22 January 2018 | 6:29AM GMT

Music in the Air

Incorporating the impact of Youtube/ Facebook/SIRI;

raising our music forecasts by 8%
We raise our recorded music revenue forecast by 8% for 2030, to US$44 bn (by 4% Lisa Yang
+44(20)7552-3713 | lisa.yang@gs.com
for 2018 to US$19 bn), to incorporate the impact of the new agreements signed by Goldman Sachs International

Youtube and Facebook and the CRB’s decision on SIRI rates for 2018-22. All were Se Park
+44(20)7774-5384 | se.park@gs.com
announced in December 2017 and surprised us to the upside (vs. our thesis laid out Goldman Sachs International

in Stairway To Heaven, October 2016). Within this, our ad-funded streaming revenue Masaru Sugiyama
+81(3)6437-4691 |
forecast rises by 48% to US$9 bn in 2030, while our paid streaming revenue masaru.sugiyama@gs.com
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Goldman Sachs Japan Co., Ltd.

forecast is broadly unchanged (a slight decrease in ARPU is offset by higher
Heather Bellini, CFA
subscriber volume assumptions). +1(212)357-7710 |
heather.bellini@gs.com
Goldman Sachs & Co. LLC
Beyond the positive financial impact that we anticipate, we believe these recent Heath P. Terry, CFA
+1(212)357-1849 | heath.terry@gs.com
announcements confirm the positive structural shift occurring in the music industry, Goldman Sachs & Co. LLC
towards greater monetisation of music IP, and a rebalancing of power in favour of Brett Feldman
+1(212)902-8156 |
rights holders. Additionally, we note recent press reports citing valuations of US$20 brett.feldman@gs.com
Goldman Sachs & Co. LLC
bn for Spotify, based on its recent share swap with Tencent Music (WSJ Jan 15,
2018) and US$10 bn for Tencent Music (Bloomberg, December 13, 2017). These
provide a positive valuation readacross for UMG and Sony Music. We raise our
DCF-based valuation of UMG by 18%, to €23 bn, reflecting our new music market
forecasts and US tax changes. We raise our Vivendi price target by 19% to €30.

Exhibit 1: GS music model, new vs. old

Vivendi price target is 12-months
2016 2030E C hg
h C hg
h
A c t ual
u
ua Ne
New Old (A bs)
(A bs
b (% )
(%
Mu
Musi
Mus
Music M
Ma e
Mar
Mark et
Global Music Market ($bn) $56 $125 $119 $6 5%
Recorded Music Market ($bn) $16 $44 $41 $3 8%
Paid Streaming Market ($bn) $3 $28 $28 $0 0%
Ad funded Streaming Market ($bn) $1 $9 $6 $3 48%
K P Is
I
Paid Subscribers (mn) 112 854 847 7 1%
Developed Market (mn) 86 323 316 7 2%
Emerging Market (mn) 26 531 531 0 0%
% of smartphone population 3% 14% 14% 0%
Annual ARPU ($) $38.8 $34.1 $34.4 -$0.3 -1%

V ivendi
i
iv
ive
iven
ivend
UMG Valuation Φbn)
( 18%
19%

Source: Goldman Sachs Global Investment Research.

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
 Goldman Sachs Music in the Air

Changes to our music model

Paid streaming: We pull forward our subscriber growth forecast, raising our near-term
paid user forecasts by 3% to 162/214/262 mn for 2017/18/19, and our longer-term (2030)
forecast by 1% to 854 mn, as a result of recent positive datapoints and the launch of a
new paid streaming service by Youtube (reportedly in 1Q18; MBW, December 19, 2017).
We also lower our ARPU assumption by c.1%, to reflect a change in customer mix
(including dilution from family plans). Overall, our 2030 paid streaming market estimate
is unchanged at US$28 bn.

Exhibit 2: Paid streaming users by platform

Users mn

70
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60

50

40

30

20

10

Jan-17
Apr-16

Mar-17
2010

2011

2012

2013

2014

Sep-16

Sep-17
Jun-15

Dec-15

Jun-16

Jun-17

Dec-17
Tidal Apple Music Spotify Deezer

Tencent Google Play Music Amazon Music

Source: Press reports, Company data

Ad-supported streaming: We raise our ad-supported streaming revenue forecast more

significantly, to US$9 bn in 2030 from US$6 bn previously, reflecting the impact of:

1) the new Youtube licensing deal. Youtube signed a new, long-term agreement with
UMG and Sony Music in December 2017. This establishes new royalty rates for
professional music videos and user-uploaded clips and covers new licensing provisions
for a new paid streaming service. Commenting on the deal, UMG Chairman and CEO
Lucian Grainge stated that this will provide “improved content flexibility and growing
compensation from Youtube’s ad-supported and paid subscription tiers, while also
furthering Youtube’s commitment to manage music rights on its platform”.

