thedailyupside - music-redaction
by Celero Playground
Music in the Air
Focus on monetisation, Emerging Markets and AI; updating global music industry forecasts
EQUITY RESEARCH | May 01, 2024 | 10:04PM CEST
2023 was a turning point for the music industry in many respects, marked by the first ever major price increase by global streaming platforms, the modernisation of outdated royalty payment structures and the deployment of Generative AI. We expect to see further progress in these areas in 2024 and beyond, including: (i) a second round of headline price increases and/or product-led price increases; (ii) the launch of new super premium plans catering to superfans; (iii) the adoption of artist-centric payment models by more streaming platforms; and (iv) the development of a framework and monetisation avenue for the use of music content by Generative AI models, either through the first commercial licensing agreements between tech companies and rights holders or through establishing legal precedents.
As the monetisation of paid subscription improves, we believe there is also an opportunity to better monetise the vast pool of freemium users and evolve the ad-supported offering to improve paid conversion rates.
We update our global music industry forecasts, overall raising our 2024-30E CAGR slightly to +7.6%, reflecting a stronger outlook for the live music and music publishing segments. In recorded music, our raised physical sales assumptions are offset by reduced ad-supported streaming growth (partly reflecting more limited upside from TikTok monetisation) and the faster subscription revenue mix shift towards Emerging Markets, which we analyse in more detail in this report.
Overall, we see future industry dynamics and positive developments around monetisation as supportive for our global music industry coverage.
Note: The following is a redacted version of the original report published May 1, 2024 [75 pages].
AUTHORS
Lisa Yang | Eric Sheridan
Stephen Laszczyk | Minami Munakata
Lincoln Kong, CFA | Eric Cha
Michael Ng, CFA | James Tate
Lane Czura | Diane Kang
Antares Tobelem
Table of Contents
- PM Summary — 3
- Raise global music industry forecasts by c.10% on stronger 2023 and slightly raised 2024-30E CAGR of 7.6% — 6
- Entering a new era of improving music monetisation — 17
- Modernising of the streaming payout model underway — 27
- Emerging Markets to drive next phase of streaming growth & capture greater investments — 31
- Generative AI: music industry largely aligned as regulation begins to emerge but IP protection risks remain — 37
- Ad-supported streaming market maturing; lower monetisation upside from emerging platforms — 41
PM Summary
2023 was a turning point for the music industry in many respects, marked by the first ever major price increase by global streaming platforms, the modernisation of outdated royalty payment structures and the deployment of Generative AI. We expect to see further progress in these areas in 2024 and beyond, including: (i) a second round of headline price increases and/or product-led price increases; (ii) the launch of new super premium plans catering to superfans; (iii) the adoption of artist-centric payment models by more streaming platforms; and (iv) the development of a framework and monetisation avenue for the use of music content by Generative AI models, either through the first commercial licensing agreements between tech companies and rights holders or through establishing legal precedents.
Raise global music industry forecasts on stronger live and publishing outlook
We update our global music industry forecasts, overall raising our 2024-30E CAGR to +7.6% (from +7.4%) and absolute estimates for 2030 by 12%. This reflects a stronger outlook for the live music (2030 estimates raised by 31%) and music publishing segments (2030 estimates raised by 4%), whilst our recorded music forecasts are reduced modestly (-1% in 2030) as higher physical sales assumptions are offset by reduced streaming growth forecasts across ad-funded (reflecting more limited upside from TikTok and a more mature online video market) and paid (reflecting an increased revenue mix shift towards lower ARPU emerging markets).
Entering a new era of improved music monetisation: headline price increases, extra product/feature monetisation, super premium plans catering to superfans
Whilst global streaming services have implemented their first ever round of major price increases over the past 18 months, we believe that music streaming subscriptions continue to offer good value for consumers (in fact, the average revenue per stream fell by 10% yoy in 2023), with monetisation lagging that of the video streaming industry (SVOD) by about 10 years. Future rounds of price increases may take the form of headline price increases across all plans or more nuanced product or feature-led price increases (e.g. charging for audiobooks or Hi-Fi audio, or the launch of new super premium plans catering to superfans). We continue to model a c.3% average annual price increase within our streaming revenue forecasts for developed markets, whilst we see 13% incremental revenue uplift potential from the monetisation of superfans by 2030. As the monetisation of paid subscription improves, we believe that there is also an opportunity to better monetise the vast pool of freemium users and evolve the ad-supported offering to improve paid conversion rates.
Modernising of the streaming payout model underway but no immediate financial impact
As the volume of new tracks uploaded onto streaming services continues to grow (rising 11% yoy again in 2023), with Generative AI likely to further accelerate this trend, we believe that the traditional 'pro rata' streaming payout model between DSPs and labels will need to be modernised. We see the changes recently introduced by Deezer and Spotify as a positive step in this regard, and would expect other streaming services to follow in the coming year. We do not assume an immediate financial benefit for the major music companies, but have gained more confidence in their ability to offset future potential dilution from fraud and noise (including gen AI created content).
Emerging Markets driving next phase of subscription streaming growth and reshaping royalty distribution and capital allocation priorities
We estimate that EM contributed 60% of net subscriber additions in 2023, and forecast this share to rise to 70% by 2030. The growing mix shift towards EM has major implications for future industry growth, distribution of royalties and capital allocation priorities amongst major industry participants. In particular, we note that (i) EM ARPU is c.4x lower than in DM, (ii) paid conversions are low with a vast and growing pool of freemium users that could switch over time, (iii) the competitive landscape is more fragmented, with the major music companies commanding a lower market share than in DM, and (iv) local non-English acts are taking share domestically and internationally. As a result, we believe that the major music companies will deploy more resources and capital to grow their share of local acts and local music markets over the coming years, through signing more local acts (e.g. scaling local A&R teams), distribution agreements with local labels (which are low risk but low margin) and acquisitions (e.g. WMG's recent interest in Believe).
