Analysts at Goldman Sachs expect to see music streaming services roll out higher priced ‘super-premium’ products over the next year, boosting revenues for both the services and the music industry. Rolling out such products is “complex” and “takes time”, but they present a multi-billion dollar opportunity.
Which is one of the reasons to be cheerful offered by Goldman Sachs’ latest ‘Music In The Air’ report, despite it beginning with the admission that “2024 was the first year since we began forecasting music industry trends where global music revenues fell short of our expectations”.
It was the recorded music sector where growth levels were most disappointing, which we already knew from reports published earlier this year by IFPI and MIDiA. Recorded music saw revenue growth of 4.8% in 2024, when Goldman Sachs had estimated 8.9%. Which means last year the record industry only saw 53% of the growth that Goldman Sachs anticipated.
More of that revenue is now flowing to the majors as a result of them pressuring the streaming services to freeze grassroots artists out of the royalty pool by introducing payment thresholds. And, deep inside this new report, comes the revelation that “87% of total tracks” - or 175.5 million tracks if you prefer - have not surpassed the 1000 streams threshold “required to be monetised on Spotify”.
But in the wider scheme of things, that redistribution of streaming money only makes a relatively minor difference to the majors, which need much more solid growth in the years ahead.
It wasn’t just recorded music that under performed, with live music growth - at 4.4% - slightly below the estimated 6%. Though music publishing saw growth at 9.3%, in line with exceptions.
When all that is combined, the global music market - across recordings, songs and live - grew 6.2% last year, below the Goldman Sachs estimate of 7.9%.
In terms of what’s causing the slowing of growth in recorded music, the analysts talk about one-off, cyclical and structural factors. One-off factors include the termination of certain licensing deals, such as Meta abandoning Facebook Premium Music Video, while cyclical factors include fluctuations in the advertising market impacting on ad-funded services.
Perhaps the most important factor, though, is the slowing down in growth in premium subscription revenues, which Goldman Sachs sees as a “structural factor”. That’s the result of fewer new sign-ups in more mature markets where most people who will pay to stream already are, and also reductions in average revenue per user - or APRU - as a result of discounted plans and bundles.
The report notes that, globally speaking, subscriber growth outlook “remains robust”, but future subscriber growth will be “driven largely by emerging markets”.
So the analysts expect paid subscriber numbers to rise from the current 752 million to 1.17 billion by 2030 and 1.511 billion by 2035, but with the contribution of emerging markets to subscriber growth “rising to 68% by 2030 and 75% by 2035”, compared to 57% last year.
Subscription prices are generally lower, often considerably lower, in emerging markets, which means subscription revenues are lower too. However, the report observes, “we see a significant opportunity to increase ARPU in emerging markets in the long run as income levels improve across these regions”.
In terms of boosting ARPU in more mature markets, that’s where the super-premium products and the superfan opportunity much hyped by the streaming services, the major record companies and Goldman Sachs itself come in. Which means finding an enhanced subscription product that a portion of subscribers - ie the superfans - will pay more to access each month.
“The current streaming model does not distinguish between its users”, the report explains, “charging each the same flat monthly fee, independent of the level of engagement with the platform and its artists, despite the wide availability of data. As such, we see a significant opportunity to improve audience segmentation and therefore improve monetisation”.
Which is all well and good, but the super-premium and superfan opportunity has been talked up for a while now, especially by Spotify, which has been promising a higher priced super-premium product for ages, but is yet to launch it. When updating its investors each quarter, sometimes Spotify seems very keen on super-premium, other quarters it’s more vague about what is planned.
Presumably aware of that, ‘Music In The Air’ concedes that “the actual implementation” of super-premium “is complex and may take time”, because of “the required alignment across multiple industry partners” and “the highly nuanced approach - by service and the market - when it comes to execution given each platform and each region’s specificity”.
What is meant by “the required alignment across multiple industry partners” becomes clear when ‘Music In The Air’ runs through the specs of what some see as the template for super-premium, the Super Premium VIP tier already offered by China’s Tencent Music. That includes better audio quality, longer-form content and various perks including “access to merchandise and live events”.
One key problem for Spotify is that its primary partners in the music industry, ie record labels, don’t control live music, aren’t necessarily in control of merch either, and may not be best placed to deliver compelling longer-form artist-led content.
Which means Spotify will need to negotiate with other strands of the music industry that don’t necessarily see the benefit of participating in super-premium. Live Nation CEO Michael Rapino has already been a little dismissive of Spotify’s suggestion that access to ticket pre-sales - which his company controls - could be part of its super-premium product.
Whether the streaming services can overcome these “complexities” to develop higher-priced products to help significantly boost subscription revenue growth remains to be seen. Nevertheless, says Goldman Sachs, “we expect to see providers begin to roll out these tiers over the next twelve months”. We shall see if super-premium is still listed as a reason to be cheerful in next year’s ‘Music In The Air’ report.