Good evening, and welcome to Universal Music Group's first quarter earnings call for the period ended March 31st, 2022. My name is Katie, 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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by One on your telephone keypad. If you would like to withdraw your question, please press Star followed by Two.
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 2021 annual report, which is available on its website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the investor relations page of UMG's website. A supplemental historical revenue fact sheet is also available on the investor relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference.
Thank you, and, apologies to everyone for a few minutes delay. We had some technical issues. Thank you all for joining us, this morning, this evening. I'm happy to be with you, to report on the start of yet another stellar year for Universal Music Group. I want to start off by cutting straight to the chase and then to walk you through how we built UMG to bring us to such an exciting moment in our history. Simply put, our revenue growth and trajectory remains robust. Revenue growth of 17% is coming from a broad array of sources. In recorded music, it's coming from subscription, ad-supported streaming, physical products, and licensing. At music publishing, it's coming from digital revenue, performance income, synchronization from film and television, and mechanical income, which comes from physical products.
When it comes to music merchandising, we're experiencing both a return to a very strong touring growth as well as continuing growth driving our retail and direct-to-consumer merchandising operations. Our touring merchandise is coming from the likes of Billie Eilish, Imagine Dragons, Justin Bieber, and Elton John. On our direct-to-consumer and our own retail platforms, it's coming from the likes of both Taylor Swift and Rolling Stones, just to give a couple of examples. These many varied revenue streams, each with their own unique characteristics in terms of size, margin, predictability, longevity, and so on, are all critical to our success. For many years, we've been designing UMG and our strategic roadmap to generate revenue, recurring and stable revenue from a healthy mix of sources and through a variety of commercial and creative means.
It's a term you will all know, you will all know well. It's what we call our portfolio approach. I've witnessed firsthand what can happen when an industry puts nearly all its eggs in one basket. If the vast majority of your revenue and profit comes from one source, as was the case with the CD back in the late nineties, when online piracy reared its ugly head. When the vast majority of downloads were sold in one online store, your entire business can be vulnerable. Our diversity of revenue sources makes UMG a healthier and stronger company. Just as importantly, it also serves as a magnet for artists. Our track record proves to artists that we are home.
That it's a home that helps you reach as many fans as possible in many different ways, and a home that also delivers to you the greatest commercial return. When I describe UMG as a portfolio company, I use that term in four fundamental ways. First, as an artist portfolio. We invest in artists at every stage of their career, from brand new to mid-career or to when they eventually become established superstars. Second, as a creative portfolio. Our recording artists and songwriters produce music in almost every conceivable genre. At the Grammys last month, for example, UMG artists won 26 awards across a wide range of genres, including pop, Latin, country, gospel, jazz, hip-hop, and to top it all off, Album of the Year went to Jon Batiste, a jazz artist on our Verve label. Third is the geographic portfolio.
With operations in more than 60 countries, fueling creative ecosystems in local languages, local culture, we help shape that culture, not only regionally, but globally as well. I'll be saying a lot more about our geographic portfolio in a few moments. Finally, the revenue portfolio. As I've said, producing income streams across a range of existing products, experiences, and media, while also serving as a catalyst for new opportunities for growth, such as Web3 and the broader gaming and metaverse space, is what makes UMG the industry leader that it is. I'd like to focus your attention for a few minutes now on the importance of our geographic portfolio, which is vast. As I said, we have company operations in 60 countries, covering 200 markets, and we're growing.
We are a truly global company, constantly making moves to expand our reach. Take China, for example, the fastest-growing of the world's top ten music markets. Last year, we became the first major music company to establish multiple frontline labels across China. With these small creative units in place, we're continuing a strategy that has proven effective in other markets that have transitioned from ones where the commercial opportunity was from importing international music to markets that are also exporting their own local talent. With an A&R presence on the ground, we develop local artists in a variety of genres with the goal of achieving success domestically across the wider region and beyond. Our efforts are already bearing fruit.
Eason Chan , UMG's star from Hong Kong, has led the Mandopop market all year with his latest single, and that is also the theme song to global hit gaming franchise Arcane: League of Legends. It is smashing charts on all major streaming platforms in China since its release, and we're thrilled to say it's now the biggest digital song in UMG China's history. We're taking a similar approach in India. After our recent Def Jam launches in the U.K., Europe and Africa, and across Asia, this quarter, UMG launched Def Jam India. UMG has long been committed to supporting and investing in the next wave of talent from the region, having spearheaded the transition over the last five years towards original artist music and non-film music. We are proud to be leading the charge of the sound we call Desi Pop.
The best example is Badshah, an incredible 2021 signing for us. Badshah is his generation's most successful musical artist, with more than 15 billion streams worldwide and the only Indian artist ever to have achieved 15 different songs with more than 200 million video views each on YouTube. The next phase of his musical journey will bring Indian music culture to new audiences worldwide through collaborations with some of the most influential and popular artists around the world. Late last month, with the weight of our global company behind him, Badshah released his first international track, a collaboration with UMG's massive Latin artist, J Balvin. The track had the biggest international audio streaming debut ever for an Indian artist last week. The video has also already been watched more than 25 million times on YouTube.
