Warner Music Group Corp

NASDAQ:WMG

Earnings Call Transcript 2021-Q2

[Operator]

Welcome to Warner Music Group's Second Quarter Earnings Call for the Period Ended March 31, 2021. At the request of Warner Music Group, today's call is being recorded for replay purposes, and if you object, you may disconnect at any time.

Now I would like to turn today's call over to your host, Mr. Kareem Chin, Head of Investor Relations. You may begin.

[Kareem Chin, executive]

Good morning, everyone. Welcome to Warner Music Group's Fiscal Second Quarter Earnings Conference Call. Please note that our earnings press release, earnings snapshot and the Form 10-Q we filed this morning will be available on our website. On today's call, we have our CEO, Steve Cooper; and our CFO, Eric Levin, who will take you through our results, and then we'll take your questions.

Before our prepared remarks, I'd like to refer you to the second slide of our earnings presentation to remind you that this communication includes forward-looking statements that reflect the current views of Warner Music Group about future events and financial performance. We plan to present certain non-GAAP results during this conference call and in our earnings snapshot slides and have provided schedules reconciling these results to our GAAP results in our earnings press release.

Also, please note that all revenue figures and comparisons discussed today will be presented in constant currency, unless otherwise noted. All forward-looking statements are made as of today, and we disclaim any duty to update such statements. Our expectations, beliefs and projections are expressed in good faith, and we believe there is 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 to 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-Qs, Form 10-K and other SEC filings.

And with that, I'll turn it over to Steve.

[Stephen Cooper, executive]

Thanks, Kareem. Good morning, everyone, and thanks for joining us. As you know, we posted excellent results in our first quarter, and I'm very happy to say that trend continues to build momentum.

When you consider that only the last 2 weeks of the prior year's quarter were affected by COVID, our results are even more impressive. At a time when our business is stronger than ever, we're lengthening our stride with chart-topping releases from many of our biggest artists and songwriters.

Today, I'd like to cover 3 key topics: first, our quarterly results and all the great new music that's driving them; second, our expansion into new markets around the world; and finally, our use of new technologies and emerging streaming platforms to further accelerate our growth.

Despite the ongoing pandemic, second quarter total revenue grew 13% year-over-year, underpinned by double-digit revenue growth in both Recorded Music and Music Publishing. Adjusted EBITDA grew by 25%. Margin improved to over 21%.

Recorded Music delivered revenue growth of 13%, marked by double-digit growth in both digital and physical revenue. This growth more than offset the continued dislocation in artist services and licensing revenue. Recorded Music streaming revenue grew 20%, driven by successful new releases and strong carryover performances.

Ad-supported streaming has now fully recovered and grew at a higher rate than it did pre-COVID. Revenue from emerging streaming platforms, such as Facebook, TikTok and Peloton, is now running at $200 million on an annualized basis. Physical revenue also saw a major resurgence, growing 19% year-over-year, primarily due to an uptick in vinyl demand. Our success in the quarter spanned label groups, genres and geographies. This growth underscored our global strength as well as the diversity of our artists and repertoire.

Here are just a few high points. Atlantic scored a massive #1 single on a Billboard Hot 100 with Leave the Door Open, the first release from Silk Sonic, the new Bruno Mars and Anderson Paak collaboration. Cardi B also widened her lead for the most #1 songs among female rappers with the mega-hit Up.

At Warner Records, breakout star, CJ, topped Billboard's Emerging Artist Chart with his single Whoopty. Meanwhile, Saweetie teamed up with Doja Cat on Best Friend, hitting the top 10 on Billboard's Hot R&B and hip-hop songs chart. Elektra's Masked Wolf scored an international smash with Astronaut in the Ocean, generating well over 400 million streams to date and climbing to #1 in 8 countries.

At Warner Music Nashville, Gabby Barrett released the hit single, The Good Ones, the follow up to her 5x platinum debut single, I Hope. Three-peat Grammy winning duo, Dan + Shay, unleashed their new smash, Glad You Exist, and are currently tallying 40 million global streams per week.

In Europe, The Snuts and Capo Plaza, both had #1 albums. Amazingly, 7 tracks from Capo's album landed in Italy's top 10. As we look to the rest of the year, our hot streak should continue with forthcoming albums from both emerging and established stars like Myke Towers, Quando Rondo, Coldplay, Silk Sonic and Cardi B. More releases from our roster of global superstars will be dropping later this year.

In Music Publishing, we delivered strong revenue growth of 12%, driven by a 33% increase in digital revenue. Performance revenue remained challenged by COVID due to the closure of bars, restaurants, clubs and concerts. Sync was on the upswing, growing 12% as TV and film production resumed.

