{"id":2404233,"date":"2026-05-06T06:30:00","date_gmt":"2026-05-06T06:30:00","guid":{"rendered":"https:\/\/celebrity.land\/en\/?p=2404233"},"modified":"2026-05-06T06:30:00","modified_gmt":"2026-05-06T06:30:00","slug":"on-universal-spotify-virgin-and-the-leakage-causing-analyst-discomfort","status":"publish","type":"post","link":"https:\/\/celebrity.land\/en\/on-universal-spotify-virgin-and-the-leakage-causing-analyst-discomfort\/","title":{"rendered":"On\u2026 Universal, Spotify, Virgin, and the \u2018leakage\u2019 causing analyst discomfort."},"content":{"rendered":"

<\/p>\n

MBW Reacts is a series of analytical commentaries from Music Business Worldwide<\/a> written in response to major recent entertainment events or news stories. Only MBW+ subscribers<\/span><\/a> have unlimited access to these articles. The below originally appeared in Tim Ingham\u2019s latest \u2018Tim\u2019s Take\u2019 email, issued exclusively to MBW+ subscribers.<\/strong><\/em><\/p>\n\n

\u201cSometimes when you try to pour tomato ketchup<\/strong> onto your plate, nothing comes out. Then you leave it for a few minutes, and the whole bottle glubs out<\/strong> over everything.\u201d<\/em><\/p>\n

Scoop: Sir Lucian Grainge<\/a><\/strong> doesn\u2019t use squeezy condiments at the dinner table. More searing music business insights from MBW<\/em> when we have them.<\/p>\n

Believe<\/a> it or not, Grainge\u2019s<\/strong> aside about ketchup on UMG\u2019s<\/strong> Q1 earnings call last Wednesday (April 29)<\/strong> amplified an astute \u2013 and gently cutting \u2013 point to listening analysts.<\/p>\n

In essence: UMG<\/strong> is a business built on human creativity, and no matter how much investors might like us to whip those humans to make them more productive\/predictable, it ain\u2019t gonna work. The good news? Universal\u2019s<\/strong> sprawling roster and catalog guarantees that, more quarters than not, a viscous flow of revenues\u2026 well, glubs out over everything.<\/em><\/p>\n

Grainge<\/strong> reached for the ketchup analogy to frame a quarter in which UMG<\/strong> showed unspectacular yet solid growth<\/a> in both revenue and EBITDA<\/strong>, but a slight YoY downturn in market share<\/strong>.<\/p>\n

That downturn was pinned on \u201ca light release schedule\u201d<\/strong> in the quarter \u2013 aka the seasonality of superstar frontline releases. It had nothing to do with dilution from a deluge of AI music<\/strong>, confirmed Universal digital boss, Michael Nash<\/a><\/strong>.<\/p>\n

\u201cKeep in mind that last year, as the flood of AI content was rising to the point of tens of thousands of tracks [per day], we had our highest recorded music market share since 2013<\/strong> according to Music & Copyright<\/em>,\u201d said Nash<\/strong>. \u201cThat\u2019s empirical disproof of the idea that a [UMG] market share issue is tied to AI dilution.\u201d<\/p>\n

Here\u2019s what else caught my attention from UMG\u2019s earnings\u2026<\/strong><\/p>\n

1) Artists are about to get paid a nine-figure sum from UMG\u2019s Spotify<\/a> stock sale. Analysts call that \u2018leakage\u2019. How respectful\u2026<\/h6>\n

Universal<\/strong> used its latest earnings to announce<\/a> that it\u2019s selling 50%<\/strong> of its holding in Spotify<\/strong>.<\/p>\n

The company plans to deploy its proceeds from this sale towards a EUR \u20ac1 billion<\/strong> stock buyback program, taking advantage of a depressed share price.<\/p>\n

Spotify\u2019s<\/strong> own share price had a bumpy week, of course, plunging double-digits after its Q1 earnings call<\/strong> last Tuesday (April 28)<\/strong>.<\/p>\n