Generative AI: towards a new framework and monetisation avenue for the use of music IP?
We believe that the past 12 months have largely allayed initial fears around the impact of Generative AI for music labels. We have seen broad alignment across the major industry participants in limiting AI deepfakes and ensuring a controlled deployment of the new technology, while the flood of new AI generated content onto streaming services has not yet materialised. That said, we believe the industry is still in an experimental phase, new gen AI music start-ups are proliferating and the protection of music copyrights remains a challenge. We look for the first commercial licensing agreements between tech companies and rights holders and rulings on major pending lawsuits to help establish a clearer framework and monetisation avenue for the use of music content by Generative AI models.
Market share shifts amongst record labels and DSPs
Market share for the top 3 major labels remained broadly stable in 2023, with Sony Music gaining c.0.3ppt share, mainly at the expense of WMG, while UMG and independents' shares were broadly unchanged, based on our calculations. Meanwhile, bigger competitive shifts are taking place in the distribution landscape, with Spotify regaining market share for the first time and YouTube continuing to be the major gainer globally, largely at the expense of local streaming services, Apple Music and Amazon Music. Tencent Music and NetEase in China continue to see strong subscriber momentum and count more subscribers than Apple Music and Amazon Music combined globally.
Raise global music industry forecasts by c.10% on stronger 2023 and slightly raised 2024-30E CAGR of 7.6%
We update our global music industry model following the publication of the 2023 recorded music market figures from IFPI, and reflecting the latest trends and datapoints.
The global music market (recorded, publishing and live) grew faster than expected in 2023, up 15% yoy (GSe +7% yoy), driven by stronger than expected growth in live music (we estimate +25% yoy, leaving the market c.20% above 2019 levels), and better than expected growth in recorded music and music publishing (+10%/+11% yoy respectively).
We forecast global music industry revenues to grow at +7.9% yoy in 2024 (+7.8% prior), with a return to more normalised live music growth of +6.0% yoy (+5.0% prior), solid recorded music growth of +8.9% yoy (+9.3% prior) and publishing growth of +9.2% yoy (+8.5% prior). Our 2024-30E industry revenues increase by c.10% on average on the back of a higher 2023 base, as well as a slightly raised 2024-30E CAGR of +7.6% (+7.4% prior). The improved growth outlook is mainly driven by a higher music publishing CAGR of +7.8% (+7.6% prior) and live music CAGR of +6.6% (+5.0% prior), partly offset by a slightly lower recorded music CAGR of +8.1% (+8.6% prior). Within recorded music, we lower our streaming growth forecasts to a 10% CAGR (+11% prior), mainly reflecting lower ad-funded and emerging platform revenues assumptions, as well as a faster subscription revenue mix shift towards EM. We discuss these forecasts in greater detail below.
Exhibit 1: We expect the global music industry to grow revenues +7.9% yoy in 2024, and sustain this growth rate thereafter
Global music market (recorded, publishing, live) breakdown ($bn, LHS), % growth (RHS)
Exhibit 2: We raise our global music market forecasts (based on net revenues) over 2024-30 by c.10% on average, mainly driven by live music while our recorded music forecasts are broadly unchanged
New vs. old forecasts
| 2023 New | 2023 Old | 2024E New | 2024E Old | 2025E New | 2025E Old | 2030E New | 2030E Old | % change 2023 | % change 2024E | % change 2025E | % change 2030E | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Global Music Market ($bn)** | $98.3 | $92.0 | $106.0 | $99.2 | $114.8 | $107.1 | $163.7 | $151.4 | 7% | 7% | 7% | 8% |
| Global Music Market ($bn)* | $70.8 | $65.1 | $76.1 | $69.8 | $82.4 | $75.1 | $116.5 | $104.4 | 9% | 9% | 10% | 12% |
| Recorded Music Market ($bn)* | $28.6 | $28.2 | $31.2 | $30.8 | $33.9 | $33.7 | $49.5 | $50.1 | 2% | 1% | 1% | -1% |
| Music Publishing Market ($bn)* | $9.0 | $8.8 | $9.9 | $9.6 | $10.7 | $10.4 | $15.3 | $14.7 | 3% | 3% | 3% | 4% |
| Live Music Market ($bn)* | $33.1 | $28.1 | $35.1 | $29.5 | $37.7 | $31.0 | $51.7 | $39.5 | 18% | 19% | 22% | 31% |
| Paid Subscribers (mn) | 667 | 663 | 749 | 738 | 824 | 811 | 1,205 | 1,200 | 1% | 2% | 2% | 0% |
| Developed Market (mn) | 367 | 381 | 400 | 413 | 430 | 442 | 558 | 579 | -4% | -3% | -3% | -4% |
| Emerging Market (mn) | 300 | 282 | 350 | 325 | 394 | 370 | 647 | 621 | 6% | 7% | 7% | 4% |
| Annual ARPU ($)** | $42.2 | $43.0 | $42.0 | $43.1 | $42.0 | $43.3 | $42.6 | $44.6 | -2% | -2% | -3% | -5% |
Exhibit 3: Our growth forecasts are slightly raised on higher assumptions for live music and publishing
New vs. old forecasts
| % growth rates | 2023 New | 2023 Old | 2024E New | 2024E Old | 2025E New | 2025E Old | 2030E New | 2030E Old | % change 2023 | % change 2024E | % change 2025E | % change 2030E |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Global Music Market ** | 14.8% | 7.2% | 7.9% | 7.8% | 8.3% | 7.7% | 7.1% | 7.1% | 7.6pp | 0.1pp | 0.6pp | 0.0pp |
