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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 Fourth Quarter and Fiscal Year Earnings Call for the period ended December 31, 2021. My name is Nadia, 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'll be joined during Q&A by Michael Nash, UMG's Executive Vice President, Digital Strategy. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll 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 prospectus dated September 14, 2021, 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 press release on the Investor Relations page of UMG's website.
Thank you. Sir Lucian, you may begin your conference.
Thank you. Good evening, everyone, from where we are in Hilversum, and depending on where on the planet you happen to be right now, good afternoon or good morning. I'm excited to be able to report to you UMG's outstanding 2021, as well as our vision for what lies ahead. By the time we're done, I believe you'll understand why we're so proud of what we've accomplished this past year and so confident about what we'll be doing in the future.
There are three main points that I'd like to convey: first, the creative and commercial success we helped our recording artists and songwriters to achieve last year; second that going forward, the music industry will continue to expand and that our unique understanding of the business and the creative process will further strengthen our position as the industry leader; finally, just as our team's worldwide experience and global reach will continue to both break new artists and market our vast catalog, that same world-class talent will help us selectively acquire the most valuable and commercially successful music catalogs whenever they may become available and wherever they may be. But more on that later.
First, 2021. It's a cliché because it's true. Our artists and our songwriters remain at the heart of everything we do. And last year, our heart was in the right place. We helped so many of our artists, both new and established ones, achieve extraordinary success. With respect to our financial performance, for the fourth quarter, we achieved 16% growth in revenue, and for the full year, we grew revenue by 17% on a constant currency basis. We expanded our adjusted EBITDA margin and significantly improved free cash flow.
While Boyd will go into further details on the financials later, let me highlight a few accomplishments from our artists, both new as well as from the established ones that contributed to this success. For example, the IFPI, the global trade body, recently released the top global artists of 2021. Once again, UMG artists had an outstanding showing, representing eight out of the top best-selling artists in the world. As you can imagine, we're pretty proud of that.
This slide shows just a handful of highlights of our artists' global success. On every major streaming platform, UMG artists had an outstanding performance. Further, there are some highlights from the world's biggest music market. The United States where, again, UMG recording artists and songwriters were represented on the top of the album as well as singles charts. This remarkable success in the US is replicated in the major music markets around the world. With experts and territories covering 200 markets on our on-the-ground approach focuses on local artist signings as well as development and expanding the reach of our global stars.
On this slide, you can see a small sampling of our artists' extraordinary achievements in the UK, Germany, France as well as Japan. Worldwide success like this just doesn't happen. UMG has built a portfolio of services and resources in artist merchandise, brand management, sponsorship, live, e-commerce, and film and television, to name just a few, an expansive portfolio which enables us to partner with artists at any stage and in all aspects of their careers.
Our success in these areas is why so many artists lean into UMG beyond either Recorded Music or Music Publishing. Once they're in the family and see what we have to offer, artists including Elton John, The Rolling Stones, Queen, ABBA, Taylor Swift, Drake, U2, José Balvin, Justin Bieber, Andrea Bocelli, and Aerosmith, among many, many others choose to expand and broaden their relationship with us.
And through our partnership with HYBE in 2021, we expanded our relationship with BTS, the world's best-selling group, as well as partnered with them on initiatives including the fan-based platform, Weverse; and VenewLive, a premium live-streaming platform.
Let me move on to my second point and how we're going to build on our role as the industry leader in what we see is a growing market. I've seen many transformational shifts over the course of my long career in music. Changes in genres from rock to punk to hip hop, as well as changes in format from vinyl to cassette to CD and then, of course, downloading, streaming, and now the growth of social media, from Web1 to Web2, and obviously the emerging Web3, which I'll touch upon later.
Change is a constant. Through all of them, UMG never resisted change. In fact, we embraced it by adapting our business models, by promoting competition and by creating a healthier ecosystem for music and our artists. We always invest in the future, whatever form it takes, and we will always come out stronger.
But the most critical investment we make is in our artists. Lately, there's been a lot of buzz about the big numbers being spent on catalog deals. I'll have more to say about that in a minute or two. But it's important to remember that the future of music is and always has been dependent on the discovery and nurturing of new talent. We share a common interest with our artists, building and sustaining their long-term careers. We succeed only when they do. That's why our core business model is based on long-term artist development and investment. Here, too, investment in artists takes many forms, our worldwide resources, our capital, our marketing and promotional service, and the talent and expertise of thousands of our employees. Our labels are simply the best in the world at discovering and nurturing artistic talent, and UMG's investment in artists has never been higher.
I'll give you three brief examples of what I mean when we talk about discovering, breaking and nurturing artists. The BRITs Rising Star recently went to Holly Humberstone. There were only two other nominees for this award in the UK, Bree Runway and Lola Young. All three of them are UMG artists. In 2021, the biggest artist breakthrough in the industry was Interscope's Olivia Rodrigo. She's the only debut artist to land a spot on the IFPI Global Top 10 Artists Chart.
Earlier this year, more than 10 years into their career, Glass Animals, who've been in the UMG family since their debut in 2014, became the first British band to top the daily Global Spotify Streaming Chart. Their single, Heat Waves, also broke the record, taking 60 weeks to climb to number 1 on the Billboard global chart. This is what we mean when we talk about creating sustained interest and longevity, especially critical in today's streaming economy.
