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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to Warner Music Group's third quarter earnings call for the period ended June 30, 2019. At the request of Warner Music Group, today's call is being recorded for replay purposes, and if you object, you may disconnect at any time. [Operator Instructions] Now I'd like to turn today's call over to your host, Mr. James Steven, Executive Vice President and Chief Communications Officer. You may begin, sir.
Good morning, everyone. Welcome to Warner Music Group's Fiscal Third Quarter Ended June 30, 2019, Conference Call. Both our earnings press release and the Form 10-Q we filed this morning are available on our website. Today, our CEO, Steve Cooper, will update you on our business performance and strategy; our Executive Vice President and CFO, Eric Levin, will discuss our financial condition and results, and then we'll take your questions.
Before Steve's comments, let me remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs and projections will result or be achieved.
Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that can cause actual results that differ materially from our expectations. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in our earnings press release, our Form 10-Q and Form 10-K and other SEC filings. We plan to present certain non-GAAP results during this conference call. We have provided schedules reconciling these results to our GAAP results in our earnings press release posted on our website. Also please note that all revenue figures and comparisons discussed today will be presented in constant currency unless otherwise noted.
With that, let me turn it over to Steve.
Good morning, everyone, and thanks for joining us. Our Q3 results are further proof of the momentum created by our artists, songwriters and operators around the world. This quarter, we grew total revenue by 13%, digital revenue by 16% and OIBDA by 25%.
The overall trends in the recorded music industry remain healthy. For the first half of calendar '19, consumption rose 16% in the U.S. and 8% in the U.K. And in Germany, trade revenue was up 8%, its highest increase in over 25 years. While all of this is obviously good news, I'd like to take a moment to address an important point about industry growth. We value our relationships with streaming services, and there's no question that they provide strong distribution platforms which help music travel around the world faster than ever. But I often hear that streaming is responsible for the industry's growth, and that's an oversimplification. The sheer volume of music being released on these platforms is actually making it harder for great artists and songwriters to get noticed.
In the streaming era, consumers have 50 million tracks at their fingertips, growing at a rate of over 40,000 tracks per day. That's why our recording and publishing businesses are more relevant than ever. We cut through the noise. Our A&R skills and marketing strategies are critical ingredients for any artist or songwriter who wants to build a successful global career. Bottom line, it's the music that's delighting fans and driving the businesses forward. Without the talent and creativity of our artists and songwriters and all of the investment and expertise that we put behind them, there'd be no growth.
We provide the streaming services with a steady flow of great new music while helping to empower startups, new business models and entrepreneurs that benefit the creative community. At the same time, we must ensure that music is appropriately valued to protect our artists' and songwriters' livelihoods. Getting that balance and compromise right with our global distributors is never easy, and it sometimes means making strategic decisions that don't necessarily align with the choices our competitors are making. I'm pleased to say that we've enjoyed a jump in revenue in all regions across the world.
In Q3, revenue was up 9% in the U.S. and 17% internationally. I'd like to highlight Japan, where we made revenue gains of more than 30%, due in part to releases from The Yellow Monkey, Imeon and TWICE. Our global top sellers reflected a wide range of diverse talents, including hip-hop stars like A Boogie Wit da Hoodie; Cardi B; and Meek Mill, who's also a Warner Chappell songwriter; pop singer, Ava Max; and rock band, Panic! at the Disco. We also saw carryover from massive albums, such as Ed Sheeran's Divide and the Greatest Showman soundtrack.
In publishing, our songwriters are contributing to the world's biggest hits, including Missed Connection by The Head and The Heart and DJ Khaled's Just Us, which was co-written by Nova Wav. Its successes like these that have once again made Warner Chappell, the Publisher of the Year at ASCAP's Rhythm & Soul Awards.
We've also got some amazing new releases just out or in the pipeline. We recently launched the No.6 Collaborations Project, an album from the world's #1 streaming artist Ed Sheeran, which has a star-studded lineup, including Justin Bieber, Camila Cabello, Bruno Mars, Eminem and many more. We also have releases from The Black Keys, Stormzy, Slipknot, Melanie Martinez, Liam Gallagher, Charli XCX and the legendary Prince.
