Universal Music Group and its investors have good reason to feel conflicted about Spotify‘s hockey-stick value growth in 2024.
After all, UMG, the world’s largest music rightsholder, was worth three times as much as SPOT in market cap terms as recently as the end of 2022.
Yet as things stand today, in public valuation terms anyway, Spotify is king of the music business.
Having overtaken UMG’s public valuation this summer, Spotify – with a $92 billion market cap today – is currently worth approximately double Universal’s valuation on the Amsterdam Euronext.
(UMG’s market cap stands at EUR €41.73 billion today, or USD $44.1 billion at current exchange rates.)
Of course, company share price/market cap values can quickly fluctuate, especially in the unpredictable world of the music business.
(Spotify’s burst in value this year has partly been propelled by a slashing of headcount and a pull-back in marketing spend, both of which have sent the company’s profitability shooting upwards.)
Yet there’s a nuance to the ‘who’s worth more: UMG or Spotify?’ story that we must always remember: as things stand, Universal continues to own a minority stake in SPOT, acquired when Universal first licensed Spotify’s business for its launch 16 years ago.
According to Universal Music Group’s 2023 annual report, its ownership stake in Spotify at the close of last year amounted to 3.27%.
At various points over the past couple of years, the value of UMG’s ~3% stake in Spotify has fallen considerably below $1 billion.
At the close of 2022 (when UMG was worth 3X Spotify, remember), Spotify’s $15.25 billion market cap meant UMG’s stake was worth half a billion dollars.
Right now, though, with Spotify’s share price/market cap up 140.1% YTD on the New York Stock Exchange, this picture has changed dramatically.
According to MBW’s calculations, Universal’s 3.27% stake in Spotify was worth a whopping USD $3.01 billion as of Friday’s market close on the NYSE (November 15).
Universal isn’t the only music rights giant to hold a significant minority stake in Spotify: Sony Music Group is understood to own somewhere approaching 2.85% of Spotify today, a stake which is currently worth approximately $2.6 billion.
(Long story short: We know for a fact that Sony owned 5.7% of Spotify in 2018, before selling 50% of this stake in Q2 that year. Sources suggest Sony hasn’t sold any further stakes since this date, though it’s likely that its remaining stake in 2018 – 2.85% – has since been slightly diluted.)
Anyway, see below, based on UMG’s confirmed stake in Spotify as of the end of 2023 (3.27%), and Sony’s remaining stake post-2018 (2.85%).
Any way you cut it, the stats suggest that the two largest music rights companies jointly own shares in Spotify worth comfortably more than USD $5 billion as things stand.
The next obvious question, then: With Spotify’s market cap at an all-time high of $92 billion and UMG and Sony’s stakes in the company also at all-time highs, why don’t the two music companies cash in?
Cashing in for Spotify shareholders is all the rage right now, after all: SPOT co-founders Daniel Ek and Martin Lorentzon jointly sold approximately $420 million in company stock last week. (The majority was sold by Lorentzon, who cashed in $383.8 million in a single transaction.)
If Universal or Sony did cash in their stakes, it would be a good news day for the artist community.
In 2018, Universal Music Group followed Sony in publicly pledging to share any proceeds from Spotify stock sales with its artists.
Later that year, UMG matched Sony in publicly agreeing that it would ignore any of its artists’ unrecouped balances in these potential payouts.
However, six years on, UMG still hasn’t sold any of its Spotify stock; its artists continue to wait on the possibility of banking a share of any resultant cash.
In summer 2018, Sony Music confirmed that it had sold 50% of its stake in Spotify for total proceeds of $768 million.
The company distributed a substantial share of this money — believed to be worth around $250 million — to its artists, crucially ignoring artists’ unrecouped balances as it did so.
(To reiterate: Sony didn’t merely ‘allocate’ this money to internal artist accounts and then pay off chunks of their unrecouped balances with it; it actually bypassed unrecouped balances and paid all eligible artists on its books a share of the cash.)
Warner Music Group confirmed in August 2018 that it had sold 100% of its Spotify stake for gross proceeds of $504 million.
WMG allocated 25% of this money to its artist accounts but didn’t bypass unrecouped balances when calculating pay-outs.Music Business Worldwide