The Ledger
Page: 8
As 2023 heads into summer, multiple signs point to a healthy and growing live music business for the rest of the year. In recent weeks, executives from the publicly traded concert promotion and ticketing companies have signaled that surging consumer demand won’t slow down, and there will be enough tours to satiate music fans’ appetite for live events.
Demand has been strong “and is showing no signs of letting up,” said Live Nation CEO Michael Rapino during the company’s May 4 earnings call. Live Nation expects to sell more than 600 million tickets in 2023, up from 550 million in 2022. To date, the concert promoter has sold more than 100 million tickets to Live Nation events, a 20% increase from the prior-year period, and expects to host a record number of fans in 2023.
Vivid Seats, the publicly traded secondary ticketing marketplace, shares Live Nation’s sentiment. “Consumers continued to crave live experiences in the first quarter,” said CEO Stan Chia during a May 9 earnings call, “and we believe this trend will continue for many years.” Vivid Seats does business primarily in the U.S. while German promoter and ticketing provider CTS Eventim focuses on Europe. “Both in Germany and internationally, we are pursuing organic growth and anticipate that our business performance will continue on its successful course,” said CTS Eventim CEO Klaus-Peter Schulenberg in the quarterly results released May 24 that reiterated the positive outlook in its 2022 annual report of “moderately higher earnings” for the live entertainment segment 2023.
The concert business is meeting — and perhaps surpassing — some lofty expectations. In 2022, as the concert business exited the pandemic, the widespread belief was that pent-up demand for in-person experiences would drive the concert business beyond pre-pandemic levels. That turned out to be true. Concert promoter Live Nation posted record revenue of $6.2 billion in the third quarter that was 67% above the same period in 2019. What’s more, the volume of fans returning to concert venues was augmented by an unmatched willingness to absorb higher prices. Frenzied demand — and sky-high prices on the secondary market — for tours by Taylor Swift, Beyonce and Bruce Springsteen have showed A-list artists have yet to find their ceiling on prices.
Concert promoters have posted strong quarterly earnings that fit their narratives. Live Nation’s first-quarter revenue was up 71% to $3.1 billion. CTS Eventim’s online ticket sales increased 58% to 18 million as consolidated revenue improved 163% to 366.2 million euros ($393 million). At Vivid Seats, which also does business in major sports such as baseball and basketball, first quarter revenue grew 23.2% to $161 million and adjusted earnings before interest, taxes, depreciation and amortization doubled to $42.4 million.
Investors absorb past earnings history while figuring out what to expect in the future, and according to JP Morgan analyst David Karnovky they often ask two questions about Live Nation: First, is there enough supply to meet growing, healthy demand? Yes, Live Nation president and CFO Joe Berchtold said at JP Morgan’s Global Technology, Media and Communications conference on Tuesday. That’s because global streaming platforms such as Spotify and social media apps like Instagram and TikTok allow artists to build global followings in ways that weren’t previously possible, he explained. K-pop and other up-and-coming genres of music “that maybe once were regional are now going global,” he said, and artists that used to sell out mid-sized venues are now selling out stadiums. “So, you’re seeing that supply continue to build.”
The second thing investors want to know is how demand will respond during a softer economy. Live Nation closely follows the indicators — such as on-sales show closings — Berchtold said, “but we’re not seeing anything that gives us pause.” Separately, Berchtold noted that Live Nation’s research indicates getting back to concerts are one of fans’ top priorities after the pandemic and will be “one of the last things they’re going to cut back on.”
Vivid Seats CFO Lawrence Fey also addressed the possibility of an economic downturn — a scenario becoming increasingly likely in the U.S. should Congress fail to find a compromise to raise the debt ceiling by early June. “[T]here’s a lot of chatter and concern out there” that demand will weaken “in the not-too-distant future,” said Fey, “but it continues to be the case that we’re seeing very robust demand across our event categories [and] across price points.” Beyond the consistently strong demand, Vivid Seats has “been pleasantly surprised by the supply calendar,” particularly a concert schedule that includes recently announced tours by Drake and Aerosmith, he added, “and [that] gives us optimism.”
A couple of years after the COVID-19 pandemic took radio listeners out of their vehicles and a recession caused an advertising slowdown, the radio industry is experiencing another decline. That has complicated the financial position of Audacy, the second-largest radio company in the United States and a major player in the podcast market.
Warning lights appeared again last week when the company revealed in its May 10th 10-Q filing that “current macroeconomic conditions” such as rising inflation and interest rates and lower advertising revenue “have created, and may continue to create, significant uncertainty in operations.” Those factors “have had, and are expected to continue to have, a material adverse effect” on Audacy’s forecasted revenue, which is “unlikely to be sufficient” to maintain compliance of the financial debt covenants its lenders impose to ensure it can make its interest payments. As a result, Audacy explained, the company could default on its debt — which could then cause that debt to become immediately payable.
