Music Stocks

Universal Music Group, Hipgnosis Songs Fund and other music stocks got a much-needed boost on Tuesday (Oct. 25) following news of Apple Music’s price hike, as investors bet it would trigger a wave of streaming subscription cost increases.
Universal Music Group’s stock closed 11.6% higher, Hipgnosis Songs Fund Ltd ended up 7.8% and Korean music companies SM Entertainment and HYBE finished the trading day 4.8% and 4.4% higher, respectfully, on Tuesday. On Monday, Apple announced that it was raising the standard U.S. and U.K. individual plan price to $10.99 from $9.99.

This 10% price hike — Apple’s first — comes amid high inflation and a darkening economic environment in many global markets. If Apple can raise prices at a time like this, that is a sign the music industry can charge more without turning off consumers, Wall Street analysts said.

“We see this as a further signal of the stickiness of music streaming subscriptions even in a weaker macro environment and believe the major markets will be able to absorb higher prices without leading to meaningfully higher churn,” Lisa Yang, Goldman Sachs’s head of European media & internet technology equity research, wrote in a note to investors on Tuesday.

“We believe that other major DSPs will likely follow suit with similar price increases in the near future, implying further potential upside to our music industry forecasts.”

Competitors Spotify and Amazon Music have already raised prices in some markets. Amazon Music raised the price of its unlimited individual plan for Prime members to $8.99 from $7.99 earlier this year.

Spotify, which will report earnings later Tuesday, raised the cost of its individual plans in the Nordics in 2021, although its standard plan for U.S. subscribers remains at $9.99.

“Despite positive management commentary around churn (with regards to recent price increases on certain plans/regions) as well as management’s views on pricing power over the long term, Spotify has highlighted the broader macro environment as a key consideration in terms of implementing price increases in the near term,” Yang wrote.

Apple’s price increase could also have positive impacts on the majors because companies like UMG and Warner Music Group typically get 65% of music-related revenues from streaming companies with a “high incremental margin,” Goldman estimates.

Music stocks have suffered in 2022 as the major U.S. market indices have fallen around 20% so far this year.

UMG’s share price of 21.10 EUR ($21.01 US) is down nearly 14% year to date, Hipngosis Songs Fund Ltd traded at 91.06 penny sterling ($1.03 US) and is down 28% so far this year. Meanwhile, Warner Music Group’s stock traded at $27.16 US, off almost 37% year to date.