The Ledger: Are Music Streaming Revenues Still Healthy?

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Close observers noted that last quarter Warner Music Group’s global streaming revenues were down 2.6% year-over-year. The company’s total revenue declined by 7.8% as losses in recorded music physical and digital revenues could not make up for publishing gains.

At first glance, the year-over-year decline in streaming revenue – the engine of label growth and rising music catalog valuations – may seem alarming. We see a decline in download sales and physical sales on a daily basis. Streaming is usually a reliable bright spot on earnings reports.

The decline was more pronounced when compared to companies reporting earnings for the same quarter. Sony Music Entertainment recorded strong growth during the same period. SME streaming revenue increased 33.2% in the recorded music segment and 59.8% in the publishing segment. Reservoir Media also showed no streaming softness last quarter. Recorded music saw digital revenue increase 17% year-over-year. Digital revenue in the publishing sector he increased by 29%.

what happened? Part of it is due to his WMG accounting quirks, part is due to his WMG, and part is due to factors that affect the music business as a whole.

One of the reasons for WMG’s weak streaming revenue was its short quarter. WMG’s last quarter was one week less than he was in last year’s quarter, giving us a tough bar to compare companies to, even before we consider other factors. A 14-week quarter has 7.1% more revenue-generating days than a 13-week quarter, which is a big gap to overcome. Adjusting for that, WMG Streaming’s revenue increased by 5% year-over-year.

WMG’s financial statements are reported in dollars, Sony is reported in yen, and Universal Music Group is reported in euros, also contributing to the decline. In WMG’s Recorded Music division, streaming revenue declined 4% as reported, but was flat on a constant currency basis (assuming no foreign exchange rate fluctuations). In the Publishing segment, streaming revenue increased 13.2% on a reported basis and 16.8% on a constant currency basis.

WMG also criticized the soft-streaming numbers for the new release lineup announced by the CFO. Eric Levin Called a “softer, primarily US-based release schedule,” it “could be in the second quarter. I am happy with it,” he added.

Another factor was not unique to WMG. A slowdown in the advertising market. Levin called it a “disrupted ad market” and warned that “the decline is becoming more pronounced.” The decline in streaming revenue due to advertising should not come as a surprise. The Ledger wrote about the soft advertising market in August 2022. Spotify CFO Paul Vogel warned that advertising growth in the third quarter will be “slower than forecasted at the beginning of the year.” French music company Believe said that “advertisement-funded streaming activity should be affected by rising inflation and economic uncertainty.”

The streaming market is polarized. Subscription services weathered the pandemic and high inflation well. Advertising is closely tied to the direction of the broader economy. Consumers are generally reluctant to cancel entertainment subscriptions, but it’s easy for brands to cut back on advertising costs, from YouTube to radio broadcasters like iHeartMedia (and, to a lesser extent, music publishers). ) to hit everything. At WMG, “subscription streaming showed his high-single-digit growth,” partially offset by a “mid-teens” decline in advertising revenue. WMG also found a slowdown in brand spending has created a “slightly softer market for synchros”.

In Q4, Spotify’s advertising revenue increased 14% and subscription revenue increased 18%. As Spotify’s podcasting business grows, not all of its advertising growth comes from music. Advertising growth lagged subscription growth by 3 percentage points in the third quarter.

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