Beyond these new frontline label launches, we're expanding our global presence across key territories in a myriad of other ways. Korea is a good example. Since 2020, when Republic Records partnered with JYP Entertainment, one of the world's biggest K-pop labels, the presence of the girl group Twice has blossomed in the U.S. The partnership has now been expanded to include JYP's boy band, Stray Kids, who recently debuted at number one on the Billboard album chart here in the U.S., as well as, the girl group Itzy. Republic also has been the U.S. home for TXT, one of Korea's most popular boy bands since 2019, thanks to a partnership with HYBE. TXT will be releasing new music later this month.
Speaking of HYBE, who's become a terrific partner to us, this also saw the further expansion of their relationship with Geffen Records. HYBE's BTS was named by IFPI as the top-selling global act for the second consecutive year in 2021. BTS and labelmate Seventeen both hit the top 10 bestsellers list in 2021. All through this year, the HYBE-Geffen alliance will be releasing new music from BTS, Seventeen, and others, and it's also currently conducting open auditions in the U.S. with Interscope Geffen for its first-ever global K-pop girl group, part of the first of its kind joint venture between ourselves. In Japan, the world's second-largest market, we've had both an incredible 2021 and an equally great first quarter of 2022. With, we believe, UMG now the number one company in terms of market share.
Three of our biggest sellers this quarter were from Japanese artists, King & Prince, Fujii Kaze, and Ado. One of the most successful new Japanese artists to debut in recent years. Ado released a new album early this year, which spent two weeks at number one on the Billboard chart in Japan, and Fujii Kaze's second album also hit number one on the Billboard chart in Japan in March. Overall, we've seen substantial growth in our Japanese business. I'm confident that we have the right strategy in place for this continued success. Another point of access and expansion for UMG into high-growth international markets is our Virgin Music label and artist services business. Juan Gabriel, one of the most recognized and acclaimed Mexican singer-songwriters in the history of Spanish language music. He sold more than 150 million albums and composed more than 1,800 songs.
Virgin Music has entered into an exclusive worldwide agreement with Juan Gabriel's estate for his post-2008 catalog and future posthumous releases. Further, through an extended exclusive global music publishing agreement, Universal Music Publishing will represent Juan Gabriel's entire iconic catalog, uniting his musical legacy under the Universal Music roof. Virgin Music has also announced a multilayered global partnership with Mushroom Group, Australia's largest independent label group, to support and distribute Mushroom artists' releases worldwide outside of Australia and New Zealand. The vision and execution that allows us to amplify the careers of the most iconic artists in the world is not only true for catalog artists of the past, like Juan Gabriel. The biggest artists of today are also leaning in and expanding their relationship with UMG in every region, and for this we're particularly proud. Drake is a prime example.
At our Capital Markets Day last year, we shared with you our new long-term worldwide partnership with Drake, which expanded from recorded music to music publishing, film, television, and brands. We couldn't be more excited about what lies ahead for our relationship. The same holds true for other artists who may have begun their relationship with us through a traditional label, a publishing deal, or even an artist distribution deal. Over time, as they see the results of what our global teams can deliver and the care with which we treat their art and the artist-first culture that is the driving force behind our joint success, they want to form deeper, broader, and longer-lasting relationships covering other aspects of their careers. They also see the quality of our roster, which includes the most critically acclaimed and commercially successful artists in the world. It's quality that is simply unmatched.
It's no wonder that artists including Taylor Swift, U2, The Rolling Stones, ABBA, Neil Diamond, Elton John, Aerosmith, Andrea Bocelli, and J Balvin are just a handful of the global stars that have all, over time, expanded and broadened their relationship with us. Here's some exciting news about another one of these global stars. Just last week, we announced the expanded partnership we've entered into with The Weeknd, one of the most commercially successful and critically acclaimed recording artists and songwriters of the last decade. The Weeknd had both 2020 and 2021's biggest-selling global singles, the first artist in IFPI history to ever achieve that.
Building on the relationship he's had with Republic Records since 2012, the new expanded relationship formed in 2021, of course, encompasses future albums and singles, but it also makes our music publishing division the home to his songwriting catalog and all of his future works. In addition, Bravado, our leading brand management and merchandise company, will continue to work closely with The Weeknd to expand and develop global merchandising, branding, e-commerce, and retail licensing opportunities around his future projects and releases. As you can see, all of the portfolios I outlined here are interlinked. This is just a small sample of how we are expanding these portfolios to grow our revenue and bottom line from as many different sources as we are able.
Finally, none of this activity would be possible without the thing we believe we do better than anyone else, long-term artist development and music promotion. I could not close a presentation like this, therefore, without talking about some of this quarter's successes, about which we're obviously very proud. A song called Heat Waves by Glass Animals was the number one song on Spotify's weekly global chart for 10 of the 13 weeks this first quarter. Heat Waves also reached number one on the U.S. Billboard charts. That's always a pretty special feat in itself. What's really special about this achievement is that it hit number one after the longest ascent in the history of that chart. That is 59 weeks on the chart before it finally reached the number one slot. That's the UMG difference, artist development.
