Universal Music

Companies frequently urge investors not to read too much into any one quarter’s results. After all, even large, diversified businesses don’t always take a neat, linear path to consistent annual gains, and any single reporting period can contain oddities that skew the results favorably or unfavorably. But most public companies report results every quarter and, for better or worse, we onlookers read as much into the results as possible.
With that caveat in mind, here are some takeaways from the earnings releases through Thursday (May 15). Note that while most music companies, including the largest ones, have already issued earnings, there are a couple more to come: CTS Eventim will release some first-quarter figures on May 22 and Reservoir Media reports on May 28.

1. Some Margins Improved from Cost Savings

Music companies — like employers across the spectrum — have thinned their headcounts to retool, refocus and ultimately cut down on expenses. Q1 results showed some notable improvements in companies’ bottom lines.

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Spotify started seeing bottom-line growth in 2024 after cutting about a quarter of its headcount in 2023. The Stockholm-based music and podcast giant’s operating margin rose to 12.1% from 4.6% in the first quarter of 2024 — an improvement of 341 million euros ($380 million) — while gross margin (gross profit as a percentage of revenue) rose to 31.6% from 27.6%. Gross margin is a good proxy for what Spotify keeps after paying for content costs (it also includes some smaller expenses such as credit card transaction fees and hosting costs). After keeping prices flat for more than a decade, gross profit improved after Spotify began raising prices in 2023.

Operating profit, not gross profit, shows the impact of layoffs (salary expenses are deducted from gross profit to calculate operating profit). Spotify’s operating profit, as a percentage of revenue, improved to 12.1% from 4.6% in the first quarter of 2024. That’s a huge improvement in 12 months, but it’s more remarkable considering the company’s operating profit percentage was negative 5.1% in the first quarter of 2023. CEO Daniel Ek’s controversial decision to make Spotify “relentlessly resourceful” by eliminating thousands of jobs has paid dividends for the company.

Lower expenses also helped the Sphere venue in Las Vegas show improvement in operating margin. Sphere’s sales, general and administrative expenses fell 12% as the company identified costs to reduce, including corporate support functions, Sphere Entertainment Co. CFO Robert Langer said during the May 8 earnings call. That helped offset a 12.8% decline in revenue due to fewer events being hosted by the one-of-a-kind venue. The opposing growth rates cancelled each other out, and Sphere’s operating income was flat in the quarter. Investors apparently liked Sphere’s ability to reduce costs: The share price of its parent company, Sphere Entertainment Co., surged 6% the day of the earnings release.

Over at Universal Music Group (UMG), which embarked on a cost savings plan in early 2024, the company’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin was flat at 22.8%. Though the company’s global head count rose slightly to 10,346 on Dec. 31, 2024, from 10,290 on Dec. 31, 2023, according to its annual reports, the amount spent on salaries and benefits fell 14% to 1.79 billion euros ($1.94 billion) in 2024.

As for the other two majors, Sony’s operating margin improved to 18.0% from 16.9%, while the operating income before depreciation and amortization (OIBDA) margin at Warner Music Group (WMG) fell to 20.4% from 20.9%, due primarily to a change in revenue mix (meaning there was a higher proportion of low-margin physical sales compared to the prior-year period), though it was partially offset by savings from restructuring. WMG’s operating margin jumped to 11.3% from 8.0% due in part to a decrease in restructuring charges incurred in the prior year.

2. Subscriptions Lead the Way

Two companies had impressive subscriber gains in the quarter.

Spotify’s Premium revenue was up 16% year-over-year, and average revenue per user (ARPU) was up 4%. Subscription revenue was 90% of Spotify’s total revenue, the highest mark since Q3 2020 when advertising dried up — and subscription revenue exploded — at the onset of the pandemic. In fact, subscriptions have been Spotify’s workhorse in recent years, with subscription revenue growing 39.0% over the past two years compared to 27.4% for advertising revenue. After two rounds of price increases in the U.S. and U.K., plus hikes in many other countries, ARPU grew 9.5% in that two-year span.

Meanwhile, at Tencent Music Entertainment (TME), subscription revenue was up 16.6% and ARPU was up 7.5%. TME did not provide an updated subscriber count for its Super VIP tier — it’s still listed at 10 million-plus — but the company did disclose that high-quality audio and other perks are driving Super VIP conversions. Given that Super VIP costs five times the normal subscription price, it makes sense that it was the primary driver of the 7.5% jump in ARPU.

This is a case of the spoils going to the two largest music subscription services by subscriber count. MIDiA Research’s music subscription market shares for Q4 2024 put Spotify at No. 1 with 32% and TME at No. 2 with 15%. Spotify finished Q1 with 268 million paying customers (plus another 423 million ad-free listeners), while TME had 122.9 million.

Some other subscription services have been performing well, too, although only one other publicly traded music streaming company has released detailed financial statements for Q1. A revealing comment came from UMG, which saw double-digit revenue growth from four of its top 10 streaming partners and high single-digit growth at a fifth, the company said during its April 29 earnings call. Billboard believes two of the top four partners were likely Spotify and TME. The other double-digit growth services are anyone’s guess, but it probably wasn’t Deezer — the company’s total revenue rose just 1% in Q1 as its subscriber count fell 5.4%.

3. Advertising revenue was unsurprisingly mediocre but not terrible.

With the subscription business booming, there’s less pressure on the advertising side of music streaming to deliver value for platforms and rights owners. Good thing, too, because advertising hasn’t delivered much growth lately. In the U.S., advertising-based streaming royalties’ share of total recorded music revenues fell to 10.4% in 2024 from 10.9% in 2023 and 11.4% in both 2021 and 2022.

The numbers looked better in Q1 for Spotify, whose ad revenue rose 8% year-over-year (5% at constant currency). But because Spotify’s subscription business is faring better, advertising’s share of Spotify’s total revenue fell to 10.0% from 10.7% in the prior-year period. In fact, 10.0% was the lowest share for Spotify’s advertising since the early pandemic — 8.0%, 6.9%, and 9.4% in Q1, Q2, and Q3 of 2020, respectively.

Advertising is the lifeblood of the radio business. That explains why radio companies’ stock prices have fallen sharply over the last two years. iHeartMedia revenue rose 1% on the strength of a 16% gain in digital revenue, although the multi-sector segment that houses its broadcast radio business was down 4%. U.S. tariff policy has injected uncertainty into media companies’ outlooks, but iHeartMedia CEO Bob Pittman said on Monday (May 12) that iHeartMedia was seeing “generally stable ad spend.”

The same story played out at other radio companies: Total revenue change wasn’t bad because digital gains helped compensate for losses in broadcast ad revenue. Cumulus Media’s revenue fell 6.4% as broadcast dropped nearly 11% and digital gained 6.1%. Townsquare Media’s revenue fell 1% as gains in digital advertising (up 7.6%) and subscriptions (up 4.2%) almost offset a 9.1% decline in broadcast advertising.