Sir Lucian Grainge doesn’t do many interviews, so when he does speak publicly, it’s worth paying close attention to the man at the helm of the world’s largest music rights company.
Grainge, the Chairman and Chief Executive Officer of Universal Music Group participated in a Q&A session on Monday (September 12) at the Goldman Sachs Communacopia + Technology Conference in San Francisco.
During the interview, Grainge was grilled on his views about premium music streaming’s growth potential, and the company’s approach to catalog investments.
He argued that UMG has done “very few deals,” but that the deals the company has done are for works that have “defined history or a culture”.
Grainge’s participation at Goldman’s conference follows the publication at the end of July of UMG’s Q2 2022 fiscal results (covering the three months to end of June).
UMG’s total company revenues at (across recorded music, publishing, and other activities) were up by 17.3% YoY at constant currency in the quarter to EUR €2.535 billion (USD $2.70bn).
Universal’s recorded music subscription streaming Q2 revenue was up by 7.0% YoY at constant currency to €966 million ($1.03bn), while its recorded music ad-funded/non-subscription Q2 streaming revenue was up 15.6% YoY at constant currency to €348 million ($371m).
Commenting on music streaming’s growth prospects in the face of the economic uncertainty and the cost of living crisis, Grainge argued that music is “robust”, and looked to previous downturns in the eighties and nineties where music was shown to be a resilient entertainment format in spite of macroeconomic headwinds.
Elsewhere in today’s interview, Grainge commented on the balance of power between the labels and DSPs, and the growth potential of new platforms across social, gaming and fitness.
MBW listened in. Here’s what we learned…
1. Sir Lucian Grainge is “bullish” about music streaming’s growth potential.
Sir Lucian Grainge was asked about his thoughts on music streaming’s future growth prospects, to which he responded that he’s both “confident” and “bullish about the opportunity”.
He also noted that in 2019, subscription penetration in the mature music markets was “about one in five” while at the end of 2021 “it was down to about one in four”.
Looking to the future, Grainge says that “there are various ways in which we can work with the DSPS”, noting that the major DSPs like Apple Music, Amazon Music and Spotify have “all got different business models and they’ve all got different strengths within their own markets and within the regions in which they operate”.
Added Grainge: “We must remember that music in the cloud means that music can in fact go everywhere. And it’s not a transactional model any more.
“The transactional model that I was born into was, you release something, you have a hit, and then it just disappeared. And now it doesn’t disappear.
“We’re constantly re-energising, and revisiting, remarketing, re-narrating so that these trip wires between new releases, new hits and new genres have got a constant relationship with the past. So yes, obviously I’m confident and I’m bullish.”
2. Sir Lucian Grainge sees UMg’s role in the monetization of new platforms as the “experimenter in chief”
Commenting on the topic of emerging platforms across categories like social media, gaming and fitness, Sir Lucian Grainge explained that Universal sees its role “as the market leader, as a sort of experimenter in chief”.
He explained that when he “took the company over, 11 years or so ago, 95% of our digital business was with one customer. Now it’s with a complete plethora of businesses and partners”.
Grainge added that UMG’s “ability to monetize our IP and these vast catalogs as well as all the new hits, which is the catalog of tomorrow, has really been proved over this period, not only with streaming, but with [categories] like fitness [and with] health.”
He added: “Who would have thought that we would have made money with these huge amounts of IP, with these millions of copyrights from fitness? We’ve now got fitness as a category and social in our Top 10 categories, in terms of revenue and partners.”
Pointing to Universal’s monetization of social platforms, Grainge said that it “is really quite extraordinary how we’ve been able to monetize social” and commented on Universal’s licensing agreement with Meta – parent of Facebook and Instagram. He continued: “There was no social monetization in the industry and we made our groundbreaking deal with Facebook; Meta”
Speaking more broadly about “any application where music can be used, in games, etc,” Grainge said that he sees a “phenomenal opportunity”. He added that “there’s always a balance [to be struck], in terms of ensuring “artists are rewarded appropriately” when working with new businesses and new categories.
