Businessmodel of Universal Music Group

Customer Segments

UMG has a mass market business model, with a multi-sided market. It mainly splits up its businesses by function and by geography.

Geography – UMG invests heavily in its local operations globally, allowing it to tailor its approach to different markets. This approach has proven to be effective, with over 65% of sales coming from homegrown artists in their own country.

Business Function – UMG splits up its business according to function – recorded music, publishing, merchandising, and partnership & branding. Each of these functions has a different customer base.

• Recorded music appeals to the average music consumer, with different genres and distribution mediums being targeted at different consumer groups. For example, pop music and internet distribution would be targeted at youth, while jazz and physical mediums may be targeted more at middle-aged consumers.
• Publishing appeals to both the new artist and to a certain type of consumer, depending on the artist and the genre.
• Merchandising appeals to persons who attend live concerts, or die-hard fans. This would apply to certain consumer age groups as well, presumably younger consumers.
• Partnerships & Branding appeals primarily to other businesses who can see a marketing opportunity through tie-ups with popular artists. ### Value Proposition

UMG’s value proposition depends on the business function and the target customer. For the average consumer, its value is being a recognized and trusted music brand with the largest music catalogue in the world – a UMG label is a symbol of excellence in this regard.

For the artist, working with UMG is also a mark of excellence – being discovered by such a large company is valuable in and of itself, over and above the unparalleled resources that the company can provide.

For the business, the fact that an artist is signed up with UMG indicates that the artist has some degree of “star power” that can be leveraged on for marketing purposes.

Channels

UMG utilizes both direct sales and partnerships with third parties, depending on the business function.

Recorded music relies primarily on retail sales, licensing, and alternative revenue streams. Retail sales are done through music labels such as Capitol Music Group. Records are sold in physical store, through authorized resellers, or online, either directly or through resellers. Licensing is generally done directly from business to business, and includes licenses to use UMG’s music on radio, television, digital channels, social media and live appearances. Alternative revenue streams such as brand consulting and strategic solutions are also generally done directly business to business.

Publishing generally relies on licensing revenue, which is done business to business.

Merchandising relies primarily on retail sales, usually through retailers, and licensing, which is generally done directly business to business.

Partnerships & Branding are generally done directly business to business.

Customer Relationships

UMG relies heavily on culture-driven aspects of its product, i.e. its branding and reputation, in order to sell its music to retail consumers, to attract partners and artists, and to publish its material. They also create communities of businesses through which profitable partnerships may be formed.

UMG also invests heavily in emerging technologies, particularly in the dissemination of music, i.e. through direct online sales and through streaming services.

Key Activities

UMG’s key activity is the production and distribution of music – all of its other businesses are ancillary to this core purpose.

Key Partners

UMG’s key partners very widely in type, depending on the business function.

Recorded music relies heavily on retail sales licensing, and alternative revenue streams. Thus its key partners here would be: (a) distributors and resellers, both online and physical; (b) artists and artist organisations; (c) other music businesses (for the purposes of consulting and tie-ups); and (d) other media companies (for licensing revenue).

Publishing generally relies on licensing revenue. The key partners here would be media companies that are interested in using UMG’s intellectual property.

Merchandising relies primarily on retail sales, usually through retailers, and licensing. Key partners would be physical resellers, event companies, and merchandising companies (for licensing revenue).

Partnerships & Branding are generally done directly business to business. Key partners would be any business, from airlines to banks, that is interested in sponsorship and advertising.

Key Resources

UMG’s key resources are human resources, i.e. the pool of artists and media management talent that are tied to the business, and intellectual property, i.e. its music catalogue.

Cost Structure

While exact figures are not published and are thus unavailable, UMG’s key costs are:

Production costs – manufacturing and distribution costs, royalty and copyright expenses, artists’ costs, recording costs, and direct overheads)

Selling, general and administrative expenses (SG&A) – marketing and advertising expenses, selling costs, provisions for doubtful receivables, indirect overheads, salaries and employee benefits, rent, consulting and service fees, insurance costs, travel and entertainment expenses, administrative department costs, provisions for receivables and other operating expenses).

Revenue Streams

UMG’s key revenue streams are from physical sales, digital sales, and licensing. The former two are done exclusively by the Recorded Music segment, while the latter, licensing, is carried out by all the business segments.

Source of Revenue Revenue (FY 2015, million euros) Percentage of Total Revenue Recorded Music 4113 80.5% Physical Sales

1410 27.6% Digital Sales

1975 38.7% Of which streaming and subscriptions

954 18.7% Licenses and others

728 14.3% Music Publishing 756 14.8% Merchandising and other 276 5.4% Elimination of intersegment transactions (37) (0.07%) Total 5108 100%