Goldman Sachs’ Lisa Yang: Why I’m bullish about music streaming’s future

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Welcome to the newest Music Enterprise Worldwide Podcast. The MBW Podcast is supported by Voly Music.

On this ‘solid, MBW founder Tim Ingham is joined by Lisa Yang, Managing Director of Media & Web at Goldman Sachs’ World Funding Analysis.

Yang retains a really shut eye on the music enterprise – she’s the lead analyst on Goldman’s vastly influential ‘Music In The Air’ paper, a brand new and up to date model of which is launched annually.

The newest iteration of ‘Music In The Air’ arrived in June 2023, and contained amongst its 72 pages some stellar monetary and knowledge evaluation of all corners of the music enterprise.

It additionally contained Goldman’s headline forecasts for the longer term – together with that the worldwide recorded music business shall be producing over $50 billion {dollars} by 2030, with some 1.2 billion paying streaming subscribers worldwide.

On this podcast, Ingham asks Yang about her group’s newest forecasts in ‘Music In The Air’, whereas digging into conclusions from the report about how the worldwide music enterprise will remodel within the decade forward.

Hearken to the complete podcast above, or learn an edited and abridged transcript of among the highlights under…

Your newest music within the air report forecasts that there shall be 1.2 billion paying music streaming subscribers on the earth by 2030. We’re at round 600-670 million right this moment. What must occur between then and now to get the business to that time?

Since we’ve been publishing our annual Music In The Air updates, since 2016, each single 12 months the variety of [global music streaming] subscribers has crushed our expectations.

That [was true] even in 2022, with the [Russia-Ukraine] battle, the macro-slowdown, and the price of dwelling disaster. [That year] the variety of paid subscribers exceeded our expectations solely by 3 million, however it was nonetheless higher than what we have been forecasting.

That provides us a number of confidence that we’re going to get there.

Over the following few years, we count on the business will add about 70 to 80 million new subscriber additions [globally] yearly, which is a little bit of a slowdown in comparison with the 80 to 90 million that we noticed lately.

What’s altering is the combo. We count on a rising proportion of those web provides to return from Rising Markets [‘EM’], slightly than Developed Markets [‘DM’].

I believe, roughly, the break up [of net subscriber adds in the years ahead] shall be 60% EM and 40% DM, whereas in 2019, it was the alternative, 40/60.

In 2022, we most likely reached the landmark of [a 50/50] break up between EM and DM for the primary time.

Given the good expertise and worth for patrons being offered by music streaming platforms [today], and in addition in comparison with the penetration of video streaming [or] of video video games, we truly assume [Goldman’s] forecasts can nonetheless show to be conservative.

The large query [in] easy methods to get to 1.2 billion is, firstly, when can we get to saturation in these extra mature markets?

“Given the good expertise and worth for patrons being offered by these music streaming platforms, and in addition in comparison with the penetration of video streaming or video video games, we truly assume these forecasts can nonetheless show to be conservative.”

[For Developed Markets like] the UK, US… we use the Nordic markets as a roadmap.

Within the Nordics, we predict right this moment we’re already at 55% to 60% [of smartphone users being music streaming subscribers]. There’s no purpose why, over time, the US and different Developed Markets received’t meet up with the Nordics [at 60%]. In these [non-Nordic] Developed Markets you’re most likely at round 40% [of smartphone users being music streaming subscribers] right this moment.

Directionally, we nonetheless see an extended runway for progress. There’s some client research that present curiosity at 70%-plus [of smartphone users] for paid streaming [in Developed Markets]; I believe it’s only a query of timing. Take into consideration cable TV, for example – it’s nonetheless rising after over 30 years.

That doesn’t imply getting new clients to affix [music streaming subscription] in Developed Markets goes to be straightforward, however we predict we’re going to get there.

Then in Rising Markets, [average] penetration right this moment of smartphone homeowners [to being music streaming subscribers] might be across the mid-single digits.

On this case, we are able to use China as a roadmap – an amazing instance of how music streaming [subscriber] penetration has progressed over time.

It was at round 4% [of smartphone users in China] in 2019. It has greater than tripled since then – right this moment we’re at about 13%.

So our forecast for the entire of EM… is 12% [of smartphone users becoming music streaming subscribers] by 2030, and we predict there’s no purpose why [other EM markets] wouldn’t over time meet up with China.

for those who might decide one ’rising’ territory that you simply assume goes to be significantly commercially game-changing for the music enterprise within the subsequent seven to 10 years, which might you select?

I’d most likely level to India, as a market the place I believe we’re nonetheless very a lot scratching the floor by way of penetration and potential over time.

Firstly, from a macro standpoint and demographic standpoint, this isn’t a market that may be ignored.

