What to expect from Spotify, UMG and more

Earnings season is upon us again, and Spotify is set to become the first music company to report its second-quarter results on July 23. And fittingly so — the Swedish streaming giant is not only the most valuable publicly traded music company by market capitalization at $60.4 billion, but also an important barometer for much of the music industry.

Music subscriptions will continue to be the lifeblood of Spotify, other streaming companies, record labels, and music publishers. Subscriber gains mean more money flowing to creators and rightsholders, while rising prices benefit streaming services and could also impact creators and rightsholders—although analysts have mixed views on whether price increases are delivering those benefits downstream or simply hurting streaming companies’ bottom lines.

Another music industry giant, Universal Music Group, is next, with earnings set to fall the day after Spotify (July 24). Believe and SiriusXM are due to report earnings the following week (both Aug. 1), and Warner Music Group is set to report the week after that (Aug. 8). Follow Notice boardA list of upcoming industry events along with dates for financial results releases as they become available.

On the touring side, despite all the hype surrounding weakening consumer demand and canceled tours and festivals, the live music market is likely to produce another record 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 date; CTS Eventim, which will report its results on August 22, is the only promoter to do so so far.

Here’s what to expect from the upcoming round of earnings reports.

Subscription Growth—But Without Churn?

The recorded music market is having its cake and eating it too: Subscription prices are rising, and customers are clearly not leaving in droves. Music subscription services are benefiting from price increases — namely Spotify in 2023 with additional price increases in 2024 — with little churn. Higher prices and continued subscriber growth will lead to growth in total revenue and average revenue per user (ARPU); Spotify expected 245 million subscribers at the end of June, which would be 6 million net new users in the quarter and a whopping 25 million more than the 220 million subscribers it had on June 30, 2023. But watch out for any signs that higher prices have hurt Spotify’s churn rate — while the company doesn’t release specific churn figures, it’s likely to warn investors if subscriber losses are worse than expected and heading in the wrong direction. So far, though, any consumer complaints have been more bark than bite. Another good sign is that streaming activity is healthy, too. According to Luminate, U.S. audio streams — in terms of volume, not dollar value — grew 8.1% in the second quarter.

Benefits from price increases and cost reductions

Spotify expects to post an operating income of €250 million ($273 million) in the second quarter, which would be an improvement of almost €500 million ($545 million) compared to the €247 million operating loss the company reported in the second quarter of 2023. If achieved, the big turnaround from a loss to a profit could be attributed to Spotify’s decisions in 2023 to raise prices and drastically reduce its workforce (including a 17% reduction in its workforce in December). Those moves quickly paid dividends: Gross margin rose to 27.6% in Q1 2024, up from 26.7% in Q4 2023 and 25.2% in Q1 2023. Reduced expenses resulting from layoffs also helped improve operating margin to 4.6% in Q1 — a big gain compared to the -2% and -5.1% margins it saw in Q4 and Q1 2023, respectively. Additionally, Spotify’s second-quarter guidance of €3.8 billion ($4.1 billion) in total revenue would represent a 19.6% improvement over the prior-year revenue of €3.18 billion ($3.47 billion). ARPU also rose 7% in Q1 and is likely to improve again in Q2.

More advertising weaknesses

Music subscription services have picked a good time to raise prices. Weak ad revenue has been a recurring theme since music and tech companies began warning investors about 2022, and the continued volatility in the ad market will weigh on ad-supported revenue for streaming companies, record labels and music publishers. On July 1, Guggenheim lowered its forecast for Universal Music Group’s ad-supported recorded music streaming growth to 10.6% from 11.1% “to better reflect more challenging comparisons” with the prior quarter, Guggenheim analysts wrote in a note to investors. But that revision was still above the first-quarter estimate of 10.3% due to UMG’s renewal of its licensing agreement with TikTok in May.

Still a big demand for live music

Despite the tone of fans’ diminished appetite for live music, public companies appear to be in a stable position. In its first-quarter earnings report in May, Live Nation reported that the percentage of major concerts booked through mid-April was up double digits, and that concert margins were also improving. “We don’t see any weakness,” said its president/CFO Joe Berchtoldadding that artists who toured in both 2023 and 2024 are seeing stronger sales this year. And with fewer stadium shows in 2024 than in 2023, Live Nation will have more shows in the more profitable arenas and amphitheaters 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: This week, 18 analysts issued “buy” ratings for Live Nation, four “hold” ratings and just one “sell” the stock. CTS Eventim is also expecting another solid year. In April, the German promotion and ticketing company reiterated comments made in its 2023 annual report, which predicted “continued moderate sales growth” in 2024.

Taylor Swift Effect

UMG’s finances will get a boost from Taylor Swift’s latest album, Tortured Poets Department. Released April 17th via UMG Republic Records, Tortured poets 1 on the Billboard 200 albums chart for 11 consecutive weeks since its April 19 release, with sales increasing in the weeks since thanks to additional variants that helped it maintain its position on the chart. For example, the final week on the chart saw two CD versions of the album shipped, which fans had originally ordered from Swift’s online store in early June. In total, Swift’s latest album topped the Billboard 200 for 9 of the 13 weeks of the second quarter and sold 2.4 million copies in the U.S., with about 2 million of those coming from CD and LP sales, according to Luminate. That led to Republic Records’ U.S. market share reaching an industry-leading 15.72%, up from 12.42% in the first quarter — more than Warner Music Group. UMG’s total market share for the quarter was 36.37%, up from 34.48% in the same quarter last year and significantly exceeding the 33.9% share in Q1 2024.