Universal Music reiterates AI concerns as quarterly profit slumps

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Updates with adjusted EBITDA figures

April 26 (Reuters) -Universal Music Group UMG.AS, the label representing Drake and Taylor Swift, on Wednesday posted a slump in first-quarter core profit due to compensation expenses, and reiterated concerns over AI-made music.

Core profit, or earnings before interest, taxes, depreciation and amortisation (EBITDA), slumped 43.4% in constant currency to 261 million euros ($288.04 million), due to non-cash, share-based compensation expenses, part of an equity compensation plan announced last year.

Excluding these expenses, adjusted EBITDA was 522 million euros, up 13.0% on the same basis, and beating a consensus cited by Credit Suisse which had expected 513 million euros.

UMG's CEO, Lucian Grainge, has come under shareholder pressure over an "excessive" $100 million pay deal, The Financial Times reported on Wednesday.

Grainge has overseen a strong period for UMG over the past decade, marked by growth in streaming revenues which the label collects from partnerships with the likes of Spotify SPOT.N and Apple Music AAPL.O.

Labels now face challenges like slowing global revenue growth in recorded music, particularly in established markets like the U.S, while the emergence of AI-generated music adds to their concerns, as many laws do not currently deem the replication of artists' voices as strictly illegal.

UMG earlier this month was successful in its bid for streaming partners to remove the song "Heart On My Sleeve," which uses AI-made voices that sound like Drake and The Weeknd.

"Unlike its predecessors, much of the latest generative AI is trained on copyright material which clearly violates artists' and labels' rights and will put platforms completely at odds with the partnerships with us and our artists," the group's chief digital officer, Michael Nash, said in a call.

The group posted higher first-quarter sales, helped by subscription and streaming revenue, which grew 7.1% at constant currency from a year ago to 1.33 billion euros. But Redburn analyst Agnieszka Pustula told Reuters in an e-mail that this was below expectations of 8.2% growth, despite price increases from partners like Spotify.

Top sellers included King & Prince, Morgan Wallen and Taylor Swift, the group said.

($1 = 0.9061 euros)

Reporting by Olivier Sorgho; Editing by Jane Merriman, Josie Kao and Leslie Adler


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