Universal Music Group (UMG) has for some time been prominent in its efforts to better monetize superfans — a segment of music listeners willing to pay more than others in exchange for music, exclusives and Build closer relationships with their favorite artists.
Speaking at Capital Markets Day 2024 in London on Tuesday (September 17), Universal Music Group’s top brass laid out what it calls its superfan strategy – both what the company has been doing and what it plans to do in the coming years. matter.
UMG believes superfans are key to keeping music industry revenue growing since the industry began to recover from the disastrous era of music piracy.
So far, revenue growth in the streaming era has been about scale—more subscribers to streaming services, resulting in higher revenue for music companies. But going forward, UMG aims to get about half of its revenue growth from ARPU (average revenue per user) improvements, in other words, a shift toward better monetization of existing music listeners rather than simply adding users group.
That’s not to say Universal Music Group thinks music subscriptions have reached a saturation point: Company executives have repeatedly made clear that there’s still plenty of potential for growth in the space. There are some 600 million In today’s world of paying music subscribers, Universal Music Group (UMG) sees this number growing 1 billion By 2028 and already looking forward to 2 billion Milestones for the coming years.
But a one-size-fits-all music subscription model means the music industry is wasting money, a reality illustrated by UMG’s executive vice president, chief financial officer and president of operations. Boyd Muir.
“Super fan, the most ardent 20% arrive 30% Of all music listeners who have ever driven over 70% recorded music spending,” Muir told the Capital Markets Day audience.
But today, with everyone paying the same amount for a streaming subscription, the revenue generated by music audiences has flatlined, Muir explained.
“As [UMG CEO and Chairman Sir Lucian Grainge] Pointing out that while super fans listen to music for hours a day and casual fans only a few hours a week, streaming makes monetization equal for all fans,” he said.
Or, in the words of UMG Executive Vice President and Chief Digital Officer Michael Nash: “The simplicity of this model, in which all streaming media are equal, has led to issues where traffic is prioritized over value” – issues such as streaming media fraud and gaming on music streaming platforms.
This flat revenue model is why in the age of music streaming, monetization per listener is “only 50% Muir pointed out.
“More and more businesses are and will continue to be direct-to-consumer.”
Michael Nash, Universal Music Group
So what to do? For UMG, a key aspect of better monetization for superfans is an increasing focus on direct-to-consumer sales—in effect, an expansion from the “wholesale” model of selling music through streaming retailers To UMG’s model, artists sell music directly to consumers.
“We are developing more and more products and experiences for our most passionate and engaged fans,” Nash said, pointing to the following examples: billie eilishlistening parties at the theater this spring, and beat the galaxyMusic Center on UMG Gaming Platform Robloxgiving gamers the opportunity to virtually interact with artists, e.g. Jungblud, Mae Stephens and boy cudi.
Many other UMG artists such as olivia rodrigo, imagine a dragon, Post Malone and nicki minajhas been developed on Roblox.
Other efforts include “a fully immersive 360-degree virtual rolling stones store, replicating the band’s iconic flagship store on London’s Carnegie Street earlier this month,” Nash noted.
Nash made no mention of some of the less direct efforts Universal Music Group has been undertaking, such as its investment in the K-pop giant moveof Weaversis a superfan platform that has been busy expanding its largely Korean fan base into North America with help from Universal Music Group.
Yet it all points to a significant expansion of Universal Music Group’s business model from one focused on selling records to one focused on selling artist-fan relationships.
“More and more businesses are and will continue to be direct-to-consumer,” Nash said.
He noted that UMG’s direct-to-consumer (DTC) revenue is growing at a compound annual growth rate (CAGR) of 33%.
“The Super Fan DTC opportunity is more than just a free, high-growth revenue opportunity, it’s also a significant competitive advantage that increases our appeal to artists and gives us the ability to do more for them than our competitors, ” Nash added.
UMG has a lot to say about its efforts to better monetize its superfans. Here are some other things we learned from the Capital Markets Day presentation.
1) UMG is working with Spotify to develop a new “super premium” subscription level for the streaming platform
It’s been rumored for over a year, and a few months ago we finally got confirmation: Spotify A new “ultra-premium” tier is being established.
