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Music Sales Keep Climbing On Paid Streaming: 2 Top Gainers

By Zacks Investment ResearchStock MarketsSep 21, 2017 09:27PM ET
Music Sales Keep Climbing On Paid Streaming: 2 Top Gainers
By Zacks Investment Research   |  Sep 21, 2017 09:27PM ET
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The U.S. music industry has been on a rally of late, with revenue growth picking up pace in the first half of 2017. The main growth driver for the industry has been streaming, more specifically paid streaming services.

Goldman Sachs Group Inc (NYSE:GS) , in the meanwhile, raised quite a hue and cry with its prediction that music industry revenues will hit its highest level by 2030, a feat once achieved in 1996 during the peak of the CD era. Banking on such optimism, investing in companies linked to the music industry seems to be a prudent choice.

U.S. Music Industry Sees Revenue Growth in 1H17

The music industry is booming in the United States, courtesy of paid streaming subscriptions. Led by label owners Sony Corp (NYSE:SNE) , Vivendi (PA:VIV) SA’s Universal Music and Warner Music Group, the industry is positioned to deliver its third straight year of growth. This in turn has boosted the value of music publishers and convinced some of the biggest technology companies in the world to invest more in music.

The U.S. music industry has risen 17% to around $4 billion in the first half of this year, as per the Recording Industry Association of America (“RIAA”). That’s more than double the percentage rise reported by RIAA a year ago. The average number of paid subscribers to services like Spotify, Apple (NASDAQ:AAPL) Music and Tidal, in the meanwhile, ballooned to 30.4 million from 20.2 million recorded in the first half of 2016. This is not only a record high but also indicates growth of about 1 million new subscriptions per month during the said period.

Of the total $4-billion market, about 62% of the revenues came from streaming, with artists like Kendrick Lamar and Ed Sheeran dominating the first half. Revenues from streaming totaled $2.5 billion, up 48% from the same period last year. Paid on-demand subscription revenues grossed $1.7 billion, up 61% over the first half of 2016, while ad-supported on-demand streaming like YouTube was $272 million, up 37% from the same period last year.

A new limited tier paid streaming subscription saw a whopping 213% increase from last year, raking in $225 million in the first half of 2017. Some of the well-known providers of limited tier paid subscription streaming services are, Inc (NASDAQ:AMZN) and Pandora Media Inc (NYSE:P) .

Revenues from digital and customized radio (Pandora, SiriusXM, etc.) download and physical download, in the meantime, were $757 million and $632 million, respectively, during the first half of this year.

Recorded Music Industry to Value $41B by 2030

Bankers at Goldman Sachs are bullish on the potential of the streaming music market. They are monitoring the market with their ‘Music In The Air’ series of reports and reckon that the global recorded-music market will reach a worth of $41 billion by 2030.

Around $34 billion will be generated from streaming, with $28 billion coming from paid subscriptions and $6 billion from ad-supported streams. The assumption is based on estimates that 847 million people will be paying to stream music by then.

Major labels will also make hay from the growth in the music industry. Goldman believes that the Universal Music group will be garnering more than $15 billion in annual revenues by 2030, including $11 billion from streaming. In fact, Benji Rogers, founder of Dot Blockchain Music, has created quite a stir with his prediction that the U.S. music industry will be worth $100 billion in two years.

2 Stocks Likely to Gain

Taking the positives into consideration, investing in solid stocks related to the music industry will be judicious. We have selected two stocks that flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sony Corp produces and distributes recorded music and engages in music publishing business among various other functions. Sony Music Nashville chairman/CEO Randy Goodman said during a Sep 7 speech to Nashville business leaders that streaming is “the new world order. We either adopt or we die.”

The Zacks Consensus Estimate for its current-year earnings rose 8.8% over the last 60 days. The company, which is part of the Zacks Audio Video Production industry, is expected to surge more than 100% in both the current quarter and year. The company has outperformed the broader industry in the last one year (+11.5% vs +8.6%).

Nexstar Media Group Inc (NASDAQ:NXST) , formerly known as Nexstar Broadcasting Group, Inc., is a television broadcasting and digital media company. The company is well-known for its music streaming platform — MusicRoo.

The Zacks Consensus Estimate for its current-year earnings increased 3.6% over the last 60 days. The company, which is part of the Zacks Broadcast Radio and Television industry, is expected to rise 23.1% and 10.5% in the current quarter and next, respectively. The company has gained 10.2% in the last year.

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Music Sales Keep Climbing On Paid Streaming: 2 Top Gainers

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Music Sales Keep Climbing On Paid Streaming: 2 Top Gainers

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