universal music group
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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.
The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
Music companies face a multitude of pressures as 2022 comes to an end: crippling inflation, a tight labor market, a chaotic environment for breaking new artists, interest rates that are dampening catalog valuations, and high costs of touring amidst a crush of artists on the road, among other challenges. The upcoming slate of corporate earnings provides an opportunity to hear about these opportunities and challenges from leaders of publicly traded music companies who rarely go on the record.
Spotify reports third-quarter earnings after the close of trading on Tuesday (Oct. 25). Universal Music Group and Deezer follow on Thursday (Oct. 27) after the close of trading in the Netherlands and France, respectively. Cumulus Media reports Friday morning (Oct. 28). SiriusXM reports earnings on the morning of Nov. 1. Tencent Music Entertainment announces earnings on Nov. 15. The other 14 publicly traded music companies in the Billboard Global Music Index have not yet announced when they will report.
Look for executives to comment about subscription prices and digital platforms’ ability — or reservation — to raise subscription prices. It’s been a recurring theme from digital and label executives throughout the years, in part because it’s been over a decade since streamers last did it in any meaningful way. “Music is a good value” seems like a popular position when streaming video on-demand services are engaged in cut-throat competition and undercutting one another’s prices to attract new customers and prevent current customers from departing. But the industry has arguably moved past that stage, with many now interested in other means to grow revenue. Still, expect music streaming companies to be reticent to hike prices while inflation is running at a 40-year high.
On Tuesday. Spotify could offer a bevy of information and insights about its progress toward its drive to improve margins, as laid out in its June 9 investor presentation: goals for 35% gross margins in music and 30-35% gross margins in podcasting within the next three to five years. Music margins will be helped by improvements in ad monetization in developing markets as well as price increases in mature markets.
More pressing will be Spotify’s opinions on macroeconomic forces that could affect its growth. The company’s advertising business was roiled by an advertising slowdown during the first year of the pandemic, and now many experts are predicting a recession in 2023 that could again dampen online advertising. On Alphabet’s July 26 earnings call, the company repeatedly used the word “uncertain” when talking about the economy, while reporting that YouTube ad sales grew at their slowest pace since the company started disclosing metrics in 2018. Meta’s second-quarter revenue, meanwhile, was 1% lower than a year earlier — its first decline in a decade. If the same market conditions affect Spotify, how will it react? Even though advertising accounted for only 12.6% of the company’s total revenues in the second quarter, it’s critical to the podcasting business that’s expected to deliver margin relief in the coming years.
If social media company Snap’s third-quarter results Thursday are any indication, a weak advertising market will be a recurring theme throughout October and November earnings reports. In a letter to shareholders, Snap warned its “advertising partners across many industries are decreasing their marketing budgets, especially in the face of operating environment headwinds, inflation-driven cost pressures and rising costs of capital.” At the same time, Snap announced a stock repurchase program of up to $500 million “to protect shareholder value from the impact of dilution.” Investors reacted quickly and decisively by sending Snap shares down as far as 32% to $7.33 on Friday — 87.9% below its 52-week high of $60.78.
Also, expect questions about Spotify’s long-awaited HiFi subscription tier. Last week, reports surfaced that Spotify could be prepping a “platinum” subscription plan that bundles high-fidelity audio with other products. The reports were based on an online survey that sought consumers’ opinions on various product bundles, not hard evidence of an upcoming product launch. But the fact that Spotify would sweeten the offer with reduced advertising in podcasts and other items could suggest it realized demand for a standalone HiFi tier is weaker than hoped — especially when Apple Music and Amazon Music are offering it at no additional cost. What CEO Daniel Ek will say is another matter, however, as Spotify is unlikely to discuss details about a product before an official announcement.
High-fidelity audio is pertinent to Spotify investors because it could help improve gross margins. The June 16 acquisition of audiobook distributor Findaway led to the Sept. 20 launch of an audiobook download store. As both retailer and distributor, Spotify can get 60% margin in audiobook purchases, more than double its current gross margin. Of course, the more important question is how many margin dollars audiobooks will ultimately deliver. With only a few weeks of audiobook sales under its belt, and no audiobook sales in the third quarter earnings, Spotify will have few tangible results for a progress report.
Universal Music Group reports earnings on Thursday (Oct. 27) after the end of the trading day in Amsterdam, where UMG shares are listed. UMG’s share of the U.S. recorded music market dropped slightly from 38.3% in the first half of 2022 to 37.1% at the end of the third quarter, which was lower than its 38.4% share in the prior-year period. UMG’s biggest competitor, Sony Music Entertainment, meanwhile, saw its share boosted from 26.3% to 26.7% thanks to the runaway success of Bad Bunny‘s Un Verano Sin Ti, the biggest album of 2022. UMG biggest releases were Kendrick Lamar’s Mr. Morale and the Big Steppers and The Weeknd’s Dawn FM (Republic). A handful of albums released in 2021 were also in the top 10 in total consumption: Morgan Wallen‘s Dangerous (Jan. 8, 2021), The Weeknd’s The Highlights (Feb. 5, 2021) Olivia Rodrigo’s Sour (May 21, 2021) and Drake‘s Certified Lover Boy (Sept. 21, 2021).
