In a first-time valuation, Universal's parent company Vivendi recently dropped word that it's subsidiary had a price tag of $22 billion suggesting Vivendi either wants to sell part of it, or move the company public in an attempted cash grab.
Guest post by Bobby Owsinski of Music 3.0
Universal Music’s parent company Vivendi recently put a public price tag of $22 billion on the company, which seems odd since it hasn’t valued this asset before. In fact, the only good reason to do so is if Vivendi either wants to sell all or part of Universal or to take the company public to reap some cash. Needless to say, the rumor mill is running rampant as a result.
One rumor has it that Vivendi is willing to sell up to 15% of the Universal Music, since many potential suitors seem to be flush with cash. According to Music Business News, there are 3 categories of potential buyers.
The first is the big Chinese companies of Alibaba and Tencent. Alibaba has publicly committed to expanding its footprint in the entertainment business over the next 3 years and has already pledged $7 billion to do so. That said, it might not be a great fit, since it’s likely it would want more control over any acquisition than what it would get from a junior position in Universal. Tencent, China’s largest company, has also publicly stated that it’s open to inventing in a music label, and a small piece of the pie is all right. According to Tencent’s VP of Music Andy Ng, ““We wouldn’t mind exploring an investment, like owning a small portion of a music label’s shares – 10%, 20% or 30%.” Sounds promising.
The next category would be the large digital entities of Apple, Google or Amazon. Google and Amazon don’t seem to be much of a fit, but Apple certainly has the cash to do so. It already knows just about everything there is to know about the company thanks to former Universal and now Apple exec Jimmy Iovine. The problem is that it doesn’t need much of what Universal has to offer. Today a major label can offer the infrastructure to make an artist into a superstar, which primarily consists of distribution and promotion. Apple does just fine with promotion already, it can offer distribution through iTunes (although that limits the streaming world a bit), and could care less about physical distribution. In other words, aside from the executive brain trust it would get, there probably not much of interest.
The third category would be either a telco or an investment group. A telco would rather be in the distribution business than the music creation business because of the synergy (or lack of it) involved. Telco’s are also trying to get younger technology-wise, and that’s not what you’re getting with an old-school major label. Investment groups have had a difficult time extracting value from their label deals in the past (i.e. Terra Firma with EMI, and Edgar Bronfman with both Warner Music and Universal) so you’d think that most would be cautious when looking at any current label investment.
So when you take a 1,000 foot look at the possibilities, Tencent looks like the the obvious investor should the opportunity arise. That’s not to say it will though. Vivendi’s valuation of Universal Music might be only a trial balloon to see if a likely buyer or partner is actually on the horizon. Of course, there might also be another possible investor hiding in the weeds that we’re not aware of yet. After all, it is the music business.