This 12 months India overtook China as probably the most populated nation on the earth with over 1.4 billion folks. And apparently, not like many different international locations, its workforce is younger and increasing, whereas [in] a market like China, the inhabitants is growing old, most likely even shrinking.

“I’d level to India as a market the place I believe we’re nonetheless very a lot scratching the floor by way of penetration and the place we see potential over time… From a macro standpoint and demographic standpoint, this isn’t a market that may very well be ignored.”

[India is] additionally now the fifth largest financial system on the earth. It has lately overtaken the UK. So in that context, the music streaming market continues to be in its infancy, particularly in relation to music subscriptions.

Practically 80% of [music] streaming income [in India] comes from ad-supported. It’s truly the alternative of different areas [where it’s] 80% or 85% from subscription and 15% from promoting.

There’s already an enormous pool of ad-funded customers [in India], we predict greater than 200 million; it’s the third largest marketplace for ad-supported [music] income on the earth after the US and China.

So there’s an enormous pool of customers [in India today that] you may faucet into and convert to paid customers over time.

your forecasts for paid subscriber progress are contingent on the concept that headline streaming subscription costs will rise by a mean of three% per 12 months in established markets just like the USA over the following half-decade. How assured are you that Spotify and different main streaming companies will carry on placing their costs up repeatedly sufficient to fulfill that 3% per 12 months common?

I believe [the recent Spotify price hike] is not only a one-off, and there shall be alternatives to lift costs additional over the foreseeable future.

We haven’t truly baked in any worth enhance in Rising Markets [to Goldman’s forecasts], even though our conversations with business gamers means that Chinese language streaming companies can even be trying to elevate costs [soon].

So why do we predict we’re on the tipping level in relation to music pricing and music monetization typically? One easy commentary, as a place to begin, is that music continues to be massively under-monetized.

There’s no purpose why music streaming monetization will proceed to be disconnected from the expansion in music streaming consumption.

“The video streaming business is a superb instance by way of how issues might pan out for the music business… When you have a look at that business, main streaming companies have raised their costs successfully by 10%, each two to 3 years.”

We like to have a look at different industries in parallel. The video streaming business is a superb instance by way of how issues might pan out for the music business.

Clearly, video is extra mature – we predict it’s most likely 10 years forward of music streaming in relation to penetration. And for those who have a look at the video business, main streaming companies [like Netflix] have raised their costs, successfully, by 10% each two to 3 years.

Even after bearing in mind the Spotify worth enhance [of 2023] the usual plan of Spotify continues to be 45% cheaper than Netflix right this moment.

Clearly, loads will rely on what would be the key priorities of the most important DSPs.

Within the final decade, all of the methods [they] put in place have been to principally chase quantity progress. And quantity progress was, on the time, simpler to get. However now progress is changing into more durable to get, particularly in a few of these Developed Markets as you’re approaching and exceeding 40% penetration [of smartphone users].

So in some unspecified time in the future, [music streaming platforms will] begin to assume much more deeply about monetization, particularly at a time of excessive inflation. If a Spotify or an Apple or an Amazon need to higher monetize their customers, that turns into their key focus.

They may be capable of elevate costs, however we predict there’s additionally a possibility to raised section audiences to extend monetization and categorize ‘superfans’, for instance.

Loads is talked about ‘superfans’. What do you assume a extra in depth streaming providing for this premium part of superfans would possibly find yourself trying like? What particularly do you assume tremendous followers would possibly find yourself paying extra for?

Firstly, we do assume there’s a better propensity for superfans to pay much more.

Common Music has usually cited client analysis exhibiting that 30% of their artists’ followers truly may very well be thought-about superfans. And superfans used to pay thrice extra within the obtain period [than they do in the streaming era each year for music].

So you may see [what] this income alternative might symbolize. We’ve got assumed it might… add about $4 billion [to music industry revenue, which is] a couple of 25% uplift to our present paid streaming forecast. [Goldman doesn’t include potential additional ‘superfan’ revenue in its flagship forecasts.]

When you have a look at a lot of the new [streaming pricing] plans which were launched during the last decade, the purpose was primarily to amass new clients, even at cheaper price factors. These plans have sometimes been dilutive; take into consideration scholar plans, or household plans, or the Amazon Music financial system plan.

Thus far, there have solely been a number of makes an attempt to attempt to cost a premium for further options.

So I do assume there may very well be new packages that would come out within the subsequent few quarters or years that would embody extra performance like Hello-Fi, for example, which right this moment continues to be supplied at no further value by Apple Music. It might imply providing extra content material like audiobooks. [Or] it is also charging for possibly extra unique content material, for example.

“the business ought to [consider] the way it can higher leverage your entire artist-fan relationship.”

