MBW Reacts is a sequence of analytical commentaries from Music Enterprise Worldwide written in response to main latest leisure occasions or information tales. Solely MBW+ subscribers have limitless entry to those articles. MBW Reacts is supported by JKBX, a expertise platform that provides customers entry to music royalties as an asset class. The under article initially appeared inside January’s MBW+ Month-to-month Evaluation e-mail, issued solely to MBW+ subscribers.
Common Music Group primarily confirmed on Friday (January 12) {that a} spherical of redundancies is coming/underway on the firm. Mentioned affirmation adopted a report in Bloomberg, whose headline recommended UMG can be shedding “tons of” of workers globally.
In reality, this was all fairly predictable: UMG prime brass instructed traders in October that they have been getting ready a “reduce to develop” technique for the beginning of 2024 that will see a trimming again of world staff. And whereas “tons of” of layoffs deserve a certain quantity of media hubbub, the mathematical actuality gives helpful context: on the finish of 2022 (we don’t but have up to date stats for 2023), UMG employed 9,992 folks, a determine that was up by 487 internet staff YoY. UMG’s worker base additionally swelled the earlier yr (2021), up by 322 internet staff YoY.
Final yr, towards a backdrop of widespread media layoffs, the music {industry} noticed Warner Music Group lay off 4% of its international workers, SoundCloud lay off 8%, and BMG lay off round 3-5%.
Warner’s 4% discount, for example, noticed roughly 270 roles reduce.
By nature of Common Music Group’s scale (9,992 staff at shut of 2022, bear in mind), a 4% discount in headcount would see round 400 layoffs. A SoundCloud-style 8% reduce would see 800 roles gone.
Don’t overlook, although: In 2021 and 2022 alone, UMG added 809 internet new staff. So we could also be watching an organization successfully erasing the extra headcount it added through the pandemic.
Rather more fascinating than ‘what number of’ on this story is the ‘why’ and the ‘the place’.
The ‘why’: The opposite week, we realized that UK shopper spending on the subscription music streaming market grew by 9.8% YoY in 2023.
That appeared like excellent news, however it’s important to think about value rises by the likes of Spotify, Amazon Music, and Apple Music in the identical yr – value rises that noticed flagship subscription prices for customers rising by round 10% (i.e. from £9.99 per 30 days to £10.99 per 30 days). Conclusion: With out these value rises, the market would have been someplace between flat and up by low single-digits.
Evidently, the development of main music firms simply crusing to double-digit annual streaming income progress is getting bumpier, as mature markets edge nearer to saturation level for paid streaming subscriptions.
Along with investments in rising markets, new skillsets are required inside the three majors to steer them in direction of contemporary areas of financial alternative past streaming – together with the D2C alternative, the music-plus-AI alternative, and the much-discussed potential of ‘superfans’ who could also be keen to pay extra for entry to a richer digital expertise from the artists they love.
UMG additionally has a promised margin growth to attain: forward of its 2021 float, the corporate pledged to traders {that a} mid-20% (i.e. 25%) EBITDA goal was attainable within the “mid-term”.
That “mid-term”, if we’re permitted to see it as a five-year-ish unit of time, will not be far-off. UMG’s adjusted EBITDA margin within the first 9 months of 2023 was 21.4%, so it nonetheless has some profitability floor to make up.
The ‘the place’: I’ve heard loads of guesswork up to now few weeks about how UMG’s setup within the US is perhaps affected by the brand new restructuring. For instance, within the latest previous, UMG has proven a willingness for sure frontline labels to share back-office companies whereas sustaining separate and autonomous A&R features (see: Motown’s re-enveloping into Capitol Music Group final yr). In its assertion to media final week, UMG was very clear that it might be “keep[ing] our industry-leading investments in A&R and artist growth… [while] creating efficiencies in different areas of the enterprise”.
Naturally, with UMG’s operational HQ in Santa Monica, a lot of the main focus of stated guesswork has been the United States. But in keeping with UMG’s monetary experiences, 42% of the corporate’s headcount on the shut of 2022 was in Europe – a much bigger proportion than North America, which housed 39%.
The primary main departure from UMG that I’ve seen introduced on LinkedIn this month is Cornelius Ballin, MD of Common in Austria and Western Balkans, who leaves on the finish of January.
Ballin says that he exits Common after 23 years with “immense gratitude for the folks I met, the issues I realized and the enjoyable I had alongside the best way”.
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