Good evening and welcome to Universal Music Group's fourth quarter and fiscal year earnings call for the period that ended December 31st, 2023. My name is Nadia, and I'll be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group, and Boyd Muir, Executive Vice President, CFO, and President of Operations. They will be joined during Q&A by Michael Nash, Executive Vice President and Chief Digital Officer. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. As a reminder, this call is being recorded.
Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which by their nature are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the risk factors section of UMG's 2022 annual report, which is available on the Investor Relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in a press release on the Investor Relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference.
Thank you, Operator. Thanks to everyone for joining us on today's call. I'm thrilled to have the opportunity to report to you on another extraordinarily successful year for UMG. There is much to say, but my principal focus will be on three key areas: what we accomplished last year in 2023, our priorities for this year, 2024, and how our global organizational redesign is planned to accelerate our long-term growth. First, let's look at our exceptional performance last year, exceptional creatively, financially, and strategically. With 2023 full-year revenue growth of 11% and adjusted EBITDA growth of 15% in constant currency, we've continued our strong performance since our listing in 2021. The source of all our success is, of course, our artists and songwriters. They had so many achievements last year, I'll take a moment just to highlight a few of them.
For more than a decade now, the IFPI, the Global Recorded Music Industry Association, announces the world's top-selling best artists for the year, taking into account both physical and digital sales, as well as streams on subscription services and ad-supported streaming. How did we do last year? Well, UMG had nine of the top 10 of the world's most commercially successful recording artists, including all of the top eight, with some obviously expanding their success globally as well. In the worldwide, Taylor Swift was at number 1. No other company in the history of the IFPI chart has come even remotely close to UMG's outstanding performance last year, as well as year- after- year. Here are a handful of some of the other remarkable achievements by our artists in 2023. Of the top 10 global artists on Spotify, UMG had six.
Of the top 20 global songs on Apple Music, we had 13. On YouTube, UMG artists had three of the top five songs, with Morgan Wallen's Last Night at number 1. In the U.S., the world's largest music market, the foremost streamed artists on Spotify were ours: Taylor Swift, Drake, Morgan Wallen, and The Weeknd, as were six of the top 10 albums on the Billboard 200. On Billboard's Hot 100 Songwriters in the U.S., Universal Music Publishing Group had three of the top 5. In the world's other major music markets, our artists' success was similarly spectacular. For example, in Japan, the world's second largest market by revenue, UMG had five of the top 10 albums. In Germany, we had six of the top 10 albums. Our successes in these and other countries were achieved by a combination of local artists as well as our global superstars.
It's a clear indication of our strategy at work. I'll have more to say about that in a minute or two. While I'm enormously proud of our artists and teams for achieving the seemingly impossible year- after- year, we are, as we must be, relentlessly focused on the future. That's why I'd like to discuss with you next exactly what our company and the industry will look like in the immediate and longer-term future. Let me begin our look forward with a brief look back, I suppose. Why? Because some of the steps we started taking in 2023 are already having a major impact in 2024 and will continue to do so in future years as well.
Around this time last year, in discussing our 2022 performance, I spent some time outlining our artist-centric approach, a transformational strategy designed to put into place proper incentives for platforms and our partners to promote artist discovery, reward real, true artistry, and build deeper engagements with fans by cleaning up all the noise, fraud, and algorithmic gaming that was contaminating fans' experience in seeking out real music that they want to discover. I then went on to say that a transformation of this scope and complexity would take many years, which is why we were particularly encouraged to see that in a matter of just months, several platforms, including Deezer and Spotify, announced their plans to profoundly advance our collaborative effort in this by adopting artist-centric principles that, in time, will benefit independent, major, and DIY artists alike.
I can't adequately express how gratifying the show of leadership from many of our platform partners has been by providing fans, artists, and music companies, music companies of all sizes, within an environment that revives the fundamentals of artist discovery and artist development. These partners are paving the way to strong commercial growth. While fully accomplishing our artist-centric goals will take years, we hope to see more platforms adopting artist-centric principles in the near future. And we're excited about our recent conversation with our platform partners about monetizing super fans and developing premium tiers for our best music customers. In my remarks last year, I also made one other point about the artist-centric approach that has recently become, I suppose, a rather hot topic. And that is this: the philosophy that must apply to all platforms that are reliant on artists and songwriters and their music.
All platforms, not just music streaming platforms, all platforms, including short-form video and social media. We mentioned a year ago, and with artist-centric principles being put into practice, we mean it even more today. We are committed to supporting a healthier, sustainable, exciting, and yes, more competitive music ecosystem, an environment in which great music is not drowned out by a sea of noise, where music is easily and clearly accessible for fans to discover and enjoy, and most importantly, an environment in which the creators of all music, all music content, whether in the form of audio or short-form video are fairly compensated and will therefore be able to thrive as artists and creators for decades to come.
There must not be free rides for massive global platforms such as TikTok that refuse to meaningfully address issues around AI, platform safety, or pay their fair share for our artists' and songwriters' work. That is why we are grateful for the outpouring of support not only from individual artists and songwriters but from artist rights organizations, independent labels and publishers, songwriters' advocacy groups, and others who share our resolve that all platforms that operate or seek to build businesses on the music of artists and songwriters must protect as well as fairly compensate them. Relating to a key concern we have with TikTok, our Responsible AI Initiative was launched last year to place the protection of artists and the advancement of their interests at the very core of how we think about AI.
