Music Streaming Growth In Decline?

In July, Universal Music Group, the world’s biggest music label, saw its shares plunge 30 per cent after it revealed its quarterly earnings.

It wasn’t that Universal had terrible earnings for the quarter. In fact, it managed to increase revenue by 9 per cent.

However, one of the main reasons attributed to the loss of confidence among its investors was that although it reported subscription revenue growth of 6.9 per cent in the second quarter, it was way off the estimate by analysts of 11 per cent.

While revenue was healthy at Universal, analysts are more focused on streaming. That’s because revenue from streaming makes up half of Universal Music’s total business.

Chief executive Lucian Grainge urged investors to focus on the long term, while chief financial officer Boyd Muir said he was “not overly concerned”.

Spotify is widely believed to have saved the music industry, reversing decades of industry decline.

UMG and its rivals enjoyed streaming revenue growth of 20 per cent or higher over the last few years, according to the Financial Times.

Streaming also attracted the attention of some of the world’s biggest investors including Blackstone and KKR to the music business.

The market for streaming in some of the industry’s biggest markets such as the US is saturated. The current growth in streaming is coming from markets such as India where streaming costs a fraction of what it costs in the West.

Universal executives have appeared to blame Apple and Amazon for the recent slowdown. On an earnings call, Muir said that while Spotify and YouTube Music have “continued to exhibit healthy growth . . . other large partners . . . have seen a slowdown in new subscriber additions”.
Amazon’s music service has flatlined, according to sources.

Universal’s recent slowdown in streaming was offset by a strong show of support for “physical music”, mainly attributed to superfans buying vinyl.

The big music labels want to reignite streaming growth by appealing to those superfans. One of the potential ways being discussed is for the labels to deliver a “superfan” offering on Spotify and other streaming platforms, that would charge an artist’s most ardent fans a fee in exchange for perks such as early access to their artist’s music or merchandise.

Universal executives which are reported to be planning to release such an offering as early as this year, believe that as much as 20 per cent of Spotify’s subscribers could sign up for this super-premium offering, which Spotify chief Daniel Ek has said could cost A$25-A$28 a month — up to 50 per cent more than an existing subscription.

“We are at the beginning of the next phase, part two phase of streaming and subscription,” Grainge told investors. “It’s a whole suite of products”.

Analysts are cautious not to predict entirely doomsday scenarios for streaming. Just as Universal reported streaming growth, Warner Music this month too reported streaming revenue growth of 5.5 per cent in the last quarter.

Earlier this year, the Australian Recording Industry Association (ARIA) said that the value of music sales grew for the fifth year in a row to $676 million in 2023. The majority of people consume music via a streaming service like Spotify or Apple Music and Australians spent $467 million on paid subscription services last year, accounting for 69 per cent of revenue. The 2023 Deloitte Media & Entertainment Consumer indicated that 48 per cent of Australian households have a paid music subscription.

Furthermore, Spotify grew its monthly active users by 14 per cent to 626 million globally last quarter, and revenue from subscriptions grew 21 per cent.

One of the frontiers that streaming will have to focus on is lossless audio. Spotify has been hinting at a top-tier product – working title Spotify HiFi – for a few years. It promised “CD-quality, lossless audio format” that could compete with the likes of Tidal, Apple Music and Qobuz.