| Recorded Music Market * | 10.2% | 7.5% | 8.9% | 9.3% | 8.8% | 9.1% | 7.4% | 8.2% | 2.7pp | -0.4pp | -0.3pp | -0.8pp |
| Music Publishing Market * | 10.9% | 8.2% | 9.2% | 8.5% | 8.6% | 8.7% | 7.2% | 6.6% | 2.7pp | 0.7pp | -0.1pp | 0.6pp |
| Live Music Market ** | 25.0% | 6.0% | 6.0% | 5.0% | 7.5% | 5.0% | 6.5% | 5.0% | 19.0pp | 1.0pp | 2.5pp | 1.5pp |
| Ad funded Streaming Market ** | 8.2% | 10.3% | 9.1% | 18.0% | 9.1% | 14.8% | 12.0% | 13.2% | -2.1pp | -8.9pp | -5.7pp | -1.2pp |
| Paid Subscribers | 14.2% | 12.5% | 12.3% | 11.4% | 10.0% | 9.9% | 6.7% | 7.2% | 1.7pp | 1.0pp | 0.1pp | -0.5pp |
| Annual ARPU | -2.9% | -1.3% | -0.4% | 0.2% | -0.2% | 0.4% | 0.5% | 0.8% | -1.6pp | -0.6pp | -0.5pp | -0.3pp |
Exhibit 4: 2023 recorded music market growth was c.3ppt better than we expected, mainly driven by Physical, Performance and Download, while Streaming growth came in 1.6ppt below our expectations
Global recorded music constant currency growth in 2023
| % cc growth rates | 2023 Actual | 2023 GSe | Actual vs GSe (%) |
|---|---|---|---|
| Recorded Music | 10.2% | 7.5% | 2.7pp |
| Streaming Market | 10.4% | 12.0% | -1.6pp |
| Physical | 13.4% | -2.4% | 15.8pp |
| Performance | 9.5% | 5.0% | 4.5pp |
| Sync | 4.7% | 7.0% | -2.3pp |
| Download | -2.6% | -20.0% | 17.4pp |
Recorded Music: expect ongoing solid growth trends but with different revenue mix
2023 global recorded music growth came 2.7ppt ahead of our expectations
IFPI released its Global Music Report earlier this year, confirming another strong year of growth for the global recorded music market; this was up by 10.2% yoy in constant currency, ahead of our prior expectations of 7.5% yoy, to reach a total value of $28.6bn in 2023, which was 2% ahead of our $28.2bn forecast.
Most segments came in ahead of our expectations, with the exception of streaming and sync. Physical sales grew +13% yoy (GSe -2% prior), helped by strong growth in vinyl and CD sales (+15%/+14% yoy respectively), which has largely been driven by serving superfans. Performance rights grew +c.10% yoy (GSe +5% prior), benefiting from the continued Covid reopening (public performance revenues grew +17% yoy), while Downloads & Other Digital were down -c.3% (GSe -20% prior), marking the slowest rate of decline for the format since 2013, supported by strong growth in mobile personalisation and other revenues. Sync growth decelerated to +5% (GSe +7% prior) on the back of record growth in 2022 and the impact from the US writers' and actors' strike.
Subscription streaming growth came in weaker than expected (+11.2% vs. GSe +12.6% prior) mainly owing to lower paid streaming ARPU (-2.9% yoy in 2023 vs. GSe -1.3%), whilst the number of paid streaming users came in marginally higher than expected (667mn vs. GSe 663mn prior). Overall, the paid streaming market added +83mn new subscribers in 2023, compared with +75mn/+92mn in 2022/21, and in line with the average pace of net adds across 2019-20. Whilst the rate of ARPU decline improved (-2.9% yoy in 2023 vs. -7% yoy in 2022), helped by headline price increases by major platforms through the year, we believe that the miss vs. our forecasts reflected: (i) the ongoing negative ARPU mix shift towards emerging markets, which accounted for c.60% of 2023 subscriber growth (we estimate EM ARPU is 4x lower than that of DM) and (ii) ongoing dilution from family plans and bundles. Ad-supported streaming was also weaker than our expectations (+8.2% vs. GSe +10.3% prior), due to (i) a slower than expected recovery in the global advertising market and (ii) a lower growth contribution from emerging platforms such as TikTok, YouTube Shorts and Instagram Reels (+15.3% yoy vs GSe: 25%, a marked deceleration from +30.9%/+41.3% yoy in 2022/21).
Recorded music forecasts remain broadly unchanged as lower streaming forecasts are more than offset by higher growth elsewhere
For 2024/25, we slightly lower our recorded music growth forecasts to 8.9%/8.8% yoy respectively (vs. 9.3%/9.1% prior). We lower our 2024/25 streaming (subscription & ad-supported) revenue growth forecasts, expecting streaming revenue (record label share) growth of +11.7%/+11.0% yoy in 2024/25 (+13.8%/+12.4% prior), mainly due to lower ad-supported streaming revenues as we reflect the impact of the UMG/TikTok dispute and a more gradual recovery in video advertising, as well as an accelerated subscription revenue mix shift towards EM. This still represents an improvement on the 2023 growth of +10.4%, mainly driven by the Spotify headline price increases (three quarters of the contribution in 2024).
Exhibit 5: We forecast the global recorded music market to grow 8.5%/8.8% in 2024/2025 and at an 8.1% CAGR 2024-2030E
Global Recorded Music market revenues ($bn, LHS), % growth (RHS)
Chart showing historical and forecast global recorded music revenues broken down by Physical, Download, Other, and Streaming segments from 1998 to 2030E, with global market growth overlay.
Exhibit 6: We forecast global paid streaming penetration to increase to 19% in 2030 from 12% in 2023
Streaming penetration by market (as % of Internet users), 2013-30E
Chart showing streaming penetration trends by market including Global, Total DM, USA, UK, Germany, France, Sweden, Japan, South Korea, Total EM, China, India, Brazil, Mexico, and Norway from 2013 to 2030E.
