Universal Music Group NV, the powerhouse record company responsible for artists such as Taylor Swift and Drake, is set to make significant job cuts in the first quarter of this year. According to individuals familiar with the matter, the company's largest division, recorded music, will be the hardest hit. These sources, who requested anonymity as they were not authorized to speak publicly, revealed that Universal Music, the world's largest record company, employed around 10,000 people by the end of 2022.
Despite enjoying years of impressive growth fueled by the rise of paid streaming services, the music industry has encountered a slowdown in sales. In the third quarter of 2023, Universal Music’s revenue increased by a meager 3%, a fraction of the previous year's gain. Additionally, fourth-quarter forecasts indicate a similar rate of growth.
In response to questions about the impending layoffs, the company stated, "We are creating efficiencies in other areas of the business so we can remain nimble and responsive to the dynamic market, while realizing the benefits of our scale." It further highlighted its investments in new growth initiatives, including geographic expansion and direct-to-consumer sales, while simultaneously nurturing emerging artists.
Lucian Grainge, CEO of Universal Music, has been implementing strategies to bolster the company's performance, such as renegotiating deals with major streaming services and urging them to tackle fraudulent activities that impact artists' royalties. Executives have also advocated for price hikes by these platforms. These initiatives, however, may take time to yield significant results, leading Grainge to focus on cost-cutting measures to appease shareholders in the interim. During an earnings call in October, management discussed plans to improve profit margins through cost reduction. Grainge termed this approach as "cut to grow."
"We will cut overhead in order to grow it elsewhere," Grainge stated during the call. "We do have experience in managing the business, in managing the teams, and the businesses within that make up the group, and we've got a plan."
Universal Music's layoffs align with broader retrenchment trends observed in the media and technology sectors. Amazon.com Inc. recently announced job cuts across various divisions, ranging from its TV and film studio to its Twitch streaming service. Other companies, such as Comcast Corp.'s NBC News, chat service Discord Inc., and Walt Disney Co.'s Pixar studio, have also initiated or planned workforce reductions.
Universal Music's competitors have already embarked on similar layoffs over the past year. Last March, Warner Music Group Corp. reduced its staff by approximately 4%, citing the need to seize future opportunities. As Warner and Universal both went public within the last five years, their leaders face heightened pressure to deliver consistent growth. Universal has achieved notable success recently with chart-toppers from artists like Taylor Swift, the Weeknd, Billie Eilish, and Olivia Rodrigo.
As the music industry navigates a shifting landscape, Universal Music's decision to cut hundreds of jobs signals a concerted effort to navigate market dynamics and improve profitability in the face of changing consumption patterns.