The strength of the US dollar and the growth of streaming services such as Spotify have put Universal Music Group on course for its best financial year in recent memory.
As reported yesterday, the company’s income in the first half of 2015 reached €2.31bn, with recorded music revenues hitting €1.85bn and publishing at €352m.
MBW noticed that within UMG’s recorded music operation, over 50% of income was derived from digital – more than physical sales and licensing revenues combined.
Further MBW analysis today demonstrates just what a banner year UMG CEO Lucian Grainge is having.
The headline fact: UMG’s €2.31bn half-year revenues are the biggest on public record under the company’s owner, Vivendi – dating back nine years.
In H1 2006, UMG posted €2.22bn (€2202m) in revenues, and followed it up in H1 2007 with €2.1bn (€2095m).
From there, as you can see in the graph below, UMG’s total revenue – across recorded music, publishing, merch and more – has never topped €2.1bn again, with the exception of 2013 (€2.24bn).
The revenues from H1 2015, though, tower over all-comers. It’s the same story for recorded music income and publishing over the past seven years.
UMG reports gains or declines in ‘constant currency and perimeter’; this omits bumps caused by currency fluctuations and one-off acquisitions to give a true reflection of year-on-year company performance.
But in terms of basic, lovely cash, Paris-based Vivendi must be delighted that 44% of UMG’s business was done in North America in the first half of 2015: the strength of the US dollar means that any conversion into Euros will make it rain for investors. (Every US dollar is currently worth 0.89 Euros. 36% of UMG income came from Europe in H1 this year.)
This, combined with a 34% increase in streaming revenues, explains why UMG’s total revenue grew 15.4% year-on-year in real terms in H1 2015.
If Grainge can keep up that trajectory, UMG will be on course for a momentous full-year milestone: 15.4% growth on last year’s FY revenue of €4.56bn would mean an annual income of €5.26bn in 2015 – crashing through the psychologically-satisfying €5bn barrier with ease.
Digging down into Universal’s recorded music income gives yet more telling indications about its rude health this year.
The €926m posted in revenues from digital services in H1 2015 was a whopping 21.5% up on the same figure posted in 2014.
Once again, this has been given a big boost by currency movements. But if Universal can ride the wave until the end of the year, the results would be huge for Grainge: a 21.5% increase on UMG’s FY digital income for 2014 (€1.64bn) would leave it with an annual recorded music haul of almost €2bn from download and streaming alone.
In fact, that €926m digital tally is bigger than the H1 revenue achieved by physical music sales at UMG at any point over the past five years.
The impact that the strength of the US dollar (and the comparatively weak Euro) is having on Universal’s financials can be illustrated with a single fact: the firm’s physical sales actually increased, Euro-wise, in H1 2015 – up €2m to €573m – despite falling more than 7% at constant currency/perimeter.
But the fact remains: UMG’s overall growth is being driven by digital, which is in turn being driven by Spotify.
(These six months results, to the end of June, don’t include any income from Apple Music: it will be fascinating to note the influence that service – and its three-month free trial – has on UMG’s full-year results when the time comes.)
Right now, we’re left watching the most interesting backdrop in the music business: Lucian Grainge’s licensing tussle with Spotify – and the question mark over whether Daniel Ek’s freemium tier is ‘too good’.
Last year, Grainge certainly had cause for concern: UMG’s digital income fell 4.1% in FY 2014 (0.4% at constant currency/perimeter) – at a time when you would have expected it to soar.
So far in 2015, though, it’s back on track. What a great time for Grainge to renew his contract with his French overlords.
Perhaps Daniel Ek will be on the UMG boss’s Christmas Card list after all.Music Business Worldwide
