Sir Lucian Grainge on Streaming Growth, Catalog Deals and the Balance of Power Between Labels vs. DSPs

Sir Lucian Grainge doesn’t do many interviews, so when he speaks publicly, it’s worth paying close attention to the man at the helm of the world’s largest music rights company.

Grainge, President and CEO of Universal Music Group, participates in a Q&A session at the Goldman Sachs Communacopia+ Technology conference on Monday (Sept. 12) in San Francisco.

During the interview, Grainge was briefed about his views on the growth potential of premium music streaming and the company’s approach to catalog investing.

He argued that UMG made “very few deals”, but that the company’s deals Is For works in which “history or culture is defined”.

Grainge’s participation in Goldman’s conference follows the publication of UMG’s Q2 2022 financial results (covering three months to the end of June) in late July.

How much did UMG’s total company revenue increase (in recorded music, publishing and other activities)? 17.3% year-on-year at constant currency in the quarter EUR €2.535 billion (USD $2.70bn).

Universal Recorded Music subscription streaming Q2 revenue was up by 7.0% year-on-year on a fixed currency €966 million ($1.03bn), While its recorded music is ad-funded/non-contribution Q2 streaming revenue was up 15.6% year-on-year on a fixed currency €348 million ($371m),

Commenting on the growth prospects of music streaming in the face of economic uncertainty and the cost of living crisis, Grainge argued that music is “robust”, and saw the last recession in the eighties and nineties where music was considered a flexible entertainment format. was shown in. Despite macroeconomic headwinds.

Elsewhere in today’s interview, Grainge commented on the balance of power between the label and DSP and the growth potential of new platforms in social, gaming and fitness.

MBW listened. Here’s what we learned…

1. Sir Lucian Grainge is “rapid” about the growth potential of music streaming.

Sir Lucian Grainge was asked about his thoughts on the future growth prospects of music streaming, to which he replied that he was both “confident” and “excited about the opportunity”.

He also said that in 2019, subscription penetration was “one in five” in mature music markets, while “it was down to one in four” at the end of 2021.

Looking to the future, Grainge says there are “a lot of ways we can work with DSPS”, noting that major DSPs like Apple Music, Amazon Music, and Spotify have “all different business models.” and they are all different within their own markets and within the regions where they operate.

Added Grainge: “We must remember that music in the cloud means music can really go everywhere. And it’s no longer a transactional model.

“The transactional model I was born into was, you issue something, you get a hit, and then it disappears. And it doesn’t disappear anymore.

“We are constantly re-energizing, and re-watching, remarketing, re-descripting these trip chords between new releases, new hits, and new genres to have a constant connection with the past. So yes Obviously I am confident and I am bullish.”

2. Sir Lucian Grainge views UMG’s role as “users in chief” in monetizing the new platform.

Commenting on the topic of emerging platforms in categories such as social media, gaming and fitness, Sir Lucian Grainge explained that Universal sees its role “as a market leader, as an experimenter of sorts”.

He explained that when he took over the company “11 years or so ago, 95% of our digital business was with a single customer. Now it’s entirely with businesses and partners.”

Grainge said that UMG’s ability to “monetize our IP and these huge catalogs as well as all the new hits, which is the list of tomorrow, has really been proven not only with streaming, but over the period. [categories] like fitness [and with] Health.”

He added: “Who would have thought that we would have made money with such a huge amount of IP, with these millions of copyrights from fitness? We now have fitness as a category and social in our top 10 categories in terms of revenue and partners. Has been.”

Pointing to Universal’s monetization of social platforms, Grainge said it’s “really quite extraordinary how we’ve been able to monetize social” and commented on Universal’s licensing agreement with Facebook and Instagram’s parent Meta. Of. He continued: “There was no social monetization in the industry and we did our important deal with Facebook on Meta”

Speaking more broadly of “any application where music can be used, in games etc”, Grainge said he sees “unprecedented opportunities”. He said that “there is always a balance” [to be struck]In terms of ensuring “artists are rewarded appropriately” when working with new businesses and new categories.

