Universal Music Group N.V. (UMG) Earnings Call Transcript & Summary

Good evening, and welcome to Universal Music Group's Third Quarter Earnings Call for the period ended September 30, 2021. My name is Maxine, and I'll be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group; and Boyd Muir, Executive Vice President, CFO and President of Operations. They will be joined during Q&A by Michael Nash, UMG's Executive Vice President, Digital Strategy. [Operator Instructions] Please let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section of UMG's prospectus dated September 14, 2021, which is available on its website at universalmusic.com. Thank you. Sir Lucian, you may begin your conference.

Thank you. Good evening, everyone. I'm delighted to be here with you for this very first earnings call for Universal Music Group as a public company. Let me begin by setting the context with a fundamental fact. Music is on a stunningly powerful trajectory. For example, just last week, the IFPI, the Global Trade Association, issued a report underscoring what we see every day in the marketplace about music's increasing influence. After surveying more than 40,000 music fans in more than 20 countries, the report found that the average listening grew to more than 18.5 hours per week, the equivalent of 368 songs per consumer. And over the past 2 years, the amount of time fans spent on subscription audio streaming rose by 51%. When you combine this increased time spent listening with further penetration of stream monetization in both the developed and high-growth music markets, it's easy to understand our optimism about the industry growth. People are not only enjoying more music than ever before, but they are also connecting with artists in ways that were unimaginable just a few years ago. A diverse mix of musical genres are delighting fans across an expanding landscape that includes short-form video, social networks, fitness apps, gaming, live streams and digital goods and much more. And even as all that is taking place, the demand for physical products continues to grow. This expanding music consumption landscape means expanding music monetization. In a few minutes, Boyd will be addressing our financial results in more detail. But for now, here are 2 highlights for the quarter just ended. All segments contributed to a 17% revenue growth compared to the prior year quarter and to an increase 21% of adjusted EBITDA. We feel that these numbers speak for themselves. Looking ahead, we believe there is unprecedented opportunity for further growth. Given that fans now have access to essentially all of the world's music in the palm of their hands and that consumer demand for music across cultures, eras, languages and genres is at historic highs, I remain unwavering in my confidence that the path we're on will lead us on to greater heights. As someone who's been in the business for his entire career, I can tell you that growth like this just doesn't happen. It begins as, of course, it must, with great music from gifted artists and songwriters. But from there, it takes hard work by inspired professionals and investment by companies like ours to grow and broaden the entire music system. But make no mistake, there really are no other companies like ours. UMG is the driving force of progress and innovation in the industry. At a time when the music market seemingly has no barriers to entry, when anyone, anywhere can record and distribute audio content and when every single day approximately 60,000 tracks are uploaded to Spotify alone, the reality is it's harder than ever for us just to cut through all of the noise to find and expand their audience. That is exactly why we placed the utmost priority on maximizing opportunities for artists to bring their music to the world and to connect with fans in increasingly rich ways. When we help artists break through to commercial success, we are also empowering them to reach new levels of artistic creativity and to go on to hopefully develop really sustainable careers. By prioritizing our focus on artist development and consistently delivering greater opportunities for artist's success, we remain the destination of choice for those artists seeking a partner that both shares a long-term career-oriented vision and has an unmatched track record to prove it. As I said, we are uniquely positioned to drive the greatest value based on our global resources and marketing experience that simply is why the world's greatest artists, at every stage in their career, continue to sign, renew and expand their partnerships with UMG. Let me highlight some developments this quarter with a few of our artist partnerships. Last month, Germany's most successful music artist, Helene Fischer, extended her partnership with Universal Music Germany. Fischer has topped Germany's annual sales charts for 5 of the last 8 years, more than any other artist in German chart history. Her new studio album, Rausch, debuted on October 15 and is already this year's fastest-selling album. In August, we entered into an expansive worldwide alliance with Aerosmith, the best-selling American hardrock band of all time, that includes their entire discography, merchandise and audiovisual projects. We couldn't be more excited to unite the work of this iconic group at UMG ahead of their upcoming 50th anniversary. For the first time, all of Aerosmith's incredible recordings will be marketed and distributed exclusively by 1 company, us. As a sign of the truly global nature of UMG's business today, in July, we were thrilled to sign an exclusive