Music Majors in the Streaming Economy: Universal Music Group

Universal Music Group’s parent company Vivendi announced plans to spin-off the world’s largest music major company as a standalone entity on the stock market. It is no incident that the French media and telecommunication conglomerate Vivendi considers such a strategy. Spotify’s public listing early in April this year was a financial success and it seems that investors currently assess music as a good investment. The overall economic climate is positive and Universal Music Group (UMG) performed very well in the past few years – mainly because of significantly increasing revenues from music streaming. In the last annual report for the financial year 2017, UMG posted a total revenue of € 5.67bn (+ 25 percent compared to 2012) and an EBITA of € 761m (+ 45 percent compared to 2012). Music streaming is the main driver of revenue and profit growth. Thus, revenue from streaming increased by almost 33 percent from 2016 to 2017 to EUR 1.97bn contributing more than a third to UMG’s total revenue in 2017.[1]

The further analysis highlights how UMG had to reinvent itself as a comprehensive music service company with a focus on music streaming and providing a wide range of services far beyond the traditional recorded music business.


Music Majors in the Streaming Economy: Universal Music Group

The Universal Music Group (UMG) was formed in 1995, when the new owner of MCA Music Entertainment Group, the Canadian Seagram Group, merged MCA with Universal Studios Inc. using “Universal” as the overall entertainment brand. In 1998, Seagram also acquired the then world’s largest recorded music company PolyGram from Dutch consumer electronics giant Philips merging it with UMG. In the same year MCA Music Publishing was renamed into Universal Music Publishing (UMP), which was further augmented by Rondor Music in 2000. In June 2000, Seagram itself merged with the French media and telecommunication conglomerate Vivendi to the world’s largest media corporation Vivendi Universal.[2]

This all happened in the music industry’s “golden years”. The CD sales had fuelled an unprecedented boom of the phonographic industry in the 1990s. The US recorded music sales (in trade value) peaked at US $14.59bn in 1999,[3] the same year when Napster crashed the party. The following digital paradigm shift in the music industry massively affected UMG’s financial performance. The EBITA collapsed from EUR 1.16bn in 2001 to EUR 70m two years later. The total revenue decreased by 25 percent from EUR 6.61bn in 2000[4] to EUR 4.89bn in 2005.[5]


Figure 1: UMG’s overall revenue by business segments, 2002-2017

Source: Vivendi annual reports, 2002-2017.


UMG in the digital paradigm shift

In the same period UMG lost more than 4,000 employees – a reduction of 34 percent.[6] This was part of a restructuring programme resulting in costs of € 67 million in 2003 and further € 40 million in 2004.[7] The annual report of that year highlighted: “The program was implemented in key cost areas across all countries in order to align the cost base with further projected market declines. The result is a variety of country rationalizations in the artist and repertoire (A&R), marketing and overhead areas. This policy was mainly implemented in Germany (distribution, manufacturing, central operations) and at the headquarters (international marketing). Other restructuring costs are also linked to label reorganizations mainly in the US (Geffen, Interscope).”[8] Since the cost cuts were not sufficient, Universal Music Group sold its manufacturing and distribution facilities in the US and Germany (Universal Media & Logistics) for US$ 82.6m [9] to the Entertainment Distribution Corporation (EDC), a subsidiary of Glenayre Technologies, in May 2005. Furthermore, manufacturing and distribution facilities in other countries were outsourced to third parties or to joint ventures with other record companies.[10] However, the outsourcing activities were part of a flexible specialization strategy (see Storper and Christopherson 1986, 1989; Aksoy and Robins 1992; Storper 1993). EDC entered into 10-year supply agreement with UMG granting exclusive manufacturing and distribution of CDs and DVDs for Universal in North America and Central Europe.[11] Further the new owner was obligated to give UMG rebates of at least € 37 million between 2005 and 2014.[12] However, both parties benefitted from the outsourcing of production and distribution facilities. UMG still had a certain degree of control of physical manufacturing and distribution, but at lower costs and EDC had a guaranteed production capacity.