On Tuesday (May 16), a week after the March 10 filing, the New York Stock Exchange (NYSE) decided to halt trading of Audacy’s shares in order to delist the company. It was an expected move. Audacy, which changed its name from Entercom in March 2021, last traded at $0.09 per share — down nearly 63% year-to-date — before trading on the NYSE was halted. The NYSE, which has rules to maintain minimum share prices, issued a warning to Audacy on July 31 because its average closing price over a consecutive-day trading period was below $1. Audacy last closed above $1 per share on July 5, 2022 — meaning it remained below $1 for 218 consecutive trading days.
Investors have lost some faith in radio companies’ stocks as advertising growth weakened in 2022. Year-to-date, shares of iHeartMedia, the nation’s largest radio company, have fallen 55.3%. Likewise, shares of Cumulus Media, the third-largest radio company, are down 47.5%. Market conditions appear to be improving, however. iHeartMedia expects its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to improve throughout 2023, CEO Bob Pittman said during the company’s May 2 earnings call. “And if this advertising market recovery trend continues in 2024,” Pittman added, “we expect to resume our growth trajectory that was interrupted by this period of advertising softness.”
The advertising market is part of Audacy’s problem, but it’s not the entire problem, according to Craig Huber, media analyst at Huber Research Partners. “The number one issue is too much debt in a secular declining industry,” says Huber. Audacy acquired most of its $1.9 billion of long-term debt from its 2017 merger with CBS Radio. That deal increased Audacy’s revenue more than four-fold, from $367 million in 2016 to $1.7 billion in 2018, but also increased its debt from $468 million at the end of 2016 to $1.86 billion at the end of 2017.
The debt has been a drag on Audacy’s cash flow. In 2022, Audacy’s net interest expense was $107.5 million — about 8.6% of the company’s annual revenue of $1.25 billion. After paying interest to service its debt, Audacy’s free cash flow in 2022 was -$31.8 million. “They haven’t done enough to take out costs” to achieve positive free cash flow, says Huber, and revenue hasn’t met the company’s own expectations.
When the merger with CBS Radio was announced in 2017, the combined companies had adjusted EBITDA of $500 million, including “expected transaction synergies,” according to the press release. In 2022, adjusted EBITDA was just $138 million. Even though Audacy was in compliance with its debt covenants on March 31, the company has expressed concern about its ability “to continue as a going concern” over the next 12 months.
Audacy operates in a difficult business that’s losing listening time as people change their listening habits and migrate to streaming platforms. Although Audacy, like iHeartMedia and Cumulus, has invested in digital platforms — it acquired podcasting companies Pineapple Street and Cadence13 in 2019 and was the No. 8 podcasting network in Q3 and Q4, according to Edison Research — revenue fell about 14% between 2018, the first full year after the CBS Radio merger, and 2022.
With no way around the soft advertising market, Audacy has started cutting costs and selling non-core assets. The company expects its costs will decline 4%, or $35 million, in the last three quarters of 2023, chairman/president/CEO David Field said during the May 10 earnings call. He also said the company raised $17 million in the first quarter from sales of broadcast towers and expects to close on the sale of two stations for $15.5 million in the second or third quarter.
As for Audacy’s stock, trading volume will decrease now that it’s been delisted. Since it started selling only over the counter (through a broker-deal, not on an exchange), the share price has fallen: On Wednesday, Audacy shares declined nearly 24% to $0.04, and they ended the week at $0.06.
The company will now take steps to get back to the NYSE. “While we are disappointed by the NYSE’s decision, we are hopeful we will find our way back to the exchange later this year as we execute our action plans which include a reverse stock split to satisfy NYSE rules, the continued execution of our liability management plans and working with our financial advisors to refinance our debt,” Field said in a May 16 press release. Shareholders will vote on the reverse stock split at the annual meeting on May 24. By working with the factors it can control, Audacy can soften the impact of the broader market conditions it cannot control.
Even if classical music made up just 1% of U.S. music consumption in 2022, according to Luminate, Apple’s new streaming service dedicated to the genre could mean big things for the subscription market.
Global recorded music revenues rose for the eighth straight year in 2022 — but markets are maturing, and the once high-flying growth rate fell to single digits. That doesn’t mean the music subscription business is getting stale, though. In fact, there are plenty of new ideas and much-needed innovations that can help push the streaming market forward.
The latest, and one of the best, examples of how the music business can build a better mousetrap is Apple Music Classical. Apple wanted to better serve classical music fans but realized the best path was to break away from the Apple Music subscription app that works fine for every other genre. So, it built Apple Music Classical, a standalone app for Apple’s iOS devices — the Android app will arrive later — that launched on Tuesday to some rave reviews (GQ called it “a ton of fun”).
Classical music has always been a second-class citizen in digital music because of the way its metadata — information about the recording — is organized. For most genres, describing music by artist, track and album is an adequate way to organize a massive number of recordings. Download stores and streaming services are built around this classification system. But since the advent of iTunes and download purchases, people have recognized that classical music doesn’t fit well in the standard metadata system. In classical music, music is better organized by such categories as conductor, orchestra and movement. This could help explain why classical music accounted for 2.7% of U.S. digital album sales but just 0.8% of on-demand streams in the U.S. last year, according to Luminate.
