Common Music Group delivered a robust begin to 2025 with its Q1 earnings report at this time (April 29), posting income development of 9.5% YoY and adjusted EBITDA development of 10% YoY at fixed forex.
Throughout the earnings name, UMG’s Chairman and CEO Sir Lucian Grainge, COO and CFO Boyd Muir, and EVP and Chief Digital Officer Michael Nash provided insights into UMG’s efficiency and strategic initiatives.
Listed here are seven key takeaways from the decision:
1. Subscription streaming confirmed accelerated development, notably throughout various geographic markets – however ad-supported streaming is much less of a picnic
UMG reported9.3% YoY development in subscription streaming income at fixed forex throughout Q1, an acceleration in comparison with This autumn 2024.
This development got here from each established and rising markets.
“Our 9.3% development in subscription income this quarter is geographically diversified between developed and high-potential markets and effectively represented throughout our associate portfolio. In reality, we had double-digit income development from 4 of our main DSP companions, underscoring the well being and breadth of our subscription ecosystem,” stated Grainge.
“we noticed double-digit income development [for UMG] from 4 of our main DSP companions, underscoring the well being and breadth of our subscription ecosystem.”
Sir Lucian Grainge
Boyd Muir offered extra element, noting: “UMG subscription income grew at double-digit charges in high developed music markets the place subscription continues to be at an earlier stage, akin to Japan and Germany. As well as, we noticed double-digit development in massive inhabitants markets the place digital music consumption is booming, akin to China and Mexico.”
Michael Nash added additional coloration: “We had double-digit income development from three of our high 5 subscription companions, and excessive single-digit development from one other high 5 associate. So our subscription income development was very effectively diversified within the quarter.”
Nonetheless, whereas subscription development was strong, UMG’s ad-supported streaming income was practically flat, up simply 0.3% YoY at fixed forex in Q1. This represents a fancy state of affairs involving each legacy platform challenges and the continuing shift to short-form content material.
“The marginal enchancment in year-over-year development was a results of a neater comp towards two of the months the place [Universal’s catalog was] off platform with TikTok in early 2024,” Boyd Muir defined, referencing UMG’s well-publicized dispute with TikTok in Q1 final yr.
“development continued to be challenged by the [consumer] shift to short-form consumption, which isn’t but adequately monetized.”
Boyd Muir, Common Music Group
Looking forward to Q2, Muir famous that UMG “will comp towards [a further] one loss month of TikTok income, and we’ll start to anniversary the lack of the Meta premium music video license”. [Meta stopped licensing premium video from major music companies on Fb in 2024; each Common and Warner subsequently introduced new offers with Meta that wrapped WhatsApp licensing into their agreements.]
Past these particular platform challenges, Muir recognized a extra basic concern affecting ad-supported income development, explaining that “development continued to be challenged by the [consumer] shift to short-form consumption, which is not but adequately monetized.”
2. Tremendous-premium streaming tiers are nonetheless coming…
When requested concerning the timeline for the introduction of super-premium subscription tiers at DSPs like Spotify, UMG executives indicated that these higher-priced choices are actively being developed, with concrete particulars anticipated inside 2025.
“We’re deeply engaged with all of our key companions, together with Spotify on this class of alternative, and we’re very inspired by the path of all these conversations. We hope to have the ability to publicly elaborate on the collaborative plans that we’re creating later this yr,” stated Nash.
He added: “We had been very inspired to listen to [Spotify] executives verify on [their own Q1 earnings call] that with regard to greater tiers, they see nice potential in them… and we had been additionally inspired to listen to them reaffirm that creating greater tiers round new choices is one thing that we’re working in the direction of.”
“We hope to have the ability to publicly elaborate on the collaborative [super-premiium] plans that we’re creating later this yr.”
Michael Nash, Common Music Group
Nash cited empirical knowledge from China supporting the viability of super-premium tiers: “Tencent Music famous on their This autumn 2024 outcomes that their tremendous premium tier, which they name SVIP, had sequential development within the quarter over the earlier quarter… they now are at low teenagers penetration of their subscriber base.
“So if you happen to take that as 13% of the subscriber base of 121 million, meaning greater than 15 million SVIP subscribers adopting an excellent premium platform… And that worth level for SVIP is 5x an ordinary worth level.”
Such proof reinforces UMG’s personal analysis suggesting that roughly 20% of present music streaming subscribers can be prepared to pay as much as double the present normal worth for enhanced choices.
3. Bodily music gross sales confirmed robust development, notably in vinyl
Bodily gross sales had been a brilliant spot in UMG’s Q1 outcomes, rising 15% YoY at fixed forex. This efficiency was primarily pushed by vinyl’s continued resurgence in key markets.
“Bodily gross sales had been robust, up 15% year-over-year pushed by vinyl development within the U.S. and in Europe,” Boyd Muir reported throughout the name.
Nonetheless, Muir cautioned towards extrapolating this robust efficiency all year long, stating: “Even with a robust launch slate, we proceed to anticipate bodily income to be largely flat for the yr towards a difficult 2-year comp.”
This strong bodily efficiency helped drive UMG’s 10.3% YoY development in recorded music income for the quarter, demonstrating that whereas streaming stays its dominant income supply, bodily codecs proceed to play an essential position in its enterprise combine.
4. UMG plans to announce Section 2 of its cost-saving program within the subsequent three months
UMG executives confirmed they’ve accomplished Section 1 of their strategic organizational redesign program and can present particulars on Section 2 within the subsequent quarter.
“Subsequent quarter, we sit up for updating you on our implementation plans for Section 2 of our strategic organizational redesign. As deliberate, Section 2 will embrace one other EUR €125 million of price financial savings to convey the full quantity of this system to EUR €250 million,” stated Boyd Muir.
