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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening, and welcome to Universal Music Group's Second Quarter and First Half Earnings Call for the period ended June 30, 2023. My name is Maxine and I'll be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group; and Boyd Muir, Executive Vice President, CFO and President of Operations. They will be joined during Q&A by Michael Nash, UMG's Executive Vice President and Chief Digital Officer.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Please let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way.
For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section of UMG's 2022 Annual Report, which is available on its website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the interim financial review and unaudited condensed consolidated interim financial statements for the six-month period ended June 30th, 2023 on the Investor Relations page of UMG's website.
Thank you, Sir Lucian, you may begin your conference.
Thank you and good evening from Hilversum. I'm very happy to welcome you as we report another consecutive quarter of strong results for Universal Music Group.
Results that are not strong only financially but strategically and creatively as well. I'll have more to say about the creative steps our teams have been taking to drive our strategy forward, especially in the areas of streaming, artificial intelligence, and high-growth potential markets, but first, a brief look at our financial results.
In the second quarter, our revenue grew 9% in constant currency over last year's second quarter, and adjusted EBITDA grew 19%. Boyd will dive into the numbers in greater detail in a few minutes. But I wanted to say, how proud I am of these results. Once again, our growth came from all segments of the business, music publishing, merchandising and recorded music, as well as from all major revenue streams within our Recorded Music business.
We are an artist-centric company, our consistently stellar performance is directly attributable to the deep and sustaining partnerships we've formed with our artists. These partnerships with both established artists and new ones are in place throughout the world, in developed music markets and ones with high growth potential as well.
I'd like to take a moment to share with you just a few of the numerous examples that reflect how our relationships with artists help us achieve immediate chart success, and even more critically how those relationships can build long-term staying power. Let's start with the U.S. For the first six months of this year, UMG had seven of the top 10 albums, as well as four of the top five albums with Morgan Wallen, filling the number one slot.
When it came to songs, UMG had six of the top 10 and recently Taylor Swift became the very first woman in history to have four albums in the top 10 simultaneously, including this week's number one.
In the U.K., UMG artist had six of the top 10 albums in the first half of the year. Out of those 26 chart weeks, UMG artists held the number one slot for 15 of those weeks as further evidence of the depth and breadth of our roster. Those 15 number one slots were held by 13 different UMG artists from Metallica, and U2 to Niall Horan, Lana Del Rey, Shania Twain, Sam Smith to boygenius and The Lathums amongst others.
And in Japan for the first half of the year, King & Prince was the top selling artists and two of the top three new artists were ours too including Le Sserafim and Travis Japan. I'll finish up this portion of my remarks by talking about our partnerships with two of today's greatest Latin music artists.
We're thrilled that Karol G has partnered with Interscope Records for her future recordings reaffirming her long-term relationship with UMG. Ever since signing with Universal Music Latin Entertainment in 2016, Karol has become an astonishing musical presence. Currently one of the most successful Latin female artist in the world, she has generated nearly 80 billion global music streams so far. And this year, she became the first woman ever to debut at number one on the Billboard 200 with a Spanish language album.
And while we're talking about mega Latin superstars, Anitta has signed to Republic Records in partnership with Universal Music Latin. Nominated for Best New Artist at the 2023 Grammy Awards, she has a string of other historic-making accomplishments, including the first solo Latin artist to reach number one on Spotify globally, and the 2022 winner of the Best Latin artist at the American Music Awards, MTV Video Music Awards and MTV European Music Awards.
These are just a handful of highlights from a long list of remarkable achievements by our artists. But in the interest of time, I'd like to shift attention to those significant strategic topics I referred to earlier. We've basically determined to make sure that the industry grows along with us. Creativity thrives on competition and is propelled forward by an industry in ascent. Back in January, I talked about how it was time for the streaming model to be transformed and I outlined some of those core principles that we would use to guide our work with platforms to have them become more artist-centric.
Over the last few months, we have not been idle far from it. Our teams have been working diligently and creatively with our platform partners to turn these principles into reality. I'm pleased to tell you that along the way, we learn that many of the platforms actually share our desire to update the streaming model and thereby improve the music experience they provide to their subscribers. As we all know, in recent months, two significant developments grew in prominence in our industry adding a sense of urgency to our efforts, these are the rise of generative AI and the proliferation of fraud.
