It's earnings season once again, with Spotify the first music company to announce second-quarter earnings on July 23. Which is fitting — not only is the Swedish streaming giant the most valuable publicly traded music company at $60.4 billion, but it's also a major bellwether for much of the music business.
Music subscriptions will continue to be the driving force for Spotify, other streaming companies, record labels and music publishers. Subscriber profits mean more money flows to creators and rights holders, while rising prices benefit streaming services and could also flow to creators and rights holders — though analysts are mixed on whether the increases prices have these downstream benefits or simply complement the flow companies “bottom lines.
Another giant of the music industry, Universal Music Group, is next, with its earnings expected to decline on the day after Spotify (July 24). Believe and SiriusXM's earnings are due next week (both August 1st), while Warner Music Group is set for next week (August 8th). Follow along Advertising signlist of upcoming industry events for more earnings release dates as they are announced.
On the touring front, despite all the fuss about weakened consumer demand and canceled tours and festivals, the live music market is likely to have produced another banner quarter. While all eyes will be on Live Nation to gauge the health of the business, the concert giant has yet to announce an earnings release date. CTS Eventim, which will report earnings on August 22, is the only promoter to announce so far.
See what to expect in the upcoming earnings reports.
Subscription earnings — but no twist?
The recorded music market has its cake and eats it too: subscription prices are rising and customers don't seem to be leaving in droves. Music subscription services benefit from price increases — specifically Spotify in 2023, with some additional price increases in 2024 — with little upside. Higher prices and continued subscriber growth will lead to gains in overall revenue and average revenue per user (ARPU). Spotify expected 245 million subscribers at the end of June, which would be 6 million net additions in the quarter and 25 million more than the 220 million subscribers it had on June 30, 2023. Watch for any signs that the higher prices have had a negative impact However, the pace of Spotify's withdrawal — while the company isn't releasing specific deviation data, it will likely warn investors if subscriber losses were larger than expected and headed in the wrong direction. So far, however, any consumer complaints have been more bark than bite. In another good sign, streaming activity has also been healthy. U.S. audio streams — by number, not by dollar value — rose 8.1% in the second quarter, according to Luminate.
Paybacks from price increases and cost cuts
Spotify expects to have operating income of 250 million euros ($273 million) in the second quarter, which will be a nearly 500 million euro ($545 million) improvement over the 247 million euro operating loss it posted in the second quarter of 2023. If achieved, this large shift from loss to profit could be matched by Spotify's decisions in 2023 to raise prices and drastically reduce its workforce (including cutting its workforce by 17% in December). Those moves paid off quickly: Gross margin rose to 27.6% in the first quarter of 2024, from 26.7% in the fourth quarter of 2023 and 25.2% in the first quarter of 2023. Reduced costs from layoffs helped also in improving operating margin to 4.6% in the first quarter — a big gain from the -2% and -5.1% margins seen in the fourth and first quarters of 2023, respectively. In addition, Spotify's second-quarter guidance of €3.8 billion ($4.1 billion) in total revenue would be a 19.6% improvement from the prior period's revenue of €3.18 billion ($3. 47 billion dollars). ARPU also increased by 7% in the first quarter and is likely to improve again in the second quarter.
More advertising weakness
Music subscription services chose the right time to raise prices. Weak ad revenue has been a recurring theme since music and tech companies began warning investors in 2022, and continued volatility in the ad market will affect ad-supported revenue for streaming companies, record labels and music publishers. On July 1, Guggenheim cut its estimate for Universal Music Group's ad-supported recorded music streaming growth to 10.6% from 11.1% “to better reflect more challenging comparisons” from the prior quarter , as Guggenheim analysts wrote in an investment note. However, this revision was still above the first-quarter estimate of 10.3% due to UMG's renewal of its licensing agreement with TikTok in May.
Demand for live music continued to be strong
For all that has been written about fans' waning appetites for live music, public companies appear to be in stable condition. In its first-quarter earnings report in May, Live Nation said that by mid-April, the percentage of major shows booked was in double digits, while concert margins had also improved. “We don't see any weakness,” the president/CFO said Joe Berchtold, adding that artists who toured in both 2023 and 2024 are seeing better sales this year. And with fewer stadium shows in 2024 than in 2023, Live Nation will have more concerts in the most profitable arenas and theaters it owns or operates. Analysts remain bullish on Live Nation in the wake of the Justice Department's antitrust lawsuit against the company filed in May: As of this week, 18 analysts have “buy” recommendations on Live Nation, four have “hold” recommendations and only one has a “sell” on the stock. CTS Eventim is expecting another good year. In April, the German ticketing and promotion company reiterated comments in its 2023 annual report, which predicted “further moderate sales growth” in 2024.
The Taylor Swift effect
UMG's finances will be boosted by Taylor Swift's latest album, Department of Tormented Poets. Released on April 17 via UMG's Republic Records, Tormented Poets it remained at No. 1 on the Billboard 200 album chart for 11 consecutive weeks since its release on April 19, with sales increasing in subsequent weeks from additional variations that helped it maintain its position on the chart. The most recent chart week, for example, shipped two CD versions of the album that fans originally ordered through Swift's online store in early June. Overall, Swift's latest album topped the Billboard 200 for 9 of 13 weeks in the second quarter and sold 2.4 million units in the U.S., with about 2 million of those coming from CD and LP sales, according to Luminate . That pushed Republic Records' US market share to an industry-leading 15.72%, up from 12.42% in the first quarter – more than Warner Music Group. UMG's total market share in the quarter was 36.37%, up from 34.48% in the previous quarter and well ahead of its 33.9% share in the first quarter of 2024.