So given the resources and commitment to succeed that UMG brings to the table, what does the music landscape look like for our artists? In a word or two, in fact, it looks wide open and filled with possibility in so many ways. For starters, take ad-supported streaming and subscription. Since the pandemic began, UMG saw a very significant influx of new subscribers to our platform partners. And now, according to our consumer research, nearly one in four consumers in over a dozen major markets are subscribed to at least one premium service.
Why? Because the value proposition of on-demand access to all their favorite music with excellent programming features means that once consumers migrate to a subscription service, they are highly likely to stay engaged and enjoy these services and the flexibility they afford to deliver the best-listening services at home, in cars, smartphones, iPads, et cetera, et cetera.
An increasing share of these new subscribers comes from older demographics. And as the population ages, we expect adoption rates to be sustained as consumers access their favorite music throughout their lives. Also driving ad-supporting streaming and subscriptions continued growth, are diversification of and the competition amongst DSPs and improved product offerings.
For example with our involvement, platform partners are launching new features like high def audio as well as richer integrations, further enhancing the value proposition for consumers. All these factors explain why we believe there is great potential for significant increase in streaming penetration and subscription growth. And even as ad-supported streaming and subscription continue to grow, there're a number of other digital advances that will create new revenue streams for UMG.
For example, in January building on our joint track record of success, we announced an expansion of our agreement with Amazon. The deal crosses an array of areas within the Amazon ecosystem including their multi-tiered subscription service, higher quality in spatial audio which we're very excited about, artist merchandise and live streaming through a new agreement with Twitch. We will be creating innovative channels, experiences and features with Twitch for all our artists, as well as our labels to engage and interact with existing fans as well as new audiences.
The point being that even with our traditional partners such as Amazon, our relationships evolve as the platform evolves to encompass a full gamut of opportunities from physical product, artist merchandise, music subscription to live streaming.
Another expanding area in which fans are connecting with artists and discovering songs in ways that were unimaginable just a few years ago is health and fitness. We now have 19 partnerships in the health and fitness space, including recent deals enabling innovative new services such as Stryde, [indiscernible] (00:14:11), Mentra by SATS, STEEZY and CLMBR. These add to what we believe is the widest portfolio of such partnerships in the music industry.
We're also on the front-line of developments in Web3 and the broader gaming and metaverse space. Whilst still at an early stage of experimentation, we're testing and learning through active engagement with our artists in the development of new products, there's this whole world evolves.
As opportunities arise for meaningful, strategic moves that promise to deliver for our artists, we will be in a position to seize them. One of our key differentiators in advancing new Web3 opportunities is that we're implementing partnerships while engaging with operators, so that we are ready to execute with our artists upon launch.
This slide shows the range of our growing list of partners and it will broaden and become sustainable. And the eagerness of our artists and partners have demonstrated to lean in with us into this space underscores the opportunities we collectively see that the role of the music company will be indispensable to creative success and that this category will grow because of our own unique ability to bring together a suite of rights that will create the most compelling and innovative products, as well as offer scalable solutions for artists that are seamlessly coordinated with their global marketing campaigns.
Now, my third and final point, acquisitions. On our last call, Boyd explained why any number of players are waking up to a newfound enthusiasm for music copyright investment. In my remarks today, I hope I've made it clear that since UMG is the clear market leader in our industry and with a broad and global artist roster and deep relationships in the creative community, we're often the first stop for artists, estates and others interested in selling music rights. We see almost everything. And when it comes to evaluating potential acquisitions, we can be and we are very selective.
We're quite bullish on the long-term prospects for music, and I believe no one can do more with music rights than our team. We therefore stand ready to take advantage of opportunities to acquire catalogs, but only the best catalogs at the right price, and only after we've thoughtfully assessed the value of the rights and have a clear view of how we will make returns well in excess of our cost of capital.
So let me unpack what all that means. Our track record as the management team has demonstrated time and time again our ability to assess talent and understand the value of music rights. We have the ability to see and evaluate opportunities that others do not. Our unique understanding of opportunities has many sources. UMG's market-leading creative and industry expertise in every single major music market in the world, our own people on the ground, our own direct-to-consumer initiatives, our analysis of the many different drivers of music monetization and the proprietary cross-platform data we receive from numerous services with whom we partner. Add to that, our global resources, marketing expertise and existing infrastructure, and you can see that the very knowledge and experience that has made UMG the industry leader gives us a distinct advantage in evaluating available catalogs. And our industry-leading capabilities allow us to maximize the value of the catalogs we do acquire. I believe, and I think we've demonstrated that no one can do more with great catalogs than UMG.
But it's important to understand that not all catalogs are created equal, whether with respect to their geographical appeal or their future growth potential or in fact with respect to the very nature of what is being offered as a catalog. What is described as a potential acquisition can run the gamut from one, a full suite of rights that gives control over the marketing and monetization of the catalog to two, a bundle of rights which is severely limited because approvals are required for their use to three, acquiring only a portion of an artist's catalog and finally to four, buying merely royalty streams that are nothing more than passive, low-return investments with limited upside and zero control.
When we evaluate catalogs, we are looking for the truly special ones, prized, valuable, special collections of great works of art with which we would have the unrestricted ability to strategically make the most of the opportunities that they contain. Again, we are not in the business of buying individual royalty revenue streams or assets over which we will have no ability to make the most of those rights. We're more than happy to leave those deals to others.
