Universal Music Group Revenues Up 6% to $2.8B on Subscription Growth, As Execs Talk TikTok Deal

Helped by paid music subscriptions and a strong performance from its music publishing division, Universal Music Group generated revenue of 2.59 billion euros ($2.8 billion) in the first quarter of 2024, a 5.8% increase (7.9% at constant currency) over the prior-year quarter, the company announced Thursday (May 2). 

Notably, UMG’s margins improved from a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 13.2% to 591 million euros ($640 million). As a percent of revenue, adjusted EBITDA margin was 22.8%, up 1.5 percentage points from 21.3% from the first quarter of 2023.

CFO Boyd Muir attributed the margin improvement to revenue growth and a change in product mix — namely, less physical sales — but during Thursday’s earnings call he cautioned “not to read too much into any one quarter” and urged investors to look at trends over longer periods.

The quarterly earnings release arrived a day after UMG announced a new licensing deal with TikTok. Analysts probed for insights into the economics of the agreement and possible impacts to UMG’s financial statements. Executives declined to provide details about the deal but insisted it provides fair value relative to other short-form video platforms.

Michael Nash, UMG’s executive vp/chief digital officer, said the new TikTok deal is “a substantial improvement” from the previous one and the revenue “does markedly improve for our last deal.” Some of the deal’s value is difficult to quantify, however. Nash added the new agreement contains “aspects of economic value” — such as ad credits, data and marketing programs — that won’t show up in future financial statements. 

Each of the company’s divisions — recorded music, music publishing and merchandise — showed improvements in the first quarter. “This broad-based growth continues to underpin our confidence about the longer-term health of our business,” said Muir. 

Subscription services were a main driving force in UMG’s quarter. Recorded-music subscription revenue grew 10.7% to 1.12 billion euros ($1.2 billion) and accounted for 43.3% of total company revenue, up from 41.4% in the fourth quarter of 2023. Recent price increases by Spotify, Apple Music and Amazon Music weren’t the only — or the primary — factor. “Subscriber growth is the biggest driver of the year-over-year growth rates we see at UMG,” said Muir. 

Total streaming revenue grew at a slower rate, however, gaining 8.9% to 343 million euros ($371 million). Speaking about ad-supported streaming, Muir said he is “encouraged” by improvements but “cautious” about growth “until we see a consistent broad-based improvement across all partners and across all geographies and probably over a more consistent, longer-term timeframe.” 

Total recorded-music revenues grew just 3.4% to 1.99 billion euros ($2.15 billion). Top sellers in the quarter came from Taylor Swift, Noah Kahan, Morgan Wallen, Ariana Grande and Olivia Rodrigo. Physical revenue in the recorded-music segment dropped 18.5% to 255 million euros ($276 million). (Taylor Swift’s The Tortured Poets Society, which sold 859,000 vinyl copies in its first week of release, will impact UMG’s second quarter results.) Muir explained the decrease in physical sales stemmed from particular strong physical sales in Japan in the prior-year quarter. Licensing and other revenue fell 1.8% to 222 million euros ($240 million). 

Music publishing revenue jumped 16.7% to 496 million euros ($537 million) thanks to digital revenue’s 22.9% increase to 284 million euros ($307 million). Performance revenue’s 26.7% increase to 114 million euros ($123 million) more than compensated for synch revenue’s decline of 10.1% to 62 million euros ($67 million) 

Merchandising revenue grew 6.5% (7.5% at constant currency) to 114 million euros ($123 million). Touring merchandise sales increased while direct-to-consumer sales and retail sales declined. 

The company remains on track to realize 75 million euros ($80 million) in cost savings in 2024, said Muir. In February, the company announced a plan to save $270 million annually through organization redesign and layoffs. As part of the redesign, UMG created label operations on the coasts under the leadership of two top executives. On the East Coast, Republic Corps is led by Republic Records co-founder Monte Lipman. On the West Coast, Interscope Capital Labels Group is helmed by John Janick, previously the chairman/CEO of Interscope Geffen A&M.