The fallout from Spotify’s decision to reclassify its premium version as a “bundle” by combining music and audiobooks has already affected the profit forecasts of at least one music company.
In the latest earnings call on Thursday (May 30), reservoir media said its revenue and adjusted EBITDA expectations were impacted by expectations of lower revenue from the company’s mechanical royalties from its publishing catalog.
That’s because, after reclassifying its Premium as a “bundle,” Spotify pays its Premium publishers and songwriters a lower mechanical royalty rate in the U.S. than standalone music subscription services.
Chief Financial Officer ‘We have incorporated this into our earnings guidance for the next financial year’ Jim Heindelmeyer Said on the phone.
Reservoir did not specify how much revenue it expected to lose from the move, but founder and CEO Gornar Khosrowshahi stated that the company is “concerned about the impact of Spotify’s recent accounting changes resulting from the reclassification of bundled subscriptions. To this end, we are steadfast in ensuring that our roster is compensated accurately and fairly, and we will continue to work diligently with all those who use our assets.” The entity reaches a solution.
In Reservoir’s fiscal 2024 financial report ending March 31, 2024, the company forecast 4% annual increase Revenue growth in fiscal 2025 is much lower than 14% annual increase Growth was recorded in the year just ended. It also forecasts adjusted EBITDA to rise 7% annual increase,Far below 20% annual increase A jump seen over the past year.
Heindlmeyer noted that Spotify’s move isn’t the only reason Reservoir is cautious about its prospects for the next fiscal year. The company released De La Soul’s entire catalog on digital last year, which resulted in a surge in revenue that will make year-over-year comparisons less favorable in future seasons. Furthermore, Heindlmeyer added that the company always takes a “conservative” approach to its forecasts at the start of its fiscal year.
In March this year, Spotify announced Machinery Licensing Collective (multilayer capacitor), the organization responsible for collecting mechanical royalties from U.S. publishers, will pay a lower rate as a result of reclassifying its premium subscription plan as a “bundle,” which now includes 15 hours of audiobook time per month.
Under the terms of the Copyright Royalty Board Disc IV Under the agreement, digital service providers will be able to pay less for the bundled services than for standalone music subscriptions.
However, the move angered many in the music industry, including national music publishers associationwhich described the change as an “attack” on songwriters.
“We are steadfast in ensuring that our roster is compensated accurately and fairly, and we will continue to work toward resolution with all entities that use our assets.”
Gornar Khosrowshahi Reservoir
The MLC has since filed a lawsuit against Spotify, arguing that the streaming service’s Premium subscription plan does not qualify as a bundle because Phonorecords IV rules require the bundle to have more than just “token value” – which the MLC believes is an audiobook feature Not available.
Despite the uncertainty surrounding future U.S. machinery royalties, Reservoir remains optimistic about the overall royalty revenue outlook.
“Going forward, we believe that rising prices on streaming platforms will become the norm and we are ready to benefit from them,” Khosrowshahi said.
“Despite recent price increases on global streaming platforms, we see that user engagement remains high. According to the latest IFPI report, the market will still add 83 million new paying users in 2023.
In fact, just this week, news broke that Spotify was once again raising the price of its Premium subscription tier in the United States, marking the second price increase in less than a year in the world’s largest music market. Individual subscriptions will now rise from $10.99 to $11.99 per month, the Premium Duo plan will rise from $14.99 to $16.99 per month, and the Family plan will rise from $16.99 to $19.99 per month.
Reservoir Report $144.86 million Revenue growth in fiscal year 2024 14% annual increase on an organic basis, or 18% annual increase Including acquisitions. Its adjusted EBITDA is $55.6 millionup 20% annual increase.
In the fourth quarter of its fiscal year (the first calendar quarter), the company clocked $39.15 million income, rising 8% annual increase organically, or 12% annual increase Including acquisitions. Adjusted EBITDA increased 6% annual increasearrive $16 million.
Here are other noteworthy things we learned on Reservoir’s latest earnings call:
1) Reservoir has cut its deal estimate from $2 billion to $1 billion
In earnings calls over the past year, Reservoir’s leadership mentioned “$2 billionTransaction pipeline under consideration. However, in the latest conference call, Khosrowshahi mentioned that “US$1 billion Under consideration.
It’s unclear whether Reservoir has reduced the number of potential deals it is considering or revised downward its estimate of the deal’s value.
“We are very optimistic about deal flow.”
Gornar Khosrowshahi
“We are very optimistic about deal flow,” Khosrowshahi said in response to an analyst question about the change.
“The pipeline is very strong. We have some very interesting off-field opportunities that we’re excited about.
She added that it was “business as usual” in terms of future deals and that she was “generally quite optimistic about the pipeline situation.” I think we continue to see assets trading at mid-to-high levels and our execution is clearly well below that. This is a great location for us.
2) Reservoirs are using artificial intelligence to increase revenue
Khoswroshahi said Reservoir has been investing in artificial intelligence over the past few years as “part of our general operating practices.”
Khosrowshahi said, “So far, [Reservoir has] Successfully leverage artificial intelligence to increase revenue by tracking and identifying additional uses of our copyrights across digital platforms.
“We are now able to detect works that have been covered or modified and then monetize those songs in a scalable way.”
The company is also deploying artificial intelligence in more creative ways, including “redesigning existing archival audio and repurposing it in new and imaginative ways,” Khosrowshahi added.
“In addition, we are capturing and gathering insights from large amounts of detailed metadata to increase efficiency. For example, our sync team is using artificial intelligence to automatically generate more descriptive metadata to provide new ways to promote our catalog.
“We are now able to detect works that have been covered or modified and then monetize those songs in a scalable way.”
Gornar Khosrowshahi Reservoir
In addition, Reservoir’s songwriters are using artificial intelligence technology to “help speed up and enhance their creative process in the studio.”
Khosrowshahi said Reservoir sees artificial intelligence as a way to generate more revenue from using its intellectual property rights and as a way to automate back-office functions.
“Freeing up human resources will definitely increase efficiency,” Khosrowshahi said.
“The other side of that is we’re getting better at licensing. We’re getting better at licensing content and mining catalogues. That of course has a direct correlation to revenue generation.global music business
