Why Music Investors Aren’t Worried About Slowing Streaming & Revenue Growth

Table of Contents

1. Key Highlights
2. Introduction
3. Understanding the Landscape: Current Market Trends
4. The Pricing Factor: How Growth Will Unfold in Mature Markets
5. Emerging Markets: The Future of Music Subscription
6. Exploring Technology’s Role: AI and Its Potential in Music
7. Long-Term View: Gaining Perspective on Market Health
8. Conclusion
9. FAQ

Key Highlights

• Despite declining subscription growth in the U.S. and slower global revenue growth, industry experts anticipate a healthy long-term outlook for music publishing and recorded music catalogs.
• Price hikes and increased subscription penetration in emerging markets are expected to drive growth, with forecasts predicting an annual growth rate of 8% through 2030.
• Emerging markets like India and Indonesia represent significant opportunities due to their low subscription penetration rates, which indicates potential for substantial growth.

Introduction

Recent research from the Recording Industry Association of America (RIAA) and the International Federation of the Phonographic Industry (IFPI) has revealed a concerning trend: streaming subscription growth in the U.S. is slowing, and global revenue growth in recorded music has declined. Such news might suggest a looming crisis in the music industry, yet an unexpected counter-narrative is emerging. Industry insiders and analysts argue that these trends will not adversely affect the healthy market for music intellectual property rights. Instead, they foresee driving forces in the form of price adjustments and emerging market penetration that will sustain and even accelerate growth.

The global music landscape is evolving rapidly. As we delve into why investors remain confident despite the apparent slowdown in streaming growth, it is essential to understand the historical context, current trends, and future prospects that shape the music industry's financial ecosystem.

Understanding the Landscape: Current Market Trends

Declining Growth: A Concise Overview

As streaming platforms proliferate, data from MIDiA Research indicates that there are currently 818 million global subscribers. Despite this impressive figure, subscriber growth rates have shown signs of stagnation, particularly in mature markets like the U.S. and Europe. For instance, the share of subscription revenue accounted for about 66% of U.S. revenue and approximately 51% of global revenue in 2024, yet the growth rate is not what it once was.

The specific reasons for this slowdown include:

• Market Saturation: Major streaming platforms have reached a dense customer base in established markets, making it increasingly difficult to attract new subscribers.
• Rising Competition: As more competitors enter the streaming space, the market is divided further, making it challenging for any single player to dominate or grow substantially.

Expert Opinions: Reactions to Trends

Despite the deceleration in subscriber growth, experts in the field are not panicking. Mark Mulligan, a music industry analyst and managing director of MIDiA Research, emphasized that current figures might appear concerning, but they are insufficient to raise alarm among seasoned investors. He noted, “We’re not bearish, but we’re not bullish either.” Investors are taking a longer view, focusing not on short-term fluctuations but on sustainable growth in the coming years.

The Goldman Sachs Perspective

The financial forecasting firm Goldman Sachs stands as a revered authority within the music industry, and its projections inspire confidence among investors. Goldman Sachs has estimated that global recorded music and publishing revenue will grow at approximately 8% annually through 2030. This projection takes into account anticipated price increases and improving market conditions in regions outside the U.S.

The Pricing Factor: How Growth Will Unfold in Mature Markets

Price Adjustments

Jeremy Tucker, founder of Raven Music Partners, posited that recorded music has been underpriced relative to its actual value. For more than a decade, subscription fees have remained relatively unchanged, creating a situation where both consumers and companies are accustomed to lower prices. However, as companies seek more revenue, price hikes are now inevitable.

Platforms have already begun taking this approach. For instance:

• Spotify increased prices in select markets during 2022 and 2023.
• Major labels, having renewed their licensing agreements with Spotify, have suggested introducing higher-priced tiers designed for superfans.

Historical Context

Understanding the pricing dynamics is essential for a comprehensive grasp of the current landscape. Historically, the music industry has faced cycles of disruption; each required adaptation. Factors such as the transition from physical to digital formats and subsequent entry into streaming services illustrate the need for vigilance and creativity. Just as past innovations were met with initial resistance, higher subscription prices may ultimately be welcomed as a means of sustaining and facilitating the industry’s growth.

