Universal Music Group: The Gatekeepers of Music - [Business Breakdowns, EP. 32]

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Oct 27, 2021

Join Arman Gokgol-Kline, a partner at Ruane, Cunniff & Goldfarb, as he unpacks the evolution of Universal Music Group and the music industry. They explore the transition from physical sales to the streaming era and how it reshaped artist dynamics. Gokgol-Kline delves into revenue sources for superstar artists, emphasizing the role of live performances. The discussion also touches on the complexities of artist rights, the impact of major labels, and emerging opportunities like NFTs, all illuminating UMG's pivotal role as a gatekeeper in music.

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INSIGHT

Pre-Napster Music Industry

Pre-Napster, major labels controlled every aspect of music, acting as gatekeepers and monetizing through upfront perpetual licenses for bundled albums.
This model prioritized initial sales over lifetime consumption and limited consumer choice.

INSIGHT

Early Digital Disruption

Ripping services and iTunes were early attempts to address consumer dissatisfaction with the bundled album model, offering digital access and individual song purchases.
However, they didn't fully solve the monetization issue of paying for each piece of content.

INSIGHT

Streaming's Impact

Streaming solved the monetization problem by offering vast music libraries for a fixed price, similar to pre-1999 per capita spending.
This model drove a resurgence in music consumption, with streaming adoption rapidly increasing from 2014 onwards.

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Today we’re breaking down Universal Music Group. As one of the largest music businesses in the world, UMG is home to many of the world’s greatest artists, including Taylor Swift, U2, and The Beatles catalog. A discussion on UMG requires a deep dive into the history of music itself, how it was historically monetized, the shift from physical to digital, and what streaming has meant for the various pieces of the ecosystem.

Our guest, Arman Gokgol-Kline, a partner and investor at Ruane, Cunniff & Goldfarb, walks us through that evolution of the music industry before we dive in on UMG.

In our discussion, we first break down the industry pre and post Napster, looking at the ways music was sold historically, and how that led to both record profits and a consumer revolution. We then assess streaming’s impact on the industry and how, contrary to what you might think, labels may be more important in a marketplace where it’s easier than ever for creators to record and release music. Finally, we finish with UMG’s place in the ecosystem. The primary drivers of the business, how they’re able to attract the world’s superstars, and how they think about deploying dollars to acquire new artists and timeless catalogs.

Please enjoy this fantastic breakdown of Universal Music Group.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:03:28] - [First question] - How technology disrupted the music business and it’s evolving history

[00:12:11] - What the industry of music labels looks like from the 90s to today

[00:20:46] - How it feels as a high-tier artist to engage with a label directly today

[00:27:47] - The revenue and business model of an artist akin to Taylor Swift

[00:30:11] - The differences between UMG's main sources of revenue; music publishing and recording

[00:34:35] - General margins and trends for music publishing

[00:35:49] - Ownership and mechanics of monetizing an artist’s Intellectual Property

[00:40:24] - How streaming revenues are divided among stakeholders

[00:45:50] - History of the bargaining power of labels and streaming platforms

[00:50:52] - Capital allocation, ROI, and acquiring IP and catalogs

[00:57:06] - Thoughts on the growth profile of the industry as an investor

[01:01:50] - Potential risks to UMG from emerging technology and new creator trends

[01:08:17] - Reasons why an artist would pick UMG over other major labels

[01:12:09] - Diversity and how artists are sometimes treated by labels

[01:13:31] - A growing increase in music consumption across the world