Goldman Sachs Research predicts major structural shift in the music industry

The music industry is bracing for significant changes, according to the latest research from Goldman Sachs. One crucial aspect highlighted in the report is the industry’s struggle to fully monetize its content, especially when it comes to music streaming services.

While these platforms have seen a surge in the number of songs released, the revenue per stream has taken a hit, declining by a significant 20% since 2017. This poses a considerable challenge for labels, as the increased consumption isn’t translating into proportional profits.

However, it’s not all bad news for the music sector. Goldman Sachs Research predicts that global revenue for recorded music will see a growth of 7.5% in 2023. Looking ahead, the compound annual growth rate from 2023 to 2030 is projected to be 8.6%, which remains largely unchanged from previous forecasts. The report also maintains a positive outlook for streaming growth, with a steady CAGR of 11%.

One of the key questions explored is how the industry will address the tension between consumption and pricing. The recent introduction of price increases by major music streaming platforms indicates that they might have more pricing power than previously thought. These platforms have tested the waters with these increases, and early evidence suggests that they haven’t negatively impacted user churn.

Another intriguing finding in the report is the concept of “superfan segmentation.” Recognizing that different users have varying levels of engagement with artists and songs, Goldman Sachs suggests that personalized experiences could open up a $4 billion opportunity. By catering to superfans, streaming platforms could potentially see a substantial boost in revenue.

The report also sheds light on the current payment structure between streaming services and music labels, which hasn’t seen significant changes since the early days of music streaming. This model compensates labels based on overall stream share, not considering the value users place on specific content. As a result, there are issues with fraud, manipulation, and incentives for playlists to favour lower royalty content.

The industry appears to be open to exploring new payment models. Goldman Sachs proposed two potential alternatives: a user-centric approach, where payouts are based on individual listening habits, and an artist-centric model, rewarding artists based on the value they bring to the platform. This marks a critical turning point, as discussions around innovative streaming payment models are finally taking shape.

The challenges posed by falling revenue per stream and the need to strike a balance between consumption and pricing are evident. Yet, the projected growth and potential opportunities, especially with “superfan segmentation” and new payment models, signal a hopeful future for the industry.

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