Universal Music Group NV

AEX:UMG

Earnings Call Analysis

UMG Reports Strong Q2 2024 Growth Despite Market Challenges

Universal Music Group saw a 10% revenue increase and an 11% rise in adjusted EBITDA in Q2 2024, marking its 12th consecutive quarter of high single-digit revenue growth. Adjusted EBITDA margin also expanded to 22.1%. Despite a slowdown in streaming and subscription growth, merchandising revenue surged by 44% due to strong direct-to-consumer and touring sales. Net profit for H1 2024 jumped to EUR 914 million, up from EUR 625 million in H1 2023, with earnings per share rising to EUR 0.50 from EUR 0.34. UMG remains optimistic about future growth, focusing on product innovation and strategic partnerships to enhance long-term success.

Solid Growth Continues

UMG has once again reported robust results for Q2 2024, showcasing a 10% increase in revenue and an 11% rise in adjusted EBITDA. This marks the 12th consecutive quarter of at least high single-digit growth since their listing on Euronext.

Diverse Revenue Streams

Despite quarterly fluctuations, UMG’s diversified revenue streams drive sustained growth. The company leverages both traditional and emerging revenue sources across various regions, providing a reliable foundation for long-term success.

Recorded Music Performance

Recorded Music revenue grew by 7% for the quarter and 6% for the half-year. This segment saw a 1.2 percentage point improvement in adjusted EBITDA margin, reaching 25.4%.

Challenges in Subscription Revenue

Subscription revenue growth decelerated to 7% this quarter, impacted by slower subscriber growth at some major platforms. Nonetheless, UMG remains optimistic, highlighting potential growth opportunities through product innovation, such as Spotify's proposed super-premium tier.

Ad-Supported Revenue

Ad-supported streaming revenue witnessed a 4% decline this quarter. This was attributed to a mix of platform-specific issues and broader macroeconomic pressures. Despite this, excluding impacts from changes with Meta and revenue loss from TikTok, ad-supported streaming revenue actually grew year-over-year.

Strong Merchandising Growth

Merchandising revenue surged 44% in the quarter, driven by both direct-to-consumer and touring sales, with notable contributions from tours by Olivia Rodrigo, The Rolling Stones, and others.

Profitability Indicators

Net profit for the first half of 2024 reached EUR 914 million, up from EUR 625 million in the same period in 2023. This led to earnings per share of EUR 0.50 compared to EUR 0.34. The interim dividend for 2024 is projected at EUR 0.24 per share.

Operational Efficiency

The company's adjusted net profit grew by 6% to EUR 809 million for the first half of the year. This is despite restructuring costs and non-cash equity plan expenses affecting net profit calculations.

Digital Revenue Prospects

UMG remains confident in the long-term growth of its digital revenue streams. The company emphasizes product innovation and expanding opportunities in areas like gaming and health and wellness as vital components of this growth.

Focus on Innovation

UMG is leveraging AI and other technological advances to offer more premium products and deepen the artist-fan relationship. These innovations are expected to drive new revenue opportunities and maintain the company’s market-leading position.

Earnings Call Transcript 2024-Q2

[Operator]

Good evening, and welcome to Universal Music Group's Second Quarter and First Half Earnings Call for the period ended June 30, 2024. My name is Nadia, and I will 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, Executive Vice President and Chief Digital Officer.

[Operator Instructions] As a reminder, this call is being recorded. Please also 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 2023 Annual Report, which is available on the Investor Relations page of UMG's 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 6-month period ended June 30, 2024 on the Investor Relations page of UMG's website.

Thank you. Sir Lucian, you may begin your conference.

[Lucian Grainge, executive]

Thank you, and hello to everyone and big greetings live from us in Hilversum. I'm pleased to share with you UMG's results for the second quarter of 2024. We have once again achieved solid growth with revenue up 10% and adjusted EBITDA up 11%. More telling is that it was the 12th consecutive quarter of at least high single-digit revenue growth for us since the initial listing on the Euronext almost 3 years ago. And this was also our seventh consecutive quarter of double-digit increase in adjusted EBITDA.

Our ability to deliver sustainable growth like this quarter after quarter is a product of how we've designed UMG. Simply put, we are a multifaceted music entertainment company. We have a wide-ranging variety of revenue streams across both traditional and nontraditional businesses and including both established and emerging ones. The creative and commercial efforts of these businesses are as varied and exciting as the countries and the regions in which they are located and from where they operate.

Today, I'm going to focus on these 3 areas: first, how the diversity of our revenue streams propels us towards continued sustainable growth; second, the undeniably stellar recent achievements of our artists, both new and established; and third, how we are approaching both the challenges and the opportunities presented by the rapid advance of AI.

So to begin, how the diversity of our revenue streams propels our growth. This management team has decades of experience growing UMG into the most successful, diversified and profitable music company in history. Throughout this journey of long-term growth, we know that quarterly fluctuations in one source of revenue or another are to be expected. So while we report results quarterly, we manage the business for long-term success. We think in multiyear cycles and anticipate and embrace variations in certain business lines.