global agreement with Indian music superstar and entrepreneur, Badshah. With more than 15 billion streams worldwide, he's a dynamic Dehli-born wrapper, singer, a music producer and is one of the world's most popular musical artists. Our multiyear agreement embraces all elements of his career, including future recordings, music publishing rights, the nonfilm compositions, brand licensing and partnership. He's a most welcome addition to our family. We also announced a new agreement with one of the world's most acclaimed artist, multiple Grammy winner, Andrea Bocelli. And just last week, BTS, the world's #1 best-selling group, according to the IFPI, announced that they will be expanding their relationship with UMG, partnering with us globally, including in the U.S. Earlier, I mentioned our long-term career-oriented approach to artist partnerships, an approach that also includes finding innovative ways to introduce legendary artists' music to new generations. This quarter, I can cite no better example than ABBA, one of the most successful pop groups of all time. ABBA recently announced the upcoming UMG release of their first studio in 40 years. And we are also partnering with the band on a revolutionary type of concept. Next year, the group will perform as avatars in an immersive digital content experience with a live 10-piece band in an arena in London. The news of the upcoming concert took ABBA's back catalog to the top of the streaming charts and gained them, in just 1 week, over 1 million followers on TikTok alone. There's yet another way in which we are the industry's driving force. Because UMG has today's most popular artists and hits as well as the world's deepest and widest catalog, we are in a unique position to deliver the essential content and platform engagement new digital businesses seek in order to accelerate their business models. Our position inevitably leads us to focus relentlessly on the future, and we do. I've described music as becoming an indispensable ingredient in a wide range of media, short-form video on social networks, FitTech, gaming, et cetera. Music is everywhere today, and it will be everywhere in the future as innovation drives market transformation and the landscape keeps expanding. Looking at Health, for example, where we have promoted exciting new applications in music licensing within fitness services, we've now established a partnership that harnesses music as a key component of the medical therapy, something which I'm particularly excited about. We recently partnered with a digital therapeutics company, MedRhythms, our first deal in the medical area, and the first deal of its kind in the industry for the use of our catalog as those prescription music to stimulate part of a patient's brain. This is just one example that points to the ever-expanding scope of the music business landscape. We are also fostering innovative new partnerships in social media, building on the solid foundation of our industry-leading strategic relationships with YouTube, Facebook, Instagram, TikTok over the last 4 months. We have completed new deals with Snap, Lomotif and Kuaishou. We are expanding our social media partnership portfolio with innovative services that further extend engagement and monetization opportunities for our artists with fan bases around the world. Another area where we are intensely focused and have bolstered our efforts is the production of original film and TV content. This is a key facet of our ability to promote our IP outside of the traditional realms of music. Our success in this arena was already evident at the recent 2021 U.S. Emmy Awards, UMG's poly grand entertainment garnered 11 nominations with the Bee Gees How Can You Mend a Broken Heart receiving 6 nominations and winning one Emmy. Polygram Entertainment's Zoey's Extraordinary Playlist received 5 nominations, and Interscope's film Billie Eilish: The World's a Little Blurry received 4. And in July, the Velvet Underground documentary premiered at the Cannes Film Festival to rave reviews before opening last week, both theatrically and on Apple Plus. And while we're talking about awards, I'd be remiss not to mention a few remarkable chart statistics as well. Through the third quarter of 2021, according to MRC data in the U.S., UMG has all of the top 4 albums from Morgan Wallen, Olivia Rodrigo, Pop Smoke and Justin Bieber, as well as the #1 album for 33 of the 39th first weeks of the year as well as all of this year's top 7 album debut weeks from Drake, Kanye West, Olivia Rodrigo, Taylor Swift, J. Cole, Morgan Wallen and Billie Eilish. In the U.K., according to the official charts company, so far this year, we have 8 of the top 10 artists, the top album with Olivia Rodrigo's "Sour" and 3 of the top 4 singles. On Spotify's global chart, Olivia was the #1 song through the third quarter of 2021, remaining at that spot for 45 consecutive days. This is just a small sample of what is happening around the world at Universal Music Group. I'm proud of all that we've done to bring us to this point, and, in particular, what we've accomplished this quarter. But let me assure you, our vision remains far reaching, and our strategy is, and always will be, long term. I firmly believe the music industry is only at the beginning of a new wave of growth and evolution. We are positioning UMG to lead this evolution for the benefit of our artists, fans and, obviously, shareholders. Thank you. I'll now turn it over to Boyd, who's going to walk you through our financial results and then we'll come back with you after for your questions. Boyd?

