According to forecasts from Omdia, North America is set to maintain its dominance in global music spending, despite the widespread adoption of streaming services. By 2027, subscription models, notably streaming services like Spotify (NYSE:SPOT), are expected to account for over 60% of global consumer revenues. This represents an increase from 58% in 2022, with subscriptions projected to constitute more than 62% of all global recorded music revenue. Meanwhile, revenues from physical formats are anticipated to drop to 13% from nearly 17%.
North America will still represent 43.2% of global recorded music buying in 2027, a slight decrease from 43.9% in 2022. Europe is predicted to retain its second position with an expected 27% of global music spending.
Spotify, boasting a substantial base of 226 million paying subscribers worldwide, has played a significant role in this transition. However, a slowdown in the acquisition of new subscribers poses concerns for future growth. This is particularly noticeable in the US where recorded music revenue grew by only 6%, reaching $15.9 billion last year - the slowest rate since 2016.
In response to changing market dynamics, Omdia analysts suggest that companies need to carefully balance pricing strategies. TD Cowen has noted that consumers' relative spending on music is less than half of what it was in the '90s, leading to expectations of further price rises from both TD Cowen and Goldman Sachs analysts.
Spotify raised its standard US subscription price by $1 this year to $11 a month, matching Apple (NASDAQ:AAPL) Music's increase last year. Despite this hike and Omdia analyst Simon Dyson's prediction of annual $1 price rises, Spotify added six million new subscribers during the quarter and turned a profit for the first time in over a year.
Omdia analysts have advised music companies and streaming services to offer varied pricing and subscription options, and differentiate themselves through exclusive content. Spotify has already begun this process by expanding into podcasts and audiobooks. However, CEO Daniel Ek's confidence in the product and the company's recent move to offer 15 hours of free audiobook listening per month in the UK and Australia, with plans to extend it to the US, have raised concerns at Omdia about maintaining all audio content under one subscription tier.
InvestingPro Insights
In light of the ongoing changes in the music industry, particularly with Spotify's role as a significant player, it's valuable to consider the company's financial standing and market performance. According to InvestingPro's real-time data, Spotify has a market capitalization of $33.17 billion and has experienced a return of 139.24% over the past year. This indicates a strong market performance despite the challenges faced.
InvestingPro Tips highlight some key insights about Spotify's financial health. Firstly, the company holds more cash than debt on its balance sheet, which is generally a positive sign of financial stability. Secondly, eight analysts have revised their earnings upwards for the upcoming period, suggesting optimism about the company's future performance. However, it's also worth noting that Spotify's revenue growth has been slowing down recently, and the company has not been profitable over the last twelve months as of Q3 2023.
InvestingPro provides a wealth of additional insights and tips, with a total of 13 tips available for Spotify. These tips, along with real-time data metrics, can be a valuable resource for anyone looking to understand the company's performance and prospects in depth.
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