It includes things like ensuring that human artists are not economically disadvantaged, protections against deepfakes, and transparency requirements for AI companies regarding how they train their models on our IP and the artist's work and their creativity. It is critical that, as an industry, we advocate for the public policies that put appropriate guardrails in place so that the market can best deliver win-win outcomes. That's exactly at the core of who and what we are: win-win outcomes. And that's why we're forging innovative private sector partnerships with AI tech companies. Having learned from the industry's many prior encounters with disruptive technology, we decided to take an unprecedented first step this time around. We learned. Instead of waiting for AI to take hold and then trying to figure out business models that will fairly compensate artists and music companies, we got ahead of the game this time.
We formed a historic relationship with our longtime partner, YouTube, whereby we and our artists have a seat at the table to help shape the technology's development and determine how to harness and monetize it for the benefit of the entire creative community. To be honest, that's what we expect from all our partners. In addition to YouTube, we're also collaborating with a number of entrepreneurial enterprises on market-led opportunities and approaches, always with artists at the forefront of our thinking. Even as we're helping artists protect their rights to their work and their names and likenesses, we fully understand that the technology is not just a threat. The reality is that AI has the potential to enhance and support the creative process and produce revolutionary music experiences.
So we continue to strike groundbreaking agreements with companies to develop responsible commercial uses for AI and expect many more exciting developments and partnerships this year. Looking at 2024 and beyond, I'll turn now to the accelerating expansion of our global presence, which I referred to earlier. I am happy to report that our stated strategy is already making some exciting advances, that this year and in the future will accelerate our growth in, among other places, China, South Asia, and Africa. The strategy has three goals. The first of these focuses on signing artists outside of established music markets. One major example is China. In December, we unveiled a new strategic partnership with Jay Chou, the internationally renowned king of Mandopop, and his prestigious label, JVR Music.
In addition to securing the rights for Jay Chou's extensive music catalogue as well as his future projects, we're also pleased to be supporting rising talent and new artists from his label, JVR. The addition of Jay Chou, who was the IFPI Global Album Sales Chart leader in 2022, to UMG's artist roster underscores our commitment to developing Mandopop music globally. At the end of last year, following the release of Chin Up, his first studio album in five years, we were thrilled to announce UMG China's renewal of his contract with Chinese pop megastar Eason Chan. With 75 billion streams to his career - I'll repeat that, get your head around that - 75 billion streams. So far, we're excited to see how this one-of-a-kind artist, how far he can actually go.
The second element of our expansion strategy consists of providing local labels and entrepreneurs with global promotion, distribution, and a full suite of artist services. Our Virgin Music Group is a key part of that strategy with great leadership, serving as a vital local and global partner to labels and entrepreneurs around the world, different regions, different markets, different cultures. In each market, we take a bespoke approach. In India, we're just now embarking on a significant partnership with Represent, an independent talent management company whose artists will now have access to UMG's global footprint across distribution, publishing, brands, and more. Through this partnership, along with those with Desi Melodies and TM Ventures as well as UMG's in-house labels, UMG India is leading the Indian music market in reflecting the vibrant diversity of genres and styles and languages in that country while also supporting the independent music scene.
The third global accelerator is partnering with and investing in local labels, catalogs, and artist services business. There are two very recent deals we have great hopes for, as is the core and this is the core of the business: continually seeking new scenes, styles, and market developments. Earlier this year, we entered into an agreement with the iconic South Asian record label Oriental Star Agencies. We've acquired their catalogue of audio and video recordings as well as publishing rights to approximately 18,000 songs featuring many legendary and genre-defining Pakistani and Indian artists. OSA is the most prominent South Asian record label in the U.K. It has been pivotal in establishing the U.K. bhangra scene and launching the careers of numerous significant British and South Asian artists.
Our acquisition of OSA will further drive the momentum of our South Asian music business, enabling local artists to reach their largest possible audience in a global community. Further, earlier this week, we were particularly excited to announce our majority investment in Mavin, one of the world's most dynamic and exciting independent record labels. Based in Nigeria, Mavin is home to and the driving force behind many of the African continent's most established and accomplished artists, including Rema, who is responsible for the biggest Afrobeats song of all time, the most viewed video of all time by an African artist on YouTube, and the first African track to surpass 1 billion streams on Spotify. Pretty impressive. Our investment in Mavin will provide UMG greater exposure to the fastest-growing continent for recorded music consumption. Thanks to young demographics and increasing connectivity, Africa, we believe, is poised for significant growth.
Mavin also gives us an opportunity to increase our global presence in Afrobeats. Streams of Afrobeats, should be noted, in the U.S. for the first half of 2023, for example, increased by 34% year-on-year. Founder and CEO, Don Jazzy, and COO, Tega, who are proven creative executives mixed very experienced A&R professionals, will continue to lead Mavin. In addition to our accelerating international expansion, I want to discuss another key investment we've made this year that can accelerate our future growth for years to come. As Boyd and I have stressed on prior calls, we use our cash wisely, and we're extremely selective in rights acquisitions. Last week, we announced that we are acquiring an interest in Chord Music Partners. Chord is a leading music investment fund formed by Dundee Music Partners and KKR in 2021 to acquire premium music rights.
