What Destination Hotels Mean For Universal Music

If you were scratching your head after reading that Universal Music Group was building the first of three destination hotels in Biloxi, Mississippi, believe me you were not alone. Why would the largest recorded music company in the world get into an industry that’s suffering mightily as a result of the pandemic, even if the first facility will not come on line until 2023? The more you think about it though, the more it makes sense, but there are some ramifications that may have an even bigger downside as well.

The Hotels

First of all, UMG announced that it entered into a joint venture with with Dakia U-Ventures to launch UMUSIC Hotels. The first of three hotels named UMUSIC Broadwater is to begin construction on a 266-acre property that will include “virtual reality, augmented reality, artificial intelligence, and holograms,” as well as a 12,000 capacity music venue. The other locations are intended for Atlanta and Orlando, but there are also plans for additional locations in the United States and outside the country as well.

What comes to mind immediately is that this is an updated version of the Hard Rock Cafe, only on a larger scale like the Hard Rock Casino in Las Vegas. Biloxi is a small city of about 50,000 that specializes in beaches and casinos, but it isn’t exactly a vacation destination unless you’re from the area. Post-pandemic though, Biloxi, especially with a grand new entertainment venture like UMUSIC Broadwater, could become an interesting alternative to New Orleans, which has been sliding down the vacation attraction scale in recent years due to crime and homelessness.

While “virtual reality, augmented reality, artificial intelligence, and holograms” are all pretty good buzzwords, that’s all they are right now with not much viable application (except for AI) on a consumer entertainment level. That doesn’t mean there’s not potential though, especially in a forward-tech-thinking environment like UMUSIC Broadwater implies it will be. While Las Vegas has always been the leader in consumer entertainment tech, the scope there has also been wider into general entertainment. In the case of UMUSIC Broadwater, it seems like the intent is about music entertainment, and that focuses the technology a little more, which may actually bring some of its promises to fruition faster.

Then there’s the fact that both the technology and the theater are prime outlets for Universal artist’s music. A music management or record company that owns venues is always way ahead of the competition just in terms of artist exposure or revenue generation, so this is a win.

It’s All About The IPO

All of the above favorable points still don’t add up to a good business decision—until yesterday, that is. Universal Music Group owner Vivendi confirmed that it will take UMG public sometime in 2022. This action has been bubbling under the surface for at least a year, and it certainly couldn’t be announced during the early days of the pandemic. With business generally getting to at least some sort of normality it’s a lot safer to announce something that will happen hopefully in a post-pandemic world.

In terms of the market, UMG getting into hospitality is diversification and a hedge against a downturn in the recorded music business. A recent article by former Spotify chief economist Will Page suggests that we’ve hit “peak streaming subscriptions,” meaning that the U.S. has 110 million households and 110 million streaming music subscriptions. There may be no more growth possible in that area. Diversification into a related and arguably potentially larger part of the business may make the market feel better about getting behind the stock.

The Potential Downside

One of the problems with a music company getting bigger is the effect on new artists. Record labels need a constant supply of new music, but artists at anything less than superstar level become increasingly suspicious of a company with a large corporate structure. Artists by nature abhor structure and are doing everything to stay out of the corporate world. A major company that becomes a conglomerate is like holding a sign on the door saying, “You are just a microscopic particle in our grand puzzle.” Although the power of the corporation is a powerful draw to some artists, it’s poison to others, and becoming an even larger company doesn’t help that perception much.

Probably the best thing about these announcements is it shows that there’s a lot of gamesmanship happening behind the scenes. These are not blunt-force moves with little strategy involved. The problem is that all the planning is for a post-pandemic world. We’ve been fooled so far about exactly when that will return, and the best of plans have been destroyed by the most unlikely circumstance we ever could have imagined. Could that happen again?

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