Addressing the progress of Section 1, Muir defined: “We’ve accomplished Section 1 of our organizational redesign program. There may be EUR €125 million of run price financial savings embedded into 2025. We captured EUR €75 million of that run price in 2024. So there’s EUR €50 million incremental price financial savings embedded into our 2025 outcomes.”
“As deliberate, Section 2 of our organizational redesign will embrace one other EUR €125 million of price financial savings to convey the full quantity of this system to EUR €250 million.”
Boyd Muir, Common Music Group
The associated fee-saving initiatives come as UMG maintains its flat adjusted EBITA margin of 22.8% for the quarter, with Muir noting that “the flat margin displays the advantage of price financial savings and working leverage, however offset by the destructive impression of income and repertoire combine.”
These combine results included development in lower-margin bodily gross sales and reside earnings, together with incremental administration revenues from music publishing catalogs akin to these owned/acquired by Chord.
5. ‘Streaming 2.0’ is driving each subscriber and ARPU development
UMG executives reiterated their “Streaming 2.0” technique outlined ultimately yr’s Capital Markets Day, which targets annual subscription streaming income development of 8-10% by way of 2028. They anticipate this development to return from each elevated subscriber numbers and better common income per person (ARPU).
Muir defined: “We did reference that once you take a look at that 8% to 10% common CAGR over the interval, we anticipated that roughly half of that may come from ARPU development and half of that may come from quantity development or… subscriber development.”
“It’s our intention to extend our wholesale costs, which we’d categorize because the minimal price per subscriber.”
Boyd Muir, Common Music Group
Whereas in a roundabout way confirming particular new pricing preparations with DSPs, Muir indicated that wholesale worth will increase are a key part of Streaming 2.0 offers: “It’s our intention to extend our wholesale costs, which we’d categorize because the minimal price per subscriber. So once you see an announcement which references 2.0, I feel you’ll be able to anticipate that there will likely be wholesale worth will increase embedded into these offers.”
Muir famous that whereas worth will increase contributed solely a small portion of Q1’s subscription development, extra impactful pricing cycles are anticipated: “We did additionally say that we envisage that this development would are available in waves. And a part of the explanation for us saying that was… in the intervening time in time that there’s a worth enhance, we’d envisage that the expansion price can be greater than that vary.”
Muir’s timing was certainly no fluke: stories earlier this week instructed that Spotify is readying to hike the worth of its subscriptions throughout Europe and Latin America.
6. UMG is restructuring its nation music operations to capitalize on world development
Following their reorganization of East and West Coast operations in 2024, UMG is now specializing in restructuring its Nashville-based nation music enterprise, aiming to strengthen its place in a style that’s gaining world recognition.
“Given the growing world power of nation music, we’re reorganizing our operations in Nashville and as soon as once more doing so from a place of energy. UMG is the trade market share chief in nation music in accordance with Luminate,” stated Grainge.
“Given the growing world power of nation music, we’re reorganizing our operations in Nashville and as soon as once more doing so from a place of energy.”
Sir Lucian Grainge, Common Music Group
The restructuring consists of two main bulletins made within the weeks main as much as the earnings name: “First, we relaunched the Nashville-based label Misplaced Freeway Data with new administration staff and an formidable artistic imaginative and prescient. And secondly, final week, UMG Nashville was rebranded Music Company of America, additionally underneath new management with a robust strategic imaginative and prescient.”
This restructuring comes as UMG prepares for the Might launch of Morgan Wallen’s new album I’m The Drawback.
Grainge highlighted Wallen’s continued success: “In March, Morgan Wallen reached a monumental U.S. chart milestone. His newest studio album One Factor at a Time collected its a hundredth week within the high 10 on the Billboard 200 chart. He’s the one solo artist in historical past with an album that has stayed within the high 10 for a minimum of 100 weeks.”
7. UMG expects music to stay resilient within the face of financial uncertainty
When requested about how UMG may carry out throughout potential financial downturns, executives expressed confidence in music’s resilience as an reasonably priced type of leisure and emotional assist.
“I’ve been by way of numerous cycles of worldwide financial uncertainty and have been capable of navigate with the [global] groups by way of it. Music has at all times confirmed to be extremely resilient. It’s low price, excessive engagement and clearly, a singular type of leisure,” stated Grainge.
He added: “When there’s been inflationary stress and family budgets tightened, music subscriptions and music buy has at all times been resilient… as a result of consumption is frequent… The utilization is fixed. It’s fully multi-device, multi-occasion, and it’s good worth for cash.”
“Music has at all times confirmed to be extremely resilient. It’s low price, excessive engagement and clearly, a singular type of leisure.”
Sir Lucian Grainge, Common Music Group
Nash elaborated on why this resilience is structural moderately than coincidental: “Analysts have talked about music consumption being routine, emotional, noncyclical… [the] music trade is present process secular digital transformation that’s tied to broader shopper expertise tendencies.
“That digital transformation is definitely amplifying these resilience traits: comfort, personalization, income recurrence.”
He referenced a latest McKinsey research on shopper sentiment that discovered house leisure, together with music, was “the second lowest of twenty-two completely different classes” that customers deliberate to chop again on throughout financial hardship.
Nash additionally famous that UMG has “very vital safety towards digital income draw back danger this yr due to the assorted ensures which are structured into lots of our offers.”
Regardless of projecting a 2% international alternate headwind for 2025, Grainge emphasised that nothing would derail UMG’s long-term technique: “There’s nothing that we will do or would do to get off monitor from our long-term, three-year goal… Every part we do is for long-term development, and also you’re seeing plenty of the issues that we outlined at Capital Markets Day final September now coming to fruition.”
