Universal Music Group generated $8.4bn in 2020… and spent over $1.7bn on catalog acquisitions and artist advances

Universal Music Group rode out 2020 with a gentle, if significant, revenue uplift: total annual sales across all of its divisions (including publishing and recorded music) rose 4.7% YoY.

But the real standout story for UMG last year – perhaps music to the ears of those hoping it will hit a ginormous valuation in the coming months – was its profit performance.

In 2020, UMG posted total revenues of €7.43bn ($8.40bn), with an EBITDA of €1.49bn ($1.68bn). That represented an impressive annual EBITDA margin of 20%.

As a result, Universal was nearly $250m (€220m) more profitable on an EBITDA basis in 2020 than it was in 2019.

However, UMG’s annual Cash Flow From Operations was significantly down YoY in 2020 at €50m ($57m).

Why? Vivendi’s latest results reveal that UMG spent €1.52bn ($1.71bn) on a combination of catalog acquisitions and “advances to artists net of recoupment” last year.

The latter descriptor refers to the total amount of money spent by UMG on artist advances in the year, minus the money it recouped in the period on these payouts.

The $1.71bn figure was more than three times bigger than UMG’s equivalent expenditure number (“advances to artists net of recoupment” plus catalog acquisitions) from 2019 (€465m/$522m).

“In the year before it goes public in Amsterdam, Universal splashed a whole lot of money locking in new deals with superstars, and buying up music catalogs.”

This all suggests something very clearly: In the year before it goes public in Amsterdam, Universal splashed a whole lot of money locking in new deals with superstars, and buying up music catalogs.

One of those music catalogs, of course, was Bob Dylan’s song collection – which UMG acquired in late 2020 for a price thought to be between $300m and $400m.

(A useful further bit of context: In the two-and-a-bit years leading up to September 2020, the aggressively acquisitive Hipgnosis Songs Fund spent £1.18bn – around $1.70bn – buying music assets.)

Universal’s latest fiscal numbers arrived from UMG parent Vivendi today (March 3) in its results for Q4 2020.

Those results show that Universal’s recorded music division generated annual revenues of €5.97bn ($6.74bn) in 2020, up 6.7% YoY.

The main driver of those recorded music revenues was streaming, which contributed €3.83bn ($4.33bn) to UMG’s coffers, up 16.2% YoY. (All YoY percentage numbers in this story reflect rises/falls on an organic basis.)

Universal’s music publishing division, Universal Music Publishing Group, posted annual revenues of €1.19bn ($1.34bn), up 14.4% YoY.

UMG’s most obviously pandemic-hit division was its ‘Merchandising & Other’ category of revenues – housing Bravado – which saw annual sales fall 39.6% in 2020.

Vivendi’s preferred profit metric – EBITA (Earnings Before Interest, Taxes, and Amortization) – weighed in at €1.33bn ($1.5bn) in 2020, up 20.1% YoY.

The company noted that this 17.9% annual EBITA margin has grown considerably in the past four years, up from 12.2% in 2016.

In Q4 specifically (the three months to end of December), Universal saw overall YoY company revenue growth of 5.4%, and growth in its recorded music business of 7.9%.

In 2020, UMG claimed four of the Top 5 artists of the year on Spotify globally (Drake, J Balvin, Juice WRLD, The Weeknd), as well as the No. 1 song of the year (The Weeknd’s Blinding Lights).

And according to Nielsen Music/MRC data, Universal claimed the entire Top 6 albums of the year in the US with efforts from Lil Baby, Taylor Swift, Pop Smoke, The Weeknd, Juice WRLD, and Post Malone.

Today’s news comes just over two weeks after Vivendi confirmed its management was exploring a proposal to spin out 60% of UMG onto the stock exchange in Amsterdam at some point in 2021.

A consortium led by Tencent Holdings closed the acquisition of a second 10% chunk of UMG equity in January, taking its total holding in the music company to 20%.

That acquisition gave Universal Music Group an enterprise valuation of €30 billion (currently worth around $36 billion).

With the spin-out, it is understood that Vivendi would hold on to 20% of UMG, with the Tencent consortium also maintaining a 20% stake – with the remainder of the music company becoming publicly traded.

* All EUR to USD currency conversions in this story have been made at the relevant average annual rates as provided by VivendiMusic Business Worldwide