“It’s the works-based nature of classical,” says Dart Music founder Chris McMurtry, now a vp at Pex, a digital music rights company. “That’s why Apple had to build a separate app.” McMurtry addressed that problem at Dart Music, a digital distributor that focused on classical music and built a database with metadata fields better suited for the genre.
Apple wasn’t the first company to see an opportunity in classical music. Dart Music launched in 2015 to tackle the metadata angle (its assets were acquired in 2017 by Haawk), and classical-focused streaming isn’t new, either. Idagio debuted in 2015. Primephonic launched in 2019 and was acquired by Apple in 2021. Universal Music Group’s Deutsche Grammophon imprint debuted its own service, Stage+, in 2022.
But Apple’s entry into the classical music streaming market could be the most impactful to date. Apple has billions of customers around the globe and an increasingly successful services business that includes the Apple Music subscription app and Apple TV+, a streaming video-on-demand platform. Those cloud-based services, combined with Apple’s bread-and-butter business of selling smartphones and laptops, give the company the resources and marketing might to activate a passionate group of music aficionados that has been underserved by streaming platforms better suited for rock, pop and hip-hop.
“It exceeded my expectations,” says McMurtry, who looked up well-known names and obscure composers to appreciate the app’s level of detail. He says he was impressed by the depth of metadata — the producers, engineers, mixers, other contributors, year of the recording and even the composers’ birth and death years. “It’s a very educational experience.”
If Apple Music Classical can hook McMurtry, maybe it can lure more people into the music subscription market. In 2022, there were 92 million subscribers to streaming services such as Spotify, Apple Music and YouTube Music, according to the RIAA. In total, 214 million Americans — 75% of the population 12 and older — streamed music in the past month, according to a January 2023 survey by Edison Research. Younger consumers were far more likely to stream music than older listeners, however, with 53% of people over the age of 55 having done so compared to 89% of 12-to-34-year-olds and 85% of 35-to-54-year-olds. A good classical music app can help narrow that sizable gap, attract more subscribers and generate more subscription revenue.
Going after classical music fans makes financial sense, too. For starters, they’re plentiful, says Russ Crupnick, partner at market research firm MusicWatch. “By comparison, they are somewhat larger than the entire population of vinyl buyers,” he says. As older consumers, they can afford a standalone classical music app: Crupnick says classical music fans’ mean income is 35% higher than average. They’re also twice as likely to purchase expensive, audiophile stereo equipment. When asked if obtaining the highest-quality sound format is important, 64% of classical music fans said yes, and 54% are willing to pay more to get it. Fortunately for them, Apple Music Classical is free of charge to Apple Music subscribers. “It will be interesting to see whether Apple eventually adds fees to monetize the service, or subsidizes it as they have higher resolution audio,” says Crupnick.
There’s great potential outside of the United States, too. Apple Music Classical will eventually be available in three strong markets for classical music: Japan, China and South Korea. In China, the fifth-largest recorded music market in 2022, according to the IFPI, classical music has been a phenomenon since the Cultural Revolution. Gramophone magazine described it as a “gargantuan market for the consumption of recorded classical music even if only as a study aid or as a residue of having Mozart and Beethoven sonatas tinkling through the family home.”
The digital market has performed incredibly well without a mass appeal offering tailored for classical music fans. Record labels generated $16.9 billion from streaming in 2022 while mostly ignoring an important subset of the market. With Apple Music Classical, Idagio and Stage+ super-serving classical music fans, there’s potential to do better.
As the U.S. government considers banning social media app TikTok, the U.S. music industry faces a few scenarios regarding the platform that’s become a lifeline for discovering and breaking artists — and most aren’t good.
The grilling of TikTok CEO Shou Zi Chew by members of the House Energy and Commerce Committee on Thursday (March 23) had all the political theater expected from a Congressional hearing. It also had one important characteristic unusual for the United States in 2023: bi-partisan agreement. Despite Chew’s insistence that U.S. TikTok users’ data cannot be accessed from China, home of parent company Bytedance, neither Democrats nor Republicans seem intent on allowing TikTok to operate within their borders.
The showdown seemed inevitable given TikTok’s foreign entanglements and the app’s quick ascendence. The app accounted for 17% of total time spent on mobile apps globally in 2022, according to Data.ai — second behind WeChat’s 19.5% and well ahead of No. 3 YouTube’s 12.7%. Chew told lawmakers that TikTok has 150 million users in the U.S. That’s 50% more than the 100 million figure TikTok previously made public (and eMarketer’s latest estimate of 95.8 million at the end of 2022). Among U.S. Gen Z consumers aged 18 to 24, TikTok ranks No. 2 behind Instagram in monthly average users, according to Data.ai.
But the app’s fate in the United States “is on shakier ground than ever,” according to eMarketer principal analyst Jasmine Enberg. “TikTok’s decision to highlight how entrenched the app has become in US society was miscalculated,” Enberg said in a statement. “It actually strengthened U.S. lawmakers’ argument that TikTok poses a threat to both national security and young people.”