Thank you, Lucian. I'm pleased to be with you to report that our first quarter as a public company has been a strong one. The results are laid out in the press release issued a short time ago, but I'm now going to review some of the key metrics and provide a bit more color. Please note that any revenue growth I am discussing is in constant currency. Total revenue grew 17% this quarter compared to the prior year, with all 3 of our businesses contributing. Recorded music revenue grew 17%, but it's the diversity of that revenue growth what makes it particularly exciting. Subscription and -- excuse me, subscription and streaming grew 15%. Within that, ad-supported streaming was particularly strong, thanks to ongoing improvement in ad-based monetization and new and enhanced deals in social media. For example, this year, we reached a new deal with TikTok. We added a partnership agreement with Snap. We saw the launch of Shortz, the new product on YouTube, and we've seen strong growth from YouTube overall as we focused on better monetizing our content on that platform. In fiscal 2022, we plan to break out our streaming revenue between subscription and ad-supported. Both continued to show meaningful growth, and these revenues are each becoming sizable enough for us to discuss their trends separately starting next year. Now let me turn to other growth drivers within Recorded music. Physical revenue grew 12% over the prior year quarter. This was driven largely by strong vinyl sales in the U.S. Incredibly, Taylor Swift, Olivia Rodrigo and Billie Eilish now hold the top 3 positions of the last 30 years for single week vinyl sales. For Olivia and Billie, those weeks fell into this third quarter of 2021. We also had physical sales strength in Japan as a result of a new release by King & Prince and continued sales from BTS. While we don't expect physical album sales to remain a growth business every quarter, it does speak to the enormous demand for products that cater to super fans, an area which we are focused on further developing. Another noteworthy area of growth within recorded music was in our license and other revenues, which were up 49%. Neighboring rights, synchronization, live and branding deals rebounded from the pandemic impact. And we also saw growth this quarter, as Lucian mentioned, from our audiovisual production business. This is an area of our company, which creates original music-based film and TV content. As this is a newer business for us, driven by smaller number of titles, revenue will vary quarter-to-quarter based on the timing of deals to sell this content to distributors and to platforms. Of note, this quarter was Billie Eilish's concert film Happier Than Ever: A Love Letter to los Angeles, which premiered on Disney+. We are passionate about this business, and we see it as an important part of our strategy for growth but don't yet expect it to drive this level of growth consistently. Turning now to Music Publishing. Revenue grew 21% over the prior year quarter, despite there still being continued COVID impact on performance revenue. Subscription and streaming revenue continued to show strong growth, and synchronization is growing well as this business has now rebounded following the impact of COVID. Also, certain publishing revenues, including those reported from collection societies, are booked when reported by those societies, we saw a bit of a timing benefit this quarter. Our merchandising business grew 14% as it is also beginning to rebound from last year's COVID impact. The negative COVID impact was primarily to touring and, to a certain extent, to retail. However, large-scale tours are still limited for now. So we believe it will take more time for this business to fully return. Now turning to EBITDA. While we will provide EBITDA for the first and third quarters, we will only break out EBITDA by segment as a half and for the full year. Our total EBITDA for this quarter was EUR 426 million, up 12% on a reported basis. However, please note, this included EUR 35 million of nonrecurring expenses in Q3, expenses, which were related to our listing. This consisted of EUR 15 million of professional and listing fees as well as EUR 20 million of share-based compensation expense. Adjusting for these costs, EBITDA grew 21% to EUR 461 million, and our margin expanded to 21.4%. The adjusted EBITDA growth and margin expansion are primarily a result of the revenue growth and operating leverage. Before we turn to Q&A, I want to speak briefly about our content spend and investment plans, which I know are important areas to discuss with the investment community. There's a great deal of newfound enthusiasm and music copyright investment, and we certainly appreciate why music's growing value is attracting interest. But our team's knowledge and experience give us a sharper and clearer perspective on the music industry's prospects and a distinct advantage in evaluating investment opportunities. The knowledge and experience we have has many different sources. Firstly, there is UMG's creative and industry expertise in every major music market in the world. Added to this are our own direct-to-consumer initiatives. Then there's our analysis of the many different drivers of music monetization. And finally, the proprietary cross-platform data we received from numerous services with whom we partner. Why is all of that important? Well, these combined strengths and insights enable us to both identify and acquire music assets and to develop and keep reinvigorating our already extraordinary portfolio of new and established recording of artists and songwriters from all around the world. Our global resources and marketing expertise make us uniquely positioned to create the greatest value from these assets for both our artists and our shareholders. I plan to give further color on our content investment when we report our full year results, so that I can do so in the context of updated figures. For now, I want to say, however, we remain highly disciplined in the investments we are choosing to make. And secondly, we believe continuing to invest in the business, both organically and opportunistically, is a strong driver of value creation and in the best interest of our company and our long-term shareholders. I look forward to discussing this in more detail during our full year results call. Now Lucian and Michael Nash and I would be happy to take your questions, and so if the operator could please open the line for Q&A.

