Streaming Ahead: Why Music Streaming May Be on the Verge of a Profit Surge

With a substantial increase in streaming volume, the industry's financial future is ripe for transformation. Explore the catalysts behind this potential shift.

 

Streaming has become the dominant way individuals consume music, accounting for 67% of global recorded music revenues in 2022.[1]  Growth in streaming is expected to continue through the remainder of the decade. However, profit growth has not kept pace with overall streaming growth. That may be about to change. Why?

Streaming Is Projected to Grow At a Healthy Pace

Streaming as a percentage of global recorded music revenues increased from 65.5% in 2021 to over 67% in 2022. Streaming has continued to surge in 2023, hitting over 1 trillion streams in March, its quickest pace ever.[2] 

Global paid streaming penetration is expected to double to 1.2 billion paid users by 2030 from its current levels of 600m paid users today. Streaming revenue is projected to grow at an 11% compound annual growth rate (CAGR) through 2030.[3]

But Revenue and Profits Are Not Keeping Up with Growth

While the consumption of music streams has increased by 2.5 times since 2017, average revenue per stream has fallen by 20% over the same period.  Additionally, the average revenue per user (ARPU) on streaming platforms has fallen by 40% since 2016. 

On the Cusp of Structural Change

Streaming platforms are targeting initiatives that may accelerate growth in revenue and profits.

Price Increases

Revenue from streaming has suffered from platforms pushing through lower prices via bundling packages. However, Goldman Sachs has observed several major music streaming platforms push through price increases for the first time in over a decade, without backlash from consumers. They expect streaming platforms to continue to push through regular price increases. 

Even after taking into account the Spotify price increase of 2023 (by just $1), the standard plan for Spotify is still 45% cheaper than Netflix today.

Focus on Superfans

Superfans are music listeners who engage with an artist and their content in multiple ways. They comprise 15% of music listeners but on average, spend 80% more than the average listener on monthly music activities. 

Streaming platforms are likely to spend more time targeting the right product mix to appear to this potentially lucrative segment of the global music audience.

Better Segmentation of Content

Currently, music streaming platforms treat each stream the same.  It does not differentiate between newer or premium content.  Music streaming platforms may look to emulate video streaming platforms where certain content is more highly valued and commands higher prices. Universal Music Group just announced such a deal with French Streaming service Deezer.

As Goes Streaming

Music streaming platforms are looking to make structural changes that they expect will increase penetration, revenue, and profits.  As its largest component, positive changes to streaming will likely translate to positive changes to the global music industry.

Consider MUSQ for Exposure to the Global Music Industry and Music Streaming Companies.

The MUSQ Global Music Industry ETF (MUSQ)

The MUSQ Global Music Industry ETF (MUSQ) seeks to provide investment results that, before fees and expenses, correspond to the total return performance of the MUSQ Global Music Industry Index (MUSQIX).  The MUSQIX Index is designed to provide exposure to global, publicly traded companies and royalty funds with a core business interest in the global music industry.

MUSQ may provide individuals with an attractive vehicle to gain exposure to the global music industry.

For a full list of MUSQ holdings, please click here.

 

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[1] For more information, please see the MUSQ White Paper
[2] Please see our blog One Trillion Streams, and Other Recent Music Industry Trends
[3] Unless otherwise noted, all data sourced from: Music Streaming Services Are on the Cusp of Major Structural Change, Goldman Sachs, 7/31/23