Brendan Carr, a commissioner with the Federal Communications Commission, agrees. The vocal TikTok critic told CBS News “the day could not have gone any worse for TikTok” and that Chew “completely failed” to gain “some level” of trust and credibility with members of Congress.
While a TikTok ban appears popular amongst politicians, not everybody is supportive. The Cato Institute’s Paul Matzo called a ban “a hamfisted mistake” born from “neo-Cold War paranoia.” It wouldn’t necessarily make America safer, he argued, and would amount to a bail-out for Meta, whose TikTok competitor, Instagram, has failed to win on a level playing field. The Brookings Institute’s Darrell M. West and Michaela Robison argue that a ban would open up U.S. companies in China — such as automaker Tesla — to similar scrutiny.
If a ban could withstand a legal challenge — former President Donald Trump’s attempt to ban TikTok and Chinese messaging app WeChat both failed — TikTok’s parent company, Bytedance, would be forced to sell the company. President Joe Biden’s administration has encouraged Bytedance to sell TikTok. But it wouldn’t be a straightforward process. China would “strongly oppose” a forced sale, a Ministry of Commerce spokesperson said Thursday, and TikTok is subject to Chinese law on tech exports and would require government approval.
A prompt sale of TikTok, which is reportedly valued at $60 billion, would be the best outcome for the music industry in search of new sources of streaming revenue. TikTok’s revenue rocketed from $4 billion in 2021 to $10 billion in 2022, according to reports. Research firm Omdia projects that TikTok’s ad revenue will climb to $44 billion by 2027 — presumably assuming there are no geopolitical interferences — and surpass the combined video ad revenues of Meta and YouTube. Although TikTok is not a major source of revenue for labels and publishers, rights holders expect to eventually have licensing agreements that give them a share of advertising revenue for user-generated content (like their deal with YouTube).
The current hodgepodge of bans also hurts both TikTok and the music industry. In the United States, TikTok has already been banned by some federal agencies, state and local governments and universities. Elsewhere, TikTok has been banned from the official phones of staff of the European Commission, U.K. parliament, Canadian government, Belgian government, Danish Defense Ministry and Latvian Foreign Ministry, to name a few. Fewer TikTok apps installed on fewer smartphones is twice the punishment for an app that depends on user-generated content. Lower usage means fewer people creating and viewing videos.
Perhaps the biggest question is what would happen to TikTok under new ownership. If, say, Oracle owned a stake in TikTok, as was proposed during the Trump administration, would the app continue to have the same magical recommendation algorithm that has made TikTok so irresistible and its competitors unable to keep up? New ownership would eliminate restraints on TikTok’s revenue and user growth, but if the product suffers, the music industry would be handed a less effective promotional tool and a less valuable source of revenue. The only certainty in this TikTok controversy is that such unintended consequences are guaranteed.
In the last 25 years, the music industry has evolved in huge leaps: the arrival of Napster in 1999, the launch of the iTunes music store in 2003 and YouTube’s debut in 2005 are notable, epoch-defining events. But progress often comes in a series of small steps forward.
One such small step is Spotify’s Loud & Clear, an annual report that provides some transparency into the amounts of royalties the company pays each year. The third Loud & Clear report was released March 8 to coincide with Stream On, Spotify’s live-streamed media event where a parade of executives introduced new product features and discussed the future of the world’s largest music subscription service.
Loud & Clear is helpful because it puts artist royalties in context. Any artist knows how much they earned on a streaming platform. But Loud & Clear will tell an artist how they stack up to others. It’s one thing to make $100,000 in annual royalties but another thing to know how many other artists are also making at least $100,000.
“I think it’s very important for ecosystems to have an understanding of the shape and size of how results are going for different participants so that people can understand where they are, where they stand and how the ecosystem is evolving,” says Charlie Hellman, Spotify vp, global head of music product.
And how well is the ecosystem evolving? Spotify wants to give “a million creators the opportunity” to making a living from their art — which could include both musicians and podcasters. That goal goes back to a statement by CEO Daniel Ek at its 2017 Investor Day. At the time, Spotify counted 22,000 artists as “top-tier” earners (it didn’t specify exactly how much they earned, however). Today, thanks to Loud & Clear, we can see a million creators are probably not making a living from their art. But as Spotify, and streaming in general, has grown in popularity, the number of artists making a sustainable amount — define that as you may — is slowly increasing.
There are 27,000 established artists defined as being in Spotify’s top 50,000 artists three straight years but outside of the top 500. In 2022, they earned an average of $224,000 from Spotify and averaged 1.45 million monthly listeners in 2022. So, they’re not superstars but they’re far from hobbyists. They’re also likely signed to record labels and receive only a fraction of those royalties.
In 2022, there were nearly 3,000 “catalog-heavy” artists that earned more than $100,000 on Spotify. Those artists earned over 80% of their streams from tracks five years old or older. Given that Spotify estimates other streaming sources account for 75% of an artists’ revenue, those artists probably earn around $400,000 a year in streaming royalties.
