Recorded music is faring better than the concert business amid the coronavirus — but it’s hardly immune.
Over the past few years, labels and music publishers have once again become a hot investment — see Warner Music Group’s initial public offering in June or Tencent’s purchase of 10% of Universal Music Group, which valued UMG at a dizzying 30 billion euros ($35.2 billion at current exchange rates) — partly because streaming revenue is expected to continue soaring over the next decade as new markets embrace the format. Even amid the coronavirus pandemic, with the live business temporarily shuttered, Spotify revenue grew 13.3% to 1.9 billion euros ($2.2 billion), according to second-quarter earnings that were released July 29.
The three major labels aren’t faring as well. UMG, WMG and Sony Music each suffered second-quarter drops in revenue compared with the same period last year, according to their recent earnings reports: UMG was down 3.8%, WMG declined 4.5%, and Sony Music dropped 13.1%. And although their recorded-music revenue from streaming grew — Sony’s rose 3.6% compared with the same time period in 2019, while WMG’s and UMG’s were up 9.1% and 9.2%, respectively — they didn’t post the double-digit increases that investors have grown accustomed to. Consumers are streaming more music at home, on gaming consoles and smart speakers, and more of them are buying subscriptions even amid a bad economy — Spotify added 8 million subscribers in the second quarter, the most in a year. So why aren’t music companies seeing those gains?
Part of the reason is that all streaming isn’t created equal. Some of the considerable growth in subscription revenue was offset by declines in ad-supported revenue as online ad rates dropped across the board. Labels share in Spotify’s ad revenue, which fell 20.6% compared with the same time last year, as well as that of YouTube, where ad rates are said to be dropping in general, although exact figures for music are difficult to come by. (Other music companies that depend on advertising suffered, too: Pandora’s ad revenue dropped 31% in the second quarter, compared with the same period in 2019, while overall revenue at broadcast radio giant iHeartMedia fell 46.6%.)
And streaming isn’t the entire business. Physical sales still account for 21.6% of the recorded-music business worldwide, largely because of Germany and Japan, and that revenue declined significantly — 38% for UMG, 42.2% for Sony and 46.3% for WMG. With the concert business on pause, merchandise sales also fell by over 20% at the two majors that itemize those results.
The upside is that streaming will continue to grow after the pandemic ends. So analysts expect revenue at the most widely covered company, WMG, to fall less than 2% this fiscal year, then start increasing again in 2021 and return to double-digit growth in 2022. Until then, labels are trying to make up for lost revenue with new businesses. “There’s this old saying that nature abhors a vacuum,” said WMG CEO Stephen Cooper during an earnings call on Aug. 4. This is “a situation where we’ll do all that we can to fill it.”