As of: 09/21/2021 2:18 p.m.
Universal Music Group’s initial public offering appears to be a hit. Investors are scrambling for the stocks that have started trading. The company wants to continue to earn good money with music streaming.
The largest IPO in Europe to date is perfect. The Universal Music Group (UMG) has successfully started its stock exchange life in Amsterdam. The first listing of the world’s largest music label was 25.05 euros – an increase of around 37 percent over the reference price of 18.50 euros. This means that the subsidiary of the French conglomerate Vivendi is worth around 46 billion euros.
Vivendi is cashing in
As the largest music label, UMG has stars such as Lady Gaga, Taylor Swift and The Weeknd under contract. The Parisian media group Vivendi outsources UMG to make money. Around 60 percent go into the hands of Vivendi shareholders. Vivendi herself will ultimately hold around ten percent. Major shareholders are also the US investor Bill Ackman and the Chinese technology giant Tencent.
The strategy of Universal Music and the parent company Vivendi points primarily in one direction: to continue to exploit the boom in the music streaming business and to convert it into billions in sales and profits. In the business of streaming services such as Spotify, the company competes in a quasi-oligopoly with the US company Warner and Sony Music from Japan.
Streaming dominates music distribution
According to expert assessments, the streaming business has given the music companies a new wave of growth. In the past year, according to the industry association RIAA, a total of more than 21.6 billion dollars were turned over in the music business, and the share of streaming revenues has already climbed to around 60 percent. Overall, streaming is driving double-digit growth in the industry, and it should continue to do so for years to come.
The most important marketing channels, the streaming services, are led by the US company Spotify, which, according to MEDiA Research, had a market share of 32 percent in the first quarter of 2021. This is followed by Apple Music with 16 percent and Amazon Music with 13 percent. The Chinese Tencent, with a ten percent market share, is already one of the most important players when it comes to streaming. And Tencent had secured a 20 percent stake in Universal before going public.
Crisis-proof business
UMG’s balance sheet for the first half of 2021 shows how dominant the streaming business has become for the group and even its parent company Vivendi: 2.1 billion of the 3.1 billion euros that Universal generated in the first six months come from 2.1 Billions of euros from the “Subscriptions and Streaming” business area, an increase of a good 17 percent. The “physical” sale of sound carriers such as CDs or vinyl records only contributed a good 463 million euros.
The business with music that is always available via Internet streaming had also proven to be crisis-proof over the past year and a half. In the time of the Corona restrictions and lockdowns, the revenues and profits gushed even more vigorously.
Painful transformation
The Universal Music Group has come through a lengthy and painful transformation process. At the turn of the millennium, the introduction of the MP3 format and music piracy caused the business with traditional sound carriers to collapse dramatically. In the years that followed, Universal had to lay off thousands of employees and sell its pressing plants. After that, however, the company initiated a turnaround through clever acquisitions of music publishers such as EMI or the Bertelsmann subsidiary BMG. The company acts as a marketing agency for the artists that UMG has under contract. In addition, new sales channels have been opened up in recent years, for example through cooperation with video game providers. In order to gain new listeners, Universal works with TikTok and YouTube, for example.
The IPO has already paid off for the subscribers of the share. The current market value is around 46 billion euros. The investment bank JPMorgan Cazenove considers a valuation of around 55 billion euros possible. The music business could see some kind of rebirth.