Today, the fund has made a number of catalog rights acquisitions and is home to more than 60,000 music publishing and recorded as well as recorded music copyrights. We're excited about this transaction for several reasons. First, Chord's recorded music catalog and music publishing catalogs are very high quality. Through the global resources of Virgin Music Group and Universal Music Publishing Group, we will actively manage them. Second, through a combination of leverage and partner equity capital, the structure of the deal provides us with a platform for recorded music catalog acquisitions and publishing catalog acquisitions without significant further capital allocation. Finally, with Dundee Partners, we have a partner who shares our long-term bullish vision for opportunistically and flexibly acquiring significant premiums as well as timeless music catalogs.
All of this activity, from achieving record-breaking artist performances to encouraging sustainable industry growth through supporting innovative business models and being brave enough to encourage them to embracing cutting-edge technology and securing a seat at the table in the development of perhaps the most transformative technological evolution that we've seen for many, many years, lastly, to partnering with companies that accelerate this strategy. All of this requires that we continually make sure we have the right organizational structure to extend our success. In this context, we are redesigning our global organization. To put it simply, we're creating the blueprint for the music company and the labels of the future. When it comes to signing artists, our labels will act with even greater flexibility and speed.
When it comes to supporting their rosters, they will have access to our highest performing internal teams and resources to bring the new artists to even higher levels of success. That includes new artists as well as the currently established ones. The redesign carefully preserves what we're best at: creative A&R, marketing independence, unique label brand identities, which is very, very important, and entrepreneurial and internally competitive spirit while creating efficiencies that will generate more impactful support and promotion, distribution, audience, monetization, B2C, e-commerce, and other areas. In a few moments, Boyd will walk you through the financial details and annualized savings the redesign will produce above and beyond its significant strategic benefits. For example, the redesign will enable us to lean into new growth areas that will address the next phase of our artist-centric initiative, the strengthening of the artist-fan relationship.
We believe that signing and developing new generations of talent imposes on us an obligation and an opportunity to provide those artists with the widest possible range of options through which their talent can shine and be available to their fans. We already act on this belief through our expanding audiovisual strategies, award-winning original short-form and long-form content while continuing to build out brand sponsorships, merchandise, and artist-branded products. But we will do more as we expand the range of these options going forward. For example, to accelerate our artists' ability to connect with their most ardent fans, last week, we also announced a strategic partnership and investment in Complex Networks. This new company, whose other investors include the original Interscope and Beats founder Jimmy Iovine, a good friend of ours, is a combination of the iconic digital media culture brand with fast-growing marketplace technology.
Together, Complex Networks form a definitive cultural, commercial, content, and experiential platform reaching a large and dedicated audience. This is to create a new commercial marketplace for the superfans. Our collaboration with them will also give our artists access to a dynamic network that will deliver industry-leading and culturally innovative opportunities to deepen connection with those superfans through unique and unprecedented experiences, content offerings that will create a powerful market into a powerful marketplace, as I said, to sell products. We're looking forward to this collaboration and pleased to be reunited with Jimmy, who will help drive the Complex Networks strategy. Let me close with this final thought before I turn it over to Boyd. While UMG has been around for generations and the experiences of this management team span many decades, we're aware of the fact that as a public company, we're still young.
In the short time since we've been public, we hope that we've demonstrated that we do what we say. We set strategic goals, and we deliver. Going forward, we're committed to continuing delivering for our artists and our shareholders. 2023 was a busy year for us that brought us positive changes. As you can see already, in 2024, we've only accelerated our pace. There's so much more to come. With that, thank you. Mr. Boyd, I'd like to turn it over to you.
Thanks, Lucian. You've heard from Lucian about the exceptional performance of our artists and songwriters as well as both the industry-wide and UMG-specific strategic initiatives we continue to drive forward. These initiatives have translated into continued strong performance in 2023 with robust growth on both the top and bottom lines.
For the year, revenue grew 11%, and adjusted EBITDA grew 15% in constant currency, with revenue growth continuing to outpace our midterm guidance and absolute adjusted EBITDA ahead of expectations. This resulted in an adjusted EBITDA margin of 21.3%. A portion of our strong revenue growth comes from lower-margin but incrementally profitable physical and merchandising revenues. Physical and merchandising revenues were both above our expectations in the fourth quarter. Revenue mix is an important component when considering margin trend. In addition to revenue mix, one-time items can have a significant impact on margins. In Q4, there was an unanticipated one-time item which, when excluded, takes adjusted EBITDA margin for the year to 21.5%, a 90 basis point improvement compared to the 20.6% margin we reported in 2022. Please note that adjusting for all one-time items in both 2022 and 2023, adjusted EBITDA margin improved 1.2 percentage points.