In Q2, Warner Chappell had a share in 23 #1s across the radio streaming and Billboard U.S. charts. We were also honored with the ASCAP Pop Publisher of the Year award.

The value proposition that Warner Chappell offers songwriters has never been more relevant. We've become the destination of choice for exceptional talent. We've done this by building a culture centered on growing careers and creating long-term value. With our best-in-class creative services team, global infrastructure and a suite of tech tools, we've been able to distinguish ourselves. This has enabled us to retain big names like Saweetie, signed international stars like Jorge Drexler and established partnerships with labels like Love Renaissance.

I've said repeatedly that music can come from anywhere and resonate everywhere. As we continue to grow our business across the globe, our focus is on culturally dynamic markets. We seek out vibrant music scenes with sustained growth in music consumption. Last year, we launched new offices in countries with massive untapped promises such as India, Vietnam, Peru and Turkey. This year, we've continued to expand our global reach. In Q2 alone, we made investments in markets that have vast growth potential, given their combined population of almost 3 billion people.

In China, we signed a multiyear licensing agreement and created a new joint venture label with Tencent Music.

In Russia, we've extended our #1 market share position through the acquisition of Zhara Music, now rebranded as Atlantic Records Russia.

In the Middle East, we announced our investment and partnership with Rotana, the leading independent music label in the Arab world.

In Africa, we recently appointed Temi Adeniji as our operating head for South Africa as well as strategy for the continent. Temi and her team will continue to focus on growing our investments and partnerships with Africa's best independent players. They will also be providing local artists with the amplification support needed to reach global audiences.

We're focused on maximizing our artists' and songwriters' reach and revenue across all fandom touch points whether it's a snippet on social media, a soundtrack to an in-home workout, a live performance in a metaverse or an NFT digital collectible. These points show how the music ecosystem is broadening and deepening its relationship with people everywhere.

Here are some recent examples of this strategy in action. Over the last few years, we've built up a network of award-winning media brands. To further accelerate the growth and monetization of these brands, we promoted Ben Blank to President of Media at WEA. Ben will lead our newly formed digital advertising creative content division. All of our owned and operated brands, UPROXX, Songkick and HipHopDX, will retain their editorial dependent -- independence and will benefit from a unified approach to ad sales and campaigns.

We recently engaged the creativity of the Roblox community through 2 immersive experiences. We held an album launch party for Why Don't We, and Royal Blood performed at the Bloxy Awards. Both of these experiences have drawn millions of fans who were able to interact with virtual environments via their avatars. As we continue to explore new ways to connect artists and plans, we look forward to delivering events on a more frequent and bigger scale.

Just yesterday, we announced a groundbreaking alliance and investment in Wave, the leader in virtual entertainment. Through this partnership, Wave will collaborate with WMG to develop virtual performances, experiences and monetization opportunities for our global roster. This includes exploring new forms of ticketing, sponsorship and in-show interactions. We're already working on a number of really exciting events scheduled over the next year.

We were early to see that music would be fertile ground for digital collectibles. In 2019, we made an investment in Dapper Labs, the creators of NBA Top Shot. Last September, we began to experiment in this market, collaborating with Dapper to release 2 NFT CryptoKitties, inspired by Warner Records rock band, Muse.

Last week, we announced an innovative new partnership with the world's largest avatar company, Genies. This partnership will enable our artists to sell exclusive digital wearables directly to their fans. Our goal is to develop authentic, quality and environmentally conscious products that build long-term fandom relationships. While it's still early days for this space, we're enthusiastic about its potential.

Finally, I want to personally thank all of our Warner Music Group colleagues, artists, songwriters and partners for their incredible contributions to helping our company thrive over the past year. We're confident that the music entertainment industry will emerge from the pandemic with a renewed spirit of inventiveness and collaboration. All of us at WMG continue to look to the future with a tremendous amount of excitement and enthusiasm.

With that, I'll turn it over to Eric.

[Eric Levin, executive]

Thank you, Steve, and good morning, everyone. Our second quarter performance was highlighted by new releases that performed well across formats, continued acceleration in revenue from emerging streaming platforms and thoughtful cost management. This translated into impressive growth across most key financial metrics, including strong free cash flow conversion.

Moving to our results in the quarter. Total revenue was up approximately 13% on a constant currency basis and up 17% on an as-reported basis compared to the prior year quarter. Artist services and Recorded Music and performance in Music Publishing were the areas most affected by COVID due to the cancellation or postponement of touring. If you exclude those areas, our revenue grew 16% on a constant currency basis and 20% on an as-reported basis compared to the prior year quarter.

Both adjusted OIBDA and adjusted EBITDA saw significant year-over-year increases, reflecting strong operating performance as we continue to shift from physical to digital. Adjusted OIBDA increased over 21% to $255 million with margin improving to over 20%. This improvement was driven by revenue mix, lower stock-based compensation and other related expenses and cost management initiatives.

