Universal Music Group Earnings Highlight Streaming Boom's Growing Revenues and Margins

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Look over Universal Music Group's latest earnings, released Thursday by parent company Vivendi, and two things stand out: revenue grew 18.6% while earnings (before interest, taxes and amortization of intangible assets such as music rights) jumped 43.6%.

Revenue and EBITA have a simple rule of business physics: when EBITA has a larger growth rate than revenue, a company's margins improve. In other words, revenues will grow faster than costs of revenue . Put another way, UMG is keeping more of every dollar, pound and euro it generates .

Digital music, despite whatever baggage it carries, has long been expected to have, at minimum, a few advantages over physical formats. First, digital music doesn't have physical music's manufacturing costs. The last CD or LP sold probably had the same cost as the previous unit. What's more, digital music doesn't have delayed production, returns or shipping costs. Second, the last unit of digital music purchased or delivered had virtually no incremental cost.

 

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