The world’s largest music publisher, Universal Music Group (UMG), has revived the record label and its valuation thanks to Chinese owned Tencent’s (TME +1.58 percent) 10 percent stake in the company. UMG’s parent company Vivendi (VIV.PA -0.27 percent) has already been pushing into emerging markets like Africa where global music consumers are poised to triple. With Tencent’s robust portfolio of companies, paired alongside UMG’s broad international reach, this could finally be validation that the global recorded music business, which falls into the streaming category is healthy and growing.
Why This Matters: The growth of the global music business, especially recorded tunes, which Goldman Sachs estimates will reach $80 billion by 2030, enticed Tencent and its investors to bet big on UMG. Not to mention, Tencent’s huge batch of companies range from social media and payment app WeChat, which has more than a billion users, to stakes in hundreds of smaller platforms along with a 7.5 percent stake in Spotify (SPOT -1.08 percent). Essentially, the Chinese company could couple UMG artists with its suite of apps, to further monetize all of its businesses.
Essentially, the Chinese company could couple UMG artists with its suite of apps, to further monetize all of its businesses
The UMG family of labels include Capitol Music Group, Island Records, and Def Jam just to name a few. They have a deep roster of heavy hitters like Rihanna, Kendrick Lamar, Drake and Migos. Revenues for UMG in 2019 grew more than 24 percent, led by a huge surge in streaming revenues. It’s important to note the deal with Tencent comes as Vivendi had been desperately looking to sell up to 50 percent of UMG since July 2018.
UMG is now valued at more than $33.6 billion and Tencent’s investors know the global recorded music business has been on an upward trajectory thanks to the adoption of streaming and better digital connectivity in emerging territories.
For example, UMG is already pushing further into Africa through a licensing deal with Boomplay, the continent’s leading music streaming service with more than 2 million songs and thousands of music videos, spanning genres like Afrobeat, Afropop and hip-hop. Not to mention more than 60 percent of people in the continent are under 25 years old, and heavily rely on mobile phones to do everything including streaming music, meaning that the group of global music listeners who are ripe to become consumers is huge.
What’s Next: Tencent and its consortium has until Jan. 15, 2021 to increase their stake up to 20 percent at the same valuation. The deal hasn’t been approved just yet, but Vivendi expects it to be finalized within the first half of 2020.
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