The new tier may cost approx. $5 The streaming platform’s CEO said the monthly premium subscription, which costs more than the default, is designed for “huge music lovers who are primarily looking for more flexibility in using Spotify and the existing music features on Spotify.” Daniel Eksaid earlier this summer.
We don’t know exactly what this tier will include (if nothing else, High Fidelity Audio seems to be a likely bet), but we now have word from UMG’s Nash that the company is working with Spotify on this New layer.
“We are working closely together to develop a series of compelling new features that will enhance the listener experience and further deepen artist-fan engagement,” Nash told the Capital Markets Day audience.
“We expect most streaming platforms to deploy ‘super premium’ tiers, enhancing the subscriber experience, bringing fans closer to their favorite artists and significantly increasing subscription revenue.”
Michael Nash, Universal Music Group
Like Ek, Nash didn’t provide details about the features, but he did point to another streaming service’s efforts to better monetize super fans: Chinese platforms Tencent Music Entertainment (TME)’s “Super VIP” level, which costs five times that of a regular paid subscription.
In the words of TME CEO, this level comes with Liang Ross – “Comprehensive online and offline perks such as priority access to digital albums and… ticket bookings for live music events, including our TMEA [Tencent Music Entertainment Awards]”.
Nash said TME’s Super VIP tier is “another exciting example of how product innovation can significantly increase customer value.”
“Adoption is already strong and we believe it has crossed double digits as a percentage of its user base. We expect most streaming platforms to deploy ‘Ultra Premium’ tiers, enhancing the subscriber experience and bringing fans closer to their favorite artists , and significantly increase subscription revenue.
2) UMG wants to see a more segmented music streaming customer base
The “super premium” tier is great, but is there room for further segmentation of the music streaming user base? UMG’s Nash certainly thinks so, arguing that the video streaming market holds many lessons for music streaming services on how to better monetize their customer base.
Nash said: “Netflix uses three payment tiers to segment the market, attract more consumers’ willingness to pay, and effectively solve the account sharing problem, thereby significantly expanding the user base.”
In the US, Netflix offers $6.99– Monthly ad-included “Standard with Ads” plan, offering 1080p HD streaming on two devices simultaneously; one $15.49– a monthly “Standard” plan with the same features as the lower tiers but no ads; and a $22.99– Monthly “Premium” plan with no ads, 2160p Ultra HD streaming, and the ability to stream on six devices simultaneously.
“The average U.S. household spends more than four times more on SVOD than music subscriptions, suggesting there is considerable room for us to better monetize music consumers going forward.”
Michael Nash, Universal Music Group
Nash believes that this not only shows that music streaming can be further segmented, but that the success of video streaming in building a customer base indicates that music streaming has a large number of potential user growth in the future.
Video streaming “has surpassed 1 billion Individual paid subscribers. This is not a subscription plan for SVOD [subscription video on demand] Subscribers i.e. 1 billion Individual paying subscribers,” he said. “Its growth rate is expected to continue its lead in music subscriptions through the end of the decade.”
Nash added: “The average U.S. household spends more than four times more on SVOD than music subscriptions, which shows there is considerable room to better monetize music consumers.”
3) Don’t “overreact” to fluctuations in revenue growth
As the driving force behind UMG’s revenue growth shifts from streaming user base growth to ARPU growth, and expands from music streaming royalties to direct interactions with consumers, the company expects revenue growth to “fluctuate.”
“We expect there will be periods of acceleration and deceleration along the way, so we encourage everyone not to overreact to the mild swings in the cycle,” Muir told the Capital Markets Day audience.
This appears to be a reaction, at least in part, to the sharp plunge in shares of Universal Music Group (UMG) following its latest quarterly earnings report. 6% annual increase Subscription revenue growth – well below analysts’ expectations for double-digit growth.
Ahead of its Capital Markets Day presentation, UMG issued new earnings guidance, showing it expects subscription revenue to grow at a CAGR of 8%–10%the compound annual growth rate of total revenue is 7+% From now to 2028.global music business
