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TikTok creates viral hits. YouTube is unparalleled in its ubiquity. But music subscription services pay the bills.
More than three out of every five dollars earned by U.S. record labels in the first half of 2024 — 60.2% to be exact — came from premium subscription services, according to the RIAA’s mid-year report. That marks the first time subscriptions exceeded a 60% share of total revenue, topping the 59.5% share in the first half of 2023 and the 59.3% mark for full-year 2023.
Ad-supported on-demand streaming, on the other hand, has lost momentum, growing just 2.5%, half the rate of paid subscriptions. The slowdown has been dramatic: Three years ago, advertising revenue rebounded from a pandemic slowdown by surging 54.1% in the first half of 2021 and another 17.7% in the first half of 2022. Its share of total industry revenue — 10.4% — has slipped, too, from 10.5.%, 11.3% and 10.5% in the three preceding first-half periods.
Other ad-supported segments also lag paid subscriptions’ growth rate. SoundExchange distributions, which include some ad-supported streaming as well as royalties paid by satellite radio subscribers, rose just 3.8% to $517 million. Other ad-supported streaming, which covers services not operating under statutory licenses, fell 1.5% to $155 million.
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The situation around advertising is worse than the numbers might suggest. Ad-supported, on-demand streaming isn’t confined to services such as Spotify’s free tier and YouTube. A new generation of platforms, such as TikTok and Instagram, are grouped into this category, too. Without these emerging platforms, ad-supported streaming would look even worse off.
For an industry that must constantly seek growth, advertising is too small to play the role. In the most recent quarter, Spotify got 12% of its revenue from advertising — both music and podcasts — compared to 88% from subscriptions. Even if advertising becomes a bigger part of the business, CEO Daniel Ek said during the company’s April 23 earnings call, it won’t be a major factor in helping the company reach 20% revenue growth. “Anything we can do on our subscription side will obviously materially outperform any improvement on the ad side,” said Ek.
Free music has played an important role in building today’s music ecosystem, though. In 2009, author Chris Anderson followed The Long Tail with a lesser-known book titled Free that promoted the notion that not charging for digital goods can be a wise strategy. While The Long Tail was a smash success, Free never rose to the same level of renown. But Anderson’s idea proved to have merit. The same year Free was published, Spotify launched a “freemium” music streaming service in the United Kingdom—the world’s third-largest music market—that utilized a free, ad-supported tier intended to drive listeners to the paid version. Ad-supported royalties were miniscule, but it worked as planned. Free listening turned out to be an effective tool to attract customers that would, at some point in the future, become some of Spotify’s 246 million subscribers.
The growth potential for the subscription business lays outside the U.S. Globally, subscription streaming accounted for 48.9% of recorded music revenue in 2023, according to the IFPI, more than 11 percentage points below the share in the U.S. (The RIAA reports retail value in the U.S. while the IFPI reports wholesale values for each market.) Worldwide subscription penetration is only 15%, Warner Music Group CFO Bryan Castellani noted during an Aug. 7 earnings call, “and there’s a lot of headroom to go from 800 million subscriptions today to well over a billion over the next five years.”
The future may be a combination of free and subscription. In May, Sony Music Entertainment CEO Rob Stringer called for streaming platforms to charge users of ad-supported tiers a “modest fee” to make free streaming “more than a marketing funnel” to attract customers. Stringer also called on short-form video platforms like TikTok, Instagram Reels and YouTube Shorts to step up their payments to rights owners. “More and more, these are primary consumption sources, and they need to be valued accordingly,” he said.
With subscriptions now exceeding 60% of U.S. revenue and advertising losing share, free platforms will likely come under more pressure to deliver more royalties. Until that happens, though, expect the industry to increasingly put its hopes for revenue growth in subscriptions.
Spotify is demanding that a federal judge toss out a lawsuit filed by the Mechanical Licensing Collective over royalty rates, calling the case “nonsensical” and “wasteful.”
