Music Industry Ready to Play Tunes Investors Would Love to Hear
Warner Music’s (NASDAQ: WMG) recent IPO was singing perfectly to the tune of the markets and investors. If investors had been watching with eager ears, were in sync with the tunes and were feeling the pulse right, the success of the IPO was a no brainer.
When it filed for an IPO in February, there was a perfect storm waiting to happen. Now that the storm has passed, its IPO has ended as a perfect story. Warner Music’s success could also show the path to other companies.
People have long started to pay for music again and rampant piracy is a thing of a past. Steve Jobs spoke of breathing a new life for the music industry during the launch of iPods. That dream is now coming to fruition for the industry.
If there is one person who would be closely tracking the listing and valuation of Warner Music, it could be Vincent Bollore, the man who controls Vivendi. Universal Music is owned by Vivendi, which has been trying to list its shares too. The company has recently sold a 10 percent stake to Tencent Music, which also owns stakes in Spotify and Warner music.
Top Music Stocks
Shift to streaming music
In 2011, billionaire Len Blavatnik bought Warner Music for $3.3 billion. It was the time when the industry all around the world was faced with proverbial music.
Global recorded music sales were then estimated at $15 billion. There were no online streaming service companies that could drive revenues. Nearly 10 years later, the situation has turned on its head. Sales have moved up to over $20 billion. A dramatic change has been brought about by streaming services, which have risen an estimated 900 percent.
Warner Music is now worth nearly 5X what Blavatnik paid.Streaming music is one big reason for that. Documents filed by Warner Music with the SEC show Spotify and Apple together account for nearly 27 percent of its $4.5 billion revenue for the fiscal year 2019. That share is certain to grow.
According to Statista, streaming accounted for 79 percent of US music industry revenues in 2019, up from 75 percent a year ago and 65 percent in 2017. In comparison, revenues that music companies make from digital downloads has almost halved.
Statista data also confirms the trend across global markets. In 2019, the increase in streaming revenues compared to the year before was 22.9 percent. The impact? In a little over a decade, sales of music albums have plummeted from over 500 million a year to 112 million in 2019.
It is this opportunity that the music companies need to tap if they can partner with the music streaming brands.
Making music together
The stakes are getting higher. Spotify has recently signed up with Joe Rogan that could earn the star podcaster up to $100 million. The deal is being seen as a coup by the industry since it also made the stock jump 11 percent.
Rogan hopes that the most popular radio show in the US can now be taken to new audiences, breaking fresh ground for Spotify. Spotify will have the exclusive rights to the video made during the podcast.
This is one way in which Spotify could widen its appeal. It could set a new trend just like original content helped Netflix break fresh ground and differentiate from competition. Since it pays out nearly two-thirds of its revenue to music companies for licensing, own content may help the streaming giant with better leverage with music companies.
If they can crack it together, the sound of music will be sweeter for investors.
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