Universal Music Group posts strong Q3 as sales process begins

Q3 revenues of the world’s largest record company, Universal Music Group, were up 13.5% from the same period in 2017 to €1,495 million (A$2,327 million).

But its latest performance is overshadowed as noise increases that parent company Vivendi has taken a step closer to possibly selling off a 50% stake.

First mooting the sale in July, Vivendi has revealed a bank selection process has begun, with about 15 identified.

"The banks could help Vivendi identify one or more strategic partners for its subsidiary Universal Music Group."

Negotiations with qualifications and fees will see the 15 whittle down to five or seven to help it find its best partners.

It added: “ Universal Music Group’s 2018 financial results, which will be published on February 14, 2019, will serve as a basis for the discussions with potential partners.

“The cash from this sale may be used for a significant share repurchase program through a tender offer and for potential acquisitions.”

According to Music Business Worldwide, Liberty Media is one that has signalled its interest.

It reported CEO Greg Maffei commenting during the company’s annual investor meeting:

“Will we look at UMG if presented [with the opportunity]? Absolutely.

“In principle – and we have to be opportunistic and look at the realities of the deal – does [buying some of UMG] potentially make some sense, to own a part of the content infrastructure as a way to hedge [royalty costs]? Absolutely.”

For the first nine months of 2018, UMG’s revenues amounted to €4,123 million ($6,418 million), up 9.1% at constant currency and perimeter compared to the same period of 2017 (up 3.5% on an actual basis).

The 35.8% rise in streaming and subscription exceeded the continued decline of downloads (down 24.6%) and physical (down 16.3%) sales.

The unit’s top sellers included albums from Drake, Post Malone, XXXTentacion and Migos, as well as the Black Panther soundtrack.

The growth of subscription and streaming revenues also drove up publishing revenue by 10.6%, as did performance rights and synchronization.

Merchandising and other revenues were down 13.4% at constant currency, as a result of lower touring and retail activity.

During Q3, UMG expanded further into the growing African market, striking a licensing deal with Africa’s biggest streaming service, Boomplay, which has 36 million users.

UMG songs held the No.1 position on the Spotify Global Chart for 37 of the first 39 weeks of 2018.