The Ledger: How Much Will Music Subscriptions Grow in 2022?

The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.

Earnings season is a great time to read the tea leaves about the future of the streaming and subscription businesses. How much growth is ahead? Where will that growth come from? Is pricing headed up or down? The answers are vital for investors but are also important to labels, publishers and creators.

In the last two weeks, three companies — Spotify, Universal Music Group and Believe — provided some outlook on the streaming market during their earnings calls with analysts. Their earnings reports appeared in the wake of Netflix’s warning of subscription growth slowdown and the abrupt demise of CNN’s subscription platform, CNN+, just three weeks after its launch. Comparisons to music platforms only go so far: Netflix’s streaming video on-demand (SVOD) offering is based on exclusive content whereas music services effectively have the same catalog and compete on features and user experience. CNN+ was poorly timed to launch just before the completion of AT&T’s merger with Discovery and was shuttered as post-merger CEO David Zaslav‘s first order of business. Nevertheless, all eyes are on streaming services.

UMG chairman and CEO Lucian Grainge signaled “continued confidence” in music subscription services during the company’s first-quarter earnings call on May 3. Subscriptions certainly carried good momentum going into 2022. “There were more subscribers added in the last year than any previous year in premium music subscription,” said Grainge. Looking forward, “we believe the music subscription market will continue to grow strongly in 2022, building on the growth we saw in 2021,” said Michael Nash, UMG’s executive vp of digital strategy.

Nash came prepared to answer the analyst’s question about Netflix and investors’ broad concerns about streaming expansion. “The analysis has shown SVOD churn is mostly related to the variable programming of those services,” he said. “SVOD platforms focus on original and exclusive content and its content most viewers are watching only once.” As a result, consumers can start and pause subscription based on what they want to watch at a given time, creating a “chase for content” that results in “up to 45% semi-annual churn,” according to some surveys, said Nash, and “surveys indicate half or more of that churn is directly related to the programming variance.” In contrast, leading music subscription services have “low single-digit monthly churn.”

In France, Believe CEO Denis Ladegaillerie said the company’s conversations with DSPs have not revealed impacts of either inflation or lower subscription rates. Noting Netflix’s guidance and news about other SVOD platforms, Ladegaillerie said “there’s no sign that’s telling us it has happened with music.” While Believe is not aware anyone has “modeled lower growth” in 2022, he admitted that “everyone knows there is uncertainty.”

The question is how fast music subscription services will grow. Spotify plans to add 14 million net new monthly active users and six million net new subscribers (both are net of churn) in the second quarter. That includes 600,000 lost subscribers after Spotify fully closed in Russian on April 11. Investors still seemed disappointed and Spotify shares dropped as much as 13.3% that day.

There’s further cause for optimism, too. Long-stagnant subscription prices are headed upward — although perhaps not as quickly as some critics would like. In the first quarter, Spotify’s average revenue per user was up 6.6% year over year to 4.38 euros. The company has raised some prices of multi-person subscription plans in select countries — including the U.S. and U.K. — without a material impact on churn. UMG wouldn’t comment on pricing. “We have to be aware that the DSP [digital service provider] directly determines how they price,” Grainge responded to an analyst. “Any questions with regards to pricing are going to have to be directed at them.”

UMG doesn’t appear to anticipate DSPs will make changes, however, as CFO Boyd Muir noted the guidance provided in the company’s 2021 prospectus “does not factor in any price increases.” But Believe’s Ladegaillerie, pointed to Amazon’s recent decision to raise some subscription prices as a sign of things to come. “We still expect other DSPs to follow in the near future with price increases,” he said.

STOCKS

Through May 6, the % change over the last week, and the year-to-date change.

Spotify (NYSE: SPOT): $104.68, +3.0%, -55.3% YTD
Universal Music Group (AS: UMG): 20.79 euros, -6.4%, -16.1% YTD
Warner Music Group (Nasdaq: WMG): $29.14, -2.1%, -32.5% YTD
HYBE (KS 352820): 241,000 KRW, -4.2%, -30.9% YTD
Live Nation (NYSE: LYV): $92.51, -11.8%, -22.7% YTD
iHeartMedia (Nasdaq: IHRT): $14.01, -12.4%, -33.4% YTD
Cumulus Media (Nasdaq: CMLS): $15.44, +12.1%, +37.2% YTD

NYSE Composite: 15,566.56, -0.3%, -9.3% YTD
Nasdaq: 12,144.66, -1.5%, -22.4% YTD

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