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Universal Music Group was $ 8.4 billion in 2020 … and spent over $ 1.7 billion on catalog acquisitions and artist advancement

Universal Music Group started 2020 with a slight, albeit significant, increase in sales: total annual sales across all businesses (including publishing and music recording) increased 4.7% year over year.

But the really standout story for UMG last year – maybe music for those who hope it will get a gigantic rating in the months to come – was their earnings development.

In 2020 UMG achieved total sales of EUR 7.43 billion (USD 8.40 billion) with an EBITDA of EUR 1.49 billion (USD 1.68 billion). This corresponds to an impressive annual EBITDA margin of 20%.

As a result, Universal was nearly $ 250 million more profitable on an EBITDA basis in 2020 than it was in 2019.

However, UMG’s annual cash flow from operating activities fell significantly in 2020 compared to the previous year to EUR 50 million (USD 57 million).

Why? Vivendi’s latest results show that UMG spent EUR 1.52 billion (US $ 1.71 billion) last year on a combination of catalog acquisitions and “advancement for artists without making amends”.

The latter descriptor relates to the total amount that UMG has spent in the year on artist advances, minus the money that UMG has received again in the period for these payments.

The figure of 1.71 billion USD was more than three times as high as the corresponding expenditure figure by UMG (“advances to artists without repayment” plus catalog acquisitions) from 2019 (465 million EUR / 522 million USD).

“In the year before the IPO in Amsterdam, Universal poured a lot of money into new contracts with superstars and bought music catalogs.”

All of this suggests something very clear: In the year leading up to the Amsterdam IPO, Universal injected a ton of money into new deals with superstars and buying up music catalogs.

One of these music catalogs was of course Bob Dylan’s song collection, which UMG acquired in late 2020 for a price between 300 and 400 million US dollars.

(Another useful context: in the two and a half years leading up to September 2020, the aggressively acquired Hipgnosis Songs Fund spent £ 1.18 billion – around $ 1.70 billion – buying music equipment.)

The latest business figures from Universal were received today (March 3rd) from UMG parent Vivendi in the results for the fourth quarter of 2020.

These results show that Universal’s music recording division had annual sales of EUR 5.97 billion (US $ 6.74 billion) in 2020, an increase of 6.7% year over year.

The main driver of this recorded music revenue was streaming, which brought in EUR 3.83 billion (USD 4.33 billion) in UMG coffers, an increase of 16.2% over the previous year. (All year-on-year percentages in this story reflect organic increases / decreases.)

Universal Music Publishing Group, Universal’s music publishing division, had annual sales of EUR 1.19 billion (US $ 1.34 billion), up 14.4% year over year.

UMG’s division most obviously affected by the pandemic was the Merchandising & Other sales category – Housing Bravado – in which annual sales fell 39.6% in 2020.

Vivendi’s preferred earnings metric – EBITA (Earnings Before Interest, Taxes, Depreciation and Amortization) – was EUR 1.33 billion ($ 1.5 billion) in 2020, up 20.1% year over year.

The company found that annual EBITA margin of 17.9% has increased significantly over the past four years, down from 12.2% in 2016.

In the fourth quarter in particular (three months to the end of December), Universal posted year-over-year sales growth of 5.4% and music business growth of 7.9%.

In 2020 UMG won four of the top 5 artists of the year on Spotify worldwide (Drake, J Balvin, Juice WRLD, The Weeknd) as well as the No. 1 song of the year (The Weeknd’s Blinding Lights).

And according to Nielsen Music / MRC data, Universal has won all of the top 6 albums of the year in the US with efforts from Lil Baby, Taylor Swift, Pop Smoke, The Weeknd, Juice WRLD, and Post Malone.

Today’s news comes a little over two weeks after Vivendi confirmed that management was considering a proposal to bring 60% of UMG to the Amsterdam Stock Exchange sometime in 2021.

A consortium led by Tencent Holdings completed the acquisition of a second 10% share of UMG’s equity in January and increased its total stake in the music company to 20%.

This acquisition gave Universal Music Group a company valuation of 30 billion euros (currently around 36 billion US dollars).

It is assumed that Vivendi would hold 20% of UMG with the spin-off, with the Tencent consortium also keeping a 20% stake – the rest of the music company will be listed.

* All currency conversions from EUR to USD in this story were carried out at the relevant average annual rates specified by VivendiMusic business worldwide

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