State Champ Radio Earnings Reports
At the beginning of 2024, the always-changing music business is going through rapid transformation unlike anything in the last decade. How music companies organize themselves is changing. How royalties are calculated and paid is changing. How companies engage with fans is changing. And investors have different expectations of public companies — more focus on margins, less obsession with growth.
Music companies’ earnings results for the fourth quarter of 2023 will provide insights into how companies have performed and, more importantly, what they expect to do in the future. Only one company, SiriusXM, has announced to date. Next week’s earnings releases include Spotify (Tuesday, Feb. 6), Reservoir Media (Wednesday, Feb. 7) and Warner Music Group (Thursday, Feb. 8). Universal Music Group (UMG) announces earnings on Feb. 28. Here are some things to watch for in upcoming earnings calls.
The scope of layoffs
In October, UMG executives primed investors for cost-cutting measures that would improve margins and allow for investments in growth opportunities. The result would be hundreds of layoffs, according to a Jan. 12 Bloomberg report. On Thursday, UMG revealed some details of a bi-coastal label group restructuring. But what’s missing, so far, are details on the number of layoffs and the cost savings UMG expects to get from a restructuring. UMG’s fourth-quarter earnings release on Feb. 28 will be an opportunity for analysts to ask the company to give an update on its restructuring plans. As Billboard noted last week, the music industry is seeing widespread layoffs despite continued streaming growth. Warner Music Group (WMG), Downtown Music Holdings and BMG cut jobs in 2023. Digital music companies have shrunk their head counts, too: Spotify, Amazon Music, SoundCloud, Tidal and Bandcamp went through downsizings of various sizes.
More troubles in TikTok-land?
When UMG failed to renew its licensing contract with TikTok, it made licensing to the social video platform a major topic of conversation for upcoming earnings calls. Analysts and investors should want to know how a company’s negotiations with TikTok are proceeding and whether to expect an interruption if the two sides cannot reach an agreement. TikTok and WMG reached an agreement in July 2023, but investors may want progress reports from other public companies — Reservoir Media, Believe, Sony Music — about their licensing talks.
UMG’s decision is not without precedent: In 2008 and 2009, WMG pulled its catalog from YouTube for nine months while the two companies’ licensing negotiations were at an impasse. In 2011, Google launched an audio music streaming service, Music Beta by Google, without licenses from both Sony Music Entertainment (SME) and WMG. When Google added MP3s to its Google Music service later that year, the SME and WMG catalogs were initially absent.
The direct financial hit to UMG will be minimal since TikTok accounts for 1% of the company’s revenue, UMG stated in an open letter about the licensing talks. But because TikTok is an important promotional vehicle and a popular place to discover music, the indirect financial hit is more substantial. Investors always want to know about direct dollar impacts of a company’s moves, and they should want to understand the downsides of leaving a hit-making social platform.
How much have price increases mattered?
Music subscription prices didn’t budge for over a decade before succumbing to change in 2022 and 2023. The big fish was Spotify, which finally raised prices in the United States and other major markets in July. A higher price creates a multiplier effect on top of existing subscriber growth and will augment what would have otherwise been record quarterly revenues. The gains should come without an increase in churn: Spotify CFO Paul Vogel said during an Oct. 27 earnings call that Spotify didn’t lose any subscribers in the third quarter due to the price increase.
For record labels and publishers, a 10% price increase atop year-over-year subscriber growth stands to accelerate revenue growth. Guggenheim analysts said in a recent note to investors that they expect price increases at Spotify, YouTube and Deezer to raise UMG’s subscription revenue growth to 14.8% in the fourth quarter from 13.0% in the third quarter.
The state of the advertising business
While the subscription market has been strong, the ad-supported side of the business has struggled to keep chase. Through the first three quarters, Spotify’s ad-supported streaming revenue increased 14.9% year over year. That’s better than the 11.4% improvement in subscription revenue but well below the 22.2% and 62.1% gains in ad revenue in full-year 2022 and 2021, respectively.
Broadcast radio has fared even worse. Companies such as iHeartMedia, Cumulus Media and Audacy have blamed a slowdown in national broadcast advertising on some disappointing earnings in recent quarters.
SiriusXM provided the latest clue about broadcast advertising. “SiriusXM’s advertising revenue remains challenged,” CFO Tom Barry said during Thursday’s earnings call, “which we believe is a product of a tough broadcast advertising market.” Elsewhere, however, SiriusXM’s digital advertising improved versus 2022: Pandora had “strong growth” in its podcasting and programmatic advertising businesses, added Barry.