I'll have more to say about AI in a minute, but the nature of both of these developments further validated our concerns about streaming's content over supply as we call it and what we saw is the diminished experience for fans. Today, I'm delighted to tell you that the transformation of streaming we have envisaged has begun. Any meaningful change to the streaming model that's first and foremost address the fact that today music is undervalued.
We have long believed that streaming monetization in both developed and emerging markets has significant upside. Therefore, we obviously welcome Spotify's announcement that they will increase prices in more than 50 territories as well as YouTube's announcement that they have raised the price for their subscription music service in the U.S. But addressing average revenue per user or ARPU is just one component of the artist-centric approach.
First, we must ensure that real artists with real fan bases are fairly rewarded for the platform engagement they drive. Second, the platforms need to apply stricter fraud detection and enforcement systems removing incentives for bad actors and protecting streaming royalties for legitimate artists.
This includes ensuring real artists don't have their royalties diluted by noise and other content that has no meaningful engagement whatsoever from music fans. And third, better aligning the relationship between artists and fans by promoting greater discovery and promotion of real artists. And on these three critical points, Spotify shares these concerns and as part of our newly expanded agreement, they've committed to continue to work to address them. In addition, they will be collaborating with some deep data analysis formerly taking part in this foundational piece of our expanding artist-centric initiatives.
To summarize, who are the winners under this new model? Simply real artists, by which I mean artists at all stages of their careers, who are DIY, independent or major who are real actual human beings who have real actual fans. Who are the losers? Those devoted to gaming the system to committing fraud and to flooding the platform with content that music fans do not want. There are many others in the music industry who share our firmly held principles about the value of artistry and the artist-fan relationship.
I'm confident that the unique structures we put in place and those we are working with on a number of other partners will bring those principles to life across the streaming world. Again, I want to stress, our goal is a simple one, to promote an environment in which great music does not drown in a sea of noise, an environment in which fans can enjoy a more satisfying experience and creators of music content are more fairly compensated.
Now let me turn to AI. On our last call we talked at length about generative AI and since then speculation about the changes AI will bring to almost every aspect of our lives keeps growing. As a supporter of the human artistry campaign since its inception, UMG is working with the other 140 organization in the creative industries to educate and support policymakers around the world about how to ensure AI is used for the service of creators.
I also talked about the opportunities AI presents. We already employ AI in a variety of ways identifying the audiences for our artists, optimizing the production, mixing and mass string of recordings and enhancing the quality of music experience, such as immersive sound.
One example of how the responsible use of AI can support and enhance the creativity of our artists, labels and songwriters is our first-of-its-kind strategic relationship with Endel, an AI sound wellness company. As we recently announced under the agreement, the UMG artist viewing Endel's proprietary AI technology can create soundscapes from the artist's existing recordings to promote listeners' wellness, opening new commercial opportunities for our existing and growing catalog.
And in April, we released a new track with our partners at HYBE from their artists MIDNATT using HYBE's proprietary technology and with the artist collaboration and consent, the track was simultaneously released in six languages: Korean, English, Japanese, Chinese, Spanish and Vietnamese with the goal of offering music fans the opportunity to hear the K-Pop track in their own local language.
It was a fascinating examples of how AI can be used to help music reach global audiences and use in an exciting way. And our legal and public policy teams are actively working to bring legal clarity to responsible AI. We want to drive smart, future-proof public policy solutions that protect artists' rights and enhance AI innovation.
In fact, two weeks ago, our General Counsel, Jeff Harleston, testified before the U.S. Senate Subcommittee on intellectual property. He told the senators that AI and this is a quote, AI in the service of artists and creativity is a wonderful thing with AI that uses or worse yet appropriates their work or their name, image, likeness or voice without authorization is not.
We'll have announcements in the very near future about how AI can unlock other commercial and creative opportunities in our business. In short, we're optimistic about AI and see this as a powerful tool in the service of artists when deployed responsibly.
Now let me turn to the third important strategic focus I want to say a few words about and that is expanding our presence and accelerating our growth in those music markets around the world that we see is having great potential. We are approaching this goal in three different ways. Firstly by signing and developing local artists, just as we do in more developed music markets.
Second by partnering with local labels to produce them with global promotion, distribution and a full suite of artist services. And thirdly through M&A. That is the acquisition of local labels, catalogs, and artist services businesses. Our most recent such transaction announced at the end of last month is in Thailand, where we've agreed to form a strategic partnership of which we will own 70%. The transaction will instantly make UMG the second-largest player in one of the world's fastest-growing music markets and provide UMG with the scale to make an even greater impact in Thailand and outside of it as well.
