Swift deal a canny business move for Universal
There’s little better way for Vivendi’s Universal Music Group to burnish its reputation ahead of a prospective stake sale than by signing up Taylor Swift.
The French parent is preparing for the disposal of up to half of the world’s biggest music label next year. Swift’s announcement on her Tumblr account that she has signed with Universal is a nice boost for the bankers running the sale.
Her post was scant on details — such as the length and value of the deal — except for one curious element. Vivendi still owns a stake of about four per cent in Spotify Technology, the music streamer.
Variety has reported that Vivendi has promised the pop star it will share the proceeds of any future sale of that holding with the artists on its labels. Warner Music Group and Sony Corp., the two biggest record companies after UMG, have done similarly. Swift has long been an agitator for better revenue-sharing from streaming.
Despite the precedents, this seems an uncharacteristically generous offer from Vincent Bollore, the French billionaire who controls Vivendi. While sharing the gains might look great from the artists’ perspective, it’s less attractive for UMG’s owners.
When Sony sold $768 million worth of Spotify shares at the time of Spotify’s listing in April, it passed on about a third of the proceeds to artists and labels, retaining some $504 million. (All figures in U.S. dollars.) Vivendi’s stake is estimated to be worth about $900 million currently, so a similar ratio would mean handing $300 million to the musicians.
If Swift makes — for argument’s sake — three albums with UMG, the company might optimistically expect a cumulative earnings boost of, say, $75 million. So at first glance this looks like a pretty expensive promise to get the superstar on its roster.
But the French conglomerate made no commitment to Swift on when it would reduce the stake.
Vivendi CEO Arnaud de Puyfontaine indicated back in May that he had no plans to sell the shares anytime soon.
Besides, the company said at the same time that it expected a UMG valuation of more than $28 billion. That makes it pretty easy to swallow a potential $300-million hit.
Being able to show potential stake-buyers that you’ve signed one of the world’s 10 bestselling artists should easily outweigh that. As Deutsche Bank points out, only six albums in the past decade have exceeded one million traditional U.S. sales in their first week. Four were from Swift.