Simply final week, outstanding music business analyst William Packer of BNP Paribas Exane upgraded Common Music Group‘s inventory for the second time in a 12 months.
In a vote of confidence in UMG’s future worth, Packer lifted his inventory score from “impartial” to “outperform”.
That information got here just some days after we reported the boldness expressed in UMG’s long-term prospects by Invoice Ackman’s Pershing Sq. Holdings, which owns roughly 10% of UMG’s fairness.
Now, extra constructive information has arrived for the worldwide recorded music business. Fitch Scores, one of many ‘Massive Three’ credit standing businesses in the US, has assigned UMG rival Warner Music Group a first-time Lengthy-Time period ‘Issuer Default Ranking’ (IDR) of ‘BBB‘.
In line with the rankings system information on the Fitch web site, an IDR score of BBB is sweet information for the corporate receiving the score.
Inside its analysis notice printed on Wednesday (September 4), Fitch wrote that WMG’s score “mirror[s] its main place within the music leisure business supported by its intensive portfolio of music property and diversified income base”.
The notice added that the score additionally considers “the corporate’s modest leverage and strong Free Money Circulate (FCF) era, balanced in opposition to the inherent volatility of its hit-driven recorded music section.”
Fitch mentioned that its Outlook for WMG additionally incorporates expectations for “continued development in paid music streaming, growth into rising markets and new monetization alternatives from new platforms and devoted superfans”.
William Packer’s UMG inventory improve, Pershing Sq.’s constructive view about Common, and Fitch’s BBB score for Warner Music Group couldn’t have come at a greater time for the worldwide music enterprise.
In latest days, questions have been raised about the way forward for the US subscription streaming market following knowledge printed by the RIAA that exhibits a gradual sample of deceleration within the development of subscriptions within the US market.
Business revenues on the earth’s largest recorded music market grew simply 4% YoY within the first six months of 2024, in line with RIAA knowledge. Complete streaming subscription accounts within the US grew by simply 2.7% YoY in the identical interval.
As we’ve identified in our protection over the previous few days, the US is likely to be the world’s largest recorded music market, however its fee of development doesn’t mirror the state of affairs in all different markets globally, particularly fast-growing rising ones the place there’s nonetheless a variety of headroom for paid streaming adoption.
In Brazil, for instance, the place streaming makes up over 99% of its home recorded music market, numbers printed by native commerce physique Professional Musicá’ this week gave the worldwide business cause to rejoice – following the somber temper induced by the RIAA’s numbers final week.
Revenues captured by the Brazilian market’s recorded music business grew by 21% YoY in H1 2024, reaching USD $257 million (BRL 1.442bn) within the interval, in line with numbers printed by native commerce physique, Professional Musicá’.
The nation’s recorded music enterprise generated BRL 1.430 billion (USD $255m) from streaming within the first half of 2024, up 21.1% YoY.
Inside that determine, subscription streaming contributed BRL 995 million (USD $177m), up 28.4% YoY, whereas ad-supported streaming platforms contributed BRL 436 million ($78m), up 6.6% YoY.
Certainly, in explaining its resolution to assign Warner Music Group the BBB score this week, Fitch famous that the “world music business has robust development potential with alternatives from continued adoption of paid streaming companies, value will increase by Digital Service Suppliers (DSP), development in rising markets, monetization from new platforms and premium plans for superfans”.
Fitch added that it “believes [WMG] is properly positioned to capitalize on rising market alternatives”.
The score company added: “Though main labels have signed licensing rights with platforms like Meta and TikTok , Fitch believes there may be nonetheless a large worth hole from unlicensed use of music by rising platforms reminiscent of short-form video, train, gaming, and livestreaming.”
One other key cause shared by Fitch for its confidence, not solely in Warner Music Group, however music rights usually, was what it argues is the “continued Relevance of Main Labels”
In line with Fitch, “music streaming and digital media platforms have democratized music discovery and promotion, thereby making a crowded panorama.
“Regardless of this, Fitch believes that majors like WMG are uniquely positioned because of their world scale, differentiated platforms and experience.”
Fitch additionally cited WMG’s “Constant Capital Allocation” and urged that “WMG prioritizes development investments, together with shareholder returns through dividends and proactive capital construction administration.”
Fitch mentioned that it “anticipates WMG will develop through natural investments and strategic acquisitions to develop music rights, geographic attain, and companies”.
One such funding arrived in July when Warner Music Group acquired a minority stake in Brazil’s Sua Música, which runs a UGC music platform and companies enterprise, which operates throughout digital distribution, artist administration and publishing.
Warner mentioned in a press launch on July 17 that Sua Música “can be a big companion” for its technique of “increasing presence in all areas of the Brazilian market, boosting its authority in regional music, native partnerships, and sharing experience in discovering new voices to create the catalogs of the long run”.
Warner Music Group’s CEO Robert Kyncl has beforehand indicated that he’s eager to develop WMG’s presence within the so-called “center class” artist market.Music Enterprise Worldwide
