Annual report 2014

Group Profile |

Businesses

| Litigation | Risk Factors

Universal Music Group

2.2.4.

Merchandising

UMG’s wholly-owned global merchandising company, Bravado, is the

only global, full-service merchandising company in the industry. Bravado

works closely with new and established entertainment clients, creating

innovative products carefully tailored to each artist or brand. Products

are sold on live tours, via selected retail outlets and through web-based

stores.

Bravado also licenses rights to an extensive network of third party

licensees around the world. Bravado is able to leverage UMG’s global

sales and distribution network as well as UMG’s significant marketing

strength. The company’s broad client roster includes artists such

as The Beatles, The Rolling Stones, Bob Marley, Katy Perry, 5 Seconds

of Summer and Ariana Grande, to name just a few.

2.2.5.

2014 Highlights

UMG achieved numerous milestones over the course of 2014 including

those set out below:

UMG broke four new global stars in 2014: Iggy Azalea, 5 Seconds

of Summer, Ariana Grande and Sam Smith;

in January, Neil Diamond signed a long-term recording agreement

with Capitol Records, and in October signed an exclusive worldwide

publishing administration agreement with Universal Music Publishing

Group;

also in January, 17-time Latin Grammy winner Alejandro Sanz signed

a worldwide publishing agreement with Universal Music Publishing

Group;

in February, UMG became the exclusive worldwide distributor of

renowned independent music company Glassnote Entertainment

Group;

in April, UMG acquired UK-based Eagle Rock Entertainment, an

independent producer and distributor of music programming;

in June, the EMI label returned to greater China and South East Asia

with the signing of Mandopop superstar A-Mei, as well as popular

artists Show Lo and Rainie Yang;

in July, Rondor Music International, a subsidiary of UMPG, entered

into an exclusive worldwide music publishing agreement with

DreamWorks Animation to represent their entire music catalog

created over the past two decades;

also in July, UMG won “Most Innovative App for Entertainment”

at the Mobile Innovation Awards for The KLEEK, a pan-African

android music streaming application that reaches fans throughout

39 countries on the continent;

in August, UMG completed the sale of its approximate 13%

ownership interest in Beats to Apple for $409 million; and

in September, UMPG entered into a worldwide publishing agreement

with the Grateful Dead’s company, Ice Nine, covering the Grateful

Dead’s entire discography including songs written by Jerry Garcia,

Mickey Hart, Robert Hunter, Bill Kreutzmann, Phil Lesh, Donna Jean

Godcheaux-MacKay, Ron “Pigpen” McKernan, Bob Weir and others.

2.2.6.

Regulatory Environment

UMG’s businesses are subject to the laws and regulations of the

countries in which they operate.

In 2000, in the United States, certain UMG subsidiaries entered into a

Consent Decree with the U.S. Federal Trade Commission (FTC) under

which they agreed that for the following 20 years they would not make

the receipt of any co-operative advertising fund for their pre-recorded

music products contingent on the price (or price level) at which such

products are offered for sale.

In 2003, following a lawsuit filed by the FTC, the FTC issued an order

that generally prohibits UMG from entering into agreements with

unaffiliated entities to fix, raise or stabilize prices or price levels for

the sale of audio or video products in the United States, as well as any

agreements with such entities to prohibit non-deceptive advertising for

audio or video products in the United States.

In 2004, in the United States, a UMG company entered into a Consent

Decree with the FTC under which it agreed to comply with the provisions

of the Children’s Online Privacy Protection Act and to maintain records

demonstrating compliance.

2.2.7.

Piracy

Piracy materially harms the music industry and impedes the development

of new business models. The IFPI (International Federation of the

Phonographic Industry), which represents the recording industry

worldwide, estimates that 26% of fixed-line Internet users still regularly

access unlicensed sites. Working in conjunction with the rest of the

music industry and other entertainment sectors (including the movie and

games industries), UMG takes a multi-pronged approach to combating

piracy, which includes:

supporting the development and launch of innovative services

across a number of platforms, as well as the continued growth of

existing services such as Spotify, iTunes, Deezer, Google and Vevo.

UMG works with partners collaboratively to ensure music can

be accessed legally on all new platforms such as mobile, tablet

computers, in-car, game consoles and in-home, offering consumers

the best, fully comprehensive digital music experience; and

working with governments and online intermediaries (such as credit

card companies, advertisers, search engines, proxy services and

ISPs) to reduce potential profits from piracy and ensure adequate

enforcement. For example, UMG has participated in programs with

ISPs to educate consumers about the wide availability of legal

downloading services and provide warnings to those using illegal

services.

Annual Report 2014