While outsourcing physical manufacturing and distribution, UMG augmented at the same time its music publishing and recorded music catalogues by several acquisitions. In 2003, UMG extended the joint venture with Jay-Z’s Roc-a-fella Records with a put option exercisable on February 28, 2005. A similar agreement was inked with Murder, Inc. Records including a put option that was exercised in 2006.[13]

In February 2006, UMG’s parent company Vivendi acquired from Matsushita Electric Industrial Co. (the former owner of MCA) the remaining 7.7 percent interest in Universal Studios Holding I Corp. for US$ 1.15bn and eliminated the old holding structure for the MCA and PolyGram labels. Thus, Vivendi increased its ownership in UMG to 100 percent, which became an autonomous business unit.[14]

In September 2006, UMG bought BMG Music Publishing for € 1.64bn from Bertelsmann AG.[15] In the same month Universal Music Group announced the acquisition of the successful Brazilian record label Arsenal Music. A month later UMG also purchased Spanish independent label Vale Music.[16]

2007 was a watershed year for UMG, when acquiring the assets of Sanctuary Group Plc. Sanctuary was not just an economically successful record label und music publisher (e.g. Iron Maiden and Kenny Rogers), but also a merchandising and artist management agency as well as booking company. UMG paid € 170m for Sanctuary and, therefore, entered the live music and merchandising business.[17] Following the acquisition of Sanctuary, an artist services and merchandising division was established in 2007. The artist management group included Twenty First Artists and Trinifold representing e.g. The Who, Elton John and James Blunt. In 2008, UMG also established Universal Classical Management and Productions (UMCMP) for classical musicians such as Anna Netrebko and Rolando Villazón. One of its first productions was Sting’s show “A Winter’s Night … Live from Durham Cathedral” which was released by Deutsche Grammophon (CD & DVD) and UMCMP also managed Bryn Terfel’s UK tour in 2009.[18] Further artist management units were formed in several music markets outside of the US and the UK focusing on local artists.

The merchandising business was organized under the roof of the Bravado company that was augmented by further acquisitions in the UK, France and Germany. In the 2008 annual report UMG’s merchandising business was described as followed: “Building upon the traditional concert artist tour business, Bravado is expanding into new channels, such as fashion and mass merchandising and direct-to-consumer activities. Bravado also enjoys synergies with the Recorded Music division, including engaging in cross-promotion opportunities.”[19] Bravado sells and distributes its merchandising articles via digital outlets and operates as a licensing agent for many of its artists (e.g. Genesis, Pink, Beyoncé and Sex Pistols) for products such as collectibles, footwear and sports gear.

In 2011, UMG formed a joint-venture with the world’s largest concert promoter and ticketing company Live Nation to develop the management of artists and their brands.[20] This is now Universal Music Group and Brands (UMGB), which currently operates in 74 countries with customers such as Hewlett Packard, Coca Cola, Mercedes Benz, Procter & Gamble, American Airlines and Nestlé. In the same year, UMG’s parent company Vivendi entered the ticketing market by acquiring See Tickets UK for € 95 million.[21] Vivendi also owns the French electronic ticketing portal Digitick since 2010. Digitick manages the ticketing for Paris’ Eiffel Tower and the Castle of Versailles, whereas See Tickets is the exclusive ticketing partner of Glastonbury Festival among other clients. However, the establishment of Vivendi Ticketing also complements UMG’s live music ambitions and the new division sold hundreds of thousands of tickets North America and Europe for UMG.[22] Vivendi also owns concert venues in Paris such as the famous L’Olympia theatre, which hosted more than 300 shows alone in 2014 (e.g. a Justin Timberlake concert), the Théâtre de l’Oeuvre as well as the Abbey Road Studios in London (since 2011), which still remains a recording studio, but was also transformed into a concert venue. Vivendi also built a network of multi-functional entertainment venues in francophone African countries under the CanalOlympia brand. Dedicated primarily to film screenings, the venues can also host several thousand concert visitors.

