UMG pays steep price for platform addiction
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Pierre Briancon
LONDON, July 25 (Reuters Breakingviews) -Cheeky economists may debate the impact of Taylor Swift’s concerts on some countries’ GDP, but the success of her latest album wasn’t enough to prevent a market rout for Universal Music Group UMG.AS, her record company. Its shares sank by more than 25% on Thursday, erasing some 14 billion euros from the group’s market capitalisation and knocking the stock back below its celebrated 2021 initial public offering level. Investors were unsettled by slow growth in streaming and subscription revenues, which account for about 75% of global sales, in the second quarter of the year.
The surprise slowdown underlines UMG’s dependence on pricing decisions made by big streaming platforms such as Spotify Technology SPOT.N, Amazon.com AMZN.O and Apple AAPL.O. Streaming and subscription revenues — which made up around two thirds of the 2.2 billion euros-worth of recorded music sales in the latest quarter — were up by less than 4%, a “sharp deceleration” from the double-digit growth of the past several quarters, Morningstar analysts wrote.
Higher prices sanctioned by Apple and Amazon last year slowed down the growth of their customer base. Spotify fared better but that may be because it only started to raise its prices earlier this year.
UMG, like its competitors Sony Music and Warner Music WMG.O, tends to benefit when streaming services increase their subscription rates. But not if the streamers overdo it and chase customers away with higher prices.
UMG’s market beating on Thursday may look severe for a group that exceeded both revenue and profit expectations in the second quarter. Analysts remained confident that the group would remain on a healthy growth trajectory after what TD Cowen called the quarter’s “unwelcome noise”.
UMG may in the meantime take solace in the strong, near-10% growth of what it calls “physical” music sales — including the comeback of good old vinyl records. But that’s only 16% of recorded music revenue, and even Swift’s or Billie Eilish’s hit records won’t enable UMG to shake off Thursday’s plunge.
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Universal Music Group said on July 24 that sales in the second quarter of the year had risen to 2.9 billion euros, an 8.7% increase year-on year. Recorded music revenues increased 5.8% to 2.2 billion euros.
Subscription and streaming revenue increased by 3.8% to 1.48 billion euros, the group added.
Shares in UMG were down 26% to 21.01 euros at 0928 GMT.
Shares in Universal Music Group since its 2021 IPO https://reut.rs/3YdNrpF
Editing by Francesco Guerrera and Streisand Neto
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