Exhibit 7: Global ARPU has begun to stabilise over the last couple of years, which we expect to continue as improved DM monetisation offsets dilution from EM...
Paid streaming ARPU - Global, DM and EM
Chart showing DM, EM, and Global ARPU trends from 2014 to 2028E.
Exhibit 8: ... which broadly tracks the improved ARPU trends seen at Spotify
ARPU growth yoy - Spotify & Global
Chart showing ARPU growth year-over-year for Global and Spotify from 2018 to 2027E.
Exhibit 9: Subscription volume growth has slowed across the main developed markets, implying greater reliance on pricing to drive future revenue growth
Paid subscriber yoy growth in developed markets, 2017-23
Chart showing paid subscriber yoy growth for USA, Canada, UK, Germany, France, Sweden, Australasia, Japan, and South Korea from 2017 to 2023.
Music Publishing: expect another year of outperformance vs. recorded music, raise 2024-30E CAGR to +7.8% yoy (from +7.6%)
The Music Publishing market enjoyed a strong year of revenue growth in 2023, up 11% yoy on the back of the record growth seen in 2022/21, and outperforming once again the recorded music market. We believe that the publishing industry benefited from strong growth in performance and streaming royalties, the step-up in CRB statutory mechanical rates for streaming and physical sales in the US and ongoing improvement in catalogue monetisation. We slightly raise our growth forecasts to c.9% in 2024/25, slightly ahead of the recorded music market growth, with a 7.8% CAGR for 2024-30E (from +7.6% prior), taking music publishing to $15.3bn in 2030. In 2024 in particular, we expect to see further improvement in CRB rates to 15.2% (from 15.1%) for streaming and to 12.40 cents (from 12.0 cents) for physical products and digital downloads in the US, as well as an acceleration in sync revenue growth given the impact of the US
writers' strikes in 2023. That said, in April, Spotify re-categorised its Premium subscribers as 'bundles', allowing it to pay a rate lower than the headline 15.2% of mechanical royalties in the US; we note that the NMPA believe this violates the agreed settlement in 2022 and is currently reviewing its options.
Exhibit 10: We forecast the Music Publishing market to grow by c.9% in 2024/2025 after a strong +c.11% last year
Global Music Publishing market revenues ($bn) and % growth
Chart showing global music publishing revenues broken down by Mechanical, Digital, Performance, Sync, and Other from 2005 to 2030E, with % change overlay.
Live Music: improved growth outlook driven by strong demand and supply tailwinds
The live music industry continued its strong rebound in 2023, with estimated revenues of $33.1bn in 2023 (vs. $26.5bn in 2022) based on the trends reported by various industry players such as Live Nation and CTS Eventim. In 2023, we estimate that the industry grew 25% yoy, well ahead of our prior 6% forecast, and reaching 118% of 2019 levels. This is driven in our view by a strong schedule that featured many artists who had not toured since pre-Covid, in particular Taylor Swift and Beyonce, driving both attendance (owing to larger venues) and pricing power (due to perceived scarcity of these artists in the short term). This also once again demonstrates the resilience of concert spending amidst elevated inflation and pressure on consumer spending, and the growing structural demand for experiences, particularly amongst Gen Z and Millennials. In 2024, we expect activity to normalise (+6% yoy), given the tough comps following the release of pent-up demand and supply. Looking forward, we expect live music to remain an attractive market with a solid growth outlook (GSe +6.5% 2024-30 CAGR, from +5% previously), given strong secular demand & supply tailwinds.
Increasing supply of artists touring
On the supply side, we see long-term growth driven by the globalisation of music (i.e. artists from anywhere in the world can have a global fan base to tour to thanks to the proliferation of streaming) and stronger financial incentives for artists to tour (e.g. top artists earn up to c.95% of their income from touring). Live entertainment companies have spoken to strong supply in 2024. For example, Live Nation stated with 4Q23 earnings that show count is pacing up double-digits yoy across its larger-format footprint (e.g. amphitheaters, arenas & stadiums) for 2024. Similarly, MSG Entertainment has noted that it expects a low-double-digit yoy increase in bookings for its fiscal year 2024 (ends June 30), with yoy concert bookings pacing ahead by a fairly strong double digit for 1HFY25 at The Garden in NYC.
As mentioned, 2023 was a historically robust stadium year in terms of supply, as many top artists came back from multi-year touring hiatuses with new music post-Covid. In 2024, we expect that the concert slate will mix-shift more towards smaller and mid-sized venues such as amphitheaters as global artists temporarily pare back touring following a busy stretch, and as some larger venues across Europe come offline for large events such as the Olympics and UEFA Euro 2024.
Robust demand for Live Music
Over the long term, we believe that demand for live entertainment will be driven by i) supportive demographic and consumer trends, and ii) the increased awareness of and social value attributable to live events brought about by streaming and social media.
In our view, continued momentum even after a tougher 2022/23 consumer backdrop lends weight to our thesis that demand for live events has structurally increased on a global basis coming out of the pandemic, and is less cyclical compared to other types of consumer discretionary categories. Despite pressures on consumer wallets from inflation, rate increases, resumed student loan repayments, corporate layoffs and more in the last 12-24 months, which is when fans would have started saving for/planning to buy tickets for 2024, demand for tickets continues to be robust. For instance, Live Nation noted on its last earnings call that it continues to see durable consumer demand trends across its business, despite a somewhat uncertain economic backdrop, noting that ticket sales, show close outs, and per caps all continue to trend strongly. There is some evidence of a slowdown, however, with The Coachella Festival's first of two weekends selling out after 27 days in 2024, compared with 4 days in 2023 and just 40 minutes in 2022 when it returned after a two-year hiatus.
Exhibit 11: We believe live music revenues will grow at a faster pace post-Covid given strong secular tailwinds
Global Live Music market ($bn)
Chart showing global live music revenue (sponsorship + ticket sales) from 2007 to 2030E. 2007-19 CAGR: 4%; 2023: 25% yoy growth; 2024-30: 6.5% CAGR.
