Universal Music Group's revenue rose 6% to $2.8 billion on subscription growth as executives talk up TikTok deal

Helped by paid music subscriptions and the strong performance of its music publishing division, Universal Music Group generated revenue of 2.59 billion euros ($2.8 billion) in the first quarter of 2024, up 5.8% (7.9 % in constant currency) compared to the previous quarter, the company announced on Thursday (May 2nd).

In particular, UMG's profit margins improved compared to a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved 13.2% to 591 million euros ($640 million). As a percentage of revenue, adjusted EBITDA margin was 22.8%, up 1.5 percentage points from 21.3% from Q1 2023.

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

The quarterly earnings release came a day after UMG announced a new licensing deal with TikTok. Analysts probed for information on the financials of the deal and the potential impact on UMG's financial statements. Executives declined to provide details on the deal, but insisted it provides reasonable value relative to other short-form video platforms.

Michael Nash, UMG's executive vice president/chief digital services officer, said the new TikTok deal is “a substantial improvement” over the previous one, and revenue is “significantly improved over our last deal.” However, some of the deal's value is difficult to quantify. Nash added that the new deal contains “aspects of financial value” — such as ad credits, data and marketing programs — that will not appear in future financial statements.

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

Subscription services were the main driver in UMG's quarter. Revenue from recorded music subscriptions rose 10.7% to 1.12 billion euros ($1.2 billion) and accounted for 43.3% of the company's total revenue, up from 41.4% in the fourth quarter of 2023. recent price increases from Spotify, Apple Music and Amazon Music were not.” the only — or 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 pace, however, gaining 8.9% to 343 million euros ($371 million). Speaking about ad-supported streaming, Muir said he was “encouraged” by the improvements but “cautious” about growth “until we see a consistent broad improvement across all partners and geographies and possibly a more consistent, longer-term time frame.”

Total revenue from recorded music rose just 3.4 percent 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 fell 18.5 percent to 255 million euros ($276 million). (Taylor Swift 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 that the decline in physical sales stemmed from particularly strong physical sales in Japan in the year-ago quarter. Licenses and other income fell 1.8 percent to 222 million euros ($240 million).

Music publishing revenue rose 16.7% to 496 million euros ($537 million) thanks to a 22.9% increase in digital revenue to 284 million euros ($307 million). Performance revenue growth of 26.7% to 114 million euros ($123 million) more than offset a 10.1% decline in sync revenue to 62 million euros ($67 million)

Merchandise revenue rose 6.5% (7.5% in constant currency) to 114 million euros ($123 million). Sales of tourist merchandise increased while direct-to-consumer and retail sales declined.

The company remains on track to realize 75 million euros ($80 million) in cost savings by 2024, Muir said. In February, the company announced a plan to save $270 million a year through organizational redesign and layoffs. As part of the redesign, UMG created offshore label businesses led by two top executives. On the east coast, Republic Corps is led by the co-founder of Republic Records Monte Lipman. On the West Coast, Interscope Capital Labels Group is run by John Janickpreviously president/CEO of Interscope Geffen A&M.