Glass Animals' global breakthrough did not come overnight, but after almost a decade of UMG's working closely with the band because we believed in them. From distribution via label services to a record deal directly with Polydor in the U.K. and sister company in the U.S. Republic Records, to being nominated at this year's Grammys. UMG's relationship with the band has continued to evolve and expand. We recently announced the group had signed a new publishing deal with UMPG as well, bringing their recording and publishing together for the very first time. A great opportunity for developing expansive projects and opportunities moving forward. Here's just a little more of the big things we're proud of. In the U.S., UMG had the number one album for 11 of the 13 weeks in the first quarter.
The Encanto soundtrack for nine weeks, Machine Gun Kelly, and Stray Kids had one week each. Also with the number one single for 10 of those 13 weeks. five weeks each for We Don't Talk About Bruno from Encanto, and Heat Waves by Glass Animals. In the U.K., Dave's single Starlight hit number one, where it stayed atop the official singles chart for four straight weeks, a record for a U.K. rap song. I could go on, but instead of reciting all of the artist success metrics from this quarter, let me conclude by saying that we remain incredibly optimistic about our continued growth. We've clearly made much of the enthusiasm about the music industry revenues returning to the peak level of the late 1990s. I believe the strength, stability, predictive and recurring nature, and growth prospects of UMG today dwarfs those of previous heights.
Fans are not only enjoying more music than ever before, they are also connecting with artists in ways that were completely unimaginable just a few years ago. This translates into expanded music monetization opportunities for UMG and for our artists. As we continue, we work hand-in-hand with our artists across multiple facets of their careers. We are building creative businesses with them for the long term. Within each of these businesses are multiple revenue streams with different margin profiles, and also the potential for further collaboration in new areas. I hope what I've talked about today gives you a sense of the breadth as well as the reasons for the future commercial growth opportunities that lie ahead for UMG.
Geographic diversity, increased monetization of existing rights, and expanded, deepening relationships with the world's most iconic artists of the past and the present are part of what makes us so optimistic that the future for UMG is incredibly bright. Thank you. I'll now turn it over to Boyd, who can walk you through the results of Q1. Thank you, Boyd.
Thanks, Lucian. As you said, we are indeed off to a strong start in 2022. The figures are laid out in the press release we just issued, but let me provide some additional color. I'd remind you that any growth rates we discuss today are in constant currency. Total revenue in the quarter grew 16.5% YoY to EUR 2.2 billion, with all three of our business segments, recorded music publishing, and merchandising contributing. Not only did all three segments contribute strong growth, but with the exception of downloads, every major revenue stream through our services is growing within those segments. This broad-based growth profile further supports our confidence about the sustainability of the positive direction of our business.
To break it out, recorded music grew 11%, with ad-supported streaming, subscription, physical and licensing and other revenue all growing well. Subscription and streaming together grew 15%. As promised, we've broken each of these out for you today in the press release. We've broken out subscription and streaming separately. Not only that, you can find two years of quarterly historical figures for these categories on our investor relations website. Subscription revenue grew just over 13% and continues to be driven by strong subscriber growth in both developed and developing music markets across a broad array of platform partners. Ad-supported streaming grew 18% compared to the prior year quarter and now accounts for just over a quarter of total streaming and subscription and streaming revenue combined.
Ad-supported streaming growth is driven by the continued strength of ad-based monetization, but also by new and enhanced deals in social media, including our new deal with Twitch. Physical revenue continued to grow and up 9% over the prior year quarter. This is driven largely by a strong quarter in Japan, with releases, as Lucian mentioned, from King & Prince. Also we still see continued strong sales of vinyl, with Taylor Swift being a significant contributor. Another area of growth within Recorded Music was in our license and other revenues, which were up 10%. This is due to growth in synchronization revenues. Turning now to Music Publishing. Revenue grew 33% over the prior year quarter as all publishing revenue streams grew.
However, let me highlight that part of this growth was due to a change in our revenue recognition accounting policy from a cash to an accrual basis. Before this change in accounting policy, revenues collected through societies were recognized when the collection society notified UMG of the usage by its end consumer. Now revenue is being recognized based on an estimate of when the usage occurs and the amount of consideration which is probable to be collected. This has changed the timing of revenue recognition across quarters with benefit in Music Publishing for the first quarter of 2022 compared to the prior year. While this change elevated our growth rate this quarter, we expect the impact for the full year to be minimal, with the benefit in the first half likely to be offset in the second half of the year.
This quarter, we're breaking out our key publishing revenue streams. These historicals are available on our investor relations website. Digital revenue, which is the largest revenue source, grew 45%, thanks to both the continued strength in streaming and subscription growth, as well as I pointed out, to the accounting policy I just mentioned. Performance revenue grew 17%, largely due to the accounting change, and synchronization revenue grew 29% as advertising and film and TV revenue both improved. While our catalog acquisitions, such as Bob Dylan and Sting, among others, are starting to contribute to our music publishing growth, the vast majority of the growth we are seeing is organic. Moving on to merchandising. We saw a strong rebound as concerts have resumed following the COVID stoppage, and thus concert merchandise revenues increased significantly.
