Universal Music Group explores private equity options after share price slump

MUMBAI: Universal Music Group may be looking for a quieter stage away from the stock market spotlight, as a sliding share price puts the value of its music empire under the spotlight. The company behind Taylor Swift, The Weeknd and Kendrick Lamar has held preliminary discussions with private equity firms about a potential move to take the business private, according to a Bloomberg report, although the conversations have yet to progress into a formal sale process.

The discussions with Apollo Global Management, TPG and Blackstone took place earlier this year, people familiar with the matter told Bloomberg. Neither UMG nor the three investment firms commented on the reported talks. No formal sale process has been initiated, and the discussions have not advanced.

The reported interest comes as UMG’s shares have fallen around 29 per cent this year, leaving the company trading below its 2021 listing price. Its market capitalisation stands at approximately €29 billion, equivalent to $32 billion.

For a business that houses some of the world’s biggest musical acts, the numbers raise a question that extends beyond its share price: is the public market undervaluing the long term earning power of music rights, or is it becoming more cautious about the forces reshaping the industry?

The gap between listed music companies’ valuations and the prices investors are prepared to pay for music catalogues and other assets in private markets has become an important point of debate. Music rights can generate revenue over many years through streaming, licensing and other uses, making them attractive to investors seeking long term returns. But the value of those earnings depends on how audiences consume music, how streaming services distribute royalties and how emerging technologies affect the business.

For UMG, the prospect of going private could offer an alternative to navigating those questions under the daily scrutiny of public markets. However, preliminary discussions do not guarantee a transaction, and the company has not announced a decision to pursue one.

AI music strikes a discordant note

Artificial intelligence has added another layer of uncertainty to the music business. The growing volume of AI generated tracks appearing on streaming platforms has raised concerns about how royalties are distributed, who gets paid and whether established artists and rights holders could lose out as listeners encounter more synthetic music.

Investors are concerned that a surge in AI generated content could dilute the share of listening and earnings captured by established record labels. If streaming platforms are flooded with tracks created cheaply and at scale, legitimate artists and rights holders could face greater competition for listeners’ attention and a smaller share of royalty pools.

The challenge comes alongside pressure from independent distributors offering artists more favourable terms and slower streaming growth in the US and Western Europe. These trends could complicate the outlook for major labels, whose business models depend on building valuable catalogues, attracting artists and monetising music across platforms and markets.

UMG chief executive Lucian Grainge has pushed back against the idea that AI will necessarily undermine the industry. During a call with analysts in July, he said the company had anticipated the rise of what he called “AI slop” and the possibility of fraud.

Grainge argued that streaming platforms must protect creative work and prevent illegally trained AI models from diverting royalties away from artists, songwriters, labels and music publishers. The issue, in his view, is not simply whether AI generated music will grow, but whether platforms can distinguish legitimate innovation from fraudulent content and copyright infringement.

UMG has already taken legal action against AI companies, including Suno and Anthropic, over alleged copyright violations. Those disputes reflect a broader struggle between music rights holders seeking to protect their catalogues and developers building generative AI tools that can produce music or other content.

The outcome could influence how AI music is licensed, distributed and monetised. For investors, the uncertainty lies in how quickly the industry can establish workable rules and whether rights holders will retain control over the value generated from their music.

A takeover approach already rejected

The latest reported private equity discussions follow an earlier approach from investor Bill Ackman’s Pershing Square Capital Management. In that proposal, Ackman sought to buy UMG and move its listing to the US. UMG’s board unanimously rejected the unsolicited proposal in May.

The rejection did not settle the question of whether the company’s market value reflects its long term potential. UMG’s share price has continued to face pressure, while its music catalogues remain assets with the potential to generate income across multiple formats and territories.

Shareholder expectations could prove crucial to any future transaction. Cyrille Bollore, whose family controls more than 30 per cent of UMG through personal holdings and media company Vivendi, said in May that he believed Ackman’s proposed price was too low.

“Perhaps we’ll sell a few percent one day. We’ll see. But we can’t sell too early,” Bollore said at his firm’s shareholder meeting.

His comments suggest that at least one major shareholder remains cautious about selling too cheaply. The Bollore family has not indicated that it intends to sell its entire stake, leaving its position an important consideration in any potential change of ownership.

Chinese technology company Tencent, which owns more than 11 per cent of UMG, is another significant shareholder whose position would matter to a transaction. The interests of these major investors could shape whether a deal is feasible and what price would be acceptable.

Any move to take UMG private would therefore involve more than finding a financial buyer. The scale of the business, its shareholder structure and the valuation expected by existing investors would all influence the prospects of a transaction.

The music industry’s biggest asset test

UMG is the largest of the three major record labels, alongside Sony Music and Warner Music Group. According to the Bloomberg report, it distributed nine of the world’s 10 best selling acts last year, underlining the breadth of its reach across the global music business.

Its roster includes artists whose music can continue generating revenue long after an album’s release, giving record labels a catalogue-based business with potential for recurring income. That model has helped attract investors to music rights, even as the wider entertainment industry adjusts to changing consumption habits and new technologies.

Yet the market is also weighing risks that were less prominent when UMG listed in 2021. AI generated music could alter the competitive landscape, streaming growth has slowed in key Western markets, and independent distribution services are offering artists alternatives to traditional label arrangements.

These pressures do not necessarily undermine the long term value of UMG’s catalogue, but they complicate the assumptions investors make about future revenue and profitability. A lower public market valuation could create an opening for private equity firms, although a potential buyer would still need to determine whether the company’s future cash flows justify the price.

Private ownership could give a business greater flexibility to pursue long term changes away from the immediate demands of quarterly market expectations. It would not, however, remove the underlying challenges of protecting music rights, maintaining relationships with artists and competing for streaming revenue.

For now, UMG’s reported conversations with Apollo, TPG and Blackstone remain preliminary, with no formal sale process under way. The company’s roughly 29 per cent share price decline this year and its €29 billion market value have brought the valuation debate into sharper focus, but neither a buyer nor a final price has emerged.

The broader question is whether investors see UMG as a music rights powerhouse temporarily out of tune with the market, or a business facing structural changes that warrant a more cautious valuation. Until the discussions progress, the prospect of going private remains just that: a possibility rather than a deal on the table.