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The latter half of final week wasn’t a very enjoyable interval to be the CEO of a significant music firm (or, certainly, of Spotify).
On Friday (June 17), a report from shopper survey platform Kantar started inspiring world headlines that carried relatively grim information for the worldwide music trade.
The report’s impression didn’t cease at media headlines.
Common Music Group‘s market cap fell by over $4 billion on Thursday (June 16), in line with YCharts information. Spotify’s tumbled by $1.45 billion on the identical day. Warner Music Group‘s dipped by practically a full billion {dollars}.
Funding analyst service Exane BNP knew the place to level the finger. It prompt that, within the case of UMG’s Thursday share value tumble, “a unfavorable Kantar report was an element behind the weak point”.
Kantar’s Worldpanel report appeared to spring out of its Leisure On Demand survey platform, which within the UK quizzes 12,000 individuals every quarter, alongside one other 2,500 new subscribers to leisure media.
The most recent report’s devastating conclusion?
That “over 1 million music subscriptions” had been cancelled in calendar Q1 this 12 months within the UK, with “wanting to save cash being cited by 37% of shoppers as the rationale”.
That definitely doesn’t sound… constructive.
Particularly when you think about that Kantar put out a equally damning report about UK shopper cancellations of Netflix‘s subscriptions in Q1. And that, shortly afterwards, NFLX admitted that it had misplaced 600,000 web subscribers globally in Q1 2022, and now expects one other 2 million web subscriber loss in Q2.
Nonetheless, we now have to say that components of Kantar’s newest report – definitely the doom-laden media and investor response to it – have left MBW a bit puzzled.
Our long-term readers hopefully know and belief MBW’s protection sufficient to know that we’re not precisely shy in telling you when streaming subscriber progress is slowing down in key markets.
Nor are we non-believers within the prospect that macro-economic elements – particularly inflation, which simply hit 9.0% (!) within the UK – would possibly additional decelerate will increase in streaming subscription numbers in 2022.
However the concept web subscriber figures within the UK are turning unfavorable? That the trade is dropping web subscribers?
That doesn’t odor fairly proper.
For one factor, 1,000,000 UK subscribers quitting their music providers in a given quarter is… truly type of anticipated.
Earlier this month, Spotify gave a 4 hour Investor Day presentation in New York. We sat by all of it. As a result of we’re troopers.
In that presentation, a bunch of essential numbers had been revealed for the primary time (together with, topically, the truth that Spotify’s person progress in Latam seems to be slowing down).
In direction of the tip of the Investor Day, Spotify CFO, Paul Vogel, took to the stage and delivered an up to date quantity on an important metric for these of us who watch SPOT like hawks: Churn.
Aka: the quantity of paying subscribers who go away the service in a given month-to-month interval.
Vogel revealed that, up to now few years, Spotify had seen “robust discount” in its churn charges, which – as Spotify has right now (June 20) confirmed to MBW – are calculated on a month-to-month foundation.
Vogel claimed that in 2017, Spotify’s world month-to-month churn charge was 5.5%, and that this had lowered to 3.9% by 2021.
What’s extra, famous Vogel (see beneath), Spotify’s churn charge in “developed markets” (together with the UK) fell to simply 2.4% on the finish of 2021.
Again to the Kantar report.
In accordance with Midia Analysis (cited within the newest BPI Yearbook), the UK had 26.5 million paying music streaming subscribers on the shut of Q2 2021. And that quantity was up from 25 million in This autumn 2020.
At that charge of progress (+1.5m each six months), you’d count on the UK market to be housing someplace round 28.9 million music streaming subscribers on the shut of Q1 2022 (i.e. the quarter wherein Kantar’s report displays).
(Music biz insiders inform us the up-to-date UK music streaming subscriber quantity, together with Household Plans, is nearer to 32 million right now, in mid-Q2.)
Guess what occurs while you apply Spotify’s lowered month-to-month churn charge in “developed markets” (2.4%) to 28.9 million music subs within the UK on the finish of Q1 2022?
What number of UK-based individuals would you count on to be unsubscribing from music streaming providers every month through these numbers?
The reply: 693,600 individuals, monthly. Or 1.8 million individuals every quarter.
That’s extra than the million unsubscribes Kantar reported. For a really regular quarter within the UK – primarily based on a churn charge so small, Spotify is beaming about it.
In case you haven’t labored it out – and we’re certain you may have since you’re good-looking, and sensible, and also you’ve obtained this far down the article – “churn” just isn’t of huge concern to music execs and traders, as long as the trade is seeing web progress in subscribers every quarter.
i.e. If extra new individuals are turning into subscribers every month than are leaving providers like Spotify, then the general variety of subs retains on ticking up. And subsequently the sum of money sloshing again into the music enterprise additionally retains rising.
Kantar’s million UK-unsubscribes quantity, then, don’t actually seem to mirror a “shrinking” of the UK paid-for streaming market in Q1, in any respect.
It’s truly utterly in keeping with normal streaming churn (particularly if these million un-subscribers then go on to re-subscribe to a special service, maybe through a tempting telco value deal, within the following quarter).
Nevertheless, Kantar’s survey conclusion additionally goes one additional, suggesting that the variety of new music subscribers within the UK “dropped to beneath 1% of the inhabitants in [Great Britain] in Q1 of 2022”.