While more rights opportunities have been coming to market in the past few years, none of this is new to us. Believe me, we're an experienced acquirer, both highly selective and financially disciplined. We have been engaged in this activity for literally decades, whether or not it was the purchase of EMI Records, BMG Music Publishing, Sanctuary, or the Dick James Music catalog, which included obviously the great works of Elton John, or the catalogs of ABBA, Bob Dylan, Neil Diamond, to name just a few. This is what we do and this is what we've done. And while the market around catalog rights is active and competitive, UMG has longstanding relationships and powerful networks that enable us to spot opportunities before others do.
As you know, our overall investment strategy is based on matching the risks we take with the opportunities for return. With new, unproven talent, the high-risk profile is accomplished by a greater opportunity for significant upside. With an established music catalog where we have well-developed understanding of the artists and their fan base, a long history of how the rights have performed, and what has driven those returns and an ability to make the most of those rights with all our unique capabilities, the risk is considerably lower and the returns are much more predictable.
From a financial perspective, our investments are a thoughtful balance of high-risk, high-return new artists, and low-risk, predictable, and consistent return musical works. After all, this management team has decades upon decades of experience in successfully acquiring IP. This is how we built UMG into the leading company it's today.
I can't give you a precise figure of what we expect to spend over the coming years on artists rights. We're not a financial player, we're not a financial investor, nor we're new to the market – nor are we a new to the market fund on the hope to do deals of a set schedule. Further, unlike a fund, we will never sell or divest these rights.
We are building our business and creating shareholder value for the long run. And we have the luxury, the wisdom, and the capacity to do deals that make sense when they become available. When a catalog opportunity arises that truly constitutes surprise, as I said, one that contains great assets that offer strategic and financial value at a reasonable cost, well then we will acquire it, bring it into our family, make the most of those assets, and further accelerate our growth. If the opportunity does not meet our criteria, we will not acquire it. It really is as simple as that. Because if we chose to, we could turn off catalog acquisitions entirely and still continue to significantly grow our core business and our entire company.
As for the funding of these acquisitions, that can be done in a myriad of ways which Boyd can address later in his remarks.
Let me give you a perfect example of our acquisition strategy and action, our recently announced 2021 acquisition of Sting's incomparable music publishing catalog. Sting is a songwriting genius. His catalog, one of the most commercially successful and critically acclaimed of the last half century spanning his entire career with The Police, and as a solo artist, including hits like Roxanne, Every Breath You Take, Fields of Gold, and of course, Message In A Bottle among many, many other global hits. We couldn't be more excited by the myriad of opportunities now that Sting's publishing is united with his master recordings of The Police and his own solo recordings.
Why do great artists such as Bob Dylan, Neil Diamond, and Sting choose to be – UMG to be the home of their musical legacies? Well, Sting said it best. He said, and I quote, it's absolutely essential to me that my career's body of work have a home where it is valued and respected, not only to connect with longtime fans in new ways, but also to introduce my songs to new audiences, music – musicians and generations. And we have that ability and we have the flexibility, and that is what separates the opportunity for us. That validation speaks volumes about not only what we can provide artists in terms of global commercial success, but about the culture of UMG, and why we believe we are best positioned to honor and expand the musical legacies of the world's greatest artists.
As I said earlier, change in our business is a constant. And the changes at work in the industry today and in the months and years ahead will be opening up new and exciting opportunities. We will embrace them as we always have with skill and confidence.
And with that, I'd like to turn it over to Boyd, who will help provide further details on our financial results. Mr. Boyd, thank you.
Thanks, Lucian. Okay. I'll start here by summarizing from a financial perspective what has been another remarkable year here at UMG. Looking at the full year, which is the best way to analyze our results, revenue grew 17% and EBITDA grew 20.9%. This drove our adjusted EBITDA margin to 21%, an expansion of nearly 1 percentage point for the year. Let me put the year into context for you. We've been able to consistently grow revenue, adjusted EBITDA and margins over the past few years. The business is benefiting from stronger, more predictable and more diversified revenue growth, and this revenue growth has driven significant EBITDA margin improvement as we benefit from continued operating leverage.
As to the effect of COVID on financial reporting, it created an easier comparison for 2021 on the revenue side but a more difficult comparison on the EBITDA margin side. In 2020, we saw cost savings around travel and entertainment and marketing as the world shut down. We also benefited from revenue mix away from lower margin merchandising and physical revenue. This drove very strong EBITDA margins for 2020 with a year-on-year gain of more than 2 percentage points. We therefore view it as a positive that despite this challenge in 2021, we were again able to expand our adjusted EBITDA margin by nearly 1 percentage point.
In the fourth quarter, revenue grew by 16% and adjusted EBITDA grew by 6.8% in constant currency. While adjusted EBITDA continued to grow, adjusted EBITDA margin declined in the quarter for two reasons. Firstly, there was a €28 million provision reversal in 2020 related to a label acquisition we did. This exceptional item wasn't disclosed by Vivendi as they don't report quarterly EBITDA. However, we felt it was important to bring this to your attention in the context of the quarterly comparison. Now, if this benefit were excluded from the prior-year figures, fourth quarter adjusted EBITDA would have grown 14% in constant currency, and the fourth quarter adjusted EBITDA margin would be close to flat year-over-year.