For example, our second quarter results reflect the varied performances of our diverse portfolio of DSP partners. Their performance is some more positive than others vary as the consequences that they're having different strategies for growth, different consumer engagement dynamics, different regional strengths and their own unique product road maps for their subscription and ad-supported offerings. Boyd will discuss this further later.

But overall, our optimism about our DSP partners near and long-term prospects as well as the continued headroom for growth in established markets is fortified by a number of factors. Our proactive approach to working together in driving both subscription and ad-supported revenues. The development in the pipeline of new products and offerings, the growth we anticipate from continued technology trends driving consumer adoption and powering the geographic expansion of all that we do. The escalating positive results of our artist-centric initiative, which is still in its early stages, and our deep long-term relationships and networks within the tech community and with the DSPs, where we've demonstrated our ability to create win-win solutions for everybody.

Further, while our increasing array of DSP partners represents an important source of growing revenue streams, other important sources of revenues are continuing to grow as well. Product innovation is not limited to what is offered on DSPs. For example, in the U.S., according to Luminate's 2024 midyear report, the top 10 physical albums of 2024 carried as many as 13 physical product variants. Off those top 10 albums, 8 were by UMG artists, of whom had fan stores operated by UMG's direct-to-consumer division. This important strategy to us enables us not only to offer superfans high-quality products at varying price points, but also to accelerate our initiatives through efforts such as our recently announced partnerships with NTWRK and Complex to build our direct-to-fan relationships, providing a powerful commercial opportunity for us and our offices.

Putting our artists front and center in everything that we do has been and always will be the core of our success, and this year is no exception. We not only represent the most successful artists in the world and consistently break new artists, we also have the expertise, talent and resources to support artists throughout their careers. And it's no secret that UMG has the most popular catalog in the world. For good reasons, every day, our artists are creating what will be the most listened to, recorded and music publishing catalogs for the future.

I'd like to tell you about some of our artists' extraordinary successes so far this year. And this part, as you know, always gives me great pleasure and joy. It demonstrates that UMG is once again responsible for the industry's biggest global artist development stories. I'll have more to say about artists such as Sabrina Carpenter, Chappell Roan, Noah Kahan and Gracie Abrams in just a moment. But what's particularly gratifying is that these artist development successes follow the strategic realignment of our recent U.S. label structure. Through these processes, we are achieving significant efficiencies. Even more importantly through this process, we're essentially drafting the blueprints for the labels of the future. These labels will provide aspiring global superstars with even more powerful and effective support for their talent.

For example, let's start with Sabrina. The UMG recording artist and songwriter, who's also assigned to our Music Publishing division. This year, Sabrina exploded. She became the first artist to top the Billboard Global 200 and Global Ex U.S. charts simultaneously with 2 songs: Espresso and Please, Please, Please. These tracks also hit #1 and #2 on the U.K. chart, respectively. Please, Please, Please became her first #1 in the U.S. on the Billboard Hot 100. By opening for Taylor Swift, during Taylor's tour in Latin America, Asia and Australia, Sabrina massively built on our international profile. All of this helped set up her new album, Short n' Sweet, which is coming out next month. In brief, we could not possibly be more excited and proud about the amazing career ahead for Sabrina.

Then there's Chappell Roan. Chappell released a couple of singles independently before choosing to sign with Island Records, under the labels recently appointed CEOs Justin Eshak and Imran Majid. Her debut album, The Rise and Fall of the Midwest Princess, which I urge you to listen to if you haven't, was released in 2023 to major critical acclaim. The buzz continued as she opened for Interscope artist, Olivia Rodrigo, for several months of her too. The album climbed up the Billboard 200, reaching #5 by mid-July. The exceptional first single, Good Luck Babe, is in the Top 10 of Billboard's chart and is steadily growing across Australia, Canada and all of Europe, where she sold out -- completely sold out at all this fall.

Next, Noah Kahan. He is another brilliant artist, for whom we've helped to build a huge following. With years of consistent work and fan building around the world, he's now achieved platinum sales of Stick Season in more than 15 countries throughout North America, Asia, Africa and again, the whole of Europe.

How about Gracie Abrams? After signing to Interscope in 2019, yes, that's 5 years ago, when she was 20, Gracie's also signed to us for Music Publishing, released the first EP in 2020, followed by a second in 2021. She then toured the U.S., Australia and Europe before opening on Olivia Rodrigo's first tour, and then she also opened for a number of the Taylor Swift U.S. tour days. After being nominated as Best New Artist at this year's Grammy Awards, the second album, The Secret Of Us was released last a month with incredible chart debuts, including #1 in the U.K., Australia and the Netherlands, #2 in the U.S. and in the top 5 in Germany, Canada, Ireland, Belgium, New Zealand as well as Switzerland. A long-term phenomenal artist development, belief, success, teamwork, global teamwork.

We're, of course, justifiably proud of all that we do to help new artists like these breakthrough and then go on to develop long-lasting careers, but we're equally proud of the support we're able to give established artists once we've been working with for years to help them reach new milestones in their careers.