The terms of the deal are unknown, but we expect a positive impact on ad-funded
revenues from either: (1) an increase in the revenue share paid to rights holders
(currently at 55% compared to industry standards of 65%-70%); or (2) improved
monetisation of Youtube music videos (higher CPMs/higher ad loads). We estimate that
Youtube paid around US$1.1 bn to the recorded music industry in 2017, which would
represent 17% of total streaming revenue, compared to an estimated 2/3 of all music

22 January 2018 2
 Goldman Sachs Music in the Air

streams. We now expect overall ad-funded streaming revenue to increase 40% in 2018
(from 19% previously) and 29% in 2019 (from 17%), following 27% in 2017 (from 21%)·

Exhibit 3: We believe Youtube currently pays away 55% of its music revenues to labels/publishers, compared to an industry standard of
65%-70%

Platform,
Youtube, Labels, 45% 30%
45%
Labels,
Publishers, 60%
Publishers,
10%
10%
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Youtube Music revenue split Standard revenue split

Source: Music Business Worldwide, Press reports, Goldman Sachs Global Investment Research

2) the new Facebook partnership. A couple of days after the renewal of the Youtube
agreement, Facebook announced a major multi-year licensing agreement with UMG
(and earlier this month with Sony Music). We note this is a different type of deal to
Youtube’s as it covers the uploading of songs and music videos onto Facebook,
Instagram and Oculus (Facebook has no official music videos). Terms of the deal are,
again, unknown, so it is difficult to model the potential impact. However, press reports
had indicated prior to the agreement that this could be worth “hundreds of millions of
dollars” (Bloomberg, September 5, 2017), which we factor into our forecasts.

3) higher-than-expected CRB royalty rates for 2018-22. On December 15, 2017, the
Copyright Royalty Board established new royalty rates applicable to US satellite radio
services (Sirius), resulting in a 40% step-up to 15.5% of gross revenue for 2018-2022,
from 11% in 2017. This implies c.US$250 mn of additional payments in 2018, of which
close to 50% is paid directly to the labels (with 50% paid directly to the artists).
Assuming a 30% share for UMG (major labels’ share of the incremental royalties will
likely be lower than their recorded music market share as radio royalties are set by plays
not actual consumption), this implies US$37 mn of additional revenue and profit for
2018E, a 50 bp/4% boost to UMG’s revenue/EBITA.

Overall, these deals mark another untapped royalty stream for rights holders, and a
smart strategy to address consumers’ attention shift away from traditional media to
user-generated, influencer content. We view the competitive intensity in downstream
music as beneficial for upstream labels, similar to video when new modes of
consumption (ie. cable, satellite, OTT) benefited content owners. It is worth noting,
when comparing music and video that: (1) labels are more concentrated than studios; (2)
catalogue consumption is much higher in music than video; (3) exclusivity works for
video but not for music, in our view; and (4) the music industry is just exiting its trough
after two decades of industry declines, while video is at its peak.

22 January 2018 
 Goldman Sachs Music in the Air

Exhibit 4: GS record music market forecasts

US$ bn
R E ORD
REC O
OR ED
E MUSI
MU
MUS
M
MUSIC MA
M RK
R ET
E 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Gl
Globa
Glob
Glo
Global R
Re orded
Rec or
ord
orde
o M
Mu
Mus
Musi
Music R
Re
Rev
Reve
Reven
Revenu
Revenue
Revenues 14 15 1 5 .7
. 1 7 .0
. 1 8 .8
. 2 0 .5
. 2 2 .0
. 2 3 .8
. 2 5 .8
. 2 7 .8
. 30.
.2 3 2 .6
. 3 4 .8
. 36.
.9 3 9 .1
. 4 1 .4
. 4 3 .8
.
% change -2.1% 3.5% 6% 9% 10% 9% 8% 8% 8% 8% 8% 8% 7% 6% 6% 6% 6%

P hysic
h
hy
hys
hysi a
al 6.
.1 5 .8
. 5 .4
. 5 .0
. 4 .4
. 3 .9
. 3 .4
. 2 .9
. 2 .5
. 2.
.1 1.
.8 1.
.5 1.
.2 1.
.0 0 .8
. 0 .6
. 0 .5
.
% growth -10.3% -4.5% -7% -7% -12% -12% -12% -15% -15% -15% -15% -15% -20% -20% -20% -20% -20%
% share of total 43% 39% 34% 29% 23% 19% 16% 12% 10% 8% 6% 5% 3% 3% 2% 2% 1%

D igit
i
ig
igi a
al 6.
.0 6 .6
. 7 .8
. 9 .4
. 1 1 .6
. 1 3 .7
. 1 5 .5
. 1 7 .6
. 1 9 .9
. 2 2 .2
. 24.
.7 2 7 .2
. 2 9 .6
. 31.
.8 3 4 .1
. 3 6 .4
. 3 8 .9
.
% growth 5.3% 10.0% 18% 20% 24% 18% 14% 14% 13% 12% 11% 10% 9% 7% 7% 7% 7%
% share of total 42% 45% 50% 55% 62% 67% 70% 74% 77% 80% 82% 84% 85% 86% 87% 88% 89%

