What Streaming Plateau? Universal Music Targets 8-10% Annual Subscription Growth Through 2028 in Aggressive New Revenue Forecast

What streaming plateau? After suffering a material stock price decline following a Q2 subscription-growth “deceleration,” Universal Music Group (UMG) is now projecting a big expansion through the 2028 fiscal year.

The leading label laid out that decidedly bullish subscription-growth forecast during its 2024 Capital Markets Day presentation – besides emphasizing the involved numbers in a separate release for good measure.

Just to recap, Universal Music Group posted $1.65 billion (€1.48 billion) in recorded streaming revenue for Q2 2024, representing a YoY increase of 3.8%. However, the latter fell well short of the 6.9% YoY growth attached to H1 2024.

Additionally, within the Q2 2024 sum, ad-supported revenue slipped 4.2% YoY to $383.59 million (€343 million), and subscription revenue improved by a modest 6.5% YoY (down from 8.5% for the half-year window) to $1.27 billion (€1.14 billion).

As initially mentioned, UMG shares parted with over 23% of their value in the wake of the earnings report, and subsequently, the RIAA identified a relatively small 2.7% YoY boost for domestic subscription streaming accounts in H1 2024.

In spite of these points, Universal Music is evidently still banking on a continued streaming buildout – to the tune of a targeted 8-10% compound annual growth rate, reported in constant currency, specifically for subscriptions through the 2028 fiscal year.

Shifting from the concise release and to the actual Capital Markets Day 2024 presentation, the “current consensus predicts” north of one billion global music streaming subscribers by 2028.

Of course, emerging markets (dubbed “high-potential markets” in the report) are contributing a sizable number of subscribers at present – potentially ushering in substantial long-term growth despite comparatively small per-account revenue contributions at present.

How, then, does UMG intend to make its 8-10% subscription CAGR forecast a reality? Beginning with the obvious, the major label is anticipating subscriber additions in both established and rising markets.

As of last year, the “paid music subscriber penetration rate” stood at only 42% in the U.S., 38% in the U.K., 22% in Japan, 10% in Italy, and 13% in both Brazil and China, per the report.

Expectedly, “price increases in line with consumer value and inflation” are also part of UMG’s streaming-growth gameplan. That objective might appear to contradict the subscriber-expansion goal at a glance.

Stated bluntly, it’s unclear whether subscription holdouts in the U.S. and elsewhere, having resisted paying at smaller monthly costs thus far, will finally be inspired to begin coughing up for on-demand music access should prices keep rising. The availability of free music options via Spotify, YouTube, and several others, at least in their current form, is worth bearing in mind on this front as well.

Enter the next component of UMG’s streaming vision: “better monetization of ad-supported tiers and family plans.” Time will tell whether “better monetization” on freemium accounts refers to taking a page out of video streaming services’ book by charging listeners a fee for access. At the risk of diving too far into the multifaceted subject, the move could affect subscription growth attributable to free-account conversions.

Lastly, long-discussed superfan monetization – a “super-premium tier with enhanced artist/fan engagement” – is likewise part of UMG’s streaming strategy. While it remains to be seen exactly what related efforts will entail, Universal Music is leaning into Hybe’s WeVerse, and Spotify has already confirmed a “Deluxe” tier.