Universal Music chief predicts billions of dollars of growth from digital listening

Universal Music chief predicts billions of dollars of growth from digital listening

Record firm’s €40bn flotation is just beginning of new wave of music consumption, says Sir Lucian Grainge

Taylor Swift

Last modified on Tue 21 Sep 2021 02.14 EDT

The chief executive of Universal Music has said the hotly anticipated €40bn flotation of the world’s largest record company this week does not mark the peak of the streaming-led recovery of the music industry, with billions of dollars of growth yet to come from a new wave of digital listening on devices such a smart speakers, connected cars and services such as TikTok.

Sir Lucian Grainge, who stands to make a transaction bonus of at least $170m when the label behind artists such as Taylor Swift and Justin Bieber goes public in Amsterdam on Tuesday, said the listing provided the opportunity to build Universal into the “next generation music company”.

“For Universal Music Group, and the industry, there’s so much more to come, so many opportunities,” he told the Guardian. “The penetration rates of digital services in some of the largest countries haven’t yet reached those of more mature markets, so there’s plenty of headroom in those key markets.

“And then when you add fans’ growing listening through voice-controlled speakers, connected cars, social media, gaming, fitness and so on, you realise why we believe we’re just at the beginning of a new wave of music consumption. This wave is taking place on a variety of platforms – some of which were not even on the radar just a few years ago.”

Mark Mulligan, an analyst at Midia Research, said about 10% of the almost $22bn in global streaming revenues in 2020 came via licensing revenues from listening on platforms such as Facebook, Instagram, TikTok, through smart speakers such as Amazon’s Alexa, in games such as Fortnite and Peloton, the cycling business.

“Music is going everywhere,” Mulligan said. “TV shows, games, advertising, TikTok, Peloton, there’s lots of growth on Instagram. Streaming was like the jump-start in the heart of the industry. It got it going and is keeping the lights on. But it’s not all of the story any more. Investors are buying music catalogues, emerging markets are showing strong growth. It’s all making the music industry look interesting for investors. The industry looks like it is in peak growth.”

In a note to investors last month, bullish analysts at JP Morgan Cazenove described Universal Music as an “extraordinary, must-own asset”, adding that its lofty valuation of €54bn would prove conservative. The most recent sale of a 10% stake in Universal in July, to Bill Ackman’s hedge fund Pershing Square, valued the business at €40bn.

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Universal’s performance has boomed in recent years owing to a surge in digital listening. A decade ago, as record sales continued to plunge but streaming was yet to produce significant income, Universal made €4.2bn in revenues and turned a profit of €507m. This year the company is on track to make almost €8bn revenue and profits of potentially €1.5bn.

Vivendi, the French media group controlled by Vincent Bolloré, is spinning the business off with 60% of Universal’s shares initially distributed to its shareholders, who may then hold or sell them. After the flotation Vivendi, which has owned Universal since 2000, will control 10% of the company. Tencent, the Chinese tech and entertainment conglomerate, owns 20% of Universal.

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