The MLC sued earlier this year, claiming Spotify had “unilaterally and unlawfully” chosen to cut its music royalty payments nearly in half through bookmaking trickery – namely, by claiming that the addition of audiobooks to the service entitled the company to pay a lower “bundled” rate.
But in a motion to dismiss filed in court Tuesday, Spotify calls those claims “meritless and wasteful” – arguing that making hundreds of thousands of audiobooks available to subscribers was not a “token” gesture aimed at reducing music royalties.
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“MLC’s position is nonsensical and factually unsupportable,” Spotify’s lawyers write. “And it profoundly devalues the contributions of the tens of thousands of book authors whose works are available with a Spotify Premium subscription—from literary luminaries, to mainstays on best sellers lists, to up-and-coming writers who are finding their audience.”
The MLC, which collects streaming royalties for songwriters and publishers, filed its lawsuit in late May — a week after Billboard estimated that Spotify’s move would result in the company paying roughly $150 million less over the next year. In its complaint, the MLC claimed Spotify was “erroneously recharacterizing” the nature of its streaming services to secure the lower rate.
“The financial consequences of Spotify’s failure to meet its statutory obligations are enormous for songwriters and music publishers,” the group’s attorneys wrote at the time. “If unchecked, the impact on songwriters and music publishers of Spotify’s unlawful underreporting could run into the hundreds of millions of dollars.”
At issue in the lawsuit is Spotify’s recent addition of audiobooks to its premium subscription service. The streamer believes that because of the new offering, it’s now entitled to pay a discounted “bundled” royalty rate under the federal legal settlement that governs how much streamers pay rightsholders.
In Tuesday’s motion, Spotify’s lawyers strongly defend that interpretation. They argue that the market for audiobooks has attracted “billions in consumer dollars” and that adding books was the kind of valuable new perk that had been intended to be covered by the lower bundled rate.
“At the heart of this dispute is an easily answered question: Is audiobook streaming distinct from music streaming, offering greater than token value?” the company’s lawyers write. “The answer is indisputably yes, and there is no need for federal court litigation to confirm it.”
The rule at issue says that streamers can use the bundled rate if they offer “one or more other products or services having more than token value.” Claiming that more than 200,000 audiobooks does not qualify under that rule is “baffling,” Spotify’s lawyers write.
“The creative output of these authors is not merely of ‘token value’,” Tuesday’s filing says. “Acceptance of that unassailable, commonsense proposition should end this meritless and wasteful litigation.”
MLC’s attorneys will file a formal response to the motion in court in the coming months. In a statement to Billboard on Thursday, the group said: “The MLC’s general practice is not to comment publicly on pending litigations. That said, we would reiterate that we take the enforcement obligations assigned to us by Congress extremely seriously and would refer you to the complaint we filed in this matter for more details regarding our position on this matter.”
Sony Music Masterworks acquired a majority stake in Black Sky Creative, a company that produces immersive entertainment, experiential retail and live experiences for IP and brands. Black Sky will become part of Masterworks’ live division and focus on creating scalable experiential properties across music, film/TV, gaming and more. Black Sky founder Jeff Delson will continue leading the company’s day-to-day operations, while his partners Lee Rosen and Shannon Ramirez will work to develop new projects for Masterworks in close collaboration with Masterworks president Mark Cavell.
Independent label Oh Boy Records inked a worldwide distribution deal with Secretly Distribution. Oh Boy Records was founded in 1981 by singer-songwriter John Prine and continues to be run by the late artist’s family. Oh Boy’s catalog includes albums from Prine, Kelsey Waldon, Swamp Dogg, Alice Randall and Arlo McKinley. Oh Boy artist Dan Reeder’s album Smithereens and music from folk trio Palmyra will be among the first new Oh Boy titles to be handled by Secretly Distribution’s global team and distribution network. – Jessica Nicholson
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Audio Chateau Records, the new label launched by Audio Up Media, raised $4.5 million in funding from investors including Glen Barros, Gillian Hormel and Jonathan Schulman. The label also announced part of its leadership team, with Baros (a managing partner at Exceleration Music) and Schulman acting as Audio Chateau’s first appointed board members. Elsewhere, Grayson Flatness (formerly of Sounds Good) joins Audio Chateau as an A&R consultant and Kate London has been named head of legal & business affairs, a role she also serves at Audio Up Media. Audio Chateau’s artist roster includes Grupo Linea, Uncle Drank, Randy Savvy of the Compton Cowboys and Maejor Audio Sunshine, described in a press release as a “health and wellness supergroup” that features Audio Up founder Jared Gudstadt along with artists Maejor and Bipolar Sunshine.