I'll give you a few examples of just how super some of the superstars have been doing this year. First, of course, is Taylor. What can I say, a phenomenon, unique, extraordinary. Her latest album, The Tortured Poet's Department, achieved the biggest album debut of her career. It was her 14th #1 and broke records for the highest number of first week streams for an album in history, not a single, not a song, not a track, an album. Internationally, the album hit #1 in 19 countries around the world. And on Spotify, it became the fastest album ever to surpass 1 billion global streams.

Next, Billie, Billie Eilish. Her new album, Hit me Hard and Soft, gave Billie her best sales week ever in the U.S. as well as the best ever Vinyl sales week. The album amassed over 500 million global streams that first week and has reached #1 in the official charts at 25 countries, and we're still counting. With over 65 million followers Billie is now the most followed solo artist on TikTok. She, too, will start a global tour this fall. And again, if you can go and see her, I would.

We're also thrilled about recent releases from Post Malone and Eminem. Post Malone's collaboration with Taylor Swift on the message single Fortnight, propelled him back to the top of the charts. That was followed by, I Had Some Help, featuring Morgan Wallen, which spent 7 weeks at #1 on the Hot 100 and became the longest-running #1 of 2024. And then came a single, Pour Me A Drink, which features Blake Shelton. Post Malone's sixth studio album, F-1 Trillion without -- will be out in August. And we've inevitably got very, very, very high hopes for it. Eminem's The Death of Slim Shady is already a massive hit. The first single, Houdini, debuted number one as well as throughout all of the Global Ex U.S. charts.

In short, if you take a quick look at the charts around the world for the first half of this year, you get a real sense of how truly, spectacularly well our artists are doing. Let me talk about the 3 largest music markets, the U.S., Japan and the U.K. In the U.S., we had 11 out of the top 15 albums in the first half, including all of the top 3 albums from Taylor Swift, Morgan Wallen and Noah Kahan. And off the 15 different songs to hit #1 on the Billboard 100 so far this year, Universal Music Publishing Group had some writers on 13 of them, an extraordinary achievement.

In Japan, we had 3 of the top 5 artists with Mrs. GREEN APPLE at #1 as well as back number and Ado. We also had 6 of the top 10 albums. Additionally, Ae! Group was the top-selling new artist. And don't forget that Japan is the second biggest market in the world by value. So these successes are very, very significant. In the U.K., we had 8 of the top 10 albums, including those from Noah Kahan, Olivia Rodrigo, Ariana Grande and Billie Eilish, and 4 from Taylor. UMG artists held the #1 spot for 18 weeks of the first half of the year.

I'll now turn to the final subject of my remarks for today, our recent initiatives in AI. I'm sure you can understand that given the enormous value of our artist strive in the market and with their increasingly significant cultural impact, protecting their rights and advancing their interests is absolutely essential, central to them, central to us. This is especially true when it comes to AI, an area in which we take a carefully orchestrated approach, we Brits call carrots and sticks. We recognize potential threats early and defend against them. We've been doing this for quite a long time. I suppose it's akin to carrying a stick when we consistently take industry-leading action to advance our office interests and create new creative and commercial opportunities and then this responds to the carrot. Our carrots and sticks mindset is working to secure a future in which human creativity is respected and rewarded, while technology innovation is enabled and accelerated. It's a 2-part strategy.

We accomplished these goals through a wide variety of tactics. For example, in May, we entered into an agreement with TikTok that had several successful outcomes, including both creative and protective provisions. These protections didn't just benefit UMG and its artists, it benefited the entire music sector. Likewise, the major music companies recently filed copyright infringement cases against 2 AI music generation services, Suno and Udio. These cases are based on the mass infringement of copyrighted sound recordings, which have been copied and exploited without anyone's permission, no one's permission. And these cases follow the lawsuit filed late last year against Anthropic by several music publishers, including Universal Music Publishing group. Those categories fall into the category of ensuring the continued value of our rights.

What we're even more excited about are the opportunities to harness responsibly developed and deployed AI. These opportunities are where AI can help drive our business. UMG has long recognized and embraced the potential of AI to enhance and amplify human creativity and to advance musical innovation and to expand the realms of audio production as well as sound technology with responsible and ethical applications that respect copyright and intellectual property. I suppose it's what we -- as a management team, we call as everybody gets used to soccer analogies, defense and offense, attack and defense.

To that end, we've been working with a growing list of partners to provide our office with its cutting-edge creative tools, but in a way that respects -- continues to respect their rights. For example, we recently announced an exciting partnership with SoundLabs, a company that places powerful new tools at an artists' fingertips, while maintaining a deep respect for the artist's intellectual property. The company's ethos mirrors our own strategy of employing AI technology in the service of artistry. Our partnership will enable UMG's artists and producers to use SoundLabs MicDrop.

MicDrop is a cutting-edge AI vocal plug-in that generates ultra-high fidelity vocal models for artists using an artist-owned voice data for AI training to enable creative utilization by the artists themselves. They will be able to sing in languages they don't speak, restore imperfect vocal recordings and more. The ability to be able to sing in their own voices in languages they don't speak opens up enormous potential and enormous opportunity for us to sell, market, move culture and create demand for songs and products and back catalog that would have been completely unimaginable, very exciting.

