Vincent Bolloré is about to own $7bn-plus of Universal shares… and other things we learned from UMG’s new prospectus

The MBW Review is where we aim our microscope towards some of the music biz’s biggest recent goings-on. This time, we trawl through Universal Music Group‘s new prospectus. The MBW Review is supported by Instrumental.

Next week is gearing up to be a big one for Universal Music Group.

UMG’s parent company Vivendi is preparing to spin off 60% of Universal on the Amsterdam stock exchange next Tuesday (September 21), a public listing that could give the world’s biggest music company a market cap worth €30 billion, €40 billion… or even higher.

Today (September 14), Universal Music Group published its pre-listing prospectus, which offers potential investors an insight into what makes the Universal wheels turn.

Vivendi recently revealed that Pershing Square Holdings (PSH), run by billionaire Bill Ackman, will control 10% of UMG’s share capital post-listing, having committed in August – via an affiliate – to buy an additional 2.9% of UMG at a €35 billion company enterprise valuation.

Prior to the Pershing deal, Vivendi also sold 20% of UMG to a consortium led by China’s Tencent, at a €30 billion company valuation for UMG.

Following the Amsterdam listing, which will see 60% of UMG initially distributed in shares to Vivendi shareholders – who may then hold or trade their assets – Vivendi itself will own just 10% of UMG.

The highlights from today’s prospectus include details of Universal’s new post-IPO board, business risks, executive rewards, plus historical financial information and profit forecasts.

You can read all 306 pages of it for yourself in full through here, but here’s five particularly interesting things we spotted…

1) Vincent Bolloré will own $7bn+ worth of Universal shares after it lists

If anyone has reason to celebrate the beginning of Universal Music Group’s new chapter as a publicly-traded company, it’s ex-Vivendi Chairman Vincent Bolloré.

Following the listing, the French businessman’s ‘Bolloré Entities’ is set to receive 326,507,033 shares, or 18.01% of UMG’s total shares, which at a €33 billion valuation would be worth €5.9 billion (approx $7bn).

(UMG’s prospectus notes “for illustrative purposes” that the recent 10% acquisition of the company by Pershing Square suggests that Universal will carry an approximate market cap of €33 billion on its first trading date.)

Bolloré, whose family holding company Bolloré Group owns a controlling 27% stake of Vivendi’s share capital, stepped down as Chairman the UMG parent company in April 2018, succeeded by his son Yannick Bolloré.

Then in 2019, Vincent Bolloré stepped down from the board of Vivendi, and was replaced by his son Cyrille Bolloré.

Following the Amsterdam listing, Bolloré will be the second biggest UMG shareholder with his 18%.

The Tencent-led Consortium will own 20%, while Vivendi and Pershing Square Holdings Ltd will each own 10% respectively.

2. The top 50 artists at universal only accounted for 23% of UMG’s recorded music revenue in 2020.

According to UMG’s prospectus, the company’s has “such a broad array of frontline labels, label venture partners and label services”, that it says it’s not reliant on any one artist, or any small number of artists, to generate revenue “in any given year”.

In fact, says UMG, no single artist accounted for more than 1% of the company’s recorded music revenue in 2020, while the company’s Top 50 artists cumulatively accounted for 23%.

That means of course, as illustrated below, that 77% of UMG’s recorded music revenues in 2020 were generated by Universal Music-signed acts that fell outside of the company’s Top 50 artists.

Universal’s recorded music division generated annual revenues of €5.97bn ($6.74bn) in 2020, up 6.7% YoY.

3. Catalog accounted for 54% of recorded music digital and physical revenue in 2020

UMG notes that its financial success “has depended, and will in the future depend, on its ability to sign and break new artists” in addition to “consumer acceptance of new music content from both new and established artists”.

However, new music, released by either breaking artists, or by established acts, was not the company’s biggest revenue driver in 2020.

