Universal Music IPO
The Universal Music IPO was a complete success. Right at the start of the stock market, the Universal Music share price was 37 percent above the issue price. The UMG share could develop into a real gold mine for investors.
- The largest music company in the world is now listed on the stock exchange as an independent company.
- The Universal Music IPO took place in Amsterdam on September 21st.
- In contrast to the streaming providers, the Universal Music Group (UMG) operates as a producer and is therefore active in the B2B business.
- There are only three major music labels worldwide, Universal Music is the largest major label alongside Sony Music and the Warner Music Group.
- As soon as a user streams music that is licensed via Universal Music — the platform is irrelevant — the UMG receives a license fee for the streaming platform.
This is how the Universal Music IPO went
The world’s largest music label, Universal Music, went public on Tuesday. Investors can now buy Universal Music shares. The issue price , the price that investors paid for the Universal Music IPO , was EUR 18.50 .
The first price on the stock exchange after the Universal Music IPO was 25.05 euros, around 37 percent above the issue price.
The Universal Music Group, which has signed artists such as Lady Gaga, Taylor Swift, The Weeknd, REM, Billie Eilish, Eminem and Ramstein, now has a market value of 46 billion euros.
UMG emerges from the French media group Vivendi.
In addition to Vivendi , who will continue to hold a 10 percent stake in the company, Tencent (20 percent) and Bill Ackman are major shareholders after the Universal Music IPO .
How does Universal Music make money?
Universal Music has a very interesting business model. They are one of the three largest music labels in the world.
These labels produce music and receive royalties from the «buyers». The “buyers” are other companies, especially streaming platforms, not private customers.
Universal Music is therefore not in competition with Spotify, Amazon Music, Apple Music etc., but takes care of their content.
This is also a major difference to the TV streaming segment, for example.
Universal Music receives a license fee from the streaming platform with every click , i.e. every time a customer of a streaming platform listens to a song that is licensed by UMG .
- Universal Music produces music
- The company markets this music on streaming platforms
- The platforms pay a license fee per click
- Universal Music also works with the YouTube and TikTok platforms
The license fee is only in the 0. x cent range, but it has to be paid every time a consumer is called up. These amounts add up, giving investors a true cash flow machine when buying Universal Music stock.
Global music marketing is easily possible
Music can be offered globally and is not limited to just one country. The language of the song certainly also plays a role here. But at least English and Spanish language music can have success all over the world without any problems.
A lot of time, work and money go into the development and production of a song. However, it only has to be produced once. Since it is a digital good , it can be marketed globally without any problems.
In addition, music is now immediately available as streaming over the Internet. So it is not necessary to produce and sell records, CDs or any other sound carrier.
The relevant platforms that already exist act as sales channels. These include Spotify, Amazon Music, Apple Music, etc.
Should I Buy Universal Music Stock?
In order for an investor to be able to decide whether to buy Universal Music shares, he must first deal with the business model. It was shown here that the UMG, as a label, is the producer of music, but not the marketer towards the end consumer.
Streaming platforms like Spotify take on this task.
The following is an overview of the opportunities and risks that investors will face after the Universal Music IPO.
- The producers can easily bring the music to market globally.
- Every time a consumer listens to a song, Universal Music receives a license fee from the streaming platform.
- As a result, the company collects royalties for years as a consumer has to stream the song every time. There are no one-off sales as with a CD.
- Consumers cannot resell digital music (compared to a CD). This means that every consumer must obtain the song himself from a streaming provider.
- The songs go viral quickly and are included in a number of playlists
- Music is also posted on Instagram, TikTok, etc. Every time a user listens to music there, the license holder receives a license fee
- A stable portfolio of stars and emerging artists must be maintained over a long period of time.
- General entrepreneurial risk: Although there is a de facto oligopoly in the music label industry, and UMG is currently the largest label, this can change for whatever reason.
- Depending on the strength of the streaming platforms, the license fee per song could decrease.
Universal Music business model: How is music produced nowadays?
Perhaps one or the other has wondered why certain pop music always sounds similar. For example, music from the German pop scene often sounds similar.
It is no longer the case that a person in the basement records a song with a band and then sends it to labels, which checks the incoming suggestions and then decides on an artist.
The music market is — to put it very simply — first of all a thorough analysis of what kind of music the listener, i.e. the consumer, likes. Artificial intelligence also plays an important role in this. Incidentally, Neuralink is making a lot of progress here.
Building on this, a framework is created in which rhythm, chords, mood, etc. provide the central theme. The content, i.e. what is healthy, is already analyzed and determined.
Now the producer creates several songs according to this scheme. They can easily be replicated.
The probability of success is quite high as long as the producer follows the analyzes.
- There is an extensive analysis before music production
- Music is created based on this analysis
- This genre is replicated and a number of songs emerge which are marketed
Criticism from an artistic point of view of streaming music
However, there are also critical voices who have mixed feelings about the triumph of music via online streaming.
There are currently two more noticeable trends to be observed. On the one hand, songs are getting shorter and shorter , on the other hand, a lot of content and expression is packed into it right at the beginning of a song. Why it is like that?
In an interview with Deutschlandfunk Kultur, Mischa Erhardt commented on the reasons as follows:
“Because they are paid per request […] if I bring out an album with ten songs of five minutes each, then I get paid for this song ten times. But if I put out an album with 20 songs of two and a half minutes each, then I get paid for the 20 songs. «
And about the second tendency, that songs are very expressive right from the start, he says:
“Because you can listen to streaming services before you buy something, ten to 15 seconds. If I then have a very, very slow start […] then the listener can of course hardly have an idea of how things will continue — and that of course leads to everything being called up at the beginning that can be raised. «
Vivendi share crash: Universal Music is to blame
In connection with the Universal Music IPO, there was news to report that Vivendi shares are in the middle of a crash.
There is a very clear connection here, but one that is not tragic for shareholders.
Vivendi was the owner of the Universal Music Group. You spun off the company as an independent company when it went public.
In this context, the Vivendi share is now valued without the UMG, hence the discount or “crash” of over 60 percent.
However , Vivendi shareholders now have two shares in their custody account without having to do anything for them. On the one hand you still have the Vivendi share, on the other hand you now also have a Universal Music share.
At the close of trading, the Vivendi share price before UMG went public was around EUR 31.50. After the IPO, it was around 11 euros. The Universal Music share price started trading at EUR 25.05.
Vivendi shareholders now have one Vivendi share at 11 euros and one UMG share at 25 euros, making a total of 36 euros, i.e. a daily profit of around 16 percent.
The crash of the Vivendi share is therefore only a visual matter and is related to the Universal Music IPO.
Conclusion: Universal Music shares could still have the best of times ahead of them
While there are always risks involved in buying stocks , Universal Music stocks seem to be manageable.
The company has existed for decades and, above all, has experienced lows. The new way of consuming music via streaming was a real blessing for the music labels.
Due to the initial difficulties in transforming sound carriers to digitization , most of the competing companies have dropped out. There are now only three major music labels left in the world.
The biggest plus point is Universal Music’s business model. It’s not about bringing the music to the consumer, but creating it.
Therefore, the UMG is not involved in the competition between streaming platforms. Universal Music, on the other hand, sells the music to these platforms and collects a license fee for each access.
From our point of view, the Universal Music share price is not exactly cheap. But in the years to come, the potential of this market may not yet have been properly priced in.