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FIt was a nightmare for the music industry: Consumers sucked songs and complete albums from the Internet via illegal addresses without paying for it. Within a decade, the industry lost more than a third of its sales.
Len Blavatnik, an American businessman with Ukrainian roots, nevertheless invested: In 2011 he bought Warner Music, the world’s third largest music group, for $ 3.3 billion. What few realized at the time: The industry was at the beginning of a new revolution – and a spectacular comeback.
In the year that Blavatnik bought, the music industry worldwide had sales of just under $ 15 billion, compared to more than $ 20 billion last year. Over the past five years, sales have grown by an average of nine percent a year – significantly stronger than the global economy.
Warner Music is also benefiting from the boom: since 2015 the group has increased its sales by 50 percent. Stars such as British pop singer Ed Sheeran, US rapper Cardi B and R&B artist Bruno Mars helped. Blavatnik uses the success: Last week he placed some of his shares on the stock exchange. Now Warner Music is valued at over $ 15 billion there. Blavatnik has more than quadrupled its investment.
First destroyer, then redeemer
Music is suddenly a hit again: the Internet, initially the destroyer, has become the savior. The rapidly growing spread of smartphones is also boosting business because devices like the iPhone are also mobile music players. The industry now generates almost two thirds of its sales digitally. Streaming in particular brings money to the till. Services like Spotify, Apple, Amazon or Tencent offer music as a subscription. Customers no longer buy individual songs or albums, but are given access to the provider’s entire library for a fee. Either a monthly fee is paid, which costs about as much as an album, or you can endure commercials. In April, Warner signed a new license agreement with Spotify. The platform has become the Group’s most important customer. Spotify contributed 14 percent of Warner’s total revenue in the past fiscal year. Apple follows closely behind with a sales share of 13 percent.
The physical record business is only shrinking slightly: enthusiasts buy albums in vinyl; those who still have a CD player create demand for the silver discs. However, growth will continue to come from the Internet in the future. The industry association IFPI calculates that the number of subscribers to streaming services rose last year by 34 percent to 341 million. The financial service Bloomberg calculates that the income from this business area can double by 2025.
Analysts see further growth potential, especially in China. There, only two percent of the population had a subscription to a music service last year, Warner argues. The analysts at the Swiss bank UBS see music as a long-term, structural growth story.
Corona also meets the music. Concerts are canceled, artists postpone new releases. The sale of physical records is declining because fewer people come to the stores. By contrast, the high-margin streaming business is crisis-proof. Warner’s sales shrank by 12 percent in April. Analysts calculate that sales in 2020 will remain roughly at the previous year’s level and that the Group will remain profitable. Weaker days of the stock offer buying opportunities.
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Image sources: Warner Music Group / 123rf