Universal Shows Media Companies How to Navigate Through a Recession

[Posted by Mark Mulligan]

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YouTube are reportedly close to signing a deal with Universal Music Group (UMG). The reports are still unconfirmed and details are thin on the ground, though a standalone microsite called Vevo is rumoured. I’ll hold off from further speculation until details are confirmed, but what is worth looking at now, is why these sorts of deals are happening at this point in time.

 

UMG is pursuing a number of direct-to-consumer strategies (e.g. Lost Sounds) and lots of first mover deals with new distribution partners (e.g. Nokia’s Comes With Music, BSkyB). This is all part of a strategy of expanding its role in the value chain (a topic I recently addressed more broadly in this post). UMG is navigating a path through the recession, understanding that discretionary consumer spending on media such as CDs is much more vulnerable than utilities and subscriptions. So they are focused on increasing margins and exploiting new revenue streams to offset the decline in core revenues. 

 

But UMG’s recession didn’t start in colder months of 2008.  UMG and all other record labels have been in recession since near the start of the century.  They may have been a little slow to react initially, but they are now keenly aware of the scale of the problem and are responding vigorously with innovation, none more so than UMG.

 

During the music industry’s recession, media consumption has changed beyond recognition. Consumers spend more time with more media than ever before.  They spend more time online, on mobile, on TV, on console etc.  They spend more money on media than ever before but less on music.  Households have more monthly outgoings than at the start of the period: pay TV, multiple mobile phones, broadband etc.  These items are much more difficult for consumers to cut back on than the occasional CD or DVD purchase, even though they are a much bigger financial drain on the consumer.

 

It’s no coincidence that UMG is actively licensing to subscription based services (e.g. Sky) and ad supported offerings (e.g. imeem, YouTube). Those are the two key ways of developing new revenue in this new recession impacted media world.  And by entering into partnerships rather than just licensing, UMG are doubling their odds of a profitable return on their investments. 

 

Being a media company in the 21^st century was already becoming an increasingly complex affair.  The recession is compounding that, and staying still will ultimately equate to failure.  Media companies across all genres would do well to take a few lessons out of UMG’s book.