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Earnings season is the perfect time to read the tea leaves on the future of the streaming and subscription business. What is the future growth? Where will this growth come from? Are the prices up or down? The answers are vital for investors but also important for labels, publishers and creators.
Over the past two weeks, three companies — Spotify, Universal Music Group and Believe — have provided insights into the streaming market during their earnings calls with analysts. Their earnings reports emerged following Netflix’s warning of slowing subscription growth and the abrupt demise of CNN’s subscription platform, CNN+, just three weeks after its launch. The comparisons with music platforms go no further: Netflix’s streaming video on demand (SVOD) offer is based on exclusive content, while the music services effectively have the same catalog and compete with each other on features and user experience. CNN+ launched at the wrong time just before the completion of AT&T’s merger with Discovery and was shut down as CEO after the merger David Zaslavfirst order of the day. Nevertheless, all eyes are on the streaming services.
Chairman and CEO of UMG Lucien Grainge signaled “continued confidence” in music subscription services during the company’s first quarter earnings call on May 3. Subscriptions have certainly seen good momentum through 2022, says Graingé. Looking ahead, “we believe the music subscription market will continue to grow strongly in 2022, building on the growth we saw in 2021,” said Michael NashExecutive Vice President of Digital Strategy at UMG.
Nash prepared to answer the analyst’s question about Netflix and major investor concerns about streaming expansion. “Analysis showed that SVOD churn is primarily related to the variable scheduling of these services,” he said. “SVOD platforms focus on original and exclusive content and its content that most viewers only watch once.” As a result, consumers can start and pause the subscription depending on what they want to watch at any given time, creating a “content hunt” that results in “up to 45% bi-annual churn,” some say. investigations, Nash said. , and “surveys indicate that half or more of this churn is directly related to programming variance.” In contrast, major music subscription services have “low single-digit monthly churn.”
In France, the CEO of Believe Denis Ladegaillerie said the company’s conversations with DSPs revealed no impact from inflation or declining subscription rates. Noting Netflix’s advice and news on other SVOD platforms, Ladegaillerie said “there’s no sign that tells us this has happened with music.” Although Believe is unaware that anyone “modeled weaker growth” in 2022, he admitted that “everyone knows there is uncertainty.”
The question is how fast music subscription services will grow. Spotify expects to add 14 million net new monthly active users and six million net new subscribers (both net of churn) in the second quarter. This includes 600,000 subscribers lost after Spotify shut down completely in Russia on April 11. Investors still looked disappointed, and Spotify shares fell 13.3% that day.
There is also another reason for optimism. Subscription prices, which have been stagnant for a long time, are rising – but perhaps not as quickly as some critics would like. In the first quarter, Spotify’s average revenue per user increased 6.6% year-on-year to 4.38 euros. The company increased some prices for subscription plans for multiple people in some countries, including the US and UK, with no significant impact on churn. UMG would not comment on pricing. “We must be aware that the DSP [digital service provider] directly determines their price,” Grainge replied to an analyst. “Any questions regarding pricing should be directed to them.”
UMG doesn’t seem to anticipate DSPs will make any changes, however, as CFO Boyd Muir noted that the guidance provided in the company’s 2021 prospectus “does not take into account any price increases.” But Believe’s Ladegaillerie pointed to Amazon’s recent decision to raise some subscription prices as a sign of things to come. “We still expect other DSPs to follow in the near future with price increases,” he said.
Until May 6, the % change over the last week and the change since the beginning of the year.
Spotify (NYSE: SPOT): $104.68, +3.0%, -55.3% YTD
Universal Music Group (AS: UMG): 20.79 euros, -6.4%, -16.1% since the beginning of the year
Warner Music Group (Nasdaq: WMG): $29.14, -2.1%, -32.5% YTD
HYBE (KS 352820): 241,000 KRW, -4.2%, -30.9% YTD
nation live (NYSE: LYV): $92.51, -11.8%, -22.7% YTD
iHeartMedia (Nasdaq: IHRT): $14.01, -12.4%, -33.4% YTD
Cumulus Media (Nasdaq: CMLS): $15.44, +12.1%, +37.2% YTD
Composite NYSE: 15,566.56, -0.3%, -9.3% since the beginning of the year
Nasdaq: 12,144.66, -1.5%, -22.4% since the beginning of the year