The company’s strong results have become something of a recurring quarterly theme for UMG since it first started trading on the Euronext stock exchange in Amsterdam back in September 2021.
UMG Chairman and CEO Sir Lucian Grainge pointed to this fact on the company’s investor call last week, telling analysts that UMG’s most recent “third quarter was our ninth consecutive quarter of strong growth since becoming a standalone public company, just over two years ago”.
Just some of the highlights from the quarter included subscription streaming revenues of €1.057 billion ($1.15bn), which was up 13% YoY at constant currency.
Another segment worth pointing out is Universal’s ‘Merchandising and Other’ which generated revenues of €227 million ($247.06m) in Q3 – an increase of 27.5% YoY at constant currency, driven “by growth in direct-to-consumer sales and higher touring merchandise sales”.
Across all of its divisions (including recorded music, publishing, and more), UMG generated revenues of EUR €2.752 billion (USD $2.995bn) during the quarter.
The company’s top sellers across the quarter included releases from Taylor Swift, SEVENTEEN, Morgan Wallen, Olivia Rodrigo and King & Prince.
On the call with analysts on Thursday, Sir Lucian Grainge, joined by Boyd Muir, EVP, CFO and President of Operations, and Michael Nash (EVP and Chief Digital Officer), discussed a broad range of topics, from the company’s finances to AI, Deezer‘s new ‘artist-centric’ model and UMG’s global expansion.
One of the soundbites from the call that’s been doing heavy rotation in the music trade press over the past few days resulted from a question posed by Thomas Singlehurst of Citigroup.
Singlehurst asked why “some of [UMG’s] peers don’t appear to be quite as positive about the Deezer artist-centric model” to which Grainge offered the (in his own words, “blunt”) suggestion that, “those peer groups” are “unsurprisingly those whose business model is based on being merchants of garbage”.
A lot more was said on the call, however. We listened in, and here’s what we learned…
1. UMG is ‘determined to bring an artist-centric approach to every DSP…”
Last month, France-headquartered music streaming service Deezer unveiled its new artist-centric streaming model in partnership with Universal Music Group.
France-based indie music company Wagram also signed up to the model earlier this month, while Sacem struck a deal with Deezer to explore how the model could work for publishing rights in music streaming.
Commenting on the new model on the call with analysts last week, Sir Lucian Grainge said in his opening remarks that it “honors real artists by better rewarding them for music tracks and engage their fans and by protecting against bad actors who deprive artists to pay compensation”.
“Deezer’s important step forward is only the beginning of this critical evolution in streaming.”
Sir Lucian Grainge
The new model will see “professional artists” – defined by Deezer as those who have a minimum of 1,000 streams per month and a minimum of 500 unique listeners – receive a so-called “double boost” to royalty payments, which means that when calculating their royalty payments, streams of their music will carry double the weight versus streams of ‘non-professional’ artists.
The model will also apply a ‘double boost’ – doubling the weight of streams again – for played tracks by artists that fans have actively searched for.
Other key elements of the model will see Deezer tackle streaming fraud and de-monetize “non-artist noise audio”
Speaking with analysts last week, Grainge quoted an indie power player’s recent praise for the new model, citing [PIAS] co-founder Kenny Gates who told [PIAS] staff in an internal memo last month that, “for labels who invest every year relentlessly in new talent, this has to be good news”.
UMG’s Chairman and CEO explained that “Deezer’s important step forward is only the beginning of this critical evolution in streaming” and that the company is “determined to bring an artist-centric approach to every DSP”.
He added that UMG “will have more announcements on this front in the near future as we work with other DSP partners”.
2. UMG’s AI strategy will see it work with even ‘more companies committed to responsible AI development’
On Universal’s previous (Q2) earnings call, at the end of July, Sir Lucian Grainge told analysts that UMG is “optimistic about AI and see[s] this as a powerful tool in the service of artists when deployed responsibly”.
He added that the company will have “announcements in the very near future about how AI can unlock other commercial and creative opportunities in our business”.
“I meant what I said,” Grainge told analysts on Thursday, highlighting the company’s recent partnership with YouTube to develop “a commercially viable AI component within YouTube‘s music and video ecosystem”.
“As our AI strategy progresses, you’ll see more companies committed to responsible AI development working with us on solutions to unlock creativity, explore new commercial opportunities for us and compensate artists appropriately.”
Sir Lucian Grainge
Elaborating on UMG’s YouTube partnership, Grainge explained that “as a further expansion of our artist-centric strategy, this historic collaboration underscores our belief that the best way to ensure responsible AI development is through market-led solutions”.
