Universal Music Signs License Agreement With Chinese Tencent

Universal Music Group (Vivendi) and Tencent have signed a multi-year license agreement under which Tencent will distribute UMG catalog titles on its QQ Music, KuGou and Kuwo streaming platforms. Tencent also becomes UMG’s largest distributor and license partner for the resale of content to third parties. In this capacity, he will “negotiate the distribution of UMG’s content on Spotify or Deezer in China”, notes Invest Securities. This partnership, which allows UMG to strengthen in China, also includes the development of the music studio Abbey Road Studios China.

“After its agreement with Spotify, UMG continues to secure its distribution through long-term agreements with streaming platforms. The success of the agreement with TME is at the heart of the challenge of music for Vivendi, namely to succeed in making paying for music in countries that have never done so in the past Only if emerging countries start to pay for streaming, will the growth of the music market be truly significant, justifying a revaluation of actors in the sector “, comments Invest Securities.

In early April, Spotify announced the signing of a multi-year agreement with Universal Music Group (UMG). One of the issues in this deal, the details of which have not been disclosed, for Spotify was to reduce the commissions paid to the UMG (Vivendi) record company in exchange for a greater right of scrutiny by the latter the objectives in terms of paid subscriptions.

Strengths of value

  • Media group refocused on entertainment, namely television with Canal + Group, music with world leader Universal Music (more than 1/3 of the market) as well as games with Gameloft and streaming;
  • Revenues derived mainly from music (46%) and television (48%);
  • Improved visibility, with subscriptions accounting for more than 50% of revenue and 35% of those of UMG, customers re-agreeing to pay to listen to music;
  • Reinforcement strategy in the audiovisual sector of Southern Europe by taking a majority stake (Media-set Premium, 89%) without cash outflow;
  • Solid cash position of € 1.1 billion at the end of 2016 after a return to shareholders of € 8 billion since 2014.

Weaknesses in value

  • Strategy in the music still to be confirmed, the digital still to increase in power (streaming and subscription) to compensate for the fall of the requests of disks;
  • A decline in subscriptions, governance problems, constant losses of channels over 4 years weighing on the group’s profitability;
  • Uncertainty about the appropriateness of the investment strategy in telecoms, gaming, and media started since 2015 – shares in the capital of Telecom Italia, and Telefonica, then in Gameloft and Ubisoft and finally in Mediaset – as well as in public distribution with the acquisition of a 15% stake in Fancy Darty;
  • Strong reduction in cash flow, limiting external growth operations.

How to follow the value

Strategy based on: creation of assets in music, games and audiovisual, distribution, internally with Canal + and Dailymotion and strong relationships with digital platforms and telecom operators, integration of Gameloft, production of audiovisual content , generating intellectual property rights, audiovisual distribution internationally – Africa, Poland, Vietnam and, this year, Myanmar ex-Burma;

  • Reception reserved for the revival of Dailymotion;
  • Result of the complaints of the Italian Fininvest, who claims 570 M euro damages for breach of contract;
  • Speculation on a merger with Haves, a 60% subsidiary of the Bolloré group;
  • 2017 targets: 5% growth in sales and operating margin up 25%.
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