Our total merchandise business grew 70% with strength, not just in tour-related sales, but also in D2C, a continued focus area for us, but also in retail. As I said last quarter, tour merchandise sales are a 7%-10% gross margin business for us, below the gross margin of our other businesses. Increased merchandise revenues create a meaningful margin percentage impact. Now turning to EBITDA. Our adjusted EBITDA for the quarter was EUR 455 million, up 14% in constant currency. As our initial listing costs are now behind us and our equity plan, which is up for a shareholder vote at our AGM next week, it is yet to be implemented. Therefore, there is minimal difference between EBITDA and adjusted EBITDA this quarter, by only EUR 1 million.
Adjusted EBITDA margin was 20.7% compared to 21.9% in the prior quarter. It's worth noting that there was a EUR 20 million benefit from the renewal benefit in the prior year quarter related to the release of historic royalty provisions and an exceptional recovery of artist-related provisions. This was the primary driver of the YoY decline in margin. This exceptional item wasn't disclosed by Vivendi as they don't report quarterly EBITDA, however we felt it was important to bring this to your attention in the context of the quarterly comparison. If this benefit were excluded from the prior year figures, adjusted EBITDA would have grown 20% in constant currency and adjusted EBITDA margin would be steady YoY. In addition, the current year margin, as I mentioned before, was impacted by revenue mix, with Merchandising revenues growing faster than Recorded Music and Music Publishing.
Merchandise thus represents the largest share of our total revenue. We continue to encourage you not to look at one quarter in isolation. We continue to expect adjusted EBITDA margin expansion for the year as operating leverage shows up in our results as the year goes on and the revenues build. We remain encouraged by the growth trajectory of the business and excited by the opportunities that lie ahead, not only through positive industry trends, but also by our artist and business development initiatives. Lucian, Michael, and I would be happy to take your questions. Operator, perhaps you could open the line for Q&A.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you would like to remove your question, please press star followed by two. If you have a multi-part question, please keep it to two parts and ensure your phone is unmuted locally. We take our first question from Michael Morris from Guggenheim Partners. Please go ahead, Michael.
Thank you. Good morning or good afternoon, rather. Couple questions. One, you're following the Netflix earnings last month, there's been a pretty broad investor concern about streaming maturity and, you know, running closer to a TAM limit for expansion. By all accounts, it seems like you still have a lot of runway ahead of you, but I would be curious your take on sort of the subscription streaming life cycle and whether you see indications of maturity there, and what kind of levers there are going forward to keep the, you know, the top of funnel robust. A second one, just, you know, this morning, Spotify and Roblox announced a partnership, that's, you know, Spotify have a presence on Roblox.
Raises a question for me, you know, as you think about some of those next-gen metaverse type products or other, you know, Web3 opportunities, how much would you expect to work with a distribution partner like Spotify for your product, or how much do you expect to be, you know, sort of kept in-house and directly negotiated with those platforms? Thank you.
Thank you, Michael. There's more growth, more subscribers added in the last year than any previous year in premium music subscription. Each platform obviously has a different offer. Spotify, for example, has an ad-funded offer and obviously an exceptional premium business. We see SVOD completely differently to music streaming. In music, you save your favorites, you've got the constant access. We believe very strongly that it will continue to grow. The stickiness for music streaming is in library and playlists and repeated uses with exactly the same songs. You could play Billie Eilish 50 times in 48 hours driving, socializing, gaming. You can't watch a television program 50 times in 48 hours.
SVOD is a complementary business in addition to any other content offers, obviously, cable, the internet, et cetera. Whereas music is an alternative product, meaning that we see completely different demand dynamics to churn and customer retention for the platforms, et cetera. Continued confidence. We work extremely closely with all of the DSPs for product differentiation. Some of them are interested in different things to each other, and we've made sure that we've created a marketplace where we enjoy the competition. As I said in my remarks, 10, 12 years ago, our digital business was basically with one customer.
As you'll see in everything that we're doing, we completely encourage different ways of monetizing our IP and product for the artists in every single format imaginable. In terms of our relationship with the DSPs and the difference there is from SVOD, we're strongly that it exists, and we feel confident about what we're doing.
If I can add a little elaboration on both of those questions. With respect to the Netflix comparison, and we've seen some commentary on that too, it's really important not to make too many similarities between SVOD and music subscription. They're very different businesses, as Lucian was saying. The analysis has shown that SVOD churn is mostly related to the variable programming of those services. SVOD platforms focus on originals and exclusive content, and it's the content that most viewers are watching only once. As a result, significant churn with fast subscriber growth for leading services. As consumers jump from service to service, chasing hit content. You know, that chase for hit content is a very, very different dynamic from what we see with music subscription. To provide a little quantification.
SVOD sector sees up to 45% semiannual churn according to surveys, and indicates half or more of that churn is directly related to the programming variance. We're not seeing anything like that churn in music subscription because consumers don't hop from platform to platform, as I was saying, just to hear new music or exclusive music. They consume much of the same catalog of music they love over and over throughout their lives. The value proposition of all music ever created on any device you choose at any time is very compelling to consumers. Once you've adopted the music service, as Lucian was saying, create your playlists, save your favorites to your library, have constant access to essentially all the world's music, there's much less reason to churn. As a result, leading music subscription services enjoy low single-digit monthly churn.