S t reaming
St r
re
rea
ream
reami
reamin 2..0 2 .9
. 4 .6
. 6 .6
. 9 .0
. 1 1 .3
. 1 3 .3
. 1 5 .6
. 1 8 .0
. 2 0 .3
. 22. .9 2 5 .4
. 2 7 .8
. 3 0 .0
. 3 2 .4
. 3 4 .7
. 3 7 .1
.
% growth 36.3% 43.0% 60% 43% 36% 25% 18% 17% 15% 13% 12% 11% 9% 8% 8% 7% 7%
% share of digital 34% 44% 59% 71% 78% 83% 86% 89% 90% 92% 93% 93% 94% 94% 95% 95% 95%
% share of total 14% 20% 30% 39% 48% 55% 61% 66% 70% 73% 76% 78% 80% 81% 83% 84% 85%
P aid
a
ai st
s reaming
r
re
rea
ream
reami
reamin revenue
r
re
rev
reve
reven
revenu ($
( bn)
bn
b 1 .4
. 2 .1
. 3 .5
. 5 .2
. 7 .0
. 8 .7
. 1 0 .3
. 1 2 .2
. 1 4 .1
. 15. .9 1 7 .9
. 1 9 .9
. 2 1 .7
. 23..3 2 4 .9
. 2 6 .5
. 2 8 .1
.
% growth 36% 52% 70% 48% 35% 24% 19% 18% 16% 13% 13% 11% 9% 7% 7% 6% 6%
% of total recorded music 9% 14% 22% 30% 37% 42% 47% 51% 55% 57% 59% 61% 62% 63% 64% 64% 64%
159 208 255 304 2% 3% 3% 2%
P aid
a
ai u
us
use
user
users (
(m
(m) 41 68 112 162 214 262 310 365 417 474 530 586 636 687 740 795 854
% growth 46% 66% 65% 45% 32% 22% 18% 18% 14% 14% 12% 10% 9% 8% 8% 8% 7%
% of smartphone users 1.6% 2.1% 3.2% 4.3% 5.3% 6.1% 6.9% 7.8% 8.7% 9.6% 10.4% 11.1% 11.7% 12.3% 12.9% 13.5% 14.0%
% of total streaming users ex YouTube 27.2% 32.7% 35.5% 35.9% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6% 34.6%
% of total population 0.6% 0.9% 1.5% 2.2% 2.8% 3.4% 4.0% 4.7% 5.3% 5.9% 6.6% 7.2% 7.7% 8.3% 8.8% 9.4% 10.0%

A verage
v
ve
ver
vera
verag r
re
rev
reve
reven
revenu
revenue pe
per
p p
pa
pay
payi
payin
paying s
su
sub
subs $39 $38 $39 $38 $37 $36 $36 $36 $36 $36 $36 $36 $36 $35 $35 $35 $34
% growth -5% -4% 3% -3% -2% -2% -1% 0% 0% -1% 0% 0% 0% -1% -1% -1% -1%

A d Support
Suppor
S
Su
Sup
Supp
Suppo e
ed
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A d support
s
su
sup
supp
suppo
suppor e
ed st
s rre
rea
ream
reami
reamin
reaming r
re
rev
reve
reven
revenu
revenue (
($ b
bn
bn) 0 .7
. 0 .8
. 1 .1
. 1 .5
. 2 .0
. 2.
.6 3 .0
. 3 .4
. 3 .9
. 4.
.4 4 .9
. 5 .5
. 6 .1
. 6 .8
. 7 .4
. 8 .2
. 9 .0
.
% growth 37% 25% 37% 27% 40% 29% 15% 14% 13% 13% 12% 12% 11% 10% 10% 10% 10%
D ow
o nload
n
nl
nlo
nloa 3.
.4 3 .0
. 2 .4
. 1 .9
. 1 .5
. 1 .2
. 1 .0
. 0 .8
. 0 .6
. 0 .5
. 0.
.5 0.
.4 0.
.3 0.
.3 0 .2
. 0 .2
. 0 .2
.
% growth -8.2% -10.5% -21% -20% -20% -20% -20% -20% -20% -15% -15% -15% -15% -15% -15% -15% -15%
% share of digital 56% 45% 31% 20% 13% 9% 6% 4% 3% 2% 2% 1% 1% 1% 1% 1% 0%
% share of total 23% 20% 15% 11% 8% 6% 4% 3% 2% 2% 1% 1% 1% 1% 1% 0% 0%
15.70 16.80 18.09 19.48
Ot h
Ot he r
her re
rev
reve
reven
revenu
revenue 0.
.6 0 .7
. 0 .8
. 0 .9
. 1 .1
. 1 .1
. 1 .2
. 1 .2
. 1 .3
. 1.
.3 1.
.4 1.
.4 1.
.5 1.
.5 1 .5
. 1 .6
. 1 .6
.
% growth 11.0% 13.4% 10.0% 10% 25% 5% 5% 5% 5% 3% 3% 3% 3% 2% 2% 2% 2%
% share of digital 10% 11% 10% 9% 9% 8% 8% 7% 7% 6% 6% 5% 5% 5% 4% 4% 4%
% share of total 4% 5% 5% 5% 6% 6% 5% 5% 5% 5% 5% 4% 4% 4% 4% 4% 4%

