‘Encanto’ Soundtrack, The Weeknd, King & Prince Boost Universal Music Earnings
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Universal Music Group reported higher revenue and earnings for its first quarter on Tuesday amid growth across its businesses, including its recorded music unit, which benefited from the Encanto soundtrack, as well as releases by the likes of The Weeknd and Japanese idol group King & Prince.
In the fall, French telecom and media conglomerate Vivendi spun off the music major, led by chairman and CEO Lucian Grainge, cashing in on a bounceback of the music sector thanks to a boom in streaming revenue. Vivendi said it would retain a stake of about 10 percent in the firm for a minimum period of two years.
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Grainge on an analyst call touted UMG’s “portfolio approach” to investments taken over the entire career of an artist as they evolve and diversify into alternative revenue streams. “These many varied revenue streams, each with their unique characteristics, are all critical to our success. For many years, we’ve been designing UMG and our strategic roadmap to generate recurring and stable revenue,” he told investors.
Grainge argued putting all eggs in one basket leaves a business vulnerable, as when online piracy undermined the film industry over its reliance on digital video discs and a music industry dependent at one time on compact discs. He added UMP was diversified in terms of its artists and songwriters, geographically as it did business globally, and product-wise as it increasingly targets gaming and the emerging metaverse as new markets.
Asked about Netflix recently announcing that it had lost subscribers as a possible indication that the streaming market was saturated and had possibly peaked in consumer appeal, Grainge argued subscription video on demand services and music subscription services were very different businesses.
He insisted SVOD is focused on original content that consumers watch usually only once, leading to constant churn for video streaming platforms. But in music subscription, consumers don’t hop from platform to platform and consume music they love over a lifetime.
“In music, you save your favorites, You’ve got constant access. We believe very strongly that (music) will continue to grow in stickiness in a music library and on playlists,” Grainge told analysts.
For UMG, first-quarter earnings before interest, taxes, depreciation and amortization (EBITDA), a key profitability metric, increased 14.9 percent, or 14.1 percent on a constant currency basis, to 454 million euros ($478 million).
Quarterly revenue increased 21.6 percent to 2.20 billion euros ($2.32 billion), or 16.5 percent when assuming constant currency exchange rates. The company’s recorded music, music publishing and “merchandising and other” segments all contributed to the improvement.
In UMG’s recorded music unit, first-quarterly revenue rose 16 percent, or 11.3 percent assuming constant currencies, to 1.72 billion euros ($1.81 billion) as subscription and streaming revenue jumped 14.6 percent on a constant currency basis, while physical revenue rose 8.7 percent on that basis. But downloads and other digital revenue fell 20.0 percent “as download sales continue their industrywide decline,” the firm said.
Top sellers for the quarter included releases from Disney’s Encanto soundtrack, King & Prince, The Weeknd, Fujii Kaze and Ado, “while top sellers in the prior-year quarter included King & Prince, Morgan Wallen, The Weeknd, Justin Bieber and Ariana Grande,” the company said.
Music publishing revenue amounted to 375 million euros ($395 million) in the first quarter, a jump of 38.4 percent, or 32.5 percent in constant currency terms. Helping results were a new accounting policy in relation to “certain revenues that are collected through societies,” as well as “underlying organic growth trends and initial contributions from catalog acquisitions made in prior years.”
In February, UMG unveiled a deal to acquire Sting’s entire song catalog, which includes such rock classics from The Police frontman as “Roxanne,” “Every Breath You Take” and “Message in a Bottle.” Financial terms were not disclosed.
“Merchandising and other” revenue saw particular gains in the first quarter, jumping 81.4 percent, or 69.8 percent in constant currency, to 107 million euros ($113 million) as “touring-related merchandising revenue rebounded following a COVID related slowdown in live touring,” Universal Music said.