[Operator Instructions] Our first question comes from Thomas Singlehurst from Citi.

Tom here from Citi. Congratulations on the results, and we're very excited collectively to have you as an exciting new company to cover in Europe. First question, though, is on streaming and sub growth at 15%. It appears to be below Spotify's revenue growth, which was, I think, 27% in the quarter they reported earlier today. I was just wondering what the reason for the revenue disconnect there. Is it fundamental disconnect? Is it due to lost share? Or will you catch up? That was the first question. And then the second question was, on the investment profile and investment in particular in new catalog, obviously, just some stellar names that pop up on NewsWire's deal on Aerosmith et cetera. I'm just interested in how much of an immediate boost that is to revenue and whether that's captured as organic growth or acquisitive growth. I suppose the way you reported at constant currency, I suppose, is not necessarily hugely different, but it would be nice to know roughly what the contribution to the revenue is from those cash flow acquisitions.

Thanks, Thomas. This is Boyd. I'll tackle your questions. I mean the question #1, regarding streaming and subscription growth and particularly in relation to Spotify announcing its results this morning, look, the Spotify results were very positive. And frankly, that's very, very encouraging for our growth prospects. We work with many different partners around the world, global and regional and locally, so we see the market more broadly, and our results will not always align with those of any single partner in particular in any quarter. I'd always urge caution on quarterly comparisons. But our overriding objective is to encourage healthy, vibrant and innovative competitive landscape, which is in the best interest of artists and consumers. So Spotify was a positive, and we're pleased. Now your second question, which is -- which I think was kind of more related to the acquisitions of the talent that we announced, are we actually seeing the contribution from that talent in the -- in our results. The only the caution I would give you is that when you make acquisitions, there's often a timing issue between when those rights revert back to the acquirer. So the benefit comes phased in over a period of time. We're not going to break out what that contribution is, but there is some benefit included in these results. But much more to come in the coming quarters and years.

Our next question comes from Omar Sheikh from Morgan Stanley.

I've got a few questions, if I could. So first of all, maybe 1 for Boyd. You -- I think you said you're going to give us a split for ad-funded and core paid streaming next quarter, but I wonder if I could speak to you now to what approximately the mix is today. So what is the percentage of streaming revenue that is allocated ad funded? And then maybe within that, if you could maybe talk to -- or talk about the trends that you're seeing in the core traditional paid streaming side. So within the paid streaming number, how did traditional paid streaming platform revenue trend in Q3 versus Q2, for example? And that's the first question. And secondly, maybe also with Boyd, again, maybe something you might want to address more broadly next quarter, but I'm interested at this stage in hearing from you what you think target leverage should be for this company. Obviously, you're at less than 1x lever today, looks too low from most sort of comparable company standards. So any initial thoughts on that would be helpful. And then third question is maybe one for either Lucian or Michael. You mentioned a few of the nontraditional agreements that you signed in the last few months, Snap and others. Could you maybe talk about the pipeline of renewals over the next 12 months and maybe the pipeline of new deals, stuff that you're working on, obviously, not specifics, but just broadly the areas which, perhaps, you're most excited about that you'd want to flag to us?

Okay. Omar, maybe we'll start with me. Yes, your ask to split the ad funded from streaming one quarter earlier than I promised is indeed cheeky. And I would rather not do -- I would just ask you to pause until we have our full year results. So it will be more meaningful, again, to talk on a full year basis rather than an individual quarter. But both aspects, subscription and also the ad-funded platforms, are both very, very meaningful. They certainly deserve being split out. Your question is very relevant. I would just ask you to be patient for one further quarter. In terms of trade trends and paid subscription, we think Michael will probably can say a few things just to supplement what I say, but we continue to see very positive growth in subscription. We continue to see increased numbers of subscribers. We see through the variety of the different platforms that we have. We see very, very encouraging growth, particularly across the totality of the service providers. So we remain very, very positive. Your second question, which was on target leverage, yes, we are under levered today, as you say, with a very low debt to EBITDA percentage. So we -- look, we have -- we've got capacity to increase that leverage quite significantly. I think it's a little bit too soon for us to really give more specificity. We've only been public for, I think, it's 5 weeks for now. But look, we've got a good position where we've got a lot of flexibility.

