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Drake has initiated legal action against Universal Music Group and Spotify over allegations that the two companies conspired to artificially inflate the popularity of Kendrick Lamar’s “Not Like Us.”
In a filing Monday (Nov. 25) in Manhattan court, Drake’s Frozen Moments LLC accused UMG of launching an illegal “scheme” involving bots, payola and other methods to pump up Lamar’s song — a track that savagely attacked Drake amid an ongoing feud between the two stars.
“UMG did not rely on chance, or even ordinary business practices,” attorneys for Drake’s company write. “It instead launched a campaign to manipulate and saturate the streaming services and airwaves.”
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Drake’s attorneys accuse UMG of violating the Racketeer Influenced and Corrupt Organizations Act, the federal “RICO” statute often used in criminal cases against organized crime. They also allege deceptive business practices and false advertising under New York state law.
The court filings are a remarkable twist in the high-profile beef between the two stars, which saw Drake and Kendrick exchange stinging diss tracks over a period of months earlier this year. That such a dispute would spill into business litigation seemed almost unthinkable in the world of hip-hop.
It also represents a stunning rift between Drake and UMG, where the star has spent his entire career, first through signing a deal with Lil Wayne’s Young Money imprint, which was distributed by Republic Records, and then signing directly to Republic.
Lamar, meanwhile, has also spent his entire career associated with UMG, first through the TDE imprint, which was distributed by Interscope, and more recently through his own company pgLang, which he licenses through Interscope.
In technical terms, Monday’s filing is not yet a full lawsuit, but a so-called “pre-action” petition — a procedure under New York law that aims to secure information before filing a lawsuit. Spotify declined to comment. UMG did not immediately return a request for comment.
This is a developing story, and will be updated as more information becomes available.
Nearly five years after the major labels won a $1 billion music piracy verdict against Cox Communications, the U.S. Supreme Court is signaling that it might jump into the long-running copyright case.
In an order issued Monday (Nov. 25), the justices asked the Justice Department to weigh in on whether the high court should tackle the huge penalty, which Universal Music Group (UMG), Sony Music Entertainment (SME) and Warner Music Group (WMG) won back in 2019 over allegations of widespread piracy by Cox’s users.
After an appeals court ordered the award recalculated earlier this year, both sides have asked the Supreme Court to take the case. The labels want the justices to reinstate the original verdict; Cox wants the high court to overturn it entirely.
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Such petitions are always a long shot, as the Supreme Court takes less than 2% of the more than 7,000 cases it receives each year. But Monday’s order — a “call for the view of the Solicitor General,” or CVSG, in SCOTUS parlance — is a relatively rare step that indicates that the justices think the issues in the case might be significant enough for the court to tackle.
UMG, SME and WMG all sued Cox in 2018, seeking to hold the internet giant itself liable for alleged wrongdoing committed by its users. The labels said Cox had ignored hundreds of thousands of infringement notices and had never permanently terminated a single subscriber accused of stealing music.
ISPs like Cox are often shielded from lawsuits over illegal downloading by the Digital Millennium Copyright Act, or DMCA. But a judge ruled that Cox had forfeited that protection by failing to terminate people who were repeatedly accused of violating copyright law. Stripped of that immunity, jurors held Cox liable in December 2019 for the infringement of 10,017 separate songs and awarded the labels more than $99,000 for each song, adding up to $1 billion.
Earlier this year, a federal appeals court overturned that award, ruling that aspects of the verdict weren’t supported by the law. But the appeals court also upheld other parts, and Cox is still facing the potential of a very large penalty when damages are recalculated.
In taking the case to the Supreme Court, Cox has urged the justices to undo the entire verdict. The company has issued dire warnings, arguing that the “draconian” approach applied in the case “threatens mass disruption” by potentially forcing ISPs to terminate internet service to thousands of Americans.
“The stakes are immense,” Cox’s attorneys wrote. “This court should grant certiorari to prevent these cases from creating confusion, disruption, and chaos on the internet. Innovation, privacy, and competition depend on it.”
Firing back, the labels have called those arguments “disingenuous” and instead urged the court to take up their own separate petition seeking to reinstate the entire verdict.
“This court should take Cox’s concerns about terminating internet access with a healthy serving of salt,” attorneys for UMG, SME and WMG wrote. “During the time period at issue here, Cox terminated over 600,000 subscribers for not paying their bills. When Cox’s money is on the line, Cox clearly has no problem ‘irreparably cutting’ its customers ‘off from society.’”