2023 earnings per share grew to EUR 0.69, up from EUR 0.43. Adjusted diluted earnings per share grew to EUR 0.87, up from EUR 0.80 in 2022. We had EUR 561 million in non-cash share-based compensation expense and EUR 76 million of cash compensation savings in 2023. For 2024, we expect about EUR 260 million in share-based compensation expense, EUR 80 million of which reflect the final impact of one-time transition grants and front-loaded accounting recognition. We are delighted with the healthy growth we continue to see throughout the business. Now, to put the year into context for you. Since our listing, revenue growth has meaningfully exceeded our midterm guidance of high single-digit CAGR, growing at a CAGR of over 14%. Adjusted EBITDA has grown even faster at a CAGR of 16.5%.
Free cash flow before investments has more than doubled from EUR 817 million in 2020 to over EUR 1.7 billion in 2023. Free cash flow after investments has grown to over EUR 1 billion a year for the past two years, even as we've continued to make meaningful strategic long-term investments in our company. Turning to the fourth quarter. As I mentioned, the fourth quarter of 2023 included an unanticipated one-time item negatively impacting Recorded Music Adjusted EBITDA. We booked a EUR 15 million euro provision related to the latest court decision in a decades-old artist estate litigation in Latin America. This has been a highly unusual process, and several appeal options remain open to us. Taking this charge is the required approach for the time being. In the fourth quarter, revenue growth was strong across all three business segments, with total revenue up 15.6%.
This revenue growth was higher than we anticipated, with physical sales especially strong. Adjusted EBITDA grew 15% in constant currency, and adjusted EBITDA margin was flat at 21.1%. However, excluding the legal provision, adjusted EBITDA for the quarter grew 18% to EUR 692 million, and the margin grew half a point to 21.6%. Now, let me turn to the results from each of our business segments. Recorded music revenue grew nearly 15% for the quarter and 10% for the year in constant currency. You'll recall that full-year 2022 results included a settlement from a copyright infringement lawsuit with an internet service provider, which was included in other digital and amounted to EUR 71 million in revenue and EUR 52 million in EBITDA. Excluding this settlement from the prior year, recorded music revenue grew 11% in 2023. Recorded music adjusted EBITDA grew 11% for the year.
Excluding the one-time items in both years, recorded music adjusted EBITDA grew 15%, and adjusted EBITDA margin expanded 0.8 percentage points to 24.3% from 23.5%. Physical revenue growth was especially strong, up 17% in the fourth quarter and 19% for the year. Physical revenue represents incremental spending from superfans above and beyond streaming revenues. But the margin percentages on physical are less than on streaming. So the exceptional growth of our physical business helped drive our strong EBITDA growth. But due to the revenue mix impact, it lowered our overall margin percentage. Inevitably, after seeing such remarkable growth, it will be difficult to sustain performance at this level in 2024. However, we do believe the physical business can grow over time as we increase our capability to connect fans with our artists.
Looking further at recorded music revenue, we continue to drive strong double-digit subscription growth, up 15% for the quarter and 13% for the year. The acceleration in growth this quarter compared to the first three quarters of the year was driven largely by the price increases at Spotify. Ad-supported streaming revenue grew 5.6% in the fourth quarter and 3.6% for the year. Demand for music-based consumer engagement from advertisers remains strong. But the ad market recovery has not been uniform across all partners and regions. And we remain cautious on the near-term growth outlook for this part of our business. With regard to TikTok, we've disclosed that our former deal generated about 1% of total UMG annual revenue. Because other platforms in the social video category achieve much greater monetization, we're focused on accelerating our partnerships with YouTube, Meta, Snap, and others.
We look forward to updating you in the coming weeks ahead about exciting competitive developments and incremental opportunities emerging within the category. License and other revenue grew a robust 34% in the fourth quarter and 14% for the year, with continued underlying strength in licensing. In the fourth quarter, we saw timing-related outperformance in neighboring rights and synchronization, touring, sponsorship, and also the benefit of a new licensing deal. Downloads and other revenue declined 46% in the fourth quarter and 36% for the year. The decline in the fourth quarter was a result of the continued industry-wide shift away from downloads, as well as other digital revenue. For the full year 2022, other digital revenue benefited from the EUR 71 million legal settlement I previously mentioned.
For the year, revenues grew at high rates around the world, led by 21% growth in Asia, 19% in Latin America, and 11% in Europe. Top sellers for the year included multiple albums from Taylor Swift and albums from Morgan Wallen, King & Prince, Karol G, and The Weeknd. Top sellers for the prior year included Taylor Swift, BTS, the Encanto soundtrack, Olivia Rodrigo, and Morgan Wallen. Turning now to music publishing. Revenue grew 15% in the quarter, with 36% growth in digital and 25% growth in synchronization revenue. For the year, music publishing revenue grew 12% with healthy double-digit growth across all major revenue lines, including digital revenue up 13%, performance revenue up 16%, synchronization revenue up 10%, and mechanical revenue up 15%. Excluding one-time items, music publishing revenue grew 16% in 2023 thanks to healthy growth across all revenue streams.