If streaming is going to provide a living for many musicians, the economics need to work for the independent musicians that make up a large portion of the working class. In 2022, a quarter of the 57,000 artists who earned $10,000 or more in royalties from Spotify in 2022 are self-distributed through the likes of DistroKid, TuneCore and CD Baby. That works out to nearly 15,000 artists, a 200% increase since 2017. That’s a far cry from one million. But as streaming platforms continue to grow, the number of self-distributed artists earning that amount will grow, too.
Increasingly, streaming platforms will facilitate other parts of artists’ careers, such as ticket sales and merchandise sales. Spotify lists some merchandise sales through third-party providers such as Shoptify and Merchbar. And although it hasn’t included merch sales in Loud & Clear, Hellman says, “I can imagine in future years doing more data share about that in particular. We didn’t do that this year, but it is a big strategic focus for us.”
The U.S. recorded music business posted its seventh consecutive year of growth in 2022 as the industry continues to benefit from streaming services such as Spotify, Apple Music and YouTube. After spending most of the last two decades in a painful freefall — piracy devastated CD sales and the download-driven unbundling of the album didn’t make up for it — the recorded music business has enjoyed a great run. Last year, paid subscription revenues surpassed $10 billion for the first time, according to the RIAA, and overall revenues reached $15.9 billion.
Here’s the bad news: Last year’s growth, in terms of both dollar and percentage increases, was the lowest since 2016, when the recorded music business started to recover from a 15-year downturn. Happy days may be here again, but they’re not getting happier like they were.
Total recorded music revenues grew 6.1%, but that’s about a quarter of 2021’s 23.2% gain. Paid streaming revenues improved 7.2% in 2022, a third of the 22.2% growth in 2021. It was the first time that this segment’s growth rate fell into the single digits since 2010. That year paid streaming revenues rose just 2.9% to $212 million. Over the next decade, as annual paid streaming grew to 57.8% of total recorded music revenue in 2022, the segment’s annual growth often exceeded 50% and fell below 20% only twice.
Ad-supported streaming’s revenue growth rate also fell into the single digits, also for the first time in more than a decade. Slowed by an advertising malaise that has also affected companies ranging from Alphabet to iHeartMedia, streaming services’ advertising royalties to record labels grew 5.6% compared to 44.4% in 2021 and 16.8% in 2020. In dollar terms, last year’s revenue growth was the lowest since 2015.
The slowdown shouldn’t catch anybody by surprise given the industry’s reliance on streaming, subscription services’ unwillingness — until recently — to raise prices and a finite number of potential customers. The problem comes down to basic math: Fees from subscription services accounted for 57.9% of recorded music revenues in 2022. At just 2.4% of total revenues, a high-growth segment like synchronization barely moves the needle despite rising 24.8% in 2022. Vinyl sales were strong once again — up 17.2% — but accounted for just 7.7% of total recorded music revenues.
Up-and-coming revenue streams such as TikTok, Facebook and Instagram are just that — not yet ready to deliver meaningful royalties despite their popularity. Their revenues are included in the ad-supported streaming bucket that increased just 5.5% in 2022. TikTok faces high expectations but large uncertainty, too, as it faces pressure from politicians at the state and federal level that could reduce its importance. In addition, the company has installed parental controls that are likely to reduce engagement and further reduce its potential value to artists and labels.
A positive trend is subscription services’ decisions to raise prices on individual and family plan tiers. In 2022, Apple Music, Amazon Music and Deezer raised prices in the U.S. Spotify has not yet announced a price hike for standard subscription plans but has hinted it will follow suit in 2023. Labels are eagerly awaiting Spotify’s move. “We are the lowest (cost) form of entertainment,” Warner Music Group CEO Robert Kyncl said Thursday. “We have the highest …engagement, highest form of affinity and lowest per-hour price. That doesn’t seem right.”
Globally, the situation looks better. The industry in China, the world’s most populous country, is flourishing thanks to streaming companies such as Tencent Music Entertainment and Cloud Music. In Japan, the world’s second-largest recorded music market, streaming revenues increased 125% in 2022, according to the RIAJ. At Spotify, which operates in 184 markets, revenue increased 21.3% in 2022 to 11.7 billion euros ($12.4 billion), with about equal growth rates from paid and ad-supported streaming. Annual revenues of two smaller streaming companies, Europe-focused Deezer and MENA-focused Anghami, grew 13% and 36%, respectively.
In the U.S., a maturing streaming business alone cannot maintain the breakneck pace of the last seven years. Labels will need more than the status quo to return to double-digit growth.
The areas of the audio marketplace with the highest growth rates don’t involve music or young people. As online listening growth slows and smartphone ownership is nearly ubiquitous, podcasts and audiobooks stand out in Edison Research’s The Infinite Dial 2023 report.
In 2023, weekly podcast listening reached 40% of people aged 12 to 34, up from 33% in 2022; and 39% for the 35-to-54 age group, up from 31% the year before, the report states. The 55-and-over audience remained at 14% after falling from 17% in 2021. The average U.S. podcast listener averages nine podcasts per week, with 19% listening to 11 or more.