Adjusted EBITDA increased over 25% to $268 million with margin improving from 20% to 21.4%. The increase was largely due to the same factors that drove our adjusted OIBDA performance. Please refer to our press release for calculations and reconciliations related to adjusted OIBDA and adjusted EBITDA.

In Recorded Music, Q2 revenue increased approximately 13% over the prior year quarter. Digital revenue grew 18% driven by a 20% increase in streaming. Streaming as a category saw growth across all key components with both subscription and ad-supported streaming growing double digits. Growth in revenue from emerging streaming platform continues to meaningfully outpace the broader streaming category. As Steve mentioned, we are now generating more than $200 million in annualized revenue from these platforms.

Physical revenue increased by an impressive 19%, driven primarily by increased demand for vinyl and releases from The Yellow Monkey, Neil Young and Fleetwood Mac. Licensing revenue declined twice -- 12% as growth in sync was more than offset by lower broadcast fees.

Artist services revenue, which includes tour-related merchandising as well as direct-to-consumer e-tailer EMP, declined 3%. While revenue related to concert promotion and tour-related merchandising significantly declined year-over-year, EMP saw continued healthy revenue growth of over 44% as limited access to brick-and-mortar stores in Europe drove online shopping.

For Q2, Recorded Music adjusted OIBDA increased by more than 27% over the prior year quarter to $242 million due to revenue mix, cost savings and the impact from our recent acquisitions. Adjusted OIBDA margin increased 2 percentage points to 22.9%.

Music Publishing revenue increased by approximately 12% as growth in digital and sync revenue more than offset declines in performance and mechanical revenue. Digital revenue increased by more than 33%, reflecting the continuing shift to streaming and timing of new deals with digital service providers. Synchronization revenue increased by 12% due to increasing motion picture and commercial income. The decline in performance revenue was primarily due to COVID, while the decline in mechanical revenue reflects continuing shift to streaming.

Music Publishing adjusted OIBDA decreased by 6% from $49 million to $46 million with margins declining from 29.5% to 24%. Those declines were attributable to the timing of a nonrecurring benefit from the prior year quarter as well as the impact of revenue mix, driven by the reduction of high -- reduction in high-margin performance revenue due to COVID.

Operating cash flow grew by 74%, increasing to $150 million compared to $86 million in the prior year quarter. This improvement was driven by strong operating performance, timing of working capital, including payments from certain digital service providers and timing of royalties.

Free cash flow increased to $89 million from $67 million in the prior year quarter. CapEx was $20 million compared to $13 million in the prior year quarter. The increase is related to our previously announced plans to upgrade our IT and finance infrastructure. The total investment associated with our financial transformation program is expected to be about $20 million in fiscal '21 with annualized run rate savings of approximately $35 million to $40 million once fully implemented in -- for 2023. For fiscal '21, we expect total CapEx to be in the range of $90 million to $100 million.

Cash taxes were $35 million in the quarter. And as of March 31, we had a cash balance of $588 million and net debt of approximately $2.8 billion. On January 20, we completed an amendment to our term loan credit agreement. The amendment extends the maturity from November 1, 2023 to January 20, 2028, and removes a number of negative covenants.

In April, we refinanced our 5.5% notes through the issuance of $325 million of incremental term loan B, reducing our blended cost of debt to 3.4% and extending our maturities.

In closing, we are extremely proud of our first half results and look forward to delivering an exciting slate of new music over the rest of the year.

We thank you for joining our call today, and we'll now open the call to questions.

[Operator]

[Operator Instructions] Our first question comes from Kutgun Maral with RBC Capital Markets.

[Kutgun Maral, analyst]

Congratulations on the results, particularly with the strong streaming momentum. I know you don't give guidance, but going forward, as you look at what seems to be an increasingly competitive landscape with some large players aggressively pursuing acquisitions, are you concerned about your outlook going forward?

[Stephen Cooper, executive]

Thanks for the question, Kutgun. The short answer is not at all. We're really very confident about our competitive position, and I think that Q2 results are really a great signal of what's to come through this year and beyond.

It's important to recognize that we are recording these revenues and EBITDA while we have maintained really rigorous financial discipline. We're one of the few music companies in the world that can really both buy and build in a universe of opportunity that's exploding right now.

That's true for our A&R with everyone from emerging artists and songwriting talent to global superstars and music legends. It's true for our M&A activities. Look at our investments in territories like Russia and Africa or the acquisition of owned and operated channels like EMP and IMGN. It's true for our technology, where our tools, like our proprietary A&R apps, Sodatone, or our partnerships with innovative brands like Roblox, Genies or Wave continue to grow.