As a result, UMG\u2019s ~3.10%<\/strong> stake in SPOT is currently worth approximately USD $2.9 billion<\/strong>, of which 50%<\/strong> would be worth $1.45 billion<\/strong><\/span>.<\/p>\n

UMG<\/strong> has confirmed that it will distribute a portion of the proceeds from this $1.45 billion<\/strong> windfall to artists, and has previously committed to overlook\/ignore unrecouped balances<\/strong> when it does so.<\/p>\n

On UMG\u2019s<\/strong> Q1 earnings call, BofA Securities<\/strong> analyst, Adrien de Saint Hilaire<\/strong>, asked: \u201cRegarding the Spotify stake, if you were to sell it at the current share price, how much leakage would there be<\/strong> in terms of tax and proceeds to artists?\u201d<\/em><\/p>\n

Ah, leakage<\/em><\/strong>.<\/p>\n

A word most commonly associated with soggy plumbing<\/strong> and urinary incontinence<\/strong>.<\/p>\n

And also now, apparently, artists<\/strong> \u2013 for the inelegant act of absorbing a few dollars from a Spotify market cap<\/strong> built entirely on their labor.<\/p>\n

Won\u2019t someone please pass the TENA Lady?<\/strong><\/p>\n

\n

\u201cA word most commonly associated with soggy plumbing and urinary incontinence. And also now, apparently, artists \u2013 for the inelegant act of absorbing a few dollars from a Spotify market cap built entirely on their labor.\u201d<\/p>\n<\/blockquote>\n

Anyway, the underlying question is pertinent: How much will artists actually get from UMG\u2019s Spotify stake sale?<\/strong><\/p>\n

UMG<\/strong> declined to provide any hard numbers on the topic, though CFO Matt Ellis<\/strong> confirmed the payouts would be \u201cconsistent with our royalty policies\u201d<\/strong>.<\/p>\n

Recent history<\/strong> helps us make an educated guess.<\/p>\n

In a letter to UMG\u2019s<\/strong> board, Ackman<\/strong> suggested that UMG\u2019s Spotify<\/strong> holding (as of April 6) would generate a gross windfall of around USD $3.1 billion<\/strong>. From this, he said, UMG would end up with just over half \u2013 USD $1.7 billion<\/strong> \u2013 in net proceeds \u201cafter taxes and net of the artists\u2019 share of Spotify proceeds\u201d<\/strong>.<\/p>\n

Indeed, Ackman<\/strong> suggested that UMG artists would be paid approximately USD $866 million<\/strong> from the sale, around 28%<\/strong> of the gross amount.<\/p>\n

Based on the implied math in Ackman\u2019s<\/strong> proposal, if UMG<\/strong> now banks $1.45 billion<\/strong> by selling 50% of its Spotify shares, the company would end up with approximately $805 million<\/strong>, with a further $240 million<\/strong> for the taxman.<\/p>\n

That would leave roughly $405 million<\/strong> for artists, likely subdivided by each act\u2019s Spotify \u2018stream share\u2019<\/strong> for UMG over the past 18 years<\/strong>.<\/p>\n\n

<\/a><\/figure>\n\n
2) Thanks to UMG\u2019s new levels of investor transparency, we have revenue numbers for Virgin Music Group. Its growth is impressive \u2013 but not all analysts will love it.<\/h6>\n

In 2022<\/strong>, Universal Music Group<\/a><\/strong> announced a major strategic pivot.<\/a><\/p>\n

The company confirmed that it had poached mtheory<\/strong> founders, Nat Pastor<\/strong> and JT Myers<\/strong>, to run Virgin Music Group<\/strong> \u2013 a fully-fledged global indie label services division.<\/p>\n

Speaking to analysts on UMG\u2019s<\/strong> Q1 earnings call, Sir Lucian Grainge<\/strong> referenced this move, noting: \u201cAbout 5 years ago<\/strong>, we foresaw a potential gap in our portfolio, something I couldn\u2019t allow.\u201d<\/p>\n

VMG<\/strong> was launched to duke it out with Sony<\/a>\u2018s The Orchard<\/a><\/strong>, which had risen into a seemingly unassailable lead as the world\u2019s No.1 services provider to the independent sector.<\/p>\n