Emerging Markets: The Future of Music Subscription

While Western music markets are seeing slower growth, emerging markets present a newly promising frontier. Countries like India, Indonesia, and Brazil display low subscription penetration rates—indicating substantial opportunities for growth through better market infrastructure and accessibility.

Subscription Penetration Rates: A Key Indicator

Mulligan explains that subscription penetration rates offer insight into potential market growth:

• In mature markets such as the U.S. and the U.K., penetration rates hover around 40%-50%.
• In stark contrast, Poland’s rate is 17%, Brazil’s is 16%, and China’s sits at 13%. Even more striking is Indonesia, with just 1.8%, and India, at a mere 1.3%.

These low rates correspond with significant growth potential. As these marketplaces develop a music infrastructure and better conditions for subscription services, the industry anticipates a virtuous cycle—where increased subscription adoption fuels investment, leading to more artists signing deals and creating new music, consequently escalating the business further.

A Cautionary Observation

However, Mulligan warns that companies which have not yet invested in these burgeoning markets may be left behind. The underinvestment in local music talent could result in missed opportunities as consumer bases shift toward local acts.

Exploring Technology’s Role: AI and Its Potential in Music

One of the pivotal advancements in the music industry has been the introduction of artificial intelligence (AI), enhancing productivity and efficiency for rights holders. AI is enabling quicker and more effective royalty collection, while also assisting in expanding music reach globally through customizable regional versions.

Future Implications of AI

The application of AI technology is notable in its potential to streamline operations:

• Localization Efforts: Artists can produce altered versions of their music in multiple languages, enhancing accessibility in emerging markets at relatively low costs.
• Enhancing ROI: Revenue generation will likely improve as AI tools streamline operations, allowing rights holders to focus on creativity while optimizing financial returns.

Through these enhancements, the music industry can embrace a model that appreciates the intricacies of local markets while ensuring a broad audience reach.

Long-Term View: Gaining Perspective on Market Health

As the conversation around the state of the music industry evolves, it is essential to recognize that short-term fluctuations in subscriber numbers do not capture the broader narrative. Investors are increasingly focused on long-term trends that will ultimately shape the industry's trajectory.

An extended forecast conducted by analysts indicates that:

• Sustained Investments: With continued investments into local repertoires and catalog acquisitions, music investors are well-positioned to capture substantial returns over the medium to long term.
• Resilience Among Stakeholders: Historical resilience displayed by the music industry throughout various technological and economic upheavals supports the notion that adaptability is key to navigating future challenges.

Conclusion

While the current decline in streaming sub-growth may raise eyebrows, it paints an incomplete picture of the health and trajectory of the music industry. Investors remain optimistic, buoyed by potential growth from price increases and untapped markets. With advancements in technology and thoughtful adaptability, the outlook remains promising. The music industry is on the brink of transformation, challenging those who grasp these shifting dynamics to seize future opportunities.

FAQ

What is causing the slowdown in streaming growth?

The slowdown in streaming growth is attributed to market saturation in mature markets, where a significant portion of the population already subscribes, combined with a rise in competition leading to decreased momentum in subscriber acquisition.

How do analysts predict the future growth of the music industry?

Analysts forecast that global recorded music and publishing revenue will grow at approximately 8% annually through 2030, driven primarily by anticipated price increases and increasing penetration in emerging markets.

What is the role of AI in the music industry?

AI enhances efficiency in royalty collection and allows rights holders to expand their music's global reach by offering localized versions in various languages, providing cost-effective routes for market expansion.

What opportunities lie ahead for investors in emerging markets?

Emerging markets like India and Indonesia present significant growth opportunities due to their lower subscription penetration rates, which indicate untapped consumer bases and the potential for substantial revenue growth over time.

How can companies adapt to changing market dynamics?

Companies must invest in local talent and markets, leverage technological advancements like AI, and explore innovative pricing strategies to ensure they remain competitive and capture growth opportunities in the evolving music landscape.