Music Industry On ‘Cusp’ of Sweeping Changes as Revenue Growth Slows, Says Goldman Sachs

The pace that global music industry revenues have been growing is expected to slow this year, as the industry is “on the cusp of another major structural change” stemming from the changing price of streaming subscriptions, artificial intelligence and new payment models, according to a closely watched report from Goldman Sachs.

In its latest Music in the Air report, published Wednesday, Goldman’s research analysts say they expect global music industry revenues in 2023 to grow by 7.1%, down from an 8% growth projection last year, as live music and publishing growth rates return to more normal ranges of 6% and 8% growth this year respectively. The compound annual growth rate for revenues from 2023 to 2030 ticked up slightly to 7.3%, from 7.1% last year, and streaming revenue is expected to hold steady at an 11%-growth rate, according to the report.

That indicates steady and even more broadbased growth, researchers say, but the industry is about to face a fresh wave of massive changes.

“We believe the music industry is on the cusp of another major structural change given the persistent under-monetisation of music content, outdated streaming royalty payout structures and the deployment of Generative AI,” Goldman researchers wrote in the new report. “In the wake of these developments, we believe a more coordinated and collaborative response from the main stakeholders will be key to ensure that the industry not only continues on its path of sustainable growth but also captures new business opportunities.”

Echoing a frequent refrain of music industry executives, Goldman’s researchers say monetization of music content is way behind the rate of consumption. They estimate that the revenue earned per audio stream has fallen 20% over the past five years, and that the revenue companies earn per hour of music streamed on Spotify is four times lower than for Netflix.

They estimate that up to $4.2 billion in potential revenue could be gained over time by charging different audience segments, such as super fans, more for subscriptions.

Goldman analysts also wrote that the current method of treating all streams lasting less than 30 seconds the same and paying content owners a pro-rata share of streams “needs to evolve…to cope with dilution of market share.” This weakening, they say, is coming from the fast-growing number of songs uploaded to digital service provider (DSP) platforms, fraudulent and artificial streams and “the propensity of algorithms to push lower royalty content.”

Researchers also sounded a positive note on the potential for generative AI to lower barriers for artists, boost music creation capabilities and improve industry productivity overall, with the major music companies best positioned to benefit.

“We believe the quality of the input to large language models is critical and the largest owners of proprietary (intellectual property) are best positioned to leverage the technology,” researchers wrote, noting the industry will need to be aligned in controlling the deployment of that tech.

The report also notes that, despite fears of market dillution from the rush of new content, Universal Music Group and Sony Music Entertainment both maintained their recorded music market share in 2022, with only Warner Music Group losing market share — about half a percentage point — to independents.

“We continue to expect modest dilution of market share over time, mostly driven by the revenue mix shift towards EM, although we believe that the major record labels will continue to expand their presence in EMs through partnerships, investments and bolt-on M&A,” researchers wrote.

Spotify maintains its clear lead among the DSPs with 34.8% of total global market share in 2022, although it edged 60 basis points lower. YouTube Music was the “major gainer,” gaining about 3 percentage points of market share over the past three years to hold market share in 2022.