Vivendi’s Pivot Speaks To The State Of The Music Industry
Last week a subtle headline came across the financial tickers. European media conglomerate Vivendi announced it was planning to sell 50% of its Universal Music Group subsidiary. Prior to this disclosure industry experts believed Vivendi was prepping to spin off UMG into its own entity through an IPO. So the shift to a 50% sell off caught the industry by surprise.
While you may not think this announcement is remarkable, the underlying cause is a fascinating statement about today’s music industry. While UMG runs a profitable record label, their real value is in the copyrights of the songs it holds. As the owner they make a publishing royalty every time their songs are sold through a physical purchase, played on the radio, or streamed. Traditionally labels have hoarded song copyrights to create an annuity revenue stream into eternity.
However, thanks to streaming the music industry’s revenue model is changing. Labels can no longer bank on selling repackaged albums in a “Greatest Hits” format, so the long-term publishing value might be going down. On the other hand audio streamers are looking for ways to reduce their royalty expenses, and owning song copyrights could accomplish this. So could Vivendi be hoping a streamer like Apple, Spotify or Pandora would be in the market to buy a huge chunk of song copyrights at a premium through UMG? It’ll be very interesting to see if they can pull this off.