P erf
e ormanc
er o
or
orm
orma
orman e R
Ri
Rig
Righ
Right s 2.
.0 2 .1
. 2 .2
. 2 .3
. 2 .4
. 2 .6
. 2 .7
. 2 .9
. 3 .0
. 3.
.2 3.
.3 3.
.4 3.
.5 3.
.7 3 .8
. 3 .9
. 4 .0
.
% growth 11.0% 4.4% 6% 6% 6% 6% 6% 6% 6% 4% 4% 4% 4% 3% 3% 3% 3%
% share of total 14% 14% 14% 14% 13% 13% 12% 12% 12% 11% 11% 10% 10% 10% 10% 9% 9%

Sy
Sync
Syn 0 .2
. 0 .3
. 0 .3
. 0 .3
. 0.
.3 0 .3
. 0 .4
. 0 .4
. 0 .4
. 0 .4
. 0.
.4 0.
.4 0.
.4 0.
.4 0 .4
. 0 .5
. 0 .5
.
% growth -32.4% 43.4% 3% 4% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
% share of total 1% 2% 2% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1% 1%

Source: IFPI, Goldman Sachs Global Investment Research.

22 January 2018 
 Goldman Sachs Music in the Air

Positive music streaming valuation read through for labels

Fielding common investor questions about the read across from the potential listing of
distributors, with regard to UMG’s and Sony Music’s valuation, we would caution
against using a simplistic 70/30 split between labels/distributors to derive the valuation
of labels (i.e. if distributors are valued at US$10 bn, then labels should be valued at
US$23 bn) as this ignores important nuances in recorded music industry. Nonetheless,
we believe that recent press reports of a valuation of US$20 bn for Spotify, based on its
recent share swap with Tencent Music (WSJ January 15, 2018) and US$10 bn for
Tencent Music (Bloomberg, December 13, 2017) provide a positive valuation read across
for UMG and Sony Music.

A few points to consider:

(1) Label-distributor relationship is still changing dynamically: Our UMG valuation

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and our music model incorporate higher distributor fees going forward, reflecting
increased bargaining power as platforms scale. While we continue to believe labels’
artist discovery, curation and marketing capabilities and high market share concentration
will allow them to take the upper hand in negotiations, we highlight that it is also in the
interest of labels to see platforms succeed financially.

(2) Different growth profiles: Record labels and streaming services do not have the
same revenue streams. Labels currently derive 40% of their revenues from streaming
but also another 40% from structurally challenged formats such as physical and
downloads. This explains the significant gap between recorded music industry growth
(7% in 2017 on our estimate) and streaming industry growth (40%). Growth trends may
converge over time, as we forecast streaming to account for 84% of labels’ revenues by
2030.

(3) Different margin profiles: A platform’s gross margin is c.30%-40% at most (it pays
away 60%-70% of its gross revenues to rights holders). Most streaming services are
currently loss making, but we note that Deezer reported a 13% EBITDA margin for
France in 1H2015. As a comparison, UMG’s EBITDA margin currently stands at 15%,
and we expect this to rise to 25% by 2030.

UMG valuation: Raising our estimate by 18% to €2.0 bn

We increase our UMG valuation by 18% to €23.0 bn (€19.5 bn previously) reflecting

higher recorded music industry estimates from higher ad-supported growth and the
benefit of US tax changes. We lower our cost of capital (reflecting our view of lower risk
to the business model after three years of very strong growth, with more distributors
coming in and the value of catalogue becoming more important) to 7.5% (8.2%
previously), believing labels deserve a lower discount rate given the increased visibility
over subscription-based business models. Our terminal growth rate declines in out year
to 2.0% from 2.5%, largely reflecting the pull-forward of our paid subscriber growth
forecasts.

22 January 2018 
 Goldman Sachs Music in the Air

Exhibit 5: Our UMG DCF

€ mn

UMG MODEL (Φmn) 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
UMG streaming revenue 1,483 2,009 2,604 3,203 3,812 4,422 5,025 5,632 6,277 6,922 7,502 8,021 8,562 9,084 9,629
% growth 55% 36% 30% 23% 19% 16% 14% 12% 11% 10% 8% 7% 7% 6% 6%
% of total streaming market 35% 36% 34% 34% 34% 34% 33% 33% 33% 32% 32% 32% 32% 31% 31%

Download revenue 755 672 519 389 283 206 165 132 105 84 67 54 43 35 28
% growth -26% -11% -23% -25% -27% -27% -20% -20% -20% -20% -20% -20% -20% -20% -20%

Physical revenue 1,225 1,158 984 836 711 604 514 437 371 315 268 228 194 165 140
% growth -13% -6% -15% -15% -15% -15% -15% -15% -15% -15% -15% -15% -15% -15% -15%

Licence & other (artist services) 725 736 752 782 814 846 872 898 925 952 981 1,010 1,041 1,072 1,104
% growth 0% 2% 2% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3%

Publishing 792 856 883 932 987 1,047 1,099 1,154 1,212 1,272 1,336 1,403 1,473 1,546 1,624
% growth 5% 8% 3% 5% 6% 6% 5% 5% 5% 5% 5% 5% 5% 5% 5%

Merchandising 313 304 310 323 336 349 360 370 382 393 405 417 429 442 456
% growth 13% -3% 2% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3%

