The news following Universal Music Group’s latest earnings report yesterday (July 24) was dramatic to say the least: the stock price fell by double digits. Analysts have continuously downgraded their ratings. There’s speculation the music streaming boom could be in trouble.
It’s all based on one metric: UMG’s second-quarter streaming revenue.
To be clear, streaming revenue is still very high grow exist common. most notably, subscription Streaming revenue rises Annual growth of 6.9% in the second quarter – but below analysts’ expectations, which had been about 11% grow.
Ad-supported streaming revenue is in worse shape, actually falling Annual growth of 3.9% during this quarter.
However, other measures of UMG’s financial success in the second quarter remain impressive:
- Overall revenue jumps 9.6%Year-on-year (on a constant currency basis), beating analysts’ expectations;
- Adjusted EBITDA growth Annual increase of 11.3%depending on €649 million ($699 million). This also beat analyst forecasts, according to the Visible Alpha consensus;
- Net profit surges Annual increase of 46% In the first half of 2024, €914 million ($991 million), or 0.50 euros per share, compared to 0.34 euros First half of 2023.
Still, the market was shocked. UMG shares fell more than twenty three% Listed on Euronext Amsterdam today (July 25).
UMG also saw a slew of analyst downgrades, most of which were downgraded from “buy” to “hold,” including Citibank, barclays bankand Guggenheim.
It’s not an exaggeration to say that Universal Music Group’s Leadership Team This seems to have been foreseen.
on Wednesday Earnings conference call, UMG executives take it all in stride implicitly acknowledging that investors will be worried about declining streaming revenue, Provide some comments and explanations.
Perhaps the most important of these comments: UMG isn’t particularly concerned about lower-than-expected streaming revenue growth this quarter; It’s playing a longer game.
“Internally, we don’t manage the business on a quarterly basis, so when we see changes in our quarterly results, we’re not overly concerned,” said Chief Financial Officer and President of Operations Boyd Muir told analysts on a conference call.
“We have a diversified business model that can adapt to quarterly changes while still delivering solid growth at a group level.”
Another point Universal MG’s Executives emphasized that rising prices for streaming services over the past few years occasionally created the illusion of weak performance.
Of particular note this time are: Muir explained that the price increases on Apple Music and Amazon Music that occurred more than a year ago are now “Fully annualized” Data from UMG, That means they no longer contribute to Universal’s annual growth.
(The same thing will happen in the coming quarters, with the most significant price increases in 2023—i.e. Spotify, executed in the third quarter of last year. To this end, analysts at Guggenheim Partners Michael Morris UMG’s subscriber revenue is not expected to rebound in the third quarter of 2024 6.9% Rates from the latest earnings report. He expects year-on-year growth to slow further 5.3%in season four.
“Our second quarter results reflect the diverse performance of our diverse portfolio of DSP partners.”
Sir Lucian Grange, Universal Music Group
Of course, not all contractions are Universal MG’s Second-quarter streaming revenue growth is an illusion.
Some of them are very real and Age Pointing out that certain digital service providers (DSPs) have disappointing subscriber numbers – although the leadership team did not name names.
“Our second quarter results reflect the diverse performance of our diverse portfolio of DSP partners,” said UMG Chairman and CEO. Sir Lucian Grange Said carefully.
Chief Financial Officer Muir elaborated: “Although Spotify, Youtube Many regional and local platforms continue to see healthy user growth, while other large partners that have been less successful in driving global adoption are seeing slower new user growth.
(You’ll notice, there, Spotify and YouTube Off the hook; UMG blamed weak user growth on some of its other “big partners” in the digital space.
Muir UMG added, “In-depth conversations are ongoing with all of our key partners on product innovation to target high-value customers and drive future revenue growth.”
comprehensive, grunge Emphasizing that UMG’s strategy is not to chase quarterly results, but to build a strong business over the long term.
“In this long period of growth, we know that quarterly fluctuations in one revenue stream or another are to be expected,” he told analysts in his opening remarks.
“So as we report our results each quarter, we are also managing the business for long-term success. We think in multi-year cycles and anticipate and embrace changes in certain business lines.
Here are four other things we learned on UMG’s earnings call, including the potential of Spotify’s new “super premium” subscription tier and the tantalizing hint that UMG’s catalog may soon be available in other languages…
1) Advertising revenue would grow without Meta and TikTok
That’s cringeworthy Annual growth of 3.9% If not for UMG’s two partners, the decline in UMG’s ad-supported streaming revenue in the second quarter would actually have been a positive number (i.e., greater than zero): Tik Tok and meta platform.
UMG missed a month of revenue, executives noted on earnings call Tik Tokamid a high-profile dispute between the music giant and the video platform over payments, UMG’s recorded and published catalog disappeared from the platform.