Some positive news in recent days shows advertising — perhaps not for broadcast businesses — is rebounding. U.S. ad spending in November was up 25% year over year, according to MediaRadar, an advertising intelligence company. The number of advertisers declined 8%, however, suggesting existing advertisers were ramping up spending.
More good news came from major ad-driven tech companies. Google’s advertising revenue in the fourth quarter increased 11% from the prior-year period, the company announced Wednesday, up from year-over-year improvements of 3.3% and 9.5% in the second and third quarters, respectively. Meta’s revenue grew 25% and its ad impressions rose 28% in the fourth quarter, the company announced Thursday.
The mission to reach superfans
Major music companies are suddenly taking a greater interest in serving superfans, those heavy-spending consumers that drive the concert and merchandise businesses but have less effect in a world of flat-rate, all-you-can-eat music subscription services. The 80-20 rule says 80% of a company’s business comes from 20% of its consumers. With music streaming, however, a $10.99-per-month service doesn’t capture a superfan’s willingness to pay more for additional value. Spotify hinted that “superfan clubs” were in the works in an announcement about the Digital Markets Act in the European Union. UMG CEO Lucian Grainge’s letter to staff in January said the company will focus on “strengthening the artist-fan relationship through superfan experiences and products.”
The problem isn’t that consumers won’t pay more money to engage with their favorite artists. The problem is no platforms have found a winning formula. Numerous previous attempts to court superfans fizzled. Drip, a platform that allowed artists to provide fans with music and other items for a recurring monthly fee, lasted from 2011 to 2016 (it relaunched a Kickstarter in 2017 but shut down in 2018). PledgeMusic shut down in 2019 amidst financial problems and allegations of improprieties. Most recently, startups’ attempts to use Web3 technologies to build superfan communities ran headfirst into the public’s sudden distrust of cryptocurrency and disinterest in NFTs. Given Spotify’s market size and resources, though, the company could make a real impact.
Chinese music streaming company Cloud Music’s revenue fell 16.3% to 1.95 billion RMB ($270.4 million) in the third quarter, the company’s controlling shareholder, tech giant NetEase, announced on Thursday (Nov. 16).
Gross profit margin of 27.2% was almost double the 14.2% seen in the prior-year quarter and about even with the 27% gross margin in the second quarter. Cloud Music attributed the higher gross margin to the gain in subscriptions and cost control measures.
Through the nine-month period ended Sept. 30, Cloud Music had revenue of 6.6 billion RMB ($806.1 million), down 11.1% year over year. Gross profit almost doubled, to 1.5 billion RMB ($205.8 million), while gross profit margin (as a percent of revenue) also nearly doubled from 13.2% to 25.5%.
Cloud Music, which spun off from NetEase in 2021 and trades on the Hong Kong Stock Exchange, said it “considerably strengthened its music-centric membership monetization and further improved profitability.” The company also pointed to its premium offerings that include “expansive content and innovative features.”
Investors appeared to focus on the drop in revenue rather than the other metrics and developments. The news sent Cloud Music’s share price down 12.6% to 82.25 HKD ($10.55) on Monday (Nov. 20).
Because Cloud Music’s unaudited results were released as part of NetEase’s third-quarter earnings report, the company released few metrics and did not say exactly how many subscribers it acquired in the quarter. Three months ago, Cloud Music announced it had 41.8 million subscribers on June 30, up 11% from 37.6 million a year earlier.
While music subscriptions have been on the rise, the social entertainment side of the business is faltering. In the first half of 2023, Cloud Music’s social entertainment business declined 23.8% year over year due to a crackdown by Chinese authorities over livestreaming features that can be used for illegal gambling. Social entertainment accounted for about half of Cloud Music’s total revenue in the first half of 2023.
Tencent Music Entertainment has also suffered a sharp drop in social entertainment revenue while growing its music subscription business. While its music subscribers grew 20.8% to 103 million and subscription revenue jumped 42% in the third quarter, its social entertainment revenue fell 49%, causing total revenue to fall 10.8% to 6.57 billion RMB ($900 million).
Cloud Music third-quarter financial metrics:
Revenue of 1.95 billion RMB ($270.4 million), down 16.3% year over year.
Cost of revenue of 1.42 billion RMB ($196.9 million), down 29% year over year.
Gross profit of 525.7 million RMB ($73.5 million), up 61% year over year.
Music companies’ third-quarter earnings reports have so far been full of good news and positive trends. Subscription and streaming growth continue to drive revenues for record labels and publishers. Live entertainment continues its post-pandemic expansion. Margins are healthy. Overall, these have been solid report cards for the state of the music business.
Among the companies to report thus far are Universal Music Group, Sony Music, Spotify, Believe, Sphere Entertainment Co., MSG Entertainment, HYBE and SiriusXM. Next week’s earnings reports will come from Warner Music Group (Nov. 16) and Tencent Music Entertainment (Nov. 14). German concert promoter CTS Eventim will report on Nov. 21.
