Universal Music Group flotation: Five things you need to know

Universal Music Group flotation: Five things you need to know

The world’s biggest music label, which represents musicians and song catalogues from Billie Eilish to The Rolling Stones and Bob Dylan, saw its market value leap to almost 47 billion euros ($55 billion) in Europe’s largest listing of the year.

Universal Music Group’s shares leapt more than a third in their stock market debut on Tuesday as investors bet a boom in music streaming still has a long way to run.

Universal’s shares were trading at 25.70 euros by 0730 GMT, up by around 39% compared to its reference price of 18.50 euros.

The company was spun off by France’s Vivendi, which handed a 60% stake in Universal to its shareholders. But that saw Vivendi’s own shares plunge more than 20% as investors reassessed the media group’s value without the music label.

The price for Vivendi (that now only holds 10.13% of UMG’s capital), listed on the Paris Stock Exchange, was not available in the first exchanges according to a company statement on Tuesday.

Here are five things you need to know about Universal and their launch on the stock exchange:

1 – Revenue: From The Beatles to Billie Eilish

Universal Music Group or UMG is the largest of the “big three” record labels. It represents a huge range of musicians and song catalogues, from Billie Eilish to The Rolling Stones and Bob Dylan.

Major competitors include Sony Music, part of Sony, and Warner Music Group. The “big three” are estimated to account for just under 60% of global sales generated by music rights from their catalogues.

Universal started out in the early 1930s when British label Decca Records set up a U.S. branch, which later merged with other music companies. In 2011 Universal swooped on EMI’s recorded music business for $1.9 billion, giving it access to catalogues for The Beatles, Radiohead and Pink Floyd.

2 – Reinvention: Music streaming changed the game

Universal is benefiting from a boom in streaming revenues, with young music fans in particular relying on their smartphones to listen to songs. It makes money from subscription services through deals with the likes of Spotify.

It also has deals in place with ad-based social media companies such as TikTok and YouTube to compensate artists for the use of their songs in “user-generated content” on those platforms – though the terms of those deals are not public.

While digital piracy cut into music sales in the first decade of the century, Universal is now pushing into social media platforms that use its music as well as fitness applications and video games.

3 – International competition

Universal still faces competition from independent labels and startups looking to release music in a purely digital fashion.

The company said in its listing prospectus that it expected to grow its streaming business in markets such as South Korea, Brazil, India and Russia.

4 – Universal’s ownership

Universal was spun off by French media group Vivendi. Vivendi’s investors, including its controlling shareholder Vincent Bollore, received 60% of the shares of Universal after it listed in Amsterdam.

Universal saw its market value leap to almost 47 billion euros ($55 billion) on Tuesday in Europe’s largest listing of the year.

Vivendi will continue to hold 10% of Universal after the transaction. A consortium led by China’s Tencent will have 20% and billionaire hedge fund investor William Ackman’s Pershing Square Holdings will hold 10%.

Bollore and Tencent have agreed to consult each other on matters such as dividend policy and some aspects of the board ahead of general meetings, Universal said in its prospectus.

5 – Impact of COVID-19

Universal reported earnings before interest, taxes, depreciation (expensing of a fixed asset over its useful life) and amortisation (spreading an intangible asset’s cost over that asset’s useful life) of 1.49 billion euros on sales of 7.43 billion euros in 2020. The company has 2 billion euros of net debt.

For the mid-term, Universal forecasts sales growth in the high single digits, with an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) margin in the mid 20% range.

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