Bottom line is we have what everybody wants, which is the best music in the world. And what continues to make us unique is the combination of our scale and agility. We've really got a number of really incredible releases coming over the rest of the year. So I expect our momentum to grow, and to be frank, the whole organization as we see what we've got teed up and as we begin to come out of COVID are really, really fired up.

[Operator]

Our next question comes from Andrew Uerkwitz with Jefferies.

[Andrew Uerkwitz, analyst]

I guess I just want to kind of see if you couldn't expand on some of these new opportunities. The announcements with Genie and Wave, how should we think about that TAM opportunity for virtual fan engagement? And kind of as a follow-up of all the new kind of opportunities that you've laid out, social, virtual platform for music, exercise and all these other things, like which one gets you most excited?

[Eric Levin, executive]

Steve, do you want to take that? Or do you want me to take that?

[Stephen Cooper, executive]

Yes. Yes, I'll take the first part, then you should chime in.

[Eric Levin, executive]

Okay.

[Stephen Cooper, executive]

First of all, thanks for the question, Andrew. We've got great expectations for the investments we make, and we make investments from the perspective of how can these help us amplify music? How can these investments amplify our touch points with fandom? How can these investments help us create and monetize new revenue streams for our artists?

If you look at the investments we're making, they track, in many ways, the eyeballs and ears of billions of people around the world that are developing, creating and living in metaverses. And when you look at a number of our recent investments, all of them are focused on us having the tools, the technology and the access to these new worlds, Andrew, which we expect to continue to grow these worlds. We expect to continue to grow at meaningful double-digit numbers.

So this is consistent with us wanting to ensure that we are able to effectively operate on every fandom touch point that should and will become available to our artists and songwriters. Hopefully, that answers your question from a strategic perspective.

[Andrew Uerkwitz, analyst]

Yes, absolutely.

[Eric Levin, executive]

If I can add to that just from perhaps a TAM and financial standpoint. So one of the things that we talked about is 3 years ago, these emerging forms of streamings revenue was approximately 0. One quarter ago, we said on an annualized basis, the revenue was running at about $150 million. Now this quarter, we're saying it's running on an annualized basis at $200 million. They are growing rapidly and growing more diverse, as Steve said.

On your question about TAM, it's much more challenging but exciting in many ways to do it -- to compare this to, say, subscriptions where your TAM is your smartphone universe. Here, your TAM is your smartphone universe, but you potentially have multiple touch points, and therefore, multiple opportunities to monetize music within one smartphone is one user could use social media but also like to have live streams, participate in games, whether it's metaverses or otherwise, and with Genies utilize their avatars, they could also collect NFTs.

And as you see from the range of partnerships that we put together, some are areas that are active in monetizing and well distributed already and others are really looking to the future and activating new forms of NFTs, whether it's with Dapper, where we've done some CryptoKitties for the band, Muse, or new activations that we're looking at.

Getting our artists on Genie with avatars or working with Wave on live streams and new ways to monetize, the opportunity to expand this universe is really limited by the ability to create new products and continue the tremendous momentum to monetize. And we're excited about what's happening here and really focused on growing this universe. So thank you.

[Operator]

Our next question comes from Ben Swinburne with Morgan Stanley.

[Benjamin Swinburne, analyst]

Maybe 2 questions. Eric, I know you guys don't give guidance, but I'll take a stab at it because you've had a strong first half of the year. And this year, I think you guys talked about back in November being back-half weighted. Obviously, you did -- I think it was 13% constant currency growth this quarter with some COVID headwinds, and you've talked about the release schedule in the back half. So do you think ex FX, revenue growth accelerates in the back half of the year versus what we've seen in the first half? That's the first.

And then Steve, you mentioned Ben's promotion and sort of your initiatives in media. It got a decent amount of press coverage. I guess most of us don't think about Warner as an advertising business in terms of actually selling ads and creating branded content. I was just wondering if you could talk about the strategy and if you can size the opportunity or if that's a business that you have today that maybe is bigger than we realized? Just any color would be great.

[Eric Levin, executive]

Sure.

[Stephen Cooper, executive]

Eric, why don't you go first? And then I'll respond.

[Eric Levin, executive]

Yes. So I appreciate your shot at the guidance, Ben. We don't give the guidance, but certainly give color. At the beginning of this year, we said we expected a strong second half release schedule, and we continue to expect to have a strong second half release schedule. We've already seen singles coming out from Cardi B and Silk Sonic, Bruno Mars, Anderson Paak collaboration. There's more great music coming out that Steve mentioned earlier in his talk.

So we're very excited about the second half of the year. We think the momentum and growth trajectory that we've been continuing to build even through COVID, we were fully managing our business for growth going forward. Although we don't give guidance, we're very excited about the second half of the year, Ben.

