Universal Music Group

Universal Music Group published its Q2 2022 financial results yesterday, revealing a 17.3% year-on-year growth in its revenues to €2.54bn ($2.59bn). That included 16.2% growth in its recorded music revenue (to €1.92bn) that factored in rises of 14.6% from subscription services; 24.7$ from (free) streaming; 21.2% from physical sales; and 12.4$ from licensing.

UMG’s publishing revenues, meanwhile, grew by a startling 62.5% year-on-year (to €476m) thanks to digital revenues spiking by 121.8%. However, this is more about a change in how UMG accounts for collecting society payouts: once that’s factored out, year-on-year growth for its publishing division was a still-impressive 29%.

Meta loomed large in UMG’s earnings call to discuss the results with analysts. The label group has just renewed and expanded its licensing deal with Facebook’s parent company, including the latter’s new ‘Music Revenue Sharing’ feature. UMG’s digital chief Michael Nash talked about the company’s wider strategy for social media.

“In the past, I think that some of the players in the space have taken the position that they’d wait to get deals done once everything was fully built. And we decided, especially in the social media category a few years ago, that we would partner early, which means we economically participate, and it also means that we have influence over the roadmaps of these companies,” he said.

UMG boss Sir Lucian Grainge also offered opinions, noting that in the last three or four years social media has gone from being an “almost non-existent” part of UMG’s business to one of its top categories.

“I must remind you, 11 or 12 years ago, no one had heard of Spotify in the United States. The concept of ad-funded streaming into a funnel of premium… they’ve now got 188 million subscribers,” he said. “I’m interested in positioning this company with our best artists, and the best teams, to make sure that we’re at the vanguard of whatever is next. By leaning in it gives us an opportunity to set deals, to set precedents…”

Other points raised in the earnings call included the future prospects for streaming subscriptions, with Nash suggesting that the most mature markets still have plenty of room for growth.

“Our consumer insights indicate that nearly 60% of subscriptions growth potential over the next few years is still in our top 10 developed markets, and we’ve recently updated that work, so we’re excited about the addressable market growth opportunity in the established developed markets. And then beyond that there’s a huge opportunity for growth in emerging markets,” he said.

There were also comments on the still-hot market for music catalogues, with chief financial officer Boyd Muir suggesting that “there’s an inevitability here that interest rates are going to drive down valuations. That said we’re not really seeing that now, we’re continuing to walk away from deals where we actually cannot be justified financially.”

Grainge chipped in with a dig at some of the companies going up against UMG in the battle to buy catalogues. “We don’t know what the impact on the market is when non-core outside funds actually realise they haven’t got the skillsets or the ability to exploit it…”

Finally, an analyst question about SoundCloud’s ‘fan-powered’ user-centric payouts – recently signed up to by Warner Music Group – saw Nash offer the clearest indications yet as to why UMG has not rushed to back this or similar models.

“We definitely support the consideration of new models that have the potential to maximise fairness and transparency, and importantly optimise alignment of interests amongst stakeholders while promoting the health of the ecosystem,” he began, admitting “that’s a mouthful and a half! But I think you have to look at the totality of considerations.”

And those are?  “Some interesting data has emerged, some good questions have been raised, but I think that the new research is hardly conclusive about the net benefits of changing the revenue allocation model. It’s clear from the studies that have recently been done – the findings have been announced – that a large percentage of artists and important genres of music could be disadvantaged under a user-centric model,” he said.

Nash cited last year’s study by the National Music Centre (CNM) in France and claimed that it “reinforced these concerns about whether or not the bulk of artists would benefit materially, and also raised concerns about artists and musical genres that could potentially be harmed.”

He continued: “In terms of our perspective, there’s no reason to think that efforts to optimise the streaming model should come down to considering just one alternative to the status quo. We think priority for any model adjustments should be placed on growing revenues overall, and advancing the interests of all artists. We should be looking beyond model changes that pit one group of artists that benefit against another group of artists that lose out. This shouldn’t be a zero sum situation.”

Grainge, again, offered a postscript. “So it’s complicated…”

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Stuart Dredge

Music Ally's Head of Insight

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