We are constantly on the lookout for similarly attractive M&A opportunities in high-growth potential markets and whenever and wherever such an opportunity makes financial and strategic sense, we will pursue it. Let me close by saying that we are obviously thrilled with our results this quarter, but our excitement doesn't end there. It extends to the great music we've got on the horizon coming from every corner of the globe until the long-term vision we have for both for UMG and the industry.
We are confident that the groundwork we are putting in place to drive strong subscription growth to introduce new artists and genres to generations of new fans to use artificial intelligence wisely, responsibly, and profitably and grow our e-commerce and D2C business, and to expand our presence in high growth markets, all our efforts will enable us to turn our long-term vision into reality for years to come.
And with that, I'd like to turn it over to Boyd to walk you through the financial results that we talked about just earlier in greater detail. Thank you. Over to you, Boyd.
Thank you, Lucian.
As you heard Lucian touch upon, the second quarter has been another strong one for UMG. Revenue grew by 9% and adjusted EBITDA grew by 19% in constant currency. These results drove nearly 2 points of expansion in adjusted EBITDA margin to 21.9%. Even with the solid second quarter results and margin, we continue to encourage you to view the business over a longer-term horizon as there will always be variability quarter-to-quarter. We do not expect to add this much margin in every quarter, but we remain on plan to hit our margin guidance of over a point of adjusted EBITDA margin expansion in 2023.
In terms of the difference between EBITDA and adjusted EBITDA, we had €85 million in non-cash share-based compensation expense for the quarter. Our EBITDA and Adjusted EBITDA results also reflect €24 million of cash compensation savings in the quarter as we work towards our run rate of €100 million per year beginning in 2024. For the half year, revenue was up 9%, and adjusted EBITDA grew 16% driving margin expansion of 1.3 percentage points to 21.6%.
The first half had a total of €345 million in non-cash share-based compensation expense compared with our guidance of €630 million for the year and the first half saw €33 million of cash compensation savings in line with our 2023 guidance of between €60 million and €80 million in savings. Recorded Music revenue grew 11% for the quarter and 10% for the half year. This revenue growth drove adjusted EBITDA up 16% for the first half, and adjusted EBITDA margin expanded 1.1 percentage points to 24.2% in the half.
The margin expansion is a result of operating leverage as well as the cash compensation savings associated with the equity plan. Looking further recorded music subscription revenue saw an accelerated level of growth, up 13% for the quarter.
The uplift in the second quarter was a result of broad-based growth in subscribers across all major global platform partners, excuse me, as well as price increases from certain platforms. This brings subscription growth to 11.6% for the half year. Ad-supported streaming revenue grew 5% in the second quarter.
While we saw an improvement in trends at several partners and in certain countries, the results were not uniform and we believe it is too early to call a positive turnaround in the market. Ad-supported streaming was up 2% in the half and we are encouraged by the fact that our comps are easier in the back half of the year. Physical revenue grew 11% in the second quarter again helped by strong CD sales in Japan from King & Prince as well as growth in vinyl sales. Physical revenue was up 21% for the half, however, please note physical revenue can fluctuate significantly with our release schedule.
Licensing and other revenue grew 16% in the quarter driven by neighboring rights, brand partnerships and income from live events and grew 13% for the first half of the year. Also important is that the growth was well distributed globally with the strongest growth in Asia and double-digit growth in Latin America as well. As you can see here, major sellers were also well-distributed geographically and included a mix of both newer and more established artists.
Turning to Music Publishing, revenue declined slightly for the quarter. This was solely the result of a previously disclosed one-time item in the prior year quarter. As we previously discussed as part of our 2022 Change in Society Accounting, we booked a catchup of €98 million in Q2 2022 related to prior years.
Excluding this impact, Music Publishing revenue grew 26% in the second quarter of 2023, thanks to a stronger than expected post-COVID recovery in performance revenue as well as strong digital growth fueled by streaming and subscription.
For the half year, Music Publishing revenue grew 5% or 19% excluding the impact of the one-time catch-up. Music Publishing adjusted EBITDA grew 8% for the half or 18%, excluding last year's €17 million benefit from the onetime accrual. Also excluding the accrual, Music Publishing adjusted EBITDA margin was flat at 24.3%. Turning now to Merchandising. Merchandising revenue grew 12% in the quarter, with growth in direct-to-consumer revenue, fueled by a strong performance from Taylor Swift, more than offsetting a decline in touring revenue.