In addition, UMG recently joined with Roland, the leading electronic music instrument maker, to publish the principles for music creation with AI. The principles are a series of clarifying statements relating to the responsible use of it in music creation and advocating for their adoption across the creative community. They highlight the opportunity for innovation with AI in music production, fascinatingly for me, composition and songwriting, whilst underscoring the need for transparency, equity and creative community involvement in the AI development.

More than 60 prominent music companies, associations and institutions globally have now added their support to these principles whose goal is both simple and profound, to protect the very essence of music, that is the expression of the human spirit by human, not artificial intelligence, of its authenticity, brilliance and genuineness.

With so much positive change afoot in the industry, we look forward to sharing a much deeper and broader view of both the industry and our strategy at our upcoming Capital Markets Day, which will be held in London on September 17 at our legendary Abbey Road Studios. We love that building, we love owning it, and we're really looking forward to being there and talking about our company and sharing what we believe in our long-term ambitions, hopes. Information on how to register for the live stream will be available shortly on the Investor Relations section apparently on our website.

We look forward to giving you the opportunity to hear from members of our management team exactly what we're doing and how, and we're looking forward to sharing with you, as I said, our vision for the future of UMG and the industry as well as for the enormous potential and for the potential of growth that we're so confident in what we see for the future.

With that, I can see you, Boyd, I'd like to hand over to you. Go for it.

[Boyd Muir, executive]

Thanks, Lucian. The second quarter shows once again that the diversity of our revenue composition supports our conviction about our ability to deliver consistent high single-digit revenue growth. And as Lucian mentioned, we have delivered or indeed exceeded that growth level in all 12 quarters since our public listing. There will always be variability quarter-to-quarter. So we continue to encourage you to view the business over a longer time horizon. Internally, we do not manage the business on a quarterly basis and are, therefore, not overly concerned when we see variation in our quarterly results. We have a diversified business model, which accommodates quarterly variations, while still delivering solid growth at the group level.

When we host our Capital Markets Day, we look forward to providing you with a more detailed update on our strategic plan and expectations for the company over the midterm. But for now, let me walk you through our results this quarter. Even with streaming and subscription growth slower than expected, which I will get to momentarily, revenue grew by 10% and adjusted EBITDA grew by 11% in constant currency, driving 20 basis points of adjusted EBITDA margin expansion to 22.1%. While margin benefited from operating leverage and some initial cost savings related to our strategic organizational redesign, the margin expansion was constrained by the greater proportion of lower-margin physical and merchandising sales, which I'll come to when we look at the performance by business segment.

In terms of the difference between EBITDA and adjusted EBITDA, we had EUR 69 million in noncash share-based compensation expense for the quarter compared to EUR 85 million in the prior year quarter. For the half year, revenue was up 9% and adjusted EBITDA grew 13%, driving margin expansion of 0.8 percentage points to 22.4%. Total adjusted EBITDA margin reflects strong 1.2 percentage point margin expansion in Recorded Music, partially offset by margin contraction in Music Publishing and in Merchandising.

The first half of the year had a total of EUR 171 million in noncash share-based compensation expense, which includes EUR 80 million for the final impact of onetime transition grants and front-loaded accounting recognition. The EUR 170 million compares to EUR 345 million in expense during the first half of 2023. We currently expect about EUR 280 million in noncash share-based compensation expense this year.

Earnings per share for the first half of 2024 grew to EUR 0.50, up from EUR 0.34 and adjusted earnings per share grew to EUR 0.44, up from EUR 0.42 in the first half of 2023. Recorded Music revenue grew 7% for the quarter and 6% for the half year. This revenue growth drove adjusted EBITDA up 12% for the first half and adjusted EBITDA margin expanded 1.2 percentage points to 25.4% for the half year. The margin expansion is largely the result of operating leverage, but was also helped by modest incremental cash compensation savings associated with our equity plan rollout and the start of initial cost savings associated with Phase 1 of our strategic organizational redesign program, which we discussed last quarter.

Looking at Recorded Music. Subscription revenue saw a deceleration in growth, up by 7% this quarter. It's worth noting that our comp against 2023 was 3 points more difficult in Q2 than it was in Q1, partially due to the timing of price increases. The other factor impacting our subscription revenue growth this quarter is the slowdown in subscriber growth at certain platforms, which is occurring while the overall subscription marketplace continues to experience significant growth in subscribers globally.

While Spotify, YouTube and many regional and local platforms have continued to exhibit healthy growth in subscribers, other large partners who have been less successful in driving global adoption have seen a slowdown in new subscriber additions. We are engaged with all our key partners in an in-depth dialogue regarding product innovation to target high-value customers and drive future revenue growth. One indication of these discussions was highlighted in Spotify's comments yesterday around a super-premium offering. Our research and analysis indicate that as many as 20% of the current subscriber base could upgrade to a super-premium tier at a meaningfully higher price point for a compelling product configuration, one which offers enhanced features and exclusive access to content.