The major labels have a relatively low exposure to live music, and this is mainly through their merchandising division and live performance royalties. We forecast UMG's merchandising revenue (we estimate around half is related to touring) to normalise in 2024 (GSe: +5% yoy) following +18% in 2023. Meanwhile, we expect WMG's Artist services & expanded-rights revenue, which includes direct-to-consumer merchandise sales, touring, concert promotion and ticketing, to remain lacklustre at +1% in FY24 (excluding a $45mn impact from a cost efficiency plan) following a -1.5% decline in FY23, on the back of a light touring schedule and tough comps.
Exhibit 12: Merchandising revenues have recovered strongly post-Covid for UMG/WMG
$mn
Chart showing UMG and WMG merchandising revenues from 2016 to 2023.
Exhibit 13: Touring-related activity is the lowest-margin business within UMG's merchandising business
Illustrative UMG merchandising gross margin
Chart showing illustrative gross margins: Touring 8-10%, DTC c.25%, Retail 15-18%.
Data from the IFPI Global Music Report 2024 was used to create material in this report. All statements using IFPI data represent Goldman Sachs' interpretation of data, research opinion or viewpoints published as part of the IFPI Global Music Report 2024, and have not been reviewed by IFPI. Each IFPI publication speaks as of its original publication date (and not as of the date of this report.)
Entering a new era of improving music monetisation
Over the past 18 months, all major streaming platforms have announced their first ever comprehensive price increases across standard and family plans following a decade of stagnant prices. These price increases appear to have had little or no impact on subscriber growth and churn rates despite a context of elevated inflation and consumer spending pressure, which in our view constitutes clear evidence that music streaming subscriptions remain a compelling value proposition for consumers. Indeed, the number of audio streams continued to rise in 2023 (+23% yoy globally) whilst the implied ARPU per stream declined further (-10% yoy globally). We believe that the industry can sustain improved pricing in the future, either through a recurring cadence of headline price increases or more tactical, product-led price increases, as well as developing innovative DTC offerings that can cater to superfans. As premium plan pricing continues to improve, we believe that the audio ad-supported streaming offering will also need to evolve to improve the monetisation of ad-supported users (for instance through higher ad loads and CPMs, or through introducing an advertising light tier for a small charge) and/ or support higher conversion rates towards the premium plan (through placing greater content or feature restrictions on the freemium service), which we address in the later section: Ad-supported streaming market maturing; lower monetisation upside from emerging platforms.
Music monetisation still lags consumption and other forms of content
The fall in the barriers to distribution and creation of music content has led to a surge in the number of songs released and consumed. The consumption of audio streams globally has quadrupled since 2017, while even in a more mature market like the UK, the consumption of streams has increased 2.5x since 2017. However, the monetisation of music content has significantly lagged consumption due to the (i) lack of price increases, (ii) dilution from bundles and (iii) lack of customer segmentation, in our view. It has also notably lagged the monetisation of other forms of content such as SVOD, where Netflix has seen its standard rate increase by 94% in the US since 2013 or c.15% every two years. We calculate that the implied revenue per audio stream (both subscription and ad supported) has declined by 28% since 2017, while the revenue per streaming hour on Spotify is 2x lower than on Netflix (caveat: this is based on the latest data available - 2021 for SPOT and 2023 for Netflix), with this difference likely greater if 2023 data was available for Spotify.
Exhibit 14: The consumption of audio streams globally increased 23% yoy in 2023, more than quadrupling since 2017
Global On-Demand Audio Song Streams (bn)
Chart showing global on-demand audio song streams from 2017 to 2023: 950 (2017), 1430 (2018), 1770 (2019), 2170 (2020), 2740 (2021), 3359 (2022), 4108 (2023).
Exhibit 15: Revenue per stream fell 10% yoy in 2023 and was 28% lower than in 2017
Global revenue per stream, $
Chart showing global revenue per stream declining from approximately $0.0065 in 2017 to approximately $0.0047 in 2023.
Exhibit 16: Even in a more mature streaming market like the UK, audio stream consumption rose 13% yoy in 2023 and was 2.5x higher than in 2017
UK Annual Audio Song Streams (bn)
Chart showing UK annual audio song streams from 2012 to 2023: 4 (2012), 8 (2013), 15 (2014), 27 (2015), 45 (2016), 68 (2017), 91 (2018), 114 (2019), 139 (2020), 147 (2021), 159 (2022), 180 (2023).
Exhibit 17: Revenue per stream has been more resilient in the UK, but was still down 4% yoy in 2023 and down 6% vs. 2017
UK revenue per stream, $
Chart showing UK revenue per stream from 2016 to 2023, declining from approximately $0.0075 in 2016/2017 to approximately $0.0067 in 2023.
Exhibit 18: Revenue per streaming hour is over 2x higher for Netflix compared to Spotify
Revenue per hour streamed, $
Chart showing revenue per hour streamed: Spotify (2021) = $0.08, Netflix (2023) = $0.18.
Exhibit 19: The price of a standard music streaming subscription in the US is currently still lower than many other entertainment subscriptions
Monthly price of various entertainment subscription offerings in the US
Chart comparing monthly subscription prices across Music, Books, Video, Gaming, and News categories. Spotify Standard plan: $10.99; YouTube Music: $10.99; Apple Music Standard: $10.99; Netflix Standard plan: $15; Sling TV: $40; Disney+: $7.99; Hulu+: $7.99; Apple TV+: $9.99; HBO Max: $15.99; Amazon Prime Video: $8.99; Apple Arcade: $6.99; Google Play Pass: $4.99; NY Times Digital: $25.00; Apple News+: $12.99; Wall Street Journal: $19.49.
