It’s a hoary outdated debate in media circles: Which is the king of the leisure industries – content material or distribution?

Within the music enterprise, the markets seem to have given a convincing response to that query in 2022, with Spotify – the world’s largest music streaming subscription platform – seeing its worth fall considerably under that of main music rightsholders.

On the shut of buying and selling on the New York Inventory Trade as we speak (December 30), the ultimate buying and selling day of the 12 months, Spotify’s share value stood at USD $78.95, equal to a market cap of $15.26 billion.

That was considerably decrease than the market cap of Warner Music Group (WMG), which has traded on the NASDAQ since summer season 2020.

WMG’s share value on the finish of buying and selling as we speak stood at $35.02, equal to a public market cap of $18.03 billion. That’s almost $3 billion greater than Spotify’s equal public market worth.

Maybe essentially the most painful comparability for Spotify, nevertheless, comes by way of music’s largest international rightsholder – Universal Music Group.

UMG ended its 2022 buying and selling as we speak on the Amsterdam Euronext with a €22.51 share value, equal to a market cap of EUR €40.82 billion.

At present change charges, that EUR market cap for Common is price USD $43.70 billion.

In different phrases, UMG’s present public valuation is price almost thrice that of Spotify’s.

Spotify vs. Common and Warner: the massive distinction in 2022

That is all a far cry from a 12 months in the past this month, when MBW was asking: ‘Universal vs. Spotify: Which of music’s two giants will be worth more at the end of 2021?’ 

On December 6, 2021, Spotify and UMG’s valuations have been remarkably shut, with UMG price EUR €45.20 billion on the Amsterdam Euronext, and Spotify price USD $44.44 billion on the NYSE.

On the identical date (December 6, 2021), Warner Music Group’s market cap on the NASDAQ weighed in at USD $21.46 billion… lower than half that of Spotify’s.

Issues look very completely different as we speak – and that’s largely to do with the efficiency of Common and Warner’s inventory within the second half of 2022.

Amid macroeconomic turbulence, Common Music Group’s share value on the Euronext is down this calendar 12 months by 8.0%, from €24.47 at Euronext’s shut on January 4 to €22.51 as we speak.

That single-digit share drop regarded, at one level in 2022, like it will be far steeper: As lately as October 11, UMG was buying and selling at a share value of €17.25, down by almost a 3rd on the corporate’s opening share value in January this 12 months.

Over the previous two months, nevertheless, UMG’s share value has rallied, bouncing up by a whopping 30.5% vs. that October 11 low-point to its worth as we speak.

This story of fast share value restoration has been mirrored at Warner.

Warner Music Group’s share value began life on the NASDAQ this 12 months by closing at USD $42.95 on January 3. That determine had crashed by to $22.35 on the shut of October 10 – down 48% vs. the beginning of the 12 months.

Since that October 10 trough, nevertheless, WMG’s share value, like that of Common’s, has surged again with a bang: By ending 2022 at $35.02, it’s rebounded by 57% vs. that October 10 low-point.

In consequence, WMG’s calendar 12 months share value decline in 2022 – like Common’s – is way much less extreme than some might have predicted, down 18.5%.

The Spotify distinction

It’s been a really completely different story at Spotify.

SPOT started 2022 with a share value of $244.16 on the NYSE. On the shut of as we speak (December 30), that share value was down by 67.7% YTD.

Not like Common and Warner, there was no bump for Spotify buyers within the second half of 2022: SPOT’s share value hit an all-time low of $72.36 on December 15, and hasn’t managed to get well a lot since.

Certainly, after a precipitous fall in worth within the first half of 2022, Spotify’s share value (and market cap worth) has continued to hunch into one thing of a flatline (see under).

To place it bluntly: Proper now, Spotify’s share value ($78.95) is price near a fifth of its equal price ($364.59) when Spotify’s worth was at its peak in February 2021.

rising pressure?

What may be perplexing to some within the music business in the case of SPOT’s share value decline is that, in line with a lot of its Key Efficiency Indicators (KPIs), Spotify has had a powerful 12 months in 2022.

That’s very true contemplating the macroeconomic local weather that many feared would injury development in music streaming subscriptions globally.

On the shut of Q3 2022, Spotify counted web international subscriber additions this calendar 12 months of 15 million. On the similar interval of 2021, Spotify’s web calendar 12 months subscriber additions stood at 17 million.

(Like-for-like, these numbers could be roughly the identical: In April 2022, Spotify mentioned that it has disconnected 1.5 million subscribers in Russia in Q1 following the nation’s invasion of Ukraine; it anticipated an additional lack of 600,000 subscribers within the territory in Q2.)

What’s extra, due to some timely price rises, Spotify’s subscription income in 2022 has really grown quicker than it has in earlier years, regardless of the plain macroeconomic headwinds.

Within the first 9 months of 2022 (to finish of September), in line with Spotify’s fiscal figures, the agency generated EUR €7.53 billion from premium subscriptions – up by €1.37 billion year-on-year (vs. the identical 9 months of 2021).

Within the first 9 months of 2021, Spotify generated €6.17 billion from premium subs – up by €917 million year-on-year (see under).

So why are the markets punishing Spotify’s share value so closely regardless of this efficiency? In a phrase: Margin.

Spotify’s gross margin in Q3 2022 stood at 24.7%, lacking the agency’s personal steering of 25.2%. SPOT’s quarterly working loss in Q3 stood at €228 million; its YTD working loss (throughout the 9 months to finish of September) stood at €428 million.

There’s, then, a business see-saw happening as we head into the New 12 months: Spotify’s music business efficiency in 2022 was a powerful one, including extra premium subscribers than many anticipated – and producing extra subscription income development than it’s managed in latest reminiscence.

This was nice information for the likes of Common Music Group and Warner Music Group, whose personal valuations have enormously benefitted from the continued bounce of the music subscription market in a recession-hit 2022.

Nevertheless, Spotify’s buyers need to see improved margin from the streamer… they usually’re nicely conscious that, on high of some huge bets on podcasting in recent years, its largest constant expense stays the royalty checks it doles out to music business rightsholders.

The stage is about for an attention-grabbing subsequent 12 months.Music Enterprise Worldwide