A Growing Industry You Shouldn’t Ignore

Archive edition · Market data and company circumstances reflect 12 October 2024, when this newsletter was sent.

An Emerging Market Ready for Takeoff

In a world where industries rise and fall with the changing tides of innovation, being able to identify the next big opportunity can set you apart as a savvy investor.

In this newsletter, we dive into the latest emerging industry that’s quietly gaining momentum—one that has the potential to reshape an entire market and offer significant returns for early movers.

The industry we’re focusing on is the Music Industry—but not in the way you might expect.

As we enter a new phase of the digital music revolution, the global music industry is on the cusp of monumental change. What’s driving it? Emerging markets.

According to Goldman Sachs’ latest report, the next decade will see an unprecedented shift. And here’s the twist—the key players in this game have barely scratched the surface.

Music is in the Air

By 2030, a staggering 70% of new streaming music subscribers will be coming from emerging markets. Developed markets like the U.S. and Europe will no longer be the primary sources of growth.

In 2023 alone, 60% of net new streaming subscribers came from countries like India, Brazil, and Nigeria. But while these regions are becoming the heartbeat of subscriber growth, there’s an important catch: their revenue potential is still lagging.

Here’s where the suspense builds—emerging markets currently generate just $8 in average revenue per user (ARPU), compared to a much heftier $34 in developed markets. But this gap won’t last forever.

Goldman Sachs foresee a dramatic shift as incomes rise and the global middle class expands, paving the way for higher pricing models and more paid subscribers. By 2030, paid penetration in these markets is expected to climb from just 7% today to 13%. The race to monetize these massive audiences is about to heat up.

Billions of Songs, But Not Enough Dollars

People streamed more than 4 trillion songs last year.

In 2023, global music streaming hit a jaw-dropping milestone: over 4 trillion songs streamed. About 23% more songs were streamed than in the previous year, more than quadrupling since 2017.

The appetite for music is insatiable, with streaming now firmly entrenched as the primary way people consume music worldwide.

But there’s a dark side to this explosive growth. Despite the rise in streams, revenue per stream has been falling steadily.

In fact, global revenue per stream dropped 10% in 2023, and it’s now 28% lower than it was in 2017. It’s clear that streaming platforms have yet to unlock the true monetary potential of their massive user bases.

Hitting the High Notes

So, what’s the solution? One word: Pricing.

Major streaming platforms have already started implementing price hikes in developed markets, but there’s still more ground to cover. According to Goldman Sachs, music is still ‘significantly undervalued’. With just 12% of global internet users currently paying for a music streaming service, the potential for growth is huge.

Goldman Sachs predicts that by 2030, the streaming penetration rate in developed markets will climb to an impressive 48%, while globally it could hit nearly 20%.

And here’s where things get interesting—streaming services are exploring new ways to tap into the willingness of fans to pay more. These die-hard music lovers might be willing to shell out for premium tiers that offer exclusive content, early releases, or higher-quality audio.

Could we be heading toward an era of “tiered” streaming, where the most passionate fans pay a premium? It’s looking likely.

The Shift in Power

While emerging markets have become the new frontier for subscriber growth, the big three music labels—Universal, Sony, and Warner—haven’t fully capitalized on these opportunities.

Today, these companies dominate 70% of the music streaming market in developed countries, but their share in emerging markets ranges between 15% and 50%. That’s a massive disparity.

Here’s the kicker: Goldman Sachs expect a strategic pivot in the coming years, with these major players pouring more resources into acquiring local music companies, forming partnerships, and adapting their offerings to regional tastes.

The rise of non-English music will reverberate through the industry.

The rise of non-English music—already a significant force globally—will play a crucial role in this shift, forcing labels to rethink their capital allocation and how they engage with these rapidly growing markets.

The Future is Bright!

Even with challenges, the global music industry’s future looks bright. Streaming revenue is expected to grow at a compound annual growth rate (CAGR) of 10% through 2030. However, it’s not just streaming that’s set for a boom.

The industry as a whole—comprising live music, music publishing, and recorded music—is forecast to grow at a 7.6% CAGR, up from previous estimates.

The real shocker? Live music revenue is expected to grow much faster than anticipated, with 2030 estimates rising by 31%.

Coupled with continued expansion in music publishing, it’s clear that artists and labels will have multiple avenues for revenue growth.

But There’s Another Wildcard..

Another key factor in the mix is Artificial Intelligence (AI). As generative AI tools become more sophisticated, there’s a growing opportunity for the music industry to monetize AI-generated content.

From creating music to enhancing fan experiences, AI could play a significant role in how music is consumed, licensed, and even created.

Additionally, new payment models for artists, such as direct-to-fan subscriptions and blockchain-based royalties, are likely to gain traction, further expanding the industry’s revenue streams.

What’s Next for Music?

The music industry is poised for its biggest transformation yet, driven by emerging markets, innovative pricing strategies, and new technologies like AI. The big question is, can the major players adapt quickly enough to harness this new wave of growth?

As incomes rise and streaming becomes more ubiquitous, the music industry is primed for a dramatic shift. The pieces are in motion, and by 2030, we could be looking at an industry worth well over $100 billion.

Archive note

This article preserves the analysis in our weekly newsletter sent 12 October 2024. Market prices, forecasts and company circumstances reflect the time of publication and may have changed.

This material is general information, not personal financial advice or a recommendation to trade. Investing and trading involve risk, including loss of capital.