UMG cites “strong and reliable revenue flows” from its catalog (defined as content older than three years), as being a significant driver of income for the company.

Catalog accounted for 54% of recorded music revenue (from digital and physical) at UMG in 2020, while frontline product (content less than three years old) accounted for 46% of recorded music revenue (see below).

UMG’s catalog includes artists such as ABBA, Louis Armstrong, The Beatles, The Beach Boys, The Bee Gees, Andrea Bocelli, James Brown, Bon Jovi, Neil Diamond, Marvin Gaye, Guns N’ Roses, Elton John, Bob Marley, Paul McCartney, Nirvana, Luciano Pavarotti, Queen, The Rolling Stones, Frank Sinatra, U2, Amy Winehouse and Stevie Wonder.

4. UMG’s recorded music business is “geographically diverse”

With UMG’s recorded music business operating offices in 60-plus territories and with a presence across nearly 200 markets, the company has good reason to claim that its “recorded music business operates in more countries and markets than any other recorded music company”.

In July last year, MBW reported, as per Vivendi’s annual report for 2019, that local artists (i.e. artists from a certain territory, selling / being streamed in that territory) accounted for 61% of UMG’s revenues in 2019.

In 2020, according to UMG’s prospectus, 60% of UMG’s total revenues came from “local  repertoires in their own countries”.

UMG says that its expansion strategy in Africa, Asia, Europe and MENA is “already bearing fruit”.

“In 2020, UMG’s international labels in the US, UK, France, Germany and across other major markets, partnered with and simultaneously released music from artists in Nigeria, South Africa, Turkey, India, China, Thailand, Japan and Korea amongst others,” states UMG.

“UMG’s revenue profile is geographically diverse and becoming more so with the emergence of legitimate monetization opportunities in many new music markets around the world.”

Elsewhere, UMG notes that its “recorded music business is also geographically diverse”. North America accounted for 49% of UMG’s recorded music revenue in 2020, while Europe accounted for 30%, according to the prospectus.

Asia and Latin America accounted for 14% and 3% , respectively, while the rest of the world accounted for 4%.

UMG also says that its overall revenue profile – across all income streams including publishing – is “geographically diverse” and is “becoming more so with the emergence of legitimate monetization opportunities in many new music markets around the world”.

In 2020, revenues from the industry’s Top 5 global music markets (US, Japan, UK, Germany and France) accounted for 75% of UMG revenue (both publishing and recorded) , while other global markets represented 25% of total company’s revenue.

5. UMG’s reliance on DSPs makes a lot of money – but also carries risk

UMG lists its reliance on digital service providers for the distribution and marketing of its music as a risk factor in its prospectus.

The music company notes that it “derives an increasing portion of its revenues from the distribution of music through digital distribution channels and partners with several hundred music services around the world”.

In 2020, according to UMG, the world’s Top 50 music services accounted for 95% of its digital revenue for 2020, while 65% of UMG’s overall revenue was derived from digital channels.

“UMG currently enters into relatively short-term agreements with digital music streaming services,” explains the company in the prospectus.

“There can be no assurance that UMG will be able to renew or enter into new agreements with any digital music service.”

“While streaming and subscription revenue is commonly looked at as the main driver of music industry performance, these revenue streams account for only 59% of UMG’s total company revenue in 2020”.

Because UMG’s music is also promoted by DSPs on playlists “curated by such services or generated from their algorithms” (or  both), the company suggests that “any unfavorable changes made by such service providers to their algorithms or to the terms on which they market or promote UMG’s music could adversely affect UMG’s business”.

UMG notes in the prospectus that revenues from subscription music services “are important to UMG because they offset declines in downloads and physical sales”, but adds later on in the document that UMG’s revenue is “diverse from a business model standpoint”.

Adds UMG: “While streaming and subscription revenue is commonly looked at as the main driver of music industry performance, these revenue streams account for only 59% of UMG’s total company revenue in 2020”.