I'm happy to address in terms of new categories where we're excited and we see future potential. With respect to market potential for streaming and new categories overall, first of all, keep in mind that paid subscription has a lot of headroom in both developed and in high-growth potential markets as Boyd indicated earlier. But we see technology driving new opportunities in both subscription and ad-supported. Look at what voice meant to the development of paid subscription, and you get an indication of how technology is impacting the evolution there. And in ad-supported, the significant breakthrough impact of short video services also gives an indication of how technology is constantly transforming that part of the marketplace. We can't get more granular about breaking out individual categories, but we can say that with respect to video and social, they represent about 2/3 of total ad-supported business for Universal Music, and they're both growing really fast. People used to think ad-supported as merely a customer acquisition tool, a lower-value substitute for subscription. But with the evolution of social and video, music is now endemically tied to the growth of large global platforms. We're very excited about that, and we think there's inherent growth potential there. Something that's important to stress here is that these revenue streams are now largely complementary to each other. So their evolution and growth is part of a dynamically evolving marketplace overall. Just with respect to specific categories that were mentioned before, we feel like we're driving the development of these new opportunities in social, in fitness, in gaming. We're doing it both in terms of the engagement with these partners, but we're also doing it because we have the most popular artists and the most in-demand content. And that's really powering the digital ecosystem. So with respect to social, we did the first major deal, Facebook, Instagram, a few years ago that really opened up the category. We now have an extensive partnership portfolio. Lucian hit on some of the highlights of recent deals there. So we feel like we're in a very competitive position with respect to the evolution of social. In terms of fitness, no music company has a broader deal footprint than UMG. We're very, very happy with the business development from the standpoint of the emerging opportunity there. And we're seeing material results associated with it. And in gaming, we had early activations in the metaverse. We have had extensive activations over the last year with some of our major superstar artists. We're monetizing IP through licensing activity. So on balance, we see a lot to be excited about. We're excited about some of these new categories, and we're confident in our competitive position.

Our next question comes from Will Packer from Exane BNP Paribas.

Three quick ones for me, please. Firstly, on physical, I believe it's now grown in 8 of the last 11 quarters. Should we think of this as the new normal? Is the mix shift towards vinyl mean that this can have a stronger outlook than historically? That's the first question. Secondly, another strong quarter on the cost front. Could you perhaps provide some qualitative commentary on how you're looking to exploit the cost savings associated with the pandemic going forward? Or should we think that actually there's going to be a bit of a cost rebound as things normalize? And then finally, just a quick one on net content investment. Could you just clarify your comments there? Is the plan to give us some kind of outlook at the full year results? Was that the purpose of the comment just to confirm on that?

Thank you, Will. I will tackle all 3 of your questions, I think. Look, thanks for reminding us that physical was up in 8 of the last 11 quarters. I often use the phrase that, in physical, we seem to be defying gravity. And it is really quite remarkable when you look at this. But it's clear that connecting the fan with the artist with a physical product is incredibly important, perhaps increasingly so. So I think the way that we look at the physical, it's not necessarily about the CD. I think it's about a total product that is compelling and appealing to the fans, and it is an area that we're very, very focused on. As you point out that on vinyl, it's a subset of what I just said. With regard to the pandemic, clearly, I think the pandemic to be positive for a second, but a pretty miserable subject. The -- I think it's definitely -- it's in a world where we've been able to figure out how to do things differently. And there is little doubt that we will learn from that, and we will continue that behavior into the coming years. I think there's some obvious things like travel, which will return, but the question will be whether travel will return to the level that it was prepandemic. But we've learned to be more efficient, and there are other efficiencies that come into our business, which we will hold on to going forward. But just on that pandemic for a second. There are also revenue areas, which were negatively impacted. As, for instance, on merchandise, as I think I mentioned before, we're not able, because of the absence of live events, to be selling apparel at those shows. That is a hindrance to our merchandise business today. So that will rebound, and the sooner the better on that. The area of performance income, the areas of licensing, et cetera, we're seeing those areas returning, and they will continue to return, and we'll achieve pre-pandemic levels and beyond. So I think it's just a little bit more nuanced than just focusing on the cost aspect because there will be a revenue pickup to come. On net content investment, I mean, the reason for dealing with the full year is because we'll have updated numbers. We'll have full year numbers to discuss with you. And it is within the context of the full year that it's a more meaningful conversation that we can actually have. And that's really for why we're doing it then and not now. We are very clear as to the importance of this area to the investment community, very clear indeed.

Our next question comes from Richard Eary from UBS.