Here are seven items from the earnings releases to date that stood out and deserve more attention.
Universal Music Group struck out against “merchants of garbage.” During Universal Music Group’s Oct. 26 earnings call, chairman and CEO Lucian Grainge got a lot of attention when he bemoaned the “merchants of garbage” — creators of low-value functional music such as generic mood music and nature sounds — that want to be on equal royalty terms at streaming platforms as such UMG artists as Taylor Swift, The Beatles and The Rolling Stones. Grainge’s memorable turn of phrase came in defense of UMG’s artist-centric royalty scheme crafted in partnership with French music streaming service Deezer. “Sorry, I can’t really think of another word for content that no one really actually wants to listen to,” Grainge said.
Spotify’s price increase gave a much-needed uplift to subscription revenues. The price for an individual Spotify subscription in the U.S. was $9.99 from 2011 to July 2023. The price hike to $10.99 in roughly 50 markets may have arrived later than its competitors, but it came just when Spotify needed a boost. Spotify’s premium average revenue per user dropped 6% year over year (1% at constant currency) mainly because the company had a larger share of family plans compared to the prior-year, CFO Paul Vogel said during the July 25 earnings call. Early returns from the price increase in the U.S., U.K. and dozens of other markets helped offset those losses. Because Spotify’s number of subscribers increased 16% year over year to 226 million, subscription revenue grew 10% year over year (16% at constant currency) to 2.9 billion euros ($3.1 billion). With three full months of a price increase in the fourth quarter and considering the price increase covered about 75% of Spotify’s revenue base, the company expects the price increase to provide “a positive, mid-single digit” benefit (excluding foreign exchange) in the fourth quarter, said Vogel.
No company lowered guidance, and some have raised guidance. Sony Music raised guidance for revenue and adjusted operating income before depreciation and amortization by 5% and 4%, respectively. Reservoir Media raised guidance for fiscal 2024 revenue and adjusted EBITDA by 10% each. It’s one thing for a company to meet expectations it had previously laid out to investors. But raising previously released expectations is something else altogether — a sign the future will be better than expected. It’s usually a benefit to the stock price, too. The share price is the present value of future cash flows. When an estimate for future cash flows takes a sudden jump, that changes the financial model used to calculate the share price.
Consumers aren’t slowing their spending on live music. In August, concerns arose that a resumption of student loan payments, paused to help people struggling during the pandemic, would take a bite out of pocketbooks and cause music fans to pull back on the record amounts they were spending on live entertainment. Three months later, there is no indication that consumers are slowing down, according to Live Nation. “We’re seeing no sign of weaknesses,” said president and CFO Joe Berchtold, noting that Ticketmaster’s October sales in North American were up double-digits year over year. “We’re not seeing any pullback in any way from a club to a stadium tour from Milan to Argentina right now,” added president and CEO Michael Rapino.
SM Entertainment has big plans for its new publishing subsidiary, Kreation Music Rights. The K-pop stalwart has been “aggressively recruiting global writers” and plans to have 80 of them under contract this year, CEO Jang Cheol Hyuk said during the Nov. 8 earnings call. SM Entertainment is pursuing collaborations with both domestic and international publishers and plans to recruit foreign writers “who wish to advance into K-pop by establishing overseas subsidiaries,” Jiang said.
Radio advertising continues to struggle — but the clouds may be starting to part. iHeartMedia’s October revenues were down 8% and the company expects its fourth-quarter revenue excluding political revenue to be down in the mid-single digit percent year over year. The fourth quarter will be iHeartMedia’s strongest quarter of the year “but will be weaker than we originally anticipated due to some dampening of advertising demand which coincided with the uncertainty caused by the recent geopolitical events,” CEO Bob Pittman said during Thursday’s earnings call. That said, iHeartMedia’s digital business “is sort of in recovery mode,” said Pittman, and the company is “seeing the pieces falling into place” for radio’s recovery as most advertisers expect to be “back in growth mode…and spending to support that” in 2024.
The market for catalog acquisitions isn’t slowing down. Reservoir Media CEO Golnar Khosrowshahi said catalog prices aren’t contracting despite higher interest rates. “We’re still seeing a lot of demand for assets and continued infusion of new capital within the competitive set,” she said during Tuesday’s earnings call. “And that is certainly fueling the demand. The pipeline is robust. And it ranges in size from large to a lot of smaller deals.” Reservoir Media hasn’t been suffering from sticker shock, though. Acquisitions in the Middle East-North Africa market — such as some catalog of Saudi Arabian label Mashrex in June — provide the company with good value, Khosrowshahi added. “If we’re looking at a market here that is somewhat saturated with a lot of capital in the marketplace, and we’re able to execute [deals in MENA] at these lower multiples, that makes it just that much more attractive to us.”
