Poor Lucian Grainge. It’s got to be a funny feeling, waking up one morning and knowing that, no matter what you do or say, you’re probably going to end the day wiping out billions of dollars from your company’s value. Even stranger knowing that you’ve probably just kissed goodbye for the foreseeable future - or maybe forever - an enormous bonus that you’d come within a whisker of being able to claim.
Universal Music’s Q2 earnings call this week was a sombre affair. Coming the day after Spotify’s positive news - firing people has been a huge success! pulling a fast one on songwriters is paying off! - many people expected Universal’s quarterly update to be similarly positive, but - alas - it was not to be so.
Within minutes of the UMG earnings report being published as the Amsterdam Euronext market - where the company is listed - closed, Warner Music’s share price dropped sharply as it played proxy for frustrated investors unwinding their positions in music companies. By the next day, Universal’s share price fell off a cliff, dropping by as much as 30% and erasing nearly €16 billion in shareholder value.
The signs were all there. An unusually stiff invitation, edged in black would not have been out of place. Was that a panpipe cover of Chumbawamba’s ‘Tubthumping’ playing quietly through a tinny Bluetooth speaker? Low lighting, a quiet murmur of other guests damped by heavy velvet drapes. “Welcome to UMG’s Q2 results”, whispers a steward as stony-faced analysts file silently in. “Please be kind”.
It was an unusually awkward start for the normally ebullient Grainge. “Thank you… and hullo to everyone and, uhhh, big greetings live... from us… in Hilverson”.
Gone was the trademark garrulous Grainge charm, gone were the frenetic hoots of “win-win” punctuating every other sentence. As William Bell once sang - in a recording owned, handily enough, by Universal - “Everyone loves a winner, but when you lose you lose alone”. Fortunately for Lucian his trusty compadres Boyd Muir and Michael Nash were standing by, ready to help him couch the numbers.
Grainge tried to lead with the positive. When he gets knocked down, he gets up again. Revenue up 10%, adjusted EBITDA up 11%. “Twelve consecutive quarters of at least high single-digit revenue growth for us since listing and our seventh consecutive quarter of double-digit increase in adjusted EBITDA”.
But where’s this going, Lucian? What’s the message? “Our ability to deliver sustainable growth like this quarter after quarter is a product of how we’ve designed UMG. Simply put, we’re a multifaceted music entertainment company. We have a wide-ranging variety of revenue streams across both traditional and non-traditional businesses and including both established and emerging ones”.
And it’s true! Universal does indeed have a wide-ranging variety of revenue streams. There’s traditional streaming that makes lots of money, some similar-but-different traditional streaming that doesn’t make a whole load of money, non-traditional streaming that makes some money when you’ve not pulled your content from the service, publishing income from all those different flavours of streaming, and then some downloads and physical and merch and some other bits and pieces.
But count those up… if you take a broad brush approach and say that “other bits and pieces” could be another half dozen things, then there are at least fifteen different revenue streams.
Forget that the bulk of the income comes from streaming. Focus on the diversity of revenue streams - because that, says Lucian, is what “propels our growth”. Don’t focus on streaming. Streaming is old news, it’s flakey, it goes up and down. Streaming can’t be relied on to deliver consistent win-wins quarter after quarter. If it could we wouldn’t all be sitting around wondering how €16 billion can just vanish in the blink of an eye.
Through Universal’s “journey of long-term growth” Lucian and his trusty compadres have seen it all. “We know that quarterly fluctuations in one source of revenue or another are to be expected”. Think nothing of it. It’s just numbers on a page. “We’re the most successful, diversified and profitable music company in the world!”
“While we report results quarterly”, to keep you troublesome sticky-beaked analysts happy, “we manage the business for long-term success”. Unlike you short-term thinkers, obsessed with numbers in your dusty old excel spreadsheets “we think in multi-year cycles and anticipate and embrace variations in certain business lines”. We love chaos! We THRIVE on chaos. We eat chaos for breakfast, and we always think of the future, and the win-win.
“For example, our second quarter results reflect the varied performances of our diverse portfolio of DSP partners”.
Uh oh. What’s that Lucian? Varied performances? Remember, when you weigh things in the balance, you’re probably better off having Lucian Grainge as a friend. Remember what happened when TikTok chief Shou Zi Chew and Lucian fell out? Remember how that one ended?
“Their performances, some more positive than others, vary as a consequence of their having different strategies for growth, different consumer engagement dynamics, different regional strengths, and their own unique product roadmaps for their subscription and ad-supported offerings. Boyd will discuss this further later”.
Oh dear. Just you wait until your father gets home.
If you’re a DSP with a “unique product roadmap”, now is probably a good time to go and hide.
But Lucian always looks for the win-win, and the win-win here is easy. “Our proactive approach to working together” with DSPs “in driving both subscription and ad-supported revenue, the development in the pipeline of new products and offerings” and Univeral’s “deep long-term relationships” with “the DSPs where we’ve demonstrated our ability to create win-win solutions for everybody” means that despite some DSPs delivering a frankly shoddy performance, he’s fairly copacetic about the future.
Unless, of course, you’re one of those DSPs with a “unique product roadmap” which has not developed a codependent relationship with Universal that lets Universal take to your product roadmap with a red pen.
Who might that be? Over to Boyd.
“Streaming and subscription growth” were, Muir admitted, “slower than expected”. This is because of the “slowdown in subscriber growth at certain platforms, which is occurring while the overall subscription marketplace continues to experience significant growth in subscribers globally”.
Certain platforms. You know you are. Stay behind at the end of the day and come and talk to me privately. Otherwise everyone will be poorer for it.
“While Spotify, YouTube and many regional and local platforms have continued to exhibit healthy growth in subscribers, other large partners” have been a disappointment to themselves, and to everyone else.
You can draw up your own list and score out Spotify, YouTube and the regional and local platforms. How many DSPs are left? And which large global partners haven’t got a line through them?
Well, quite.
Get your roadmaps out, folks, and hand them in to Lucian and Boyd. The red pens are coming out.
“We are engaged with all our key partners in an in-depth dialogue regarding product innovation to target high-value customers and drive future revenue growth”, said Muir. And if you’re not part of that conversation then you might want to take a long hard look at which side your bread is buttered.