Music publishing adjusted EBITDA grew 18% for the year. Adjusted EBITDA margin expanded 1.2 percentage points to 24%. Now, merchandising. Merchandising revenue grew 27% in the quarter and 18% for the year. Both the quarter and the year reflect outsized direct-to-consumer sales driven by continued superfan demand. DTC growth more than offset the decline in touring revenue that we saw following the 2022 post-pandemic touring rebound, when many of our merchandising artists were touring. Merchandising EBITDA excuse me, merchandising adjusted EBITDA grew 38%. Adjusted EBITDA margin expanded 0.9 percentage points to 6.7%, helped by the shift to direct-to-consumer sales, which have a higher margin than both retail and touring sales. Net profit for 2023 amounted to EUR 1.26 billion compared to EUR 782 million in 2022, resulting in earnings per share of EUR 0.69 compared to EUR 0.43 in 2022.
The increase in net profit in 2023 included an increase of EUR 425 million in the valuation of investments in listed companies compared to a decrease of EUR 617 million in 2022. Adjusted net profit, which adjusts for the revaluation of these investments, as well as adjusting for share-based compensation expense, among other items, grew 10% to EUR 1.6 billion in 2023, resulting in adjusted diluted earnings per share of EUR 0.87 compared to EUR 0.80 in 2022. In line with our commitment to pay a dividend of at least 50% of our net profits, as adjusted for certain non-cash-related items, UMG has proposed a final dividend for 2023 of EUR 492 million or EUR 0.27 per share. This would bring our full-year dividend to EUR 0.51 per share, in line with 2022's dividend.
As Lucian discussed, we are redesigning our organization to enhance our capabilities in the areas most critical to our future growth and success. These changes will strengthen our leadership team, foster innovation, and create significant efficiencies across our business. We expect to generate EUR 250 million in run-rate cost savings, which will be accretive to our margins and which we will finish implementing by the end of 2026. The first redesign phase, which we are executing on imminently, will achieve EUR 125 million in annual run-rate savings, EUR 75 million of which will be realized in 2024 with the full amount in 2025. In 2024, we expect to incur restructuring charges of EUR 125 million, of which approximately EUR 100 million will fall into Q1. We will continue to look at accelerating our progress on phase II.
If we are able to do so, we could see some additional savings and severance costs later in 2024. Now, let me turn to cash flow. Our net cash provided by operating activities before income tax is paid for 2023 increased 15% year-over-year to EUR 2.3 billion. As a reminder, this includes the EUR 132 million we paid to settle employee tax liabilities arising from the equity plan grants. We opted to fund the taxes with cash rather than issue shares, which reduces the dilutive impact of the grants. In a similar manner, we intend to settle the employee taxes payable in cash for the March 2024 grants. Due to the timing of artist deals, royalty advance payments net of recoupment amounted to EUR 100 million, down from EUR 148 million in 2022.
Income taxes and net interest paid both grew year-over-year, partially due to the prior year having benefited from EUR 90 million in previously disclosed tax settlements and the associated interest income. Net interest costs were also impacted by the higher rates on our variable-rate debt. Even with the higher interest and tax spend, our free cash flow before investing activities reached EUR 1.7 billion in 2023, a 6% increase over the prior year. Conversion to free cash flow before investments was 72% of adjusted EBITDA. This significant cash generation allowed us to continue our long-term strategic investments in the business. We spent EUR 622 million on investments, including both catalog and other acquisitions. Even with the meaningful investment spending, we maintained free cash flow at over EUR 1 billion for the second consecutive year.
To give you a bit more color on our investments, in 2023, we spent EUR 178 million on catalog acquisitions, down from EUR 359 million in 2022. Catalog spending in the second half of the year included our previously announced acquisitions of RS Group in Thailand and Oriental Star Agencies, a British label focused on South Asian music, as well as several smaller artist deals. As we've continued to say and is now exemplified by the deal we've announced with Chord, it is not a strategic priority to use our balance sheet for large catalog acquisitions. I will talk more about the Chord transaction in a moment. The remainder of our second half 2023 investment spending focused largely on deals which push forward our strategic initiatives. This includes the acquisition of UAE-based music company Chabaka as we continue investing in high-growth music markets.
We'll update you further on our investments and plans when we hold our next Capital Markets Day, which will be in September at our iconic Abbey Road Studios in London, around the third anniversary of our listing. For 2024, it's worth noting that the three deals Lucian discussed - the acquisition of Mavin Records, the investment in Complex Networks, and the investment in Chord - will collectively account for approximately EUR 450 million of investment spending. We have a very healthy balance sheet with low debt and significant flexibility. Our net debt declined to EUR 1.7 billion at the end of 2023, leaving us with a leverage ratio below 1x EBITDA. Our capital allocation priority remains reinvestment in the business, both through signing and developing artists around the world and, where appropriate, through continued strategic M&A opportunities. Now, let me spend a moment on Chord.
We're pleased to have recently announced our acquisition of a 25.8% stake in Chord investment partners, an existing vehicle currently owned by Dundee Capital Partners and KKR. Chord is a special-purpose vehicle which owns over 60,000 copyrights from 10 catalogue acquisitions, including Kobalt rights management too. Chord has an interest in over 20 of the top 100 most-streamed songs of all time on Spotify, with a catalogue including music from The Weeknd, OneRepublic, David Guetta, Lorde, Kid Cudi, Diplo, Ellie Goulding, ZZ Top, John Legend, Twenty One Pilots, and many others. As part of this transaction, UMG and Dundee are buying out KKR's equity, and Dundee will own the remaining 74.2% of Chord.
