The increase in penetration rate, subscription fee increases, and expansion of content beyond music will drive the long-term growth of music streaming platforms in the future.
According to Zhito Finance APP, PuYin International released a research report stating that the Global online music Industry continues to grow rapidly, becoming an important growth driver in the music market. The relatively stable competitive landscape in the Industry and the gradually increasing bargaining power of platforms provide profit growth opportunities for music streaming, while increases in penetration rate, higher subscription fees, and expansion of content beyond music will drive the long-term growth of music streaming platforms in the future. An initial 'Buy' rating was assigned to Spotify (SPOT.US), Tencent Music (01698, TME.US), and NetEase Cloud Music (09899).
Pu Yin International's main points are as follows:
Music streaming is thriving.
The music streaming market is maintaining rapid development, with a 10% year-on-year growth in the Global market size in 2023, while the growth rate of the online music market in China reached 33%. Music streaming has become a major component of the music market, accounting for 67% of the overall recording music industry's revenue in 2023, becoming an important growth driver in the music Industry.
The competitive landscape is tending toward stability, with platforms gradually increasing their bargaining power.
The overall competitive landscape of the music streaming Industry is relatively stable, with Spotify, YouTube, Apple, and Amazon holding over 85% of the market outside of China; Tencent Music and NetEase Cloud Music are expected to hold over 90% of the market share in China. Due to high content copyright costs, the profitability of music streaming platforms relies on economies of scale, which establishes certain entry barriers for the music streaming Industry. It is expected that the competitive landscape will remain relatively stable in the future. As the share of major record companies' copyright content on streaming platforms decreases and the market share of streaming platforms in the music Industry increases, there will be further optimization space for royalty distribution ratios.
Future growth drivers of the Industry.
Increasing penetration: Despite the rapid development of the industry, from the perspective of paid user penetration, it is far from reaching a growth bottleneck. The global music subscription user penetration rate is only 12.5%, which leaves significant long-term development space compared to the over 50% paid rate in mature markets.
Subscription price increase: Music streaming platforms are steadily raising prices, with music membership pricing approximately 70%-80% of video membership pricing, and music subscriptions typically offer high content completeness. Music is a cost-effective form of entertainment, and the repeat consumption nature of music content contributes to maintaining user stickiness.
Content expansion: Beyond music subscriptions, streaming platforms are continuously exploring new content forms and monetization methods, such as advertising, podcasts, audiobooks, fan economy, live streaming, social media, and other businesses, continuously seeking new sources of growth contribution.
Regarding Symbol.
Initiating coverage on Spotify (SPOT.US): Global layout, tapping into potential in Emerging Markets; long audio layout is expected to open up long-term space; granting a "Buy" rating with a Target Price of $555.
Initiating coverage on Tencent Music (01698, TME.US): Rich copyright advantages and benefits from Tencent's ecosystem; paid walls enhance user conversion to paid subscriptions; SVIP boosts ARPU; granting a "Buy" rating with a Target Price of $14.5/56 HKD.
Initiating coverage on NetEase Cloud Music (09899): Differentiated positioning to capture young users; significant potential for commercialization; granting a "Buy" rating with a Target Price of 145 HKD. Considering the competitive landscape, performance growth certainty, and valuation levels, Tencent Music is the industry's top choice.
Investment Risks
User growth is slowing down; copyright royalty risks; industry competition is intensifying; Other forms of entertainment competition.