In addition to this, there is also the fact that meta platform Earlier this year, Facebook removed premium music videos.
“Meta has previously provided high-quality music videos on Facebook. Compared to other music products, this product is less popular among the Facebook user base.
Boyd Muir, Universal Music Group
“Our licensing agreement with Meta has changed in terms of platform-specific pressures,” Muir explained.
“Meta has previously provided high-quality music videos on Facebook. Compared to other music products, this product is less popular among the Facebook user base. Therefore, starting this May, Meta will no longer license our premium music videos.
Muir added: “Meta is now focused on other areas involving music content and we are working together to expand these areas as part of a multi-faceted update.”
2) 20% of Spotify paid users can sign up for the new “Super Premium” level
During Spotify’s earnings call earlier this week, co-founder and CEO Daniel Ek Nearly every company has announced that the long-rumored “super premium” subscription tier is coming to streaming services.
“Our plan is to provide a better version of Spotify,” Ek said.
“It’s just like 5 USD Higher than the current Premium tier…kind of like a deluxe version of Spotify, with all the benefits of the regular Spotify version, but with more control, higher overall quality, and a few things I’m not ready to talk about yet .
Although Ek wouldn’t go into details, he suggested a possible price point of $17 or $18 per month.
The Super Premium tier is widely expected to (eventually) give Spotify listeners access to high-fidelity audio, and may also include features like a “Super Fan Club.”
We also conducted some market research on the potential of the program, provided by UMG.
“Our research and analysis shows that as much as 20% The current user base can upgrade to the ultra-premium tier at a significantly higher price to obtain a compelling product configuration that provides enhanced functionality and exclusive access to content,” Muir told analysts.
In view of Spotify reports 246 million UMG estimates suggest paid subscriber numbers will decline in Q2 2024 49.2 million Some of them will sign up for super premium.
If the plan does cost $5 more per month than the standard Premium package, that means US$2.952 billion Additional annual income from Spotify. (Assume that the super premium tier will cost $5 more than the premium tier in all markets, which isn’t necessarily a safe bet.)
Assuming Spotify pays two-thirds of its revenue to music rights holders, this figure would represent additional revenue for Spotify US$1.966 billion to the music industry.
So the end of the streaming craze might not be here yet…
3) UMG expects 180 million potential new streaming media signups in top markets
In addition to the potential of “ultra-high-end”, UMG believes that there is still a lot of room for registration of music streaming services, including in mature and developed markets.
In UMG’s market research, “We have identified an over 180 million UMG’s chief digital officer said that in the 19 major music markets, “the next wave of subscription consumers will form.” Michael Nash Said on the phone.
“This study was conducted assuming price increases. Approximately half of the addressable market will be located in 13 developed markets.
He said UMG expected “substantial growth” in emerging markets.
“It’s important to remember that technological innovation, digital infrastructure penetration, emerging consumer trends, all of these factors have continued to grow the total addressable market for subscriptions over the past decade,” he added.
In fact, the total number of paid music streaming accounts is 503 million By the end of 2023, globally An annual increase of 13.2%, IFPI data shared based on label source. have 667 million The number of users subscribing to streaming accounts in 2023 will be more than double that in 2019, but still only about 2023 8% Proportion of world population.
4) Classic songs from the UMG catalog will soon be available in other languages
Not all of UMG’s earnings call was about streaming subscription growth — some of it focused on another of today’s music industry obsessions, artificial intelligence.
UMG recently announced a partnership with sound labIt is an artificial intelligence technology company that focuses on providing “ethically trained” tools for music creators.
One of SoundLabs’ key products is microphone dropa vocal plug-in that enables artists to create high-fidelity vocal models using their own voice data.
One result of this, according to UMG’s Grainge, is that we’ll soon be able to hear classic songs from UMG’s catalog sung in multiple languages other than the one in which they were recorded.
Grange said by phone that UMG artists “will be able to sing in languages they don’t speak, restore imperfect recordings, and more.”
“The ability to sing in their own voice in a language they don’t speak gives us huge potential and huge opportunities to sell, market, spread culture and create demand for songs, products and back catalogues, which The demand was completely achievable.
In this regard, Universal Music Group could benefit from “proofs of concept” conducted by other music companies.
Last year, South Korea move Released a Korean pop song – Masquerade Developed by MIDNATT – Available in six different languages thanks to technology developed by Super pitchan artificial intelligence voice cloning company acquired by the K-pop giant in 2022.
A few months later, Tencent MusicStreaming services owned kugou music Launched KUGOU AIK, which transforms singing into 10 languages and 15 Chinese dialects.global music business