In the last four months, two of the three major labels have seen their stock price punished for missing expectations of subscription growth — effectively sending the message that in 2024, delivering substantial revenue gains isn’t enough. In its fiscal fourth-quarter earnings on Thursday (Nov. 21), Warner Music Group (WMG) revealed streaming growth of 8.2%, which was below some analysts’ estimates — helping explain why the company’s share price fell 7.4% on Thursday and erased approximately $1.29 billion of market value. The same thing happened to Universal Music Group in July — albeit to a far greater extent — when its lower-than-expected second-quarter subscription growth led to a 24% drop in its share price despite total revenue climbing 8.7%.
To say analysts and investors place a great deal of attention on streaming growth is an understatement. During WMG’s earnings call on Thursday, six of the 10 questions from analysts concerned subscription revenue, including topics such as drivers of expected growth, the setting of wholesale rates and how streaming royalties are calculated and distributed. That’s because analysts — and the investors they speak to — know that platforms such as Spotify and YouTube are critical to record labels and publishers’ fortunes.
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Judging from their introductory remarks, WMG and UMG would rather talk about their companies’ global expansions. On Thursday, WMG CEO Robert Kyncl highlighted the company’s focus on India, a country of 1.4 billion that he called “more like a continent than a country.” Currently dominated by ad-supported streaming, India has the fifth-largest gross domestic product but ranks just 14th amongst recorded music markets. But Kyncl said he believes the country “will become an increasingly influential global force in the music business,” adding that WMG is “well positioned to keep taking market share” through acquisitions and partnerships. Meanwhile, during UMG’s latest earnings call on Oct. 31, CEO Lucian Grainge talked about acquisitions, partnerships and expansions in emerging markets such as China, Thailand and Nigeria.
Constantly pulled back to the topic of music subscriptions, Kyncl and WMG CFO Bryan Castellani attempted to quell any concerns that streaming growth is petering out, explaining how WMG intends to obtain high, single-digit subscription revenue growth even as that growth has been slowing. Relatively few Americans have a music streaming subscription, at least when compared to streaming video-on-demand (SVOD) options such as Netflix; during the call, Kyncl noted that subscription penetration in the U.S. is 30% while SVOD services are at 50%. “There’s a lot more to grow in United States for music,” he said.
Lately, though, the success of music streaming platforms has looked one-sided. The licensees, not the licensors, appear to be keeping most of the spoils of price increases and subscriber acquisitions. As one WMG analyst put it, the major labels’ content is a must-have for digital service providers (DSPs) such as Spotify, but “a lot of value has instead accrued to the DSPs” rather than content owners. At least by one measure, Spotify has reaped the benefits of price increases far more than major labels. Since Spotify announced its first U.S. price increase on July 23, 2023, its share price has risen 177%, compared to 3% for UMG and 4% for WMG.
To level the playing field and reap more of the benefits of subscription music’s popularity, WMG intends to tweak pricing — which it believes the labels will benefit from — to help drive continued subscription growth. For starters, the company expects improvements to come from the launch of a high-priced subscription tier for superfans that Spotify CEO Daniel Ek said in July could cost $17 or $18 per month. Kyncl and Castellani also pointed to changes in wholesale prices that would establish per-subscriber minimums to reduce the discounts given to family plans and other multi-user accounts. “With both subscriber growth and opportunities for wholesale price increases, the formula for streaming growth is strong and there’s plenty of room for acceleration,” said Kyncl.
The U.S. and other mature streaming markets will deliver subscription growth more immediately than emerging markets still dominated by ad-supported streaming. But over the long term, said WMG, high-growth, emerging markets like India have substantial potential. As Kyncl explained, WMG is betting on countries like India that have rising gross domestic product (GDP) because advertising spending will increase as GDP increases —and rising GDP will eventually translate to more subscribers. Again, Kyncl talked about closing the gap between music and TV; in India, he put the number of music subscribers at 15 million and the number of households with TVs at 100 million.
Streaming has shaped today’s music business. WMG and UMG would not have gone public had it not transformed a once-moribund industry. Investors wouldn’t have poured money into Hipgnosis Songs Fund and other investment funds were it not generating massive royalties for aging catalogs. And prominent institutional investors such as Blackstone and Pimco would not be so enthusiastic about music assets if streaming couldn’t open new markets around the world.
That strong enthusiasm has created high expectations, though, and labels’ mandate to deliver high, single-digit subscription growth is going to transform streaming in the years to come. Prices will be higher. Streaming services will launch high-priced superfan tiers. And if the labels have their way, ad-supported on-demand streaming would no longer be free. However things shake out, the majors seem confident they can deliver.