[Stephen Cooper, executive]

So Ben, with respect to advertising -- excuse me, we've been in -- with all the pollen, I can barely speak anymore between the pollen and videos all day. We've been in the ad sales business for quite some time. We have a -- an ad sales seat on YouTube, where we are very active, and we have developed product for brands on a regular basis.

What we've done historically is our operations have been engaged one by one in the ad selling and the brand support space. What we're now doing is consolidating all of our ad sales, all of our brand support and production capabilities under one leader so that we will have a unified, integrated package from the Warner Music Group by way of supporting agencies, brands, and frankly, crossovers with our artist roster. So we are evolving the way we approach those markets in order to give them one-stop shopping, so to speak, Ben.

[Benjamin Swinburne, analyst]

Got it. And I presume that means you think that business would grow faster, would be more substantial over time as a result of these changes? Or...

[Stephen Cooper, executive]

Yes. Yes, because it is -- it will be -- strategies will be unified. Presentations will be far more effective and efficient. And we will give agencies, brands and others the ability to search and select across our global portfolio. So both on a global and a regional basis, this should make us a much stronger magnet for attracting revenue, ad revenue.

[Operator]

Our next question comes from Michael Morris with Guggenheim.

[Michael Morris, analyst]

I have 2 questions. Maybe the first one for Eric is really about the long-term EBITDA or profit margin opportunity. You guys have had great expansion there, and you've talked about your discipline. I'm curious, I mean, it's just -- it is a very competitive industry. You need to appeal to artists and things of that nature. It's transparent. I mean how do you see the opportunity for EBITDA margin expansion over time? And is it somewhat have a lid on it by virtue of that transparency?

And then my second topic is around the international investments that you made, 3 that you pointed out are pretty different in nature. And I'm hoping maybe you can expand a little bit on the magnitude of the opportunity for each independently? And also just what you bring in? Is it a matter of you bringing your existing sort of artist catalog and having new avenues to exploit that? Is it more a matter of you being able to go into these markets and help discover and expand the catalog or expand the -- your roster? Just curious as to what the growth path is for those investments.

[Eric Levin, executive]

Sure. I can take these. So on our long-term EBITDA margin, we have been consistent that as we look out, call it, 3, 4 years, that we think low, perhaps low to mid-20s EBITDA margin is realistic. When we started to communicate, that is, before we really knew the impact of COVID and how long it would last, we were already -- so in 2019, our EBITDA margin, our adjusted EBITDA margin was 19%. This quarter, it's 21.4%. So we've already moved into low 20s.

There are a couple of reasons for that. One is some of the COVID revenue streams that have -- or some of the revenues -- let's not called COVID -- some of the revenue streams that have been curtailed because of COVID, mostly related to live, our tour merch business, notably in the U.S. and our concert promotion businesses in Europe, which are not huge as a percent of our total business are low -- but they're also low-margin businesses. Don't have a huge effect on EBITDA, but if the revenues are in the short-term curtailed, they provided short-term upward lift to adjusted EBITDA.

Our underlying business, with the exception of that, is running pretty much right on what we expected along the plans we expected. As the business moves to be more and more digital, we expected in Recorded Music that to drive a natural margin uplift, and we're seeing that. And we're also managing a series of cost-savings initiatives. We have a global cost-savings program that's working with our corporate, our Music Publishing and Recorded Music divisions to find efficiencies related to automation. And we are finding impact from that.

We are generating new policies to make sure costs from real estate or travel are reduced, not just in the short term when we're out of the office from COVID but in the long term when we return. And as we've mentioned, we also have our financial transformation that once fully online is going to save us $35 million to $40 million a year.

The combination of all these, even as we return from COVID and live comes back, hopefully later this year and into '22, will allow us to manage our business, we believe, successfully and maintain margins in the low 20s. And we will continue to work for that to be our long term, and then continue from there to look for opportunities to continue to even improve it from there. But we are managing on the plans that we've expected. We're always looking for technologies that allow us to drive further efficiency into our business, and I'm sure we'll be managing this hard for the next several years and even beyond.

With our investments, this quarter, we've had several types of investments. So we had international investments, which we mentioned, and investments in the digital future.

This quarter, our investment in Zhara, which is -- was an independent Russia label that now is operating as Atlantic Russia, just cements our position as the #1 player in Russia, really allowing us to just broaden our A&R, broaden our roster, allow us to further drive music into a fast-growing market that we're truly excited about. Some of our other international investments, specifically in areas like the Middle East and Africa, we just see it as high-growth markets for the future. We're streaming, and digital is really coming online.

And so whether it's Chocolate City in Nigeria that allows us to have local repertoire on the ground there or our investment in Africori distributor in the market just extends our reach and allows us to build our foothold in an expanding market with repertoire and distribution capabilities.

