Why Subscription Growth Is the Barometer for Major Label Success in 2024

In the last four months, two of the three major labels have seen their stock price punished for missing expectations of subscription growth — effectively sending the message that in 2024, delivering substantial revenue gains isn’t enough. In its fiscal fourth-quarter earnings on Thursday (Nov. 21), Warner Music Group (WMG) revealed streaming growth of 8.2%, which was below some analysts’ estimates — helping explain why the company’s share price fell 7.4% on Thursday and erased approximately $1.29 billion of market value. The same thing happened to Universal Music Group in July — albeit to a far greater extent — when its lower-than-expected second-quarter subscription growth led to a 24% drop in its share price despite total revenue climbing 8.7%.  

To say analysts and investors place a great deal of attention on streaming growth is an understatement. During WMG’s earnings call on Thursday, six of the 10 questions from analysts concerned subscription revenue, including topics such as drivers of expected growth, the setting of wholesale rates and how streaming royalties are calculated and distributed. That’s because analysts — and the investors they speak to — know that platforms such as Spotify and YouTube are critical to record labels and publishers’ fortunes.  

Judging from their introductory remarks, WMG and UMG would rather talk about their companies’ global expansions. On Thursday, WMG CEO Robert Kyncl highlighted the company’s focus on India, a country of 1.4 billion that he called “more like a continent than a country.” Currently dominated by ad-supported streaming, India has the fifth-largest gross domestic product but ranks just 14th amongst recorded music markets. But Kyncl said he believes the country “will become an increasingly influential global force in the music business,” adding that WMG is “well positioned to keep taking market share” through acquisitions and partnerships. Meanwhile, during UMG’s latest earnings call on Oct. 31, CEO Lucian Grainge talked about acquisitions, partnerships and expansions in emerging markets such as China, Thailand and Nigeria.  

Constantly pulled back to the topic of music subscriptions, Kyncl and WMG CFO Bryan Castellani attempted to quell any concerns that streaming growth is petering out, explaining how WMG intends to obtain high, single-digit subscription revenue growth even as that growth has been slowing. Relatively few Americans have a music streaming subscription, at least when compared to streaming video-on-demand (SVOD) options such as Netflix; during the call, Kyncl noted that subscription penetration in the U.S. is 30% while SVOD services are at 50%. “There’s a lot more to grow in United States for music,” he said.  

Lately, though, the success of music streaming platforms has looked one-sided. The licensees, not the licensors, appear to be keeping most of the spoils of price increases and subscriber acquisitions. As one WMG analyst put it, the major labels’ content is a must-have for digital service providers (DSPs) such as Spotify, but “a lot of value has instead accrued to the DSPs” rather than content owners. At least by one measure, Spotify has reaped the benefits of price increases far more than major labels. Since Spotify announced its first U.S. price increase on July 23, 2023, its share price has risen 177%, compared to 3% for UMG and 4% for WMG.  

To level the playing field and reap more of the benefits of subscription music’s popularity, WMG intends to tweak pricing — which it believes the labels will benefit from — to help drive continued subscription growth. For starters, the company expects improvements to come from the launch of a high-priced subscription tier for superfans that Spotify CEO Daniel Ek said in July could cost $17 or $18 per month. Kyncl and Castellani also pointed to changes in wholesale prices that would establish per-subscriber minimums to reduce the discounts given to family plans and other multi-user accounts. “With both subscriber growth and opportunities for wholesale price increases, the formula for streaming growth is strong and there’s plenty of room for acceleration,” said Kyncl. 

The U.S. and other mature streaming markets will deliver subscription growth more immediately than emerging markets still dominated by ad-supported streaming. But over the long term, said WMG, high-growth, emerging markets like India have substantial potential. As Kyncl explained, WMG is betting on countries like India that have rising gross domestic product (GDP) because advertising spending will increase as GDP increases —and rising GDP will eventually translate to more subscribers. Again, Kyncl talked about closing the gap between music and TV; in India, he put the number of music subscribers at 15 million and the number of households with TVs at 100 million.

Streaming has shaped today’s music business. WMG and UMG would not have gone public had it not transformed a once-moribund industry. Investors wouldn’t have poured money into Hipgnosis Songs Fund and other investment funds were it not generating massive royalties for aging catalogs. And prominent institutional investors such as Blackstone and Pimco would not be so enthusiastic about music assets if streaming couldn’t open new markets around the world.  

That strong enthusiasm has created high expectations, though, and labels’ mandate to deliver high, single-digit subscription growth is going to transform streaming in the years to come. Prices will be higher. Streaming services will launch high-priced superfan tiers. And if the labels have their way, ad-supported on-demand streaming would no longer be free. However things shake out, the majors seem confident they can deliver.