With all apologies to Charli XCX, the 2024 concert season should have been dubbed “VIP summer” for the amount of upselling done by U.S. amphitheaters.
At Live Nation amphitheaters, revenue from VIP clubs was up 19% and VIP ticket premium revenue for major festivals was up more than 20% in the third quarter. Earlier this year, VIP/premium offerings represented 9% of Live Nation’s overall amphitheater business but “should be 30% to 35%,” CEO Michael Rapino told investors in February.
Amphitheaters where Live Nation controls the food and beverage experiences have the potential to deliver more fan spending. Converting an area of grass into a VIP club provides 20% to 30% returns on investment, Rapino explained. At Northwell at Jones Beach Theater, for example, Live Nation took the 15,000-seat venue from no premium offerings to three premium tiers. Of the 40 U.S. amphitheaters in its portfolio, the company could “Jonesify” half of them, Rapino said during an investor call on Wednesday (Nov. 13).
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Diving headfirst into VIP pricing is sure to help Live Nation’s bottom line. The company believes premium offerings can add $200 million in adjusted operating income per year, according to its investor presentation. This year, VIP net per-fan spending will have grown at 20% annually since 2019, well ahead of overall net fan spending growth of 8% annually.
From exclusive lounges to fan meet-and-greets with artists, the concert business has been better than other music industry segments at filtering customers according to their willingness to pay. VIP status became standard practice at music festivals to separate the people who can afford a $400 ticket to camp in a grass field and those who can afford deluxe accommodations, food and beverage, and transportation. The year-old Sphere in Las Vegas takes customer segmentation to a new level: Tickets are relatively expensive for a single concert without considering travel and accommodation — which Live Nation bundles with Sphere tickets through Vibee, a destination experience company it founded in 2023.
It may be ahead of other music companies, but Live Nation is merely following practices familiar to companies such as airlines, which charge more for early boarding, and theme parks, where paying a premium allows you to spend less time standing in line for rides. Insurance companies offer multiple tiers of services that include add-ons such as “accident forgiveness.” Everywhere you look, there’s an expensive option that’s out of reach for most consumers but well worth the value to others.
The wave of upselling now extends to VIP tiers in music streaming. Last week, Tencent Music Entertainment (TME) announced it has 10 million Super VIP subscribers accounting for 8.4% of its 119 million subscribers. Super VIP, launched in the first quarter of 2022, provides such perks as better sound quality, priority access to music content and live event tickets. With a cost five times the normal subscription tier, Super VIP subscriptions helped TME’s average revenue per user increase 5% from the prior-year period. That success with VIP pricing is likely a harbinger of things to come. A single tier may not deliver the kind of profitability investors now demand.
“I think Spotify and the labels, long ago, realized this ‘one price for everybody’ thing gets these companies off the ground, but ultimately it’s not sustainable,” says pricing strategy consultant Rafi Mohammed, who espouses a strategy he calls “good-better-best” and encourages companies to create more valuable tiers of products and services for subsets of customers who are willing to pay extra. “If you’re a company and you’re not doing it, you’re making a mistake,” he says. “There are always going to be higher-end people who are willing to pay more for a more enhanced experience.”
With the current music streaming model relatively unchanged for two decades, music companies are increasingly engaging in the kind of customer segmentation taught in business schools. Companies that want to deliver strong, sustained growth are looking at ways to provide more valuable — and more expensive — experiences to those customers willing to pay for them.
Record labels are itching for a high-priced streaming subscription tier that would produce greater royalties. Spotify’s VIP tier — for lack of a better term — seems all but inevitable at this point. In September, Universal Music Group (UMG) COO (then CFO) Boyd Muir said the company was in “advanced talks” with the streamer for a high-priced tier that offers a better user experience than standard subscription plans. Spotify CEO Daniel Ek lifted the veil on a pending VIP plan in July, saying it would “probably” be priced at $17 or $18 per month and provide subscribers with “a lot more control, a lot higher quality across the board, and some other things that I’m not ready to talk about yet.”
UMG has said that internal market research shows 23% of subscribers would be willing to pay more for a VIP experience. But Will Page, Spotify’s former chief economist, isn’t sure Spotify is ready for a VIP tier. “It needs to walk before it can run towards a VIP platform,” he says.
Since the days of pre-Spotify subscription services such as Rhapsody, the basis $9.99 (in the U.S.) price was raised only recently but hasn’t kept pace with inflation. Spotify launched in the U.S. in 2011 and didn’t raise the individual premium price to $10.99 until 2023. Had the price kept pace with inflation, that $9.99 tier would have cost $13.50 by the time the price hike took effect. While video-on-demand streaming platforms such as Netflix have consistently raised prices over the years, music platforms like Spotify refrained, keeping their prices unchanged for fear higher prices would stunt their growth. “I would love to see the industry earn its stripes in showing pricing power before it goes to base two, which is market screening power,” says Page.
