The Financial Health of Universal Music Group

  • Save

Universal Music Group earnings dropped 9.2 percent during the recent quarter, according to disclosures by parent conglomerate Vivendi.

EBITA shifted to 148 million euros ($216 million), part of a continued quarterly slide.

The fallout was actually a more modest 6.4 percent measured at constant currencies, the result of ongoing dollar fluctuations.  But Universal Music Group has shown losses for three of the past four quarters, a situation that is now stirring some rumors of a possible shakeup ahead.

The quick analysis is that Universal, like other majors, is suffering from a seemingly-bottomless drop in recordings.  That is happening despite aggressive digital asset increases, a transition that is failing to cover the broader physical declines.

But UMG is also diversifying, and during the previous two quarters, earnings actually increased 17.7 percent to 259 million euros ($378 million).  That increase moves to nearly 25 percent when measured at constant currencies, thanks partly to the additions of BMG Music Publishing and Sanctuary.

Diversification is a smart play for Universal, though the broader picture remains somewhat weak.  Over the past five fiscal years (2003-2007), the label group has shown little revenue growth, with each year averaging 4.94 billion euros ($7.07 billion), and no year surpassing 5 billion euros.  That compares unfavorably to the earlier part of the decade (2000-2003), in which revenues averaged 6.48 billion euros ($9.28 billion), and no year fell below 6 billion euros.

The historical data, supplied by parent company Vivendi, shows a pronounced drop in 2003.  In that year, revenues slipped 20.7 percent to 4.97 billion euros, a new, lowered plateau.  “For the full year 2003, UMG’s revenues of 4.974 billion euros were 21 percent below last year due to weakness in the global music market, adverse currency movements and a lower number of releases from global superstars,” Vivendi described in its annual statement.

Also in 2003, earnings slid 87.4 percent to 70 million euros ($100.2 million), before recovering to 338 million euros ($483.8 million) in 2004.  And despite a fairly flat revenue profile in the ensuing years, earnings moved upward to 774 million euros ($1.11 billion) by 2006, before settling at 624 billion euros ($893.3 million) in 2007.

That is partly the result of a leaner, slimmed-down operation, a downsizing process affecting all four major labels.  But can Universal Music reclaim its past financial glory?  Against extremely challenging market conditions, the market leader is attempting to construct a more diversified and digitized company, one less reliant on the once-stable CD.

Financial review by publisher Paul Resnikoff.