Universal Music Group Q3 Revenue Hits $3B on Subscription Gains, Taylor Swift Dominance

Led by strong subscription growth and a dominant quarter from Taylor Swift, along with strong sales of releases by Olivia Rodrigo, Morgan Wallen and Seventeen, Universal Music Group (UMG) grew revenue 3.3% (9.9% at constant currency) to 2.75 billion euros ($3 billion at the period’s average exchange rate) in the third quarter, the company announced Thursday (Oct. 26). 

UMG will get another boost this quarter from Swift’s release of the re-recorded version of her 2014 album, 1989, on Friday. “She is a phenomena,” said UMG chairman/CEO Lucian Grainge, listing a string of global chart successes of Swift’s previous 2023 album of re-recordings, Speak Now (Taylor’s Version), released in July. “This level of performance can only really be described as truly astonishing.” 

UMG’s fourth quarter will also benefit from the new release of an unreleased track by The Beatles, “Now and Then,” on Nov. 2. “Now and Then” was written by John Lennon in the late ‘70s and just recently finished by the band’s remaining members, Paul McCartney and Ringo Starr. “The fact that more than four decades after its original recording, we can use the latest technology to bring this recording everywhere is truly remarkable and something that we’re very proud of,” said Grainge.

Third-quarter adjusted earnings before interest, taxes, depreciation and amortization (EDITDA) increased 5.1%, or 11.3% at constant currency, to 581 million euros ($632 million), and adjusted EBITDA margin improved 0.3 percentage points to 21.1%. 

The company’s recorded music segment declined 1.1% to $2.04 billion ($2.2 billion), a 5.2% increase at constant currency (or an 8.9% increase excluding a 71 million euro legal settlement recognized in the prior-year quarter). Subscription revenue grew 6.7% (13% at constant currency), despite not yet receiving a boost from recent price increases at Spotify and YouTube Music. Those benefits are expected to be felt in the fourth quarter, said CFO Boyd Muir, who noted that “each of these services raised prices in certain markets, and on certain plans, not across all subscribers.” YouTube, which Muir said “has a particularly global subscriber base,” raised prices first in the United States and other markets in the following weeks. As a result, “the benefit will initially be more limited.” 

Recorded music’s ad-supported streaming revenue grew 5%, the same as the previous quarter. UMG remains “cautious” about ad-supported growth in the coming quarters, said Muir. Results in any quarter come from a mix of fixed and variable deal structures, he explained, meaning UMG’s results aren’t a close reflection of trends in the advertising market. “We do, however, continue to see opportunities for improved deal terms and product innovation driving higher levels of growth in this business over the medium term,” he said.

Downloads and other digital revenue declined 56.9% (53.2% at constant currency) due to the prior-year legal settlement and a broad decline in download sales. Licensing and other revenue declined 11.8% (6.9% at constant currency) due to a strong prior-year quarter that benefitted from artists’ return to touring as the concert business recovered from pandemic-era shutdowns. 

Music publishing revenue grew 17.5% (24.6% at constant currency) to 491 million euros ($534 million). Excluding a 53 million euro ($58 million) catch-up payment in the music publishing segment related to the Copyright Royalty Board’s (CRB) Phonorecords III ruling for streaming royalties from 2018 to 2022, publishing revenue improved 4.8% (11.2% at constant currency). 

Publishing’s digital revenue grew 25.6% (33.6% at constant currency) on strong streaming and subscription growth and the CRB III catch-up payment. Synch revenue declined 3.5% (and grew 3.8% at constant currency) while mechanical revenue was stable.

Revenue growth “is beyond our expectation and guidance,” said Muir, while noting that “the revenues that are incremental to our expected growth are actually coming from lower-margin areas of our business.” In the third quarter, 75% of UMG’s revenue above analyst’s consensus expectations came from merchandise and physical products. “They are EBITDA-accretive, but margin-dilutive of the business segments we must pursue,” said Muir. UMG still expects a one-point improvement in adjusted EBITDA in calendar year 2023.