Being part of Chord will allow UMG to tap into an already scaled acquisition platform to optimize for potential future catalog acquisitions without significant UMG capital allocation, through a combination of Chord's leverage and also partner equity capital. Additionally, UMG will take over distribution and administration for all current and future assets of the fund towards the end of 2024. The acquisition was done at an effective 17x EBITDA multiple. This multiple includes UMG's interest in Chord, as well as the income from distribution and administration rights we will pick up, but does not include any anticipated uplift in the performance of the catalog from bringing the administration to UMG. So thank you. And with that, Lucian, Michael Nash, and I will now take your questions. Operator, please open the line for Q&A.
Of course. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to remove your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. We ask you please limit your question to two parts. Our first question goes to Ed Young of Morgan Stanley. Ed, please go ahead. Your line is open.
Hello. Thank you for taking my question. It's on Chord. You just touched on it, Boyd. I wonder if you could perhaps help us understand what your preference be when your preference might be to acquire additional catalogs through Chord and when you might prefer to do it alone. Is it just about the size of the ticket you'd be willing to write, or are there other considerations in there too? Then perhaps you could help us frame what kind of uplift you've typically achieved by bringing distribution administration of catalogs in-house so we can think further about the multiple? Thanks.
Yeah. Thanks, Ed. I mean, as we've said before, when we look at catalog acquisitions, we're very, very selective. These are opportunistic. We have great visibility in terms of data. But here, with the investment in Chord, we have a vehicle that's set up specifically for the purpose of pursuing investments in catalog. We would much prefer to put any such investments through this vehicle than utilize our own balance sheet. As we've mentioned, this is a pre-established vehicle. Dundee Partners and ourselves are only really interested in capital that's got a long-term horizon. But it's long-term horizon capital who actually want to partner and co-invest alongside the leading music company in the world. So we're very, very excited about it, and we see our investments going through Chord as opposed to actually being financed off of our own balance sheet.
Thank you. The next question goes to Michael Morris of Guggenheim Partners. Michael, please go ahead. Your line is open.
Thank you very much. I'd like to ask you a couple about your comments on TikTok and the dispute there. And first, you listed a couple of components of that discussion: AI, platform safety, paying fair share in particular. I wonder if you could prioritize for us or share if you're closer or farther apart on any of those specific issues. You also talked about YouTube as a partner and maybe an example of a successful partnership. And is this a situation that could be as simple as using the parameters of your YouTube relationship as the parameters for the TikTok relationship?
Then just finally, Boyd, you mentioned perhaps a couple of areas where you may be able to expand relationships with other social media partners. My question there is, can we assume that revenue generation or your revenue relationship with those partners is variable such that if they were to be share-takers in the marketplace, you would participate in that financially? Thank you.
All right. It's Lucian here. As you rightly say, we've outlined the three issues that became of deep concern to us over a long period of time. We have a responsible AI strategy. We've made win-win partnerships and protected partnerships for the technology, which we're excited about. I see no alternative other than to work with people that share that responsibility as well as vision.
I've spent my entire career creating win-win situations, whether or not it was negotiating with the likes of Woolworths or Costco or Walmart or MediaMarkt or Fnac over the decades when we were a transactional business. Those win-win positions are something which I learned, we learned, and we continued with in all our digital deals. We negotiate and deal with platforms that combine, as I said, are worth trillions. We've been able, with all of them, all of them, to create win-win solutions which are protective of content, protective of creators, IP, copyright, fair share compensation. In addition to that, with regard to all of these platforms, and I suppose specifically around TikTok, we like to be friendly. We're friendly people. More than happy, my phone is open, unfortunately, 24 hours a day. We hope that we will be able to find solutions.
As I said, we're friendly people that like win-win situations. But we've laid out what's important to us, and I believe it's important to the industry, and I believe it's important to our writers and artists.
Michael, to the second part of your question, let me amplify a few of the points that Lucian made and provide a little more specification with respect to specific acceleration of competitor partnerships. So yes, in general, if consumption shifts from TikTok to other short video platforms like Reels or YouTube Shorts, we believe that we can, in fact, recapture some lost revenue. Keep in mind, over half of TikTok monthly active users already also use other short video services. In some markets, that percentage is as high as 70%. These are services that monetize engagement at a much higher rate. So revenue-positive consumer migration is easily foreseeable.
Now, remember, we have a real-world example to look at here with respect to TikTok in India. TikTok was banned in India in 2020. They had 20 million users at that point. It was the largest market for ByteDance short video outside of China. All that engagement after they were banned went to other global and local platforms. The adoption of short video continued its growth unabated. So we've seen mass consumer migration away from TikTok take place before. Because other platforms in the social video category provide much greater monetization, we're focused on elevating and accelerating our partnerships with YouTube, Meta, Snap, and others. A few examples: Meta has rolled out dozens of campaigns on their platform since February 1, featuring artists such as Liam Payne, The Weeknd, Noah Kahan, and Selena Gomez.
