Universal Music, is at heart, a store of millions of contracts and rights that generate royalties representing a store of value with fast-growing annuity streams says the US broker.
That store of value is unlikely to diminish, adds the US bank, noting that catalogues or old music now account for 75% of the market, up from 56% in 2016 despite all the new music since then (source: BRI).
“The enduring nature of the catalogue, unique content that cannot be replicated and will continue to generate very high margin revenues for decades to come, also helps ensure the majors [such as UMG] hold the balance of power over DSPs / retailers,” believes JP Morgan.
“UMG’s recorded music catalogue more than underpins the current share price, with potential upside from faster market growth & new yet to be thought of use cases, with the distribution of 3rd party content, new releases and publishing in for free. “
The broker does not see AI songwriting as a threat as it believes for new music to break free of the growing sea of songs requires “a story”.
“And superfans fall in love with the artist, not just the music.
“Making it as an artist is not just about having an exceptional song; it’s the very hard yards to build your fan base, & your probability of succeeding is much higher with the financial support, marketing & expertise of record labels.”
AI is a risk for songwriters, particularly of formulaic pop, but not to artists, labels, or UMG’s catalogue and if anything will open up more opportunities for monetisation.
“Overweight” with €28.30 price target, is the broker’s investment view.
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