With respect to that piece of context, we believe music subscription market will continue to grow strongly in 2022, building on the growth we saw in 2021. On the specific question with respect to the announcement today about Spotify and the Spotify Island on Roblox. We welcome Spotify's announcement and expansion of their presence in the metaverse. We look forward to working with all of our partners on their plans for metaverse and Web3.
To be clear, this is not an announcement by Spotify that their streaming service or our artist music will be available on Roblox. UMG is deeply engaged in working with various partners on activations of music-based events in the Metaverse, including with artists like Ariana Grande, Post Malone, J Balvin, and a number of other leading artists. We are actively developing broader business opportunities with key partners. Our focus there is very much on direct partnership. Other than that, we can't really comment on any individual partner's plans.
We take our next question from Lisa Yang from Goldman Sachs. Please go ahead, Lisa.
Good evening, and thanks for the call. Just to follow up on the earlier question that you said, rightly so that daily proposition remains very compelling, yet prices haven't really increased, you know, for the last ten years. Some of the competitors have been talking very positively about even price increases. I know you don't determine price, but do you share a similar optimism that we could see price increases here? Could you maybe just comment on how that flows through to your revenue? If there's any timing lag or anything like that. The second question is on events in the catalog. I know you haven't disclosed any cash numbers at the end of the year.
You've announced a couple of deals with The Weeknd, Sting, Elvis Presley. Could you comment on how the pipeline is trending for you today versus last year? Any color on what major renewals you expect for the rest of the year? And do you expect 2022 to be a more normalized level compared to the last two years? These are my two questions. Thanks.
Obviously, I need to comment on price increases. We have to be aware that the DSP directly determines how they price. Any questions with regards to pricing, it's gonna have to be directed at them. It's become common.
I think, I mean, the only thing I would add on price increases, just to repeat what I've said before, is that the guidance that we gave in the prospectus does not factor in any price increases. Just to clarify, you know, that point. On capital allocation, you know, you mentioned The Weeknd and Elvis Presley. Just to do with Elvis Presley first. Elvis Presley is an administration deal with a publishing company. It is not an acquisition. It is basically an operating deal. Similarly with The Weeknd, although The Weeknd is again not an acquisition. This is a you know a multifaceted, multi. Excuse me again. Yeah.
Multifaceted, broad-based deal, which brings publishing into our company for the first time and also expands the relationship on merchandise. No acquisition. I think it remains the same, Lisa. You know, we see all the deals. We turn down more deals than we enter into. We're very selective, very opportunistic. We'll only do these deals when we believe that we can bring significant increased monetization to the assets that we're acquiring.
Well, I could add there, Elvis, The Weeknd, they're all completely different kind of deals. The only thing that they have in common is that they're famous. Our commercial profiles could not be more different than an outright acquisition. The Weeknd is about deepening and lengthening and extending the entire commercial relationship with them just beyond recorded music, which is the aspect of their career that we've had for the last decade. As this fully very succinctly put, Elvis is a licensing commercial deal. It's got a very different profile.
Our next question comes from Ben Black from Deutsche Bank. Please, please go ahead, Ben.
Great. Thank you for the questions. Perhaps one for Lucian. You know, it'd be great to hear your perspectives on the evolution of music distribution, but particularly in the context of TikTok potentially becoming a bigger player in the space. With that backdrop, you know, how do you see your relationship with TikTok actually evolving over the next couple of years? Perhaps one for Boyd. Just a follow-up on the margins. How should we think about the cadence of your margin expansion over the next couple of years? You know, as you mentioned, touring and merchandising is in the lower margin revenue streams are coming back this year.
Should we anticipate more modest margin expansion this year before we see sort of a meaningful step up perhaps in 2023? Thank you.
TikTok has evolved into something where we monetize now in ways that we didn't do when it appeared. As I've said before, the relationship between promotion and discovery in some ways has been fused as a result of short-form content. We see it extremely positively. We see the monetization of what the platform provides is extremely positive. We discover artists as a result of it. We push artists into it. It's got a different audience to a YouTube, for example.
If you use YouTube as another example, the things that they're doing with their own product of Shorts and how YouTube have used their funnel of billions of views to actually morph and to create a great premium subscription product in the form of YouTube Music. I hope that we're at the beginning of seeing TikTok actually monetize music for artists and for the entire industry. Hopefully we can be at the vanguard of moving forward.
I guess really to pick up the question on margins. You know, I'll reiterate at the timing of prospectus, we gave guidance, which was that our adjusted EBITDA margin would expand to mid-20s% over the midterm years from 2020 being the base. That's still the view. I would actually add though, on top of that, we're seeing revenue growth larger than we were in our guidance. Our guidance was to have annual CAGR in the midterm of high single digits. In this footnote, you see our revenue growth is 16.5%.
You're right to point out that some of that revenue growth is coming from lower margin business, but in many ways it's incremental to the guidance that the revenue guidance that we have. Although it dilutes us in terms of margin, it's certainly incremental in terms of margin.
