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How to invest in music in the era of streaming services


Streaming services can forever change the music industry. What stocks of shares should be put on right now?

Streaming music playback is either the best that is in the industry, or desperately needs reform – depending on who you ask.

In any case, you can not argue with modern trends. Streaming music in one form or another will remain with us for many years. It remains to determine who will be the winner when the dust settles.

Jazzone Salati from Macquarie Research refers to the leaders of Universal Music Group, Sony, Amazon and LOEN. Each of these companies has several advantages. Salati predicts a doubling of revenue from the sale of sound recordings in the next 10 years. Streaming playback will make a significant contribution to this growth – the new format is more profitable in implementation than outdated ones.

For example, in the case of CDs, fixed prices do not allow companies to optimize the revenue received from each customer. With a recurring payment model for most streaming services, revenue can be flexible.

Maximizing revenue from each consumer is the main reason for the growing interest in streaming playback. Who will win in the new market? Here are a few potential candidates.

Sony Music GroupHow to invest in music in the era of streaming services

Music is an important part of the company’s business. Sony ( NYSE : SNE ) is one of the largest labels, presenting artists like Jeff Buckley, Futher and Adele.

Last year, music revenues accounted for 20% of Sony’s operating profit. The corporation is investing in several major music companies, which indicates the high importance of music for Sony business, says Macquarie analyst Damian Tong.

In native Japan, Sony controls the second largest share of the music market after Avex (TYO: 7860). Tong predicts the growth of the company’s shares on the Tokyo Stock Exchange by 3%.

AmazonHow to invest in music in the era of streaming services

The largest seller of music on physical media is also a popular site.

At the dawn of its existence, Amazon ( NASDAQ : AMZN ) sold music along with books. Today, the company occupies a leading position in the implementation of media (CDs, records, etc.), is a formidable force in the market of digital downloads (following Apple ( NASDAQ : AAPL )) and develops a streaming service for Prime Music.

Currently, Amazon’s service offers users only about 1 million records. However, its strength is not in the size of the catalog, but in close integration with the brand. Subscription to Amazon Prime costs $ 99 a year and encourages customers to buy on the site thanks to the “flywheel effect”, in the words of Jeff Bezos .

Customers of the online store are more likely to subscribe to the Amazon streaming service, and vice versa. Analyst Macquarie Ben Shechter predicts the growth of the company’s shares by 4.6%, to $ 760. He says:

“At the moment, Amazon has the best strategy in terms of customer segmentation and pricing policy.”

MelOn (LOEN Entertainment)How to invest in music in the era of streaming services

MelOn is a Korean streaming service, owned by LOEN Entertainment (KOSDAQ: 016170).

In the recording industry, the company came in 1978. Since then, it has earned itself the recognition of listeners and currently controls 60% of the Korean music market.

LOEN Entertainment enjoys the support of the government of the country. The Ministry of Culture, Sports and Tourism advocates higher prices for streaming services, which, according to analyst Kwan Chow, should lead to an increase in net profit of LOEN by 26% this year and 46% in 2017. Chow predicts an increase in the company’s share price by 48%.

Vivendi, Universal Music GroupHow to invest in music in the era of streaming services

With Universal Music Group, the most famous performers of the world cooperate. Among them are Weeknd, Justin Bieber, Kendrick Lamar and the Rolling Stones.

Due to the richness of the catalog, Universal can greatly benefit from the growing popularity of streaming playback. Recently the company changed its name to Vivendi ( NYSE : VIV ) and moved to France. Salati predicts a rise in the price of the company’s shares by 43% from the current level. He says:

“We forecast an increase in EBITA by 13% by 2018 and note further opportunities for growth along with the dominance of the streaming model and a reduction in inefficiency caused by numerous sources of costs (physical distribution, downloading music via the Internet, streaming).”

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