We're in the business of attracting brilliant new artists and songwriters to our company. In recent weeks, Warner Chappell welcomed a wealth of talent, including the one and only, Lizzo; Hip-Hop Producer, Turbo; Spanish legend, Melendi and K-Pop songwriter, Eric Nam.
In our Recorded Music business, Atlantic recently signed rapper Sueco the Child and Warner Records signed Australian rock band, Gang of Youths. Warner Records also entered into label partnerships with rapper, IDK and teen rap sensation, NLE Choppa. In addition, we're excited to be in business with entrepreneur Troy Carter in his new music and technology company, Q&A. Select recording artists from Q&A will now have access to our global network.
We continue to refresh how we present ourselves to existing and prospective artists, songwriters and employees. We recently completed the transformation of 2 of our most important operations, Warner Chappell Music and Warner Records. Both have new leadership teams, both have moved into our new headquarters in L.A. and both have unveiled new brand identities.
Another key pillar of our strategy is reinvesting in the future of our company through thoughtful M&A that expands our universe of artist and heightens our global impact. In the last few months alone, we've acquired Finnish label, Monsp Records, with its roster of influential local hip-hop artists; Slovakian entertainment company, Forza Music; Home of Opus, the second largest record company in the country; and the Gene Autry Music Group, which contains over 1,500 compositions, including classics such as Back in the Saddle Again and Here Comes Santa Claus.
A few weeks ago, our Arts Music division acquired First Night Records, the U.K.'s leading independent label for theater cast recordings, including Les Mis and Miss Saigon. This was just the latest in a series of moves that has seen Arts Music invest in genres that we feel are currently underserved. These include classical, theater and children's music.
We believe these multigenerational genres will begin to see real growth, thanks in part to voice-activated technology. Our Arts Music division was founded only 2 years ago, and today, it has a portfolio, including a label with Cloudco Entertainment to release music from the live-action series, Holly Hobbie; a new kids label with the Build-A-Bear Workshop; a revival of the iconic Sesame Street Records as well as New York's leading theater imprints, Chicka Boom and Ghost Slide.
The music business is full of opportunities, but to maximize them, we must constantly reinvest in our always evolving global expertise and resources. I'm thrilled that due to the spectacular success of our artists and songwriters, our company continues to outperform the industry. Specifically, music and copyright data show global market share gains in both recorded music and publishing for calendar 2018.
In Recorded Music, our combined physical and digital share rose 30 basis points to 16.5%, its sixth consecutive year of increases. And in publishing, we rose 30 basis points to 12.3%.
Thanks, again, for joining us today. I look forward to your questions. I'll now turn the call over to Eric.
Thank you, Steve, and good morning, everyone. The third quarter was strong with reported revenue growth of 10% or 13% in constant currency. There are a few factors impacting the numbers that I'd like to call out on a constant currency basis: first, the net impact of M&A, which was about 4 percentage points. The revenue increase includes $59 million related to the acquisition of EMP, which was partially offset by a $21 million decrease related to concert promotion divestitures. Second, the impact of adopting the new revenue recognition standard, ASC 606. In the third quarter, it had a negative $1 million impact on our total revenue. This was comprised of a $7 million benefit for recorded music and an $8 million detriment for publishing. There may be some minimal impact to our full year P&L due to timing of deals. Adjusting for these items, our total Q3 revenue would still have been strong, up closer to 9% in constant currency.
From an OIBDA perspective, certain adjustments are also necessary to make the year-over-year comparisons more meaningful, the details are in our press release, but in the quarter, we had $10 million of one-time expenses related to restructuring and our LA office consolidation versus $11 million in the prior year quarter. Q3 adjusted OIBDA rose 22% to $134 million, and margin rose 1.2 percentage points to 12.7%. The improvement was driven by revenue growth, a $21 million lower expense related to our variable compensation plan and an $18 million benefit related to the implementation of ASC 606, which were partially offset by the impact of a $16 million advanced recovery in the prior year quarter. Revenue mix had a negative impact on OIBDA margin for the quarter.
Our Recorded Music third quarter revenue was up 17%, with digital up 15%, driven by a 24% increase in streaming. Physical declined 25% due to industry trends and timing of releases. Licensing rose 15% or 6% adjusting for ASC 606 due to higher activity. Artist services and expanded rights revenue rose 90%, adjusting for the net impact of M&A, it was still up 46% due to higher international touring, domestic merchandising and advertising revenue.