After several smaller acquisitions in 2008-2011,[23] UMG and its parent Vivendi purchased the recorded music businesses of EMI Group for £ 1.2bn (€ 1.4bn) from Citigroup. Besides existing credit lines Vivendi financed the transaction from proceeds of the sale of non-core UMG assets worth € 500m. UMG also expected to generate more than £ 100m annually in synergies mainly through cutting overhead costs.[24] The combination of the two majors – Universal Music Group and EMI – resulted in formation the by far largest global recorded music company with a vast catalogue of audio recordings including the Beatles and the Beach Boys. UMG, however, had to divest EMI’s Parlophone label, EMI France, EMI’s classical music labels, Chrysalis, Mute and 50 local EMI branches to get the approval by the EU Commission for the deal. Parlophone was sold to another major company, Warner Music Group, for £ 487m (€ 600m) in 2013. With additional smaller divestments (Sanctuary label, Mute, Co-Op) UMG earned a total of £ 530m.[25]

All acquisitions were accompanied by a further reorganization plan under the new UMG’s CEO Lucian Grainge in 2010. UMG announced global cost savings of € 100m in 2010 and further cuts of € 50m in the following years.[26] In 2011, UMG sold a 51 percent stake in Dr. Dre’s Beats Electronics to HTC Corporation for US$ 300m (€ 222m) with a € 89m gain.[27] A further 13 percent interest of UMG in Beats was sold for US$ 409m to Apple in 2014.[28]

UMG used the cash flow from the divestures to buy music catalogues from BBC, Criterion Music Corporation and Sugar Hill Music for Universal Music Publishing in 2013.[29] UMG also bought the UK music programming company Eagle Rock Entertainment in the following year.[30]


Figure 2: Major UMG related acquisitions and divestments after the Universal-Vivendi merger, 2000-2017

Source: Vivendi annual reports, 2000-2017.


In 2015, Vivendi started its transformation into an integrated industrial group with two main pillars: Universal Music Group and media conglomerate Canal+ Group.[31] The new strategy aims at a closer collaboration between business segments. Vivendi identified 40 potential collaborations between Studiocanal (Canal+ Group’s movie production company) e.g. in biopics, documentaries and musical movies.[32] Another collaboration partner for UMG is Dailymotion (a French competitor of YouTube). Vivendi acquired a 90 percent stake in Dailymotion from French telco Orange for € 245.7m with a call option for the remaining rest of 10 percent in 2015.[33] The 2015 annual report highlighted that “(…) Dailymotion is intended to become the digital showcase for the group’s musical and audiovisual content”.[34]

In this context, Vivendi demanded in the 2015 annual report that “UMG must adapt to the applicable trends in its sector including a move from physical to digital consumption/usage, from downloading to streaming, from free streaming financed by advertising to streaming financed by subscriptions.”[35] UMG, therefore, defined the priorities for the next five years:

  • “accelerating the monetization of music by expanding the base of subscribers who pay for streaming;
  • expanding audio and video content distribution by multiplying partnerships with content platforms;
  • strengthening strategic relations with brands and sponsors;
  • continuing to make the assistance and development of its artists a priority;
  • continuing to invest in markets with high music potential (Africa, India and China).”[36]

In the following two years, UMG focused on a music streaming business model by renewing its deals with several music streaming platforms including Spotify, developed partnerships with YouTube and Facebook to get a more equitable sharing of ad-revenues and entered into an agreement with Chinese Tencent Music Entertainment Group to expand on the fast-growing Chinese music market.[37] In 2013, UMG launched Kleek, a mobile music streaming service in collaboration with Samsung.[38] And UMG developed the so-called “Artist Portal”, a database “for real-time analysis of artist sales, streaming, social media traction and airplay, among other metrics.”[39]


Figure 3: UMG’s integrated business structure, 2017

Source: Based on Vivendi annual report 2017.