Exhibit 20: Music revenue as a % of entertainment spend remains well below the 1998 peak
Entertainment includes: Recreational and Cultural Services, Newspapers, Magazines, Books and Stationery
Chart showing music revenue as % of entertainment spend (LHS) and % of nominal spend (RHS) from 1998 to 2030E, both well below 1998 peaks.
Entering a new era of improved pricing for music subscriptions
Over the past 18 months, we have seen the first price increases for over a decade on standard subscription plans across major markets from all the major global streaming platforms. Spotify, YouTube, Apple and Amazon Music increased prices on their standard individual plans across major markets, including the US, by 10% to $10.99 from $9.99, as well as implementing a range of 7%-20% price increases on student & family plans. Furthermore, we have seen local players in emerging markets such as China begin to significantly raise prices as they look to improve monetisation, with Tencent Music raising prices by 30% in mid-2023 (on auto-renewal subscribers for Android users, with iOS price increase following in Jan-24), while still maintaining near record levels of paid net adds. Based on our industry conversations and judging by the number of net subscriber additions in 2023, these price rises appear to have had negligible/no impact on churn and new customer acquisitions. Furthermore, data from customer experience
(Page 20 content continues from page 19 - entering a new era of improved pricing for music subscriptions section, with further discussion of customer experience data and pricing dynamics for music streaming platforms.)
In our Music Industry Model, we continue to assume 3% annual pricing growth in DMs within our global paid subscription revenues (see earlier section: Raise global music industry forecasts by c.10% on stronger 2023 and slightly raised 2024-30E CAGR of 7.6%). For 2024, we reflect the impact of the announced price increases (mainly Spotify), representing a c.1.2ppt/2.5ppt boost to 2024E global recorded music market/global paid streaming revenues. We acknowledge that not all DSPs will raise prices at the same time and in every market; however, certain years may see larger/smaller price increases on average than others.
Exhibit 22: In the US, the monthly subscription price for SVOD services has been rising by 15% nearly every two years for the past decade
SVOD monthly subscription prices ($), US
Exhibit 23: We believe that the music industry is lagging SVOD by 10 years
Music monthly subscription prices ($), US
Exhibit 24: In the US, Netflix has increased its Premium plan price by 92% since 2014, while Spotify/Apple have raised the Family subscription price by 13% since 2020/21
Spotify/Apple Music Family vs. Netflix Premium price ($), US
Exhibit 25: Spotify/Apple Music's standard subscription is still 35% cheaper than Netflix in the US
US standard plan price ($) - Netflix, Spotify, Apple Music
Improved audience segmentation and monetisation of superfans
As highlighted last year, we believe that there is an opportunity for the industry to improve monetisation beyond headline price increases, through a premium segmentation of their user base. The current streaming model does not distinguish between its users, charging each the same flat monthly fee, independent of the level of engagement with the platform and its artists, despite the wide availability of data. We estimate the superfan addressable market opportunity at $4.5bn ($4.2bn prior), implying 26% upside to our current 2025 paid streaming revenue estimates, based on the assumption that 20% of paid streaming subscribers can be defined as superfans of at least one artist and that such superfans would be spending 2x more on music than an average individual.
While we would expect a strong appetite from superfans for the opportunity to gain further access to their favourite artists through their streaming platform, we believe that not all superfans would be monetised immediately given it may take some time/iterations for the new product and offering to be fully optimised, and such offering may vary depending on the service (different DSPs have different audiences and different factors that drive engagement). As a result, in assessing the potential addressable market, we assume a gradual increase in the % of the superfan base with additional monetisation from 10% in 2025 to 60% in 2030. Overall, we believe that the improved monetisation of superfans could represent $3.3bn of incremental revenue by 2030, or a 13% uplift to paid streaming revenues.
We would expect the industry (record labels, artist managers, DSPs) to work on this opportunity, experiment and roll out either new superfan apps or new super premium tiers on existing streaming services over the next 12-24 months. WMG is currently working on an app that enables artists to connect directly with their superfans, having previously invested in various start-ups focused on monetising super fandom including Fave (alongside Sony Music), and Beepr. UMG has signed an expanded long-term agreement with HYBE which includes further collaboration with its global superfan platform Weverse to bring UMG artists closer to their fans. Streaming services also appear to be endorsing the opportunity, with Spotify being the first major streaming service reportedly working on a new 'supremium' tier, which would be priced at a premium to its current offerings, and include access to high-fidelity audio among other features (Bloomberg, April 3).
Exhibit 26: We see a potential addressable market opportunity of $4.5bn for superfan monetisation
Illustrative example of TAM opportunity from superfan monetisation in paid streaming
| Illustrative Superfan TAM | 2025 |
|---|---|
| Paid streaming revenue ($bn) | 17.5 |
| Paid subscribers (mn) | 824 |
| ARPU ($) | 22.2 |
| % of subs that are superfans | 20% |
| Implied number of superfans (mn) | 165 |
| Implied number of non-superfans (mn) | 660 |
| Potential uplift in spend of a superfan vs non-superfan | 2x |
| Implied superfan ARPU ($) | 44.5 |
| Non-superfan ARPU ($) | 22.2 |
| Superfan paid streaming revenue ($bn) | 7.3 |
| Non-superfan paid streaming revenue ($bn) | 14.7 |
| Total paid streaming revenue incl. superfan monetisation ($bn) | 22.0 |
| Potential revenue uplift ($bn) | 4.5 |
| Uplift vs. base paid streaming revenue | 26% |
Exhibit 27: Assuming a progressive ramp up of monetisation of superfans would indicate a 7%/13% uplift to our 2030E global recorded music revenue/paid streaming revenue
Illustrative example of revenue opportunity from superfan segmentation in paid streaming
| 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
|---|---|---|---|---|---|---|
| GSe paid streaming revenue - label share ($bn) | 17.5 | 19.2 | 21.0 | 22.7 | 24.5 | 26.3 |
| GSe paid subscribers (mn) | 824 | 902 | 979 | 1055 | 1130 | 1205 |
| Implied ARPU ($) | 22.2 | 22.3 | 22.3 | 22.4 | 22.4 | 22.6 |
| % of superfans | 20% | 20% | 20% | 20% | 20% | 20% |
| % of superfans with additional monetisation | 10% | 20% | 30% | 40% | 50% | 60% |
| Revenue uplift from superfan monetisation ($bn) | 0.4 | 0.8 | 1.3 | 1.9 | 2.5 | 3.3 |
| % boost to paid streaming revenue | 2% | 5% | 7% | 9% | 11% | 13% |
| % boost to total recorded music revenue | 1% | 2% | 4% | 5% | 6% | 7% |
Exhibit 28: We flex our key assumptions based on the propensity of superfans to pay more than non-superfans and the % of music streaming users that are superfans...
