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Music was my first love – but is it a good investment?

Former hedge fund analyst Steve Clapham has been waiting years for Universal Music to float – now he compares his business model against a rival's
Music was my first love – but is it a good investment?

Universal Music (NL:UMG) has finally come to the market, an event long-awaited by many and by this analyst for almost exactly five years – it was in September 2016, when I attended a teach-in on the European media sector at a bulge-bracket firm, that I spotted an investment opportunity.

A rated media analyst walked through the various industries and stocks in his sector. I was intrigued by his explanation of the music-streaming business, which was then considered a positive for Vivendi, the French mass-media conglomerate. Music-streaming apps, such as Spotify (US:SPOT), charge their customers $10 or £10 per month. Their economics then were, and likely still are, broadly:

  • 60 per cent of revenues goes to the record company
  • 10 per cent goes to the publisher
  • the remaining 30 per cent is their gross margin
  • they then have to advertise, acquire customers, administer and develop the service.
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