“We’ve also got to give those businesses a start as well,” added Grainge. “We can’t strangle them in the early days so that there’s absolutely no upside for them. So it’s a balance. We like it when they start and when they grow.”
3. Music has “always been a relatively low cost, yet very high quality entertainment category”…
With talks of a cost of living crisis and a looming recession, Sir Lucian Grainge was asked about his views on music streaming’s resilience in the face of such economic headwinds.
He noted that he has seen “many downturns” over the course of his career “both in terms of macroeconomic” as well as in terms of “the crisis with piracy and file sharing”.
He also argued that “as a management team, we’ve been very adept over this period in terms of managing headwinds” and noted further that “music is incredibly robust”.
He added: “[Music] was robust in the recessions of 1981. In the early 1990s. It’s always been a relatively low-cost, yet very high-quality entertainment category.
“Whatever is thrown at us, we’ll cut our cloth accordingly. And we will invest accordingly in hopefully what will continue to be growth. It seems like one of the indicators show that subscription is still resilient.”
Asked if he’s worried about weakness in the advertising market, Grainge said there “could be some headwinds”, but that “I don’t think we’re seeing that much at the moment.”
He continued: “We may see a few wobbles. We may see a wobble from one month to another and then there’s a rebound. I don’t see things in terms of month-to-month. I see what the opportunities are, and how we orchestrate all the complexities with everything that we have over a three, four or five-year period.
“So if we have bad months, a bad quarter, I’ve been through so much change, frankly, we just we plough 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 critical”…
Commenting on Universal’s capital allocation, Sir Lucian Grainge argued that UMG “is not a financial player, we’re not an instrument”. He added: “We leave income streams; royalty streams to others. Control is critical.”
He argued further that UMG has done “very few deals,” but that the deals UMG has done are the “best of the best, where something has defined history or a 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 biggest acquisitions in UMG’s history.
In February, Neil Diamond sold his complete song catalog and all master recordings to Universal. Sting also sold his song catalog to UMG in February, in a deal one expert industry source told MBW was worth north of $300 million.
Stressing the importance of control when doing catalog deals, Grainge noted that control means “no approvals”.
He cited Bob Dylan as a test case for this, adding: “When you looked at when we bought the Bob Dylan catalog, he’d managed his business in the United States, and I think he had four or five administrators, and the answer was normally, “no”.
“We built into our view and with our networks and our people, that we could do things with the Bob Dylan catalog, where we didn’t have to ask anybody other than ourselves, was it appropriate and was it profitable?
“And he gave us that right to do that. That’s not just about the check. It’s actually about trusting the right people. It’s assumed that we will own these assets as long as the company exists.”
Commenting on balancing investments in catalog and frontline music, Grainge explained that “they’re two sides of the same coin”. He added: “New investments, new artists [are] the catalog of the future. We have to keep current and we have to keep sitting at the big table.”
5. Labels and DSPs are “critically important to each other…”
Touching on Universal’s relationship with the music streaming services, Grainge explained that it’s “inevitably very constructive”.
Looking to the past, when streaming was becoming a mass market proposition, Grainge noted that, “we brought Spotify to a global market.”
He added: “It was an idea that was working in Sweden. At the time it was an anti-filesharing, anti-piracy advertising wrapper and here we. They’ve got 185 million Premium subscribers.
Commenting on the balance of power specifically, he said: “I don’t see this as a thing of a zero-sum game or balance of power. We’re in business with each other. We’re critically important to each other.
He added: “We know that we are at least 80% to 85% of the acquisition pull of all the DSPs. We’re 80 to 85% of their retention.
“Consumers, me, you, us, don’t want a subscription which gives you either white noise or something to go to sleep to, or an app that you’ve never heard of.
“Which is why we’re seeing the impact and the importance of catalog and how it fits alongside new music. So I enjoy working with [DSPs]. There’s always skirmishes. We have skirmishes with everyone. It’s part of life.”
Music Business Worldwide