Analysts at Goldman Sachs have dubbed 2023 “a turning point for the music industry”, highlighting the first major round of price increases at the streaming services, changes to the way streaming revenues are allocated to tracks and catalogues, and the evolution of generative AI.
Not all of those things are necessarily super positive in the short term. Changes to track allocation disproportionately favours one part of the music community, although the big rightsholders that clients of Goldman Sachs are likely to invest in are definitely winners. And the evolution of generative AI remains a threat as well as an opportunity. However, when that opportunity starts to be fully realised it is, once again, the big rightsholders that will likely benefit the most.
Either way, in their new 'Music In The Air' report, the Goldman Sachs analysts are mainly upbeat, predicting more streaming price increases, AI licensing deals and new revenues from superfan services. Alongside all that and “a stronger outlook for the live music and music publishing segments”, the analysts have increased their predicted compound annual growth rate for the wider music sector through to 2030 to 7.6% - up from 7.3% in last year’s report.
When it comes to digital music, it is the ad-funded services - the “free tiers” of Spotify and other streaming services, as well as music used on social media and particularly short form video platforms - that have been under-performing of late. “Following a volatile year marked by a broader cyclical slowdown in global advertising demand, we expect ad-supported streaming revenues to improve gradually through 2024”, the report says.
However, “we have reduced our 2024-30 ad-supported growth forecasts to +11.6% from +14.6% previously, mainly reflecting a slower-than-expected recovery during 2023, as well as a less bullish view on the revenue opportunity from emerging platforms, and particularly from TikTok”. That calculation was made before Universal Music got its new seemingly better deal with TikTok across the line, but there remains a general feeling at record companies and music publishers that free streaming services should still be paying more into the sector.
“Given the rising subscription streaming prices, we see an increasing value gap between the freemium and the premium offerings”, the report goes on, saying that “the audio ad-supported streaming model may also need to evolve through improved monetisation”.
That might mean more ads and higher advertising rates - assuming that services can sell more ads and get more money for them - or perhaps a mid-level service - as has been adopted by video streaming platforms including Netflix and Amazon - that still requires a paid subscription, but comes in at a lower price supported by advertising.
The continuing increase in subscription prices might also make the ad-funded free tiers more attractive, the report adds. “Although we are yet to see evidence”, it states, “we see potential risks over time from existing freemium users choosing to stay on the ad-supported tier for longer; new users opting for the ad-supported rather than paid subscription tier; and paid subscribers churning down to the free ad-supported tier”.
As well as making more money from the ad-funded services, the industry's long-standing strategy of trying to convert free users to premium subscriptions will continue. Especially in emerging markets which, although a key driver of growth for some time now, usually have significantly more users on the free tiers.
The report says, “The large base of existing ad-supported users in emerging markets constitutes an attractive pool of new subscriber acquisition over time, given paying ratios tend to improve over time as the music markets mature, user engagement increases and more importantly as major streaming services increase the level of differentiation between the premium and freemium offerings”.
On the live music side, the report is very bullish, obviously reflecting the upper end of the live sector and ignoring the challenges for artists, venues and promoters staging smaller capacity shows. “The live music industry continued its strong rebound in 2023”, the report says “with estimated revenues of $33.1 billion in 2023 (versus $26.5 billion in 2022) based on the trends reported by various industry players such as Live Nation and CTS Eventim”.
“In 2023, we estimate that the [live] industry grew 25% year on year, well ahead of our prior 6% forecast, and reaching 118% of 2019 levels”, it goes on. “This is driven in our view by a strong schedule that featured many artists who had not toured since pre-COVID, in particular Taylor Swift and Beyonce, driving both attendance (owing to larger venues) and pricing power (due to perceived scarcity of these artists in the short term)”.
Last year’s ‘Music In The Air’ very much talked up the under-tapped superfan opportunity, providing some useful stats for those at the major record companies who have been getting very excited about the potential of super-serving superfans over the last year.