And then secondly, we had a very – as you can see here in this slide, we had a very strong rebound in Merchandising revenue and strong growth in vinyl sales, both of which have lower margins than our overall business. We also had a great quarter in Music Publishing where margins are slightly lower than they are in Recorded Music.
So while there remains some variability quarter to quarter, as there always has been in this business, we encourage you to view the business over a longer time horizon and we continue to plan for margin expansion as we indicated in the midterm guidance we provided at the time of the listing.
Now let me touch upon the results from each of our segments. Here is Recorded Music and you can see on this slide that Recorded Music revenue grew 12% for the quarter and 17% for the year. This revenue growth drove Recorded Music EBITDA up 20% and Recorded Music EBITDA margin to 23.7% for 2021, about 1 percentage point higher for the year.
Splitting out Recorded Music to give you better insight into the revenue streams, if we look at subscription and streaming revenue, it continues to grow very well, up 16% for the quarter and 20% – almost 20% for the year in constant currency.
It is worth pointing out the growth in physical. Physical revenue grew 11% in the fourth quarter – nearly 11% and 21% for the year with growth across the US, Europe and Japan. The physical growth was largely driven by improved vinyl sales as the quarter saw releases from ABBA, Taylor Swift and The Beatles, which performed particularly well. We also had a particularly strong year in Japan, the world's second largest music market where physical is still the dominant format.
For the year, growth was well-distributed globally with all major regions seeing double-digit growth, and at 21%, North America had the highest rate of growth. And as you can see on the right here, our major sellers included a well-balanced mix of new and – both new and established artists.
On this slide, you can see that both subscription and ad-supported streaming revenue continued to grow at an impressive pace in 2021. As Lucian indicated, we see a long runway ahead for subscriber penetration and also for continued growth in advertising monetization. It is worth noting that from both a growth rate and a gross euro perspective, 2021 streaming and subscription growth accelerated compared to the growth seen in 2020.
As music content owners, the continued expansion and broadening of the streaming and subscription landscape is a positive story for UMG. It's driving further diversification of our revenue base, and we are seeing a growing number of meaningful distribution partners on a global basis. Now, to better help you understand our revenues, we will start breaking out subscription and ad-supported streaming revenue in our reporting beginning with the first quarter of 2022.
In Music Publishing in Q4, revenue grew 28% and 15% for the full year. In the quarter, there were timing benefits and collections from certain partners and societies that drove the stronger growth. This is not uncommon. The 15% revenue growth rate for the year is more indicative of the underlying trends we're seeing in our business and reflects continued strong growth from subscription and streaming as well as synchronization.
Performance revenue was lower for both the quarter and the year due to the COVID-related impact on live performances and bar, restaurant and nightclub closures, which led to temporarily lowering payments for the use of music in those venues. The publishing growth for the year was also helped by catalog acquisitions made in prior years such as Bob Dylan, and the publishing margins improved slightly for the year due to operating leverage. And as a reminder, again, in terms of improving our transparency, we plan to start breaking out publishing revenue by type in the first quarter of 2022.
Turning to Merchandising now. Merchandising revenue grew 42% in the quarter and 27% for the year, largely due to the partial recovery in touring revenue, particularly in the US, but also due to better retail income. However, touring – I'd like to point out, touring is a lower-margin revenue source in what is already a low-margin business compared to the rest of UMG. To give you a sense, at the gross margin line, touring is about an 8% to 10% margin business, retail about 15% to 18%, and direct-to-consumer closer to 25%.
In 2021, we also had higher artist costs, which further negatively impacted margins, and therefore, our Merchandising EBITDA margin fell for the quarter and the year, with the full-year margin at just over 4%. Now, as we continue to focus on expanding our direct-to-consumer initiatives and growing our digital goods, we will look to improve the margin profile of our Merch business. It remains strategically important for us to be in this business as it connects fans and their artists and artists and their fans. And it is in this connectivity that we're looking forward to increasing in the coming years.
Now, let me turn to cash flow. As you can see here in the middle, our net cash provided by operating activities for 2021 was €1.14 billion, which included net royalty advance payments – as you can see with the green on the left here, which included net royalty advance payments of €364 million. And again in the green, you can see that we spent €388 million on catalog acquisitions, down from €920 million – €929 million in 2020 which follows our prior statements about catalog spending in 2020 being elevated due to opportunistic investment. Now, this leaves us with a healthy free cash flow of €638 million for 2021.
To remind you, our dividend policy stipulates that we pay a dividend of 50% of net income. And as such, our dividend proposal for 2021 is €725 million or €0.40 per share. And having already paid an interim dividend of €0.20, the final dividend to be proposed will be €0.20 per share.
So this slide here sets the collective content or investment that we've made in content. The blue are catalog investments like M&A and the green are our royalty advances, net of recoupment clearly. Collectively, our net content investment for 2021 was about half of 2020, totaling €752 million compared to approximately €1.5 billion in the prior year.
Within net advances, which were down 38% from 2020, they were still elevated compared to what we consider a more typical level. What you're seeing picked up in this number in addition to the day-to-day advances in recoupment more typical of our core business are some unique opportunities we've had with several superstar artists.
