Universal Music Group Q3 Revenue Grows As Streaming's Surge Fuels Valuation

Courtesy of UMG
Universal Music Group logo.

The Universal Music Group saw operating profits fall to €161 million ($188.2 million) in the third quarter ended Sept. 30, down 7.9 percent from €174 million ($192 million) in the same period last year. But revenues rose by almost one percent (0.08 percent) to €1.32 billion ($1.54 billion), from last year's €1.31 billion ($1.45 billion).

UMG reported overall earnings before interest, taxes, depreciation and amortization (EBITDA) at €167 million ($195.2 million), a 15.8 percent decline from Q3 2016's €198 million ($219.6 million). However, the decline in operating revenue and EBITDA was due to unfavorable exchange rates in the current period, as well as a one-time gain in the earlier period. Without those circumstances, operating profit and EBITDA would have been about flat compared to last year.

Within overall revenue for the quarter, recorded music produced €1.002 billion ($1.17 billion), up 0.8 percent from the €994 million ($1.1 billion) reported in the corresponding period last year; music publishing generated €242 million ($283 million), up 6.6 percent from €227 million ($251.7 million); and merchandising and other revenue fell 12.9 percent to to €81 million ($94.7 million) from €93 million ($103.14 million) the prior year.

According to Reuters, Vivendi chief executive Arnaud de Puyfontaine said on Friday (Nov. 17) that he thought UMG was worth more than $40 billion, a valuation that he said he had seen last week. That’s almost double the $21.5 billion valuation Vivendi’s General Counsel Frederic Crepin cited in April when quoting an estimate from an investment bank. Whatever its worth, it doesn’t sound like Vivendi wants to sell UMG. Instead, it seems like Vivendi is thinking about spinning off UMG as its own publicly-traded company.

Selling a piece of UMG to the public would help Viviendi realize some of the value it has created since it took over ownership from previous parent company Seagram's in a $32 billion acquisition in 2000. Not everyone is pricing UMG so optimistically, however; Barclay’s European media team of analysts cites a valuation of €17 billion ($20.2 billion), which includes its holdings in Spotify and Vevo.

(For this story, an exchange rate of €1.169 to $1 was used for the third quarter of the current year, while €1.109 to $1 was applied to last year, as laid out by Vivendi, in its financial report for the quarter. In contrast, on a constant currency basis, UMG reported that overall revenue was up 5.3 percent while operating income was down 3.9 percent, with most of the gain for the former and the decline for the latter due to the rise in the dollar this year versus last year. Likewise, on a constant currency basis, EBITDA was down just 12.2 percent.)

Q3 By Format

Within UMG’s recorded-music revenue for the quarter, streaming rose 27.6 percent to €481 million ($562.3 million) from the corresponding 2016 period total of €377 million ($418.1 million); downloads totaled €147 million ($171.84 million), down 10.9 percent from €165 million ($183 million); physical accounted for €216 million ($252.5 million), a 17.9 percent decline from €263 million ($291.7 million); and licensing and other income streams totaled €158 million ($184.7 million), down 16.4 percent from €189 million ($209.6 million).

As a percentage of income, that means that streaming accounted for 48 percent of revenue (2016: 37.9 percent); physical 21.6 percent (2016: 26.5 percent); downloads 14.7 percent (2016: 16.6 percent); and licensing and other revenue 15.8 percent (2016: 19 percent) for the current quarter.

Year To Date Revenue

Looking at the nine-month period ended Sept. 30, UMG reported operating income of €472 million ($522.98 million), up 20.5 percent from the €291 million ($434 million) reported in the first nine months of 2016; while revenues this year so far total €3.985 billion ($4.415 billion), up 10 percent from the €3.623 billion ($4.02 billion) reported last year.

(For the nine-month period, this story uses an exchange rate of €1.108 to $1 for this year, versus €1.11 to $1 last year, as designated in the Vivendi financial report.)

Meanwhile EBITDA totals €496 million ($549.6 million) in the current year, a 15.8 percent increase over the €439 million ($487.3 million) reported in the first nine months of 2016.

Year To Date By Format

Overall revenue for recorded music over the nine-month period broke out to €3.143 billion ($3.48 billion), up 11.2 percent from the €2.826 billion ($3.14 billion) reported in the corresponding period of 2016; while Universal Music Publishing Group has produced €642 million ($711.34 million) in revenues, a 9.1 percent increase over the €588 million ($652.7 million) last year; and merchandise and other income streams totaled €216 million ($239.3 million), a 5.1 percent decline from the €227 million ($252 million) in the first nine months of 2016.

Within recorded music, streaming totaled €1.443 billion ($1.6 billion), up 23.2 percent from the €1.03 billion ($1.14 billion) garnered in the first nine months of 2016; while physical totaled €700 million ($775.6 million), down 5.8 percent from the €751 million ($883.6 million) last year; downloads totaled €500 million ($554 million), down 8.6 percent from €547 million ($607.2 million); and licensing and other income streams totaled €500 million, up slightly from €498 million ($553 million).

As a percentage of recorded music in the first nine months of the year, streaming has totaled 45.9 percent (2016: 36.5 percent); physical 22.3 percent (2016: 26.6 percent); downloads 15.9 percent (2016: 19.4 percent); and other revenue 15.9 percent (2016: 17.6 percent).

Geographically

Looking at recorded music revenue geographically, North America has earned €1.493 billion ($1.65 billion), up 19.3 percent from the prior year’s nine month total of €1.25 billion ($1.39 billion); Europe totaled €997 million ($1.1 billion), up 2.4 percent from €974 billion ($1.08 billion); Asia comprised €403 million ($446.5 million), up 12.8 percent from €366 million ($406.3 million); Latin America €111 million ($123 million), up 3.5 percent from €95 million ($105.5 million); while the rest of the world totaled €139 million ($154 million), down slightly from €140 million ($155.4 million).

As a percentage of revenue, North America comprised 47.5 percent (2016: 44.3 percent); Europe 31.7 percent (2016: 34.5 percent); Asia 12.8 percent (2016: 13 percent); Latin America 3.5 percent (2016: 3.3 percent); and the rest of the world 4.4 percent (2016: 5 percent).