Steve's thoughts I think Eric you might have a few things to chime into the topic is data.
Especially in an increasingly digital world.
You have all sorts of business and channel partners, who are developing.
<unk> data about listening and listeners and fans and your artists.
Just to name some right, so you're streaming DSP or developing their own data.
The ticketing services and live event managers are developing well at least in a non COVID-19 world.
Our developing data obviously the strength the social platforms and gaming platforms are developing all this data and I'm sure you have your own first party data.
So I guess my question or the topic is.
There was a perception among investors that this data is very valuable.
So is that true do you find a lot of value in.
Any of this data and if any of the state are particularly valuable to you versus some of it debt.
Maybe sort of redundant or more nice to have.
And I guess I get Eric where he might especially come in for a financial audience. Here is if this stuff is valuable.
How are you operating assets to access access to it are you ever explicitly paying for datasets or are you ensuring access to data you need from your partners.
In your agreements in other with other forms of consideration and how would you make it making sure that that's part of the agreements that you have with your partners.
So Eric why don't I start and then.
You can.
You can make all the points, which I am sure on this so.
So Todd just too.
Just to give you a sense of.
The Warner Music group, we process.
<unk> 2 billion.
Lines of data every day.
And that's growing.
So data.
I guess I guess philosophically.
You start with it's not so much the data that's important it's what you can glean out of the data by way of useful information.
And and really informative insights that makes sense when people talk about data oceans day are literally talking about oceans and the trick is to be able to organize.
That data not only if you look at data like the Pacific Ocean.
You know, while it's important to analyze from zero to 15 feet.
You got to be able to organize categorize and pull really useful information and really really great insights from not only zero to 15 feet in the Pacific Ocean, but all the way down to the Mariana trench.
And so data.
Without the right without the right.
Organization categorization.
And algorithms to identify these are you.
You know the really useful stuff and the real insights isn't worth much in itself that being said, we get data on a daily basis from hundreds upon hundreds of sources.
Youre right.
That everybody has got their own data what makes us different is were an aggregator.
Data across.
All of these platforms, we get data from live nation, we get it from Spotify Apple Youtube.
Sure.
Our Facebook tick tock on and on and on and while they have and they can analyze their data. It's only wanted to cut facets of the diamond Todd.
We actually have the data.
And the sourcing that allows us to look at every facet of the diamond.
So you got to keep in mind that that one of the services.
We provide to our artists and songwriters.
<unk> data aggregation.
Which which given our internal data scientists and the way we mine. This data so to speak allows us to provide them with with useful information.
And often times really interesting insights.
His day to helpful. When it when you can organize and manage that way absolutely.
It allows us to two when they return it allows us to run far more effectively our marketing and promotion.
Our operations because we can focus on.
Where our artist's fans are what they want.
And what more they are demanding.
So so.
The unequivocal answer is data.
When handled in a profit way does have a lot of value and so definitely one of our mantras whenever we do deals.
Is no data.
No deal.
Eric you may want to add to that.
The only thing I want to ask Steve I thought that was right on the money the only thing I want to add or just supplement.
As we do have a series of tools that use all this data.
To really power our decision and help our experts make the most efficient business decisions in real time, we have soda tone, which is our anr tool, which allows our in our executives to see music.
Flickering at the early stages and artists that are just getting started.
To see which are just we should meet and potentially sign and help develop their music in their careers. We have opus, which is our marketing tool that helps us use tool about music that's already in the market to decide where and how best to promote it so that were driving the most efficient.
Both.
Use of our marketing resources to drive music performance in the market. Steve mentioned, we have artist portals that allow artists to see how their music is performing and we're in the market. We have strong pitching tools. We have synced tools. So we have a series of tools that use both internally generated and external regenerated.
Data across hundreds of sources to make sure we're running our business in the most effective way, we can and we continue to upgrade our data in our tools to make sure that we're using these in ways that are driving real outcomes tough.
That was super interesting. Thank you both for your thoughts.
Excellent.
Thank you. Our next question comes from Matthew Thornton.
Our Securities Your line is open.
Hey, good morning, guys, maybe a couple of really quick ones. If I could I guess first one Spotify, obviously is in the midst of raising prices.
And Relatedly My question is.
Maybe for Steve do you have any sense as to Orient expectation as to whether other dsp's will will follow suit and is there any reason why price increases from the dsp's wouldn't flow through.
Sensor relatively in parallel to your streaming business. So I guess, that's kind of my first question.
And then just a second question around live music Theres been talk of.
Maybe around like theme parks and things like that there's been talk of pent up demand as we recover and kind of come out of COVID-19. I'm wondering do you have any evidence of pent up demand around live concerts festivals et cetera.
And you can you can point to there and any color there would be great. Thanks, guys.
Well on the on the first.
I'll give you my sense and then.
Eric Eric can can follow up on many of the financial.
<unk> locations, let me take the second force so.
I think there's a general view Matthew.
But there is.
<unk> demand.
For live.
I'm sure you saw the.
The sell out crowd in New Orleans, a week or so ago for the UFC Championships.
There had been a large crowds at.
End of managed events over the last couple of months.