ADA partnered with former Hall of Fame athlete and banker Travis Wilson‘s FTS Global Management to provide global distribution for FTS’ artists, including The Game, Eric Bellinger and Konshens.
Resale marketplace Tixel partnered with Stuart Galbraith‘s U.K. concert and festival promoter Kilimanjaro Live. Through the deal, Tixel will provide Kilimanjaro with tools that enhance transparency and fairness, including dynamic pricing and secure resale options for fans, while offering insights into Kilimanjaro’s customer base. “We are thrilled to announce Tixel as our partner on a number of KMJ shows,” said KMJ Entertainment head of partnerships Elliott Brough in a statement. “This collaboration marks our first steps towards offering safe ticket resale for fans who can’t attend and ensuring that live music enthusiasts are not exploited by touts. Partnering with Tixel not only provides us with valuable data but also opens up opportunities to develop unique strategies for our future events. “
Spotify partnered with anime brand Crunchyroll, which will now have custom “Curated by Crunchyroll” playlists within Spotify’s Anime hub as well as a “dedicated shelf of content” within the hub, including Crunchyroll podcast Crunchyroll Presents: The Anime Effect. The hub will also boast an editorially curated lineup of playlists including Anime Now, Anime on Replay and Women of Anime. “We are thrilled to partner with Crunchyroll to bring listeners a new curation of anime music to explore,” said Kyota Onishi, Spotify’s head of music in Japan, in a statement. “On Spotify, global streams of anime have surged over the past few years, and we hope the Anime hub will become an indispensable part of anime culture.”
French streamer Deezer signed a multi-year joint distribution partnership with global sports streaming service DAZN. Starting in France, Deezer users will be offered premium access to DAZN, with DAZN offering similar access to Deezer users later in the year. Through the agreement, both companies will collaborate through marketing initiatives and create co-branded sports and music experiences. A global expansion is planned down the road, starting with Germany, Austria and Switzerland.
Synchtank, which provides asset, rights and royalty software for the music business, struck a partnership with AI-based stem separation and lyric transcription company AudioShake. Through the deal, Synchtank users will be able to create AudioShake stems directly within their workflows that can then be used for remixes, immersive mixing, fan engagement and more. “Sync deals move fast, and in this industry it’s critical for artists and labels to act quickly,” said AudioShake co-founder/CEO Jessica Powell in a statement. “AI stems help prevent rightsholders from missing out on opportunities and revenue in sync, marketing, or fan engagement. Partnering with Synchtank allows us to bring high-quality sound separation directly into the workflow of rightsholders globally.”
Virgin Music Group partnered with Riot Games to release the soundtrack album for season 2 of the Riot Games animated series Arcane on Netflix. Virgin will distribute the album globally with the exception of China, where Tencent will distribute. The Emmy-winning Arcane, whose first season debuted on Netflix in November 2021, centers on two champions from Riot’s League of Legends game. Season 1 featured Imagine Dragons’ “Enemy” as its theme song, with the overall soundtrack racking up more than 5.6 billion global streams, according to a press release. Season 2 is set to debut in November, with the soundtrack album dropping sometime this fall.
After fully embracing Charli XCX’s Brat summer, Vice President Kamala Harris’ campaign for president has taken Harris’ connection to the pop singer one step further by sponsoring Spotify’s official “This is Charli XCX” playlist.