% boost to total streaming revenue with superfan segmentation (2030, %)
Exhibit 29: ...which indicates a 1%-19% uplift to recorded music revenue in 2030
% boost to total recorded music with superfan segmentation (2030, %)
| Uplift in superfan monetisation | 10.0% | 15.0% | 20.0% | 25.0% | 30.0% |
|---|---|---|---|---|---|
| 1.25x | 1% | 1% | 2% | 2% | 3% |
| 1.50x | 2% | 3% | 4% | 4% | 5% |
| 1.75x | 3% | 4% | 5% | 7% | 8% |
| 2.00x | 4% | 5% | 7% | 9% | 11% |
| 2.25x | 4% | 7% | 9% | 11% | 13% |
| 2.50x | 5% | 8% | 11% | 13% | 16% |
| 2.75x | 6% | 9% | 13% | 16% | 19% |
The K-Pop case study: K-pop agencies such as HYBE and SM have been developing various business models in recent years to cultivate and monetise fandom. The largest superfan platform is HYBE's Weverse, which enables fans and artists to communicate with each other in an open space (fan community), purchase video content (e.g. reality shows, behind-the-scene footage) as well as albums, merchandise and online concerts on the Weverse Shop page, and subscribe to Weverse DM (private fan-artist message service). It is also used to publish official statements by HYBE on behalf of its artists. Started initially as a platform exclusively for HYBE's artists (such as TXT, BTS) in 2019, it has been expanding over the years to onboard external artists (both K-Pop and non K-Pop) including from YG Entertainment and Universal Music. As of 4Q23, the platform had 122 active fan communities and 10mn MAUs (doubling in three years). Although still a small contributor to HYBE's overall revenue, the platform has been a major driver of HYBE's annual Fanclub & Other revenues (5% of group revenues) growing at 40% CAGR over 2020-23.
Exhibit 30: K-pop agencies such as HYBE and SM have been developing various business models in recent years to cultivate and monetise fandom
Summary of K-Pop fandom platforms
| Owner | Name of Platform | Number of Users | Key Features | Price |
|---|---|---|---|---|
| HYBE | Weverse | 10.1mn MAUs | Fan community, Video content, Weverse Shop (purchase albums, merch and online concerts) | Fanclub membership KRW 20,000-30,000 annually |
| SM | SMTOWN | Online store; plans to integrate Online concert and fan community onto platform | ||
| SM | Beyond Live | 91 shows | Online concert | |
| Dear U | DearU bubble | 2.3mn subscribers | Private fan-artist message subscription platform | KRW 4,500 won monthly |
Exhibit 31: Fans communicate with artists via articles and comments (LHS) and live chatting during streaming (RHS) on fan-only platforms such as Weverse...
HYBE - Weverse platform UX screenshots
Articles auto-translated from Korean
Exhibit 32: ... and K-pop agencies apply various business models to further monetise the loyal fanbase
Illustrative example - Weverse Shop / Weverse
Exhibit 33: Weverse's MAUs have doubled over the last three years...
Weverse MAU trend
| Quarter | MAU (mn) |
|---|---|
| 1Q21 | 4.9 |
| 2Q21 | 5.3 |
| 3Q21 | 6.4 |
| 4Q21 | 6.8 |
| 1Q22 | 6.4 |
| 2Q22 | 6.0 |
| 3Q22 | 6.9 |
| 4Q22 | 8.4 |
| 1Q23 | 9.3 |
| 2Q23 | 9.5 |
| 3Q23 | 10.6 |
| 4Q23 | 10.1 |
Note: All members of BTS enlisted for military service
Exhibit 34: ...while average time spent on the platform per month has also grown significantly
Weverse average time spent per month
| Quarter | Average time spent (minutes) |
|---|---|
| 3Q22 | 162 |
| 4Q22 | 181 |
| 1Q23 | 251 |
Modernising of the streaming payout model underway
Last year, we argued that the economic model between DSPs and labels needed to evolve. Labels have been paid based on the 'pro rata' model since the advent of streaming in 2008, based on the share of overall streams by all users for its artists, with 1 stream representing any song that is played for 30 seconds or more. This methodology has become increasingly questionable given: (i) the rise of the long tail of content that is being treated equally to premium music content, particularly with the rise of gen AI, (ii) the rise of fraudulent/artificial streams and (iii) the role of algorithms pushing lower royalty content. In 2023, the number of tracks uploaded per day onto music streaming services rose further by 11% yoy, to 103.5k tracks, from 93.4k in 2022 and just 45k in 2018 (+18% 2018-23 CAGR). We believe that the surge in new tracks uploaded daily coupled with the outdated payout model is partly responsible for the market share loss of the major music companies on Spotify (although we believe that the dilution from faster EM growth is playing a larger role).