In the last three years, gross advances have included several broad, multifaceted deals where our superstar artists have chosen to lock in very long-term deals with us. These have covered areas beyond Recorded Music and beyond Music Publishing and include branding, sponsorship, film and television, merchandise and other areas. For example, in 2020, we mentioned that this was the case with Drake and Taylor Swift, and they continued in 2021. The same was true for several major artists, but due to artist confidentiality, we've not yet been able to disclose these.
The fact that these artists want to double down with us at the height of their careers validates everything we do for them and will be long-term value driver for our business and for our shareholders. While our underlying operations fund this type of artist investment in both new and established artists alike, catalog acquisitions are a bit more like M&A.
Lucian talked in detail about our approach to catalog investments. We've been doing them for many years, but we're highly selective strategic acquirers. There're a number of ways we can finance these. We can finance them from our operating cash flow to our balance sheet with our capacity to add leverage, and also with special purpose vehicles. I can assure you, we have received many, many offers from interested parties who just want to partner with us to access our insight and our ability to monetize. And we will consider all of these options.
Another important point about the acquisitions we're making is that they're opportunistic and are not required to drive growth in our core business. They're also nearly impossible to identify and to provide guidance on in advance. So it's logical, then, that the revenue and EBITDA these investments may drive are not specifically included in the midterm guidance we gave you in our prospectus, which to remind you was for high-single-digit revenue CAGR against our 2020 results and mid-20s EBITDA margin. Though I would remind you that in any single year, the financial contributions of each of these catalogs is small compared to the scale of our business as a whole.
And as a reminder, if we buy a publishing catalog that Universal Music is already administering, there will not be incremental – any incremental revenue impact. So to reiterate some of what Lucian said, we remain extremely disciplined in the investments we are making. We take a detailed and holistic view of the financial and strategic opportunity – opportunities each of these investments offers UMG, and then we decide the return profile, whether it fits into our portfolio. In not, then we don't acquire. We're only interested in those assets which we can control. We're not interested in passive income streams and we're only interested in those assets where we can improve the monetization.
And since I mentioned leverage a moment ago, I'd like to note here that we're going to be meeting with the rating agencies soon, and we are looking forward to getting our first rating for UMG. While we realize the business may currently be under-levered, our intention is to be investment grade rated as we work toward a more optimal, longer-term capital structure for the company in the coming months.
So Lucian, Michael Nash, and I will now take your questions. And operator, could you please open the line for Q&A?
Of course. Thank you. [Operator Instructions] And our first question today comes from Omar Sheikh from Morgan Stanley. Omar, please go ahead. Your line is open.
Thanks very much, and good evening, everyone. Okay. So, I'll stick to questions then, there might be a couple of parts in each one, but if I could maybe start for a question – with a question for Michael, if possible.
On the streaming revenues for this year, so there's a couple of elements of this. You mentioned the Amazon deal that you signed at the beginning of this year. Could you maybe just talk broadly about the impact of deals like that? You don't have to talk specifically about that – the Amazon deal in and of itself. But it'd be interesting to kind of hear your thoughts about how you expect new deals to come on stream say over the course of the next one to two years and how deals like Amazon sort of drive – kind of illustrate your strategy. That's the first question.
And then secondly, on the content investment, maybe this one is for Boyd. Could you – Boyd, you spent – if we look at 2020, you spent €929 million as you said on catalog purchases. Could you maybe help us understand what impact that investment had on the revenues and profit of the business in 2021?
And then just thinking about the kind of the pattern of how advances in catalogs might sort of come through over the next two or three years, can you just maybe just talk about whether you think the elevated – relatively elevated level of investment that we've seen in the last three years will be repeated or are we sort of looking at a period when that will be – when the total investment will be coming down? Thank you very much.
Will you take the first one?
I'll take the first question. Thank you, Omar. So with respect to the Amazon deal and what that conveys about our strategy and our partnerships, I think that the really important themes were hit on by Lucian in his comments. First of all, the holistic approach. So, we broadened and expanded our deal with Amazon across all their touchpoints with consumers. We think of Amazon as being a great partner from the standpoint of the monetization of all the forms of fan engagement.
So, we're talking about the multiple tiers of the subscription offer. They now have an ad-supported tier for customer acquisition. Their focus on higher quality, and they were a leader in focusing on higher quality early on. We're very excited about spatial, high resolution and lossless and the higher-quality offer that they make available. And we're excited about continuing to focus with them, innovating around physical goods and merch.
We added the Twitch component, they're part of the Amazon family of companies, and we think that the opportunities to innovate our livestreaming is great. And we think the opportunity to think of the livestream component of Twitch as it relates to our overall business with Amazon is what's really strategic. So, it's a multifaceted nature of the partnership with Amazon, all the touchpoints with the consumers, the holistic angle.
The other thing that's really important, and Lucian emphasized this, we see cost and innovation throughout the digital ecosystem. So innovations, obviously very much about new partnerships and new formats, and livestream would be an element of that. But innovation is very much about driving our partnerships with our established major global platforms. And what we see with Amazon and the added component of Twitch and innovation happening in other categories of their business is the ongoing evolution in the space, the megatrends driving the consumer online, provides us more opportunities to monetize music consumption with established partners.