During UMG’s last earnings call, on July 27, CEO Lucian Grainge recounted a string of recent releases (Drake’s Honestly, Nevermind got off to a great start), partnerships (HYBE’s first release through its deal with UMG’s Ingrooves/Geffen), how it planned to get a return on investment on some recent acquisitions (Frank Zappa and Neil Diamond) and how the new Mercury Studios (which produced documentary films on The Rolling Stones and Shania Twain) had helped lift catalog streams.
More important to investors and industry professionals are concrete examples of UMG moving its business forward. Last quarter, Grainge announced UMG’s new licensing deal with Meta and revealed the company had become one of its top 10 revenue-generating digital platforms. He also announced the creation of the New Music Media Network, a service that connects brands and partners with proprietary data and exclusive media from UMG. Given the vital role advertising plays in today’s streaming-led music business and the platforms of tomorrow, a progress update on the New Music Media Network would be helpful.
Less important are comments made about Web3, NFTs and metaverse initiatives. Despite initial enthusiasm around NFTs, these businesses are a work-in-progress and represent an immaterial amount of revenue to a major music company. Conversation about these businesses merely shows that a company is looking ahead and taking the proper steps to capitalize — somehow — on them in the future. That requires hiring the right people, making investments, striking partnerships and trying new things to learn and gain experience. But as of now, Web3, NFTs and the metaverse are solidly in the experiment phase.
Universal Music Group divisions Decca Records, Verve Label Group and Globe Soundtrack & Score joined forces to launch Mercury Classics Soundtrack & Score, a new boutique record label “dedicated to the art of soundtrack & score” and designed to “support today’s leading score composers and artists as they undertake major audio-visual projects globally,” according to a press release. Lana Thompson has been appointed as label manager. The label’s first major releases, slated for this year, include scores for Orion Pictures films Till, composed by Abel Korzeniowski, and Women Talking, composed by Hildur Guðnadóttir. Releases set for 2023 include the soundtrack to MGM’s A Good Person.
Republic Records promoted Tim Hrycyshyn to senior vp of digital strategy; he was previously vp of digital marketing. He is based in New York.
Epidemic Sound named Rikard Herlitz chief technology officer and Julian Persaud chief commercial officer. Both will start in January. Herlitz, who joins from Google, where he served as engineering director for Google Meet, will provide tech leadership and strategic direction across all Epidemic Sound markets. Persaud, who joins from European travel platform Omio, where he was chief commercial officer, will lead the company’s commercial strategy.
°1824, Universal Music Group’s youth-driven creative solutions division, named Possum Hill vp of content. Hill will oversee °1824’s content creation efforts while also working to scale UMG’s livestreaming capabilities. Hill, who joins °1824 from Capitol Music Group, where she was senior director of video production, will be based in Santa Monica and report to °1824 senior vp and head Todd Goodwin.
The College of Music and Media at Loyola University New Orleans — recently named a top music business school by Billboard — appointed music supervisor, music executive and independent film and TV producer and director Jonathan McHugh as its new Hilton-Baldridge eminent scholar and chair. McHugh will enjoy an endowed professorship, steering the university’s music industry studies program. His first initiative at Loyola is the launch of a “Composing for Video Games and Visual Media” major. “Since our student population is 55% diverse and the studios are having trouble filling the diverse hiring quotas and we have so much amazing talent, it makes perfect sense to do it next year,” says McHugh. “I am excited about helping to build next generation of entertainment and music stars at Loyola College of Music and get connected into internships and jobs in the entertainment business.” McHugh will continue in his various other roles outside the school. He recently directed two documentary films — Long Live Rock…Celebrate the Chaos and Cosplay Universe — and is music supervising season two of the animated series Freak Brothers (Lionsgate/Fox/Tubi). He is a member of the Television Academy and the Producers Guild documentary jury.
