Universal Music Group Saw 10 Percent Revenue Growth in 2017

Courtesy of UMG
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The earnings were driven by sizable gains in recorded music.

Universal Music Group produced 798 million euros ($901.7 million) in operating income on revenues that grew to 5.67 billion euros ($6.41 billion), for the year ending Dec. 31, 2017. That represented a 16.2 percent (18.5 percent in constant currency) increase over the 687 million euros ($724 million) the company produced in the prior year when revenues were 5.27 billion euros ($5.5 billion), or a 7.7 percent increase (10 percent in constant currency) in revenue.

With streaming revenue coming on strong and outpacing the decline of the revenue provided by the sales model, i.e. CDs and downloads, all boats are rising in the music industry, and like the other majors, UMG is enjoying the ride. Its operating margin has improved to 14.1 percent of revenue from 13 percent it had in 2016.

In the past, Vivendi executives have speculated on the valuation that UMG would command if it was separately listed as its own stock, but yesterday during a conference call with analysts, it sidestepped that issue when asked about it. "I will keep on repeating that there is no plan yet as we go out to any kind of a listing," CEO Arnaud De Puyfontaine said during a conference call with analysts, according to a Seeking Alpha transcription of that call. But he added, "in due time for the right reasons at the right rationale… we keep that possibility as an option, but as we speak there is no plan for such move."

Getting back to the results, Vivendi said UMG produced 832 million euros ($940.1 million) in earnings before interest, taxes, depreciation and amortization, as compared with 747 million euros ($787 million) in the prior year.

For this story, Billboard used a conversion rate of $1.13 to the euro for 2017 and $1.054 to the euro for 2016.

Within UMG, its recorded music operation generated 4.56 billion euros ($5.15 billion), an 8.9 percent increase over the 4.19 billion euros it turned in for 2016; while music publishing totaled 854 million euros ($965 million), up 7.8 percent from the 792 million euros reported in the prior year; and merchandising and other income streams produced 283 million euros ($320 million), down 9.6 percent from the 313 million euros ($330 million) those operations produced in the prior year.

New releases from Taylor SwiftKendrick Lamar and Drake, as well as carryover sales from The WeekndLuis Fonsi and Daddy Yankee's "Despacito," the 50th Anniversary edition of The BeatlesSgt. Pepper’s Lonely Hearts Club Band and as soundtrack releases from Moana and La La Land were all highlighted as top-grossing projects.

On the other hand, the company said its merchandising sales were down last year due to less touring activity, according to a Seeking Alpha transcript of a conference call.

UMG parent Vivendi's earnings report gave specific props to UMG's "very solid performance fueled by the success of subscription and streaming services as well as a number of successful album releases." It also noted the label group's agreements with Spotify, YouTube, Facebook and Tencent in China. 

Looking at the recorded music operation, its revenue broke out to 2.656 billion euros ($3 billion) in digital, of which 1.97 billion euros ($2.23 billion) came from streaming and 685 million euros ($774 million) from downloads. Those numbers represent an overall increase of 18.7 percent from the 2.24 billion euros ($2.36 billion) digital produced in 2016; while streaming was up 32.9 percent from the 1.48 billion euros ($1.56 billion); and downloads were down 9.3 percent from 755 million euros ($795.4 million). Meanwhile, physical totaled 1.97 billion euros ($2.23 billion) down 32.9 percent from the 1.48 billion euros ($1.56 billion) generated in 2016; and licensing and other revenue totaled 747 million euros (up 3 percent from the 725 million euros ($764 million) in the prior year.

As a percentage of revenue, that breaks out to digital at 58.3 percent comprised of 15 percentage points were downloads and 43.3 percentage points came from streaming; physical at 25.4 percent’ and licensing and other at 16.4 percent in 2017 versus digital at 53.4 percent in 2016, of which18 percentage points were downloads and 35.4 percentage points were from streaming; 29.3 percent from physical and 17.3 percent from licensing and other income streams.

Looking at recorded music another way, North America grew 15.7 percent to 2.09 billion euros ($2.36 billion), from 1.81 billion euros ($1.9 billion); while Europe garnered 1.5 billion euros ($1.71 billion), a 2.2 percent increase from the 1.14 billion euros ($1.56 billion) tallied in 2016; Asia produced 563 million euros ($636.1 million), up 12.9 percent from the 542 million euros ($571 million); Latin America produced 155 million euros ($175.1 million), up 3.2 percent fro the 135 million euros ($142.2 million); and the rest of the world totaled 238 million euros ($268.9 million), up 6.3 percent from 224 million euros ($236 million).

In percentages that breaks out to North America had 45.8 percent in 2017, while Europe had 33.2 percent, Asia had 12.3 percent, Latin America 3.4 percent and the rest of the world 5.2 percent, versus 2016 when North America had 43.1 percent; Europe, 35.4 percent; Asia, 12.9 percent; Latin America 3.2 percent and the rest o the world at 5.3 percent.

Looking at just the fourth quarter, UMG reported 326 million euros ($384.3 million) in operating income on revenues of 1.67 billion euros ($1.99 billion, which represented a 10.6 percent increase from the 296 million euros ($319.1 million) the company tallied in the fourth quarter of 2016 when revenues were 1.664 billion euros ($1.79 billion). But revenue growth didn’t match operating income as it only increased 1.4 percent. (For the fourth quarter, Billboard used exchanges rates $1.179 to the euro for 2017 and $1.078 to the Euro for 2016.)

Looking ahead to the new year, Vivendi cites new releases out or coming from James Bay, Fall Out Boy, Florence + the Machine, Migos, Ne-Yo, One Republic, Post Malone, Thirty Second To Mars, and Snow Patrol. When one analyst questioned if those releases would prove as strong as the releases issued in 2017, Vivendi's  De Puyfontaine acknowledged in the conference call the seasonality to the release schedule but added that "under the leadership of the amazing Sir Lucian Grainge, the key focus on the team and the different executives, to be able to find great talents in 2018 should put Universal Music Group still in a position to be the music company, which is developing, spotting the best possible artists."

Colin Stutz contributed reporting.