Intercompany eliminations -26 -27 -28 -28 -29 -30 -31 -32 -33 -34 -35 -36 -37 -38 -39
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Total UMG revenues 5,267 5,708 6,026 6,437 6,913 7,444 8,003 8,590 9,238 9,905 10,524 11,097 11,705 12,305 12,941
% growth 3% 8% 6% 7% 7% 8% 8% 7% 8% 7% 6% 5% 5% 5% 5%

UMG streaming EBITA 212 295 396 512 640 777 922 1,077 1,251 1,434 1,608 1,772 1,950 2,130 2,326
% margin 14% 15% 15% 16% 17% 18% 18% 19% 20% 21% 21% 22% 23% 23% 24%
% incremental margin 15% 16% 17% 19% 21% 22% 24% 25% 27% 28% 30% 31% 33% 34% 36%

UMG physical + download EBITA 110 133 129 96 60 19 41 34 29 24 20 17 14 12 10

% margin 6% 7% 9% 8% 6% 2% 6% 6% 6% 6% 6% 6% 6% 6% 6%

UMG licensing & other margin 73 74 75 78 81 85 87 90 92 95 98 101 104 107 110

% margin 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%

UMG Publishing EBITA 225 246 256 273 292 313 327 346 366 387 409 432 457 482 510
% margin 28% 29% 29% 29% 30% 30% 30% 30% 30% 30% 31% 31% 31% 31% 31%

UMG merchandising EBITA 24 23 24 25 26 27 28 28 29 30 31 32 33 34 35

% margin 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
Total UMG adj EBITA 644 771 880 985 1,099 1,221 1,405 1,575 1,767 1,970 2,166 2,354 2,558 2,765 2,992
% margin 12.2% 13.5% 14.6% 15.3% 15.9% 16.4% 17.6% 18.3% 19.1% 19.9% 20.6% 21.2% 21.9% 22.5% 23.1%

Restructuring charges (44) (33) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30)
Working capital 8 (40) (40) (40) (40) (40) (40) (40) (40) (40) (40) (40) (40) (40) (40)
Capex (49) (51) (54) (58) (62) (67) (68) (70) (71) (73) (74) (75) (77) (78) (80)
Taxes (193) (231) (264) (276) (308) (342) (393) (441) (495) (552) (607) (659) (716) (774) (838)
FCF 366 415 492 581 659 742 873 994 1,131 1,276 1,416 1,549 1,695 1,843 2,004
% growth 27% 13% 18% 18% 13% 13% 18% 14% 14% 13% 11% 9% 9% 9% 9%

Period - 1 2 3 4 5 6 7 8 9 10 11 12 13
Discount factor - 0.93 0.87 0.80 0.75 0.70 0.65 0.60 0.56 0.52 0.49 0.45 0.42 0.39
Discounted FCF - 457 503 531 556 608 644 682 716 738 752 765 774 783

Long Term WACC = +7.50%

Long term growh rate = +2.00%
Undiscounted terminal value 37,162
Discounted terminal value 14,514
(QWHUSULVHYDOXH¼ mn) 23,022

Source: Company data, Goldman Sachs Global Investment Research.

Vivendi: Raising our price target to €0.0; reiterate Buy (CL)

We raise our 12-month price target for Vivendi to €30.0 from €25.2 (last close €23.6).
This reflects the roll-forward of our SOTP-based valuation to a 2019E basis (from 2018E)
and very modest revisions to our earnings estimates. Following are the changes to our
valuation: (1) We raise our UMG valuation to €23.0 bn (from €19.5 bn) on higher market
forecasts, lower taxes and lower discount rate; (2) we also increase our Canal+ France
EBITDA valuation multiple to 8.0x from 7.5x previously, reflecting our greater conviction
in the turnaround of Canal+, reinforced by the target of €500 mn of EBITA ex

22 January 2018 6
 Goldman Sachs Music in the Air

restructuring that Vivendi recently issued for 2019; (3) we raise our valuation of Vevo and
the other Music stakes on a better-than-previously-expected growth profile and update
Vivendi’s major stakes (Mediaset, Telecom Italia, Ubisoft) using our latest target prices;
and (4) we reduce the holdco discount to 5% from 10% as we believe newsflow
suggests a resolution to the TI/MS situation is becoming more likely in the shorter term.

Exhibit 6: Vivendi SOTP

€ mn, except per share data; using our target prices for covered companies (Mediaset, Telecom Italia, Telefonica, Ubisoft)
Assets % Revenue EBITDA EV/Sales EV/EBITDA EV Vivendi's Value per %
owned 2019E 2019E 2019E 2019E at 100% share share of Total EV
Core Media (C+ / UMG / Havas ) 14,264 2,205 2.4X 15.3X 33,832 33,393 26.6 75.9%

Canal Plus Group 100.0% 5,487 751 1.3x 9.8x 7,353 6,914 5.5 15.7%

Canal+ France 100.0% 3,164 320 0.8x 8.0x 2,556 2,556 2.0 5.8%
Canal+ Overseas 100.0% 1,008 270 2.7x 10.0x 2,702 2,702 2.2 6.1%
VSTV 49.0% 189 34 1.6x 9.0x 306 150 0.1 0.3%
StudioCanal 100.0% 444 62 1.7x 12.0x 747 747 0.6 1.7%
Free TV (C8, Cstar, iTele) 100.0% 194 1 2.4x na 465 465 0.4 1.1%
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ITI Neovision 51.0% 488 64 1.2x 9.0x 577 294 0.2 0.7%