When New Zealand open for live concerts, there was a surge in demand.
So I think I think one would just.
Logically conclude.
Is that.
There is a pent up demand I would I would also say.
Over the last 12, 13, 14 15 months.
I think we should also expect.
Changes in behavior.
Where where it historically.
Free people wanted to go to a concert.
I'm, obviously, making these numbers up.
There will now be 10, or 15 or 20.
Who who who will have concerns lingering concerns about live in large crowds and we'll continue to double down on the habits created during COVID-19 by way of watching things on live streams.
Or by by watching.
A virtual concerts and interacting in different ways. So I think that that while there is pent up demand there may be some.
Some behavioral changes.
Because of the on Lingo <unk> uncertainties.
Around COVID-19.
With respect to.
Price increases.
I think that that's.
Spotify has announced a number of price increases for Darius.
Of their offerings in emerging markets developing markets.
Now announced in the U S and I believe the U K.
I think that.
As you know what what people have a tendency to do on the services is build their library build their platelets.
And and so there is a stickiness.
And I think that as as.
Spotify <unk> others experiment with these price increases.
If they don't see any meaningful churn events.
And to date, we're not aware of any but.
To the extent that they don't see any meaningful churn events I think what we should have an expectation about.
Is that other DSP knees.
We'll begin to raise their prices as well keep in mind that there is a massive.
Massive gap.
<unk> pricing for audio said differently pricing for their ears.
Then there is pricing for video or eyeballs.
And I think that our long term expectations are that the gap.
Between.
Audio and video.
We'll have to erode Matthew they may never be.
On a par with each other.
But we do believe that audio.
We'll have to make incremental gains over time relative to the value proposition that's associated with video.
Hopefully that was that answers your question Matthew and Eric you should add anything you want to add.
Steve I thought you covered it very well.
Okay.
I guess just as quickly.
Okay.
Oh, I'm, sorry, what was that.
Question is just for Eric I guess is there any reason when a DSP raises price I would expect that the impact to your business happens in parallel and commensurately is there any reason that that wouldn't be the case I. Just wanted to just wanted to clarify that thanks again for the clarification.
Clarification on the questions guys.
Thank you I would just say, we don't talk about specific DSP deals. So I don't want to get granular, but I would say in general.
When a retail rates go up in the market.
In general, we would expect to share and participate in that incremental upside yes.
Our last question comes from growth from back from Mexico City.
Your line is open.
Thanks, so much.
So interesting because for many many years it was in decline as physical collapsed.
I know you were in sort of secular growth is the digital pivot is underway and I think what's hard and that sort of two decade.
Context, just to get a sense of.
On a full year basis, if you havent have a bunch of hit.
Hit records or hit artists that are on your roster what it really means.
A full year basis in terms of growth.
In other words market share gains or losses, as it sort of am I right to sort of think of it as like Bull case, one or two points bear case, one or two points as I had as a headwind or tailwind in any given year is that a reasonable.
Number thanks.
Thanks, Jason.
Would say that it's it's music certainly now in the music business for 20 years I've been at a per seven but I.
I would say that's a bit of a multi pronged.
<unk> multi layered.
Analysis to that so one music has just become very global we're releasing music in 50 markets around the world and one can have really strong releases in Japan, and Germany and that can be really impactful or one can have some of our big kind of Anglo glow.
Superstars released music and it can be really impactful, we could have a series of different ways.
To drive music and performance in the marketplace. So I would say that we have multiple tools.
We certainly have which I think you were talking to your kind of global superstars that really have an opportunity to to have an impact on the global music market, but we also have local regional stars and new stores, we're developing and breaking all the time that have a real impact and so a lot of this.
As a portfolio.
Across genres are just across different stages of their careers. We are always take great pride in our just our ability to identify and develop and market. The next generation of superstars and drive them into the market and have long term relationships could there hopefully what we planned for a long.
Term careers.
And we do this all over the world.
Asia, Latin America, Europe and <unk>.
In the U S and the UK as well so I do think that individual artists have the ability to move the market to set by maybe a point or so but overall, we look at it very very deep and broad portfolio every year.
Regardless of which names are on it and making sure we're releasing great music and if we're releasing great music. We're confident that we can drive the performance and growth in our business that we expect and we've been doing that for.
For the past seven or eight years at this point.
Very helpful. Thank you.
Okay.
Thank you I would now like to turn the call back over to Steve Cooper for closing remarks.
So again I want to thank everybody for taking the time to join us today.
Please everyone.
Stay safe and have a really good time enjoying cinco de Mayo will talk to you in.
Few months Bye bye.
This concludes today's conference call. Thank you for participating you may now disconnect.
Mitchell.
Okay.
Okay.
How does your profit.
Yes.
Pardon me.
Cash flow for Abbott.
And then you think happening each day.
Right.
Okay.
Thank you don't make them.
No.
Moving to wait time.
Yes.
Thanks.
Okay.
Good day.
Thank you.
Kitty.
The standard.
Got it.
That's a net banking income.
Right.
Good day.
Got it.
Oh.
Thanks.
Thank you Scott.
Okay.
Okay.
Moving now.
Yes.
Yeah.
Cash.
Net.