Yeah. I think that's a critical point, that we constantly pursue a strategy of creating multi-level, multi-revenue business opportunities with a variety of revenue streams, and each got their different margin profiles. We want to, and we expect to be in and adding value and creating value from every part of the IP chain. Music in games, in socializing, short and long-form content, and now what could become the virtual universe. The addressable market for what we are doing for all of this premium content we create, we manage, we push the best of the best of the best. Each facet of what we do within different cycles have different margin profiles.
The next question comes from Thomas Singlehurst from Citi. Please go ahead.
Oh, good evening. It's Tom here from Citi. Thank you very much for taking the question and congrats on the results. I had a couple of questions. The first one, very simply, very obviously streaming growth started in subscription. We're just sort of wondering whether you would characterize the sort of increased weighting of ad-funded revenue streams as a risk or an opportunity. That was the first question. Then secondly, on market share, I mean, obviously the opportunity is super broad with the holistic deals covering publishing and merchandising and other areas. If we isolate recorded music, does this sort of focus on the really big artists and trying to do these holistic deals mean that progressively we should expect you guys to sort of lose share of that recorded music market?
Do you think you can do the holistic approach and also maintain share of recorded music? Thank you.
Okay. Well, I mean, I think, Mike, you should answer it, but competitively I would like 100% of everything.
Approaching that question from a little bit different angle. In terms of the breakout of ad-supported streaming, as Wayne said, we're very excited to see the growth there. With ad-supported streaming you have both the model that has been referred to as freemium, where you've got a free tier for subscription services with ad supported, that's primarily a customer acquisition vehicle. What's happened with the evolution of the business is that starting off with the landmark deal that we did with Facebook in 2017, which unlocked the social category, we've done a lot of partnership development with social, and that puts us in a position where our revenue model is aligned with the business model of some of the largest, fastest scaling platforms in the world.
Advertising obviously is endemic to the model of YouTube, of Facebook. With respect to what we're seeing there in relationship to GAAP breakouts, we're excited about the growth. It's predicated on achieving a much more fundamental alignment of our revenue model with the business model of these platforms. As I said, it's related to business development efforts to add additional partners, for example, with the Twitch revenue contributing this quarter. Yeah, we view it very much as an opportunity. That's all about growth, it's about expanding our partnership portfolio, and it's about optimizing the alignment of our revenue model with the business model of our partners.
We know that our music drives acquisition and retention. So many new categories, fitness, spatial, and the, you know, the fifth I would not say with regard to the brands, the breadth and the array of content, product, artists, genres, cultures. We touch and hit everything.
The next question is from Christophe Cherblanc from Société Générale. Please go ahead.
Yes. Good evening. Thanks for taking my question. I wanted to come back on the margin mix. Over the last few years, we saw margin expansion driven by recorded music and flattish publishing margin. At what stage would you expect the publishing margin to expand again? Should we expect that the mid-20s margin will be achieved by a workable 25% margin for recorded music and less than that for publishing? The second one, a quick one, is, after the AGM, you will have the capacity to buy back 10% of capital. What is the plan? Do you expect to use that authorization very fast or just to offset stock option-related dilution? What is the philosophy behind the buyback authorization? Thank you.
Let me take margin first. Our margin expansion has been driven by operating leverage. You actually see in our publishing division, simply the EBITDA margin has been expanding for a publishing company. Again, it's about operating leverage driving the margin expansion. Based on what we said before, we see the similar pattern over the period, and we project a similar pattern in terms of adjusted EBITDA margin. You know, the second question, which is about share buyback, we have a resolution in front of the AGM next week, which is to give us authority to buy back up to 10% of the capital of the company. This is a very normal, typical thing for Dutch-listed companies to have this flexibility.
We have no specific plans at the moment for a share buyback program. We're very conscious of our capital allocation. You know, the board is very focused on. I would also point out, again, to bear in mind, we have a very significant dividend policy, which is to pay 50% of our net profits by way of a dividend. The share buyback resolution that's in front of the shareholders next week will just be some added flexibility for us to pivot appropriately if and when there's an opportunity.
The next question is from Adrien de Saint Hilaire from Bank of America. Please go ahead.
Thank you very much for taking the questions. Well done on some excellent Q1 numbers. I've got a couple of questions, please. First of all, Boyd, can you quantify the impact of the change in accounting in publishing? I mean, usually you would say publishing grows about 15%. The growth differential, a function of that change in accounting, and what was the impact on EBITDA for Q1? That's the first question. Then second question about the margin improvement for 2022. I think you said you're confident in delivering margin improvement. I was just wondering how far away do you think you might be from the 100 basis points that you have for the midterm? Thank you. Or if you might be on target with 100 basis points. Thank you.
Okay. First of all, on publishing, again, please don't look at publishing. Please don't look at our business quarter by quarter. Don't put too much emphasis on it. In publishing in particular, we're not breaking it out, because we actually see when you look at it on a full year basis, we think there's minimal impact in the full year. Again, I would encourage you to look at the full year.
If you're looking at the organic growth of the publishing division, I think growth in the mid-teens% is about appropriate in relation to that business. With regard to the guidance, the guidance is as we had previously informed you, so which is to get to the mid-20 EBIT, adjusted EBITDA margin in the medium term with 2020 as being the start year. We still see that as appropriate.