Live Nation had another record-setting quarter as music fans swarmed to concerts and continued to spend on live entertainment amidst persistent inflation, high gas prices and a resumption in student loan repayments in the United States. The concert promotion and ticketing giant posted third-quarter revenue of $8.2 billion, up 32% from the prior-year period, the company announced Thursday (Nov. 2). Adjusted operating income (AOI) rose 35% to a record $836 million.
A year ago, revenue reached a then-record $6.2 billion as artists returned to the stage after pandemic layoffs. In 2019, the last full year before the pandemic shut down the global touring business, Live Nation posted third-quarter revenue of $3.8 billion — 54% below what the company reported Thursday. Some growth since 2019 stems from acquisitions such as OCESA, the Mexican concert promoter Live Nation bought in 2021 for $416 million. But m uch of the record-setting result comes from the high number of touring artists and greater fan spending.
“While we have benefitted from tailwinds for many years, it has accelerated due to the globalization of our business along with a fundamental shift in consumer spending habits toward experiences,” president/CEO Michael Rapino said in a statement. “With the majority of opportunity still untapped from Milan to Bogotá to Tokyo and beyond, we expect the industry will continue growing in 2024 and for years to come.”
Through the first nine months of 2023, Live Nation’s revenue increased 36% to $16.9 billion and AOI rose 33% to $1.7 billion. Both nine-month figures were greater than Live Nation’s revenue and AOI for full year 2022.
In the concerts division, third-quarter revenue rose 32% to $7 billion and AOI grew 21% to $341 million. The number of fans at Live Nation concerts also grew 21% overall — 34% in international markets and 13% in North America.
Venue Nation, Live Nation’s venue management company for venues it does not own, increased ancillary revenue at operated venues. At amphitheaters, ancillary per-fan revenue was up 10% to $40 year to date. At theaters and clubs, ancillary per-fan spending rose in the double-digits globally.
Ticketmaster revenue grew 57% to $833 million while AOI jumped 94% to $316 million. Total fee-bearing gross transaction value was up 36% to $10 billion, with North America growing 32% and international markets climbing 49%. The ticketing company had 17 million net new client tickets in the first three quarters of the year.
Sponsorship and advertising revenue rose 7% to $367 million in the third quarter, while the division’s AOI improved 11% to $250 million.
Through mid-October, Ticketmaster sold 140 million tickets to Live Nation shows, up 17% year-over-year and surpassing the 121 million tickets sold in full-year 2022. Over the same period, the company sold 257 million fee-bearing tickets, a 22% improvement, and expects to surpass 300 million fee-bearing tickets in 2023.
For full-year 2023, the company expects 55 million fans at Live Nation-operated venues, up from 49 million in 2022. Ticketmaster expects full-year margins to remain in the high 30s through the fourth quarter. Sponsorship and advertising margins are expected to remain in the low 60s.
Looking forward to 2024, event-deferred revenue — ticket sales for future events — was up 39% to $2.6 billion through mid-October. About half of 2024’s expected show count has been booked for large venues — amphitheaters, arenas and stadiums — which is up double digits from the same point in 2022.
Revenue up 32% to $8.2 billion.
Adjusted operating income is up 35% to $836 million.
Year-to-date operating cash flow of $762 million, down from $928 million in Q3 2022.
Year-to-date free cash flow (adjusted) of $1.3 billion, up from $996 million in Q3 2022.
Ticketmaster revenue up 57% to $833 million.
Sponsorship and advertising revenue up 7% to $367 million.
Earnings per share rose 28% to $1.78.
Led by strong sales and a world tour by the group Seventeen, K-pop giant HYBE’s third quarter revenues grew 20.7% year-over-year to 537.9 billion won ($410 million at the quarter’s average exchange rate), the South Korean company announced Thursday (Nov. 2).
When counted over the first nine months of 2023, Seventeen sold 11 million albums, including 5.1 million copies of Seventeenth Heaven, an eight-track EP, in the week after its Oct. 23 release. Seventeen also performed 18 times in nine cities across Asia, including shows at Japan’s five major domed stadiums that attracted 515,000 fans. In the third quarter alone, Seventeen performed two shows at the Tokyo Dome in Japan as well as a concert at Gocheok Sky Dome in Seoul, South Korea.
