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Straight Talk Consumer and Entertainment Services

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It should have come as no surprise to anyone following the music industry to see the disastrous midyear financial results from the big global and regional live music promoters. Live Nation captured most of the headlines because of its dominant position in the sector. Total revenue in the three months to June dropped a staggering 98% year on year. Mexican promoter CIE and Japan’s Avex Group both reported similarly troubling live results for the quarter.

The major music groups also published their financials and each one took a hit in some form from COVID-19. Although physical formats account for a diminishing share of music company income, the drop in retail sales of CD albums was a drag on the overall income total. Furthermore, changes in consumers’ daily patterns from the disruption to their usual routines weighed down the companies’ streaming revenue, with UMG, SME, and WMG all reporting significantly lower rates of growth. Music publishing offered a crumb of comfort in the quarter, but the flow of publishing revenue through the collection society system is slower than income through retail for recorded music and so the downturn for publishers has been delayed. In fact, publishing could be harder hit because digital accounts for a smaller share of the total revenue and a big chunk of income is generated from the use of musical compositions in public performances (background music in shops, stores, hotels, etc.). Many rights societies have suspended collections for users forced to close and so no collections inevitably means no revenue for rights holders.

So, with the music companies presenting depressed figures, does that mean streaming services did the same? The short answer is no. Certainly, Spotify’s advertising revenue took a hit, but advertising is a small share of the overall income pie. Also, the growth rate for premium revenue softened slightly and the company acknowledged that it experienced some COVID-related softness in several countries across its emerging regions. But the service said things rebounded significantly in June. It is also worth noting that monthly active users and subscribers ended the quarter at the top end of expectations. On the other side of the world, Tencent Music Entertainment reported the biggest year-on-year rise in paying subscribers to its combined music streaming offerings, with more net new subscribers added over the previous 12 months than at any time in the company’s short history.

What do the results tell us? For a start, live music is a long way from even setting foot on the long road to recovery. Also, the big music groups are likely to register more depressed quarters as the recorded-music and music publishing sectors adjust to the new normal. But for streaming services it looks like business as usual with subscription rates largely unaffected by the pandemic. The likes of Apple Music and Spotify have already played a big part in resurrecting an industry that was on its knees not so long ago. Could it be that these services are saving the industry once more?

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