In the meantime, the music business has other ways to cater to VIPs, including a new slate of “superfan” platforms and vinyl records. Vinyl mimics a VIP strategy by upselling fans to an expensive physical item over low-value online streaming. And just as film studios use a so-called “windowing” strategy by releasing movies to theaters before streaming platforms, artists and labels are increasingly selling vinyl LPs ahead of their streaming street dates — a strategy that’s been largely absent in music since 2016. To Page, artists and labels are missing a big opportunity by not using vinyl to create a VIP release window.
“In America alone, vinyl is going to be a billion-dollar business,” says Page, “and the people who can sell it are the types of artists who would appeal to a VIP strategy.”
Universal Music Group wants a federal judge to dismiss a copyright lawsuit claiming Mary J. Blige’s 1992 hit “Real Love” used a famed 1973 funk sample without a license, arguing the accusers have popped up “out of the blue” to sue over two tracks that “sound nothing alike.”
The case, filed in earlier this year by Tuff City Records, claims Blige’s track borrowed from “Impeach the President” by the Honey Drippers — a legendary piece of hip-hop source material with a drum track that’s been sampled or interpolated by Run-DMC, Dr. Dre, Doja Cat and many others over the years.
But in a response on Tuesday, UMG argues that Tuff City’s case is deeply flawed and must be tossed out of court at the outset.
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“Now, more than 30 years after ‘Real Love’ was released, plaintiff appears out of the blue alleging that ‘Real Love’ contains an uncleared sample from ‘Impeach the President,’ with no allegations concerning the works’ substantial similarity,” the music giant wrote. “The absence of that allegation is fatal.”
One key claim in Tuff City’s lawsuit is that UMG’s recorded music unit (UMG Recordings, Inc.) has already reached a settlement regarding the use of the “Impeach” sample on the “Real Love” sound recording, but that UMG’s publishing arm is unfairly refusing to do the same for the musical composition.
In Tuesday’s response, UMG confirmed the existence of that earlier settlement over the sound recording, but said it was entirely separate and complete “irrelevant” to a dispute over the composition. UMG’s attorneys said the settlement did not admit that “Real Love” infringed “Impeach” — but that even if it had, Tuff City was “confusing” a basic distinction that lies at the heart of music copyright law.
“Plaintiff … insinuates that defendant infringes simply because non-party UMG settled plaintiff’s claim of infringement [over] the sound recording,” the company wrote. “Because there exist two separate copyrights in music … a work can readily infringe one without infringing the other.”
Blige’s “Real Love” spent 31 weeks on the Hot 100 in 1992 and reached a peak of No. 7 on the chart. It has remained one of the star’s most enduring hits, with more than 105 million spins on Spotify and a movie adaptation released by Lifetime last year.
Tuff City sued UMG over the track in April, claiming it had “advised defendant repeatedly” about the allegedly uncleared sample, but that Universal had done nothing about it: “Defendant has repeatedly refused to engage plaintiff in substantive negotiations to rectify the foregoing, let alone agreed to compensate plaintiff for the past infringement or on an ongoing basis.”
The lawsuit did not name Blige herself as a defendant nor accuse her of any wrongdoing.
Tuff City, which owns a large catalog of old songs, is no stranger to copyright litigation – filing cases over tracks by Jay-Z, Beastie Boys, Christina Aguilera, Frank Ocean with claims that they featured unlicensed samples or interpolations. The company has even already sued over “Impeach the President,” claiming in a 1991 complaint that it had been illegally sampled on the LL Cool J tracks “Around the Way Girl” and “Six Minutes of Pleasure.”
The company has won plenty of rulings and settlements, but the litigation process has not always gone smoothly. In 2014, a judge dismissed one Tuff City case over Jay-Z’s “Run This Town” on the grounds that any alleged sample was “barely perceptible” after multiple listens. In that ruling, the judge chided Tuff City over its approach to the case, saying it “incorrectly … assumes that every copying of any part of another artist’s protected work is infringement.”
In Tuesday’s motion seeking to dismiss the “Real Love” case, UMG directly cited that 2014 ruling – arguing that the two songs “sound nothing alike” and that Tuff City had failed to argue otherwise.
“Unwilling to learn from the lessons of its past, plaintiff again seeks to assert copyright liability without plausibly pleading substantial similarity with respect to the musical compositions at issue here,” the company wrote. “The copyright claim must accordingly be dismissed.”