In addition, we're stepping up our artist-centric initiatives to combat fraud and, together with the platforms, improve the user experience with a focus on premium and innovative new products. We take a long-term view in our efforts to promote innovation in the product portfolios offered by our digital service partners with our industry-leading roster and catalog at the center of these offerings. We see this as key to deepening the artist-fan relationship and growing the industry. Together, we are confident that we'll see healthy growth across our portfolio of platform partnerships, and we look forward to discussing this progress in more detail at our upcoming Capital Markets Day on September 17.

Moving on to the ad-supported business. Ad-supported streaming revenue declined 4% in the quarter. As we cautioned last quarter, when our ad-supported performance was significantly better, we need to see broad-based improvement across multiple partners and geographies over a longer time frame before we're ready to adopt a less cautious view. Our ad-supported revenue comp against 2023 was 7 points more difficult in Q2 than it was in Q1. In addition, this quarter's ad revenue reflects a blend the platform-specific and continued macro pressures.

In terms of platform-specific pressure, we have a change in our licensing agreement with Meta. Meta had previously offered premium music videos on Facebook. This product offering was less popular with Facebook's user base than other music products. And as a result, Meta is no longer licensing premium music videos from us as of May this year. Meta is now focusing instead on other areas involving music content, and we are working together to expand these areas as part of a multifaceted renewal. Excluding this impact as well as the loss month of TikTok revenue in the quarter, while we were out of license with them, ad-supported streaming revenue grew year-over-year. The remainder of the slowdown in growth compared to Q1 was largely driven by slowdowns in ad revenue growth at Spotify and YouTube as they both reported yesterday.

While the coming quarters may remain somewhat variable, we and our partners are laser-focused on improving the monetization for the growing audience engagement on the platforms. Over a longer time horizon as we continue to see the secular migration of the ad economy to digital formats and as the opportunities for music content monetization continue to broaden into new avenues, like gaming and health and wellness, we remain confident in the growth of our digital revenue.

Moving now to physical. Physical revenue grew 14% in the second quarter, with strong releases from Taylor Swift and Billie Eilish, more than offsetting a difficult comp against a strong prior year quarter in Japan. While this category will necessarily be more release-driven and therefore, more volatile quarter-to-quarter, the growth we are seeing in physical revenue also reflects the emerging opportunity around super fandom as a significant portion of sales reflect demand for physical products as collectibles rather than for consumption purposes and as we fulfill more of these sales directly through our own D2C capabilities. Licensing and other revenue grew 18% in the quarter, driven by improvements in licensing and synchronization income as well as higher direct-to-consumer income and greater live and audiovisual revenues.

In the first half of the year, Latin America saw the strongest growth and North America and Europe benefited from the strength in vinyl. Revenue in Asia declined solely as a result of the difficult physical comp in Japan against last year's enormous success of King & Prince. Top sellers for the first half of 2024, include Taylor Swift, Morgan Wallen, Noah Kahan, Billie Eilish and Ariana Grande.

Turning now to Music Publishing. Revenue grew 10% in the quarter, with strong 17% growth in digital revenue, driven by continued global growth in streaming and subscription. We also saw growth in performance and synchronization revenue, while mechanical revenue declined as a result of the broader industry shift to digital formats. For the half year, Music Publishing revenue grew 14% and Music Publishing adjusted EBITDA grew 12% as margin declined 0.4 percentage points as a result of revenue and repertoire mix.

Turning now to Merchandising. Merchandising revenue grew 44% in the quarter, driven by growth in both direct-to-consumer and in touring sales. Merchandising revenue grew 30% for the half year, but adjusted EBITDA declined 10% and margin contracted 2.3 percentage points due primarily to artist mix. Touring merch grew strongly, thanks to tourists from Olivia Rodrigo, The Rolling Stones, Nicki Minaj, 21 Savage and Morgan Wallen.

Net profit for the first half of 2024 amounted to EUR 914 million compared to EUR 625 million in the first half of 2023, resulting in earnings per share of EUR 0.50 compared to EUR 0.34 in the first half of 2023. The increase in net profit in the first half of 2024 includes a EUR 566 million increase in the valuation of investments in listed companies compared to an increase of EUR 313 million in the first half of 2023. This was partially offset by restructuring costs of EUR 113 million in the first half of 2020 as we began the implementation of our strategic organizational design. Net profit also reflects EUR 171 million equity plan expense in the first half of 2024 compared to EUR 345 million in the first half of 2023.

Adjusted net profit, which adjusts for the revaluation of investments as well as the equity expense and restructuring costs amongst other items, grew 6% to EUR 809 million in the first half of 2020 resulting in adjusted earnings per share of EUR 0.44 compared to EUR 0.42 in the first half of 2023. In line with our commitment to pay a dividend of at least 50% of our net profits, the interim dividend for 2024 will be EUR 439 million or EUR 0.24 per share.

I'd like to now turn to cash flow. Our net cash provided by operating activities before income taxes paid for the first half of 2024 was EUR 436 million, a 38% decline year-over-year. This decline is driven by an increase in net royalty advance payments, which amounted to EUR 315 million, up from EUR 95 million in the first half of 2023 due to the timing of certain major artist deal renewals and extensions, partly offset by an increase in recruitment. While sometimes major artists approaches to extend deals early, we currently expect royalty advances to step down materially in the back half of the year.