As a reminder, the prior year reflected outsized growth from the recovery of touring merch sales following the COVID shutdown. Merchandising revenue grew 6% for the half year and adjusted EBITDA grew 43% while margin expanded 2 percentage points to 7.6% due to the shift towards higher margin direct-to-consumer sales.
Net profit for the first half of 2023 amounted to €625 million compared to €241 million in the first half of 2022, resulting in net earnings per share of €0.34 compared to €0.13 cents in the first half of 2022. The increase in net profit in the first half of 2023 included an increase of €313 million in the valuation of investments in listed companies, compared to a decrease of €567 million in the first half of 2022.
Net profit also reflects the €345 million equity plan expense in the first half of 2023. Adjusted net profit, which adjusts for the revaluation of these investments as well as for the equity expense amongst other items grew 14% to €754 million in the first half of 2023, resulting in adjusted earnings per share of €0.41 in the first half compared to €0.37 cents in the first half of last year. You'll notice that the adjusted net profit of €664 million and adjusted earnings per share of €0.37 for the first half of 2022 in today's press release differs from what we reported for these items last year.
In compiling our year-end 2022 financials, we excluded from adjusted net profit, the €89 million benefit from the two tax litigations settled and disclosed in the first half of 2022, which were one-time in nature. At the full year, we determined it more appropriate to exclude these tax settlements from adjusted net profit. And today we are aligning our half-year reporting to how we report the full-year 2022. To be clear, there is no change in adjusted net profit or adjusted EPS for the full-year 2022.
In line with our commitment to pay a dividend of at least 50% of our net profits, the interim dividend for 2023 will be €437 million or €0.24 per share in line with 2022's interim dividend. I'd like to turn now to cash flow. Net cash provided by operating activities, forgive me, our net cash provided by operating activities before income taxes paid for the first half of 2023 was €703 million, up 16% year-over-year. This included net royalty advanced payments of €95 million, down 57% from €223 million in the first half of 2022 due to last major artist renewals and an increase in recruitment.
Net cash provided by operating activities also included the €325 million we announced last quarter that we would pay in cash to settle employee tax liabilities arising from equity plan grants. Rather than issue more shares, we funded the taxes to lessen the dilutive impact of the grants. Please note that we also intend to settle the taxes on the equity grants that we will vest in March of 2024. We now expect total dilution over five years to be less than 4% as opposed to the 5% we have shareholder approval for.
The strong net cash provided by operating activities before income tax paid allow the company to continue to strategically invest in the long-term growth of the business. In the first half of 2023, strategic investments included the acquisition of a brand services company and a niche classical music label, among other items. These acquisitions were made at a blended trailing EBITDA multiple of 8.4 times. We also acquired a 50% stake in the entity that owns the iconic Capitol Records building in Hollywood, the home of our Capitol Records label and the world-renowned Capitol studios.
We spent €89 million on catalog acquisitions, down from €264 million in the first half of 2022. Separately, we put €75 million cash into escrow for our catalog acquisition, which will likely transfer out of other investment activities and into catalog investment in 2024. While our name may get associated in the media with the acquisition of catalogs, we will continue to be incredibly selective when allocating our capital. And very large catalog acquisitions are not a priority nor a necessity for us.
Income taxes paid and net interest paid both grew year-over-year as the first half of 2022 benefited from previously disclosed tax settlements. Putting this all together, we had a net outflow for free cash flow of €13 million for the first half of 2023 compared to an inflow of €104 million in 2022. Remember that the second half of the year is consistently a stronger cash-generating period for our business than the first half.
We encourage you to look at free cash flow generation on a full-year basis rather than for the half year as working capital movements and the timing of investments can vary considerably during a shorter timeframe. Just before we go to Q&A, I wanted to remind you of a couple of items to remember in the back half of the year.
First, a reminder that in the third quarter of 2022, we booked a settlement of a copyright infringement lawsuit with an Internet service provider amounting to €71 million in revenue and €52 million in EBITDA in our Recorded Music business.
In addition, Recorded Music EBITDA in the third quarter of 2022 was impacted by the timing of certain A&R expenses. While these expenses were not unusual for 2022 as a whole and last year's third quarter, these A&R expenses were up nearly €40 million over the prior year due to timing.