Exhibit 35: The number of tracks uploaded to music streaming services each day has increased rapidly over the last few years (+18% 2018-23 CAGR)
Number of tracks uploaded to music streaming services a day (k)
| Year | Tracks uploaded per day (k) |
|---|---|
| 2018 | 44.9 |
| 2019 | 71.0 |
| 2020 | 70.7 |
| 2021 | 84 |
| 2022 | 93.4 |
| 2023 | 103.5 |
Exhibit 36: The 3 majors + Merlin have seen their share of streams decrease from 87% in 2017 to 74% in 2023 (note that 2023 saw "only" 1ppt share reduction)
% of streams on Spotify from the 3 majors + Merlin
| Year | Share |
|---|---|
| 2017 | 87% |
| 2018 | 85% |
| 2019 | 82% |
| 2020 | 78% |
| 2021 | 77% |
| 2022 | 75% |
| 2023 | 74% |
Over the past 12 months, we have seen early progress towards addressing some of these issues through modernising the model by Deezer and Spotify, and we expect more DSPs to introduce similar royalty payout changes in the near future. While we do not factor in an immediate financial benefit for the major music companies, we believe that such changes will help the major rights holders preserve their market share and minimise the future dilution of their payouts from the ongoing increase in volume of content uploaded onto the streaming services, which will likely be further exacerbated by the use of gen AI tools.
Exhibit 37: Similarly, the 3 majors' streaming market share has fallen from c.85% in 2017 to 74% in 2023, although share has been broadly stable since 2021
Streaming market share for 3 major labels, 2017-23
1. Deezer announced the launch of its Artist-Centric Model with UMG in September 2023. The five key changes in the model were:
- (i) introducing a double boost to streams of professional artists, defined as having at least 1k streams per month by at least 500 users
- (ii) introducing another double boost for streams of songs that users actively search for rather than being algorithmically served to them
- (iii) de-monetising non-artist noise content from the royalty pool
- (iv) tackling fraud through an updated and stricter fraud detection system
- (v) capping each user's monetisation of streams at 1k per month
Deezer began the rollout of the new model in its home French market in October 2023, and in February the company announced that nearly all its content providers were operating under this new model in the country. At its 1Q24 results, Deezer indicated that it has removed 26mn songs (out of c.120mn tracks) since October, including duplicates and noise. UMG noted that a fully implemented Artist-Centric Model over time could shift around 7%-10% of royalties back to real artists, with 1/3 from addressing fraud, 1/3 from removing clutter from the long tail, and 1/3 from boosting higher value engagement.
2. Spotify announced in November 2023 that it will make three changes to its royalty model, which became effective from April 1, 2024:
- (i) tracks that receive <1k streams within a 12-month period will not qualify for royalties
- (ii) labels and distributors will be charged €10 for any track found to have >90% of its streams deemed fraudulent
- (iii) non-music noise tracks must be streamed for >2 minutes (vs. 31 seconds for all tracks previously) in order to qualify for royalties
Data from Luminate shows that 158.6mn or 86% of all tracks had fewer than 1,000 plays in 2023 on streaming services with hundreds of millions of MAUs, whilst Spotify data suggest that 60% of the tracks in 2022 had fewer than 1,000 plays. Spotify expects all the changes to the model to drive an additional c.$1bn in revenue towards emerging and professional artists over 5 years. Assuming the incremental revenues were distributed in line with existing market shares, we believe this would represent a c.1% boost to major labels' annual streaming growth, mainly at the expense of bad actors.
Exhibit 38: We are beginning to see streaming platforms experiment with new payout models
| Platform | Changes to streaming models |
|---|---|
| SoundCloud | In April 2021, SoundCloud launched its user-centric model through 'Fan-Powered Royalties' to independent artists on its platform. Within a year, independent artists were earning 60% more than on the previous 'pro rata' model. In May 2022, Merlin signed a licensing deal enabling their artists to participate in SoundCloud's user-centric payout model, and in July 2022, WMG became the first major label to adopt the model on SoundCloud. |
| TIDAL | In Jan 2023, UMG and TIDAL announced that they would work together to explore an innovative new economic streaming model to better reward the value provided by artists. |
| Deezer | In March 2023, UMG and Deezer announced an initiative to investigate potential new economic models for music streaming. Further, in September 2023 it launched an Artist Centric Model with UMG which it rolled out in France in October 2023. |
| Spotify | In November 2023, Spotify announced three changes to its royalty model aimed at reducing fraudulent practices, expecting to drive an additional c.$1bn in revenue towards emerging and professional artists over the next few years. Changes became effective from April 1, 2024. |
Exhibit 39: 86% of tracks globally had <1,000 streams in 2023, including 25% with zero streams...
Exhibit 40: ...and c.60% of tracks on Spotify had fewer than 1k streams in 2022
In our Music Industry Model, we continue to assume 3% annual pricing growth in DMs within our global paid subscription revenues. For 2024, we reflect the impact of the announced price increases (mainly Spotify), representing a c.1.2ppt/2.5ppt boost to 2024E global recorded music market/global paid streaming revenues.
We have already seen early evidence of streaming services rolling out their second round of price increases, starting in September 2023 with Deezer, which hiked its Individual Premium prices by 9% to €11.99 per month (from €10.99) in its EU markets, around 18 months after its first round of price increases.
More recently, Spotify has announced another round of price increases on its Standard Individual (+9% to £11.99 a month), Duo (+13% to £16.99 a month) and Family Plan (+11% to £19.99 a month) in the UK effective from May, with similar price increases in Australia and Pakistan, only eight months after raising prices in these markets.
We believe that we have (re)-entered a period of improved pricing, and would expect the industry to work towards implementing headline price increases on a recurring basis; these could be similar to the price increases adopted in other industries such as SVOD (we note that Netflix started to introduce regular price increases 10 years ago), or more tactically driven by product innovation and improved customer segmentation, including the launch of higher priced super-premium tiers to cater to the superfans.