Since then, of course, Universal<\/strong> has doubled down on its indie services business via this year\u2019s $775 million<\/strong> acquisition of Downtown.<\/a><\/p>\n

\n

\u201cFrom 2023<\/strong> to 2025<\/strong>, VMG<\/strong> enjoyed a 30%<\/strong> rise in annual revenues, reaching EUR \u20ac790M (around USD $888M)<\/strong> last year. In the same timeframe, VMG<\/strong> also posted an improvement in bottom-line EBITDA margin<\/strong>.\u201d<\/p>\n<\/blockquote>\n

In an effort to increase transparency for investors, UMG<\/strong> broke out VMG\u2019s<\/strong> standalone annual revenues for the first time in its Q1 earnings.<\/p>\n

These figures show that, from 2023<\/strong> to 2025<\/strong>, VMG<\/strong> enjoyed a 30%<\/strong> rise in annual revenues, reaching EUR \u20ac790M (around USD $888M)<\/strong> last year. In the same timeframe, VMG<\/strong> also posted an improvement in bottom-line EBITDA margin<\/strong>.<\/p>\n

In addition to VMG\u2019s<\/strong> numbers, UMG<\/strong> separately used its Q1 earnings to break out Downtown<\/a>\u2018s<\/strong> performance since the acquisition closed on February 20<\/strong> (to the end of March, 2026).<\/p>\n

Downtown\u2019s<\/strong> recorded music revenues in this 39-day period<\/strong> hit EUR \u20ac72M (around USD $84M)<\/strong>, with music publishing revenues of \u20ac14M ($16M)<\/strong>, and an EBITDA profit margin of 3.5%<\/strong>.<\/p>\n

When Downtown<\/strong> is combined with<\/em> Virgin<\/strong>, claimed Grainge<\/strong>, \u201cwe\u2019ve leapfrogged our competitors to become the No.2 company<\/strong> in the fast-growing artist and label services market\u201d.<\/p>\n\n

<\/a><\/figure>\n\n

Despite all this good news, the subject of Virgin<\/strong> and Downtown<\/strong> has mixed fortunes for UMG\u2019s investor messaging \u2013 because the profit levels of indie services businesses typically can\u2019t match the higher-margin performance of UMG\u2019s frontline record companies<\/strong>.<\/p>\n

What\u2019s more, because the indie services<\/strong> sector is growing at a stunning pace, the lower-margin indie services divisions keep making up an increasing proportion of UMG\u2019s total revenues<\/strong>.<\/p>\n

On the Q1 call, UMG<\/strong> CFO Matt Ellis<\/strong> explained that, in 2025, Virgin<\/strong> contributed 8.4%<\/strong> of Universal\u2019s total recorded music revenues \u2013 up from 7.5%<\/strong> in 2024. This, he said, \u201coffset 20 basis points of year-over-year margin expansion\u201d<\/strong> in UMG\u2019s non-Virgin recorded music division.<\/p>\n

In other words, as Virgin<\/strong> and Downtown<\/strong> continue to grow, they pose a challenge to UMG\u2019s<\/strong> ability to increase its margins within the \u201cmix\u201d of its overall business.<\/p>\n

Sir Lucian Grainge<\/strong> has a very clear view on this: Universal won\u2019t be opting out of the super-fast-growing indie distribution sector in order to cosmetically boost<\/strong> short-term profit margins.<\/p>\n

\u201cOur Virgin<\/strong> and Downtown<\/strong> businesses are highly complementary, growing quickly and on a path to market leadership in a growing sector,\u201d said Grainge<\/strong>. \u201cThe next phase of our plan for Virgin<\/strong> is focused on empowering independent players, raising the standards of service even higher, and growing our community of dynamic labels and entrepreneurs.<\/p>\n

\u201cAt the same time, we see a meaningful opportunity for [Virgin<\/strong>] to capture additional value<\/strong> in high-potential markets.\u201d<\/p>\n

