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Summary:

After the Napster years, the world’s biggest major label is approaching growth again, and is about to reach the point where it sells more music digitally than on discs.

Lady Gaga

For the world’s biggest music label, the days of revenue decline are over — and soon, it will be surviving mostly on digital money.

Universal Music Group, home to Lady Gaga and U2, on Tuesday reported that revenue for the last nine months had risen 2.1 percent over the last year.

Sales from CDs dipped again by 14.2 percent to €1.02 billion ($1.29 billion) while digital grew another 8.6 percent to €916 million ($1.16 billion) — poised to overtake physical sales soon.

UMG is not the first label to reach this tipping point. Warner Music Group has seen the same pattern as digital music sales grow and CD sales shrink ever more.

In truth, however, Universal is breathing fumes on the way to the milestone. Which is to say, revenue is only up 2.1 percent thanks to currency fluctuations. Had currencies remained constant, company sales would have dipped by 3.4 percent.

The other story is that, regardless of format, recorded music revenue continues to shrink because digital downloads are cheaper than discs. The growth is being picked up by licensing to other services.

Even so, it remains true to say that the worse days of the music business are bottoming out.

UMG added that it is now integrating teams from EMI Recorded Music, which it has acquired, and has attracted “robust interest” from potential bidders for several EMI imprints, which it has been forced to sell by the European Commission to satisfy antitrust concerns around the deal.

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  1. Yep. That was bound to happen. One division slips into black, other divisions hemorrhage red.

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  2. “regardless of format, recorded music revenue continues to shrink because digital downloads are cheaper than discs”

    How about costs? You wouldn’t think the revenue goes down like 30%, but costs like 70%? Isn’t making business about profit, not revenue?

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  3. Good point… The revenue story is bound to improve as the comps get reset. But, there is still a need to a fundamentally leaner cost base.

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  4. It’s always difficult to analyze the health of a recorded music label because so much is based on the success of a specific release or releases, but for us outsiders it’s one of the major pieces that we have to use. You can’t really utilize the overall costs given the ease of manipulation and because there are so many one time charges.

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  5. A truly ignorant and uniformed report. At the current growth rate of digital assets owned by Universal, including downloading and licensing, they won’t reach previous 2000-2005 profit levels until 2021, barring unforeseen changes in the marketplace. So that means the hundreds of jobs lost won’t be replaced, artists will no longer receive reasonable advances, less artists will be signed and promoted. Wow, let’s celebrate less economic growth.

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