In addition, net cash provided by operating activities was negatively impacted -- net cash provided by operating activities was negatively impacted by the EUR 67 million in cash restructuring related to the organizational redesign in the first half of 2024. Similar to last year, net cash provided by operating activities also included the EUR 194 million we paid to settle employee tax liabilities arising from equity plan grants and associated obligations. You'll recall that we opted to fund the taxes with cash rather than issue shares, which reduces the dilutive impact of the grounds.

Even with the increase in royalty advances and the taxes paid to cover employee tax obligations, free cash flow before investing activities was a positive EUR 155 million in the first half of 2024. Let me remind you the second half of the year is a consistently stronger cash-generating period for our business. We also continued our long-term strategic investment in the business, much of which we have discussed on prior earnings calls.

On our fourth quarter 2023 earnings call, we noted that the acquisition of Mavin Records, the investment in Complex, NTWRK and the investment in Chord would collectively represent approximately EUR 450 million of investment spending in the first half of 2024. These transactions account for much of the EUR 519 million invested in the first half of the year.

On last year's first half earnings call, we noted that we had a EUR 75 million cash in escrow for our catalog acquisition, which would transfer out of other investment activities and into catalog investment in 2024. This transfer occurred in the first half of 2024, which accounted for much of the EUR 96 million in catalog acquisitions. While free cash flow in the first half was an outflow of EUR 460 million, we encourage you to look at cash generation on a full year basis rather than for a half year as working capital movements and the timing of investments can vary considerably during a shorter time frame.

Let me close by saying that we remain excited by and confident in the growth that lies ahead for the business. Music has never been more vital to an ever-increasing number of partners, and UMG is best positioned to capitalize on these industry prospects. We look forward to updating you on our outlook for the business at our Capital Markets Day on September 17.

And with that, Lucian, Michael Nash and I will now take your questions. So operator, please open the line for Q&A.

[Operator]

[Operator Instructions] Our first question goes to Adrien de Saint Hilaire of Bank of America Merrill Lynch.

[Adrien de Saint Hilaire, analyst]

Yes. So a couple of questions, please, on the paid streaming side of things. First, could you tell us like you alluded, Boyd, to the growth of Spotify and YouTube, would your growth rate with Spotify, for example, would that be somewhat identical to the number that they've reported? That would be the first question. And secondly, all the initiatives that you've talked about working with partners to get them to reengage on subscriber growth, et cetera. I would imagine that this is going to take probably a couple of quarters. So is it fair to assume that from here paid streaming growth further decelerates into the second half?

[Boyd Muir, executive]

Adrien, thank you. I mean, broadly speaking, I would say that our growth rates are consistent with what you -- our Spotify growth rates are consistent or broadly consistent with what Spotify reported yesterday. And I think you're right. The -- what we're doing with partners in terms of product innovation, it does take time. It's a kind of -- going to see as a continuous progression anyway. So it will take a little bit of time, but we would be hopeful to see some of these or these initiatives happening towards the end of this year. So you can see something quite tangible.

[Operator]

The next question goes to Adam Berlin of UBS.

[Adam Berlin, analyst]

Two questions again on paid streaming. The first question is, what's your estimate for how fast you think the market is growing paid subscribers at the moment? Obviously, there seems to be some deceleration since Q1, but do you have a market view from all the platforms you work with? And related to that, do you expect that growth rate to improve? Or are we just going to have to operate in an environment with slower subscriber growth from that one? That's the first question. Sorry for the 2 parts.

And the second question is, can you comment on Spotify's new audiobooks tier the way? Do they seem to enact that was to kind of raise everyone's price and then only later introduce the option to trade down to a basic tier? In your view, is that fundamentally just a price increase and you should get the same pay away as you would do for any other price increase? Or do you accept their argument that this is a different kind of bundle and that, therefore, you should be paid less for that extra dollar?

[Michael Nash, executive]

Adam, thank you for your questions, Michael Nash here. Let me first address the question about growth outlook. Let me hit a couple of data points to put our perspective in context. The IFPI, which is the global trade organization in the music industry, their global report that was released earlier this year indicated that the industry had about 670 million subscribers last year. That reflected an increase over 2022 of 78 million subscribers, and that exceeded the prior year increase of [ 66 million ] subscribers as growth actually accelerated in 2023. Both the U.S. and U.K. markets reported higher subscription revenue growth rates in 2023 than 2022. So some acceleration there. And Media reported the 5 of the top 10 global subscriber markets added more subscribers in 2023 than 2022. So we're seeing sustained or accelerated subscription growth across multiple markets.

In terms of expansion and the addressable market, our consumer research assesses the scale of the consideration set in the top 19 territories. We've identified an addressable market of over 180 million consumers that will form the next wave of subscription adoption. And that research is conducted assuming price increases. About half of that total addressable market will be in the 13 developed markets, we expect to see a lot of growth in emerging markets. It's important to keep in mind that technology innovation, digital infrastructure penetration, emerging consumer trends, all these things have been consistently growing the total addressable market for subscription over the last decade.

