Enduring music rights mispriced by AI fears: Universal Music Group

Universal Music Group

We have followed Universal Music Group for over a decade, first through our investment in Vivendi and then its separate listing in 2021. AI fears and slowing streaming growth have caused a dramatic sell-off in this quality company and we have taken the opportunity to buy a position in the past quarter. Our view is that the market is overlooking the enduring value of UMG's music rights, ignoring how perpetual demand for this catalogue drives predictable long-term cashflow.  

Music Rights

These music rights generate strong cash-flow through royalties when recordings and songs are streamed, sold, or licensed. A key point is that UMGs assets can continue to earn for decades, where we see music over three years old, still generating 66% of recorded music revenue. Since consumers continuously engage with music spanning several decades, the catalogue has an exceptionally long shelf life.

Beyond its legacy assets, UMG sustains its market leadership through continuous frontline success where its artists held nine of the top ten places on the 2025 global artist chart, for a third consecutive year. They further provide strong artist development and a global marketing network, which helps attract rising talent and turn new releases into future royalty income. 

AI Dynamic

UMG also holds strong pricing power, with contractual wholesale floors and price escalators introduced by the new Streaming 2.0 business model. Moreover, they present clear potential for volume growth through the recent acquisition of Downtown Music Holdings alongside Virgin Music Group, positioning UMG as the number 2 independent distribution label, capturing the volume of the fast-growing ‘indie-music’ sector that previously bypassed major record labels.

Another strong volume growth engine was created in China, following their licensing deal with Tencent. We view China as a key underpenetrated market that is showing phenomenal growth and revenue contribution to UMG (Figure 1). 

UMG has been operationally driven by stable management, led by Lucian Grainge who boasts a 15 year tenue as the CEO and Chairman of UMG. Additionally, the 28% ownership of the Bolloré family, has been a strong ownership anchor that has applied positive pressure by consistently backing management to invest aggressively in frontline talent during industry downturns while competitors cut back. Their targeted acquisitions across independent distribution and regional labels further capture the fast-growing independent music sector and regional music genres in Asia, Latin America, and Africa.