Morgan Wallen's I'm The Problem (pictured), released via Big Loud/Republic, is expected to be one of UMG's biggest albums of Q2
Universal Music Group delivered a strong start to 2025 with its Q1 earnings report today (April 29), posting revenue growth of 9.5% YoY and adjusted EBITDA growth of 10% YoY at constant currency.
During the earnings call, UMG’s Chairman and CEO Sir Lucian Grainge, COO and CFO Boyd Muir, and EVP and Chief Digital Officer Michael Nash offered insights into UMG’s performance and strategic initiatives.
Here are seven key takeaways from the call:
1. Subscription streaming showed accelerated growth, particularly across diverse geographic markets – but ad-supported streaming is less of a picnic
UMG reported9.3% YoY growth in subscription streaming revenue at constant currency during Q1, an acceleration compared to Q4 2024.
This growth came from both established and emerging markets.
“Our 9.3% growth in subscription revenue this quarter is geographically diversified between developed and high-potential markets and well represented across our partner portfolio. In fact, we had double-digit revenue growth from four of our major DSP partners, underscoring the health and breadth of our subscription ecosystem,” said Grainge.
Credit: Austin Hargrave
“we saw double-digit revenue growth [for UMG] from four of our major DSP partners, underscoring the health and breadth of our subscription ecosystem.”
Sir Lucian Grainge
Boyd Muir provided more detail, noting: “UMG subscription revenue grew at double-digit rates in top developed music markets where subscription is still at an earlier stage, such as Japan and Germany. In addition, we saw double-digit growth in large population markets where digital music consumption is booming, such as China and Mexico.”
Michael Nash added further color: “We had double-digit revenue growth from three of our top 5 subscription partners, and high single-digit growth from another top 5 partner. So our subscription revenue growth was very well diversified in the quarter.”
However, while subscription growth was robust, UMG’s ad-supported streaming revenue was nearly flat, up just 0.3% YoY at constant currency in Q1. This represents a complex situation involving both legacy platform challenges and the ongoing shift to short-form content.
“The marginal improvement in year-over-year growth was a result of an easier comp against two of the months where [Universal’s catalog was] off platform with TikTok in early 2024,” Boyd Muir explained, referencing UMG’s well-publicized dispute with TikTok in Q1 last year.
“growth continued to be challenged by the [consumer] shift to short-form consumption, which is not yet adequately monetized.”
Boyd Muir, Universal Music Group
Looking ahead to Q2, Muir noted that UMG “will comp against [a further] one loss month of TikTok revenue, and we’ll begin to anniversary the loss of the Meta premium music video license”. [Meta stopped licensing premium video from major music companies on Facebook in 2024; both Universal and Warner subsequently announced new deals with Meta that wrapped WhatsApp licensing into their agreements.]
Beyond these specific platform challenges, Muir identified a more fundamental issue affecting ad-supported revenue growth, explaining that “growth continued to be challenged by the [consumer] shift to short-form consumption, which is not yet adequately monetized.”
2. Super-premium streaming tiers are still coming…
When asked about the timeline for the introduction of super-premium subscription tiers at DSPs like Spotify, UMG executives indicated that these higher-priced options are actively being developed, with concrete details expected within 2025.
“We’re deeply engaged with all of our key partners, including Spotify on this category of opportunity, and we’re very encouraged by the direction of all those conversations. We hope to be able to publicly elaborate on the collaborative plans that we’re developing later this year,” said Nash.
He added: “We were very encouraged to hear [Spotify] executives confirm on [their own Q1 earnings call] that with regard to higher tiers, they see great potential in them… and we were also encouraged to hear them reaffirm that creating higher tiers around new offerings is something that we’re working towards.”
“We hope to be able to publicly elaborate on the collaborative [super-premiium] plans that we’re developing later this year.”
Michael Nash, Universal Music Group
Nash cited empirical data from China supporting the viability of super-premium tiers: “Tencent Music noted on their Q4 2024 results that their super premium tier, which they call SVIP, had sequential growth in the quarter over the previous quarter… they now are at low teens penetration of their subscriber base.
“So if you take that as 13% of the subscriber base of 121 million, that means more than 15 million SVIP subscribers adopting a super premium platform… And that price point for SVIP is 5x a standard price point.”
Such evidence reinforces UMG’s own research suggesting that approximately 20% of current music streaming subscribers would be willing to pay up to double the current standard price for enhanced offerings.
3. Physical music sales showed strong growth, particularly in vinyl
Physical sales were a bright spot in UMG’s Q1 results, growing 15% YoY at constant currency. This performance was primarily driven by vinyl’s continued resurgence in key markets.
“Physical sales were strong, up 15% year-over-year driven by vinyl growth in the U.S. and in Europe,” Boyd Muir reported during the call.
However, Muir cautioned against extrapolating this strong performance throughout the year, stating: “Even with a strong release slate, we continue to expect physical revenue to be largely flat for the year against a challenging 2-year comp.”
This robust physical performance helped drive UMG’s 10.3% YoY growth in recorded music revenue for the quarter, demonstrating that while streaming remains its dominant revenue source, physical formats continue to play an important role in its business mix.
4. UMG plans to announce Phase 2 of its cost-saving program in the next three months
UMG executives confirmed they’ve completed Phase 1 of their strategic organizational redesign program and will provide details on Phase 2 in the next quarter.