An attorney for Tuff City did not immediately return a request for comment.
In calling for Universal Music Group (UMG) to move its stock listing and legal headquarters to the U.S. from Amsterdam by next year, board member and billionaire activist investor William Ackman argued the move could make the company more valuable. But financial sources are split on whether that would be the case.
On Friday (Nov. 8), Ackman said his hedge fund, Pershing Square Capital Holdings, which owns 10.25% of UMG’s stock, will exercise its right to require the company to register with the U.S. Securities and Exchange Commission following violent attacks on Israeli soccer fans on Thursday night (Nov. 7) in Amsterdam, where UMG’s stock is listed on the Euronext exchange. But would the move actually benefit the company, as Ackman seems to believe?
“It could noticeably increase UMG’s value because even though it will make your taxes a little higher and you’re going to spend a whole lot more on expensive securities lawyers, it gives you access to the giant U.S. retail market, and UMG is the perfect kind of company for retail investors,” says Erik Gordon, a professor at University of Michigan’s Ross School of Business.
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In the U.S., more than 62% of individual adults own stocks, a group referred to as retail investors. While big institutional investors, like Pershing, account for about three-quarters of the trading volume on U.S. stock markets, like the Nasdaq or New York Stock Exchange, retail investors are a powerful and growing group. Since the start of the pandemic, when retail investors on Reddit fueled a run-up in the share price of companies like GameStop and AMC, more than 30 million new investors have opened brokerage accounts, according to a University of Missouri study.
Right now, four institutional investors control nearly 60% of UMG’s current pool of stock. In his post last week, Ackman argued that lack of liquidity — in part because only a slim portion of UMG’s stock frequently changes hands — could improve if UMG listed in the U.S.
“UMG trades at a large discount to its intrinsic value with limited liquidity in significant part due to it not having its primary listing on the [New York Stock Exchange] or Nasdaq Exchange and not being eligible for S&P 500 and other index inclusion,” he wrote.
Ackman’s argument is essentially that if UMG lists and starts trading in the U.S., its value will make it an important stock in U.S. financial markets, which in a few years will earn it inclusion in a major index, says Gordon. Getting included in an index, like the S&P 500, creates more demand for a company’s stock because mutual funds and exchange traded funds that track the S&P begin to buy the stock.
Over the weekend, UMG stated that Pershing can request that UMG list in the U.S. if it sells at least $500 million worth of its own UMG shares as part of that listing.
“If I had to guess, Ackman will end up with the right to sell his shares in the U.S. public market and that the company will issue new shares in the U.S. so that Ackman isn’t the only guy selling,” Gordon says.
One equity analyst believes UMG would not become a more valuable company if it moved to a U.S. exchange because its shares already trade at a premium to shares of Warner Music Group (WMG). In a Nov. 1 investor note, J.P Morgan analysts wrote about the premium, arguing that “UMG should trade at a significant premium to WMG…to reflect greater scale, a better track record for growth and consistent margin expansion, best-in-class management and better governance.”
According to Billboard’s calculations, UMG shares were recently trading at a roughly 17 times multiple trailing 12 months adjusted EBITDA, while WMG shares were trading at about 11 times multiple.
UMG moving its stock to an American exchange also comes with another downside: the operational expense that U.S.-listed public companies face from shareholder lawsuits.
“One area U.S. issuers have to manage, unlike non-U.S. issuers, is the volume of shareholder litigation that gets brought in the U.S.,” says Michael Poster, a music industry lawyer at Michelman & Robinson. “It’s expensive to deal with litigation, there are a lot of fees associated with managing, settling and litigating the claims, and it’s frankly a distraction for management. Those things contribute to making trading in the U.S. more expensive from an operational point of view.”
Universal Music Group (UMG), ABKCO and Concord Music Group have filed a lawsuit against Believe and its distribution company TuneCore, accusing them of “massive ongoing infringements” of their sound recordings, including tracks by Justin Bieber, Ariana Grande, Rihanna, ABBA, Kendrick Lamar, Lady Gaga, DJ Snake, Aqua and more. The companies are seeking “at least $500,000,000” in damages.
In a complaint filed Monday evening (Nov. 4) in Manhattan federal court by Andrew Bart and Gianni Servodidio at Jenner & Block, UMG, ABKCO and Concord Music Group accuse Believe of being “overrun with fraudulent ‘artists’ and pirate record labels” and distributing copies of those fraudulent recordings to various streaming services and social media sites.