Snapchat is elevating how they value UMG artists' music, reflecting what our artists bring to their platform, introducing new ways to facilitate deeper connections between artists and superfans. For example, Snapchat has rolled out a new playlist feature with UMG artists, including Taylor Swift, Olivia Rodrigo, and Ice Spice, launched for forthcoming. And then with respect to YouTube, which you specifically mentioned, they've launched a major shorts-driven, multi-format Karol G campaign about two weeks ago. And that's helped Karol G's music reach a huge audience of 100 million viewers across the touchpoints of their platform, shorts and video on demand. This is the first of many planned big campaigns to come with YouTube. So as Boyd said, we look forward to updating you in the weeks ahead about exciting competitive developments and incremental opportunities emerging within and adjacent to the category.
Thank you. The next question goes to Lisa Yang of Goldman Sachs. Lisa, please go ahead. Your line is open.
Hi. Thanks for taking the question. So just on TikTok, obviously, it's been almost a month since your recorded catalog has been taken down. Just wondering if you've seen any impact at all on your market share or on other streaming platforms because, obviously, TikTok, those drive some discovery and engagement. And also, without TikTok as a promotional tool, what are you doing to keep basically promoting your artists, pushing new releases? And do you think there's a risk of some artists maybe postponing their release schedule? That's the question on TikTok. And the second question is on the margins. Just to be clear, the EUR 250 million savings by 2026, that's 100% incremental. So none of that's going to be reinvested.
And if that's the case, that will take us to 24% margin already in 2026. So then is there upside to your mid-20s margin target that you have given previously? Thank you.
Maybe I'll start with the margins. Yes, the EUR 250 million cost savings will be incremental. But it is important to point out that those savings are required to get us to our mid-20s adjusted EBITDA margin guidance. That was very much part of that original guidance. And we do have to realign that cost base in order to achieve our mid-20s adjusted EBITDA guidance. Sorry to jump in, Michael.
Not at all. We can address Lisa's questions in any order. And thank you for your questions, Lisa. Let me address the question with respect to TikTok and any impact that we've observed.
So it's important to keep in mind that the recorded music takedowns, actually muting of the videos, only started to take effect at the beginning of this month. So it's too early to draw any meaningful conclusions from such a small sample of data. That only addresses the preliminary impact of partial content removal for a couple of reasons. We provided notices to effectuate muting of millions of videos every day over the past two weeks. And that's one indication of how much music content remains to be removed as the month has progressed. And that's the recorded music content. And then keep in mind that our publishing copyrights are just now starting to be enforced on the platform. So in terms of what we have observed, and this is with respect to the consumption of our content in the ecosystem. Again, too early to make definitive assessments.
But to the extent that several weeks of data tells us anything, we do know that Universal Music Group audio streaming consumption remains stable globally and regionally for frontline and catalogue. In fact, we've observed no discernible negative impact on our broader digital business. In fact, we've seen a slight uptick in terms of frontline consumption and catalogue consumption over this short period of time.
I'd like to add one couple of other things. Let me be clear. Free doesn't work for us. We've spent years creating a path to digital monetization in every single category. The monetization is so poor that a minimal transfer into other platforms will have a better financial outcome for us. And I'm also not prepared to compromise the future of the social category by doing something that completely undermines the economics for us and for everybody else for that matter.
Thank you. The next question goes to Julien Roch of Barclays. Julien, please go ahead. Your line is open.
Yes. Good evening. Thank you very much for taking my question. The first one is on restructuring. Boyd, you were clear that while it was incremental, you needed that to get to your mid-20s EBITDA target. But the market overinterpreted your target because the original target is mid-20s in the midterm, which is 23%-27% between 2023 and 2027, i.e., a range of 27% in 2023 to [23% in] 2027. But the market decided that it was 25% in 2025. So are you saying that thanks to that cascading, we now have a firmer target of 25% in 2025? That's my first question.
And then the second question is on guidance for 2024. Last year, you guided to excluding all the one-off high single-digit organic revenue growth, and you did 12.4%. And you guided to at least 100 basis points of margin improvement, headline EBITDA, and you did 120. Can we get some indications for 2024, please?
Sure, Julien. Excuse me just a sec. With regard to the, I mean, I can't comment on what the market is projecting. I know what we were projecting. And in relation to get to that mid-20s% EBITDA margin, we'd made certain assumptions about our cost base. And the reality is that we've added costs that were inconsistent with those projections we were making with regard to, in particular, our SG&A costs. So we need to realign those costs in order to bring us back to where we were in our financial projections that supported the mid-20s% adjusted EBITDA margin.
For this year, in terms of guidance, I mean, we don't provide annual guidance. The only thing that I would say that Lucian says to a certain extent, and perhaps even more so in my own presentation, we did give some direction on a few items. We gave direction on share-based compensation. It gave some comment on expectations with regard to physical revenues, pretty clear on the cost savings that we'd be actually delivered in 2024 and the associated restructuring costs. So there are a few things in there. I just would say that otherwise, the guidance that we provided at the time of our listing, that still prevails.