HYBE also pointed to a string of successful solo releases by members of BTS for contributing in the quarter. V’s Layover sold 2.1 million albums in the week after its Sept. 8 release. J-Hope’s Jack in the Box, released July 15, reached No. 1 on the Tunes chart in 49 markets. D-Day by Agust D, also known as BTS member Suga, performed 28 times in 10 cities in North America and Asia.
HYBE’s music sales of 264.1 billion won ($201 million) was up 104.4% from the prior-year period and was 7.4% better than the 245.9 billion won ($187 million) in the second quarter. Concert revenue was up 83.9% year over year to 86.9 billion won ($66 million) but fell 44.8% from the prior quarter.
The company’s acquisition of Atlanta-based hip hop label Quality Control has quickly made a major impact. Home to such artists as Migos and Lil Baby, Quality Control accounted for 19% of HYBE’s streaming revenue in the quarter.
Big Machine Label Group, picked up in 2021 through the acquisition of Scooter Braun’s Ithaca Holdings, contributed 27% of third-quarter streaming revenue while South Korean labels took a 54% share.
Weverse, HYBE’s social media platform, increased its monthly active users to 10.5 million in the third quarter from 9.5% in the previous quarter and 6.9 million in the third quarter of 2022.
Shares of HYBE gained 5.4% to 243,000 won ($180.89) in early trading on Thursday in South Korea.
Total revenues grew 20.7% to 537.9 billion won ($410 million).
Music revenues gained 104.4% to 264.1 billion won ($201 million).
Concert revenue jumped 83.9% to 86.9 billion won ($66 million).
Merchandising and licensing revenue fell 25.3% to 85.7 billion won ($65 million).
Fan club revenue grew 21.3% to 21 billion won ($16 million).
Adjusted EBITDA grew 13.1% to 90.8 billion won ($69 million).
Net profit improved 5.9% to 98.6 billion won ($75 million).
French music company Believe benefitted from “healthy” paid streaming growth as its third-quarter revenue grew 9.1% to 215 million euros ($197.6 million at the quarter’s average exchange rate), the Paris-based company announced Tuesday (Oct. 24).
The owner of distributor TuneCore and labels such as Groove Attack and Naïve said organic revenue growth of 7.5% would have been 15.4% without the impact of the currency translation within the digital royalties it receives from its digital partners. Paid streaming “remained strong,” the company stated in its earnings release, although revenue was not yet impacted by recent price increases “due to their deployment calendar in some markets.”
Revenue grew 25.9% to 66.9 million euros ($61.5 million) in Europe outside of Believe’s two single largest markets, France and Germany, accouting for 31.1% of total revenue. The company cited particularly strong growth in Southern Europe, Eastern Europe and Turkey. The addition of Liverpool-based Sentric, acquired from Utopia Music in March, helped revenue growth in the United Kingdom. Revenue was up only 0.7% in France, which accounted for 16% of total revenue, after growing more than 40% in the prior-year quarter. Revenue dropped 6.4% in Germany due to non-digital sales being down “strongly” as Believe moved away from contracts it believes were too weighted in physical sales and merchandise.
Revenue from Asia Pacific and Africa grew 6.6% to 55.8 million euros ($51.3 million) and accounted for 25.9% of total revenue. The company was helped by increased paid streaming penetration in the region but hurt by soft ad-supported streaming and a stronger euro against local currencies. Greater China was particularly strong, while Japan was aided by Believe’s roll-out of its Premium Solutions offering. The Americas accounted for 14.4% of Believe’s revenue and grew 8.4% in the quarter; Brazil and Mexico were particularly strong, the company said.
Believe is comprised of two segments, Premium Solutions and Automated Solutions. Premium Solutions revenue rose 10.1% to 202.9 million euros ($186.5 million). Automated Solutions, which includes TuneCore, dropped 4.5% to 12.1 million euros ($11.1 million) due to a stronger euro and a challenging comparable period influenced by TuneCore’s launch of unlimited pricing in July 2022.
Looking forward, Believe increased its forecast for adjusted earnings before taxes, interest and amortization margin from 5% at the mid-year mark to 5.5%. The company reiterated its guidance for full-year organic growth of 14%.
Although Believe’s growth slowed in the last two quarters, the company expects its organic growth rate — excluding foreign exchange impacts and the impacts of acquisitions — will recover in the fourth quarter “thanks to solid paid streaming trends enhanced by price increases by some large digital partners, a slight recovery in ad-funded streaming expected at the end of the quarter and additional market share gains,” it stated in the earnings release.
Next year’s revenue will get an additional boost from subscription services following up their recent price increases by further raising prices to 12 euros/$12 per month, said CEO Denis Ladegaillerie during Tuesday’s earnings call. “We definitely expect [price increases] to come. ‘When’ is the question. But it’s going to be 2024, no doubt.”
