Simply final week, distinguished music business analyst William Packer of BNP Paribas Exane upgraded Common Music Group‘s inventory for the second time in a 12 months.
In a vote of confidence in UMG’s future worth, Packer lifted his inventory ranking from “impartial” to “outperform”.
That information got here only a few days after we reported the arrogance expressed in UMG’s long-term prospects by Invoice Ackman’s Pershing Sq. Holdings, which owns roughly 10% of UMG’s fairness.
Now, extra constructive information has arrived for the worldwide recorded music business. Fitch Scores, one of many ‘Large Three’ credit standing companies in america, has assigned UMG rival Warner Music Group a first-time Lengthy-Time period ‘Issuer Default Ranking’ (IDR) of ‘BBB‘.
In response to the scores system information on the Fitch web site, an IDR ranking of BBB is nice information for the corporate receiving the ranking.
Inside its analysis notice revealed on Wednesday (September 4), Fitch wrote that WMG’s ranking “mirror[s] its main place within the music leisure business supported by its intensive portfolio of music property and diversified income base”.
The notice added that the ranking additionally considers “the corporate’s modest leverage and strong Free Money Stream (FCF) era, balanced in opposition to the inherent volatility of its hit-driven recorded music section.”
Fitch mentioned that its Outlook for WMG additionally incorporates expectations for “continued progress in paid music streaming, growth into rising markets and new monetization alternatives from new platforms and devoted superfans”.
William Packer’s UMG inventory improve, Pershing Sq.’s constructive view about Common, and Fitch’s BBB ranking for Warner Music Group couldn’t have come at a greater time for the worldwide music enterprise.
In current days, questions have been raised about the way forward for the US subscription streaming market following knowledge revealed by the RIAA that exhibits a gradual sample of deceleration within the progress of subscriptions within the US market.
Trade revenues on this planet’s largest recorded music market grew simply 4% YoY within the first six months of 2024, in accordance with RIAA knowledge. Whole streaming subscription accounts within the US grew by simply 2.7% YoY in the identical interval.
As we’ve identified in our protection over the previous few days, the US may be the world’s largest recorded music market, however its price of progress doesn’t mirror the state of affairs in all different markets globally, particularly fast-growing rising ones the place there’s nonetheless quite a lot of headroom for paid streaming adoption.
In Brazil, for instance, the place streaming makes up over 99% of its home recorded music market, numbers revealed by native commerce physique Professional Musicá’ this week gave the worldwide business motive to have a good time – following the somber temper induced by the RIAA’s numbers final week.
Revenues captured by the Brazilian market’s recorded music business grew by 21% YoY in H1 2024, reaching USD $257 million (BRL 1.442bn) within the interval, in accordance with numbers revealed by native commerce physique, Professional Musicá’.
The nation’s recorded music enterprise generated BRL 1.430 billion (USD $255m) from streaming within the first half of 2024, up 21.1% YoY.
Inside that determine, subscription streaming contributed BRL 995 million (USD $177m), up 28.4% YoY, whereas ad-supported streaming platforms contributed BRL 436 million ($78m), up 6.6% YoY.
Certainly, in explaining its determination to assign Warner Music Group the BBB ranking this week, Fitch famous that the “world music business has sturdy progress potential with alternatives from continued adoption of paid streaming providers, value will increase by Digital Service Suppliers (DSP), progress in rising markets, monetization from new platforms and premium plans for superfans”.
Fitch added that it “believes [WMG] is effectively positioned to capitalize on rising market alternatives”.
The ranking company added: “Though main labels have signed licensing rights with platforms like Meta and TikTok , Fitch believes there’s nonetheless a large worth hole from unlicensed use of music by rising platforms equivalent to short-form video, train, gaming, and livestreaming.”
One other key motive shared by Fitch for its confidence, not solely in Warner Music Group, however music rights generally, was what it argues is the “continued Relevance of Main Labels”
In response to Fitch, “music streaming and digital media platforms have democratized music discovery and promotion, thereby making a crowded panorama.
“Regardless of this, Fitch believes that majors like WMG are uniquely positioned as a result of their world scale, differentiated platforms and experience.”
Fitch additionally cited WMG’s “Constant Capital Allocation” and steered that “WMG prioritizes progress investments, together with shareholder returns by way of dividends and proactive capital construction administration.”
Fitch mentioned that it “anticipates WMG will develop by way of natural investments and strategic acquisitions to increase music rights, geographic attain, and providers”.
One such funding arrived in July when Warner Music Group acquired a minority stake in Brazil’s Sua Música, which runs a UGC music platform and providers enterprise, which operates throughout digital distribution, artist administration and publishing.
Warner mentioned in a press launch on July 17 that Sua Música “will probably be a big associate” for its technique of “increasing presence in all areas of the Brazilian market, boosting its authority in regional music, native partnerships, and sharing experience in discovering new voices to create the catalogs of the long run”.
Warner Music Group’s CEO Robert Kyncl has beforehand indicated that he’s eager to develop WMG’s presence within the so-called “center class” artist market.Music Enterprise Worldwide
