MBW Reacts is a series of analytical articles from Music Business Worldwide written in response to recent major entertainment or news events. In this case, we’re looking at the market dynamics behind Universal Music Group’s decision to spend $45.5 million (and potentially another $4.9 million) to buy a majority stake in one of the biggest houses. independent record companies from Thailand.
Universal Music Group is the largest recorded music company in the world by any distance.
In the first quarter of this year, UMG recorded music revenue from streaming was US$1.426 billionaccording to financial data published in the Netherlands for its investors*.
It was 27% greater than the equivalent worldwide recorded music streaming revenue at sony (US$1.123 billion) in the first calendar quarter – and nearly double the recorded music streaming revenue recorded by Warner Music Group (US$773 million) in the same period.
(* Currency converted at the average quarterly USD-EUR rate of the European Central Bank.)
This commercial leadership in the global recorded music market is one of the main selling points of UMG shares to investors.
Like Universal ten% shareholder (via Pershing Square) Bill Ackman says Universal is a “high-quality, low-cap company that can be seen as a rapidly growing royalty on greater global consumption and monetization of music” .
UMG’s Global Revenue Mix: A Changing Picture
Whether UMG investors were to choose a particular area to drive the company’s numbers forward in the future, they could point to its global revenue composition.
According UMG last Annual Reportin 2022, for the very first time, more than 50% of the company’s worldwide recorded music revenue came from North America (51.4%).
It should be noted that a strong dollar during the year meant that UMG Euro-declared company figures gave North American revenues additional weight.
However, the numbers continued a long-standing trend of North America increase its share of UMG’s global recorded music revenue in the streaming era.
The North American market (Canada plus the United States) represented only 39% of UMG’s worldwide revenue eight years earlier (2014, see below).
The biggest “loser” in terms of UMG’s global revenues over these eight years (2014-2022) has been Europe (including the UK), which has seen its 41% share of UMG’s revenue in 2014 fell to just 27.6% in 2022.
Meanwhile, during the same period, from Asia share of UMG’s revenue remained fairly stable – from 11% in 2014, before moving to 13.7% in 2019, and resettle 12.7% in 2022.
That said, UMG has reached a major milestone in Asia in 2022: Topping €1 billion (€1.007 billion) in reported revenue from recorded music in the region.
From a certain point of view, the disproportionate contribution to UMG revenues from North America in recent years were quite predictable: Canada plus the United States 41.6% in global recorded music wholesale revenue in 2022, according to IFPI figures.
This was equivalent to approximately $10.9 billion of global record industry revenue $26.2 billion last year – with the contribution of the United States $10.3 billion only.
However, indications from the global recorded music industry now clearly point to a shifting balance of power – with Asia in particular called upon to rapidly increase its share of the world market.
UMG will be fully aware of this fact – and, apparently, ready to react.
Understand the numbers
According to the latest IFPI World Music ReportAsia as a region (including Japan, China, and India) has seen recorded music revenue grow much faster as a percentage (+15.4% over one year) than North America (+5.0% over one year) in 2022.
Japan (+5.4% over one year) was again the world’s second-largest recorded music market behind the United States, while China (+28.4% over one year) entered the Top 5 global markets for the first time, dropping France to 6th place.
According to the IFPI, revenues from Asia accounted for 22.9% of the overall world market (about $6.0 billion), while – as mentioned – North America represented 41.6% of the overall market (about $10.9 billion).
But here’s the really interesting thing: actually monetary terms, according to MBW calculations via IFPI figures, Asia increased its recorded music wholesale revenue by a larger margin (+$800 million per yearapproximately) in 2022 than North America (+$500 million per yearapproximately).
Record company sources tell us that even without JapanAsia – thanks to the growth of regions such as India, China and South Korea – grew comfortably faster in monetary terms than North America last year.
This statement verifies whether we consider a recent Overview Sony Music who digs deeper into these numbers.
Sony’s presentation revealed that, based on IFPI figures, Asia (excluding Japan) generated $3.1 billion wholesale record industry revenue in 2022 – up 26% year over year.
This indicates that even when you omit japan image, recorded music revenues in Asia increased further by ~$650 million last year – a significantly higher annual growth figure than North America could handle.
UMG’s strategy in Asia
All this is an interesting context to consider following the news that Universal Music Group has just committed USD $45.5 million acquire a majority stake in RS Group in Thailand (and its catalog of recorded music).
This $45.5 million the price can still increase $4.9 million going forward, according to filings, while the deal is expected to close in the third quarter of 2023.
Thailand is emerging as a strong market in Asia for the recorded music industry, with 20% year over year revenue growth in 2022. The territory exceeded $100 million wholesale market revenues for the first time last year.
The majority purchase of RS Group is a rare international acquisition for UMG post-its IPO in 2021 on the Amsterdam Stock Exchange.
The other two that stand out since this public listing are: (I) Acquisition by Universal of a 49% stake in the European specialist in label distribution and services, (PIAS), in November last year; And (ii) Acquisition by UMG in September 2022 of a majority stake in Indian music and entertainment company TM Ventures, which manages star Indian rapper Badshah.
Both of these acquisitions were announced without price disclosure.
According to its (potential) $50 million+ the acquisition of RS Group, and this major acquisition of the Indian TM Venturesboth less than a year apart, it looks like UMG is now in shopping mode in Asia as it tries to grow its market share through acquisitions.
(UMG is also taking organic steps to achieve the same – see, for example, H1 2022 announcements that included the launch of Capitol Records in China, as well as the launch of Def Jam India.)
Reminder: according to UMG’s annual report, it generated €1.007 billion in Asia in 2022, which is equivalent – at average annual IRS rates – to US$1.06 billion.
(Again, keep in mind here that the EUR figure published by UMG is itself potentially exposed to some degree of currency distortion.)
This US$1.06 billion equals a share of approximately 17-18% of the IFPI figure for recorded music industry revenue in Asia (including Japan) of $6.0 billion in 2022.
Universal Music Group is more accustomed to a global market share of recorded music (enhanced by its dominant position in the United States and other territories) of approximately 32%-33%.
As Asia’s contribution and share in the global recorded music market continues to grow – driven in particular by China and India, but also by other regions – UMG will be determined to try to secure an increasingly significant slice of the pie.The music industry around the world