Stream, Stream, Stream Redux

A decade ago, the decline of CD sales and the rise of file sharing had many declaring the death of music labels. In 2011, Warner Music Group—one of three major labels with Universal Music Group and Sony Music Entertainment—was taken private for just over $3 billion. Warner counts David Bowie, Madonna, Jay-Z, and Ed Sheeran among its 80,000 artists, with a catalog of some 1.4 million works of music.

After delaying a planned initial public offering earlier this year as the coronavirus rocked the stock market, Warner Music Group is again seeking a listing next week. The midpoint of its proposed IPO price range would value the label at $12.5 billion. Earlier this year, Tencent Holdings bought a 10% stake in Universal, owned by France’s Vivendi, valuing the label at over $33 billion.

The huge growth in music labels’ valuations over the past decade demonstrates how streaming has saved the music business. More than half of the industry’s $20 billion in global revenue last year came from streaming, including popular services like Spotify or Apple’s Apple Music. 

So far, it has been a good deal for the labels, who collect monthly licensing payments from consumer-facing services to the tune of roughly 70% of streaming revenue. It’s not up to the labels to compete for customers, and so far Spotify and its rivals have been absorbing losses.

The future balance of power remains to be seen. Concentration among the big three labels gives them bargaining power with streamers, which could lose a major hunk of their libraries—and thereby paying subscribers—if they play hardball with the labels. But extracting a larger share of streaming revenues could be difficult.

For now, the pie may be growing fast enough for labels and streamers to share amicably. From about 315 million paid music streaming subscribers today, Bernstein estimates some 13% annual growth to 1.2 billion globally in the coming decade.