Universal Music Group 100.0% 6,377 1,069 3.6x 21.5x 23,022 23,022 18.3 52.4%

Purchase (physical, download) 100.0% 1,970 184 0.8x 9.0x 1,658 1,658 1.3 3.8%
Streaming 100.0% 3,203 577 5.3x 29.2x 16,824 16,824 13.4 38.3%
Recording 100.0% 5,173 761 3.6x 24.3x 18,482 18,482 14.7 42.0%
Publishing 100.0% 915 283 4.6x 15.0x 4,241 4,241 3.4 9.6%
Merchandising/ others 100.0% 289 26 1.0x 11.5x 298 298 0.2 0.7%

Havas 100.0% 2,400 384 1.4x 9.0x 3,457 3,457 2.8 7.9%

Other consolidated assets 467 (20) 2.6x NA 1,227 1,168 0.9 2.7%
See Tickets 100.0% 140 140 0.1 0.3%
Digitick 100.0% 80 80 0.1 0.2%
Wengo 90.0% 50 45 0.0 0.1%
Gameloft 100.0% 295 29 2.3x 23.7x 686 686 0.5 1.6%
Dailymotion 80.0% 271 217 0.2 0.5%

Other stakes 101,927 9,729 7.7 22.1%

Vevo 49.4% 978 2.5x 2,444 1,207 1.0 2.7%
Other music stakes 19,200 878 0.7 2.0%
Telefonica 1.0% 50,700 482 0.4 1.1%
Telecom Italia 23.9% 13,500 3,227 2.6 7.3%
Mediaset 28.8% 5,100 1,469 1.2 3.3%
FNAC 15.0% 2,743 411 0.3 0.9%
Ubisoft 25.0% 7,858 1,965 1.6 4.5%
Banijay 23.7% 382 90 0.1 0.2%

Other adjustments
Net deferred taxation (NPV) 100.0% 0 600 0.5 1.4%
Holding costs 100.0% (108.0) (918) (918) (0.7) -2.1%

TOTAL ENTERPRISE VALUE 136,069 43,973 35.0 100.0%

Holdo discount (2,199) (1.8)
Net cash incl pension and liability (4,120) (3.3)

TOTAL EQUITY VALUE 37,654

Number of shares (mn) 1,256
6XPRIWKHSDUWYDOXDWLRQSHUVKDUH¼ 30.0

Source: Goldman Sachs Global Investment Research, Datastream.

We lower our 2017-20 revenue/EPS estimates by 2%/3% on average reflecting: (1)

higher UMG organic growth offset by a greater FX headwind; (2) lower Canal+
revenues/EBITA from lower FTA advertising and Studio Canal estimates. We also lower
our Havas estimates due to FX.

22 January 2018 
 Goldman Sachs Music in the Air

Exhibit 7: Vivendi estimate changes

€ mn, except per share data
NEW OLD % CHANGE
ΦŵŶ
2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E 2017E 2018E 2019E 2020E
Sales 12,419 13,999 14,719 15,517 12,587 14,221 14,961 15,787 -1% -2% -2% -2%
UMG 5,688 5,970 6,377 6,848 5,726 6,015 6,450 6,955 -1% -1% -1% -2%
Canal + 5,159 5,299 5,487 5,676 5,264 5,414 5,573 5,744 -2% -2% -2% -1%
Havas 1,166 2,299 2,400 2,511 1,180 2,352 2,471 2,595 -1% -2% -3% -3%
Gameloft 262 278 295 312 266 282 299 317 -1% -1% -1% -1%
Vivendi Village 115 121 127 134 115 120 126 132 0% 1% 1% 1%
New Initiatives 41 43 45 48 48 51 53 56 -15% -15% -15% -15%
Others (12) (12) (12) (12) (12) (12) (12) (12) 0% 0% 0% 0%

EBITDA 1,440 1,911 2,176 2,410 1,459 2,025 2,254 2,499 -1% -6% -3% -4%

Income from Operations 1,145 1,524 1,775 1,988 1,160 1,593 1,806 2,026 -1% -4% -2% -2%
UMG 804 905 1,009 1,122 809 905 1,013 1,132 -1% 0% 0% -1%
Canal + 394 454 550 603 393 504 561 619 0% -10% -2% -3%
Havas 128 309 331 353 130 316 341 365 -2% -2% -3% -3%
Vivendi Village + new initiatives+Gameloft (86) (48) (19) 6 (76) (36) (14) 7 13% 0% 38% -6%
Holding & Corporate (96) (96) (96) (96) (96) (96) (96) (96) 0% 0% 0% 0%

EBITA 1,026 1,431 1,696 1,908 1,074 1,507 1,722 1,940 -4% -5% -2% -2%
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% margin 8.3% 10.2% 11.5% 12.3% 8.5% 10.6% 11.5% 12.3%