The last item I'd like to mention is that in the third quarter of 2023, we expect to book a catch-up adjustment of approximately €30 million in revenue related to the finalization of the phonorecord's predetermination from the Copyright Royalty Board the CRB which will be done as a one-time benefit to our Music Publishing business.
And with that Lucian, Michael Nash and I will take your questions. Operator, please open the line for Q&A.
[Operator Instructions] Our first question today comes from Thomas Singlehurst from Citigroup. Please go ahead, Thomas. Your line is now open.
Yes. Thank you. Tom here from Citi. Congrats on a great set of results. I had just a two questions, if that's okay. First one, Boyd, it's for you and I apologize if it's a bit technical, but when you get revenue from the DSPs, I suppose the question is are you paid in sort of U.S. dollars or euros. And then how do you back out the currency effect. So just wanted to just check that the improvement in streaming isn't sort of driven by any sort of weird currency impact because obviously it's a very solid improvement that was the first question.
And then secondly, I'm just wondering whether you can put a bit more flesh on the bone about the €75 million of money - €75 million being put into an escrow account for catalog, what - how does that come about, is that a prepayment for a deal that you are going to announce in the future? Thank you.
Tom, indeed, your first question is technical, but really the way we report and actually, as you look at it, reporting in the constant currency, it takes - neutralizes any of the exchange fluctuations. So when we talked about, or I talked about subscription for Q2, the 13% is a very pure - very, very pure number. So I think that addresses that.
The €75 million, that's an escrow is indeed quite unusual and is just part of a deal structure that we put in place as part of - and we talk about it this way, because it is basically an IP acquisition, the catalog acquisition, and the structure is such that there's escrow for a period before that gets released into - in terms of payments. So, it will reverse out of where it currently sits and it will go into catalog - into catalog investment in 2024. It's just a deal structure point.
Thank you. The next question comes from Lisa Yang from Goldman Sachs. Please go ahead, Lisa, your line is now open.
Hi, thanks for taking my questions and congratulations. The first question is on price increase, I mean it's great to finally see price increases coming through. I was just wondering, do you think this is more structural and we are entering the cycle of more recurring price increases? And do you think to sustain that sort of recurring sort of price increase cycle, we should be thinking over time to change maybe to a flat fee model as opposed to a Rev Share with the DSPs to potentially better align the incentives? That's the first question.
And secondly, you highlighted your third strategic ambition to expand your presence in faster growing music market, is it fair to assume you'd be focusing more on the front line because of investments as opposed to catalogs, so just thinking how - thinking about the balance of investments between - catalog and what is - just checking the context could be more pride today given some of the sort of market share filtration. Thank you.
So let me take the first question Lisa. And with respect to price increases and how we're looking at this now that we've got a number of services that have increased price. We're looking at it from a couple of different perspectives. So first of all, obviously we don't set retail price, there is a kind of a dynamic equation that's playing out as we look at market evolution. But to the key point that Lucian raised in his remarks, music is very undervalued right now and we think that there is a great opportunity over time to more fully realize the value of music.
Having said that, we're not looking at the price increase equation that from the standpoint of the wholesaler is a rate increase equation as something that is going to kind of regularly occur that there's going to be some sort of measured cadence to those increases as we look to the future. I think it's more likely that you'll see some rate increases that will be associated with product changes over time. But we'll see how that equation unfolds.
And then, if I understand the other part of your question, that's around whether or not we would be moving to some kind of a flat fee model as opposed to the current revenue share model that we have that's associated in the wholesale-retail relationship. We vastly prefer to have a relationship as a wholesaler with our retail partners that enables us to participate in the revenue that they generate based on the value that we create, which means that we are - the Rev Share formulation that has some other components, sometimes for play rate, very often per subscriber, minimums in rates.
We think that that creates the best alignment between us and our partners because we are in a position where we're both focused on how we can drive growth and our artists are fully participating in the growth that we're creating on the platforms. So we don't foresee moving towards any kind of a change, we prefer the model that we currently have in place with respect to wholesale-retail relationship around the model that has us variably participating in the revenue that's being generated.
And Lisa, this is Boyd. I mean just to the second question of where we see our investment, I mean, we're constantly looking at where we can achieve the best returns on the investments that we make, so it is important for our capital allocation and what we're looking at here and what we will be doing is actually just aligning our investment to bringing it in line or ensuring it's in line, is where we see the future opportunities and what do we see in those lines is opportunities we see in several markets that's got very significant growth opportunity in front of them for many, many years ahead. And so it's appropriate to be investing into that kind of opportunity.
