Universal Music’s Quarter Dips As Downloads Sag, Subscriptions Not Yet an Offset

Universal Music Group, the world’s largest music company, posted a 2 percent dip in revenue at constant currency in the first quarter as the industry-wide slowdown in the digital downloads started to impact the business.

Even though Universal Music had the quarter’s biggest selling album the Disney "Frozen" soundtrack and benefited from a "significant growth" in subscription and streaming services, lower download sales and the longer-term declining CD sales meant the overall sales fell. 

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UMG’s numbers point to the challenge for the industry. The hope is that streaming companies like Spotify and Rhapsody will grow rapidly as download sales from stores like iTunes have slowed markedly in major markets like United States – as much as 13 percent in the first quarter. But to date the number of music fans paying around $10 a month for all-you-can-eat music streaming services has not grown fast enough to make up for the drop in download and CD sales. 

In many ways the music labels could find themselves in a similar trend seen with the format change from CDs to downloads over the last two decades where ultimately downloads have never completely made up for the lost revenue with physical products.

But music insiders remain confident the industry is not too far away from an inflection point.

UMG’s first quarter revenue was €984 million ($1.35 billion) down 9.8 percent from € 1.1 billion ($1.51 billion) when it includes the impact of operating the Parlophone Label Group which was sold to Warner Music Group last July.

The music company’s quarterly earnings before interest, taxes and amortization (EBITA) was up 72.5 percent to €56 million when excluding the impact of Parlophone. 

Other strong sellers during the quarter for UMG included carryover sales from the fourth quarter for Lorde, Katy Perry and Avicii as well as a new release from Masaharu Fukuyama.

UMG’s French parent Vivendi is in the process of refocusing on its media and content business with the music company becoming the lynchpin as its sells off various telecoms assets including 53% of Maroc Telecom earlier this week. It has also accepted an offer for SFR and sold its stake in video game company Activision Blizzard.

Vivendi’s first quarter revenues rose 2 percent to €2.72 billion at a constant currency basis while EBITA rose 2.8 percent to €268 million. Adjusted net income jumped 20.1 percent to €161 million.


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