Record Labels

Universal Music Group's Profit Margins Grew in 2020, Despite Pandemic

Lucian Grainge and Billie Eilish
Lester Cohen/Getty Images for Universal Music Group

Lucian Grainge and Billie Eilish attend the Universal Music Group's 2020 Grammy after party presented by Lenovo at Rolling Greens Nursery on Jan. 26, 2020 in Los Angeles.

Downloads dropped 3.6%, physical fell 6.5%, licensing and other revenue tanked 10.8% -- but 15.3% streaming growth boosted the company 3.8% in the pandemic year.

Even in a nearly year-long economic downturn, the Universal Music Group juggernaut posted a 3.8% increase in 2020, finishing the year with 7.43 billion euros ($8.4 billion) in revenue -- up 3.8% from 7.16 billion euros ($8.04 billion) in the prior year.

Even more impressive, UMG grew operating margin by more than two percentage points as the company posted 1.38 billion euros ($1.56 billion) -- an increase of 17.8% over 2019’s operating income of 1.17 billion euros ($1.31 billion). As a percentage of revenue, that translates into an operating margin of 18.5% in 2020, compared to 16.3% in 2019.

While Vivendi leadership extolled UMG CEO Lucian Grainge and the rest of management for exercising rigorous cost control in a conference call with Wall Street analysts, they also acknowledged that some typical marketing costs, like touring support and glamour spending, didn’t have to be expanded due to the pandemic, which curtailed live television appearances and eliminated concerts.

Looking at other key profit ratios, UMPG’s earnings before interest, taxes, depreciation and amortization hit 1.487 billion euros ($1.68 billion), or a 20% margin. In 2019, EBITDA totaled 1.257 euros billion ($1.412 billion) for a 17.6% margin.

On the other hand, cashflow from operations was down significantly to 50 million euros ($56.5 million) from 2019’s total of 704 million euros ($790.6 million) -- which management attributed to the timing of payments for advances and signing some new publishing deals.

Vivendi management cited releases from The Weeknd, Lil Baby, King & Prince, Juice WRLD, Pop Smoke and BTS, as well as continued sales from Billie Eilish and Post Malone, for driving revenue in 2020.

Going forward, the company cited upcoming releases from Taylor Swift, Justin Bieber, Lana Del Rey, Selena Gomez, Juanes, Booba, Eddy de Pretto, Samra and the Coming 2 America soundtrack.

UMG’s 2020 revenue by operation:

  • Recorded music grew 5.9% to 5.97 euros billion ($6.74 billion) from 2019’s 5.63 billion euros ($6.33 billion)
  • Music publishing grew 12.7% to nearly 1.19 billion euros ($1.34 billion) from 2019's 1.05 billion euros ($1.18 billion). (However, Vivendi management added during the conference call that growth was boosted by a one-time benefit in the second quarter; otherwise the publishing operation would have had 10% growth year-over year.)
  • Merchandising dropped 39.6% to 292 million euros ($330 million) from 2019's 489 million ($549.1 million) euros, a 39.6% decline.

Breaking down UMG's 2020 recorded music revenue:

  • Digital grew 13.14% to 4.24 billion euros ($4.8 billion) from 2019's 3.75 billion euros ($4.2 billion).
    • Streaming grew 15.3% to 3.83 billion euros ($4.3 billion) from 2019's 3.33 billion euros ($3.73 billion).
    • Downloads dropped 3.6% to 413 million euros ($467 million) from 2019's 428 million euros ($480 million).
  • Physical dropped 6.5% to 945 million euros ($1.07 billion) from 2019’s 1.01 billion euros ($1.14 billion).
  • Licensing and other revenue dropped 10.8% to 776 million euros ($877 million) from 2019's 870 million euros ($977 million).
  • As a percentage of revenue, that breaks out to:
    • Digital 71.2% (streaming 64.2% and downloads 6.9%).
    • Physical 15.8%.
    • Licensing and other 13%.

Breaking down recorded music revenue by region:

  • North America grew 11.5% to 2.9 billion euros ($3.3 billion) from 2019's 2.64 billion euros ($2.96 billion).
  • Europe grew 2.7% to 1.79 billion euros ($2.02 billion) from 2019's 1.174 billion euros ($1.96 billion).
  • Asia grew 3.9% to 801 million euros ($905 million) from 2019's 771 million euros ($866 million).
  • Latin America dropped 1.6% to 181 million euros ($204.5 million) from 2019's 184 million euros ($206.6 million).
  • The rest of the world dropped 15% to 256 million euros ($289.3 million) from 2019's 301 million euros ($338 million).
  • As a percentage of revenue, that breaks out to:
    • North America 49.3%
    • Europe 30%
    • Asia 13.4%
    • Latin America 3%
    • The rest of the world 4.3%

In light of the planned UMG public offering, which is expected to happen later this year, analysts were keen to get more information on profit levels and whether they could be maintained going forward. Vivendi management, however, sidestepped all questions about providing guidance; or on giving any more information than what has already been revealed.

They did at least assure analysts that UMG is a company that “creates value, quarter after quarter.” They also said they believe that streaming will continue to drive growth for the foreseeable future.

The only thing that might have been new for analysts was the assurance that the Spotify stock holdings UMG gained in Spotify's 2018 IPO would be included as a UMG asset when it becomes a publicly traded entity.

Vivendi management said that there would be a Vivendi shareholder meeting on March 29 to modify the company’s bylaws so that UMG shares can be publicly traded. Subject to a favorable shareholder vote, a shareholders’ meeting could be called before the end of 2021 to vote on this distribution of UMG shares, the company said in its presentations.

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One of the key revelations during the conference call was that UMG’s investment in renewing contracts and acquiring music assets increased dramatically in 2020 to 1.52 billion euros ($1.71 billion) from 465 million euros ($522 million). While UMG didn’t specify what deals drove the increase, certainly the acquisition of Bob Dylan's music publishing catalog for more than $400 million was a factor.

Vivendi management pointed out that by becoming a public traded entity, UMG will be in a position to take advantage of financing flexibility to pursue growth and maintain its position as the premier music industry company. They reminded the analysts that things have changed dramatically from 2014 when some where predicting the end of the music industry.