UMG 768 872 976 1,089 773 872 980 1,099 -1% 0% 0% -1%
Canal + 316 421 527 580 355 481 538 596 -11% -12% -2% -3%
Havas 143 294 321 343 145 301 331 355 -2% -2% -3% -3%
Gameloft 7 17 21 28 7 16 17 19 13% 8% 19% 48%
Vivendi Village (18) (10) (6) (4) (18) (8) (5) (4) 0% 25% 20% 0%
New Initiatives (82) (55) (35) (20) (80) (50) (35) (20) 2% 10% 0% 0%
Holding & Corporate (108) (108) (108) (108) (108) (105) (105) (105) 0% 3% 3% 3%

Associates 207 250 241 261 207 250 241 261 0% 0% 0% 0%

Net Interest (50) (52) (52) (52) (50) (52) (52) (52) 0% 0% 0% 0%
Income from investments 28 35 35 35 28 35 35 35 0% 0% 0% 0%
Tax (246) (368) (436) (492) (258) (387) (443) (500) -5% -5% -2% -2%
Minorities (38) (32) (32) (32) (38) (32) (32) (32) 0% 0% 0% 0%

Adj. Net Income 927 1,264 1,451 1,628 963 1,320 1,471 1,652 -4% -4% -1% -1%
Ěũ͘W^;ĐŽŶƚŝŶƵĞĚ͕ΦͿ 0.74 1.01 1.16 1.30 0.77 1.05 1.17 1.32 -4% -4% -1% -1%

Source: Goldman Sachs Global Investment Research.

Key risks
Key risks to our view and price target for Vivendi relate to lower streaming adoption than
we expect, disintermediation of record labels, cord cutting and greater competition in
French Pay TV, and capital allocation/M&A.

(1) Lower-than-expected streaming adoption, which would affect our long-term music
forecasts and UMG’s valuation.

(2) Disintermediation risks for UMG should streaming platforms consolidate and gain
greater bargaining power.

(3) Cord cutting and greater competition for sports rights could negatively affect
Canal+’s turnaround.

(4) Capital allocation/M&A: Value-destructive M&A or strategic missteps could pose a

downside risk to the stock.

22 January 2018 8
 Goldman Sachs Music in the Air

Appendix: Nielsen Findings

Nielsen’s 2017 US Year-End Music Report provides positive datapoints for our bullish
thesis on music. Streaming consumption accelerated in 2017 to 43%, from 36% in
2016, driven by audio streaming growth. Looking across the data, 72% of total sales
comes from top-5 genres (R&B/Hip-Hop, Rock, Pop, Country and Latin) and 57% of
music sales still underindex in streaming including #2/#4 genres Rock and Country. We
believe: (1) these under-indexed genres present upside to streaming growth, especially
as older demographics migrate to streaming, benefiting older-skewing genres such as
Rock and Country; and (2) the differences in streaming adoption by genre may explain in
part why streaming growth by major label could fluctuate in a given quarter from market
share shifts. Lastly, catalogue consumption is materially higher in streaming than in
other formats, explaining the recent elevated label valuations.
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Exhibit 8: Audio streams have been growing more rapidly than Exhibit 9: As expected, streaming has higher catalogue
video streams (mainly Youtube) in the US consumption vs. physical or other digital formats
Music streams in bn 201 US sales % by current/catalogue; catalogue defined as over 18
months

450 70% 70.0%

63%
60%
400 60.0% 58%
60%
400
49% 51%
Number of US streams (bn)

350
Audio as % total streams

50% 50.0%
43%
2017 US Sales %

300 40%
252 40.0% 37%
250 218 40%

172 30.0%
200 30%
150 180 20.0%
20%
85 145
100 10.0%
57
10%
50 79 0.0%
49 Physical Albums Digital Albums Digital Tracks Overall On-Demand
0 0%
2013 2014 2015 2016 2017 Streams

Audio as % Streams Video Audio Current Catalog

Source: Nielsen. Source: Nielsen, Goldman Sachs Global Investment Research.

Exhibit 10: 72% of total sales comes from top-5 genres Exhibit 11: 57% of music sales currently under-index (in red) in
Total sales = albums + track equivalent albums + on-demand streaming, presenting further upside potential
audio/video streaming equivalent albums Streaming sales vs. total sales by genre

1.6X
1.4X
Streaming vs. Total Volume by Genre

1.4X
1.2X
1.2X
1.0X 1.0X
R&B/Hip-Hop 1.0X
Other, 28% Rock 0.8X 0.7X 0.7X
R&B/Hip-Hop, Pop 0.6X
25%
Country
0.4X
Rock, 21% Latin
Latin, 6% 0.2X
Other
0.0X
Latin

Other
Rock

Country
R&B/Hip-Hop

Pop

Country, 8% Pop, 13%

Source: Nielsen, Goldman Sachs Global Investment Research. Source: Nielsen, Goldman Sachs Global Investment Research.

22 January 2018 9
 Goldman Sachs Music in the Air

Disclosure Appendix
Reg AC
We, Lisa Yang, Se Park, Masaru Sugiyama, Heather Bellini, CFA, Heath P. Terry, CFA and Brett Feldman, hereby certify that all of the views expressed in
this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our
compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.

