Vivendi reported its third quarter results yesterday (read PDF of the press release). Company sales rose a mere 0.3% (3.6% at constant currency) pulled downward in part by Universal Music Group's 2.1% drop in revenues. (Take out the Napster settlement and UMG revenues dropped 5.3% It's a good thing labels sue. The proceeds pad their bottom lines.)

For the first nine months of 2006, UMG revenues are up 2.7%. That would look decent given the current climate of the music industry, but the success of another Vivendi business segment is very telling. Vivendi Games' revenue rose 15.2% last quarter and is up 20.7% for the year.

Digital sales were up 88% from last year and now represent 11.5 of total UMG revenues. There is sure to be numerous headlines that say something to the effect of, "Digital sales buoy Universal Music Group's slumping album sales." That's a poor way of thinking about UMG's performance. Digital sales -- think a la carte -- are partly responsible for labels' problems. Consumers have been given the facts, and they're increasingly voting against the album. Cherry picking isn't good for labels' bottom line. Also, think of digital's small impact. It's share is just over 11%, and the other 89% of UMG is dropping quickly. Mobile numbers, which weren't given separately, are the wild card here. Mobile sales are needed to make up for the album-to-single exodus.

From Marketwatch: "Merrill Lynch on Tuesday separately cut its rating on Vivendi to neutral from buy after a 13% rise in Vivendi shares since September."