3) \u2018Frontline\u2019 and \u2018catalog\u2019 are \u2018old-fashioned terms\u2019<\/h6>\n

Back in March, on UMG\u2019s<\/strong> previous<\/em> quarterly earnings call (Q4 2025), the firm\u2019s CFO Matt Ellis<\/strong> made a disclosure that I don\u2019t think received nearly enough attention.<\/p>\n

Speaking about the pricey economics of re-signing established artists, Ellis<\/strong> explained that royalty advances are \u201cnormally recouped not just through the future releases from our artists, but also the catalog of the prior work that audiences continue to engage with.\u201d<\/em><\/p>\n

i.e., When UMG<\/strong> pays a big advance to re-sign a superstar, it doesn\u2019t need the next album to be a smash to get its money back. It can recoup against the artist\u2019s entire back catalog<\/strong> \u2013 every stream of every old hit, compounding quietly in the background.<\/p>\n

This matters because some of UMG\u2019s<\/strong> investors are looking at the company\u2019s catalog vs. front-line revenue split and asking: why bother with the expensive part?<\/strong><\/p>\n

In 2018<\/strong>, catalog accounted for 54%<\/strong> of UMG\u2019s recorded music revenues. By 2025<\/strong>, that figure had risen to 66%<\/strong>.<\/p>\n

It\u2019s an industry-wide trend: Luminate<\/a><\/strong> data shows US streams of \u2018current\u2019 music actually declined<\/em> in volume in 2025 YoY<\/a>, with all the market growth driven by older music<\/strong>.<\/p>\n\n

<\/p>\n

<\/a><\/figure>\n

<\/b><\/p>\n\n

To a certain type of investor, this picture screams: Ditch the messy, expensive business of signing artists. Strip out the catalog. Enjoy higher margins.<\/strong><\/em><\/p>\n

On UMG\u2019s<\/strong> Q1 call last week, BofA\u2019s Adrien de Saint Hilaire<\/strong> (Mr. Leakage) prodded at this ideology by asking whether UMG could \u201cpivot towards being more of a catalog-only business.\u201d<\/strong><\/p>\n

The answer, emphatically, was no<\/strong>.<\/p>\n

Grainge<\/strong> left no room for ambiguity. He called frontline and catalog \u201cold-fashioned terms\u201d<\/strong> \u2014 and said UMG views them \u201cnot as separate entities, but as one holistic opportunity.\u201d<\/strong><\/p>\n

Then he offered proof<\/strong>.<\/p>\n

On April 11<\/strong>, Justin Bieber<\/strong> headlined Coachella. During his set, he pulled out a laptop and scrolled through YouTube<\/a>, singing along to old videos of himself \u2014 including the 14-year-old<\/strong> hit, Beauty and a Beat<\/em>.<\/p>\n

Within days, the song had surged to No.1<\/strong> on Spotify<\/strong> and Apple Music<\/a><\/strong> globally, as Bieber\u2019s<\/strong> average daily global streams, said Grainge<\/strong>, nearly quadrupled \u2014 from 31 million<\/strong> to 113 million<\/strong>.<\/p>\n

\u201cThat\u2019s why we don\u2019t view \u2018frontline\u2019 and \u2018catalog\u2019 as separate entities,\u201d said Grainge<\/strong>, \u201cbut as one holistic opportunity<\/strong>.\u201d<\/p>\n

To UMG<\/strong>, the Bieber<\/strong> example illustrates its model in real time.<\/p>\n

That 66-catalog\/34-frontline<\/strong> split isn\u2019t two dueling businesses duct-taped together. It\u2019s one intrinsically fused economic machine<\/strong>.Music Business Worldwide<\/span><\/p>\n<\/div>\n

\u2018 The preceding article may include information circulated by third parties \u2019 <\/em><\/p>\n

\u2018 Some details of this article were extracted from the following source www.musicbusinessworldwide.com \u2019 <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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As you\u2019ll know, last month Bill Ackman<\/strong> launched a takeover bid<\/a> for UMG<\/strong> that proposed raising funds by selling UMG\u2019s full Spotify<\/strong> stake.<\/p>\n