I'd just like to add there, Michael, that we lean in, that's what our digital strategy is. There're new categories, we talked about fitness, we talked about health, we never talked about a digital category like Peloton a couple of years ago. Our philosophy and our business attitude is that we will make deals right across the entire digital universe because music is the soundtrack of everyone's lives. Music is everywhere and we do everything that we can whether or not it's with Amazon, how we're leaning into the metaverse and what – and where we'll be shopping in future in whichever malls, you'll be listening to music. And our job and our focus is to make sure that it's ours with these huge catalogs and all these phenomenal new artist breaks.
And Omar, maybe I'll...
Thank you.
Oh, I was just – I think Omar – there was a second part to Omar's question if I – if you could allow me. Omar, I tried to say a little bit earlier, the difficulty here is many ways – I did say that it was an elevated level of advances and clearly in 2020 and then again in 2021. The difficulty is that these are very unique opportunities that come up and when you analyze these opportunities and it involves the superstar artists where you're securing longer-term rights and broader rights, they are incredibly positive for the long-term health of our business and driving long-term value for our shareholders. So, we really do have to take up those opportunities as and when they arise. So, it's practically impossible to actually give you with any precision whatsoever what's the normalized level of advances.
And just another part of your question was what was the impact in 2021 of the – 2021 performance relative to what was coming through from the acquisition. The reality is, is that the contribution is negligible at this point in time. There's – when you acquire rights, there's sometimes existing arrangements in place or contractual commitments in place to take a little bit of time to unwind before they come into the system. So, in 2021, negligible impact on our – in our performance.
Let me just back that up, Boyd, as well. We are only interested in the best of the best of the best. And you cannot predict when one of these opportunities comes to market. It can be a personal reason, a strategic reason. We don't know. But I can guarantee to you that when it does, we will be there, we will look, we will analyze. And if we can add value to it with our data, with our statistics, with our insights, we're far better positioned to analyze what exactly what the business opportunity is and what the growth is because we see the growth in the marketplace, both in Recorded Music before anybody else because we're at the epicenter of it.
Thank you. And the next question comes from Lisa Yang of Goldman Sachs. Lisa, please go ahead. Your line is open.
Good evening. Thanks for taking my question. The first one is on the streaming growth. I mean, Warner mentioned at their recent result that they've been hit by almost $110 million headwind from a DSP deal renegotiation, which obviously is quite a big reset. And I know you don't talk about individual deals, but given the size of it, I'm just wondering if this is an issue that you could be facing or that you're facing. And in general, how you think about the leverage of the labels versus DSP and how that's going to evolve? That's the first question.
The second one is on margins. Obviously, you reiterated that margin will expand in line with your targets of – to meet 20s all the time. But I'm just thinking, particularly on 2022, there're obviously a lot of moving parts with inflation picking up, merchandising coming back, certain cost-related travel coming back. So, do you think margin can still grow in 2022? Could you help us just understand like the sort of the various – hello? Yeah. Could you just help us understand the various moving part? That'll be really helpful. Thank you.
We're actually quite happy with the state of our digital partnerships. I've spent my entire life, my entire career fighting for rights and artist rights, publisher rights. And frankly, we don't know what to your point what Warner were referring to. So frankly, I can't actually really comment.
With regard to the importance of the platforms and our role within it, our music, new artists in all genres, rock, hip hop, classical, it drives consumers to the platforms. And when you have the kind of performance that we have creatively as well as our vast, deep catalog, where you can see we re-align them cyclically from the Beatles, the Beatles had the most phenomenal year last year, to ABBA that you will have all seen, to The Rolling Stones, to Queen, to Elton John. This is what's driving our company and it's what's driving the platforms. And that's where we are confident of our role with them.
Before Boyd addresses the margin question, I just wanted to be really specific and say that we don't see anything similar on the horizon with respect to the issue that Warner raised. As Lucian said, we're not sure what they referred to and we expect continued revenue growth from all of our major global partners.
Yeah. That's right. Yeah.
And with regard to margins, I mean, we gave the guidance about that we would – in the midterm, our EBITDA margins would move to the mid-20s. And reality is, is that 2022 will be part of that continued evolution of our overall margin. So yes, we expect the expanded margins through this year and in the coming years.
Thank you. And our next question comes from Richard Eary of UBS. Richard, please go ahead. Your line is open.
Yeah. Just two questions from myself. Just, firstly, thank you, actually, for all the color with regard to catalog investments, which is super-helpful in terms of giving us color around that. The one thing I would like to try and understand a little bit is that on the actual advances, given that it's more the sort of normal course business in terms of line of sight of artists that you're signing with a view on obviously how they'll go in the future, how does – how should we think about that on a go-forward basis? Is that something that we should think about modeling as a percentage of revenues? Any sort of color around the advances side within the catalog payments, that would be great. I understand that the catalog is more going to be lumpy around M&A and I technically get that point.
The second question is, is just around, obviously, maybe just talking about the new streaming deals, but also sort of things like the NFT opportunity and noting the obviously the recent deal that you just made couple of days ago. Could you maybe try and help us size the opportunities around those new streaming deals, but also the NFT opportunities and Web 3.0 opportunity scores?
I'd just like to add one thing and I think that you can – I'll hand over to you as well. Long-term thinking and long-term business is baked into everything that we do. You may see one-off NFT drops. I'm far more interested in the long-term sustainable business model where this product, this opportunity, and I include the metaverse in there, is part of the conversation with our artists where it's baked into their long-term marketing campaigns and it adds to the push and the pull of what is monetization, what is discovery and what is promotion. And you may be able to add a few more specifics on it, but I want it to become something sustainable and long term as opposed to just a headline today about something that everyone talks about for an hour. I want it to be baked into our business.
