Recorded music has been in a state of limbo throughout quarantine: Though live events like concerts and other in-person money-makers have shut down, songs and albums have been buoyed by streaming — so things are difficult, but not terminal.
On April 20th, Olivier Nusse, the CEO of Universal Music France, gave a pre-recorded address to shareholders of Universal Music Group owner Vivendi that summed up the mood of the global industry. Nusse said UMG’s “global executive management team is leading the company to success” but that COVID-19 would “certainly impact physical sales, and merchandising sales [both] on tours and in stores. The impact on streaming should be more limited, and will vary depending on the market and remuneration method. Streaming by subscription, which generates the largest portion of UMG revenues by far, is intrinsically more stable and robust.”
This, though, didn’t itemize the full damage for UMG and its fellow major music companies from the pandemic. As this column has previously noted, Universal, Sony, and Warner face deleterious effects from COVID not only on their physical record sales and merch, but also on their share of touring ticket sales, plus a reduction in performance licensing income — in particular, money collected from bars, restaurants and retailers whenever they play records within their premises. In addition, all three majors own large-scale music publishing companies, who cannot collect their usual percentage of ticket sales for every live concert at which their catalogs are performed. Making matters worse, both publishing and recorded music industries are facing a reduction in the production slate of TV shows, movies and video games — from which the majors would typically hope to obtain a steady stream of sync licensing income.
Throwing all of these factors into the mix, in May, Goldman Sachs significantly reduced its 2020 forecast for the global trade revenues of the recorded music industry (and, even more dramatically, for the live music industry). Goldman slashed its annual worldwide outlook for record companies by nearly $2 billion, from $22.6 billion to $20.8 billion — but that $20.8 billion forecast was still up by 3% on the amount generated by record labels, globally, in 2019 ($20.2 billion, according to IFPI).
Now, though, evidence is mounting that the economic damage inflicted on the global record business in the past four months — and the months to come — may be even more severe than feared. Midia Research last week issued a telling report on what it predicts will happen across 2020. The UK-based prognosticator believes that the worldwide record industry’s wholesale/trade revenues are on course to fall 1.2% year-on-year in 2020. This is a significantly less appealing scenario than that sketched out by Goldman’s report in May, which forecast that, thanks to streaming’s reliable strength, the industry would see shrinkage in its annual growth, but growth nonetheless.
Mark Mulligan, head of Midia, points out that last year, more than a third of record label income worldwide came from a combination of physical sales plus performance and sync licensing. And up to 56% of the number of US scripted TV shows expected to be made in 2020 will now not go into production, due to studio shutdowns and reduced on-set capacity thanks to social distancing. As a result, he says, record companies will be left “feeling the pinch.”
“This is the exact same narrative from the late 2000s to the mid 2010s, when streaming was growing fast but not fast enough to offset the decline in CDs and downloads” — Mark Mulligan, head of Midia Research
Adds Mulligan: “Streaming is largely resilient to COVID but if a recession kicks in — which looks likely — then a slowdown in subscriber growth could happen too. The most likely scenario for 2020 is that streaming will keep the lights on for the global recorded music business but won’t quite be able to offset the impact of declining traditional revenues.”
For those with longer memories, suggests Mulligan, “this is the exact same narrative from the late 2000s to the mid 2010s, when streaming was growing fast but not fast enough to offset the decline in CDs and downloads. The good news is that that was a long term trend; this, however, is (hopefully) a one-off year.”
Impact will not necessarily be even across territories. On June 29th, Sony Corp delivered an update to shareholders regarding the specific impact of the pandemic on its music business so far this year. The Japanese company, parent of Sony Music and Sony/ATV, notes that releases of new records from its labels are “being delayed primarily due to [artists] being unable to record songs and music videos.” Sony says this trend should only have a “limited” negative impact in the US in 2020, due to the strong recurrent nature of income from user subscriptions to services such as Spotify. “However,” continues Sony, “in countries like Japan and Germany where the proportion of music that is streamed is relatively low, CDs and other packaged media sales are decreasing due to restrictions on going outside.” This chimes with Midia’s predictions, which suggest that, despite that forecast 1.2% decline in global industry revenues, the US will still post mild growth stats in 2020.
But Sony’s update also offers more doom-laden news about the company’s experience of pandemic lockdown thus far. “Ticket, merchandising and video revenues are decreasing, as concerts and other events are being postponed and cancelled in Japan and other areas,” it noted. “Due to a global reduction in advertising spending, revenue from advertising-supported streaming services and revenue from the licensing of music in TV commercials is decreasing. Additionally, delays in the production of motion pictures and TV shows are causing a decline in music licensing revenue.”
The latest news out of France isn’t much cheerier. A study on the impact of COVID on the French music industry that Ernst & Young issued on June 30th suggests that France’s music business (across recorded, live, publishing and more) is on course to generate €5.9 billion this year. That’s not only down by €4.5 billion (-47%) on what was forecast pre-COVID, but actually down by €3.9 billion (-40%) on what the French industry generated last year. The vast majority of this lost revenue (€2.29 billion) will be from ‘modern and variety’ live music shows, says EY, but it also predicts that the recorded music industry will lose some €200 million, down 20% on what was expected. What’s more, money collected for French songwriters by local collection society SACEM, says EY, will be €250 million smaller than what was budgeted pre-pandemic.
One music company which is economically more insulated than most from COVID, ongoing quarantines, and second spikes, is Hipgnosis Songs Fund, the UK-based, highly acquisitive music rights company founded by Merck Mercuriadis.
In its new annual report covering the 12 months to end of March, Hipgnosis points out that — thanks to its focus on evergreen catalog hits — just 3% of its business last year came from live income, with public performance revenues making up 12%. It also says that, despite the sync industry being hit hard by COVID, its company “has not seen a decrease in the demand for song placements and synchronizations.” Hipgnosis is more optimistic than others as regards COVID’s impact on its business this year, then — but cautiously so.
“Overall, we expect that the income growth from streaming [in FY2021] will exceed any lost earnings from public performance and live income,” says the company, adding that it “will work extremely hard to offset any adverse effects of the COVID-19 pandemic and deliver added value to our shareholders.”
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.