Bank: Music subscriptions shine

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Spotify will unveil its Q4 numbers on February 6th, and Vivendi a week later on February 14th. A report from equity analysts at investment bank Deutsche Bank has looked at the streaming sector and found much to commend it to investors.

The headline news from the report is that the music industry is fully embracing – and in some cases replicating – the services available from Spotify, Apple and Amazon. The bank says that at the last round of negotiations in 2017, Universal Music Group (UMG) and Spotify were the first to renew, with the WMG and Sony following with similar terms thereafter. “We believe the SPOT-UMG deal expires in April of this year and the two parties are already in talks,” said Deutsche Bank.

“It was highlighted in our meetings that the 52 per cent SPOT pay-rate to Majors is likely to receive the most focus in press reporting, but other factors are important to both parties. After meeting with the majors, we believe other priorities for the negotiations include

1) overall market share/underweighting Majors in certain playlists,
2) driving higher ARPU in reduced use of discounting through free trial periods and family/student plans and
3) reining in features and functionality of the ad-supported tier.

The bank adds that Spotify is reportedly working on a voice controlled in-car audio player, “and while it did not come up directly with our recent meetings with majors, we know that material changes to Spotify’s products require approval from labels. As such, we suspect this would be one area Spotify is focused on in this round of negotiations.”

The bank reminds investors that – at least in the US – copyright payment rates will rise from 10.5 per cent currently to 15.1 per cent from the 2018-2022 period dependent on contract renewal rates. The bank points out that for non-US labels payment rates are already at – or above – this new rate, and suggests that a ‘Base’ case over a 3-year period could see Publishing margins rise further.


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