Universal Music Group 2018 Earnings: Revenue Tops $7.1B as Streaming Spikes 31 Percent

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Drake performs in Concert at Aubrey & The Three Amigos Tour - Chicago, Illinois at United Center on Aug. 17, 2018 in Chicago.

Universal Music Group (UMG) enjoyed impressive growth in both revenue and profit in 2018, producing a €946 million ($1.123 billion) operating income on €6.023 billion ($7.149 billion) in revenue. That compares to €798 million ($898 million) in operating income in 2017, when revenue was €5.673 billion ($6.382 billion).

For revenue, that represents a 10 percent spike on a constant currency basis and 6.2 percent on an actual basis. Operating income grew 18.5 percent on an actual basis, with an improved operating margin that rose to 15.7 percent for 2018, up from 14.1 percent in the prior year.

UMG's earnings before interest taxes and amortization (EBITA) grew to €902 million ($1.07 billion) from €798 million ($856.12 million) in the prior year. Meanwhile, earnings before interest, taxes, depreciation and amortization (EBITDA) grew to €979 million ($1.162 billion) as compared to €832 billion ($936 million). No matter which number you look at, UMG broke the $1 billion milestone in earnings.

During the year, restructuring charges rose to €29 million ($34.4 million) from €17 million ($19.125 million).

Overall, growth was fueled by strong A&R with multiple hit records during the year, as well as streaming growth and a stellar year in music publishing. Key releases during 2018 were albums from Drake, Post Malone, XXXTentacion and the Beatles, as well as the A Star Is Born soundtrack.

Meanwhile, the company said that it will complete its search for investment banks in the coming weeks, which after that will begin the process of finding the best potential partners for UMG, which will result in Vivendi selling up to 50 percent of the music company.

Breaking out revenue by operation, recorded music generated €4.828 billion ($5.731 billion), 5.9 percent growth from the €4.56 billion ($5.129 billion) accumulated in the prior year ended Dec. 31, 2017; while music publishing grew to €941 billion ($1.117 billion), or 10.2 percent over the €854 billion ($960 million) generated in the prior year; and merchandising and other income streams fell slightly to €273 million ($324.05 million) from the prior year total of €283 million ($318.4 million).

Looking at recorded music by format, digital grew 15.8 percent to €3.075 billion ($3.65 billion) from €2.656 billion ($2.99 billion). Within digital, streaming increased 31.7 percent to €2.596 billion ($3.081 billion) while downloads fell 30.1 percent to €479 million ($568.6 million) from €685 million ($770.6 million).

Meanwhile, physical fell 17.9 percent to €949 million ($1.126 billion) from €1.156 billion ($1.3 billion); and licensing increased 7.6 percent to €804 million ($954.35 million) from €747 million ($840.38 million).

Percentage wise, recorded music breaks out to 53.8 percent streaming, 19.7 percent physical, 16.7 percent licensing and 9.9 percent downloads in 2018, versus 43.2 percent streaming, 25.4 percent physical, 16.4 percent licensing and 15 percent downloads in 2017.

Looking at recorded music revenue another way, the U.S. accounted for €2.224 billion ($2.64 billion), or 46 percent of revenue -- a 6.4 percent increase over 2017 when it had €2.09 million ($2.35 billion) that was 45.8 percent of revenue. Europe's recorded music revenue totaled €1.58 billion ($1.875.5 million, a 4.4 percent increase over the prior year when the continent’s revenue totaled €1.15 billion ($1.7 billion). Asia generated €618 million ($733.6 million) on recorded music, a 9.8 percent increase from the previous €563 million ($633 million). And Latin America declined 1.3 percent to €153 million ($181.6 million) from €155 million ($174.4 million). The rest of the world grew 6.3 percent to €253 million ($300.3 million) from €238 million ($268 million).

As a percentage of revenue, North America accounted for 46.1 percent, Europe 32.7 percent, Asia 12.8 percent, Latin America 3.2 percent and the rest of the world 5.2 percent in 2018.

Further touting its A&R success, UMG pointed out in its financial results that it had either signed or re-signed Taylor Swift, the Rolling Stones and Sir Elton John, while also noting that "globally, UMG had every one of the top five tracks, the top four artists and the top three albums on Spotify in 2018. Additionally, UMG artists occupied the top five positions and 14 of the top 20 positions on Apple Music's Global Top 100 Songs 2018."

Moving over to the Universal Music Publishing Group, that operation broke the $1 billion milestone for the first time, thanks to "increased subscription and streaming revenues, as well as higher revenues generated from performance rights and synchronization," according to the company.

Looking at just the fourth quarter, UMG enjoyed a 12.6 percent increase in revenue to €1.9 billion ($2.19 billion) from the €1.69 billion ($1.985 billion) in the fourth quarter of 2017.

Within that recorded music produced €1.546 billion in revenue ($1.784 billion), a 9.2 percent increase over 2017's fourth quarter when revenue was €1.416 billion ($1.665 billion), while music publishing showed a whopping 25.5 percent increase to €266 million ($307 million) from €212 million ($249.3 million) and unlike for the rest of the year merchandising and other income streams was actually strong, growing 38.8 percent to €93 million ($107.3 million) from €67 million ($78.8 million) in the prior year.

Recorded music's formats breaks out to €747 million ($862 million) from streaming €386 million ($445.4 million) from physical; €287 million ($331.2 million) and for licensing and other income streams. Those formats results respectively represent a 41.5 percent increase over the €528 million ($621 million) in streaming in 2017; a 15.4 percent decrease from €456 million ($536.3 million) in physical; a 31.5 percent decrease from €185 million ($217.6 million) for downloads and a 16.2 percent increase from €247 million ($290.5 million) in licensing.

As a percentage of revenue, that breaks out to 48.3 percent streaming, 25 percent physical, 18.6 percent licensing and 8.2 percent downloads for 2018; versus 37.3 percent streaming, 32.2 percent physical, 17.4 percent licensing and 13.1 downloads in 2017.

Looking at balance sheet items, future royalty commitments grew to €2.05 billion ($2.43 billion) by the end of this year, as compared to €1.84 billion ($1.94 billion) that was due at the end of 2018. Advances in 2018 also increased to €1.045 billion ($1.24 billion) from €704 million ($793 million) in the previous year.

As laid out in Vivendi's financial notes, this story uses an exchange rate of one euro to $1.187 for the full year 2018 results and €1.125 for the full year 2017 results; and for the fourth quarter period, one euro to $1.154 for 2018 and $1.176 for 2017.


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