So a forecast of TAM is not a ceiling for growth, but it's really about the scope of the next wave of growth. A very interesting recent data point, the Luminate midyear 2024 report indexes global on-demand streaming growth at over 15%, and the majority of that is premium paid. So we remain confident about the overall growth trajectory of the marketplace. I think it's important, again, to keep in mind that the perspective about the evolution of the market is something that doesn't necessarily on a quarter-by-quarter basis, always track linearly, but we are confident about the overall trajectory of the market viewed in the longer term.

[Boyd Muir, executive]

Thanks, Michael. And Adam, just turning to your second question, which was specifically about Spotify and audiobook bundle. I mean I need to say is that we don't actually disclose the terms of our agreements with any partners. But let me say that we always negotiate licensing models and terms to ensure that we're fully and fairly participate in the value our content brings to all product configurations, including bundled products. We've been deeply engaged with Spotify and discussions about the overall scope of their product portfolio road map, and we're confident our revenue participation reflects the value our artists and our music is bringing to their platform.

The only other point I would make is that we take a long-term view in all of these efforts to promote innovation. And we see the evolution of product portfolios offered by our digital service partners. With our industry-leading roster in catalog right at the center, we see that product innovation as key to deepening the artist-fan relationship and expanding the future.

[Lucian Grainge, executive]

I'd like to add there that we are at the beginning of the next phase, Part 2 phase of streaming and subscription. It's a whole suite of products, the [ superfan ], the technology developments, as we've discussed earlier in AI and what that will allow both of us, all the platforms and the DSPs to innovate products. The genres, the regions, the local cultures, the scenes, the ability to use AI to convert or allow our artists to sing their own music in different languages. We like it when we're able to encourage our partners into win-win positions where we can experiment we're in a cycle of experimentation. And that's, again, one of the reasons why we can't do -- it's in our blood. We can't do anything than think in multiyear cycles and in the long term.

And whilst quarterly earnings is a great temperature check, and it allows us to actually reflect on what we're doing and so on and so on, the long-term strategy in terms of how we are working to provide more super fans, more access, more engagement and that the critical nature of the product of what we do. We just reel these names of Rolling Stones, Beetles, Sabrina Carpenter, Chappell Roan, Noah Kahan, Taylor Swift, they're absolutely fundamental, they're the protein in everything that we do. Our entire mentality is to grow the pie.

[Operator]

And the next question goes to Omar Mejias from Wells Fargo.

[Omar Mejias Santiago, analyst]

Maybe as a follow-up to the prior question regarding Recorded Music subscription growth. Are you guys seeing a structural slowdown globally on subscriber additions? Or is this location specific? And are there any other factors at play with the slowdown of some of these large DSPs? And my second question, just -- and I appreciate, Michael, some of the higher-level trends on just the growth that you guys are seeing in the outlook for streaming growth. But just -- we are seeing continued subscription streaming both volume growth decelerating to 3Q. So just curious how should we think about growth in the back half of this year and just some of the trends that you guys are seeing given some of the issues?

[Michael Nash, executive]

Thank you for your questions, Omar. So let me double-click as you've asked us to do in terms of following up on some of the points that we've made. In general, keep in mind, subscription revenue growth, it's a reflection of subscriber growth, pricing, our market share streams, and that's across a really broad range of global regional streaming partners, vastly different growth dynamics and ARPU. So at the high level, you're seeing the top soil and the route structure for everything that's growing on top of the soil, much more complex interplay. And forgive me if that was like a weak horticultural analogy there.

A couple of things to keep in mind because you've asked me to look really specifically on what's happening right now. As Boyd noted, our comp against 2023 in the second quarter was 3 points more difficult than it was in the first quarter. That's largely due to the timing of pricing increases. So in the second quarter of this year, we fully annualized the Apple and Amazon price increase. So when you're looking at variations of a few points, there's a lot of things that potentially build into that. And in this case, the comp difference of 3 points is something to keep in mind.

The remainder of the deceleration to emphasize what Boyd articulated, largely due to subscriber growth at certain platforms. So Spotify and YouTube, public statements make it very clear. They continue to exhibit healthy growth in subscribers, and there's been some significant growth with the regional local players. Other larger partners have been less successful at driving global adoption, and there's been some slowdown in terms of subscriber additions there.

One point of analysis that you might find interesting from our consumer research. It's not that there's an increase in switching. It's really more about the competition for new subscribers. The services that are growing faster or better -- doing a better job in listing the new subscribers. I think with respect to what we expect to do in reigniting growth, we've been very deep dialogue with our partners about product and platform innovation. There are a lot of opportunities to do that.

We're particularly excited about the prospects of a super-premium tier. Danny Ek on the Spotify earnings call yesterday, talked about what they saw a significant potential there and hinted at some of their plans and confirmed that they do intend to launch a super-premium tier. That's one example of the kind of product innovation effort that could result in acceleration of growth. Hopefully, that gives you a little bit more of a particularized view of what we're seeing in the near term that maps against the broader perspective that I articulated earlier.

