Increased penetration rates, subscription fee increases, and content expansion outside of music will drive the long-term growth of music streaming platforms in the future.
The Zhitong Finance App learned that SPDB International released a research report saying that the global online music industry has maintained rapid growth and has become an important growth driver for the music market. The industry's relatively stable competitive pattern and the platform's increasing bargaining power bring room for music streaming media to increase profits, while increased penetration, subscription fee increases, and content expansion outside of music will drive the long-term growth of music streaming platforms in the future. The first “buy” rating was given to Spotify (SPOT.US), Tencent Music (01698, TME.US), and NetEase Cloud Music (09899).
SPDB International's main views are as follows:
Music streaming is booming
The music streaming market has maintained rapid development. The global market size increased by 10% year-on-year in 2023, with China's online music market growing at 33%. Music streaming has become a major component of the music market, accounting for 67% of the total recorded music industry revenue in 2023, becoming an important growth driver for the music industry.
The competitive landscape is stabilizing, and the platform's bargaining power is gradually increasing
The overall competitive landscape of the music streaming industry is relatively stable. Spotify, YouTube, Apple, and Amazon account for more than 85% of the market outside of China; Tencent Music and NetEase Cloud Music are expected to account for more than 90% of the Chinese market. Due to high content copyright costs, the profitability of music streaming platforms depends on scale effects. This has established a certain entry barrier for the music streaming industry, and the competitive landscape is expected to remain relatively stable in the future. With the decline in the share of copyright content broadcast by leading record companies on streaming platforms and the increase in the share of streaming media platforms in the music industry, there is room for further optimization of the royalty share ratio in the future.
Driven by the future growth of the industry
Increased penetration rate: Although the industry has experienced rapid development, it is far from a growth bottleneck in terms of the penetration rate of paying users. The penetration rate of global music subscribers is only 12.5%. Compared with the payment rate of over 50% in mature markets, the industry still has a lot of room for long-term development.
Subscription price increases: Music streaming platforms are steadily increasing prices. Music membership prices are about 70%-80% of video memberships, and music subscriptions usually have a high level of content integrity. Music is a cost-effective form of entertainment, and the reusable nature of music content also helps maintain user stickiness.
Content development: In addition to music subscriptions, streaming media platforms are also continuously exploring new forms of content and monetization methods, such as advertising, podcasts, audiobooks, fan economy, live streaming, social networking, etc., and continue to seek new sources of growth contributions.
Aspect of the target
Covering Spotify (SPOT.US) for the first time: global layout to tap the potential of emerging markets; long audio layout is expected to open up long-term space; given a “buy” rating, with a target price of 555 US dollars.
Covering Tencent Music (01698, TME.US) for the first time: It has rich copyright advantages and benefits from the Tencent ecosystem; paywall upgrade promotes user payment conversion, and SVIP boosts ARPU; gives a “buy” rating, and the target price is 14.5/HK$56.
Covering NetEase Cloud Music for the first time (09899): differentiated positioning to seize young users; commercialization still has great potential; given a “buy” rating, with a target price of HK$145. Considering the competitive landscape, performance growth certainty, and valuation level, the industry preferred Tencent Music.
investment risk
User growth is slowing; copyright royalty risk; industry competition intensifies; competition in other forms of entertainment.
