The Ledger: Inside Universal Music’s 2021 Annual Report

The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.

Universal Music Group’s first-ever annual report, released Thursday, offers an exhaustive look at the company’s finances and operations as well as environmental, social and governance initiatives. If you want to know how many metric tons of paper was purchased for internal use (24) or the number of megawatt hours of electricity from renewable sources (7,982), it’s in there.

In terms of dollars and cents behind investments and catalogs, the annual report has a few things worth highlighting.

• UMG sold Alamo Records for 102 million euros ($112.7 million) for a gain of 98 million euros ($108.3 million). Sony Music reportedly bought a 75% stake in the label, which industry veteran Todd Moscowitz founded in partnership with UMG in 2017. The label helped build the careers of Rod Wave, Lil Durk, Blackbear and Smokepurpp, among others.
• UMG spent 388 million euros ($428 million at the current exchange rate) in catalog investments, down from 975 million ($1.08 billion) in 2020 (this was also mentioned in the fourth quarter 2021 earnings report). Companies tend not to discuss price tags, so this aggregate amount is all we have. UMG acquired Sting’s songwriting catalog in 2021 (it was announced in Feb. 2022), which puts the artist’s songwriting under the same house as his entire recorded music catalog (solo works and the Police recordings are on A&M, Interscope and Cherrytree Records). Billboard reported that Sting’s representatives were shopping the catalog for roughly $360 million. As a point of comparison, BMG spent 281 million euros ($311 million) on catalog acquisitions in 2021, according to Bertelsmann’s 2021 annual report.  Warner Music Group used $481 million to acquire music-related assets in its fiscal year ended Sept. 30, 2021.
• UMG made 364 million euros in royalty advance payments (net of recoupments), down from 588 million euros in 2020. UMG said the decline was due to “the timing of major artist renewals and higher recoupment of advances.” Advances are a standard part of signing and developing artists, and it’s a good sign when labels and publishers can recoup advances at a faster rate.

As for other UMG investments, the report revealed that revaluing its Spotify and Tencent Music Entertainment investments resulted in a net expense (non-cash) of 315 million euros and a 135 million euro decrease in income taxes reported to net income. These stock prices will change from one period to the next. In 2020, Spotify and TME appreciated in value, resulting in a net income of 591 million euros. Both stocks are down year to date but performed well in March.

Overall, UMG posted strong financial growth in 2021 across its recorded music, publishing and merchandise segments. At constant currency — ignoring currency exchange rates — revenue rose 17.0%, operating profit improved 15.4%, adjusted EBITDA increased 20.9% and adjusted EBITDA margin rose 0.9 percentage points.

Oddly, one of the most telling groups of numbers in the report isn’t financial. The report has a list of the top 10 “influencers” from May 2021, as ranked by number of social media followers. Six of the 10 names are UMG artists, including Justin Bieber (No. 2), Ariana Grande (No. 3), Selena Gomez (No. 4) and Taylor Swift (No. 5). Cristiano Ronaldo, the Portuguese soccer player currently playing for Manchester United in the Premier League, is No. 1. The big screen’s lone entrant, Dwayne Johnson, is No. 6. Kylie Jenner and Kim Kardashian are No. 8 and No. 10. None of UMG’s competitor record labels are represented on the list. UMG also has 8 of the top 10 global artists, as measured by the IFPI, and 8 of the top 10 artists in the U.S., as measured by Billboard.

Often lost in the conversation about catalog acquisitions is the fact that today’s hits are incredibly valuable because they turn into tomorrow’s catalog, the steady earners that will remain popular on streaming services for years to come. UMG’s chart dominance today will translate into valuable catalog down the road.

STOCKS

Through April 1, the % change over the last week, and the year-to-date change.

Spotify: $153.66, +5.2%, -34.3% YTD
Universal Music Group: 24.00 euros, +2.4%, -3.1% YTD
Warner Music Group: $36.98, -2.5%, -14.4% YTD
Believe: 14.31 euros, +12.1%, -15.3% YTD
Live Nation: $114.37, -1.7%, -4.4% YTD
Vivid Seats: $11.50, +5.7%, +5.7% YTD
Eventbrite: $14.93, +6.0%, 14.0% YTD

NYSE Composite: 16,787.75, 0.0%, -2.2% YTD
Nasdaq: 14,261.50, +0.7%, -8.8% YTD

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