I think mentioned earlier that catalog acquisitions are not really a priority for us, you know, it's not part of a specific strategy for us. We have been opportunistic. As you know, we have made some investments, we're very, very selective and you've heard me say best of the best, but the reality is that not a priority for us, and they are not required for - to drive our future growth. So, it's a testament to what we have to do, which is that we have to look for the greatest opportunities which will bring the best return to the Company.
I'd like to add that nothing is formulaic with our M&A. We're looking for substantial growth and activity where we can lean in with our skill sets with our teams around the world for broadly great assets, great artists as well as great entrepreneurs in markets and genres and cultures where we see the future and our ability to actually make the market.
The next question comes from Julien Roch from Barclays. Please go ahead. Your line is now open.
Yes, good evening everybody and congratulations on beating on every single line for those results. My first question is for Boyd, royalties advance were €95 million in the first half of '23, quite - down quite a lot from Q2 '22 last year. Can we get some indications of how much we should expect the full year, is doubling the first half, so around €200 million the right ballpark.
And the second question for Lucian. You said you have not been idle since you spoke to us last on trying to sign those sign those artist-centric model. So when do you think you'll sign your first of such model? Is it a matter of weeks or months or quarters? Thank you.
Maybe I - Julien I'll go first regarding the royalty advances. Yes. No, you're right, I mean they are indeed down a lot, but rather than - it's more a reflection about what happened historically than it's about what happened this specific quarter. We've talked for probably since we became a listed out company that there were a number of our superstar artists that kind of quite contrarian to what we were hearing in the market, we were hearing in the market that these significant artists, could basically go their own way, do their own thing that they didn't need the record company and we saw over those last two years, quite the opposite. We - there was a - number of our superstar artists actually wanting to lean in to do more.
And we ended up extending our rights in terms of time broadening the actual rights that we ended up capturing for those artists. So what we saw historically in some ways was a kind of elevated or inflated level of gross advances.
So I think it's more, and that's what we described over the last couple of years and this quarter, I would actually be saying is kind of at least in this quarter is returning to a more normal level of activity and I am encouraged again because an important measure here is the strength of the - and advances is exactly what it says, so their advance against future earnings.
And we then recoup against those advances and then they're very encouraging - the thing here that we're seeing is the increase in our recoupment again. And so that's, it's a measure of success, it's a measure of our performance that we look at very, very closely. So rather than it's a comment about Q2, this quarter is more a comment about the elevation that we've seen historically. And clearly, there may well be further opportunities later this year or in subsequent years. And that's why I'm going to disappoint you as usual and not give you the specific number in relation to the second half of the year. Sorry, I took a little bit too long there. And on your second or your first question, sorry.
Julien after - we are having, as one would expect many, many conversations and discussions with all sorts of DSPs and platforms. Both global as well as regional, but I think what you're picking up on and what we feel is that we have arrived at a unique moment in the evolution of streaming. And we see more alignment amongst the music companies and the platforms than ever before. The reality is, we've all got a shared interest in addressing the fraud that I referred to earlier in giving fans the ability to engage in the music and the products and the artists that they love and they seek and they lean in for.
And that allows us to make sure that the artists are better compensated, everybody is rewarded for the engagement that those artists drive. It's taken an enormous amount of effort to get to this place. And we've obviously got a lot more work to do, but I am pleased with the progress that we're making with all of our platform partners. And as I've said before we are long-term confident and we'd like to find solutions for everybody and that's what this work is.
If I could just add about a couple of additional comments. And yes, we are very happy with the progress that we're making with the announced partners. These are entitled around the construction of artist-centric models and we're feeling like the process is enabling us with a deep data dive to get a really good understanding of the specific ways that we can go about realizing the objectives that we've articulated, but I also want to make sure that it's not lost in the presentation of the progress with respect to the development of a specific model.
I want to reiterate with what Lucian said as part of our newly expanded agreement, Spotify has committed to work to address those concerns that we've highlighted in our push towards artist-centric solutions. I think that's very important. In addition, specifically, they're collaborating with us and these data analysis, they are formally taking part in this foundational piece of our expanding artist-centric initiative. So there are positive developments, there is a lot of momentum. We do have an expectation that we're going to be able to advance from this stage of the project further forward.
But to set the context, again, in the temporal framing, that we have previously provided, this is a multi-year project of market transformation and it evolves different dynamics, different determinations on different processes with various platforms. We have patience here because we know how important this project is and we know that many of our partners share our concerns and they roll up their sleeves and they're working with us too. So the report is positive developments and positive momentum.
