Copyright Billboard
Universal Music Group (UMG) reported solid growth across all three business units on Thursday (Oct. 30), with revenue rising 10.2% in constant currency to 3.02 billion euros ($3.53 billion). Early shipments of Taylor Swift’s The Life of a Showgirl, which had an Oct. 3 street date, helped UMG’s physical sales jump 23% year over year. But the quarter was dominated by subscription gains and strong publishing results. During Thursday’s conference call, the conversation was heavy on AI and UMG’s new partnership with the generative AI platform Udio. Here are some main takeaways from UMG’s third-quarter results and executives’ comments during Thursday’s conference call. UMG Announced a Renewed Licensing Deal with YouTube Usually, a major announcement regarding a leading streaming platform gets its own press release. But during Thursday’s conference call, CEO Lucian Grainge slipped news of UMG’s new licensing deal with YouTube into his opening remarks. It’s the company’s third licensing deal in its “Streaming 2.0” initiative and covers both recorded music and publishing. Previous Streaming 2.0 deals, which the company says prioritize artist-centric principles, were signed with Amazon in December and Spotify in January. “The agreement includes all aspects of YouTube’s various music services and platforms, embodies our artist centric principles and drives greater monetization for artists and songwriters,” Grainge said. “And as part of our new YouTube deal, we’ve secured really important guardrails and protection for our artists and writers around Gen AI content.” The Udio Partnership Furthers UMG’s Superfan Ambitions Some people view a generative AI platform as a means to create music that competes with artists signed to both major and independent record labels. That may have been the common perception of Udio, a popular music-making platform that requires only simple text prompts to create fully formed songs. But on Thursday, UMG made it clear it views its newly signed licensing partnership with Udio as part of its ambitions to reach “superfans,” the people who spend the most time and money on music. That puts Udio in the same category as the long-awaited superfan tiers of subscription services such as Spotify. “What we’ve announced with Udio, and in terms of artist centricity, what’s significant there is that the product vision is to focus on a superfan experience for customization, a deep engagement [and] hyper-personalization of the experience for fans interacting through AI technology with the artists that they love,” chief digital officer Michael Nash explained during the conference call. Nash called Udio’s new platform, which will launch in 2026, a “subscription service [that] will transform the user engagement experience, creating a license to protect the environment, to customize, stream and share music responsibly on the audio platform.” The Artist is Central to AI Music UMG executives were coy when asked for specifics about the Udio partnership, but they repeatedly emphasized that any AI music platform that partners with UMG will have an artist-centric approach. Nash mentioned UMG’s just-announced partnership with Stability AI, a startup that builds generative AI models for audio and video, to create new tools that benefit its artists and songwriters. “The economics of the music ecosystem are really driven by fans’ desire to engage with artists and by fans’ desire to participate in music culture,” Nash explained. “We’re envisioning products that deepen both of those things.” Nash pointed to UMG’s internal research of the U.S. market that revealed 50% of music consumers are interested in AI “in relationship to their music experience.” But fake artists ranked lowest amongst U.S. consumers. “There’s a lack of traction” amongst fake artists, he noted, “other than the occasional novelty phenomenon that may capture some headlines.” Short-Form Video Has Caused a “Disruption” in Ad-Supported Royalties People love watching short videos on platforms such as TikTok and YouTube Shorts. Unfortunately for record labels and music publishers, newer short-form platforms don’t monetize music as well as older, long-form platforms with established advertising businesses. As a result, UMG’s streaming revenue — everything other than subscriptions — was flat in constant currency. Other than digital downloads, which were also flat, every other aspect of UMG’s recorded music division posted gains in the quarter. Nash said UMG’s recent licensing deals, including the one with YouTube that was announced during the conference call, were the result of “broad-based efforts” to address the “disruption” to ad-supported royalties caused by short-form video and efforts to better monetize it. UMG is Making Progress with Japanese Music — Both Inside and Outside of the Country Japanese music has a reputation for not traveling well, but Grainge highlighted the success of Japanese artists outside of their home country. In March, BABYMETAL signed to Capitol Music Group in the U.S. and, according to Grainge, became the first Japanese artist ever to reach the top 10 of the Billboard 200 album chart with its album Metal Forth. Earlier this year, Grainge added, UMG’s J-pop artist Ado played to 500,000 fans in 33 cities across Asia, Europe, the U.S. and Latin America. UMG fared well inside Japan, too, led by releases from Mrs. GREEN APPLE and Fujii Kaze, with strong sales there helping drive UMG’s 23% increase in physical sales. Additionally, Grainge said that UMG recently increased its majority stake in Japanese label and artist management company A-Sketch by acquiring the minority stake of KDDI Corporation. UMG initially acquired its majority interest in February by purchasing the stake of the company’s co-founder, Amuse. The Best Subscription Growth in Q3 Came from Outside the U.S. Growth in subscribers in the top 10 markets, not price increases, was the major factor in UMG’s 8.7% (in constant currency) subscription revenue growth, said CFO Matt Ellis. But the U.S. wasn’t at the top of the list. UMG saw double-digit subscription growth in China, Brazil and Mexico, while in the U.S., it saw high single-digit growth. Four of UMG’s top five streaming services delivered double-digit or high single-digit revenue growth. With 8.7% subscription growth, UMG was within the 8% to 10% range it targets for long-term growth. Good thing, too, since investors see subscription growth as an all-important metric when assessing UMG’s market value. “We remain encouraged by the trajectory of the subscription business,” said Ellis.
