The music stocks in the United States – including those that offer streaming services – were booming throughout the pandemic of 2020, thanks to windfall profits from increased subscriptions, ad revenue, and other sources.
Businesses rushed to advertise on such platforms, hoping to capitalize on the popularity of these apps. These companies also saw healthy returns for their stockholders during this period.
Chart shows stellar returns to investors in Spotify (SPOT), Tencent Music, Sony (SNE), and other Big Tech companies like Apple (AAPL) or Amazon (AMZN). Apple Music, the streaming music service from the iPhone maker, and Amazon Prime Music by Jeff Bezos’ company are the two biggest names in this segment. Music stocks include record labels that own the works of multiple artists through music ownership deals or royalty-sharing agreements. Warner Music Group is one example.
After the announcement of the IPO by the largest music label in the world, the sector is once again buzzing. In late January, the French media conglomerate Vivendi announced that it would spin off Universal Music Group through an IPO before the end of this calendar year. UMG is home to popular artists like Taylor Swift, Lady Gaga, and The Rolling Stones. It also includes Coldplay, Billy Joel, and The Rolling Stones.
The company will likely be listed on the Euronext NV Amsterdam exchange.
Why are investors optimistic?
Growing Market. According to a Statista Report, the total revenue for the global music industry in 2018 was 53,77 billion dollars. The music industry is expected to reach $65 billion by 2023. This reflects the huge sales potential of the music companies. The growth of this segment is expected to be driven by streaming. The global music streaming industry, worth $20.9 billion in 2019, is expected to grow at a rate of 17.8% per year between 2020 and 2027.
Increased paid users: More users opt for subscriptions or paid services from such companies, particularly in the streaming segment. Spotify and Tencent Music both reported increases in paid subscriptions. A report from the Recording Industry Association of America shows that paid streaming services are adding more than 1 million new subscribers each month in the U.S.
The role technology plays in music Investors bet on new technologies, from virtual reality to artificial intelligence. MelodyVR, a VR music platform, has a selection of live shows recorded to be streamed on VR headsets like Oculus Go.
Internet and Smartphones Global smartphone sales are on the rise. This has created a wealth of opportunities for music companies, who can now target new audiences. According to estimates, more people are expected to use their smartphones for music and entertainment. This report estimates that the proportion of people in developed markets who stream music on their smartphones will reach 37% by 2030, up from 18%. This is expected to increase from 3% to 10% by 2030 in emerging markets.
What are the risks?
Piracy is a major concern for the music industry. While paid subscriptions and streaming have helped ease these concerns, security and piracy issues continue to harm the music industry. The COVID-19 pandemic, which could bring these problems back to the surface, is a major problem. The data from Muso, a company that provides analytics on piracy, showed that the number of music-related torrenting platform visits increased during COVID-19 quarantine. Music visits to torrent websites in the U.S. grew by 15.62 % between the end of February and March 2020.
The rise in streaming service prices, the higher payouts for artists, and the growth of independent music platforms to allow musicians to showcase themselves are all factors that will likely weigh on these stocks. The streaming giants are also at risk of losing users if major artists or labels withdraw their work.
Summary
The music industry is expected to remain on the radar of investors for a while, given the innovation in the music space and the lack of signs that the pandemic will ease. In addition to the ever-changing consumer preferences, investors will also be scrutinizing the fundamentals and business models of these companies. It’s time to make a choice — plug in or face the music.