Thank you. The next question comes from Michael Morris from Guggenheim Partners. Please go ahead, Michael.
Thank you, good afternoon. I have two questions. My first one is on the economics of your on-demand streaming music relationships. So at this point, there have been announced price increases covering the majority of subscribers on the DSPs and I'm hoping if you can share at least some broader perspective if not on the individual deals as consumers pay higher rates through these services are you receiving different royalty payouts from the DSPs either in total or on the incremental dollar or are you sort of compensating the DSPs, your DSP partners in another way that provides them greater economics than they were receiving prior to the increases. So that's my first question.
And my second question is on the recently announced TikTok Warner Music agreement. It was described as expansive and I'd love to hear an update on your relationship with TikTok, is your agreement current or is it outdated in terms of economics or scope and are there any elements of the announced agreement with Warner Music that you would like to reach as well to perhaps expand your revenue participation. Thank you.
Okay. Well, Mike, I would just like to deal with in reverse. So I'd like to talk - you talk about TikTok. I can't talk about any specific platform negotiation, but what I can say, I feel strongly about this that I've spent my entire career fighting for artists and the entire value of music. We know that our artist's music and what is worth to the billions of fans around the world, we can't settle for a deal with any platform that doesn't fairly recognize that value. Michael.
Well that's extremely well put. And I guess all that I would add to that with a little bit of nuance with respect to TikTok and our relationship with TikTok, we can't comment on the status of negotiations with any specific partner, but it is fair to assume that we're constantly engaged in strategic discussions with all our partners and it definitely applies to TikTok and I would just add that what we're seeing in terms of the challenge with respect to the monetization of short-form video, there's a rewind for us in terms of the value gap discussions in the previous decade. And we were able to achieve win-win partnerships.
At that time, it was YouTube, who was the partner where there was the concern about the value gap and now we're at a point where we have an excellent partnership with YouTube and they have a stated ambition to be the leader in music monetization. So, we believe that by sticking to our principles in terms of fighting for the value of our artist's content on our partners' platforms that it's possible to construct these win-win partnerships.
And then, Michael, to the first question that you asked with respect to economics of the relationships and pricing, I think you specifically asked about the rates that were paid associated with higher prices and were paying a different rate. I think the simple answer is no. And just to add a little bit of additional commentary and my General Counsel was here, he'd be kicking me under the table, we have to make it very clear that we don't set retail prices - the retail prices are obviously set by the retailers.
But in terms of the relationship with respect to pricing, we've always been very clear that raising prices is not a battle for margin between labels and DSPs, that's not what raising prices is about. There is a much broader set of interests that go into the conversation around pricing and fundamentally artists deserve price increases from which they will directly benefit, it's based on the compelling value proposition their content is creating for consumers. So, we're not looking at the equation around what's happening with respect to rates and prices in the marketplace as a battle for margin. And so again to return to the simple answer to your question as I understood it, the answer is no.
Thank you. The next question comes from Adrien de Saint Hilaire from Bank of America. Please go ahead. Adrien. Your line is now open.
Great, thank you. And indeed, well done for those numbers. So, I've got a couple of questions, if you don't mind, one which is a bit on the shorter term, perhaps, but so yesterday we heard Spotify talked of growth in their subscription business accelerating into the second half as the price increases notably kick into Q4. Is that also what you would assume and, therefore, is there an update to your outlook for subscription growth for the full year, which I think is low double-digits.
And then perhaps a question for Michael or Lucian. So, I know it's probably been a few months now that you've started running those tests with some partners around this new artist-centric model. Could you perhaps share with us what's been the uplift for you in terms of revenue around these tests between the - this new model and the old model. Thank you very much.
Maybe I'll deal with the first point about price increases. Clearly, we're pleased to see the price increases coming through from Spotify and from Apple. We are working through the detail for those being as complicated a little bit because the geography by geography. But the reality is that really, you're not really going to see anything coming through until kind of Q4 and then into 2024. It's very encouraging to hear how Spotify are commenting on the timing from their perspective, so we should be broadly comparable with what they're saying with regards to that particular platform.
In regards to guidance, we haven't given guidance on what our subscription growth will be for the full year. And you've seen it from the half year we were just over 11% and in the quarter, we were at 13% and then in Q4, hopefully, we'll see that the price increases, starting to flow through in Q4.