Listeners on Spotify’s free, ad-supposed tier will now see an ad running on the playlist stating that the content is presented by the Harris/Walz campaign — effectively promoting the campaign for Harris and her running mate, Minnesota governor Tim Walz. Spotify’s free users will see the ad on both mobile and desktop versions of the Spotify app.
The two-and-a-half hour, career-spanning playlist boasts some of Charli XCX’s best-known songs, including “Guess” featuring Billie Eilish, “Speed Drive” from the Barbie soundtrack and “Boom Clap” from 2014’s sucker.
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According to Spotify’s advertising policy, the streaming service sells political ads in the U.S., U.K. and India only and has done so for a number of years.
The fine print states that ads are limited to those placed by candidates; political parties; political committees; any entity registered or reporting under any federal, state or local campaign finance law; or other entities sponsoring ads on behalf of any of the above-listed categories. The ads may feature a candidate for elected office; a current elected officeholder; or a ballot measure, proposition or initiative. It adds that the title sponsor (in this case, the Harris/Walz campaign) is not the only sponsor and other ads may be heard during a listening session.
The Harris/Walz ad began running at midnight on Monday (Aug. 19) and is slated to end on Sunday night (Aug. 25). Spotify did not respond to a question asking whether Charli XCX had to sign off on the ad.
Other U.S. political campaigns that have run ads on Spotify this year include those of Sherrod Brown, Eric Hovde, Sandy Pensler, Rick Scott, Elissa Slotkin and Tim Sheehy.
Though Charli XCX has not commented on the ad buy, the singer has previously declared her support for Harris. On July 21, the day President Joe Biden dropped out of the 2024 presidential race and endorsed Harris, the pop star posted “kamala IS brat” on X (formerly Twitter). The KamalaHQ X page has also leaned in, with the home page displaying “kamala hq” in the Brat album’s signature lime green color.
The 2024 Democratic National Convention kicked off Monday night at Chicago’s United Center with performances from artists including Jason Isbell, Mickey Guyton and James Taylor.
Billie Eilish is officially Spotify‘s most streamed monthly artist, the streaming platform announced on Monday (Aug. 19), replacing The Weeknd at the summit. The Weeknd (real name Abel Tesfaye) showed his support for Eilish last week, when she was nearing his record. “Let’s go !” he wrote alongside a series of heart, prayer and line […]
Spotify has been given the green light to include pricing and promotional details inside its app on iPhones for users in the European Union following a decision earlier this year by regulators to fine Apple for breaking competition laws over music streaming.
The European Commission fined Apple nearly $2 billion (1.84 billion euros) in March over its long-held policies preventing outside app makers from telling consumers about cheaper ways to pay subscriptions that don’t involve the iPhone app. [Apple appealed in May.] Spotify and other app makers have complained for years about Apple’s restrictions to outside developers and the up-to-30% fee it charges them on all purchases made through iOS apps.
The Digital Markets Act, a sweeping set of regulations for large tech companies across the 27-nation European Union, went into effect in March. Under the DMA’s provisions, app developers are supposed to be allowed to inform customers of alternative purchasing options and direct them to those offers.
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Starting today (Aug. 14), Spotify has opted into Apple’s “entitlement” policy for music streaming apps, created after the commission’s ruling, and begun listing pricing information inside its app for European users — “something as obvious as it is overdue,” the company said in an updated blog post.
iPhone users in Europe will now be able to see how much each subscription plan costs and what they include. Freemium users looking to upgrade can also see special introductory offers and the pricing once a promotion ends. Spotify will be able to list specifics about audiobook listening and pricing as well.
What European iPhone users won’t see, yet, are workable hyperlinks to purchase subscriptions or other digital goods outside the app. Under its “entitlement” terms, Apple receives a 27% commission on proceeds earned from sales on external websites that are linked-to from inside the app. If someone were to click on the link and then wait a week before actually purchasing the service or goods, then the 27% commission would not apply, according to Apple’s terms.
For now, iPhone users will be instructed to “go to the Spotify website.”
