Proactive Investors - Spotify’s latest round job cuts has implications for music groups such as Universal, but ultimately might be a benefit if it means rates paid for streaming music rise.
According to Citi, the main concern for UMG (AS:UMG) investors is whether this is coming as a result of pressure on revenue which, in turn, could signal pressure on royalty payments to the recorded music companies.
Spotify's comments suggest this is not the case, the US bank adds, and that the staff cost reductions are part of an internal drive to increase efficiency.
One consequence, might be that over time, it might help UMG if it curbs the requirement of Spotify to drive gross margins higher to reach profit targets (by reducing royalty payments to artists/labels).
Citi adds though it is too early to say this with any certainty, hence a neutral rating.
Shares were little changed today at €24.61.