The next question comes from Conor O'Shea from Kepler Cheuvreux. Please go ahead.
Yes. Thank you. Thank you for taking my questions. Two questions. First on the publishing. Understanding what you said there, Boyd, about not looking only at quarterly, but can you give us a sense what the contribution was from the catalog deals that you've made in the organic growth and also why the growth in performance warranties was slower than some of the other categories. I would have thought with the reopening of concerts and so on that that might be one of the faster growing elements within publishing. Then just a second question, just a general point on the margin pressure.
You mentioned the mix effect, but can you maybe just give us a little bit of color on maybe some other elements of margin pressure, maybe raw material prices in vinyl or just general salary increase pressure, particularly with the U.S. headcount. Thank you.
Hey, Conor O'Shea. I think that might be trying to squeeze in three questions and not two. But let me go through them. On the publishing acquisition deals in terms of acquisition of the catalog, the impact to date is negligible. Because really what happens is that when you make these acquisitions, there's inevitably a time delay before the, you know, before the results start to attribute towards us. Again, there's a bit of a time delay. I'll give you an example. With Neil Diamond, we previously administered the Neil Diamond catalog, therefore the revenues were already in our business and the EBITDA margin were both so.
It's negligible, the impact on our results in Q1. The comment on publishing, largely what grew the digital is that there is a significant impact from the accrual that we made again. The performance is improving and will continue to improve as live performances come back. That's clearly encouraging for the coming months and years. You know, with regard to mix effect on the margin, the most significant mix effect that we're actually seeing is in fact the lower margin revenue, and the most obvious example of that is merchandising.
I think I've mentioned before is when you look at merchandise in fields around touring, the margin is roughly 8%. It is marginally higher than that. It's much lower than our other businesses. I think that's the most significant mix impact. Again, clearly there's inflation everyone is having to manage at this point in time.
The next question is from Julien Roch from Barclays. Please go ahead.
Yes. Good evening, everybody. Thank you for taking my questions. two, I suppose, for Boyd. The first one is the non-organic impact for the full year. As you said several times, you don't want us to look at the business on a quarterly basis. Impact of M&A, assuming no further deals, in 2022 because I believe you disposed of a label last year, so you have a small headwind there. Impact of FX, if you assume that spot stays the same for the rest of the year. That's my first question. Then the second one, call me either persistent or stubborn, but Boyd, can you help us the right size net content investment excluding catalog acquisition? I understand you told us that it's hard to give a guidance.
It can vary if you sign a significant artist. We understand that, and we understand that it can be volatile. A major signing is net content investment on average. I'm not even asking for this year, but on average the next couple of years closer to 2% of revenue, 3% of revenue, 4% of revenue? That is excluding catalog acquisition. Thank you.
Let's deal with the content investment first. It's back to what we said in our earnings release. You do. I think as we broke out the difference between IP acquisition and content spend. Over the last two-three, well, primarily two years, you have seen an increase in the level of content investment, and that's separate from IP acquisition. The content investment has increased over the last two-three years. Predominantly driven by a number of superstar artists who have entered into multifaceted deals with us so that we actually represent them across multiple different revenue sources. From publishing to recorded music to merchandising to agency to film and TV, et cetera.
That's really what has driven the increase in that net content spend over this last period. In terms of the and to give you a percentage is really I think is something that is not appropriate for this particular aspect of the business. I do believe that in the future that the level of content spend net content spend will return to levels that were experienced prior to the last two to three years. Where the investment. Again, just to remind everyone, these are advances that we are making against future earnings. As future earnings increase, then we recover the net content or the content spend advances accordingly.
With regard to the non-organic, as you refer to, impact of acquisitions. In terms of the total scale of UMG, the contribution from these acquisitions is going to be not material. I would encourage you not to focus on that. I've said before that the impact for this, although not material, would be incremental to the guidance that we've previously given.
I'd like to add actually that part of your question also leads to the pure A&R product of artist investment and artist selection and prioritization. We've brought in over the last 15 years or so artists and catalogs like Queen, The Rolling Stones or McCartney. Neil Diamond we brought in about a decade or so ago. These are hugely successful brands and artists with catalogs that we were able to invest in the market into what we view as a growing market. That's what we continue to do. We select the best of all our judgment and all our instincts, our data, and our expertise in investing in or leaning in further, like with The Weeknd and Drake, for example, when our judgment is these artists will continue to make great music.
Yet we also lean in when we can be in a position where we can acquire, license, invest in partner brilliant artists with deep catalogs like Queen and like McCartney and like The Rolling Stones did. We're investing, and the numbers that you see are going into a growing market. As long as we continue to see growth in the market, we will continue to invest.
We take the next question from Richard Eary from UBS. Please go ahead, Richard.
Many thanks. Congratulations on the results. Two questions, please. Mainly to Boyd, actually. Boyd, just going back to the margin question. I know you sort of talked about it a bit on the call. But if we factor in the one-offs of the gains that were in the first quarter last year, which you said was EUR 20 million from the provisions, and the change in mix this year that obviously, particularly in the first half of publishing and merchandising being stronger, should the margin expansion this year be below trend as we go to that mid-term margin or not? Or are there any reasons why it shouldn't be below trend and we should get catch-up in the second half? That's the first question.