Spotify called it a “small step” and said “all music streaming services in the EU are still not able to freely give consumers a simple opportunity to click a link to purchase in app because of the illegal and predatory taxes Apple continues to demand, despite the Commission’s ruling.”
“The fight continues,” the company added. “iPhone consumers everywhere deserve basic information about how much things cost, when they can take advantage of great deals and promotions, and where to go to buy those things online. If the European Commission properly enforces its decision, iPhone consumers could see even more wins, like lower cost payment options and better product experiences in the app.”
Kesha may not have followed best dental practices Wednesday morning (Aug. 7), but that’s OK — it was for a special occasion. The pop star celebrated her 2009 smash “Tik Tok” surpassing a billion streams on Spotify by recreating one of its most iconic lyrics for fans, sharing a video of her actually brushing her […]
K-pop stocks were the hardest hit music stocks on Monday (Aug. 5) as global markets continued Friday’s decline in the U.S. with major selloffs. Four K-pop companies — HYBE, SM Entertainment, JYP Entertainment and YG Entertainment — fell an average of 8.8% on Monday, while a major South Korean stock index, the KOSPI composite index, […]
The music business is seeing the results of doing more with less.
The slew of earnings reports over the past two weeks have revealed that companies achieved better margins and greater profitability — even in cases with lower revenue or disappointing growth in some areas. And nearly all these companies share one important thing in common that boosted their latest earnings results: layoffs.
Universal Music Group’s share price fell 24% the day after its second-quarter earnings showed recorded music subscription growth had slowed to 6.9%, down from 12.5% in the prior-year period. Investors are interested in music companies because streaming has transformed the industry, bringing growth in the wake of falling CD and download sales and opening new markets around the world. So, when the industry’s most attractive revenue stream stumbles, investors are going to take notice.
But despite the hiccup that wreaked havoc on its share price, many of UMG’s financial metrics showed the company is headed in the right direction. Revenue grew a hearty 9.6%; adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 11.3%; and adjusted earnings per share rose to 0.44 euros ($0.47), up from 0.42 euros ($0.45) a year earlier. Setting aside the main reason investors want to own UMG shares — the global music subscription business — UMG’s earnings had a lot of positives, some of which undoubtedly had to do with the layoffs that occurred in February. According to the company’s 2023 investor presentation, that round of job cuts is expected to save 75 million euros ($81 million) in 2024 alone.
In other earnings news, Spotify — which cut roughly a quarter of its global workforce in three rounds of layoffs in 2023 — had an incredible turnaround in the second quarter, posting an operating income of 266 million euros ($286 million) — a 513 million-euro ($552 million) improvement from the second quarter of 2023. Despite the much smaller staff, the streaming giant’s revenue grew 19.8% to 3.81 billion euros ($4.1 billion) while its gross margin rose to 29.2% from 24.1%. Spotify’s share price jumped 12% after the release and had almost increased another 2% through Thursday (Aug. 1).
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Spotify’s latest layoffs in December, which affected 17% of its staff, attracted criticism —“Spotify is screwed,” Wired proclaimed — but they made a large and immediate impact. In the second quarter, total operating expenses dropped 16.5% as every component had a double-digit decline (general and administrative expenses were down 23%, sales and marketing fell 16.3%, and research and development expenses dropped 16.5%). When Spotify announced the staff cuts, CEO Daniel Ek admitted the scope of the layoffs would feel “surprisingly large” but was steadfast in the need to become “relentlessly resourceful.” At the time, he said, “We still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact.”
Recent staff cuts also appear to have benefitted SiriusXM, which laid off 8% of its workforce in 2023 and another 3% of its headcount in February. Though the satellite radio giant’s share price fell 6.4% on Thursday after the company announced it lost 173,000 satellite radio subscribers and 41,000 Pandora subscribers in the second quarter, net profit grew 1.9% to $316 million even as revenue fell 3% to $2.18 billion. Thanks to its cost-cutting efforts, general and administrative expenses dropped 31% and engineering, design and development costs fell 14.5%.
