Music Improves For Sony, Universal

In spite of a soft U.S. music market, the music divisions of Sony and Vivendi Universal both posted improved financial results for the three months that ended June 30.

Sony's music operations—U.S.-based Sony Music Entertainment and Japan-based Sony Music Entertainment (Japan) (SMEJ)—rebounded from an operating loss of 5 billion yen ($41.1 million) a year ago with an operating income profit of 4.4 billion yen ($36.2 million) in the current quarter. Revenue rose to 147.3 billion yen ($1.19 billion) from 130.7 billion yen ($1.06 billion).

Vivendi's music arm, Universal Music Group (UMG), reports that quarterly earnings before interest, taxes, depreciation, and amortization (ebitda) rose 16.8% to 271 million euros ($236.1 million), from 232 million euros ($202.1 million) last year. Revenue at UMG was essentially flat at 1.54 billion euros ($1.34 billion) vs. 1.53 billion euros ($1.33 billion) last year.

"Music has been able, in a weak market, to slightly increase its revenues [and] continue to strengthen its leadership, both through releases and successful cross-border sales," Vivendi Universal chairman/CEO Jean-Marie Messier says of his company's music performance. "These factors, coupled with management's continued focus on cost reductions, produced strong double-digit ebitda growth."

Sony's results reflect its fiscal first quarter; Vivendi is reporting its second-quarter results. Through the first half of the year, UMG ebitda is up 16% at 451 million euros ($393 million) vs. 389 million euros ($339 million) last year. First-half revenue is up 2% at 2.98 billion euros ($2.6 billion).

Aiding the results of both companies were strong sales in Japan. SMEJ benefited from improved unspecified revenue, driven by strong sales of Gospellers' Love Notes and Judy & Mary's greatest-hits album The Great Escape. Operating income for the Japanese division also improved, reflecting better sales, reduced advertising spending, and the sale of a studio facility.

UMG reports improved market share in Japan through the first half of the year vs. the same period last year. The division posted improved share in the U.K. Other markets weren't as strong. UMG reports a tough sales environment in two of its larger international markets: Brazil and Germany. Meanwhile, Sony says that a sluggish global-sales environment is affecting various international music markets, as well as the performance of its flagship electronics unit.

U.S. sales are also struggling. Domestic results were flat in the case of UMG and down in the case of Sony.

At UMG, U.S. results were stable in the face of an overall decline in U.S. music sales and a strong second quarter in 2000, which included best-selling studio albums from the likes of Eminem and Bon Jovi. Top sellers in the current quarter were Blink-182, D12, the soundtrack to Moulin Rouge, Shaggy, and Bon Jovi's live album.

Also aiding UMG's results were improved margins in the product mix and increased sales of catalog product (the Very Best of Bob Marley shipped 1.4 million units), a slight decline in overall A&R costs, and increased music-publishing revenue.

New-media spending

At Sony Music Entertainment in the U.S., such best-selling albums as Destiny's Child's Survivor, Travis' The Invisible Band, and Jessica Simpson's Irresistible couldn't save the unit from an unspecified operating loss on an unspecified decline in revenue. The company blames the timing of new releases and the strength of the dollar relative to other currencies. Also contributing to the weak performance was increased spending on digital media.

Internet technology has been a focus for both companies. Sony and UMG are teaming on a joint-venture subscription service known as Pressplay, which is expected to bow in September. Pressplay has cut distribution and/or technology deals with Yahoo, Microsoft, and MP3.com.

Vivendi has been investing in technology over the period, acquiring EMusic.com, taking full ownership of GetMusic, and announcing a deal to purchase MP3.com. Vivendi expects to launch Universal Mobile Music, a mobile telephony service for younger cell-phone users, in September in France.

On an overall basis, Sony posted net loss of 30.1 billion yen ($243 million) vs. a net loss of 92.4 billion ($746 million) in last year's first quarter. Revenue rose to 1.64 trillion yen ($13.2 billion) from 1.57 trillion yen ($12.7 billion).

Vivendi Universal fared better, posting overall second-quarter ebitda of 1.3 billion euros ($1.13 billion), up 57% from last year's pro forma figures, which reflect the merger of Vivendi and Seagram's. Revenue rose 14% to 6.6 billion euros ($5.75 billion).