By Alex Webb, Bloomberg Opinion
THERE’S little better way for Vivendi SA’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. Ms. Swift’s announcement on her Tumblr account that she has signed with UMG is a nice boost for the bankers running the sale process.
Her post was scant on details — such as the length and value of the deal — bar one curious element. Vivendi still owns a stake of about 4% in Spotify Technology SA, the music streaming giant. It has promised the pop star that 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 similar. Ms. 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 the latter’s listing in April, it passed on about a third of the proceeds to artists and labels, retaining some $504 million. 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 Ms. Swift makes — for argument’s sake — three albums with UMG, the company might optimistically expect a cumulative $75 million earnings boost. So at first glance this looks like a pretty expensive promise to get the superstar on its roster.
However, the French conglomerate made no commitment to Ms. Swift on when it would reduce the stake. Indeed, Vivendi CEO Arnaud de Puyfontaine indicated back in May that he had no plans to sell the shares any time soon.
Besides, the company said at the same time that it expected a UMG valuation in excess of $28 billion. That makes it pretty easy to swallow a potential $300 million hit on the value of its Spotify stake because of the promise to Ms. Swift. It’s about 1.1% of UMG’s hoped-for value.
Being able to show potential stake-buyers that you’ve signed one of the world’s 10 best-selling artists should easily outweigh that. As analysts at Deutsche Bank point out, only six albums in the past decade have exceeded 1 million traditional US sales in their first week; four were from Ms. Swift.
Call it what you want, this looks like a canny bit of business when investors ask whether UMG is worth the price.