What’s Coming from Spotify and UMG?
Are you ready for the latest insights into the music industry’s financial landscape? As we dive into earnings season, all eyes are on Spotify, the Swedish streaming giant set to release its second-quarter earnings on July 23. With a market capitalization of $60.4 billion, Spotify stands as the most valuable publicly traded music company, making it a pivotal indicator of the industry’s health.
Subscription services continue to drive revenue for Spotify, other streaming platforms, record labels, and music publishers. The upward trend in subscriber numbers translates to higher earnings for creators and rights holders. Moreover, as prices for services rise, streaming platforms stand to benefit, potentially trickling down to creators and rights owners. While the impact of price hikes on downstream benefits remains debatable, the upcoming earnings reports will shed light on the overall financial landscape.
Despite concerns about weakened consumer demand and canceled live events, the live music market is expected to have had another strong quarter. While Live Nation’s earnings release date is yet to be announced, CTS Eventim is scheduled to report on August 22, offering a glimpse into the health of the business.
So, what can we anticipate from the upcoming earnings reports? Let’s delve into the details.
Subscription Gains — Minimizing Churn
The recorded music market seems to have found the sweet spot with increased subscription prices and negligible subscriber attrition. Spotify’s decision to hike prices in 2023, with additional increases in 2024, has not resulted in significant churn. With an expected 245 million subscribers by the end of June, Spotify is poised for substantial growth in the quarter. Keep an eye out for any signs of increased churn due to price hikes, though Spotify’s previous financial reports indicate a healthy subscriber base. Additionally, streaming activity remains robust, with audio streams in the U.S. seeing an 8.1% increase in the second quarter.
Payoffs from Price Adjustments and Cost Reduction
Spotify’s strategic moves in 2023, including price adjustments and workforce reductions, are expected to yield significant benefits in the second quarter of 2024. With an anticipated operating income of 250 million euros, Spotify is on track to reverse its 247-million-euro operating loss from the previous year. The improved gross and operating margins reflect the positive outcomes of these decisions, with revenue expected to show a substantial increase.
Advertising Weakness Persists
Against a backdrop of weak advertising revenues, music subscription services face ongoing challenges. The uncertain advertising market is likely to impact ad-supported revenues for streaming platforms and music entities. While recent estimates suggest some growth in ad-supported streaming, concerns linger over the stability of this revenue stream.
Strong Demand for Live Music Continues
Despite speculation about fans’ waning interest in live music, public companies in the music industry appear to be on solid ground. Reports from Live Nation and CTS Eventim point to stable conditions and positive outlooks. Live Nation’s optimistic outlook, coupled with analyst recommendations, signals a promising future for the live music sector. CTS Eventim’s projected sales growth further underscores the resilience of the industry. Â
The Taylor Swift Effect