And similarly, in the Middle East, we've launched offices so that we have owned and operated labels throughout the Middle East. We have an operation in Beirut that works pan-regional. We've launched our label group in Turkey. Our relationship in Rotana allows us to both have a strong partnership with a leading player in the market, but also have global distribution rights to their music outside of the mid-East region, allowing us to take advantage of that rapidly growing segment of the market.

So we continue to look for opportunities to find emerging markets that are coming online with streaming and invest in their growth as the monetization opportunities become real. We are really very focused on investing where there's a financial return. So we really try to identify fast-growing markets and invest into that growth, noting we're also doing investments in the digital ecosystem. And obviously, we've invested in Roblox, and we're doing a lot with them to experiment with live streams and how to activate those with monetizations, Wave, Genies.

These are some of the leaders in the digital ecosystem, and we really want to be in on the front edge, making sure that music is getting all the attention it deserves, has these digital activations. Both are reaching millions of people around the world, but also finding the right long-term monetization model that's both satisfying the music fans and rewarding to our artists. So we're really kind of engaged across all of these fronts. Thanks, Michael.

[Operator]

Our next question comes from Jessica Reif Ehrlich with Bank of America.

[Jessica Reif Cohen, analyst]

A couple of questions. First, physical was surprisingly strong. Was that all Japan? And what's the outlook for physical in general?

And then secondly, Music Publishing, it feels like there's still a deal a day that's been going on for a couple of years. Can you talk about your appetite for Music Publishing at this point, given elevated acquisition multiples?

And you had some acquisitions in the last couple of quarters. How much did that contribute this year? How much is, I guess, organic growth versus how much did acquisitions add?

[Eric Levin, executive]

Sure. Steve, if you want, I can tackle some of this, and you could add on whatever strategic color at the end. So physical, look, we had a 19% growth quarter, a strong growth quarter for physical. Vinyl is a growth segment within physical. And so we're looking for releases and activations to really unlock that potential.

Some of that was Japan, specifically The Yellow Monkey release was very strong in Japan. But we've also had terrific release -- rereleases from our catalog of Fleetwood Mac's Rumours and from Neil Young's classic releases that allowed us to tap into that market as well.

Overall, I think we still have to be cautious about physical. The CD market is still in decline. There are an opportunity based on release schedule to have strong quarters. But I would say, overall, we should expect physicals in decline, but we will be working very hard to maximize its potential, both through CDs, but especially in vinyl, which is a long-term attractive market that's growing.

In Music Publishing, why don't I tackle that last because I suspect Steve will want to add on to that? On M&A, the transactions we did earlier this year, Jessica, contributed $11 million to adjusted EBITDA. So we've had a strong growth quarter excluding those. But obviously, they were additive as well.

And I would just say, in Music Publishing, that we are a full-service operator in -- with Warner Chappell. We both are able to sign songwriters very, very early in their careers, help them develop their songwriting skills, pair them with other cowriters, help them pitch their songs to superstar artists. So we are not just an acquirer, we are active in developing. And that is a huge part of our business at Warner Chappell.

But we're also very disciplined investor. We do look at the deals that come in the market. We do close deals when they have the proper financial return. And because we're able to look at deals across all genres, across all geographies around the world, we have found no shortage of attractive investments to make. But yes, there are a lot of deals happening there. And if the deal ever gets passed, the points that we think the return profile is attractive to us relative to our other opportunities and relative to our return threshold that will pass and find other deals. We are not finding a shortage of attractive investment opportunities to continue to grow Warner Chappell's business.

Steve, I don't know if there's anything you want to add, but I think I answered the question.

[Stephen Cooper, executive]

Yes. Jessica, I think Eric touched on all of the high points. But we have been engaged in these acquisitions. As importantly, we are providing an array of services to many of these acquirers because most of the people coming into this market are making these investments are pure financial players. But the fact of the matter is that these assets have to be managed. And one of the services we provide is actually the management of these portfolios to these third-party buyers. So I'd like to point that out.

Number two, when we emphasize our financial discipline, it's not only what we have to do to grow the top line and the bottom line, but it's also to ensure that our cash flow from operations remains very, very healthy. And one of the things we are really thoughtful and disciplined about is not buying assets at multiples that will create or severely crimp cash flow from operations.

So when we look at our metrics and we look at the multiples that some of these deals go at, very candidly, we look at those deals and say, we can't make them work. And we can't make them work because we've got a real cost of capital. We pay dividends to our shareholders. We've got to maintain a healthy cash flow from operations. So if we can't figure out how to really optimize in all of the right ways some of these deals in the marketplace, we just take a pass. Hopefully, that answers your question.

[Operator]

Our next question comes from Todd Juenger with Sanford Bernstein.