UMG’s financial performance in the digital paradigm shift

Recorded music

The recorded music revenue decreased by 21.4 percent in 2003 due to weak CD sales. In 2006, digital sales (ringtones and download) became for the first time a relevant revenue source with annually increasing growth rates. Nevertheless the share of physical sales of the total recorded music revenue was 73 percent in 2007, whereas digital accounted for just 15 percent. Ten years later the overall picture was completely different. In 2017, digital sales had a 58.3 percent share in total recorded music revenue, whereas physical sales decreased to a modest 25.4 percent market segment. In addition the revenue from artist management services (merchandising and agency business) increased from a 1.5 percent share in 2007 to 6.2 percent ten years later.


Figure 4: UMG’s recorded music revenues by segments, 2002-2017

Source: Vivendi annual reports 2002-2017.


Figure 5: UMG’s recorded music revenue shares, 2007 and 2017

Source: Vivendi annual reports 2007 and 2017.


However, UMG’s digital music sales also fundamentally changed in a very short period of just 4 years. Whereas digital single track and album downloads were the by far most important digital revenue source with € 1.03bn in 2014, revenue from music downloads decreased by a third to € 685m in 2017. In contrast, revenues from subscription and ad-supported music streaming significantly increased from € 610m to € 1.97bn (+ 223 percent) in a four years’ period fuelling the growth of the total recorded music revenue. In 2017, UMG had nearly compensated all revenue losses since 2003.


Figure 6: UMG’s recorded digital music revenues by segments, 2014-2017

Source: Vivendi annual reports 2014-2017.


Music publishing

The music publishing business was hardly affected by the digital paradigm shift. In contrast, Universal Music Publishing (UMP) benefitted from major investments (e.g. BMG Publishing in 2006 and Sanctuary Music Publishing in 2007) fuelling the revenue growth that duplicated the publishing segment from € 412m in 2002 to € 854m in 2017.


Figure 7: UMG’s music publishing revenue, 2002-2017

Source: Vivendi annual reports 2002-2017.


Overall profit performance

The change to a total different revenue mix in UMG’s business segments was accompanied by cost cutting and restructuring programmes. It is obvious that the digital music business has a very different cost structure than the physical product. This materializes in growing profits (measured in EBITA) since 2010. In 2017, UMG’s EBITA reached an all-time high with € 761m in the observation period.


Figure 8: UMG’s profit performance, 2002-2017

Source: Vivendi annual reports 2002-2017.



Initially UMG’s recorded music business was severely affected by the recession of the CD market. Whereas UMG’s recorded music revenue significantly decreased from 2002 to 2011, music publishing was hardly affected by the decline of the recorded music market. In 2005, UMG implemented a strategic shift from a physical a digital music business model. UMG sold its main physical manufacturing sites and distribution networks and augmented its recorded music (e.g. acquisition of EMI’s recorded music segment) and music publishing catalogues (BMG Music Publishing). In a further move, UMG diversified its revenue mix by adding merchandising, music branding and artist management businesses to its core segments recorded music and music publishing. UMG’s parent company Vivendi promotes an integrated business model by fostering collaborations between UMG and its TV and film production companies, music streaming activities (Dailymotion and Kleek) as well as with Vivendi’s live music business (ticketing and performance venues). Therefore, Universal Music Group is a totally different company in 2017 compared to 2000, when Vivendi merged with Seagram’s Universal Entertainment.

UMG’s adopted a different cost structure by selling physical manufacturing sites and distribution networks and invested in music catalogues instead. These catalogues can be perfectly monetized in the digital and especially music streaming business. As we know from a leaked Sony-Spotify contract, that the majors demand hefty annual advances from the streaming services recoupable by future royalty payments. Since no streaming service is operated at a profit yet, it is a problem to license the majors’ music catalogues at a market rate. Therefore, the majors accept a sub-market rate in exchange for an equity share in the music streaming company that can be monetized in case of an IPO (see e.g. Spotify).

Whereas on the supply side, music streaming service have become dependent on the majors’ music catalogues, the major companies control the demand side by offering 360-degree contracts to the artists. There is the promise to exploit several revenue source apart from recorded music and music publishing, but presumably just superstars really benefit from UMG’s additional services.