Those growth rates contrast with slowdowns in smartphone penetration (now at 91% of the U.S. population), social media usage (flat at 82% of the population for three straight years) and monthly online audio listening (up slightly from 73% in 2022 to 75% this year).
But podcasts appear to have room for more growth. The percentage of people who listened to a podcast in the last month was 42% — 28 percentage points lower than online audio listenership.
About 183 million people — 64% of the U.S. population 12 and over — has ever listened to a podcast. That’s up from 44% of the population five years earlier and 27% a decade ago.
Audiobooks are also growing. The percentage of Americans who listened to an audiobook in the last year rose to 35% of the U.S. population — up from 28% a year earlier — or about 100 million people. Still, there’s lots of room for growth, and companies will likely see that percentage as an opportunity to introduce the format to new listeners.
Podcasts and audiobooks are tangentially related to music in the streaming age. Digital platforms increasingly combine music and non-music content to keep listeners engaged and make the apps more attractive to subscribers. To improve both its product and margins, Spotify has invested handsomely in podcasts — from DIY tools like Anchor and Megaphone to content creators Gimlet, Parcast and The Ringer — as well as audiobooks, through the acquisition of audiobook distribution platform Findaway.
Streaming companies tend to obsess about young consumers, but the growth opportunity appears to lie in older age groups. Edison found that 89% of the 12-34 age group listened to audio online in the previous month, up from 87% in 2022 and 86% in 2021. The 35-54 age group’s monthly listenership rate improved from 72% in 2021 to 81% in 2022 and 85% this year. The 35-54 age group’s podcast listening improved from 43% in 2022 to 51% this year — a big leap, but still below the 12-34 age group’s 55% mark.
The often overlooked 55-and-over age group has significant room to grow. Its monthly online listening rate stands at just 53%, up from 52% in 2022 and 46% in 2021. The age group is also slow to adopt podcasts. Just 21% of people 55 and over listened to podcasts in the last month. Worse yet, the 55-and-over crowd is losing enthusiasm: Its monthly podcast listening rate was 22% last year and 26% in 2021.
The other major trends found in the report reflect smartphone penetration, the prevalence of mobile broadband and the use of mobile operating systems in cars such as Apple CarPlay and Google’s Android Auto. In the last decade, the percentage of U.S. consumers who have listened to AM/FM radio in the car dropped from 84% to 73%, while CD listening declined from 63% to 29%. SiriusXM satellite radio use in the car improved from 15% to 20% over that time, while online audio jumped from 12% to 37% on the same metric.
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Sign up here to receive the newsletter.
Ticket fees have been called everything from “exorbitant” (Sens. Richard Blumenthal and Amy Klobuchar) to “completely bats—” (Last Week Tonight with John Oliver). And they can increase the price of a concert ticket by an average of 27-31%, according to a 2017 study by the U.S. Government Accountability Office.
Unfortunately for ticket buyers, those fees aren’t going anywhere quickly. They may change or disappear completely, but consumers won’t reap any savings in the end, Live Nation CEO Michael Rapino explained during Live Nation’s fourth quarter 2022 earnings call on Thursday.
Say, for example, a venue is prohibited from charging fees on top of a ticket’s face value. “Well, then the venue would say, ‘Okay, artists, the rent isn’t $50,000 anymore. It’s $100,000,’” Rapino said.
The ticket fee is a surcharge that helps cover a venue’s costs. Rapino’s point is that the venue needs to cover its costs, so it’s going to collect money to cover them, no matter what. In a normal scenario, the consumer helps cover those costs by paying a surcharge directly to the venue.
If fees were eliminated, artists — who are the final authority on primary ticket prices — would be forced to raise them to cover the additional cost. The surcharge may have disappeared, but that cost would still exist in the form of a higher face value. Regardless of the approach, the consumer’s expense and the venue’s revenues would be unchanged.
“The true cost of going to a show and making the show happen is the full price all-in,” said Rapino. The concept is apparent to anybody who has pondered how airlines set prices. If airlines charged an all-in fee that encompassed all its costs, ticket prices would be dramatically higher. Legislation that banned fees for checked baggage could result in higher prices for everything from flight themselves to in-flight beverages. Airlines that previously allowed free carry-on bags might start imposing fees on those. They could also charge more to change your travel plans (which used to cost the consumer nothing).
Rapino acknowledged that Live Nation, which owns and operates venues, would do the same. “If tomorrow someone said, ‘You know, you can’t charge 20% service fees on your amphitheater, you have to [charge] 10%.’ Well, then the $75,000 house rent that we charge artists would be $100,000,” he said as an example. Live Nation couldn’t simply absorb the cost, he explained. Since the company requires money to pay staff and operate the venue, it would find a way to recoup the lost fees.
While what consumers pay won’t change, they may get more transparency. In the wake of Ticketmaster’s disastrous Taylor Swift Eras Tour pre-sale, President Joe Biden unveiled an initiative to limit, among other types of fees, mandatory, back-end fees that “often hide the full price” of a good or service. The White House pointed to research that found hiding the full price encourages consumers to spend more than they would have otherwise.
