We could snip and discuss many parts of this interview with a Former Sony Music CEO but we will try and keep it brief. The interview is worth reading in its entirety for anyone following the space.
The investment thesis for major record labels is that with the growth in streaming, the royalty earnings streams from both recorded and music publishing are more predictable, higher margin, higher growth, and becoming a larger proportion of UMG's business.
There is also an opportunity to consolidate sub-labels to reduce the fixed cost base and drive higher operational leverage. With the growth in digital distribution, multiple sub-labels with duplicated cost structures isn't necessary:
A lot of that is due to the vast amounts of duplication within that organization. Today, a hit is driven by social media – I hate to admit it – and old media radio and TV are no longer proactive. Hits are appearing out of nowhere in many cases. You no longer need four or five full blown, fully staffed, front line labels with four radio staff. That will only create a disgruntled shareholding. - Former Sony Music CEO
Recorded music is ~80% of UMG's business. The catalog business drives ~80% of the profit because new, front-line music requires far more A&R (music R&D) spend to launch new artists.
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