For some time now, Universal Music Group (UMG) has been prominently positioned in the effort to better monetize superfans — that segment of the music listening audience willing to pay more than others in exchange for a closer relationship with their favorite artists through merchandise, exclusive access to music, and other features.
At its 2024 Capital Markets Day in London on Tuesday (September 17), UMG’s top brass laid out what could be called their superfan strategy – both in terms of what the company has been doing, and what it plans to do in the years ahead.
In UMG’s view, superfans are key to maintaining the kind of revenue growth that the music industry has seen since it began to recover from the catastrophic era of music piracy.
So far, revenue growth in the streaming age has been about scaling up – more subscribers at streaming services resulting in higher revenue for music companies. But going forward, UMG is aiming for about half of its revenue growth to come from improved ARPU (average revenue per user) – in other words, a shift towards better monetization of existing music listeners, as opposed to simply growing subscriber bases.
That’s not to say UMG thinks music subscriptions have reached a saturation point: The company’s top brass made it clear, time and again, that there is still plenty of potential growth in that area. There are some 600 million paying music subscribers in the world today, and UMG sees that growing to 1 billion by 2028, and is already looking forward to the 2-billion milestone in the years ahead.
But the one-size-fits-all model of music subscriptions means the music industry is leaving money on the table, a reality illustrated by UMG’s Executive Vice President, Chief Financial Officer and President of Operations, Boyd Muir.
“Superfans, the most avid 20% to 30% of all music listeners, once drove more than 70% of recorded music spending,” Muir told the Capital Markets Day audience.
But today, with everyone paying the same fee for a streaming subscription, the revenue generated by the music audience has been flattened out, Muir explained.
“As [UMG CEO and Chairman Sir Lucian Grainge] noted, streaming equalizes the monetization across all fans, despite the fact that superfans listen to music a few hours every day, and yet casual fans only listen to a few hours every week,” he said.
Or, in the words of UMG Executive Vice President and Chief Digital Officer Michael Nash: “The simplicity of this model, with all streams being equal, has precipitated problems with volume prioritized over value” – problems such as streaming fraud and gaming of music streaming platforms.
That flattened revenue model is why, in the era of music streaming, per capita monetization of music listeners is “only 50% of what it once was,” Muir noted.
“More and more of this business is and will continue to be direct to consumer.”
Michael Nash, Universal Music Group
So what to do about it? For UMG, one key aspect of better monetization of superfans is an increasing focus on direct-to-consumer sales – in effect, an expansion from the “wholesale” model of selling music via streaming retailers, to one in which UMG’s artists sell directly to consumers through a variety of engagements and platforms.
“We are developing more and more products and experiences for our most passionate and engaged fans,” Nash said, pointing to such examples as Billie Eilish’s listening parties in theaters this past spring, and the launch of Beat Galaxy, UMG’s music hub on gaming platform Roblox, giving gamers the opportunity to interact virtually with artists such as YungBlud, Mae Stephens and Kid Cudi.
A number of other UMG artists, such as Olivia Rodrigo, Imagine Dragons, Post Malone and Nicki Minaj, have developed presences on Roblox.
Other efforts have included “a fully immersive, 360-degree virtual Rolling Stones store, which replicates the band’s iconic flagship store on Carnegie Street in London, earlier this month,” Nash noted.
Nash didn’t mention some of the less-direct efforts that UMG has been engaged in, such as its investment in K-pop giant HYBE’s Weverse, a superfan platform that has been busily expanding out of its primarily South Korean fan base and into North America, with UMG’s help.
Yet it all points to a significant expansion of UMG’s business model, from one that focuses on selling records, to one that focuses on selling the artist-fan relationship.
“More and more of this business is and will continue to be direct to consumer,” Nash said.
He noted that UMG’s direct-to-consumer (DTC) revenues have seen a compound annual growth rate (CAGR) of 33%.
“The superfan DTC opportunity is not just a complimentary high growth revenue opportunity, it’s also an important competitive advantage that is increasing our appeal to artists and giving us the capability to do more for them than our competitors,” Nash added.
UMG had much more to say on its efforts towards better monetizing superfans. Here are some other things we learned from its Capital Markets Day presentation.