To sum up, UMG has mutated into a comprehensive music service company with recorded music and music publishing as core functions, but with a more diversified business model including merchandising, branding & sponsoring as well as artist management services. Therefore, UMG has perfectly adapted its business model to the requirements of the music streaming economy.



Aksoy, Asu and Kevin Robins, 1992, “Hollywood for the 21st Century: Global Competition for Critical Mass in Image Markets”. Cambridge Journal of Economics, vol. 16(1): 1-22.

Christopherson Susan and Michael Storper, 1989, “The Effects of Flexible Specialization on Industrial Politics and Labor Market: The Motion Picture Industry”. Industrial & Labor Relations Review, vol. 42(3): 331-347.

Storper, Michael, 1993, “Flexible specialisation in Hollywood: a response to Aksoy and Robins”. Cambridge Journal of Economics, vol. 17(4): 479-484.

Storper, Michael and Susan Christopherson, 1986, Flexible Specialization and Regional Industrial Agglomerations. The Case of the U.S. Motion Picture Industry. University of California Los Angeles working paper series no. 106.

Tschmuck, Peter, 2012, Creativity and Innovation in the Music Industry, 2nd edition. Heidelberg etc.: Springer.



[1] Vivendi, Financial Report and Audited Consolidated Financial Statements for the year ended December 31, 2017, p. 16.

[2] For further details see Tschmuck (2012: 178-179).

[3] Ibid.: 182.

[4] Vivendi Universal annual report 2000: 62.

[5] Vivendi annual report 2005: 56.

[6] Vivendi Universal annual report 2002: 88 and Vivendi annual report 2005: 101.

[7] Vivendi annual report 2005: F-74.

[8] Vivendi Universal annual report 2003: F-45.

[9] The transaction included UMG’s manufacturing and distribution operations in Hanover, Germany, its manufacturing operations in Grover, North Carolina, and its distribution operations in Fishers, Indiana, Reno, Nevada and Wilkes-Barre, Pennsylvania (see Glenayre Technologies quarterly report for the period ending June 30, 2005: 10-11.).

[10] Vivendi annual report 2005: 34.

[11] Glenayre Technologies quarterly report for the period ending June 30, 2005: 10.

[12] Vivendi annual report 2006: 133.

[13] Vivendi Universal annual report 2003: 92.

[14] Vivendi annual report 2005: 42.

[15] In order to comply with complying with the EU Commission mandated conditions of the BMG Music Publishing acquisition Universal Music Group Publishing had so sell the catalogs of Rondor UK, Zomba UK, 19 Music, 19 Songs and BBC Catalog to CP Masters BV and ABP (see Vivendi annual report 2008: 143).

[16] Vivendi annual report 2006: 21.

[17] Vivendi annual report 2007: 189.

[18] Vivendi annual report 2009: 31.

[19] Vivendi annual report 2008: 28.

[20] Vivendi annual report 2011: 17.

[21] Ibid.

[22] Vivendi annual report 2014: 28.

[23] UMG bought Univision Music Group from Univision Communications Inc. for € 92m in 2008 (Vivendi annual report 2008: 143). In 2009, UMG acquired the French production music company, Kapagama Music to become the global leader in the production music library business (Vivendi annual report 2009: 30). In 2010, UMG acquired Maranatha and Emack Music/Gotee, two seminal catalogues for Contemporary Christian music. (Vivendi annual report 2010: 31).

[24] Vivendi annual report 2011: 195.

[25] Vivendi annual report 2012: 171.

[26] Vivendi annual reports 2010: 145 and 2011: 147.

[27] Vivendi annual report 2011: 195.

[28] Vivendi annual report 2014: 164.

[29] Vivendi annual report 2013: 20.

[30] Vivendi annual report 2014: 27.

[31] Vivendi annual report 2015: 13.

[32] Vivendi annual report 2015: 27.

[33] Vivendi annual report 2015: 216.

[34] Vivendi annual report 2015: 12.

[35] Vivendi annual report 2015: 13.

[36] Ibid.

[37] Vivendi annual report 2017: 10.

[38] Vivendi annual report 2013: 20.

[39] Vivendi annual report 2014: 28.





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