[Todd Juenger, analyst]

I've got really just one topic. Probably love to hear Steve's thoughts. I think, Eric, you might have a few things to chime in, too.

The topic is data, especially in an increasingly sort of digital world, you have all sorts of business and channel partners who are developing repositories of data about listening and listeners and fans and your artists, I mean, just to name some, right?

So your streaming DSPs are developing their own data. The ticketing services and live-event managers are developing -- well, at least in a non-COVID world, are developing data. Obviously, the 3 -- the social platforms and gaming platforms are developing all this data. And I'm sure you have your own first-party data.

So I guess my question or the topic is there's a perception among the investors that this data is very valuable. So is that true? Do you find a lot of value in any of this data? And is any of this data particularly valuable to you versus some of it that may be sort of redundant or more nice to have?

And I guess, Eric, where you might especially come in for a financial audience here is if this stuff is valuable, how are you obtaining assets to -- access to it? Are you ever explicitly paying for data sets? Or are you ensuring access to data you need from your partners in your agreements in other -- with other forms of consideration? And how are you making sure that, that's part of the agreements that you have with your partners?

[Stephen Cooper, executive]

So Eric, why don't I start, and then you can make all the points, which I am sure on this. So Todd, just to give you a sense of the Warner Music Group, we process 2 billion lines of data every day, and that's growing. So data, I guess, philosophically, you start with it's not so much the data that's important, it's what you can glean out of the data by way of useful information and really informative insights that make sense.

When people talk about data oceans, they're literally talking about oceans. And the trick is to be able to organize that data not only -- if you look at data like the Pacific Ocean, while it's important to analyze from 0 to 15 feet, you got to be able to organize, categorize and pull really useful information and really, really great insights from not only 0 to 15 feet in the Pacific Ocean, but all the way down to the Marianas Trench. And so data without the right organization, categorization and algorithms to identify these -- the really useful stuff and the real insights isn't worth much in itself.

That being said, we get data on a daily basis from hundreds upon hundreds of sources. And you're right that everybody has got their own data. What makes us different is we're an aggregator of data across all of these platforms. We get data from Live Nation. We get it from Spotify, Apple, YouTube and Deezer, Facebook, TikTok, on and on and on. And while they have and they can analyze their data, it's only one of the cut facets of the diamond, Todd, we actually have the data and the sourcing that allows us to look at every facet of the diamond.

So you got to keep in mind that one of the services we provide to our artists and songwriters is data aggregation, which, given our internal data scientists and the way we mine this data, so to speak, allows us to provide them with useful information, and oftentimes, really interesting insights. Is data helpful when you can organize and manage that way? Absolutely.

It allows us to -- when they return, it allows us to run far more effectively our marketing and promotion operations because we can focus on where our artist fans are, what they want and what more they are demanding. So the unequivocal answer is data when handled in a proper way does have a lot of value. Incidentally, one of our mantras whenever we do deals is no data, no deal.

Eric, you may want to add to that?

[Eric Levin, executive]

The only thing I want to add -- Steve, I thought that was right on the money. The only thing I want to add is or just supplement is we do have a series of tools that use all this data, which is to really power our decision and help our experts make the most efficient decisions in real-time. We have Sodatone, which is our A&R tool, which allows our A&R executives to see music that's flickering at the early stages and artists that are just getting started to see which artists we should meet and potentially sign and help develop their music and their careers.

We have OPUS, which is our marketing tool. That helps us use tool about music that's already in the market to decide where and how best to promote it so that we're driving the most efficient, both use of our marketing resources to drive music performance in the market. Steve mentioned we have artist portals that allow artists to see how their music is performing and where in the market. We have song-pitching tools. We have sync tools.

So we have a series of tools that use both internally generated and externally generated data across hundreds of sources to make sure we're running our business in the most effective way we can. And we continue to upgrade our data and our tools to make sure that we're using these in ways that are driving real outcomes to us.

[Operator]

Our next question comes from Matthew Thornton with Truist Securities.

[Matthew Thornton, analyst]

Maybe a couple really quick ones if I could, I guess. The first one, Spotify, obviously, is in the midst of raising prices. And relatively, my question is, maybe for Steve, do you have any sense as to -- or any expectation as to whether other DSPs will follow suit? And is there any reason why price increases from the DSPs wouldn't flow through commensurately in parallel to your streaming business? So I guess that's kind of my first question.

And then just second question around live music. There's been talk of maybe around like theme parks and things like that, there's been talk of pent-up demand as we kind of recover and kind of come out of COVID. I'm wondering if you have any evidence of pent-up demand around live concerts, festivals, et cetera? Anything you can point to there? Any color there would be great.