Lawyers for the plaintiffs claim that “Believe makes little effort to hide its illegal actions” and that the allegedly infringing recordings are “often minor variants on the names of… famous recording artists and titles of their most successful works.” The complaint says the alleged fraudsters attempt to avoid detection of the allegedly infringing recordings — some of which, they claim, are “sped up” or “remixed” versions of popular songs — by using misspellings of popular artist names, including “Kendrik Laamar,” “Arriana Gramde,” “Jutin Biber” and “Llady Gaga.”
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“Believe is fully aware that its business model is fueled by rampant piracy” in “pursuit of rapid growth,” the lawsuit claims, adding that the company has “turned a blind eye” to the infringing content that makes its way to social media and streaming services through its platform.
Additionally, lawyers for UMG and the other plaintiffs say that “Believe has taken advantage of the content management claiming system” on YouTube “to divert” and “delay… payment of royalties” that belong to the record labels. It is “telling,” they add, that after YouTube resolves these conflicts regarding the rightful ownership of these sound recordings, “Believe continue[s] to distribute the exact same track to other digital music service providers and to seek royalties for use of that track from those providers.”
This is not the first time bad actors have been accused of using YouTube’s content management system to claim royalties that are not rightfully theirs. In 2022, two men in Phoenix, Arizona pled guilty to claiming $23 million worth of YouTube royalties from unknowing Latin musicians like Julio Iglesias, Anuel AA, and Daddy Yankee despite having no actual ties to those artists. To facilitate claiming those royalties, the two men, operating under the company name MediaMuv, used AdRev, a rights management firm owned by Downtown.
“Believe is a company built on industrial-scale copyright infringement,” said a spokesperson for UMG in a statement. “Their illegal practices are not limited to cheating artists on major labels but artists on independent labels as well — including artists on the independent labels within the trade bodies of which Believe is itself a member. It’s no wonder that Believe has been outspoken against the streaming reform principles for which so many major and independent labels have been advocating. Why? Because such reforms would undermine and expose their system of building scale and market presence by distributing music for which they have no rights and illegally collecting royalties to enrich themselves and their co-conspirators.”
The complaint specifically charges Believe with direct copyright infringement, contributory copyright infringement, vicarious copyright infringement, direct infringement of pre-1972 sound recordings, contributory infringement of pre-1972 sound recordings and vicarious infringement of pre-1972 sound recordings.
Representatives for Believe and TuneCore did not immediately respond to Billboard‘s requests for comment.
It’s been a busy year for TuneCore’s parent company Believe. On March 1, the French music giant, which was publicly traded on the Euronext Paris stock exchange, announced that its board of directors had approved the move to take it private and that there was an “interested party” looking to acquire it. First, however, the bidder was requesting due diligence information and financial data ahead of making a formal bid. Later that month, the name of the bidder was revealed when it was announced that Warner Music Group (WMG) had issued a formal notice to disclose its interest in acquiring Believe, which also owns publishing administrator Sentric as well as labels like Naïve, Nuclear Blast and Groove Attack.
In early April, however, WMG called off its plans to submit a formal offer. The label did not elaborate on its decision, stating only that it was made “after careful consideration.” On April 19, Believe’s board of directors announced it was supporting an offer to take the company private at 15 euros ($15.98) per share from a consortium of funds managed by TCV, EQT X and Believe chairman/CEO Denis Ladegaillerie. The board’s three independent members unanimously voted in favor of an opinion that the bid was in the interest of minority shareholders.
Fraud and copyright infringement have been hot-button issues in the music business as the industry becomes more and more democratized, offering anyone the opportunity to release music in hours — sometimes minutes — at the click of a button. In response, TuneCore, along with CD Baby, Distrokid and other competitors, set up “Music Fights Fraud,” a coalition designed to stop bad actors from hopping from service-to-service to release songs they don’t own the rights to. A number of initiatives, including Credits Due, have since launched to try to fix metadata problems in the music business that can leave artists susceptible to royalty stealing and fraud, particularly on sites like YouTube.
Still, despite these efforts, TuneCore and other DIY distributors have been accused of allowing bad actors to use their sites to upload infringing or fraudulent content. In August 2020, Round Hill Music’s publishing arm sued TuneCore for “willful and unauthorized use” of 219 of their sound recordings. And in 2022, Billboard reported that some music executives believe Create Music Group games the system on YouTube to claim royalties, with one label source claiming the company was doing so “egregiously.”
Just last month, TikTok also rang the alarm bell about fraudulent content when it backed out of licensing negotiations with Merlin, a coalition of indie labels and distributors, to allegedly curb users uploading works they don’t own the rights to on the platform. TikTok said it would instead pursue individual licensing deals with labels and distributors that it considered to be safe.
