Speaking to analysts on Universal Music Group‘s earnings call last week, UMG Chairman and CEO Sir Lucian Grainge pointed out that the publicly-traded firm achieved a significant milestone in Q3.
The three months to end of September, noted Grainge, marked UMG’s “fifth consecutive quarter of strong growth as a stand-alone public company”.
UMG posted Q3 revenues of EUR €2.664 billion (USD $2.68bn) across all of its divisions, up 13.3% YoY at constant currency, driven by growth across all revenue segments (including recorded music, publishing and more).
Commenting on the music company’s performance in the quarter, Grainge told analysts: “We are better positioned to navigate the inevitable ebbs and flows in revenue of any particular business, as well as to weather the macroeconomic headwinds, adapt to changes in formats and consumer habits that we see, and to seize opportunities in new and emerging categories.”
One such economic headwind in Q3 was a slump in the online ad market, but as noted by Grainge, “the slower growth in the third quarter in ad-supported streaming revenue was offset by growth in so many other areas of our business, from subscription to licensing, live touring to merchandising,” amongst other factors.
Indeed, a few of Universal’s biggest revenue highlights in Q3 were its revenues from subscription streaming, merch and licensing.
UMG’s subscription streaming revenues were up 8.7% YoY at constant currency to €991 million ($998m), while merch revenues grew 101.1% YoY at constant currency to €189 million ($190.32m).
‘License and other revenue’, meanwhile, grew 30.2% YoY at constant currency to €306 million ($308.1m), driven, according to UMG, “by the strong recovery in live touring”.
Elsewhere on the company’s earnings call on Thursday (October 27), Grainge, plus UMG’s EVP of Digital Strategy Michael Nash, and Boyd Muir, EVP, Chief Financial Officer and President of Operations, were grilled on the company’s results, and other topics, from TikTok, to the majors’ share of streams on streaming platforms.
We listened in. Here are a few points that stood out…
The vast volume of content uploaded to music platforms every day is a “confusing experience” for consumers…
During the call, veteran Guggenheim Securities’ analyst Michael Morris asked UMG’s leadership to comment on whether or not the major labels are “losing share of the number of streams” on streaming platforms, presumably due to the vast volume of content being uploaded each day.
Commenting on this, Sir Lucian Grainge noted that “when music platforms are ingesting 100,000 tracks a day, the net result of this is a confusing experience for all of us; consumers, everyone”.
He added that [consumers] are “increasingly guided to low-quality content by an algorithm” and that “we don’t think that’s sustainable for the platforms, nor is it sustainable for music fans.”
“We’ve ample data that shows exactly why consumers sign up to these services and it’s largely to hear great music. We supply more of the superstars, classic catalog and career artists than anybody else.”
Sir Lucian Grainge
Earlier this month, MBW reported that approximately 100,000 fresh tracks get uploaded to music streaming platforms every day.
That 100,000-track stat was shared by Sir Lucian Grainge, while addressing the Music Matters conference in Singapore on September 27, where he argued that this vast volume of music, plus additional “associated content” on social platforms, is making it harder and harder for artists to break through to a substantial audience online.
Speaking on UMG’s earnings call on Thursday, Grainge suggested that it is superstar artists signed to major labels like UMG, and not the vast volume of DIY content, that drives consumption on streaming platforms. “You just have to look at the excitement around the world on a brilliant album by a brilliant artist with this week’s Taylor Swift release,” he said.
“That drives consumption, it drives audience and it drives new people to everything to the products, to the platforms, to other music.”
“We’ve ample data that shows exactly why consumers sign up to these services and it’s largely to hear great music. We supply more of the superstars, classic catalog and career artists than anybody else. While we continue to invest in the future.”
“It’s our music, it’s our artists, it’s our product that is making these wheels turn.”
Commenting further on the topic of the majors’ shares of streams versus the vast swathes of DIY and independent content available on streaming platforms, Grainge also suggested that streaming platforms are able to retain listeners because of the presence of superstar artists on these platforms.
Said Grainge: “When you look at what the retention is [on streaming platforms] and what the churn is, it’s our music, it’s our artists, it’s our product that is making these wheels turn.”
He added: “I don’t think bait and switch is a path to growth for long-term value creation. For the most part, most of the platforms recognize this and work with us, as we’ve seen with Apple and Spatial to improve the entire consumer experience.”
“I don’t think bait and switch is a path to growth for long-term value creation.”
Sir Lucian Grainge
He added: “We know we’re the best partner for an artist with all this ‘stuff’ moving around. And if you want to break through the noise and achieve a long-term career, we deliver.”
Adding to Sir Lucian Grainge’s comments with “a couple of observations and data points”, Michael Nash [EVP, Digital Strategy], argued that “the platforms right now are flooded by a tidal wave of content as millions of creators getting access,” arguing that, “these are essentially content uploaders”.
He added: “They’re not artists in the sense that we traditionally think of artists.
“These are hobbyists that are playing to an essentially empty house.”
On TikTok and the video platform’s future relationship with the music industry: “I have seen this movie before, I know the ending.”
Guggenheim Securities’ Michael Morris also asked for UMG’s leadership to comment on news reports around an expansion of TikTok’s service to include music streaming.
Morris asked specifically “whether an expansion would require some sort of renewed discussion with them or whether your existing relationship provides an opportunity for expansion”.
The Wall Street Journal reported earlier this month, citing people familiar with the discussions, that TikTok parent ByteDance is in negotiations with record companies about expanding its dedicated music-streaming platform to multiple new markets.
Meanwhile, alongside that, as noted by MBW a couple of weeks ago, new US financial data and comments from Sir Lucian Grainge at the Music Matters conference in Singapore last month suggested that tension is mounting over TikTok’s payouts to the music industry.
Speaking at Music Matters, Sir Lucian Grainge called on the music industry to “avoid repeating past mistakes” that had led to power imbalances with MTV and YouTube in particular.
In response to the question on discussions between UMG and TikTok specifically, Michael Nash told analysts on the earnings call last week that, “it wouldn’t be appropriate for us to discuss confidential negotiations with any one specific partner.” He added later that “we’re going to be working hard to improve the economics for our artists and labels moving forward”.
He also said: “We believe that win-win partnerships are certainly possible – we’ve seen before where there have been value gaps in the social media space.”
“We will fight and determine how our artists get paid and when they get paid, in the same way that we have done throughout the industry for many years. I have seen this movie before, I know the ending.”
Sir Lucian Grainge
Adding to Nash’s point about previous “value gaps in the social media space”, Sir Lucian Grainge told analysts that, “I’ve seen this movie before” and cited YouTube as an example of a social media platform that has become a significant revenue generator for the music industry.
He continued: “When you look at where the industry was where we were as a company with YouTube 10, 12, 15 years ago; YouTube recently announced that they were paying out to rightsholders $6 billion over a year-long period. They have stated that they want to be the number one contributor of revenue to the music industry by 2025.
“When you look at what the funnel that TikTok has, when you look at the billions of views, the rate at which the company has grown, we will fight and determine how our artists get paid and when they get paid, in the same way that we have done throughout the industry for many years. I have seen this movie before, I know the ending.”Music Business Worldwide