Many thanks. Good evening, everyone. Just I've got firstly, 3 questions, if I may. The first one is just to come back to the streaming side. I think looking at the Capital Markets Day, or maybe it might have been you, Boyd, but you presented a chart that talked about 57% growth in the first half from essentially the video component within the ad-supported numbers. I don't know whether you can expand on that and give us where that is for the 9 months to get us an understanding of obviously how that is performing relative to the ad-supported. You obviously gave us some quantifying numbers, but if you can put that into numbers, that would be great. The second question is that, I don't know whether it's premature, but can you give us an indication of what the fourth quarter looks like in terms of release slate for your artists and how we should anticipate that impacting on to numbers? And then just lastly, within the press, there's obviously we talk about the CRB potential changes as we go into the next review period. I think a number of the platforms have obviously put out their perspectives as well as the CRB. I would just be interested to hear how you think about that from the publishing stance but maybe also to get an update on where you are on platform renewals and where they will shape going forward.

Why don't I take your second question first, which has to do with the release slate. I think Michael Nash will talk to you about your first question. Look, we're not in a position to give advanced notice of the titles that will be released in the coming quarter. But what I would say is, in terms of Q4, I'll extend it out of the quarter into the full year. We'll -- we are confirming our guidance for the full year '21, which is that we will see revenue increase in excess of 10%, and our EBITDA growth will be in excess of 20% year over year.

So this is Michael Nash. With respect to the specific question on the Capital Markets Day stat, which was in the first half of 2021, over the first half of 2020, we indicated a 57% growth rate in social and video. As I indicated, this is a fast-growing part of our business, and we think that it's sustainable in that it's tied to the endemic advertising business of very large digital platforms. We're not prepared to provide an update on the growth rate as it continues. But clearly, as Lucian has indicated, we're doing new deals. And as I waxed on with my enthusiasm earlier, we think that there's a significant potential for us with respect to social and video ad supported.

I mean just to add to what Michael said, I'd just ask you to bear in mind that, that 57% increase in the first half of the year, it was up against a pretty easy comparative in the prior year, in that in particular, the Q2 of 2020 was the quarter that was most negatively impact from COVID, where you actually saw a reduction in advertising dollars. So the 57% was in part benefited because of the prior year comparison. But nevertheless, as Michael was saying, our enthusiasm is significant for this area.

And then finally, there was a specific question with respect to the CRB proceedings. So just a couple of thoughts on that. Keep in mind, this decision only affects a small percentage of our publishing company's overall revenue. In any event, the appeals court decision, and keep in mind, this appeals court decision was limited in its demand. And in fact, the court supported the view that songwriters should be paid more by streaming services. To be clear, we differ with the court's ruling. We think the rates approved by CRB in 2018 reflect the value that songwriters bring to streaming platforms, and they should be rewarded for that. We hope the final disposition of the case will reflect that.

Is that okay, Richard?

Yes. Can I just ask 1 follow-up question, maybe, Boyd. In terms of cost disclosure as we go forward, as we look at Warner, we get a greater disclosure, particularly around things like A&R. I don't know whether that's something you will disclose going forward or whether that is something you can give us more commentary on as well to understand the business in a better way.

The year-end disclosure is much more comprehensive than anything we're doing during the year. So something like A&R, which is clearly a sensitive area for us from a competitive perspective. But I would encourage you to look towards the full year. And again, I stress that this quarterly fluctuation, there's certain line items that is much more appropriate to look at on a full year basis.

The next question comes from Julien Roch from Barclays.

It's Julien Roch with Barclays. The first one is based on your results over the first 9 months, is your full year EBITDA target conservative now? Surely EBITDA will be up more than 11% in Q4. So any comments on that? The second one is, could we get some guidance on free cash flow conversion? So if I look at free cash flow, excluding catalog acquisition, divided by net income, adjusted for one-offs, your free cash flow conversion was 86% in 2019 and 83% in 2020. So is 85% in the right ballpark? Any indications will be amazing. Maybe we'll have to wait for the full year, but that's the second question. And then the last one is could we get a guidance for share-based compensation in full year '21 and going forward, either in absolute terms or in percentage of something. Apologies for only asking number questions and nothing strategic.

Look, on the free cash flow conversion. Firstly, we'd urge you to be patient until we report our full year earnings where you will have access to more detailed information. I understand your pursuit of a precise percentage, but I fear that it's not -- actually doesn't entirely work that way, just somewhat simplistically. The underlying subject matter is more complex. But let me leave it at that for now, and we'll go through that in more detail. Julien, forgive me, the -- I just forgotten what your first question was, if you could just repeat it for me.