Extra broadly, the business ought to [consider] the way it can higher leverage your entire artist-fan relationship. That might embody entry to pre-release songs, ticketing, merchandising, digital concert events, and many others., to essentially attempt to monetize each single touchpoint between an artist and their followers.

It’s value pointing on the market’s been some attention-grabbing initiatives popping out of Asia.

Japan, for instance, has been very well-known for monetizing superfans. For many years, the document firms [in Japan] have partnered with artist administration firms to show a easy document sale right into a full merchandising expertise that join artists with their followers.

There have been numerous techniques to spice up CD gross sales – included as a part of your CD, some voting playing cards, or tickets to have the ability to participate in handshake occasions along with your favourite artist, entry to particular concert events and unique footage and many others.

All of that principally simply leads followers to purchase extra CDs.

Extra lately we’ve seen an attention-grabbing initiative popping out of South Korea.

HYBE launched a superfan platform referred to as Weverse, I believe, a few years in the past. And the final time I checked, they’d simply over 8 million month-to-month energetic customers. [Subsequent to this conversation being recorded, HYBE surpassed 10 million Weverse users.]

Weverse is a platform that hosts quite a lot of free and paid content material from its artists, reminiscent of BTS. It has movies, it offers you with common updates, day-to-day updates from the artists themselves, and in addition has a platform to promote merchandise.

In order that’s additionally an instance of how some gamers in Asia have been capable of higher monetize that artist-fan relationship.

In your newest report, you say {that a} extra refined streaming royalty fee mannequin is now “obligatory to exchange what we all know as professional rata”. The place do you assume we’ll finally find yourself? What is going to the mannequin be? Or will or not it’s many fashions?

It’s laborious to inform, however I believe one factor is evident, [which] is that the [pro-rata] mannequin has to alter as a result of it simply has too many flaws.

The professional-rata mannequin was designed at a time when the business was nonetheless in decline, the place the gamers didn’t have as a lot significance by way of driving person consumption. And I believe it’s fairly clear that you simply want a mannequin that would higher align with monetization and consumption, and in addition pay out [in line] with the worth that’s truly been generated by a music or an artist.

I can’t consider some other business in leisure that values every bit of content material the identical, which is successfully nonetheless the case right here.

“I can’t consider some other business in leisure that values every bit of content material the identical, which is successfully nonetheless the case right here.”

I do assume it should take time, as a result of as you already know, getting all of the majors to agree on [one payment] mannequin takes time. Getting the majors to agree with the DSPs takes even longer! You may see how prolonged the negotiations have been [between the majors and] the likes of TikTok or Spotify; it’s a multi-year course of.

The one factor I believe that can most likely come out within the brief time period is a approach to remove streaming fraud. Music Enterprise Worldwide has written loads about this.

There are numerous research that present that most likely 3%, 4%, 5%, even as much as 10% of streams [today] are thought-about [to be] fraudulent.

It’s clear everybody within the business is aligned to sort out fraud, and that would simply redistribute 5% to 10% of recorded music income again to actual artists. That’s most likely step one by way of aligning monetization with consumption.

I do assume ultimately we’ll transfer in the direction of [something like] UMG’s “artist-centric” mannequin, no matter this truly means right this moment. I believe everybody will agree over time [on] a mannequin.

You’re assured sooner or later for music rights and their value, and – to make use of a barely controversial time period – ‘premium’ music rights. Finally, What’s driving your confidence in these rights and the businesses that purchase rights?

The music business nonetheless has a number of structural progress drivers. That’s what I like concerning the music enterprise – it’s most likely some of the under-monetized types of content material.

That’s [what] will allow the business to proceed to develop in any macro atmosphere. And I believe the final couple of years with COVID, with the battle and the [period] of excessive inflation, the music business has continued to show actually, actually resilient.

However clearly, the combo of [that] progress will change. I do assume we’re going to enter a [new] section of progress, which most likely goes to be more healthy, as a result of it’s going to be extra broad-based.

It’s not simply going to depend on streaming. Bodily gross sales have stopped declining; vinyl continues to develop. You get super new alternatives on the licensing facet, particularly as there’s more cash being put into [acquired] catalogs.

A number of these catalog homeowners shall be interested by higher methods of monetizing their content material. And I believe licensing and sync alternatives shall be enormous over time. And I nonetheless assume we’re on the very early stage of higher monetizing these adjoining platforms reminiscent of social media, gaming, and the metaverse.

All of that is going to assist maintain excessive single-digit progress fee for the business for the following decade.

MBW’s podcasts are supported by Voly Music. Voly’s platform allows music business professionals from all sectors to handle a tour’s budgets, forecasts, monitor bills, approve invoices and make funds 24/7, twelve months a 12 months. For extra info and to enroll to a free trial of the platform, go to VolyMusic.com.