Universal Music Group revenues rise 6% to $2.8 billion; Executives talk TikTok deal

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Helped by paid music subscriptions and strong performance from its music publishing division, Universal Music Group generated revenues of 2.59 billion euros ($2.8 billion) in the first quarter of 2024, up 5.8% (7.9% at constant exchange rates ) compared to the previous quarter. quarter, the company announced Thursday (May 2).

It is striking that UMG’s margins improved compared to a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 13.2% to 591 million euros ($640 million). As a percentage of revenue, adjusted EBITDA margin was 22.8%, up 1.5 percentage points from 21.3% from the first quarter of 2023.

Finance Director Boyd Muir attributed the margin improvement to revenue growth and a change in product mix – namely fewer physical sales – but during Thursday’s earnings call he cautioned “not to read too much into a quarter” and urged investors to look at longer-term trends watch periods.

The publication of the quarterly figures came a day after UMG announced a new licensing agreement with TikTok. Analysts sought insights into the economics of the deal and potential implications for UMG’s financial statements. Executives declined to provide details about the deal but emphasized that it offers real value compared to other short video platforms.

Michael Nash, UMG’s executive vp/chief digital officer, said the new TikTok deal is “a substantial improvement” over the previous one and that revenue “improves significantly for our last deal.” However, some of the value of the deal is difficult to quantify. Nash added that the new agreement includes “aspects of economic value” – such as advertising credits, data and marketing programs – that will not appear in future financial statements.

All of the company’s divisions – recorded music, music publishing and merchandise – showed improvements in the first quarter. “This broad-based growth continues to support our confidence in the longer-term health of our business,” Muir said.

Subscription services were a key driver in UMG’s quarter. Recorded music subscription revenue grew 10.7% to 1.12 billion euros ($1.2 billion) and accounted for 43.3% of the company’s total revenue, up from 41.4% in the fourth quarter of 2023. Recent price increases of Spotify, Apple Music and Amazon Music were It is the only – or most important – factor. “Subscriber growth is the biggest driver of the year-over-year growth rates we see at UMG,” Muir said.

However, total streaming revenue grew more slowly, rising 8.9% to 343 million euros ($371 million). Speaking about ad-supported streaming, Muir said he is “encouraged” by improvements but is “cautious” about growth “until we see consistent, broad improvement across all partners and across all geographies and likely over a more consistent timeframe on the longer term. .”

Total recorded music revenue rose just 3.4% to 1.99 billion euros ($2.15 billion). Top sellers in the quarter included Taylor Swift, Noah Kahan, Morgan Wallen, Ariana Grande and Olivia Rodrigo. Physical sales in the music recorded segment fell 18.5% to 255 million euros ($276 million). (Taylor Swifts The Martyred Poet’s Association, which sold 859,000 vinyl copies in its first week of release, will impact UMG’s second-quarter results.) Muir explained that the decline in physical sales stemmed from particularly strong physical sales in Japan in the quarter from last year. License and other revenues fell 1.8% to 222 million euros ($240 million).

Music publishing revenues rose 16.7% to 496 million euros ($537 million) thanks to a 22.9% increase in digital revenues to 284 million euros ($307 million). The 26.7% increase in performance revenue to 114 million euros ($123 million) more than offset the 10.1% decline in synchronization revenues to 62 million euros ($67 million)

Merchandising revenue grew 6.5% (7.5% at constant exchange rates) to 114 million euros ($123 million). Sales of touring merchandise rose, while direct-to-consumer and retail sales fell.

The company remains on track to achieve cost savings of 75 million euros by 2024, Muir said. In February, the company announced a plan to save $270 million annually through organizational redesigns and layoffs. As part of the redesign, UMG created label operations on the coasts led by two top executives. On the East Coast, Republic Corps is led by co-founder of Republic Records Monte Lipman. On the West Coast, Interscope Capital Labels Group is led by Johannes Janiekpreviously Chairman/CEO of Interscope Geffen A&M.