Just to elaborate on that briefly. Very active experimentation by Universal Music with a lot of NFT drops last year, we made a commitment to learn by doing. What we distilled from that experimentation was a strategy that speaks to the objectives that Lucian articulated. So these new deals that we announced, and I think you're probably referring to the Curio deal, the Snowcrash deal and the Billboard chart stars deals recent announcements we made. These are highly consistent with a long-term focus on market-making partnerships, product innovation and as Lucian emphasized, scalable categories where we're taking an artist-first approach.
So, I would say that these deals are really more about strategic positioning for market development overall. It's really early days. So, the focus is on being in position to be able to take advantage by bringing the right opportunities to our artists, so that we can execute at scale. And we think about what we're pursuing in Web3 as an extension of everything that we're doing with artists and the way that we can have the greatest impact is by focusing on deploying our artist roster up against these opportunities and executing the NFT product opportunities and all the Web3 opportunities as part and parcel of everything that we're doing with the artists. So you can think of Web3 and NFTs as kind of the tip of the technological spear or overall e-commerce strategy with our artist roster.
Now, to something completely different. Richard, just to go back to the point in terms of advances and what you can expect, it's not possible to give you a specific percentage of freedom for this kind of item. What all I would say is that we're trying to give you better transparency. We've broken out the advances from the catalog investments, we'll obviously continue to do this. So hopefully with that transparency, you will get greater comfort on what's actually happening here.
And then the only other thing I would say is that to the extent that these advances are elevated is because we're acquiring longer and broader rights which are so good for the health of our business and for the – for our shareholders. So, I'm not sure I can say much more to this, sorry.
But let me add that when I started as a talent scout, everything – all the A&R and all the advance judgments were based on your gut instinct and whether or not you liked it. Now, we have an enormous amount of data and analytics. It's much easier now to invest intelligently, and as you said, Boyd, where we've been fortunate enough to create these long-term relationships with these superstar artists that have years if not decades with their catalogs with us, we've been able to lean in and actually advance our relationships with them and that's needed investment.
Yeah.
But they're safer and they're more intelligent.
Thank you. And our next question comes from Will Packer from BNP Paribas Exane. Will, please go ahead, your line is open.
Hi, there. Many thanks for taking my question. Firstly on emerging markets, there's set to be an increasingly important top line driver, especially in premium streaming. How are you thinking about increasing your market share of content in those markets? Would you consider M&A? Will you invest organically or perhaps JVs along the lines [indiscernible] (01:01:52)?
Then secondly, just going back on the margin question. Is it fair to think that for FY 2022, the level of margin expansion will be lower this year in the context of the return of those COVID costs or did your comment imply that it should be another year of around 100 basis points?
Just to deal with the margin question quickly. Will, we don't want to give anything – more guidance more specific than what we've already said. So, if we could leave it there for now.
Yeah. But we...
Thank you. And our next question... [indiscernible]
(01:02:35)
Sorry. Carry on.
I was just going to say the second part of that was about the opportunities. So, the question from Will is about the opportunities in emerging high-growth markets.
Which is A&R. It's organic A&R. We're doing – I'm encouraged with what I see creatively in Universal Music Arabia, what we're doing there, I'm encouraged by what we're doing in India creatively, obviously, Korea, China. We're expanding in China. We just launched Capitol Records in China today. We're ambitious for it. The work that I've seen done in India last week, I was very impressed with. We've signed the local superstar hip hop artist called Badshah there that we were very excited about. He's done a duet. I'm not sure if I'm allowed to say, but I'm going to visit the duet with another famous Latin artist, and we're getting into trouble for that.
And that's the creative organic leaning into the changes in the market because of the distribution opportunities. But at the same time, obviously, we're always looking for acquisition as well in markets where there was no business 10, 15, 20 years ago. And now there is business, now we're very open-minded.
Thank you. And our next question comes from Matthew Walker of Credit Suisse. Matthew, please go ahead. Your line is open.
Thanks a lot. And thank you for taking the couple of questions. The first one is just on – I probably won't get very far with this. But on high-single-digit growth, I mean, what does that mean? Is it like a 6% or a 9%? Any help you can give us would be helpful. I mean, you started off, I think 2021, saying it was going to be 10% or a little bit more than 10%, and then it was much higher, it was like 16% or 17%. So, any help you can give us on sort of definition of high-single digit growth? I mean, I know that you sort of set high-single-digit probably deliberately, not to be specific but any help you can give us will be great.
And then the second question is on the metaverse and the NFT deal. So, when you sit down and you talk with your artists about NFTs in particular or even digital merchandise, to what extent do today's existing contracts with existing artists include you having a cut on digital merchandise and NFTs or is that something where you're going to have to go back and renegotiate all or most of the contracts to include those?
So, Matthew, I hate to disappoint you but last time I looked the number 10% was double-digit and 17% is high-double-digit. So, the guidance we gave was high-single-digit and we stick behind that and that's probably all I can say. I admire your attempts at trying to get something more specific, but let's leave it at that for now. Thank you.
