UMG digital income falls by $18m – Apple Music blamed for surprise dip

Arnaud de Puyfontaine, CEO, Vivendi

Universal Music Group‘s income from digital recorded music fell by €17m ($18m) in the three months to end of September, compared to the prior quarter.

And parent Vivendi is pointing the finger at one culprit over any other for the dip: Apple Music‘s free trial.

According to MBW analysis, Universal turned over €450m ($485m) through digital music services in Q3.

As previously reported, 51% of this figure came from streaming across ad-funded and subscription – the first time in UMG history that the format had overtaken downloads as a revenue driver.

That means that the likes of YouTube, Spotify and Apple Music drove €229.5m ($247m) in the quarter for UMG.

Downloads, meanwhile, fell in value by 8% for the company in Q3 – down to €220.5m ($237m).

(A bit of reverse engineering, and we can work out that in Q2, downloads contributed around €239m ($257m) to UMG’s bottom line.)

Hooray for streaming? Hang on a moment. Let’s take a closer look at UMG’s recent quarterly digital income.

UMG digital fall

As you can see above, Universal’s quarterly digital music income grew between Q1 to Q2 2015 by €8m ($8.6m).

But in the last quarter – the three months to September 30 – it fell by €17m ($18m), down from €467m ($503m) to €450m ($484m).

That’s a 3.6% fall (although it’s worth pointing out that year-on-year, Q3 digital income rose by €55m compared to 2014).

How can this wobble have happened when we hear so many stories of the rapid and constant growth of digital music services?

According to Vivendi, there’s one very clear reason: the three-month free trial of Apple Music, and what that meant for both digital download revenues and for streaming income itself.

“The decline is due to a fall in downloads in the third quarter, especially due to the launch of Apple Music.”

Herve Philippe, Vivendi

Vivendi CFO Herve Philippe confirmed to investors (and MBW) this week that Universal and its artists were receiving “some compensation” from Apple Music’s freebie period.

That’s fairly big news in itself, following the independent sector’s struggle to get Apple to cough up royalties from the free trial earlier this year.

Said Phillipe: “The decline, you can see… [is partly due] to a quite an important decline in downloads on the third quarter in music which is probably largely due to the success of streaming – and especially the launch of Apple Music.

“Clearly the compensation [from Apple Music is in our numbers] – as you probably know, the [first three] months are free for subscribers and there is some compensation which is made for the artists – but [it] is not up to… 100%, clearly.”

Apple Music revealed last month that it now has 6.5m paying subscribers – representing a retention of 60% of its free trial users.

Despite Apple Music’s diminishing effect on UMG’s short-term digital music income, Philippe was upbeat about the future of streaming, suggesting it will bring Universal “the possibility to have growth in the coming years”.

“We’re [optimistic] for growth in the medium term, but we can still have some volatility from one quarter to the other,” he said. “And especially on… Apple Music, we don’t know what will be the churn. We anticipate a low rate of churn, but we have no specific figures.”

“We anticipate a two-year transition period for umg in 2016 and 2017 during which we will continue to invest strongly while maintaining strict financial discipline.”

Arnaud de puyfontaine, Vivendi

Vivendi Chairman and CEO Arnaud de Puyfontaine (pictured) said that the firm remained “cautiously optimistic” about streaming’s capacity to grow the music business.

“Universal Music Group is still adapting to the transition from downloading to streaming and subscription services,” he commented. “That being said, streaming is clearly an opportunity for the music industry.

“In this context, we anticipate a 2-year transition period in 2016 and 2017 during which we will continue to invest strongly in our businesses while maintaining strict financial discipline.

“As you know, we’re focused on the long term. We all share the same ambition – to build a world-class player in media and content.”

Added de Puyfontaine: “UMG is working to evolve and grow its businesses. Significant growth in streaming and subscription services, along with UMG’s industry-leading track record of artist development and breaking global stars, is setting the stage for medium- and long-term opportunity at UMG.”Music Business Worldwide

Related Posts