Live Nation has also come out publicly — and forcefully — against hidden fees. On Thursday, Rapino called numerous times for the industry to adopt all-in pricing that show the ticket buyer a single price at the beginning of the transaction. Also on Thursday, Live Nation issued a press release that encouraged lawmakers to introduce legislation that includes, among other things, mandatory all-in pricing.
The uproar against Live Nation and Ticketmaster over ticket fees is just one of many criticisms to gain momentum in recent months. Some members of Congress have called Live Nation a monopoly that limits competition in the touring business and harms consumers by charging high prices and leaving some unable to purchase tickets for in-demand concerts like Swift’s Eras tour. Many inside and outside of Washington have called for the Department of Justice to break up the company’s concert promotion and ticketing operations. On Thursday, Sens. Klobuchar and Mike Lee sent evidence of the Jan. 24 Senate hearing on the ticketing market to the Department of Justice and encouraged its antitrust division “to take action if it finds that Ticketmaster has walled itself off from competitive pressure at the expense of the industry and fans.” Others have suggested Ticketmaster improve its security practices to deal with the bot attacks that derailed Swift’s pre-sale.
Ticketmaster may be most reviled for its fees, though. And as Rapino pointed out, those aren’t going away anytime soon.
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Pro subscribers automatically receive The Ledger. Sign up here to receive the newsletter without a Pro subscription.
Keen observers noticed that last quarter Warner Music Group’s global streaming revenues were down 2.6% year over year, a rare sputter in the music industry’s main engine of growth. The company’s total revenue declined 7.8% as losses in recorded music’s physical and digital revenues couldn’t make up for publishing gains.
On its face, a year-over-year decline in streaming revenue – the driving force behind growth at labels as well as the rise in music catalog valuations – might seem alarming. Declines are routinely seen in download and physical sales. Streaming is typically the dependable bright spot of any earnings report.
The decline was more noticeable when compared to companies that released earnings for the same quarter. Sony Music Entertainment posted strong growth in the same period. SME’s streaming revenue improved 33.2% in its recorded music division and 59.8% in its publishing division. Reservoir Media didn’t show streaming softness last quarter, either. In its recorded music division, digital revenues were up 17% year-over-year. Digital revenues in its publishing division rose 29%.
So, what happened? Some of it is due to a quirk of WMG accounting, some of it is due to WMG, and some of it is due to factors that affect the entire music business.
One factor in WMG’s weak streaming revenue was a shorter quarter: WMG’s last quarter had one fewer week than the prior-year quarter, which gave the company a tough basis for comparison even before other factors could be considered. A 14-week quarter has 7.1% more days to generate income than a 13-week one and that’s a big gap to overcome. Adjusting for that, WMG streaming revenues would have been up 5% year-over-year.
The stronger dollar — WMG’s financial statements are reported in dollars, Sony reports in yen, Universal Music Group in euros — also played a part in the decline. In WMG’s recorded music division, streaming revenues declined 4% as reported but were flat on a constant currency basis (which assumes no change in foreign exchange rates). In its publishing division, streaming revenues grew 13.2% as reported and 16.8% at constant currency.
WMG also blamed the soft streaming numbers on a new release line-up that CFO Eric Levin called “a softer, largely U.S.-based release schedule” that “could roll into our fiscal Q2. But given our release schedule as second half-oriented this year,” he added, “we do feel good about our performance of releases and strength in the second half of the year.”
Another factor was not specific to WMG: a slowing ad market. Levin called it “a dislocated ad market” and warned “the decline is getting more pronounced.” The decline in ad-supported streaming revenue isn’t a surprise. The Ledger wrote about the soft advertising market in August 2022. Spotify CFO Paul Vogel warned advertising growth in the third quarter would be “slower than we might have forecast earlier in the year.” French music company Believe said “ad-funded streaming activities should be affected by rising inflation and economic uncertainties.”
The streaming market has become bifurcated. Subscription services have fared well through the pandemic and high inflation. Advertising is more closely associated with the direction of the broader economy. Consumers are generally reluctant to cancel entertainment subscriptions, but it’s easier for brands to pull back on ad spending, hurting everything from YouTube to broadcast radio companies like iHeartMedia (and music publishers to a lesser extent). At WMG, “subscription streaming grew by high single digits” but was partially offset by a drop “in the mid-teens” in ad-supported revenue, Levin said. WMG also noticed the slowdown in brands’ spending has created “a somewhat softer market for synch.”
In the fourth quarter, Spotify’s advertising revenue rose 14% compared to an 18% improvement for subscription revenue. With the growth of Spotify’s podcasting business, not all the advertising growth could be attributed to music. Advertising growth lagged subscription growth in the third quarter by three percentage points.
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Pro subscribers automatically receive The Ledger. Sign up here to receive the newsletter without a Pro subscription.
