Vivendi looks to cash in on music industry's rise from the ashes

-A +A

PARIS (July 31): French tycoon Vincent Bollore is looking to cash in on the music industry's revival with plans to sell up to half of Vivendi's iconic Universal Music division — an asset worth up 30 billion euros (US$35 billion).

The billionaire, who controls Vivendi with a 25% stake, has for years resisted calls to take advantage of the rising value of Universal Music Group (UMG), home to artists like Taylor Swift, Drake, Kendrick Lamar and Lady Gaga.

But a growing public thirst for subscription and ad-based music streaming services, and the recent signing of several major licence deals, have put key rights owners like UMG under investors' spotlight as they vie with streaming platforms like Spotify to take advantage of the changing trends.

Vivendi's shares were up about 4.5% at 1213 GMT on Tuesday, after the company beat first-half earnings' expectations late on Monday, driven by a jump in music streaming revenues, and said it was considering selling up to 50% of UMG to one or more strategic partners.

The results further confirmed that UMG, the world's biggest label ahead of Warner Music and Sony Music Entertainment, had overcome the challenge from the collapse of downloads and compact disk sales, which had at one time raised concerns about the unit's long-term survival.

Back from the ashes

After a 15-year downturn, the music industry has rebounded in the past three years, with global recorded music revenues increasing by 8.1% in 2017 to US$17.3 billion, according to the record industry trade group IFPI.

Streaming revenues represented the bulk of the growth, with sales surging more than 41% last year, driven by 176 million paid subscribers.

Market leader in music streaming Spotify and rival Apple Music are the driving forces behind that trend.

Both might soon be joined by internet giant Tencent Holdings , which said this month it was looking to spin off and list its online music business, China's biggest music-streaming company, in the United States.

The music industry's revival is such that some analysts expect Apple Music to be a key driver of Apple's third-quarter earnings growth, due out later on Tuesday.

Selling a significant stake in UMG would mark a departure from Vivendi's previous indications that it could list and sell a minority stake in the unit.

That scenario, however, would have posed the risk of seeing investors turn to UMG and leave Vivendi, Deutsche Bank analysts said in a note.

Vivendi's other key assets include pay-TV Canal Plus and advertising group Havas. Under Bollore's tenure, the media group has bought sizable stakes in Telecom Italia and broadcasting Mediaset, which have yet to bear fruit.

In 2015 U.S. activist fund P. Schoenfeld Asset Management called for Vivendi to sell part or all of UMG to return cash to investors.

Those demands came two years after Japanese telecoms giant SoftBank made a bid for UMG, offering US$8.5 billion for the division — three to four times lower than current analyst valuations. 

(US$1 = 0.8531 euros)