Sure. So based on your full year guidance on EBITDA and based on the first 9 months results, EBITDA is only growing 11% in Q4, which seems very low. So isn't it too conservative? And then the last one was on share based compensation.

Yes. Okay. Got it. Look, we just want to confirm our full year guidance as in excess of 10% revenue growth and in excess of 20% EBITDA growth on a constant currency and constant perimeter basis.

And on share-based compensation, anything you can say on...

On share-based compensation, what you've seen, as we've reported this year, is very specific and related to the listing of our company. And as we mentioned in our prospectus, it's our intention to introduce equity-based compensation plan, which will enable us to align the interest of the company with the interest of the shareholder. So that is our intention. But I'm not in a position to be able to share any more specifics right now.

Our next question comes from Matthew Walker from Credit Suisse.

I hope you can hear me. Just going back to the new platform revenues, the fitness, social and gaming. Obviously, fairly gave a figure of $400 million and one is about $235 million for recorded music. Can you give us an indication of what your figure is, what your run rate is? And I think Warner's was growing over 100%. So maybe you could explain why it was like [ 57% ] or whatever in the first half. That was the first question. The second question was on streaming. In the first 2 quarters, it was extremely strong. And even if you take out the one-off in Q2, it was about something like 26%, which was well above what Spotify was reporting. So kind of going back to Tom's question, which is, was there any kind of like negative one-offs in the Q3 that meant you grew less than Spotify, because I definitely would have thought with paid streaming, ad streaming rebounding and the new platform revenue on top, you would actually grow faster than Spotify. So was it the price increases that you think it is? So any kind of color you could give us there? And then the final question is on the [ EBITDA ] and share-based compensation. So when you do introduce the equity-based compensation, will the EBITDA include or exclude the share-based comp? That will be helpful. The adjusted EBITDA number, will that basically exclude the share-based comp?

This is Michael. Let me take the first question, and I'll team up with Boyd on the second question. It was kind of a redirect on the comparison to Spotify and then leave the third question to Boyd. So with respect to the new digital business revenue fitness, gaming and social media and Warner and Sony's public numbers, we don't have all the details on what other companies are reporting. So I'm not sure it would be productive to get into a quarterly comparison. We just don't know what's in their numbers. To the extent that we can ascertain what in general may be included, I think it's fair to say that our revenue from these new business -- these new businesses is larger than what our competitors have stated publicly. And that should come as no surprise. As I said before, we're driving the development of these new opportunities, and we're doing it with the most popular artists and content in the ecosystem. So, generally speaking, we feel like that we should index at our market share level up against our deal footprint. Now I just want to clarify one thing, because you mentioned the 57% number, that was specifically the first half of the year with respect to social and video ad supported. And Boyd and I talked about some of the specific characteristics of that. So that's not the same as the new digital business, fitness, gaming and social media. It's a bit of apples and oranges there. So I just want to clarify that specific point. As I indicated before, in terms of our competitive position, we feel like we have leading positions in social. I articulated the reasons why. With fitness, no company has a broader licensing footprint than we do. And we've taken a leading position with respect to gaming. So we're confident in our competitive position overall. Now with respect to the question regarding anything in the recent quarter around streaming growth, no. I think the most important thing to keep in mind, and Boyd stressed this, we have hundreds of deals around the world. There's a number of global, regional and local platform partners that make up our digital revenue, our streaming revenue, our subscription revenue. So we view the market more broadly, and our results are generally not going to align perfectly with those of a single partner in 1 specific order.

Yes. I mean the only other thing I would add is we're kind of a little bit repeating what I said before, which is, Spotify is but 1 platform. And their results are very, very positive, and we're very, very pleased. We will be the beneficiary of that. But we see across multiple, multiple platforms, and so that's certainly worth considering. And lastly, on the disclosure of share-based compensation, yes, so it will be our intention to disclose any share-based compensation in an adjusted EBITDA, and we will report accordingly.

So just to clarify, does that mean the share-based compensation will result in a reduction in EBITDA? Because, obviously, if you switch from cash compensation to share-based comp and then you exclude the share-based comp from adjusted EBITDA, that's a sizable benefit to the margin.

Well, I mean it will be disclosed so everyone can come to their own conclusion. I mean, clearly, the share-based compensation is a noncash item. We will separately disclose it and people can come to the wrong conclusions.

Our next question comes from Conor O'Shea from Kepler here.

