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NEAR TRUTHS:
PIE IN THE SKY

As a result of the streaming windfall, music valuation is going through the roof. In some cases, companies have doubled or even tripled in value over the last year. Part of the reason music valuations are at an all-time high: the low risk music has achieved due to streaming penetration. With 100m U.S. homes paying $10 per month, music has come to resemble a utility rather than a luxury purchase. With certainty of future cash flow and higher quality of earnings vouchsafed by a subscription-driven streaming ecosystem, music is now a low-risk investment. As the risk continues to diminish—thanks to cash flow and low interest rates—valuations will continue to balloon.

Spotify stock has been on a rocket ride, up over 150% since the earliest days of the pandemic with a market cap at around $60 billion. Live Nation is up about 200% since March of 2020, with a market cap approaching $20b (more about them in a bit), while Tencent Music Entertainment stock is up over 150% (market cap over $40B), WMG is up about 20% (market cap $18b) and Hipgnosis Songs Fund has ascended 30% (market cap £1.3b).

This industry-wide escalation in value bodes exceedingly well for Vivendi’s planned 2022 IPO for UMG. Universal’s $33b valuation will quickly become a distant memory as streaming growth drives everything sky-high. Many believe Uni is headed to a $50b valuation on the heels of its IPO.

Streaming is up 10.4% over last year. The pandemic seems to have accelerated streaming growth with older demos, who have been sitting around at home and going crazy for lack of activity. DSP big dog Spotify upped its Q4 2020 monthly active users to 345m from 271m in Q4 2019 (+27%)—a perfect illustration of how the pie has grown—and is opening in 80+ new markets (with significant reach into Asia and Africa). Boss Daniel Ek is trumpeting the $5 billion paid out in royalties last year.

KNIGHTS OF THE EXPANDING TABLE: The great expectations noted above have been further enhanced by the aggressive pre-IPO moves of Sir Lucian Grainge. UMG’s pacts with major movers like Big Hit, TikTok, Tencent and Lego, its acquisition, via UMPG, of Bob Dylan’s catalog, the global renovation of its indie division under the Virgin banner (with the imprimatur of fellow knight Sir Richard Branson)—these and other deals and initiatives show a determination to gobble up opportunities and grab big headlines, stoking the worldwide market. And insiders say the roll is just beginning.

There have been virtually no big, sustainable new records this year, apart from Morgan Wallen, Lil Durk, Olivia Rodrigo, SZA and the formidable Taylor Swift, but that hasn’t mattered much, since consumers are streaming all the time and the pie just keeps getting bigger. Republic can claim a great many of those quarantine streams, having dominated the top of the chart since the end of 2020. The House of Lipman has held the #1 spot for 22 of the last 33 weeks and maintains an 8.8 overall share (and 12.8 share of currents) for the first six weeks of this year. John Janick’s marketshare leader IGA (10.3), meanwhile, will soon add a new Billie Eilish album—supported by an Apple Music doc—to his killer releases. Add them all together, along with a few other big records, and it becomes clear why UMG’s share of the aforementioned ever-expanding pie continues to hover around 40%.

GOING DUTCH: An interesting sidenote to the IPO preparations: The offering will be made on the Amsterdam stock market, Euronext, not the NYSE or London Exchange. Amsterdam has been on the rise as a locus for IPOs and other splashy financial activity (London, meanwhile, has declined as a player in Brexit’s wake); given that UMG has had a long and successful operation in the Netherlands (dating back to the Polydor days before the Seagram merger) and Vivendi is based in Paris, Amsterdam makes all kinds of sense as a continental power base.

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