And then Adrien with respect to the question about the development of the artist-centric initiatives and what we're seeing in terms of revenue, as I described, the progress report earlier, we've made a lot of advances with respect to the data analysis component of the project. We're at the point right now where we're looking at implementation opportunities, but we're not at a point where there is any revenue discussion associated with implementations. So, I would leave the progress report where we concluded the answer to the previous question that we feel like we're making excellent progress in terms of data analysis and we feel like we have great momentum with the project.
Thank you. The next question comes from Conor O'Shea from Kepler Cheuvreux. Please go ahead. Your line is now open, Conor.
Yes, thank you. Thanks for taking my questions. Congratulations on the results as well. So, my two questions, first question may be for Boyd the €30 million catch-up in Q3, on Music Publishing. I guess that's the revenue impact, I wonder if you could give us an estimation of the EBITDA impact, I imagine it's quite high, low through dropdowns and then second question, just in general terms at this stage of the year, looking into the second half of the year, do you - how would you compare the expected release schedule compared with the second half of last year. Is it heavier, lighter or about the same at this stage? What can you say on that? Thank you.
Thanks, Conor. The CRB settlement €30 million of revenues, I think you can expect the margin to be broadly in line with the totality. The margin of our overall Publishing business. I think that we deal with that. In terms of the release schedule, we are going in through this year with great momentum. And the thing in particular to bear in mind about release schedule, when it's actually in relation to the subscription and the streaming platform, it's certainly, it is not as significant an item it is actually in the physical business.
So some of the volatility that you see in - on physical revenues is very much tied to release schedule, particularly in a country like Japan, which you do see quite significant volume fluctuations. But we feel good about where we are and the rest of the year. We've got good momentum.
I would like to add that - size of the hits gives you a tailwind, they subside slowly, monthly listeners increase with the volume and the success that of the current hits, the current products and the long tail becomes long.
Thank you. Our final question today comes from Silvia Cuneo from Deutsche Bank. Please go ahead, Sylvia. Your line is now open.
Thanks. Good evening, everyone, and congratulations on the results. I have two questions, the first one is around the operating leverage you delivered in Q2, you mentioned that we should not extrapolate the same increase for full year, but just wondering if you could tell us a little bit more about the drivers of these operating leverage in Q2 and what could not be the peak to the same extent at the full year level. And second question on the cash flow, a follow-up to some of the prior questions, maybe focusing on the amount that you spend in terms of acquisition of consolidated companies, affiliates, and financial assets, can you share a bit more color about perhaps how much was Thailand within the mix and what else can you tell us to be comfortable of the aid to improvement in free cash flow. Thank you.
Yes, Sylvia. Thank you. So, I mean, the operating leverage in Q2 or the margin expansion in Q2 is probably the right way to start, so the margin expansion in Q2 was 1.9%. All I was really saying was that on a quarter-by-quarter basis, don't always expect the 1.9% and there is definitely some volatility and all of that, but specifically in Q2, there's two reasons for how or why the margin expanded by 1.9% operating leverage.
Yes, that is one part and then the second item that you need to take into consideration in Q2, is that we - in terms of adjusted EBITDA margin, we had €24 million of non-cash - sorry, of cash expense reduction as a result of the - from the equity plan. So, operating leverage and the cash reduction resulting from the introduction of the equity plan drove the expansion.
And then you're taking question which was to do with the cash flow, I ran through earlier what the major items were in essence, there's nothing --I think it was timing you were talking. I mean these are acquisitions that we've made, we acquired a brand, brand services business, and a classical music label, niche classical music label.
Those two things together, what I refer to as having acquisitions that had a trailing EBITDA multiple of 8.4 and forgive me if I just got that wrong, I think it is 8.4 - and then there were other - there were two other items that I called out, one was an item which is related - which is really related to it is a catalog acquisition, but the way that the deal was structured is €75 million goes into escrow and then over a period of time, we believe in 2024, we will reallocate escrow to move into catalog acquisition and then...
It's a deal structure that they're -
It was just a - it was just a way the deal I see, but there's nothing kind of nefarious --
Unusual
Nefarious in terms of what - it's just a - just a deal structure. And then the last item that I called out is that we acquired 50% of the entity that owns the real estate and the building, the Capitol Records building and that was - that's the world-renowned Capitol Studios and has been the home of Capitol Records. So we have bought into the real estate with that property.
Because it's iconic.
An absolutely iconic market.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.