Fig 1 Global Music landscape – Content owners and major digital retailers/distributors (2018)
*NTES Cloud music revenue, pay streaming subs are on our estimates. TME revenue is our 2018 forecast, free users and streaming subs are based on company released data for Sep 2018.
Source: Macquarie Research, Factset, Company data, February 2019
Universal Music (Vivendi)Sony MusicWarner Music
Music revenues:$6,873m$5,150m (including ~US$1.4bn at Sony Music Entertainment Japan)$3,576m
% of group revenues44%9%100%
Music EBIT margin:14.1%16.0%6.2%
Rec/pub revs split:85%/ 15%Recorded Music: 69%, Music Publishing: 12%, Visual Media & Platform: 19%84%/ 16%
Global share of Recorded:29.7%21.9%16.2%
Global share of Publishing:19.5%27.3%12.0%
Ownership:Vivendi (VIV FP) owns 100% (plan to sell up to 50% by Dec 2019)Sony (6758 JP) owns 100% of SME and SMEJ, ~90% of EMIPrivate (Len Blavatnik's Access Ind. owns 100%)
Macquarie rating: Underperform (VIV FP)Outperform (6758 JP)n/a
Macquarie analyst:Giasone SalatiDamian Thongn/a
SpotifyApple Music/ iTunesAmazon Prime Music/ FireYouTube Music (Alphabet)
Music revenues:$4,669m$4,618m$1,132m$2,687m
% of group revenues100%2%0.5%2%
Geography:GlobalGlobalGlobalGlobal
Free streaming users:116mnonenone1,300m
Pay streaming subs:96m40m40m users out of 100m+ Prime subsn/a
Premium tier price:$9.99 ($14.99 Family pack)$9.99 ($14.99 Family pack)$99/ year (Amazon Prime)$9.99 ($11.99 for premium access)
Other products:Podcasts, TV programme clipsDownloads, Online radio, Music videosFree delivery, Prime Video, etc.User generated content, Music videos
Ownership:Spotify (SPOT) owns 100%Apple (AAPL US) owns 100%Amazon (AMZN US) owns 100%Alphabet (GOOGL US) owns 100%
Macquarie rating: Outperform (SPOT US)Outperform (AAPL US)Outperform (AMZN US)Outperform (GOOGL US)
Macquarie analyst:Giasone Salati, Amy YongBen SchachterBen SchachterBen Schachter
Sirius XMTencent Music EntertainmentNetease Cloud MusicKaKao
Music revenues:$5,425m$2,751m~$180m$400m
% of group revenues47%100%~1.8%30.0%
Geography:US, CanadaAsiaMainland ChinaSouth Korea
Free streaming usersnone800m+~120m(20m+ IDs only 1min free sample songs)
Pay streaming subs33m (satellite radio)35m (music streaming and social combined)~4m4m
Premium tier price:$15.9/m streaming 0R$10.9-20.9/m sat radio$2.2/ month for music streaming; $5-75/month for social entertainment$1.7/ month$10.99/ month
Other products:News, Sports channelsDownloads, online karaoke, livestreaming, copyright sublicensingDownloads, adsPaid downloads
Ownership:Public (J. Malone's Liberty Media ~70%)Tencent (700 HK) owns 58%Netease (NTES) owns majority KaKao Corp owns 100%
Macquarie rating: Outperform (SIRI US)Outperform (TME US)Outperform (NTES US)n.a.
Macquarie analyst:Amy YongWendy HuangWendy Huangn.a.
t.
Macquarie Research Global Audio Revolution
15 February 2019 3
Table of contents
Exec summary ........ 5
Redefining the audio entertainment market5
1) Audio entertainment by distribution technology .. 6
2) Audio entertainment by content .. 7
3) Audio entertainment by business model: freemium convergence ........... 8
The vertical integration dilemma ..... 9
Terms of trade ....... 10
China the new focus.......... 10
Smart speakers and voice platforms ......... 12
Top picks from audio disruption .... 12
Apple ......... 13
Amazon ..... 14
Sirius XM-Pandora14
Sony .......... 14
Spotify ....... 14
Tencent Music Entertainment ....... 15
Vivendi ...... 15
Redefining audio entertainment .... 16
Technology convergence .. 16
Audio like video content: music is only the tip of the iceberg ........ 17
Freemium convergence .... 20
Where is the growth and who benefits from it ....... 20
Audiobooks ........... 20
Streamcasts, the new podcasts people actually want ....... 23
Recorded music .... 26
Commercial radio .. 27
Concerts and festivals ....... 27
Streaming revolution ......... 29
Streaming/podcasting as a replacement to radio/physical29
Higher streaming ARPU means greater customer satisfaction ..... 30
Free users also growing, as a result of audio entertainment convergence ........... 33
Free-to-pay conversion keeps increasing . 33
Younger demographics equally likely to pay ......... 34
Content-distribution equilibrium disrupted . 36
Record labels concentration has been an advantage until recently .......... 36
Music distribution still relatively fragmented .......... 37
Homogeneous pricing suggests labels control music distribution . 38
Spotify’s pricing strategy different from Netflix’s .... 38
Vertical integration appeal/necessity ......... 40
Spotify direct distribution and licencing deals ........ 40
Tencent Musicians Plan .... 41
Korea case study .. 41
The buoyant Chinese market ........ 42
Major consolidation in China’s music distribution .. 43
East to west disruption ...... 43
The booming audio streaming market ....... 44
Distribution: upstream expansion is the norm in China ..... 45
Western labels collaboration ......... 45
Smart speakers and voice platforms ......... 46
Sizing the smart home market ...... 46
Smart speakers ..... 46
Apple an expensive and closed system compared to Google/ Amazon .... 47
Music important in smart homes, nice to have in connected cars . 48
Our new global audio entertainment model ........... 50
Accelerating audio growth, but not because of music ....... 50
Macquarie Research Global Audio Revolution
15 February 2019 4
Audiobooks and podcasts growth contribution underestimated .... 51
Slowdown in recorded music growth well documented ..... 51
Regulation . 53
Online platforms likely to face tighter scrutiny from safe-harbour reviews . 53
European Commission and US Copyright Office aims to foster a “fairer and more balanced”
framework for content owners ....... 53
Global Audio – review of main listed companies ... 54
Amazon Music ...... 55
Strategy ..... 55
Latest trends ......... 57
Catalysts ... 57
Apple Music/ iTunes (Apple) ......... 58
Strategy ..... 58
Latest trends ......... 59
AAPL and GOOGL mobile OS growing their regulatory risk ......... 60
Catalysts ... 60
Sirius XM ... 61
Strategy ..... 61
Latest trends ......... 61
Catalysts ... 62
Sony Music ........... 63
Strategy ..... 63
Spotify ....... 64
Strategy ..... 64
Latest trends ......... 64
Catalysts ... 65
Universal Music Group (Vivendi) ... 66
Strategy ..... 66
Latest trends ......... 66
Catalysts ... 67
Warner Music Group ......... 68
Strategy ..... 68
Latest trends ......... 68
Catalysts ... 69
YouTube Music (Alphabet)70
Strategy ..... 70
Latest trends ......... 71
Catalysts ... 71
HIM International Music .... 72
Financial and valuations .... 72
Latest news and development ...... 72。