“Next quarter, we look forward to updating you on our implementation plans for Phase 2 of our strategic organizational redesign. As planned, Phase 2 will include another EUR €125 million of cost savings to bring the total amount of the program to EUR €250 million,” said Boyd Muir.
Addressing the progress of Phase 1, Muir explained: “We’ve completed Phase 1 of our organizational redesign program. There is EUR €125 million of run rate savings embedded into 2025. We captured EUR €75 million of that run rate in 2024. So there’s EUR €50 million incremental cost savings embedded into our 2025 results.”
“As planned, Phase 2 of our organizational redesign will include another EUR €125 million of cost savings to bring the total amount of the program to EUR €250 million.”
Boyd Muir, Universal Music Group
The cost-saving initiatives come as UMG maintains its flat adjusted EBITA margin of 22.8% for the quarter, with Muir noting that “the flat margin reflects the benefit of cost savings and operating leverage, but offset by the negative impact of revenue and repertoire mix.”
These mix effects included growth in lower-margin physical sales and live income, along with incremental administration revenues from music publishing catalogs such as those owned/acquired by Chord.
5. ‘Streaming 2.0’ is driving both subscriber and ARPU growth
UMG executives reiterated their “Streaming 2.0” strategy outlined at last year’s Capital Markets Day, which targets annual subscription streaming revenue growth of 8-10% through 2028. They expect this growth to come from both increased subscriber numbers and higher average revenue per user (ARPU).
Muir explained: “We did reference that when you look at that 8% to 10% average CAGR over the period, we expected that approximately half of that would come from ARPU growth and half of that would come from volume growth or… subscriber growth.”
“It is our intention to increase our wholesale prices, which we would categorize as the minimum rate per subscriber.”
Boyd Muir, Universal Music Group
While not directly confirming specific new pricing arrangements with DSPs, Muir indicated that wholesale price increases are a key component of Streaming 2.0 deals: “It is our intention to increase our wholesale prices, which we would categorize as the minimum rate per subscriber. So when you see an announcement which references 2.0, I think you can expect that there will be wholesale price increases embedded into those deals.”
Muir noted that while price increases contributed only a small portion of Q1’s subscription growth, more impactful pricing cycles are expected: “We did also say that we envisage that this growth would come in waves. And part of the reason for us saying that was… at the moment in time that there is a price increase, we would envisage that the growth rate would be higher than that range.”
Muir’s timing was surely no fluke: reports earlier this week suggested that Spotify is readying to hike the price of its subscriptions across Europe and Latin America.
6. UMG is restructuring its country music operations to capitalize on global growth
Following their reorganization of East and West Coast operations in 2024, UMG is now focusing on restructuring its Nashville-based country music business, aiming to strengthen its position in a genre that’s gaining global popularity.
“Given the increasing global force of country music, we’re reorganizing our operations in Nashville and once again doing so from a position of strength. UMG is the industry market share leader in country music according to Luminate,” said Grainge.
“Given the increasing global force of country music, we’re reorganizing our operations in Nashville and once again doing so from a position of strength.”
Sir Lucian Grainge, Universal Music Group
The restructuring includes two major announcements made in the weeks leading up to the earnings call: “First, we relaunched the Nashville-based label Lost Highway Records with new management team and an ambitious creative vision. And secondly, last week, UMG Nashville was rebranded Music Corporation of America, also under new leadership with a strong strategic vision.”
This restructuring comes as UMG prepares for the May release of Morgan Wallen’s new album I’m The Problem.
Grainge highlighted Wallen’s continued success: “In March, Morgan Wallen reached a monumental U.S. chart milestone. His latest studio album One Thing at a Time collected its 100th week in the top 10 on the Billboard 200 chart. He is the only solo artist in history with an album that has stayed in the top 10 for at least 100 weeks.”
7. UMG expects music to remain resilient in the face of economic uncertainty
When asked about how UMG might perform during potential economic downturns, executives expressed confidence in music’s resilience as an affordable form of entertainment and emotional support.
“I’ve been through various cycles of global economic uncertainty and have been able to navigate with the [global] teams through it. Music has always proven to be incredibly resilient. It’s low cost, high engagement and obviously, a unique form of entertainment,” said Grainge.
He added: “When there’s been inflationary pressure and household budgets tightened, music subscriptions and music purchase has always been resilient… because consumption is frequent… The usage is constant. It’s completely multi-device, multi-occasion, and it’s good value for money.”
“Music has always proven to be incredibly resilient. It’s low cost, high engagement and obviously, a unique form of entertainment.”
Sir Lucian Grainge, Universal Music Group
Nash elaborated on why this resilience is structural rather than coincidental: “Analysts have talked about music consumption being habitual, emotional, noncyclical… [the] music industry is undergoing secular digital transformation that’s tied to broader consumer technology trends.
“That digital transformation is actually amplifying those resilience characteristics: convenience, personalization, revenue recurrence.”
He referenced a recent McKinsey study on consumer sentiment that found home entertainment, including music, was “the second lowest of 22 different categories” that consumers planned to cut back on during economic hardship.
Nash also noted that UMG has “very significant protection against digital revenue downside risk this year because of the various guarantees that are structured into many of our deals.”
Despite projecting a 2% foreign exchange headwind for 2025, Grainge emphasized that nothing would derail UMG’s long-term strategy: “There’s nothing that we can do or would do to get off track from our long-term, three-year target… Everything we do is for long-term growth, and you’re seeing a lot of the things that we outlined at Capital Markets Day last September now coming to fruition.”