[Stephen Cooper, executive]

Well, on the first, I'll give you my sense, and then Eric can follow up on many of the financial ramifications. Let me take the second first so. I think there's a general view, Matthew, that there is pent-up demand for live. I'm sure you saw the sellout crowd in New Orleans a week-or-so ago for the UFC championships. There had been large crowds at kind of managed events over the last couple of months. When New Zealand opened for live concerts, there was a surge in demand. So I think one would just logically conclude that there is a pent-up demand.

I would also say that over the last 12, 13, 14, 15 months, I think we should also expect changes in behavior, where if historically, 100 people wanted to go to a concert -- I'm obviously making these numbers up, there will now be 10 or 15 or 20 who will have concerns, lingering concerns about live and large crowds and will continue to double down on the habits created during COVID by way of watching things on live streams or by watching virtual concerts and interacting in different ways. So I think that while there is pent-up demand, there may be some behavioral changes just because of the lingering uncertainties around COVID.

With respect to price increases, I think that, that's -- Spotify has announced a number of price increases for a variety of their offerings in emerging markets, developing markets. They now announced in the U.S. and, I believe, the U.K. I think that as -- what people have a tendency to do on these services is build their library, build their playlists, and so there is a stickiness. And I think that as Spotify and/or others experiment with these price increases, if they don't see any meaningful churn events, and to date, we're not aware of any. But to the extent that they don't see any meaningful churn events, I think what we should have an expectation about is that other DSPs will begin to raise their prices as well.

Keep in mind that there is a massive, massive gap between pricing for audio, so definitely pricing for their ears than there is pricing for video or eyeballs. And I think that our long-term expectations are that the gap between audio and video will have to erode, Matthew. They may never be on a par with each other, but we do believe that audio will have to make incremental gains over time relative to the value proposition that's associated with video. Hopefully, that was -- that answers your question, Matthew.

And Eric, you should add anything you want to add.

[Eric Levin, executive]

No. Steve, I thought you covered it very well.

[Matthew Thornton, analyst]

I guess just...

[Stephen Cooper, executive]

Sorry, what was that?

[Matthew Thornton, analyst]

Question just for Eric, I guess. Is there any reason -- when a DSP raises price, I would expect that the impact to your business happens in parallel and commensurately. Is there any reason that, that wouldn't be the case? I just want to clarify that.

[Eric Levin, executive]

Thank you. I would just say we don't talk about specific DSP deals. So I don't want to get granular, but I would say, in general, when retail rates go up in the market that in general, we would expect to share and participate in that incremental upside, yes.

[Operator]

Our last question comes from Jason Bazinet with Citi.

[Jason Bazinet, analyst]

Your business is so interesting because for many, many years, it was in decline as physical collapsed, and now you're in sort of secular growth as the digital pivot is underway. And I think what's hard in that sort of 2-decade context is to get a sense of, on a full year basis, if you happen to have a bunch of hit records or hit artists that are on your roster, what it really means on a, let's say, a full year basis in terms of growth? In other words, market share gains or losses. Is it sort of -- am I right to sort of think of it as like bull case 1 or 2 points, bear case 1 or 2 points as a headwind or a tailwind in any given year. Is that a reasonable number?

[Eric Levin, executive]

Thanks, Jason. I would say that it's -- music, certainly now, and I haven't been in the music business for 20 years, I've been in it for 7. But I would say that there's a bit of a multipronged, multilayered analysis to it.

So one, music has just become very global. We're releasing music in 50 markets around the world. And one can have really strong releases in Japan and Germany, and that could be really impactful, or one can have some of our big, kind of Anglo global superstars release music, and it could be really impactful. We could have a series of different ways to drive music and performance in the marketplace.

So I would say that we have multiple tools. We certainly have -- which I think you were talking to kind of the global superstars that really have an opportunity to have an impact on the global music market. But we also have local and regional stars, and new stars we're developing and breaking all the time that have a real impact. And so a lot of this is a portfolio of -- across genres, artists across different stages of their career. We always take great pride in our ability to identify and develop and market the next generation of superstars and drive them into the market and have long-term relationships there, hopefully, what we plan for long-term careers. And we do this all over the world, in Asia, Latin America, Europe, and obviously, in the U.S. and U.K. as well.

So I do think that individual artists have the ability to move the market, as you said, by maybe a point or so. But overall, we look at a very, very deep and broad portfolio every year regardless of which names are on it and making sure we're releasing great music. And if we're releasing great music, we're confident that we can drive the performance and growth in our business that we expect. And we've been doing that for the past 7, 8 years at this point.

[Operator]

I would now like to turn the call back over to Steve Cooper for closing remarks.

[Stephen Cooper, executive]

So again, I want to thank everybody for taking the time to join us today. And please, everyone stay safe, and have a really good time enjoying Cinco de Mayo. We'll talk to you in a few months. Bye-bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.