Total revenue increased 9.1% to 215 million euros ($197.6 million).
Digital sales rose 7.1% while non-digital sales rose 39.6% as reported (12.4% at constant currency and constant perimeter).
Digital sales accounted for 92% of revenue, the same as the prior-year quarter.
Premium Solutions revenue grew 10.1% to 202.9 million euros ($186.5 million).
Premium Solutions’ digital sales rose 16.8% and non-digital sales rose 11.2%.
Automated Solutions revenue dropped 4.5% to 12.1 million.
Two weeks into earnings reports for the second quarter of 2023, the music streaming business is showing that subscriptions — not advertising — are the dependable driving force behind the industry’s growth.
Subscriptions — which accounted for 65% of the U.S. recorded music business in 2022, up from 63% in 2021, according to the RIAA — aren’t affected by economic forces that influence how brands spend their advertising dollars. Consumers continue to pay monthly or annual fees for Spotify, Apple Music, Amazon Music, YouTube Music, Deezer and other offerings. Even faced with higher prices (see “pricing power” below), more people are opting for subscription services.
More information will be gleaned in the coming weeks from earnings results from Warner Music Group (Aug. 8), HYBE (Aug. 8), Sony Music Entertainment (Aug. 9), Tencent Music Entertainment (Aug. 15), Cloud Music (Aug. 24) and Anghami (no date set).
Based on earnings by Universal Music Group, Spotify, Deezer, Believe and Reservoir Media, here are three takeaways from reported results through Aug 4.
The subscription market is holding up well. Spotify beat expectations for both monthly active users (MAUs) and subscribers, “aided by improved retention and marketing efficiencies,” the company explained in its July 25 shareholder presentation. Spotify’s premium subscribers grew 17% year-over-year to 220 million, beating its guidance of 217 million. Spotify’s MAUs increased 27% year-over-year to 551 million compared to guidance of 530 million. Universal Music Group attributed subscription growth in its recorded music segment — 13% in the second quarter and 11.6% in the first half of the year — to “broad-based growth in subscribers across all major global platform partners.” Reservoir Media CEO Golnar Khosrowshahi cited Spotify’s “higher than expected subscriber numbers” in the company’s Aug. 2 earnings call and said its strong quarterly results “reflect increasing demand trends for streaming music globally.” Not all subscription services made gains, though. Deezer lost 100,000 subscribers from June 30, 2022, to June 30, 2023, and Pandora ended the quarter with 6.2 million subscribers, down 100,000 from 6.3 million a year earlier.
Services have pricing power. Spotify raised its individual subscription plan in the U.S. on July 24 to great fanfare. After all, the price had gone unchanged since the service launched in the United States in 2011, although the family plan price increased by $2 per month in 2021. Spotify is relatively late to the game, though. Deezer raised its price from 9.99 euros to 10.99 euros in January 2022 — a major factor in the company’s direct subscriber average revenue per user climbing 4.9% year over year. Apple Music and Amazon Music both raised their prices last year as well. And according to Deezer CEO Jeronimo Folgueira, the increase had “pretty much no impact on churn” — the number of subscribers who leave a service over a period — and “clearly demonstrated that music is highly undervalued, and that platforms like us have more pricing power than initially anticipated.” That said, Folgueira stated that Deezer’s guidance for full-year revenue growth does not include another price increase later in the year.
The advertising market continues to have challenges. At Spotify, music advertising revenue grew in the “mid-single digits” year-over-year, lower than the 12% (15% at constant currency) growth in total ad-supported revenue. That implies advertising revenue from podcasts, which was up 30% year-over-year, contributed to most of the growth. Spotify also noted “softer pricing due to the macroeconomic environment” that offset double-digit gains in impressions. Universal Music Group’s ad-supported streaming revenues were up 5% in the second quarter and 2% in the first half of the year. UMG’s CFO Boyd Muir said “it’s too early to call a positive turnaround in the market.” Believe is “still impacted by the weak ad-supported monetization,” said CFO/chief strategy officer Xavier Dumont. The advertising malaise extends to broadcast radio, too. Weak national advertising “remained the main factor driving a decline in total revenue,” Frank Lopez-Balboa, Cumulus executive vp/treasurer/CFO, said in the company’s July 28 earnings call. National brands appear likely to increase ad spending in the second half of the year, however, according to B Riley Securities analyst Daniel Day.
Apple says it now has more than 1 billion paid subscribers to its various services, as that line of its business has hit an all-time high.
The company revealed the number in its quarterly earnings report, disclosing total revenue of 81.8 billion, a decline of 1 percent from a year ago. This is the third consecutive quarter to see a decline in revenue from Apple, thanks to slower sales of its hardware devices, like the iPhone and Mac lines. Net income was $19.9 billion.