And then with respect to the question on NFTs and partnering with artists, I would say that the proof points are in the marketplace or will be in the marketplace with respect to the products that we're delivering. And I think that Curio and Snowcrash and chart stars deals will be examples of partnering with artists. There have been some products out there that are opportunistic celebrity-driven based on a very shallow set of rights. And frankly, they're not very interesting. They're half products. We believe that we can execute with our artist's whole product propositions that'll be marketed with the full power of the label, bringing the artist's voice and vision bringing the artist's voice and vision to the marketplace.
And as Lucian said, that holistic approach is really where we're going to be able to move the market or where we're going to really be able to deliver scalable categories. So, I think what's most important to consider is how we partner effectively with artists to be able to make new products, make whole products that include the full package of rights working with the artists in a way that we're bringing to market these new types of products in concert with everything we're doing with the artists.
Thank you. And our next question comes from Matti Littunen of Sanford C. Bernstein. Matti, please go ahead. Your line is open.
Hello. Thank you. The first question is on the new platform deals, quite a few questions already on that, but just to go for some color on the typical contract period in this year. So are these typically multiyear period? And in terms of the licensing revenue that you're getting out of them, is it typically on a sort of fixed basis with some kind of escalation going on? Or is it somehow consumption based?
And then, thank you for giving the detail on the catalog investments versus the other content investments. Of course, as analysts, we're always looking for more. So, could you just confirm that most of the catalog acquisitions were publishing catalogs as opposed to recorded ones? Thank you.
So I think, with respect to the first question, the – I think that you're dealing with such a wide range of different types of products and categories. It's very difficult to characterize effectively and succinctly answer your question. I would say this, in general, we've made a decision that we're going to partner early with companies and that puts us in a position so that we can establish monetization for our artists but also influence the product roadmaps. So, we may make a determination that while a company is fully billing on the systems to implement a more sophisticated business model, we're going to partner with them and we're going to figure out the right economics and how ours artists can fairly participate in the value that their content creates on the platform, and we're going to build a partnership from there.
So, there's a variety of different types of models that you're going to implement when you're working with companies at an earlier stage. But I think the most important thing is to be part of driving a healthy ecosystem by focusing on how to effectively partner with companies at the earliest possible stage. So, that may put you in a position where you have different business models that you're going to look to implement over time.
Understand, Matti, that we want to be the world where its campaigns are integrated into an artist's global strategy and global career. And one-off drops are very nice but they're not sustainable. And we spend a lot of ability and a lot of skill and capital to break these artists and to sustain them and to market our vast catalog. And that's where we put our capital to work. It's just not on advances, it's just not on acquisitions, it's on activity to market, promote, take risks, bring the music, bring the product to audiences, and that's where we see our future digital business. We want it. We want to work with business partners, platforms as well as obviously our artists, so that we've got a long-term integrated business.
And Matti, the other question you asked which is what is the split between the – on the catalog investments, what's the split between publishing and records. Coincidentally, both for 2020 and 2021, approximately, 75% of the catalog investment was on publishing. But word of caution, that doesn't necessarily mean that in future years it will continue to be at 75%. It's just that's the way it happened to be in 2021 and 2020.
And as I said, you don't know when the greatest company, the greatest work, the greatest Picasso, a phenomenal opportunity is going to come along. But when it does, we will be there.
Thank you. And our last question today comes from Julien Roch of Barclays. Julien, please go ahead. Your line is open.
Yes. Good evening. Thank you for taking my question. The first one for Boyd, who seems to be a Monty Python fan, so – and now for something not different. If I look at net content investment ex-catalog acquisition as a percentage of revenue in the last four years, it's been 2%, 2.7%, 7.9% and 4.3%. You said 4.3% was still elevated and then you said it'd be impossible to give us a guidance because it's different every year. But 1% difference on revenue for that line is 15% on the free cash flow, which makes UMG either cheap or expensive. So while you can't give us a guidance, 2%, 3%, 4%, if – what's your – if you were to do a model on UMG, and I'm sure you have a five-year business plan, what makes more sense between those three numbers? I know that it's been tried three times. I'm just trying it fourth time. So that's my first question.
And then the second question is on catalog. On catalog, you said, returns well in excess of cost of capital. But if I take Sting, according to Billboard, you've paid $300 million for $12 million to $13 million of revenue. If I put 20% SG&A on these revenues and 25% tax rate, I only get a 2.5% books tax return which is far from WACC. So, Billboard numbers must be very wrong. I'm not dreaming of you giving us the Sting numbers, probably ain't going to happen. But could we have a sense of what is your post-tax return on catalog acquisition for maybe 2020 or 2021? Thank you.
Julien, I admire your persistence. But clearly, I'm not going to be able – I mean, again, just going back to what I was saying, these are unique opportunities and you can't attach a specific possibility or a specific percentage to an opportunity or a possibility. It's just not the way to look at it, frankly. And with regard to your question on specifically Sting, clearly, we're not going to comment on any individual artist. But all I can say to you, I promise you, we've got much better insight than Billboard has. So, that's the whole kind of point that Lucian was making about what we see and what we can do with the asset and how we can improve the monetization. But by the way, we're not telling anyone how we're going to do this.
Thank you. That was our final question. Today's Q&A session has now come to an end. Thank you all for joining and you may now disconnect your lines.