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Many readers have told us that the ideal number of stories about Taylor Swift in the financial media is zero. Those people are not having a good month and, apologies, we’re about to make it worse.
Bank of America has had a go at estimating how much The Tortured Poets Department, Swift’s latest album, is worth to Universal Music Group, her record label since 2018. The answer, like the LP, has two sides.
It’s useful to UMG to be selling a lot of records very quickly, though that’s only really because of the unusually high demand for souvenir copies on vinyl and CD. Music streaming revenue clusters reliably around a few thousand bankable hits that play on loop, however, so even for a star the size of Swift, the value to the publisher of new material is likely to be insignificant.
BofA analyst Adrien de Saint Hilaire and team write:
There is no exact disclosure of how impactful [Swift] is to UMG financials but our sense is that 1) She represented no more than 2-3% of UMG’s 2023 revenue. This is on the basis of the 2020 disclosure that UMG’s best selling artist accounted for <1% of recorded revenue and the top 15, 12%. However, the share of the top 50 slightly grew between 2022 (22%) and 2023 (24%). To put things in perspective, according to Luminate, Taylor Swift represented 1.8% of US music consumption in 2023
A key consideration when valuing music rights (as discussed often in these pixels) is the longevity of a hit. UMG classes as new any song released within the past three years and calls the rest “catalogue”. The latter category was 62 per cent of group recorded revenue in 2023, up from 54 per cent in 2020.
UMG’s reliance on back-catalogue is low when compared with the rentier song-rights investment funds — no songs younger than three years went into Hipgnosis’s full-year 2023 fair value calculation, for example, for what little that mattered.
The difference between these funds and the major labels is scale. The volumes of music they stream are limited more by the hours in the day than the depth of their rosters. The combined market share of UMG, Sony and Warner is more than 70 per cent.
Any time you’ve heard a song while shopping or watching trash TV, there’s a better than one-in-three chance that it’s a UMG asset. Market share chart from Barclays:
And Swift is probably worth less per sale to UMG than its average artist. She has worked to hold on to master recording rights so is likely to be entitled to a larger share of royalties.
Then there’s the drag on margins from the fan base that wants plastic. Swift is biggest on vinyl and, even if these sales are treated as a bonus that has no effect on streaming volumes, group margins per sale still suffer.
Swift’s 2022 album, Midnights, sold 1.8mn physical copies in the US that year so represented 1.8 per cent of that year’s physical music media sales, BofA says, citing Luminate data. The follow-up, 1989 (Taylor’s Version), shifted 2mn physical copies and was 1.9 per cent of the US physical music market.
For the same albums in the years of their release, their US audio streams totalled just 0.2 per cent and 0.1 per cent, respectively. So while UMG’s physical sales for the past two years have beaten market expectations, there’s been no demonstrable Swift bump in the “vastly more fragmented” streaming market, BofA says.
Streaming, as well as being the most important results line, is where the market has a habit of getting ahead of itself. UMG’s streaming revenues missed consensus expectations in the first and third quarters of 2023.
First-quarter 2024 results from UMG are due May 2. Analysts expect quarterly recorded-music revenues up 6 per cent year-on-year to €2bn, of which about €1.1bn will come from paid streaming services.
Physical music sales will be sharply lower than both the Christmas quarter and Q1 2023, though having fewer LPs to press should help profitability, and €260mn or thereabouts of record-shop revenue is unlikely to matter much to the big picture.
To put the figure in context, UMG is likely to have made more from free-tier streaming last quarter (€325mn-ish) than from physical media and digital downloads put together. JPMorgan estimates that UMG could be making €715mm in revenue this year just from TikTok, assuming it can resolve a usage rights dispute and the app isn’t shut down in the US.
It’s worth noting also that while Hipgnosis imploded and sector peers like Concord have responded to higher-for-longer interest rates by bulking up, the music-as-annuity business model has kept working for the majors nearly everywhere.
Year-to-date volume growth has stalled only in Japan, where data’s lumpy because of an unusual reliance on music videos that we’d rather not investigate. Chart from Barclays:
So to conclude, it would appear that Taylor Swift really isn’t that important to financial markets and we should probably be writing fewer stories about her. Once again, sorry.
Further reading
— Why is it so hard to work out how much money Taylor Swift is making? (FTAV)