However, its services business continues to grow at a rapid pace, hitting $21.2 billion in the quarter, up from 19.6 billion last year. Apple services include Apple TV+, Apple Music, Apple Arcade, Apple News, and iCloud+. It also includes subscriptions through apps on the app store. The company did not break out how many subscribers used which service, beyond the topline 1 billion figure.
On the company’s earnings call, however, CEO Tim Cook said that Apple TV+ had hit a revenue record and touted the addition of soccer superstar Lionel Messi to Major League Soccer’s Inter Miami. Apple has the global exclusive rights to MLS.
“We are focused on original content and so we are all about giving great storytellers the venue to tell great stories and hopefully get us all to think a little deeper,” Cook added. “And sport is a part of that because sport is the ultimate original story.”
One thing that did not come on the call was the ongoing WGA and SAG strikes. of course, for Apple, its content business is a tiny piece of the overall pie. Apple’s total profits last quarter were nearly double Warner Bros. Discovery’s total revenue in the quarter, with WBD noting that it is firmly in the content business.
“We are happy to report that we had an all-time revenue record in Services during the June quarter, driven by over 1 billion paid subscriptions, and we saw continued strength in emerging markets thanks to robust sales of iPhone,” said Cook in a statement. “From education to the environment, we are continuing to advance our values, while championing innovation that enriches the lives of our customers and leaves the world better than we found it.”
This article was originally published by The Hollywood Reporter.
Continued growth in music subscriptions and new Copyright Royalty Board mechanical royalty rates helped Reservoir Media improve revenue 31% to $31.8 million in the fiscal first quarter ended June 30, the company announced Wednesday. About two-thirds of the improvement came from organic revenue growth while the remainder stemmed from the acquisitions of music catalogs of The Spinners and Greg Kihn, among others.
Digital revenue improved 34% to $17.5 million due to “increasing demand trends for streaming music globally, something we saw evidence of in Spotify’s higher-than-expected subscriber numbers reported last week,” said CEO Golnar Khosrowshahi during the earnings call. Spotify’s premium subscribers rose 17% to 220 million in the second quarter, beating company expectations of 217 million subscribers. Monthly active users, which includes subscribers and listeners to the ad-supported service, climbed 27% to 551 million, easily topping the company’s 530-million target.
Those gains helped Reservoir’s adjusted earnings before interest, taxes, depreciation and amortization to climb 36% to $10.1 million and outpaced the 20% increase in administration costs in the quarter. CFO Jim Heindlmeyer expects operating leverage — the ability to increase earnings by increasing revenue — to improve in the coming quarters. “Looking ahead, we expect revenue to outpace operating costs as this has generally been the case during our time as a public traded company,” he said.
Reservoir sounded upbeat about Spotify’s decision last week to raise the monthly price of its individual plan in the U.S. and other markets. Spotify’s increase, like the similar increases by Apple Music in 2022 and Amazon Music earlier this year, “will impact our revenues on a pretty linear basis,” said Heindlmeyer. “In other words, a 10% price increase at a streaming service will flow through to us at around a 10% increase to our pool of money.”
Last quarter’s music publishing revenue of $20.8 million was up 26% from the prior-year period and accounted for 65% of total revenue, down from 67% in the prior-year period. New mechanical royalty rates from streaming services established by the CRB for 2023 to 2027 represented “a meaningful increase” and allowed Reservoir “to recognize higher revenue associated with mechanical royalties from digital sources,” said Khosrowshahi. Publishing’s digital revenue grew 41% to $11.9 million and performance revenue improved 28% to $4.5 million. Synch revenue declined 8%, from $3.3 million to $3 million.
Recorded music revenue grew 37% to $10.4 million and accounted for 33% of total revenue, up from 31% in the prior-year period. The segment’s physical revenue grew 176% to $3.6 million. Digital and neighboring rights revenues, which combined to account for about 12% of recorded music revenues, improved 23% and 25%, respectively.
The decline in synchronization revenues — down 8% in publishing and down 68% in recorded music from the prior-year period — were the results of a timing issue, not the strike by actor’s and writer’s unions that has stopped productions of many television shows and motion pictures. Khosrowshahi said the advertising placement and movie trailer businesses are both “strong” but could have varied impacts based on when the strike ends.
Reservoir maintained its earlier fiscal 2024 guidance for both revenue ($127 million to $132 million) and adjusted EBITDA ($49 million to $52 million). “We remain confident about the growth trajectory of the global music industry and how Reservoir is positioned to capitalize on it,” said Khosrowshahi.
Earnings highlights:
Total revenue increased 31% to $31.8 million. Adjusted EBITDA rose 36% to $10.1 million.
