This Thursday (May 17), Vivendi’s management board will present its initial findings on a possible IPO for Universal Music Group. It’s a potentially game-changing moment, both for the world’s biggest record company, and the music industry itself.
Financial experts suggest a spun-off UMG could actually be worth more than its parent company and – given the staggering IPO valuation of Spotify, a company that's yet to make a profit – the prospect of highly-profitable Universal hitting the markets looks like a licence to print money.
And there are a number of reasons why discussing an IPO makes sense – it’s good for Vivendi’s share price, it keeps the competition on its toes and it’ll head off any restless shareholders from doing a Daniel Loeb (the activist investor who publically called for Sony’s entertainment business to be spun off from Sony Corp).
Unstitching UMG and its multiple legal entities from Vivendi and doing the IPO groundwork could take years, at a time when the music landscape is being reshaped on a daily basis
But the reasons for actually going public are rather more complex. Anyone who remembers Warner Music Group’s 2005 IPO, let alone EMI’s difficult days on the FTSE 100, will know that quarterly earnings calls and artists’ creative cycles rarely synchronise to the satisfaction of financial analysts.
Of course, the move to a subscription model means that the music business is less volatile financially than it has been at any time since the peak of the CD boom, and profits are much less release-driven that even a few years ago. But Universal became the world’s leading music company through bold, strategic moves often made years before the market catches up. Will city types, whether in London, Paris or New York, understand that?
Even if they do, unstitching UMG and its multiple legal entities from Vivendi and doing the IPO groundwork could take years, at a time when the music landscape is being reshaped on a daily basis.
It makes perfect sense for Vivendi to look at all its options. But there’s a long way to go before the prospect of the masters of Universal meeting Wall Street’s self-styled masters of the universe becomes a reality.
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