Universal Music Group Now Gets Over Half of Digital Revenue From Streaming

Universal Music Publishing Group
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Signage of Universal Music Publishing Group hangs outside the company headquarters in Santa Monica, California.

Services like Spotify, Pandora and YouTube accounted for 51 percent of digital revenue in the third quarter.

The world's largest record label has crossed a key threshold. Streaming royalties accounted for 51 percent of Universal Music Group's digital recorded music revenue in the third quarter, according to Tuesday's earnings release by parent company Vivendi.

Streaming revenue is currently humming along at a nearly €1 billion run rate for UMG. Digital revenue in the third quarter was €450 million. At 51 percent of digital revenue, streaming revenue in the quarter was €230 million. At 19 percent of total revenue and 25 percent of recorded music revenue in the quarter, streaming is now a significant part of UMG's overall business. 

Surpassing the 50 percent mark, achieved by Warner Music Group in the quarter ended March 31, comes at a critical time for the record industry. UMG has become an opponent of unlimited and free on-demand music from Spotify and is pressing for changes to the business model. It prefers the royalties of paid-only services like Apple Music, which quickly amassed 6.5 million global subscribers, and the recent launch of YouTube Red, a subscription service to complement the free, ad-supported YouTube. Elsewhere in the streaming marketplace, UMG has argued for a significant rate increase for the rates to be paid by Pandora and other statutory webcasters from 2016 to 2020.  

UMG's third quarter revenue fell 0.4 percent to €1.2 billion at constant currency and constant perimeter but rose 8 percent on a reported basis. (Constant currency removes currency fluctuations that impact year-over-year comparisons when revenue is converted into a local currency. Constant perimeter counts revenue from assets held in the prior-year period.) Earnings before income tax and amortization fell 24.5 percent to €114 million at constant currency and constant perimeter.

More details were provided for the nine-month period ended September 30. UMG's total revenue through three quarters grew 2.1 percent at constant currency and constant perimeter. On a reported basis, revenue grew 12.8 percent to to €3.5 billion. The gain was driven by 33-percent grown in streaming revenue and legal settlement income (likely UMG's share of major labels' $210 million settlement with Pandora regarding the performance of pre-1972 recordings, which the Internet radio company booked as an expense in the third quarter). Nine-month EBITA dropped 8.7 percent at constant currency and constant perimeter.

Other divisions also grew in the nine-month period. The growth in streaming helped publishing revenue rise 2.6 percent at constant currency and constant perimeter. UMG attributed the 2.3 percent gain in merchandising revenue to stronger touring activity.