Just a couple of questions from my side. First question, I think, in your prepared remarks, Boyd, you mentioned the timing benefits from the collection agencies within the music publishing business. I wonder if you could give us, in broad terms, how much of a boost that might have been in the third quarter to music publishing growth. Second question, in terms of the price recently been reporting negotiations between the publishers and association in the U.S. and the platforms and documents logically, the Copyright Board and so on that are suggesting the platforms are very aggressive in negotiating down streaming royalties for publishers over 2023 to 2027, just wondering if you have any comments on that, if this is kind of an opening shot across the bows and negotiating sales or just anything you should be concerned about there? And then third question, just in terms of your deals with social gaming platforms. I saw that Warner signed a licensing deal with Twitch recently. Is that a platform that you have similar deals with or something that we might see over the next couple of months. And could that be a significant addition to that -- to those partnerships?

Okay. Thank you. Maybe I'll, this is Boyd, deal with the your question about the timing benefit and the music publishing revenues. So I think I would point you towards the revenues as at the end of 9 months, where you will see that the publishing revenues have increased 10% on a year-to-date basis. That's a much more consistent figure rather than the quarterly 20% that you saw in Q3.

And then with respect to the question around the CRB process in the U.S., I just want to emphasize that we believe the rates paid by on-demand streaming services to songwriters and publishers should be raised, and we support the NMPA Association filing. Moreover, we believe that songwriters and their publishers and recording artists and labels are entitled to remuneration that's based on the full value of their work. And then I think that there was an additional question about a new deal. We obviously can't comment on any negotiations for new deals with new partners at this point. So we're going to have to just decline to comment on that question.

Our final question comes from Nick Delfas from Redburn.

I've got a question for Sir Lucian. Just wondering whether he would like to buy some shares. Obviously, his compensation is very cash heavy, so just interested in the alignment between the Chief Executive and his shareholders. A question for Michael Nash. I guess, in Sweden, more or less penetration of streaming has topped out of 40%. And it is still growing slightly, but obviously, low single digits. Do you think that's the same kind of level we should expect for the United States? And a question for Boyd. I understand that Aerosmith and other deals like Aerosmith are not life of copyright, but may be licenses for, perhaps, 10 years. I just wanted to confirm that.

Let me -- this is not Sir Lucian speaking, but let me save Lucian from that a little bit because it was a very personal question. So look, I think it's very important that the company is aligned with the interest of the shareholders. So that is clearly, Sir Lucian, but it's other people throughout our company. And so that will be part of the plan that we're pursuing in this coming period. Again, I would just emphasize, we've only been a listed company for 5 weeks, and this is something that is definitely a priority for us, and we'll provide details later.

I did not ask the beta question, but it's certainly a question I've been asked, and it is the United States of America after all.

I think the question is an appropriate question.

With respect to the question on penetration rates in Sweden, I think that raises a very interesting point. So what we're seeing in Sweden in 2020 is actually a 45% penetration rate for paid subscription. U.S. is below 40%, about 38%. So there's -- if we accepted that Sweden was the target, and we think there's going to be continuing growth that's going to be driven by innovation, as I stated earlier, across the digital ecosystem, and it's going to impact paid streaming, and it's going to impact ad supported. But if we take the 45% as a target metric, there's plenty of headroom in a market that has developed as the U.S. Other developed markets are more like 24% relative to that 45%. You look at high-growth markets, and they're below 4% up against that target range. Important strategic market like China is growing fast. Paid streaming, penetrating quickly, but in 2020, at 5.5% penetration. So yes, we believe that there's an opportunity within developed markets. There's headroom for growth in streaming penetration. And if you look at that as targeting for evolution of markets that are trailing in their development, that are currently high-growth markets, yes, I think that there's an indication in those numbers that there's significant opportunity for growth and penetration.

And, Nick, maybe lastly, I'll take the question regarding investment team. You mentioned Aerosmith. I mean, we're not going to comment on any specific deal. And the reality is that all of these deals are very different. They are all very tailored to individual circumstances. But the question life of copyright, we still acquire life of copyright. In terms of licensing, we acquired long-term licenses with artists. In terms of the deals you're seeing, deals where artists are leaning in and wanting to do more with us, so we're getting broader rights. And many of those artists, the longer that they are actually with us, that is where they see the services that we provide, and therefore, that is why they extend those deals with us. And so I think that's really all I can say at this point in time.

This concludes our Q&A session. So I'll hand it back over to Sir Lucian for closing remarks.

Well, many thanks to everyone for joining, and thank you for the questions. And I'd like to thank the team as well for the work and for the responses. And just one last time, we had a good quarter. We're happy with it, and we march on to the next one. Thank you very much.

Thank you.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.