The partnership features two elements, including a ‘Music AI Incubator’ that will incorporate feedback and guidance from UMG-signed talent, as well as YouTube publicly committing to three principles/pledges that will guide its development of music-based generative AI tools in the future.
Commenting on the deal, Grainge said that, “thanks to our close relationship with YouTube, we’re collaborating on opportunities and solutions and placing artists at the forefront.”
This approach, he said, is in contrast to “past instances where new technologies [were] released into the world, and the music community was left to figure out how to develop a business model that would protect artists’ rights and compensation.”
Grainge said that UMG “will have more to say in the near future as our ongoing work with YouTube develops business models and products that further unlock the creative and commercial power of AI”.
He added: “As our AI strategy progresses, you’ll see more companies committed to responsible AI development working with us on solutions to unlock creativity, explore new commercial opportunities for us and compensate artists appropriately”.
3. UMG has accelerated its artist signings in China…
Sir Lucian Grainge also pointed to the expansion of UMG’s presence globally, with M&A included as part of that strategy.
In August, for example, UMG announced the acquisition of prominent UAE-based music company Chabaka Music. Founded in 2013 by brothers Ala’a and Tarek Makki, Chabaka has partnerships in place with over 150 independent artists and local labels.
Following the acquisition, Chabaka became part of UMG’s Virgin Music Group. Grainge told analysts last week that “with Chabaka’s unparalleled regional expertise and Virgin Music Group’s creative network and global footprints, the group will be uniquely positioned to reach and build the largest possible audiences for talent from the region”.
The MENA region registered a 23.8% YoY growth in recorded music revenues in 2022, according to the IFPI.
“UMG has the world’s leading capabilities in global distribution, best-in-class technology and a flexible infrastructure to allow us to easily expand our distribution partnerships.”
Sir Lucian Grainge
In addition to UMG’s M&A strategy, Grainge explained that the company is “strengthening our management teams in fast-growing markets”.
One of those markets is China, which overtook France as the world’s fifth-largest recorded music market in 2022.
In September, UMG hired Tim Xu as Chairman and CEO of Universal Music Greater China, which includes the company’s operations in Mainland China, Hong Kong as well as Taiwan.
UMG has also “accelerated” its artist signings in China,” Grainge said.
Two key examples of those artists include Chinese pop icon Hannah Rebecca Jin (pictured) signing to Republic Records China, and Chinese singer-songwriter, Tia Ray signing a global publishing deal with Universal Music Publishing China. Grainge noted that Tia Ray is the “first and only Chinese singer so far to reach the IFPI‘s Top 10 Global Singles chart”.
Added Grainge: “UMG has the world’s leading capabilities in global distribution, best-in-class technology and a flexible infrastructure to allow us to easily expand our distribution partnerships. ”
4. There were ‘more new subscriber additions in the developing markets than in the developed markets’ this year.
One of the biggest highlights for UMG in Q3 was its 13% YoY growth in subscription streaming revenues, generating €1.057 billion ($1.15bn) in the quarter.
This result was driven, according to UMG “primarily by the growth in global subscribers”.
That global subscriber growth was highlighted in the financial and user update of the world’s largest music subscription service, Spotify, just two days before UMG posted its own results.
Spotify’s paying Premium subscriber base grew 16% YoY in Q3 and by 3%, or 6 million net subscribers, versus Q2 2023, to end the third quarter with 226 million paying users.
“This is the first year where there’s actually been more new subscriber additions in the developing markets than in the developed markets.”
Michael Nash, UMG
Commenting on UMG’s own subscription streaming revenue growth during last week’s call, Michael Nash, UMG’s EVP and Chief Digital Officer noted that UMG is “very pleased that we were able to deliver 13% year-over-year subscription growth in this quarter”.
He added that this growth was achieved “without really having the opportunity to realize the most recently announced pricing benefits”, referring to price increases announced by Spotify for the US and 52 other markets back in July. Nash added: “We think that that’s a strong performance as [an] indication of continuing expansion in the market.”
Commenting on the potential for subscription streaming growth in developing markets, Nash said that there is “a significant increase in the adoption of subscription which is very encouraging”.
He added that “this is the first year where there [has] actually been more new subscriber additions in the developing markets than in the developed markets”.
Nash continued: “We think it’s an indication of the monetization opportunity. And reflecting back on Lucian’s comments about how we’re looking to develop repertoire, [with] some of the M&A moves that we’ve made in these fast-growing emerging market regions, we’re encouraged by what we see.”
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