A2IM announced its 2022-23 executive committee, including Victor Zaraya (Concord Records) as chair, Louis Posen (Hopeless Records) as vice chair, Mariah Czap (Yep Roc Music Group) as treasurer and Heather Johnson (Ninety9Lives/Fixt) as secretary. The organization additionally announced four new board members including Mary Jurey (chief business officer at Blue Elan), Tony Kiewel (president at Sub Pop), Wilson Fuller (head of digital at Merge Records) and Dee Diaz (vp of digital strategy at Reach Records), who will join returning board members Marie Clausen (head of North America & global streaming at Ninja Tune), Steven Hill (director of North America & global projects at Warp Records) and Tony Alexander (president & managing director at Made In Memphis Entertainment). The new advisory board, meanwhile, consists of Talya Elitzer (co-founder of GodMode), Gina Miller (senior vp & general manager at MNRK), Jason Peterson (chairman & CEO at GoDigital Media Group) and Glen Barros (CEO at Exceleration Music).
Create Music Group named Brian Glover to the newly-created role of senior director of streaming. He will oversee streaming strategy for the hip-hop, R&B and pop artists that Create distributes. Based in Los Angeles, Glover arrives at the company from indie label Cinematic Music Group, where he served as director of commerce and artist marketing.
Sophia Sansone and Jarrod Holley were promoted to managing partners at Chris Kappy‘s Make Wake Artists. Sansone manages Luke Combs and his wife, Nicole Combs. Holley leads all A&R responsibilities for the company and manages Drew Parker, Jackie Lee, Cooper Alan and Colby Acuff.
Hazel Savage, music intelligence vp at SoundCloud, joined B2B streaming technology solutions company Tuned Global as a non-executive board member.
Music licensing technology company Audoo hired Matthew Fackrell as senior vp and general manager, Asia Pacific and Eric Nguyen as senior vp and general manager, North America. Based in Sydney and Toronto, respectively, and reporting to Audoo founder and CEO Ryan Edwards, the two will provide industry expertise in their respective territories to execute the adoption and rollout of Audoo’s technology. Fackrell comes from APRA AMCOS and Nguyen joins from Richter Consulting. They can be reached at matthew@audoo.com and eric@audoo.com.
A16z crypto, a venture capital fund managed by Andreessen Horowitz that invests in crypto and Web3 startups, hired Richard Rosenblatt as a senior advisor. Rosenblatt serves as the chairman of ADIM and Autograph, two a16z crypto portfolio companies.
TikTok creators will soon be handed a fresh set of tools to soundtrack their videos and potentially make hit songs when a new in-app platform created by Simon Cowell’s Syco Entertainment company, in partnership with Universal Music Group and Samsung, launches on the platform later this month.
Called StemDrop, the initiative will provide TikTok’s more than 1 billion monthly users with access to music “stems” (the isolated components of a song, such as drum tracks or individual vocal parts) from an exclusive new track composed by hit songwriters Max Martin, Savan Kotecha and Ali Payami entitled “Red Lights,” which creators can then use to record and share their own versions.
The project was conceived by British music mogul Cowell and entertainment executive Tim Van Rongen in partnership with Universal Music imprint Republic Records and Samsung.
“With tens of thousands of songs uploaded every day this idea will give aspiring artists the opportunity to collaborate with some of the most successful songwriters in the world,” said Cowell in a statement announcing the project.
Sir Lucian Grainge, chairman and CEO of Universal Music Group, paid tribute to the “incredible team” Cowell has assembled to launch the platform, “harnessing the scale of TikTok, to leverage the artistry of creators worldwide.”
StemDrop debuts on Oct. 26, when 60 seconds of “Red Lights” will be exclusively released on TikTok, along with individual “stems” from the track which can be accessed through a dedicated micro-site or an in-app StemDrop Mixer, enabling users to play with production effects and create new versions of the song.
A spokesperson for StemDrop tells Billboard that Universal/Republic Records retain ownership of the master recording of “Red Lights”, the publishers own their share and with any future versions, the contribution of any new creator will be added to the royalty split.
It’s not clear if Martin — who co-wrote and produced multiple Billboard Hot 100 No. 1s, including Britney Spears’ “…Baby One More Time,” Taylor Swift’s “Shake It Off” and The Weeknd’s “Blinding Lights” – or “Red Lights” co-writers Kotecha and Payami will be involved with the platform beyond its first phase, which is officially titled “’StemDrop’ – A Song for the World.”
Following its launch, a StemDrop profile on TikTok will share new versions of the track from around the world, curated by the platform, Syco, Republic Records and Universal Music Group. TikTok music curator Ari Elkins, singer-songwriter Astrid S and digital creator Your Boy Moyo will act as global ambassadors for StemDrop and host daily content on the @StemDrop TikTok channel. Syco Entertainment and Republic Records will provide creative direction and drive the StemDrop talent discovery program going forward, according to a press release from TikTok.
“Every day, brilliant, undiscovered artists and songwriters turn to TikTok to share their music and find a global audience,” said Ole Obermann, Global Head of Music at TikTok. “StemDrop will put a spotlight on this talent and act as a springboard to help them build their careers.”