Not all companies reporting earnings over the last two weeks had to lay off workers to improve their margins. French music streamer Deezer, citing improved cost control and margin improvement through more favorable terms with record labels, improved its first-half adjusted EBITDA by 8 million euros ($8.7 million). The company also raised its target for full-year adjusted EBITDA by 5 million euros ($5.4 million).
Reservoir Media, which reported earnings on Wednesday (July 31), similarly improved operational efficiency without layoffs. The company’s share price fell by 8.8% in the two days after it announced quarterly recorded music revenue had dropped 7%, but the company’s publishing revenue improved 15% overall revenue grew 8% and adjusted EBITDA soared 25%. While investors found reason for concern, CEO Golnar Khosrowshahi struck an optimistic note on Wednesday’s earnings call. “We’re off to a good start in fiscal 2025 and remain on track to again hit our annual targets,” she said.
In addition to cost-cutting, streaming companies are also enjoying the benefits of price increases. Not only did Spotify raise its subscriber count by 26 million in the previous 12 months, but price increases pushed average revenue per user (ARPU) up 8.2%, or 0.35 euros ($0.38), per month. Even though Deezer didn’t gain subscribers over the previous year, its ARPU rose 6% for direct subscribers and 3.5% for subscribers gained through partnerships due to price increases it instituted last year.
Of course, music companies have their share of challenges that cost-cutting can’t solve. Streamers can’t raise prices too frequently and are dealing with ongoing sluggishness in ad-supported streaming. Record labels need to re-set expectations for their subscription businesses and continue to see sluggish ad-supported streaming revenue. And music publishers are getting a pay cut from Spotify’s decision to treat its premium service like a bundle in the U.S. Considering all this, their decisions to cut costs and focus on operational efficiency couldn’t have come at a better time.
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A new art exhibition in collaboration with Spotify highlighted women in Hip-Hop including Cardi B, Megan Thee Stallion, and GloRilla.
The enormous contribution of women to Hip-Hop culture is undeniable, and a new art exhibition in New York City put that on display. The Gold Standard is an exhibition of artwork by Manon Biernacki paying homage to the prominent women rappers of the day. The rappers featured are Megan Thee Stallion, Cardi B, GloRilla, Ice Spice, Latto, Doja Cat, the City Girls, Saweetie, Sexyy Red, and Flo Milli. Their countenances are portrayed in larger-than-life fashion in paintings imbued with Biernacki’s Renaissance-inspired vision. An Instagram post by the streaming platform’s Hip-Hop entity RapCaviar announced the exhibition earlier in July, proclaiming it was highlighting “the Golden Era of women in Hip-Hop.”
The Gold Standard was hosted in a one-day-only exhibition on Wednesday (July 31) at The Hole gallery space in the Lower East Side neighborhood of New York City. Visitors to the free exhibit were greeted with a lavish table set up for a feast as they walked in, with mirrors hanging on the wall to their right adorned with the words “Feelin’ Myself” where they could take selfies. Each female rapper was represented with a lush painting of themselves in the gallery, accompanied by a biography of their life and career.
The exhibit’s centerpiece was “The Cloud Room”, a separate area of the gallery covered in trimmings that resembled lush clouds that harkened back to the famous Sistine Chapel artwork of Michaelangelo with a painting featuring all of the artists seated together in the rear of the room. Guests could also take photos in that setting while seated in chairs fixed in front of that painting. They were also able to snag flyers with reprints of each artist’s painting which contained a code on the back that when scanned, took them to that artist’s playlist on Spotify.
For Biernacki, having the opportunity to contribute to the art comprising The Gold Standard is a realization of her inner passion. In a statement, the Mali-born artist who now resides in Vancouver, Canada said: “As an artist with a rich cultural background, I am passionate about celebrating the origins and stories of diverse female artists. Projects like The Gold Standard series allow me to honor and uplift voices that resonate with my own experiences and heritage.”