Recorded music adjusted OIBDA grew 10% to $136 million, driven by revenue growth, lower variable compensation expense, the benefit of 606 and the timing of A&R spending, which were partially offset by the impact of the previously mentioned $16 million advance recovery in the prior year quarter. Adjusted OIBDA margin declined 0.6 percentage points to 14.9%, driven by revenue mix.
Q3 Music Publishing revenue declined 5%, but was up 1%, adjusted for the adoption of 606. Digital rose 14% or 7% adjusting for 606. Performance declined 27% or 10% adjusting for 606 due to lower market share and due to lost administration rights, which have lower margin.
Mechanical, which only relates to physical sales declined 28% or 11% adjusting for 606 due to the same factors, which impacted performance revenue. It grows 12% with no impact from 606. The increase was due to higher activities.
Music Publishing OIBDA rose 50% to $36 million. OIBDA margin rose 24.5% from 15.1%. The improvement in OIBDA and OIBDA margin was largely due to a $12 million benefit from 606.
Our operating cash flow in Q3 was $150 million versus $129 million in the prior year quarter. The improvement was largely due to working capital management. CapEx was $23 million, up from $11 million in the prior year quarter. The increase was driven by spending related to the build-out of our new LA office.
I've mentioned in recent calls that we've been reviewing our systems. I can now say that we are embarking on a program to upgrade our IT and Finance infrastructure, which will enable us to be more nimble and efficient. There will be material costs associated with this program but also long-term savings. We are just starting the process and are not yet ready to quantify it, but intend to do so as we move forward over the coming months. We just -- we ended the quarter with $541 million of cash. Post quarter end in July, we paid a regular quarterly dividends of $31.25 million. As a reminder, our fourth quarter dividend will be variable, taking into consideration our ending cash balance and future cash needs.
I'm pleased with our results and confident that full fiscal '19 will be another great year for the company.
With that, operator, please open the line for questions.
[Operator Instructions] Your first question comes from the line of Aaron Watts with Deutsche Bank.
A couple of questions from me. You spoiled us a bit with your financial performance of late. Perhaps you can put some goalposts around how we should be thinking about the growth profile of the company going forward, given not only the high-value set for yourself with your own year-over-year comparisons, but also maybe a more mature or maturing music streaming space?
It's Steve. So we're optimistic about the near-term future, and my view is that we'll be able to continue to successfully manage our growth. I don't think it will be precisely linear, but I think with the continuing growth of streaming, even though it's moving into emerging markets, that we will continue to incrementally grow, maybe at not as bullish a rate that we've been growing over the last few years but I think the near-term future should be fine.
Okay. That's helpful. And Stephen, anything you can share at the moment on the status of your renewal cycle with the major streaming distributors? Maybe a tag on to that for Eric. How should we think about the financial impact on Warner Music, if one of those distribution agreements was to expire?
Well, we are -- while we don't give the specifics, we are actively engaged with those streaming services whose contracts with this or licenses with this have either expired or about to expire. We always have provisions to ensure the continuity of our licenses. And I'm optimistic that we will be able to create the right balance between supporting our distributors and ensuring that we capture the right value of music for our artists and songwriters.
Okay. Fair enough. And last one for me, Stephen. I've asked you this question in various forms over the years, but given the headlines this morning around Universal, maybe I'll take another stab. From your seat, or perhaps drawing from any thoughts Mr. Blavatnik has shared, do you think Warner Music could benefit from a strategic investment or perhaps even a public offering to provide another form of currency to fund M&A? Or is the status quo still the way to go for Warner?
Well, at the moment our view is status quo is the way to go. And -- but look, there's nothing absolutely certain about the future other than the fact that we intend on continuing to show the world that we are the absolutely best music destination for artists and songwriters.
[Operator Instructions] And we have no further questions at this time. I'll turn the call over to Steve Cooper for closing remarks.
Thanks, again, for your time today, everyone. We appreciate you slipping us into your schedule, and we will talk to you in whatever the weather shows, late summer or early fall, we can't tell anymore. So talk to you soon. Have a wonderful week.
And this concludes today's conference call. You may now disconnect.