The music business is getting back to basics.
In a few short years, the major labels have gone from investing in and partnering with speculative tech startups to pouring money into regionally focused music companies across Asia, Africa and Latin America. After a brief flirtation with NFTs and live-streaming businesses, anything resembling a faddish technology seems to be out of favor, judging from the deals and partnerships they’ve been making lately. Instead, the majors are targeting old-school music companies that own catalogs and develop artists — and can benefit from the majors’ global network of distribution and other services.
In 2024 alone, the three majors — Universal Music Group, Sony Music Entertainment and Warner Music Group — have acquired or invested in 11 record labels, music catalogs and service providers in small or developing markets. The flurry of deals — there were even more in 2023 and preceding years — provides the majors with more content for their ever-increasing distribution pipeline and more international artists to take to Western markets.
Take UMG’s run of acquisitions and investments in 2024: the remaining stake of European indie label group [PIAS], the remaining stake in the catalog of Thai music company RS Group, a majority stake in Nigerian record label Mavin Global and the outright acquisition of Outdustry, a multi-faceted company with an artist- and label-services arm that focuses on China, India and other high-growth emerging markets. Outdustry will be a division of Virgin Music Group, UMG’s fast-growing distribution and artist services company that includes distributor Ingrooves Music Group and Integral, formerly the artist services division of [PIAS].
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UMG, in particular, is letting the world know about its intentions. On Thursday (Oct. 31), UMG CEO Lucian Grainge dedicated much of his earnings call opening statements to the company’s efforts to expand into potentially lucrative markets that merited little attention before legal streaming services replaced digital piracy. UMG plans to make “several other investments” before the end of the year, CFO Boyd Muir said during the earnings call. In total, he said, investment spending in the second half of the year will be 350 million to 400 million euros ($380 million to $434 million).
The focus on emerging markets and artist services is a noticeable change from a few years ago. When NFT prices soared and fans were stuck at home during the pandemic, the majors invested in blockchain, virtual reality and live-streaming startups. Today, as the majors face slowing streaming growth in mature markets and the needs of an increasing number of independent artists, they’re focused on building a global network of service providers with an eye on up-and-coming markets.
The focus on emerging markets goes beyond acquisitions. In September, UMG launched a new company, Universal Music Group Greater Bay Area, that will be based in Shenzhen, making “the first time a major music company has established a division in China’s Greater Bay Area, the world’s most populous urban area,” the company said.
Another development mentioned on UMG’s earnings call was GTS, a global talent services business in Latin America. In October, GTS became a standalone company separate from UMG’s record labels. “By separating from our local labels,” Grainge explained, “GTS will now be able to also offer its services to artists outside of the UMG family.”
Grainge and Muir painted a picture of a global business determined to expand outside of the mature markets they know best and build a presence in high-growth ones. UMG’s competitors — including independent Believe — are doing the same.
WMG has also had a busy year investing in traditional music companies. In March, WMG purchased a stake in India’s Global Music Junction (India’s The Economic Times reported it was a 26% stake) and launched Warner Music South Asia in April. Last year, the company took a majority stake in Divo, an Indian digital media and music company. Earlier this week, CEO Robert Kyncl told The Economic Times that China and India are the company’s top markets for expansion. “We’re already doing great in India, but it can be a much bigger part of our story,” Kyncl told the paper.
The majors continue to buy catalogs, of course. This year, Sony Music purchased Pink Floyd’s recorded music catalog (in addition to merchandising and name and likeness rights) and UMG bought a minority stake in Chord Music Partners, which holds the rights to over 60,000 songs. Expensive song catalogs give the majors rights to assets with long, productive lives. But given the enormous size of these companies, artist catalog acquisitions barely move the revenue needle. A legendary artist’s catalog might cost $200 million but generate a steady $10 million a year — a healthy sum but a pittance to a company with annual sales exceeding $12 billion.
Rather than pour money into just catalogs, the majors are buying entire companies and building new businesses with growth potential. As Morgan Stanley analysts wrote in an investor note about UMG on Thursday (Oct. 31), earlier acquisitions have had “a negligible effect on revenue and a small impact on profit growth.” But in the future, they are likely to be a more important driver of revenue growth, and Morgan Stanley expects UMG’s financial reports will break out their impact (e.g. reported revenue vs. organic revenue).
In buying regional music companies and building artist-services business, the majors are also taking a defensive measure. Independents such as Believe have been investing in local markets for years. In 2024 alone, Believe purchased the remaining stake in Turkish record label DMC and acquired Indian label White Hill Music’s music catalog and YouTube channel. Independent distributors such as UnitedMasters, Stem, Symphonic Distribution and Create Music Group have given artists a viable alternative to major label-owned systems. The majors are simply changing along with the market.