On Feb. 1, days before the Grammy Awards, Billboard honored HYBE chairman Bang Si-hyuk with the Clive Davis Visionary Award at the annual Power 100 event for creating a company that, as Bang put it in his acceptance speech, “challenges the traditional boundaries of music and entertainment.” Fittingly, just one week later, Bang put the global music industry on notice with two major deals that further solidified HYBE’s status as more than the home of BTS and a budding empire and force in pop culture.
First, HYBE America, the U.S. division led by CEO Scooter Braun, acquired QC Media Holdings, the parent company of Atlanta-based hip-hop label Quality Control Music, home to Migos, Lil Baby, Lil Yachty, City Girls and others. Quality Control gives HYBE a hip-hop presence to complement its core K-pop acts (BTS, TOMORROW X TOGETHER) and HYBE America’s pop- and country-leaning rosters from SB Projects (Justin Bieber, Ariana Grande) and Big Machine Label Group (Tim McGraw, Thomas Rhett), respectively. The deal also further diversifies HYBE beyond K-pop and helps alleviate the loss of BTS while its members pursue solo projects and enter government-mandated military service.
Now the No. 1 K-pop music company by market capitalization ($6.5 billion), HYBE on Thursday (Feb. 9) announced it spent $334 million for a 14.8% stake in K-pop rival SM Entertainment, the company behind NCT 127 and SuperM. In buying the majority of founder Lee Soo-man‘s shares, HYBE became the top shareholder in the third-largest Korean music company. With a market capitalization of $1.85 billion, as of its closing price on Friday (Feb. 10), SM Entertainment ranks only slightly behind JYP Entertainment’s $1.9 billion and is more than double YG Entertainment’s $780 million.
Becoming SM Entertainment’s top shareholder can further HYBE’s leading position in South Korea, an increasingly important music market worth $6 billion in 2021, according to the U.S. Department of Commerce. A 15% stake doesn’t give HYBE control over SM Entertainment, but it creates opportunities to work for mutually beneficial outcomes. One could see SM Entertainment artists taking advantage of HYBE’s Weverse social media platform, for example.
The Quality Control deal was worth $300 million in cash and stock, according to HYBE’s regulatory filing. Valuing the company at a multiple of 12 times earnings before interest, taxes, depreciation and amortization — the midpoint of the 10 to 14 times enterprise value-to-EBITDA multiple typically seen in deals for similar music companies — implies Quality Control has annual EBITDA of roughly $25 million. That should provide a nice boost to HYBE’s bottom line. In 2021, HYBE had adjusted EBITDA of $232 million. Through the first nine months of 2022, HYBE’s adjusted EBITDA was $220 million. That implies Quality Control could provide HYBE with a 7.5% to 10% boost in adjusted EBITDA if it finishes 2022 by merely matching its adjusted EBITDA from the fourth quarter of 2021 — and that’s without considering any cost savings resulting from the merger.
HYBE’s annual EBITDA puts it in a middle ground between the three majors and large independent companies. Universal Music Group’s calendar 2021 EBITDA was $2 billion (1.68 billion euros). Warner Music Group’s EBITDA for the year ended Sept. 30, 2022, was $1.2 billion. Sony Music Entertainment does not report EBITDA but paces well ahead of HYBE. After the majors, however, there’s a large gap. BMG’s 2021 EBITDA was $170 million. Hipgnosis Songs Fund posted EBITDA of $130 million in its year ended March 31, 2022. Reservoir Media’s EBITDA in the year ended March 31, 2022, was $41 million. If HYBE matches its EBITDA from the fourth quarter of 2021, it would exceed $300 million in calendar 2022. Had HYBE owned Quality Control during 2022, its EBITDA would have been in the area of $325 million (assuming $92 million in fourth-quarter 2022 EBITDA).
HYBE’s two moves this week are proof the music industry is more competitive and dynamic than some market share numbers might suggest. While the three major labels dominate the record business, independent companies — some distributed by the majors — are flourishing. HYBE certainly has its connections to the majors: Its music is distributed in the United States and other regions by UMG, it has a joint venture with UMG’s Geffen Records and many of its management clients are signed to major labels. But HYBE is ultimately independent of the majors. Based in South Korea, not London or New York, it’s a nimble outsider with a unique approach to melding music and technology.
Perhaps most important to HYBE’s continued growth — and what sets it apart from much of its competition — is how it’s going about doing it. Whereas catalog (music older than 18 months) has taken a larger share of consumption and the industry’s biggest deals and investments have involved established catalogs from Bob Dylan, Bruce Springsteen, Paul Simon, Sting and others prized as safe investments — billions of dollars are flowing into the music industry to acquire intellectual property that’s often many decades old — HYBE is paving its way through entrepreneurism of a different sort.
Like 300 Entertainment (purchased by Warner Music Group in 2021), Alamo Entertainment (purchased by Sony Music Entertainment in 2022) and LVRN (recently valued at more than $100 million), HYBE builds new artists from scratch, sets trends and influences pop culture — beyond TikTok, at that. Now, as it rapidly builds its empire, Bang, Braun and the rest of the company are starting to show what that looks like at scale.