[Lucian Grainge, executive]

I think you're hearing, Mike -- Omar, I think you're hearing a repeating theme; product development in terms of our attitude and our view with regard to what those products could and should look like same obviously, with our DSP partners; the degree of experimentation, customer fan feedback, more access, more engagement; and the fact that different partners are focusing on different aspects of their business according to what they see with their audiences and with their consumers.

So the amount of work, win-win, dialogue, creative discussions that are going on between us is really extremely exciting. And some of these things in some of the platforms between operating systems and engineers and a multitude of things can occasionally take time to implement, and we're on that implementation now.

[Operator]

The next question goes to William Packer of BNP Paribas.

[William Packer, analyst]

Firstly, within the ad streaming, there's a lot of noise with the TikTok spat, changes to the Meta, too, et cetera. Could you help us think through the exit rate in ad streaming once the TikTok deal had been resigned? And then secondly, just coming back on the subscription streaming trends. Could you confirm, for example, mix of price and volume? And any factors that should specifically drive an acceleration in Q3? I know we've kind of covered some of the longer-term potential factors. But if we take the Spotify U.K. and U.S. price increases, could that help? Or does the bundling mean that, that won't be a contributor?

[Michael Nash, executive]

Thank you for your questions, William. First of all, with respect to putting the TikTok revenue piece into context, Boyd talked about Meta switching away from premium music videos in the past quarter. The focus there is on higher-growth products and formats moving forward. If you take that piece and the fact that we missed 1 month of TikTok revenue in the quarter, excluding those impacts, ad support stream revenue actually grew for us in the second quarter. So I hope that, that gives you some perspective about the dynamics within the quarter, and we're ad streaming with net out taking those into consideration.

And then on your second question, what I'm getting at unpacking the question is how are we seeing growth with respect to price and subscriber growth and those dynamics. We still see subscriber growth as fundamentally most important in terms of growing subscription revenues. We have talked before about how powerful the value proposition of subscription streaming is relative to other forms of digital entertainment, video and gaming, underpriced perhaps to the extent of like 20% of the cost per hour of entertainment of other formats. And we repeatedly hear, including on Spotify's earnings call yesterday, service is talking about price increases and not experiencing any churn. So we see a lot of opportunity there.

More importantly for us is how we see innovation with new product potentially driving the opportunity. And there was in the comments that Spotify made the suggestion of a price point perhaps at 17 or 18 for a new product configuration, which wasn't fully articulated, but that giving you some sense of what might be possible. And as we have previously articulated and on this call, I talked about, maybe a target of 20% of the subscriber base that's potentially the opportunity for adoption of higher-priced tier among existing subscribers. So that's how we're looking at the formulation of the equation of growth made up of those multiple components.

[Lucian Grainge, executive]

I'd just like to add one last thing because you mentioned TikTok. The value, which won't appear in a percentage today, the value in the new TikTok deal, the new arrangement with them is in the protection, is in the value of us working with them on responsible AI, on e-commerce and the value in having a new spirit of partnership with them and the dialogue and [indiscernible] in terms of the entire spirit of how we work and how we are as an organization and as a culture for us as well as our office.

[Operator]

And the final question goes to Julien Roch of Barclays.

[Julien Roch, analyst]

The first one is for -- well, actually, probably the 2 for Boyd. EUR 315 million, in terms of net content investment in the first half versus EUR 95 million last year. You say it would step down materially in the second, but is it stepping down from the EUR 315 million, so the total for the full year will be above EUR 315 million? Or is it growing negative and the full year number will be lower than EUR 315 million, if we could get some form of guidance there? That's my first question.

And in the last 12 months, you bought more companies than usual. You bought in H2 last year and then you spent EUR 450 million in the first half this year. So could we get the constant FX contribution in first half revenue of all the M&A you've done in the last 12 months, please?

[Boyd Muir, executive]

Julien, thank you. Not in a position to give guidance with regard to the content investment. Clearly, the EUR 300-plus million in the first half of the year with an elevated level, as you pointed out, is not overly difficult to come down from that very elevated number. We referred to the prior half, which was EUR 95 million. So there's quite a significant swing half by half quarter to quarter. If it's helpful, we could probably say now that with the course of time over the last few years is that it seems to be over the last 3 years, we seem to be in a range of the kind of EUR 150 million to EUR 250 million of net advance investment kind of year-over-year. So I wouldn't envisage that we would be negative in the second half of the year, but I don't want to go in too much more than I already have done.

[Lucian Grainge, executive]

There are also investments for the future. We're building a marketplace with NTWRK and Complex and our emerging market strategy and our export strategy within them. So everything is future-focused.

[Boyd Muir, executive]

And Julien, just the second part of your question, which was about the investments that we've made in Chord and Mavin and Complex, NTWRK. I mean at this point in time, there's -- these are these are investments with a long time horizon. There's nothing meaningful in terms of our financials so far. And there are topics that will be on the agenda for Capital Markets Day.

[Operator]

Thank you. That's all the questions that we have time for today. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.