In 2012, UMG acquired the recorded music assets of EMI Music and later sold some pieces to WMG to satisfy antitrust regulators. Opposition to greater consolidation in the U.S. and Europe means it was probably the last acquisition of its size in those regions. (WMG’s brief flirtation with buying Believe in April and May quickly drew opposition from French indie labels.) There’s less opposition to more gradual growth taking place elsewhere in the world, though. The majors are continuing to expand, but they’re taking many small steps, not single EMI-sized leaps — and they’re doing it through old-fashioned music businesses.
Boyd Muir, who serves as executive VP/CFO/president of operations at Universal Music Group (UMG), has been promoted to COO, the company announced Thursday (Oct. 31). Muir, who has been the company’s CFO since 2010, will hold the titles of both CFO and COO while UMG undergoes its search for a replacement. “Boyd’s done an outstanding […]
Strong subscription revenue, improved margins and successful new releases by Sabrina Carpenter, Chappell Roan and Post Malone helped Universal Music Group (UMG) post revenue of 2.87 billion euros ($3.16 billion) in the third quarter, up 4.3% year-over-year (4.9% at constant currency).
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) reached 621 million euros ($683 million), up 8.2% from the prior-year period. The Amsterdam-based company’s adjusted EBITDA margin improved to 21.6% from 21.1% in the prior-year quarter and was helped by cost savings from the organizational redesign announced in February and lower A&R and marketing costs, CFO Boyd Muir said during Thursday’s (Oct. 31) earnings call.
If not for a one-time gain in the prior-year quarter, the revenue growth rate would have been 7.6% and adjusted EBITDA growth would have improved to 10.8%. Last year, Universal Music Publishing Grou (UMPG) recognized the accrual of a catch-up payment from the Copyright Royalty Board (CRB) Phonorecords III ruling. That resulted in revenue of 53 million euros ($58 million) and added 11 million euros ($12 million) to UMPG’s adjusted EBITDA.
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UMG had a typically strong quarter of chart-topping new releases. CEO Lucian Grainge noted during the call that Carpenter’s album Short n’ Sweet, released on Aug. 23, went to No. 1 in 15 countries and topped the Billboard 200 albums chart in the U.S. for four non-consecutive weeks. Elsewhere, Roan’s The Rise and Fall of a Midwest Princess topped Billboard’s Album Sales Chart in September, while Malone’s latest album, F-1 Trillion, debuted at No. 1 on the Billboard 200 and also summited the Top Country Albums chart. Island also has a top 10 hit song in the U.K. with Gigi Perez’s “Sailor Song,” which peaked at No. 28 in the U.S.
The recorded music division improved 5.4% to 2.15 billion euros ($2.36 billion) on the strength of a 7.6% improvement in subscription revenue. Other streaming revenue, however, dropped 0.8% (up 0.3% at constant currency) to 354 million euros ($389 million). Physical sales dropped 2% to 288 million euros ($317 million) while licensing revenue jumped 20.4% to 325 million euros ($357 million). Subscription growth was negatively affected by “just over a percentage point” from “ongoing challenges” in the home fitness subscription market and the departure of the record label 10K Projects to Warner Music Group, said Muir. Lower CD sales in Japan were partially offset by strong vinyl sales, he added, especially in the U.S.
Muir affirmed UMG’s previously announced guidance of an 8% to 10% compound annual growth rate for recorded music subscription revenue through 2028. UMG may not always hit that target range in any given quarter, however, and Muir reminded listeners that the fourth quarter marks one year since a Spotify price increase that has helped UMG — and other record labels — experience a surge in year-over-year subscription growth.
UMPG improved 1.8% (2.2.% at constant currency) to 500 million euros ($550 million). Excluding the CRB accrual, publishing revenue was up 22.4% (22.9% at constant currency). Digital revenue grew 0.3% to 295 million euros ($324 million), synchronization royalties jumped 18.5% to 64 million euros ($70 million) and mechanical revenue climbed 12% to 28 million euros ($31 million). Performance royalties fell 4.7% to 101 million euros ($111 million).
UMG’s Bravado merchandise division had revenue of 237 million euros ($261 million), up 4.4% from the prior-year period. The company attributed the growth to stronger direct-to-consumer sales and higher touring merchandise sales. In the U.S., Bravado benefitted from the touring activity of such artists as Slipknot, Imagine Dragons, Nicki Minaj, blink-182 and Malone, according to Muir.