I'd just like to add one other thing on margin. That our entire strategy is about encouraging creating new funnels, taking advantage of digitization, obviously, music in the cloud. So we're talking about monetization with games companies now. We're talking about the future with AI. We're talking about a shift from terrestrial radio into digital radio, which has an entirely different economic outlook. We use our margin to invest and support new categories, new funnels, and then we harvest. Then we send the trucks in to harvest whatever fruit they provide. And we can't think anything else other than the long-term strategy. So we think in two-, three-, five-year cycles. So I'd add that in terms of margin, about how we use the margin, where we invest, and how we use that to actually create real value and increase margin for the future.
Thank you. The next question goes to Rich Greenfield of LightShed Partners. Rich, please go ahead. Your line is open.
Hi. Thanks for taking the question. I got a couple that I just wanted to be one housekeeping just to start off.
Just to be clear, you've not reached back out to TikTok since the drop. It sounds like, from what you were just sort of inferring, you're waiting for them to reengage, meaning for them to call you all to sort of reengage on a deal structure that you have previously presented. That's the housekeeping point. Then just larger question on just sort of is there any proof points to date that TikTok not having your music has hurt them, or is there anything in the past? I mean, I know there's been some drops in the past, not of Universal Music, but we go way back in time. There were drops of, I think, Warner Music on YouTube. Is there any proof to sort of show how not having your music has impacted them? And then just, I guess, another housekeeping, just on sort of market share.
I think everyone sort of knows what Universal, Universal Music Publishing market share is on things like Spotify and Apple Music and YouTube Music. But it's a little less clear of what your market share looks like when we think about all the UGC music and content that's on platforms like TikTok and YouTube, and just how should we think about the overall amount of music on these platforms that's impacted by this impasse? Thanks so much for taking the questions.
Rich, thanks for the questions. And so with respect to the first part of your question, we're not going to comment on the status of any discussions with TikTok for obvious reasons. In terms of how we think about the impact on them, obviously, to some extent, that's a question for them. I already talked about the impact for us in terms of no discernible negative impact.
That's qualified by the fact that we're very early on in the process. We're early on in the process, both with respect to the recorded music and also the publishing components, implications of the end of the deal with TikTok. Stressing that it's too early to make these assessments. If you want to take a look at, for example, user engagement metrics, which might be one meaningful way to think about it, too early to draw conclusions. But early stage of enforcement of our deal termination, the Apptopia data suggests that year-on-year growth and time spent on TikTok has slowed from 1% in the two months prior to the end of our deal to - 3% in the second half of February, the past two weeks.
So if you're starting to get to the inside baseball stage of analyzing weeks of data kind of early on, that's one indication of the implications. To your question about how we think about market share and to be clear, we haven't formally provided any estimate of the combined impact of the non-renewal of our licences on TikTok's platform. And I think you have to consider, what are you talking about here? Are you talking about popular music as we think about it, or are you talking about all audio content? And that might include sound effects and a lot of AI content. Obviously, we don't think that that should be part of any artist royalty pool calculation, as we've made clear. So we're not in a position to comment on what other people are projecting as percentages.
What we can tell you is, with respect to what the industry data actually says, Luminate, which is industry standard, had our 2023 recorded music market share in the U.S. alone at over 38%. And regarding our publishing market share, Music and Copyright, which is kind of the industry bible on this subject, reports that our publishing division's global market share was over 23%. And when you consider co-written works, the percentages of songs implicated by our publishing interest is materially higher. So I would say that the industry data suggests that there's a significant amount of repertoire that is potentially implicated in the termination of our licensing deal with TikTok.
And in addition, it is one branch of dozens of branches of how our long-form, short-form, and audio content, music, catalogs, stars, gets to the consumer and gets to the audiences. I mean, let's put this into perspective. Apple, Amazon, Spotify, YouTube, all the social categories, the fitness categories, digital radio, Sirius, Pandora, iHeart, all the games promotions that we do online. It's not a material part of the multidisciplinary jigsaw where we promote and market our music globally.
Thank you. Our final question goes to Adam Berlin of UBS. Adam, please go ahead. Your line is open.
Yeah. Thanks for taking me at the end. Just three very quick ones on financials just to confirm. Just the restructuring costs you talked about, are those cash or non-cash? That's the first question. The second one on the employee taxes that you paid, and you said you're going to pay again in March, the EUR 132 million. Is that going to be similar in 2024, or was that particularly high in 2023 because of the larger share-based payment amount? And also just to confirm, the EUR 75 million run rate for 2024, is that kind of a run rate you get to at the end of 2024, or is that the absolute impact in 2024 on the EBITDA? Thanks.
Adam, I'll punch through your questions really, really quickly. One on restructuring, the numbers I gave you are cash. The employee taxes that we will cover in cash will be at a similar amount to 2024. And the EUR 75 million of savings are the absolute savings in 2024. It's EUR 75 million of a EUR 125 million run rate. The EUR 125 million run rate will land in 2025. EUR 75 million will be crystallised in 2024.
Thank you. That's all the questions that we have time for today. This now concludes today's call. Thank you for joining. You may now disconnect your lines.