1) UMG is partnering with Spotify on the streaming platform’s new ‘super-premium’ subscription tier
It was rumored for more than a year, and a few months ago, we finally got confirmation: Spotify is building a new “super-premium” tier.
That new tier, likely to cost around $5 more per month than the default Premium subscription, is for “huge music lovers who are primarily looking for even more flexibility in how they use Spotify and the music capabilities that exist on Spotify,” the streaming platform’s CEO, Daniel Ek, said earlier this summer.
We don’t know exactly what this tier will include (high-fidelity audio seems a likely bet, if nothing else), but we’ve now gotten word from UMG’s Nash that the company is working with Spotify in developing this new tier.
“We’re working closely on the development of a compelling set of new features that will elevate the listener experience and further deepen artist-fan engagement,” Nash told the Capital Markets Day audience.
“We expect ‘super-premium’ tiers to be deployed by most streaming platforms, enhancing the subscriber experience, bringing fans closer to the artists they love, and significantly increasing subscription revenue.”
Michael Nash, Universal Music Group
Like Ek, Nash didn’t offer many details on what those features will be, but he did point to another streaming service’s effort to better monetize superfans: Chinese platform Tencent Music Entertainment (TME)’s ‘Super VIP’ tier, which costs five times as much as a regular paid subscription.
That tier comes with – in the words of TME CEO Ross Liang – “comprehensive online and offline privileges, such as priority access to digital albums and… ticket booking for live music events, including our TMEA [Tencent Music Entertainment Awards].”
TME’s Super-VIP tier is “another exciting example of how product innovation can significantly enhance customer value,” Nash said.
“Adoption has already been strong, and we believe it has broken into a double digit percentage of the subscriber base. We expect ‘super-premium’ tiers to be deployed by most streaming platforms, enhancing the subscriber experience, bringing fans closer to the artists they love, and significantly increasing subscription revenue.”
2) UMG wants to see greater segmentation of the music streaming customer base
A “super-premium” tier is nice and all, but could there be room for even more segmentation of the music streaming subscriber base? UMG’s Nash certainly thinks so, arguing that the video streaming market holds many lessons for music streaming services in how better to monetize the customer base.
“Netflix uses three paid tiers to segment the market and capture more of consumers’ willingness to pay while effectively addressing account sharing to significantly grow their subscriber base,” Nash said.
In the US, Netflix offers a $6.99-a-month ad-supported “Standard with ads” plan, which offers 1080p high-definition streams and can be used on two devices at the same time; a $15.49-a-month “Standard” plan with the same features as the lower tier, except no ads; and a $22.99-a-month “Premium” tier with no ads, 2160p ultra-high-def streams and the ability to stream on six devices at the same time.
“The average US household spends over four times more on SVOD than they spend on music subscription, which suggests we have considerable headroom for better monetizing the music consumer moving forward.”
Michael Nash, Universal Music Group
Not only does that suggest that music streaming could be further segmented, but video streaming’s success in building a customer base shows music streaming has plenty of potential subscriber growth ahead, Nash argued.
Video streaming “has already surpassed 1 billion individual paid subscribers. That’s not subscription plans by SVOD [subscription video on demand] subscribers, that’s 1 billion individual paid subscribers,” he said. “It’s projected to continue growth through the end of this decade at a pace that will maintain its lead over music subscription.”
Nash added: “The average US household spends over four times more on SVOD than they spend on music subscription, which suggests we have considerable headroom for better monetizing the music consumer moving forward.”
3) Don’t ‘overreact’ to fluctuations in revenue growth
As the drivers of UMG’s revenue growth shift from streaming subscriber base growth to ARPU growth, and expand from music streaming royalties to direct-to-consumer interactions, the company anticipates “fluctuations” in revenue growth.
“We expect periods of acceleration and deceleration along the way, and as a result, we encourage you not to overreact to modest period-to-period fluctuations,” Muir told the Capital Markets Day audience.
That seems to have been a reaction, at least in part, to the steep dive in UMG’s stock price in the wake of its most recent quarterly earnings report, in which the company reported 6% YoY growth in revenue from subscriptions – well below analysts’ expectations of a double-digit increase.
Ahead of its Capital Markets Day presentations, UMG released new earnings guidance, showing it expects subscription revenue CAGR to come in at 8%–10%, with overall revenue CAGR at 7+% between now and 2028.Music Business Worldwide