GS Factor Profile
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sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
Returns and Multiple). Growth, Financial Returns and Multiple are calculated by using normalized ranks for specific metrics for each stock. The
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vary depending on the fiscal year, industry and region, but the standard approach is as follows:
Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
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indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
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Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
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For a more detailed description of how we calculate the GS Factor Profile, please contact your GS representative.

M&A Rank
Across our global coverage, we examine stocks using an M&A framework, considering both qualitative factors and quantitative factors (which may vary
across sectors and regions) to incorporate the potential that certain companies could be acquired. We then assign a M&A rank as a means of scoring
companies under our rated coverage from 1 to 3, with 1 representing high (30%-50%) probability of the company becoming an acquisition target, 2
representing medium (15%-30%) probability and 3 representing low (0%-15%) probability. For companies ranked 1 or 2, in line with our standard
departmental guidelines we incorporate an M&A component into our target price. M&A rank of 3 is considered immaterial and therefore does not
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Quantum
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GS SUSTAIN
GS SUSTAIN is a global investment strategy focused on the generation of long-term alpha through identifying high quality industry leaders. The GS
SUSTAIN 50 list includes leaders we believe to be well positioned to deliver long-term outperformance through superior returns on capital, sustainable
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
Lisa Yang: EMEA New Markets-Media, Europe-General Retail, Europe-Media. Masaru Sugiyama: Japan Internet and Games, Japan-Consumer
Electronics, Japan-Media. Heather Bellini, CFA: America-Software. Heath P. Terry, CFA: America-Internet. Brett Feldman: America-Telco, Cable &
Satellite, America-Towers.
America-Internet: Amazon.com Inc., Blue Apron Holdings, CarGurus Inc., Criteo SA, eBay Inc., Endurance International Group, Etsy Inc., Expedia Inc.,
GrubHub Inc., LendingClub Corp., Netflix Inc., Pandora Media Inc., PayPal Holdings, Priceline.com Inc., Redfin Corp., Snap Inc., TripAdvisor Inc., Trivago
N.V., Twitter Inc., Zillow Group.
America-Software: Adobe Systems Inc., Akamai Technologies Inc., Alphabet Inc., Atlassian Corp., Autodesk Inc., Citrix Systems Inc., Facebook Inc.,
Microsoft Corp., MongoDB Inc., Okta Inc., Oracle Corp., Red Hat Inc., RingCentral, Salesforce.com Inc., Twilio, VMware Inc., Workday Inc..
America-Telco, Cable & Satellite: Altice USA Inc., AT&T Inc., CenturyLink Inc., Charter Communications Inc., Cogent Communications Holdings,
Comcast Corp., DISH Network Corp., Frontier Communications Corp., Intelsat SA, Sirius XM Holdings, Sprint Corp., T-Mobile US Inc., Uniti Group,
Verizon Communications, Windstream Holdings, Zayo Group.
America-Towers: American Tower Corp., Crown Castle International Corp., SBA Communications Corp..
EMEA New Markets-Media: Mail.ru Group, Naspers Ltd., Yandex NV.
Europe-General Retail: adidas, ASOS Plc, Associated British Foods, B&M European Value Retail SA, CECONOMY, Debenhams, Dixons Carphone Plc,
Europris ASA, Hennes & Mauritz, Inditex, Kingfisher, Maisons du Monde SAS, Marks & Spencer, Next, OVS SpA, Pets at Home Group, Puma, Rocket
Internet SE, Showroomprivé, Steinhoff International Holdings, Ted Baker, Tokmanni Group, XXL ASA, Zalando SE.
Europe-Media: Ascential Plc, Atresmedia, Auto Trader Group, Axel Springer AG, Daily Mail and General Trust, Emerald Expositions Events Inc., Informa,
ITV Plc, JCDecaux, Lagardere, M6 - Metropole Television, Mediaset, Mediaset Espana, Modern Times Group, Pearson, ProSiebenSat.1, Publicis, RELX
NV, RELX Plc, Rightmove Plc, RTL Group, Schibsted ASA, Scout24 AG, Sky Plc, TF1, UBM Plc, Vivendi, Wolters Kluwer, WPP Plc, ZPG Plc.
Japan Internet and Games: Bandai Namco Holdings, Capcom, CyberAgent, DeNA Co., Kakaku.com, Konami, LINE Corp., Nexon, Nintendo, Rakuten,
Recruit Holdings, Sega Sammy Holdings, Square Enix Holdings, Yahoo Japan.

22 January 2018 10
 Goldman Sachs Music in the Air

Japan-Consumer Electronics: Panasonic Corp., Sony.

Japan-Media: Dentsu, Hakuhodo DY Holdings.

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The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, “Goldman Sachs”) and companies covered
by the Global Investment Research Division of Goldman Sachs and referred to in this research.
Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be
aggregated under US securities law) as of the month end preceding this report: Vivendi (€23.64)
Goldman Sachs has received compensation for investment banking services in the past 12 months: Vivendi (€23.64)
Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Vivendi (€23.64)
Goldman Sachs had an investment banking services client relationship during the past 12 months with: Vivendi (€23.64)
Goldman Sachs had a non-securities services client relationship during the past 12 months with: Vivendi (€23.64)

Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global Equity coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell
Global 33% 54% 13% 63% 57% 52%
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 Goldman Sachs Music in the Air

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