The second question is on the share-based plan, which is obviously going to be put forward to the AGM on the twelfth of May. How should we think about share-based dilution from that plan? Or with the approval for the buyback, will you look to mop up any shares that are issued to offset that potential dilution? We can think about obviously number of shares as we go forward and whether there's any dilution from the share-based plans. That'd be helpful.
Let's deal with the share-based plan first. You know, as you mentioned, there's been the resolution in front of the AGM, our shareholders next week, which is obviously a very important step in our evolution as a company. Very important for the company to be aligned with the interests of the shareholders. That is the intention behind the scheme that we are devising. You know, it will be. In terms of the share purchase, it's not envisaged that we will be acquiring shares for the purpose of this plan. There will be dilution.
Again, if you look at the resolution, you can calculate what the dilution could be over the coming years. As I mentioned, there will be in that scheme performance metrics which it is too early to communicate what those performance metrics are. But we'll keep you informed as we progress. On the margin, again, I feel as though I'm repeating myself a little bit. But we still envisage progressing towards the guidance that we gave at the time of the prospectus.
I would also just point out to you that if the revenue growth is continuing at levels way beyond what we envisaged at the time of the guidance, and if those revenues are coming from lower margin businesses like subsidiary merchandise, as I mentioned, there will be an impact on the EBITDA margin. I'm looking at those revenues as kind of incremental and additive in terms of profitability to the business.
Can I just add one like yours in there? We look forward to the next few weeks of our release schedule. We have a Kendrick Lamar album coming out. There's a Post Malone album coming out. There's another album with some new tracks coming out by a major global superstar. They've all got different relationships with us. It comes back to the portfolio approach that we have. All I can assure you is that we're in everything. We make profits out of everything. With so many of these artists, they start as something, and they evolve into something else. You've seen with the YouTubers. You know, the list just goes on and on and on.
We take an incredibly long-term view in terms of our portfolio approach, over the next three, five, 10 years, what our relationship is with these artists, brands, products, and how we develop businesses together.
We take our final question from Matthew Walker from Credit Suisse. Please go ahead.
Thanks. Thanks for taking the questions. Obviously I've got two questions. The first is, you gave your opinion on SaaS and how music is not similar to SaaS. Could you maybe give your views on, you know, the economic sensitivity of music subscription and advertising? So obviously consumers facing a lot of inflation. Do you think that there will be, you know, significant spend down to ad-funded tiers? Do you think it will end up with a sort of, impact on the advertising revenue? Just any comments there would be interesting. Then just going back to Richard's question on the potential dilution from the LTIP.
Is your plan to lower the cash compensation and replace some of that with the LTIP so that actually the impact on absolute EPS will not be that significant? If you could give your thoughts on that as well. Thank you.
Let me address the first question, with respect to, expectations on, subscription growth, and the relationship to, ad funded. To reiterate something that I said earlier, you know, we see ad funded as being largely incremental to subscription growth. We're working closely with partners that are significantly scaled to align our revenue model with the business model that's endemic to them around advertising. As Lucian said earlier, we see a strong interrelationship between promotion and discovery and the development of audiences for premium subscription. We also think the value proposition of all the music ever created on any device you choose anytime, anywhere, is enormously compelling at the current price points.
You know, we believe that, you know, you will see an enhanced value to music in terms of the development of the services technology roadmaps, in terms of higher quality music and all of that. You can talk specifically about where we are with subscription growth. You know, we believe that we are still at a early stage in the evolution of adoption of subscription music. The number of subscribers in major developed markets grew from one in five a couple of years ago to one in four last year. That's significant growth, nearly 25% in the major developed markets.
One in four is, I think, to me an indication that there's ample room for growth moving forward. We've seen a major influx of subscribers last year as we commented on a previous earnings call. Obviously in terms of the results that we just announced, we saw a significant continuing increase of adoption of subscription in Q1. We believe that there's still a lot of headroom in the developed markets specifically. Our consumer work suggests that 60% of the subscription growth opportunity over the next several years is in our top 10 developed markets. We believe that there's great opportunity with respect to emerging markets.
We've seen the expansion of regional and local services, specifically in emerging markets, and we've grown from having about a quarter of our subscribers in 2018 customers of those regional and local services to nearly a third last year of our total subscriber base in terms of the individual subscriber numbers being customers of regional local services. That's an indication of opportunity in emerging markets. We're still at a point where we see significant growth trajectory for subscription. We see great complementary opportunity for growth in the ad-funded space, and we believe that this is a largely complementary opportunity.
We do an enormous amount of work with each platform to improve their product, to improve our system, their product within the platform so that there's differentiation, and we talked about spatial repeatedly. Spatial is just one example.
Okay. Maybe I can just address the question on the equity plan. It is not intended that the equity plan will be additive to existing compensation. The intention is that it will replace a portion of cash compensation. Equally of importance is to turn the compensation structure that's outdated all cash and all short term, to having a better mix of cash and equity with the long-term lens, and to align the company with the shareholder for the long term.
This now brings our Q&A session to an end. Now concludes the call for today. Thank you all for joining. Please disconnect your lines.