Upbeat from the music industry surge, French media group Vivendi is spinning off “big three” record label Universal as an independent company.
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“After nearly two decades of disruption, the music industry is undergoing a massive revival,” Goldman Sachs proclaimed in its annual Music in the Air report, released in May. Optimism is a common refrain. PwC reported on July 12 that the global entertainment & media industry is on track to grow 6.5% in 2021 and 6.7% in 2022. While music suffered from the halt in live performances in 2020, the streaming segment is fuelling robust revenue growth.
Universal is the world’s largest music group, accounting for about 30% of global recorded music sales. On June 22 more than 99% of shareholders in parent company Vivendi approved the spinoff plan. The decision was preceded by a period of wrangling between Universal’s various owners, including Chinese giant Tencent and hedge fund rivals Daniel Loeb and Bill Ackman. Vivendi will retain a 10% stake, and 60% will be distributed to its shareholders. Universal is expected to debut on the Amsterdam stock exchange in late September.
Universal became a fought-over prize amidst the rebound in recorded music led by the streaming industry’s strong performance. Global revenues grew by 54% between 2014 and 2020, when it topped $21 billion. The lion’s share of these revenues accrue to “big three” labels Universal, Sony and Warner. The only one currently publicly listed is Warner, and its share price has risen by 16% since its IPO in June 2020.
Universal could be an even better performer, as its back catalogue of three million songs is double the size of Warner’s and its already sizeable share of the recorded music market is growing. In terms of operating profit margins, Universal’s 17% beats Warner’s by five points. Its stature should give it more leverage when striking deals with streaming services. Goldman Sachs valued Universal at $53 billion in its report, described in Variety as an “optimistic but authoritative survey of the business”.
The rosy outlook for the media industry, music, and Universal specifically is tempered by notes of caution: As the streaming market matures, growth will slow. “Rich countries are already nearing saturation point”, The Economist reports. Other audio formats are posing more competition, particularly podcasts, which gained an enviable share of listeners’ attention during the pandemic. Further, more streaming revenue is going to self-published artists as this period of dramatic entertainment industry transformation continues to play out.