Universal Music Group braces for physical, ad streaming downturn, but says subscription is ‘more stable and robust’

Universal Music Group is staying realistic about the potential negative impact COVID-19 might have on its performance this year – despite a Q1 performance that was very much business as usual.

As reported by MBW earlier today, UMG posted €1.43bn ($1.56bn) in recorded music revenues in the three months to end of March, up 13.1% year-on-year.

Streaming revenues in Q1 2020 hit €908m ($999m), up 16.5% year-on-year.

This was very positive news for Universal (obviously) but also the wider record industry, as it suggested the negative economic impacts of COVID-19 didn’t materially harm the income of the world’s biggest music rightsholder in March, despite quarantine measures becoming more stringent.

Universal’s announcement of healthy Q1 numbers came after trade groups in Spain and Italy predicted that a combination of physical music and licensing declines, as well as potential streaming income declines, could severely hurt the major labels’ fiscal performance this year.

This afternoon, Vivendi held its annual shareholders meeting, where a future-facing view was taken on the Coronavirus pandemic.

Each segment of Vivendi’s business – including Canal+, DailyMotion and Vivendi Village – was represented by a designated senior individual executive, who raked over these subsidiaries’ performances over the past year.

For Universal Music Group, this role fell to the CEO of Universal Music France, Olivier Nusse, who gave a pre-recorded address to shareholders, wishing all of those watching “the best in trying times”.

Speaking in French, Nusse celebrated the “remarkable” global performance of UMG in 2019, calling the company the “best performer in the music industry, artistically and commercially speaking”.

Turning to the future impact of COVID-19, Nusse warned: “It’s too early to tell how much the worldwide pandemic might affect our group. It will certainly impact physical sales, and merchandising sales [both] on tours and in stores.”

“Streaming by subscription, which generates the largest portion of UMG revenues by far, is intrinsically more stable and robust… ad-funded streaming is likelier to be affected, along with the advertising market as a whole.”

Olivier Nusse, Universal Music Group (pictured)

He added: “The impact on streaming should be more limited, and [will] vary depending on the market and remuneration method. Streaming by subscription, which generates the largest portion of UMG revenues by far, is intrinsically more stable and robust… ad-funded streaming is likelier to be affected, along with the advertising market as a whole.”

Nusse pointed out that the “key factor” in UMG’s remuneration from streaming services is the company’s market share (due to the ‘big pot’ / service-centric royalty system deployed by Spotify et al). Nusse suggested there was “no reason [Universal’s market share] might decrease” during the rest of 2020.

He added: “During the lockdown, UMG teams are working extremely hard together, around the world, to release new content, new experiences and many pioneering practices, which will be fantastic assets when we move past this crisis.”

Continued Nusse: “To conclude, UMG is looking forward as enthusiastically as ever. Our strategy as the music industry leader is flourishing. Under Sir Lucian Grainge’s direction, our global executive management team is leading the company to success, even in these tough times due to the pandemic.”

“I’d like to thank from the bottom of our heart, Sir Lucian Grainge and UMG and Vivendi’s teams for taking this [deal] and bringing it to fruition in a difficult environment.”

Arnaud De Puyfontaine, Vivendi

The Vivendi shareholders’ meeting was hosted by French firm’s CEO, Arnaud De Puyfontaine, and its Chairman, Yannick Bolloré.

De Puyfontaine discussed the $3.4bn sale of a 10% stake in Universal Music Group to a Tencent-led consortium, which closed on March 31. De Puyfontaine said today that Vivendi was “delighted to welcome [Tencent] as our partners”.

He further commented: “I’d like to thank, from the bottom of our heart, Sir Lucian Grainge and UMG and Vivendi’s teams for taking this [deal] and bringing it to fruition in a difficult environment. This will give Universal growth opportunities in China, one of the largest music markets in the world. It [will] also open up interesting prospects for Vivendi as a whole in a country where creative industries are already quite strong, or have strong potential.”

In its financial update to shareholders this morning, Vivendi reiterated that it is now looking to sell further minority stakes in UMG to additional buyers, and has mandated “several” banks to help it with this process.

Vivendi also reiterated that an initial public offering (IPO) for Universal Music Group “is currently planned for early 2023 at the latest”.

It added: “Vivendi intends to use the proceeds from these different transactions for substantial share buyback operations and acquisitions.”

The Tencent-led consortium has until January 15 next year to decide if it wishes to buy a further 10% in UMG at the same price agreed at the end of last year.Music Business Worldwide

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