Digital Sales Don't Save Universal Music


French media conglomerate Vivendi reported Q2 results this morning and the news appears to be getting worse for its Universal Music Group division. 

Despite 29% growth in digital sales during the first half, continued physical CD declines drove total revenue declines of 1.7% and 18.5% EBITA declines during the period. 

A cause for more concern at the company could come from accelerated declines in the second quarter where revenue decreased 2.8% and EBITA decreased 31.8% over the same period in 2008.  This compares with more modest 0.7% revenue declines and 0.9% EBITA declines during the first quarter.  The company said much of the declines resulted from continuing restructuring, less copyright settlements, and a decrease in value on some of its investments.

Lower licensing income, including copyright settlements, helped contribute to the declines, which provides an interesting window into Universal’s digital strategy — and the recent launch of its own soon-to-be-launched online video service Vevo. 

Most of the company’s licensing income comes from television, film, and advertising. But over the past few years the company has earned an increasing amount of licensing income from digital deals and copyright settlements with online companies that stream its content.  Record labels have expressed concerns with lower-than-expected income from these deals, which likely drove Universal to announce it was launching its own digital platform, in conjunction with YouTube, called Vevo.

Under the Vevo deal, Universal will sell the advertising while YouTube handles the technology.  With results continuing to slide at UMG, we wonder how effectively a record label with little experience selling online advertising will be able to devote resources to this new income stream, while its flagship operations continue to suffer.

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