“We have to give those businesses a head start too,” Grainge said. “We cannot strangle them in the early days so that there is no upside for them. So it’s a balance. We love it when they start out and when they grow. ,

3. Music “has always been a relatively low-cost, yet very high-quality entertainment category”…

With the cost of living crisis and talks of an impending recession looming, Sir Lucian Grainge was asked about his thoughts on the resilience of music streaming in the face of such economic constraints.

He said he has seen “multiple recessions” during his career in terms of “both macroeconomics” as well as “the scourge of piracy and file sharing”.

He also argued that “as a management team, we have been very efficient over this period in terms of managing headwinds” and added that “the music is incredibly strong”.

He added: “[Music] Was strong in the 1981 recession. in the early 1990s. It has always been a relatively low cost, yet very high quality entertainment category.

“Whatever is thrown at us, we will cut our clothes accordingly. And we will invest as expected whether growth will continue. This seems to be one of the indicators indicating that membership is still resilient.”

Asked if he’s concerned about weakness in the advertising market, Grainge said “there could be some adversity,” but “I don’t think we’re seeing that much at the moment.”

He continued: “We can see some wobbling. We can see volatility from one month to another and then there may be a rebound. I don’t look at things from month to month. I look at what the opportunities are, and how we handle all the complications with everything over a period of three, four or five years.

“So if we’ve had bad months, a bad quarter, I’ve been through a lot of change, frankly, we just sort through it. Because we know the quality of what we have.”

4. Universal is not a “financial player” and when it comes to investing in catalogs, “control is key”…

Commenting on Universal’s capital allocation, Sir Lucian Grainge argued that UMG “is not a financial player, we are not an instrument”. He continued: “We leave the income streams; the royalty streams to others. Control is key.”

He further argued that UMG has made “very few deals”, but the deals UMG has made are “best of the best, where few have defined history or culture”.

Some of UMG’s recent acquisitions include the publishing rights to Bob Dylan’s songwriting catalog in December 2020, which was one of the largest acquisitions in UMG’s history.

In February, Neil Diamond sold Their complete song list and all master recordings for Universal. Sting also sold its song catalog to UMG in February, in a deal an expert industry source told MBW was north of $300 million.

Emphasizing the importance of control when making catalog deals, Grainge stated that control means “no approval”.

He cites Bob Dylan as a test case for this, saying: “When you look at when we bought the Bob Dylan catalog, he managed his business in the United States, and I think he had four or five.” There were administrators, and the answer was, as usual, “no”.

“We built in our view and with our network and our people, that we could work with the Bob Dylan catalog where we didn’t have to ask anyone other than ourselves, was it fair and was it profitable ?

“And he empowered us to do that. It’s not just about checks. It’s really about trusting the right people. It’s assumed that as long as the company exists, we’ll own these assets.”

Commenting on balancing investments in catalog and frontline music, Grainge explained that “they are two sides of the same coin”. He added: “New investments, new artists” [are] future list. We have to turn on the current and we have to sit at the big table.”

5. Label and DSP “are critically important to each other…”

Touching on Universal’s relationship with music streaming services, Grainge explained that it’s “essentially very creative”.

Looking back to the past, when streaming was becoming a mass market proposition, Grainge said that, “We brought Spotify to a global market.”

He continued: “It was an idea that was working in Sweden. At the time it was an anti-filesharing, anti-piracy ad cover and here we are. They have 185 million premium subscribers.

Commenting specifically on the balance of power, he said: “I don’t see this as a zero-sum game or a balance of power. We are in business with each other. We are seriously important to each other. .

He continued: “We know that we are at least 80% to 85% of the acquisition pull of all DSPs. We are 80 to 85% of their retention.

“Consumers, me, you, we, don’t want a subscription that gives you either white noise or something to go to sleep with, or an app you’ve never heard of.

“That’s why we’re seeing the impact and importance of catalogs and how it fits in with new music. That’s why I enjoy working with [DSPs], There are always clashes. We all have a fight. It’s part of life.”

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