Publishing revenue increased 26% to $20.8 million. Publishing’s digital revenue rose 41% to $11.9 million. Performance revenue jumped 28% to $4.5 million.
Recorded music revenue grew 23% to $5.6 million. Physical revenue jumped 176% to $3.6 million. Digital revenue improved 23% to $5.6 million.
Guidance for fiscal 2024 (the year ending March 31, 2024) remained at $127 million to $132 million, representing 6% growth at the midpoint. Adjusted EBITDA guidance remained at $49 million to $52 million, representing 9% growth at the midpoint.
Universal Music Group’s revenues surged 21.6% to 10.34 billion euros ($10.96 billion) for all of 2022, boosted by strong returns from recorded music subscriptions and streaming.
The world’s biggest music company reported the revenue its recorded music division gets from subscriptions and streaming rose by nearly 19% to over 5.3 billion euros ($5.6 billion), while digital revenues in its music publishing division rose by nearly 50% to over 1 billion euros ($1.05 billion) in 2022, all helping it achieve a nearly 15% uptick in operating profit.
UMG chairman and chief executive Lucian Grainge said the earnings were evidence the company’s diversified revenue streams has made it an example of the music business’ steady strength amid a darkening economic outlook.
“We continue to successfully manage the company for long term growth while driving strong results in our core business — developing great artists and introducing their music to fans around the world,” said Grainge. “Our roster … achieved enormous commercial and creative success in markets around the world. We also worked to evolve and expand relationships with our existing DSP partners as well as establish new ones in fitness, health, gaming and the metaverse, driving the industry forward though leadership, creativity, innovation and collaboration.”
UMG was home to seven of the top 10 albums on the Billboard 200, 15 of the International Federation of the Phonographic Industry’s (IFPI) top 20 global artists and four of Spotify’s top five global artists in 2022.
UMG reported adjusted earnings before interest, taxes, depreciation and amortization rose 19.4% to 2.14 million euros ($2.26 billion) for 2022 from a year ago. Adjusted EBIDTA margin fell by 0.4 percentage points to 20.6%.
The company’s free cash flow increased by a whopping 70.2% to 638 million euros ($675 million) largely from the growth in adjusted EBITDA, according to the company’s filings.
UMG’s Earnings Highlights:
Revenue rose 21.6%, or 13.6% in constant currency, to 10.34 billion euros ($10.96 billion) for 2022 from 8.5 billion euros ($9 billion) in 2021
EBIDTA rose 20.3%, or 12.5% in constant currency, to 2.03 billion euros ($2.15 billion) in 2022 from 1.69 billion euros ($1.78 billion) in 2021
EBITDA margin fell to 19.6% in 2022 from 19.8% in 2021
Adjusted EBITDA rose 19.4%, or 11.7% in constant currency, to 2.14 billion euros ($2.26 billion) in 2022 from 1.79 billion euros ($1.93 billion) in 2021
Operating profit rose 14.8%, or 7.9% in constant currency, to 1.6 billion euros ($1.69 billion) in 2022 from 1.39 billion euros ($1.48 billion) in 2021
Net debt fell 10% to 1.8 billion euros ($1.9 billion) in 2022 from 2 billion euros ($2.1 billion) in 2021
Free cash flow rose 70.2% to 1.09 billion euros ($1.15 billion) in 2022 from 638 million euros ($675 million) in 2021
Recorded Music Division Highlights:
Recorded music revenue overall rose 16.3%, or 8.8% in constant currency, to 7.9 billion euros in 2022 from 6.8 billion in 2021
Subscriptions and streaming revenue rose 18.7%, or 9.8% in constant currency, to 5.3 billion euros in 2022 from 4.5 billion euros in 2021
Physical revenues rose 7.7%, or 4.1% in constant currency, to 1.2 billion euros in 2022 from 1.12 billion in 2021
License and other revenue rose 19.6%, or 13.4% in constant currency, to 1 billion euros in 2022 from 896 million in 2021
Downloads and other digital revenue rose 4%, or fell 2.9% in constant currency, to 337 million euros in 2022 compared to 324 million in 2021
Music Publishing Highlights:
Music publishing revenues overall rose 34.8%, 26.3% in constant currency, to 1.8 billion euros in 2022 from 1.3 billion euros in 2021
Performance revenues rose 24.9%, or 18.2% in constant currency, to 371 million euros in 2022 from 297 million euros in 2021
Synchronization revenues rose 18.6%, or 10.3% in constant currency, to 236 million euros in 2022 from 199 million euros in 2021
Digital revenues rose 49%, or 38.7% in constant currency, to 1.04 billion euros in 2022 from 698 million euros in 2021