The report then conclusively states: “With inflation rising to 9% in the UK and additional rises in the price of residing anticipated, the rising cancellation charges of music subscriptions is proof that British households are beginning to prioritise the spending of their disposable revenue.”
(One explicit component of Kantar’s survey, by the way in which, appears outright wobbly: The agency’s report means that “a few of the fundamental causes underneath 35s [in the UK] are planning to cancel [music subscriptions]…. embrace not a large sufficient choice of music, too many commercials or having technical difficulties”. Too many commercials? On ad-free music subscriptions? Eh?!)
So, the one query that actually issues right here: Was the amount of UK streaming subscribers nonetheless rising in Q1 or not?
By all accounts, sure, it was.
On Friday (June 17), we interviewed Imagine CEO and founder, Denis Ladegaillerie, for a function within the upcoming challenge of MBW’s Music Enterprise UK journal.
Imagine has good motive to be watching the UK intently proper now; not solely did the corporate develop 30.9% YoY globally in Q1, nevertheless it’s simply employed a brand new chief for its UK enterprise, Alex Kennedy, and lately landed its first No.1 UK Album with Don Broco’s Superb Issues.
We requested Ladegaillerie in regards to the Kantar figures – and the concept the UK subscription market was “shrinking” in Q1 – and it’s truthful to say he was as bemused as we had been.
“There’s nothing that we’re seeing proper now that signifies a major drop off in [UK music market] subscriber progress numbers,” mentioned Ladegaillerie. “Each month, we run all of our market projections [against actual market data in terms of] paid subscribers – household plans, particular person plans and so forth. We’re fairly good at forecasting!”
He added: “We nonetheless suppose we’re going to expertise double-digit progress in paid subscribers within the UK in 2022.”
“There’s nothing that we’re seeing proper now that signifies a major drop off in [UK music market] subscriber progress numbers.”
Denis Ladegaillerie, Imagine
Ladegaillerie certified that, even inside this prediction, Imagine is anticipating a possible YoY slowdown in UK paid subscriber progress within the second half of this 12 months, with cost-of-living being an element.
Ladegaillerie additionally famous Imagine’s appreciation of the truth that financial downturns have traditionally had a unfavorable impression on world promoting revenues, which might have penalties for the music trade as 2022 progresses.
However the concept the UK subscription market has “shrunk” in Q1? He’s not having it. And he’s not alone.
One senior main report firm supply informed MBW earlier right now: “The Kantar report just isn’t primarily based on precise information from the DSPs, which present that UK subscriber numbers proceed to develop and that engagement on all tiers stays robust.”
So what of these music traders and analysts who had been sufficiently freaked by Kantar’s numbers final week to begin making use of them to world music trade forecasts?
They could discover the next numbers attention-grabbing.
For music biz information geeks like MBW, a few actually helpful issues have come from Common Music Group floating on the Amsterdam inventory change in September final 12 months.
A kind of helpful issues is that this: UMG now splits its quarterly recorded music streaming income out into two publicly uncovered classes: (i) Subscription; and (ii) Non-subscription (i.e. ad-funded).
Beneath you may see how UMG’s quarterly subscription (and non-subscription) recorded music streaming revenues have carried out – and the way they’ve grown / declined – in Q1 of the previous two years.
- The primary chart is of UMG’s recorded music subscription income leads to EUR, as reported;
- In an try and clean out forex fluctuations, the second chart is of UMG’s recorded music subscription income outcomes transformed to USD , at common quarterly EUR-USD charges supplied by the European Central Financial institution.
Specializing in the USD-converted charts, we will see that in Q1 2022, UMG’s recorded music subscription streaming income grew by $19 million quarter-on-quarter, which was roughly the identical margin of progress it noticed in the identical Q-on-Q class in Q1 2021 (+$20m).
An important takeaway RE: Kantar report panic: UMG’s recorded music subscription streaming income comfortably grew in Q1. It didn’t decline. It didn’t “shrink”.
We also needs to keep in mind: Spotify posted a 2 million world web acquire in paying subscribers in Q1, regardless of the online loss of round 1.5 million subscribers in Russia in the identical quarter.
And Spotify is now projecting one other world web acquire of +5 million paying subscribers (quarter-on-quarter) in Q2 (from 182m to 187m), a quantity it didn’t really feel the necessity to alter at its Investor Day.
Spotify’s CEO and founder, Daniel Ek, was requested at SPOT’s Investor Day about Spotify’s resolution to not increase its particular person Premium tier’s month-to-month value in latest quarters.
His reply nodded to the present macro-economic / inflationary headwinds dealing with the music market, and in addition made reference to Netflix’s web subscriber loss in Q1.
Suggesting that Spotify had the ability to boost costs at a sure level sooner or later, Ek acknowledged that his firm presently provided “a tremendous value-to-price ratio” to shoppers – however was working in “a macro setting which may be very unsure presently”.
He added: “I personally have a look at what’s occurred within the video streaming enterprise and I ponder to myself if that trade didn’t get forward of itself.
“As a result of frankly, sure, it did improve costs, nevertheless it’s additionally now discovering itself able the place it’s tougher and tougher to seek out future progress.”Music Enterprise Worldwide
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