A month ago I mused about the business of music streaming and wondered how music artists make any money from their music. A recent episode of Marketplace provided the simple answer: the transition from buying music by the unit to paying a flat monthly fee has been unprofitable for the vast majority of music artists. From “Can streaming do better by musicians? SoundCloud says it’s willing to try“:
“…think of all of Spotify’s streams last year. Every song, by every musician. Imagine all those streams, and the money they make, in one communal pot. Musicians get paid based on their share of all those streams, not the number of their fans who have subscriptions.”
The article/podcast goes on to quote Andrew Leff, an instructor at the University of Southern California’s Thornton School of Music, who called streaming the “institutionalization of devaluation” resulting from a culture that insists music should be cheap. I do not blame the current culture because free or cheap music has long been available on the radio or at the bar or club. When recording equipment became widely available, young people created “dubs” or recorded their favorites when aired on the radio.
The real issue is the new economic model that merged with the devaluing ecosystem of the internet. People generally expect most content on the internet to be free or nearly free. Unlike movies with their theaters (before the pandemic), music no longer has a viable alternate distribution channel for selling music by the unit at scale (when did you last buy a CD?). Accordingly, the pot of money acts like a near fixed source of income. Ad-supported streaming is barely better since ads are not attributed to the artist even though ad volume can scale with platform usage.
The Trade
In my earlier post, I focused on Warner Music Group (WMG) and commentary from its last earnings report. I also noted that the company has a stake in Roblox (RBLX). RBLX went public last week. The stock opened at $64.50 after setting the reference price for its direct listing at $45. Instead of popping, WMG quickly resumed its current sell-off and now breakdown from its trading range. WMG extended below its lower Bollinger Band (BB) in today’s trading. I am making an exception in the wake of confirmed resistance at the declining 50-day moving average (DMA) (red line below).
Spotify (SPOT) was the focus of the Marketplace segment. SPOT is testing support at its 200DMA (the blue line) for the first time in 11 months. The stock is a (technical) buy here with a tight stop below the low point of the previous 200DMA breakdown. I do not like buying stocks that confirm 200DMA breakdowns in the middle of a strong stock market. SPOT has been making more and more of a living off celebrity podcasts and tends to pop on press releases announcing signings.
Finally, there is Live Nation Entertainment (LYV), a company helping to provide venues for artists to make money. Concert venues are the closest today’s artists get to selling their music per unit. LYV travelled far despite Live Nation’s business effectively shutting down for a year and counting. I am not a buyer at these levels as the valuation carries no room for looming risks.
Be careful out there!
Full disclosure: no positions
Spotify just released a timely transparency initiative called “Loud and Clear.” The company created a webpage that discloses revenues and streams on their platform. I will be digging into and creating a follow-up post! https://loudandclear.byspotify.com/