BNP Paribas Exane has been one of the closest observers of Universal Music Group in the financial analyst community for years – covering UMG’s streaming growth story over the past half-decade, and its extraction from Vivendi ownership into becoming a publicly-traded company in 2021.

BNP PE’s Managing Director of Media & Internet, William Packer, was largely bullish on UMG for the duration of that story. But in April this year, Packer’s view of Universal’s future took a turn for the sour.

In a research note at that time, Packer wrote of what he saw as significant vulnerabilities for UMG – including a threat from generative AI, with machines potentially creating masses of music each day that could then be uploaded to music streaming services.

London-based Packer called into question what this could mean for UMG’s market share on streaming platforms, while also raising concerns over TikTok’s potential contribution to industry growth, amongst other observations.

On AI specifically, he suggested that a “a glass half full industry narrative is holding… for now”.

As a result, BNP Paribas Exane double-downgraded UMG’s stock in April, with Packer reducing his share price target for the company from EUR €25 to EUR €19.

Since Packer’s note in April, of course, a number of significant events have taken place involving, or impacting, UMG. Examples:

  • UMG and Deezer co-announced a new ‘artist-centric’ streaming royalty model on the latter’s platform last month, designed to boost the earnings potential of popular music – and reduce the commercial power of both non-music “noise” and of so-called “functional music”. That royalty model is rolling out in France on Deezer for UMG artists this month (October) and will reach other parts of the world in the months ahead.
  • Universal Music Group also announced a partnership with YouTube in August that will see both companies co-develop generative AI music tools that “offer “safe, responsible and profitable” opportunities to music rightsholders. (Related: a new Bloomberg report now suggests that YouTube is keen to launch a licensed AI music platform that allows users to replicate the vocal tones of superstar artists – without infringing copyright.)
  • TikTok has launched its TikTok Music service in multiple territories, and inked what has been billed as a landmark licensing agreement with UMG rival Warner Music Group;
  • Spotify has raised its prices globally, while Deezer recently increased its prices for the second time in 12 months;
  • UMG’s stock price has soared to its highest point in nearly two years. As this story is published, UMG’s share price sits at EUR €24.65.

Referencing some of the above and other factors, William Packer and BNP Paribas Exane have today (October 19) upgraded UMG’s stock to “neutral” from their previous position of “underperform”.

On the subject of AI, Packer writes in a new research note: “In the coming months, we expect UK and EU to codify favourable LLM training data copyright protections. UMG’s whirring communications machine has been active and we have been positively surprised by DSPs’ cooperation and long tail content owners’ solidarity with majors.”

The analyst has also been impressed with the roll-out of “artist-centric” with Deezer.

“UMG surprised the market with the rapid rollout of a new ‘artist centric’ model in cooperation with Deezer which benefits majors,” Packer writes. “While we don’t see the new model as a panacea to [long-term] market share loss headwinds, we think it improves the narrative and de-risks [generative] AI music somewhat.

“While we expect Spotify to follow, ‘onboarding’ the other DSPs will take time. Longer term, we see scope for an industry ‘win/win’ ‘grand bargain’, where labels can benefit from further pricing and improved share in return for improved royalty economics for DSPs where margin structure remains a challenge.”

Packer cites a Financial Times article that recently suggested UMG was making it a condition of its new licensing deal with Spotify that SPOT considers adoption of an ‘artist-centric’ royalty model.

However, the analyst reiterates that he does not see “artist-centric” as a “panacea” to the overall market share loss of major record companies on streaming services.

Packer notes that he expects UMG and TikTok to sign and announce a new licensing deal in the next six months.

Elsewhere, analysts that currently rate UMG’s stock as a ‘Buy’ today include the likes of Richard Eary at UBS, Daniel Kerven at JP Morgan, Michael Morris at Guggenheim, Lisa Yang at Goldman Sachs, and Ed Young from Morgan Stanley.Music Business Worldwide


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