- Goldman Sachs has revamped its 20-year forecast for the online music-streaming industry. It now expects it to nearly triple between now and 2030.
- The firm lists the four stocks it says are best positioned to take advantage of this explosive growth, and provides detailed reasons why.
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It turns out the demand for music-streaming services is greater than even Goldman Sachs could've predicted. So the firm revamped its 20-year forecast for the industry to account for even more growth.
Goldman now says the recorded-music market will expand by an additional 4% to reach $45 billion by 2030. That's roughly two-and-a-half times the industry's current size of $19 billion.
The firm's reason for boosting its outlook stems from the obvious catalyst of faster-than-expected adoption of paid streaming services like Spotify and Apple Music. With music ownership quickly becoming a relic of a bygone era, listeners are racing to sign up for these platforms.
Goldman also notes that the industry's prospects have been lifted by positive updates to the profit outlooks for industry giants like UMG, Warner Music, and Spotify.
But, as in any competitive industry, there must be winners and losers. And Goldman has done extensive analysis around which players will end up on top. It ultimately arrived at the four publicly traded companies listed below, each of which occupies a unique niche in the overall music-streaming pipeline.
Note that Goldman has buy ratings on each companies listed.
Vivendi and Sony
These two companies will be the "main beneficiaries of streaming growth due to their ownership of the world's two largest record labels and music publishers," Goldman said.
The firm added: "Over the near-to-medium term, we forecast the major labels and publishers to continue receiving 60-70% of royalties for every piece of content monetized."
Spotify
"We see Spotify as extremely well-positioned to capture growing consumer demand for music streaming, with scope to tap into the $28 billion radio advertising market and $32 billion concerts and events market," Goldman said.
It added: "We expect its scale, ecosystem, content, and technology to allow Spotify to maintain its lead amongst streaming services."
Tencent Music
"We believe Tencent Music has a unique opportunity to capture the growing demand for online music in China and leverage the massive user base on its social media platforms to drive traffic to its music services," Goldman said.
It added: "We also see significant scope to drive greater monetisation of music content over time with only 4% of its user base currently paying for music content."
The chart above shows the relative growth trajectories of the main online music-streaming services. That Spotify made it onto Goldman's list is no surprise. But the presence of Tencent Music shows just how much growth potential the firm is assigning to the still-fledgling Chinese market.
Going beyond Goldman's four top stock recommendations, the firm also laid out a bonus trio of catalysts it says could significantly alter the music-streaming landscape in 2019. They are as follows:
- Spotify's renegotiations with major record labels — Goldman's base case is for Spotify's royalty rate to stay unchanged. If it declines, that could be an issue going forward.
- National implementation of Article 17 in the European Union driving better remuneration for content rights holders— Goldman expects this will "allow rights holders (e.g., record labels) greater leverage and ultimate remuneration in future licensing renegotiations with platforms."
- Potential sale of a stake in UMG — Goldman says the outcome of such a deal "could significantly alter the structure of the music industry, particularly if it involves one of the global online streaming players."
Stay tuned.