According to statistics, the three major recording giants in the music industry together account for 83% of the global market share. Among them, Universal Music Group has a market share of 37.54%, Sony 26.87%, and Warner Music Group 19.05%.
Earlier this month, Sony Music won the Grammy Awards in Los Angeles, with a slew of heavyweights including Beyoncé, Harry Styles and Adele.
In the same week, Sony Group Corporation, the parent company of Sony's music business, announced its latest quarterly results for the quarter ended December 31, 2022 (Sony Q3, Q4) in Tokyo in yen. Foreign media MBW calculated and analyzed the performance of Sony's music division for the whole year of 2022 in US dollars.
It's worth noting that during 2022, due to the strengthening of the U.S. dollar against many international currencies, using the quarterly yen-dollar exchange rate provided by Sony to calculate Sony's global revenue may actually be negative for Sony, i.e. reduce its true global revenue – effects that are quite significant when you consider the numbers below.
Overall, Sony Group's global music business includes recorded music, music rights agency, and Visual Media &P (VM&P). VM&P, which mainly covers mobile games and animation projects, has been omitted from this revenue calculation.
Based on Sony's announcement, in 2022, Sony's recorded music and music copyright business generated a total of $8.38 billion, an increase of $889 million over 2021, an increase of 11.9% year-on-year.
Among them, Sony's global recorded music business generated the majority of its overall music revenue in 2022. In 2022, Sony's recorded music revenue will be $6.37 billion in dollar terms, up $607 million year-over-year, or 10.5%. In recorded music data for the full year, streaming contributed $4.33 billion, up $396 million year-over-year, or 10.0%.
Sony's physical sales of music records in 2022 were $771.5 million, down from $887.7 million for Sony CDs and vinyl records worldwide in 2021. Perhaps Sony's global rights agency business is Sony's brightest performer in 2022, with annual revenue of more than $2 billion ($2.08 billion).
These numbers are especially important when we use them to determine how Sony's success in 2022 has widened the financial gap between it and Warner Music Group, one of the Big Three.
01
Sony vs Warner:
What is the financial gap between the two sides in 2022?
Universal Music Group, the world's largest music rights company, will announce its Q4 2022 results in March, which means we don't yet have data from Universal to compare with Sony Music Group's annual results in 2022.
However, Warner Music Group, which is second only to Universal and Sony, announced its fourth-quarter (fiscal first-quarter) results on February 9. This allows us to compare Sony's 2022 music performance (which also includes recorded music and related revenue, plus music rights agency, but excludes "Visual Media & Platforms" revenue) with Warner Music Group's equivalent results.
Driven by the acquisition of AWAL and the acquisition of a majority stake in Alamo Records in 2021, Sony Music Group significantly widened the gap with Warner Music Group in terms of annual revenue last year.
Of course, this battle for financial scale is limited to the three major ones. The fourth largest music rights company in the world is South Korea-based HYBE. HYBE's revenue in 2022 is $1.37 billion, and Warner Music, the world's third-largest, has a total revenue of $5.8 billion in the same period. But at the same time, Warner itself is now actually much smaller than Sony's global music rights business, at just $2.5 billion a year.
02
Sony vs Warner:
What is the recording music gap?
Sony's global recorded music business, which includes merchandise and ancillary revenue, but excludes "visual media and platform" revenue, generated $6.37 billion last year, according to calculations. That's $1.55 billion higher than Warner's $4.82 billion recorded music turnover over the same period.
According to reports, in 2021, Sony exceeded Warner in annual turnover of recorded music by about $997 million, which means that in 2022, the gap between the two recorded music revenue increased by more than $500 million.
In each quarterly filing with the SEC, Warner Music provides a selectable figure for prior year's revenue, reflecting what the quarter's turnover would have been if the reverse constant currency had been adopted. This is irrelevant in the comparative calculations in this article, since Sony's total US dollar revenue in 2021 was converted from yen to US dollars at the previous year's quarterly exchange rate.
If Warner's U.S. dollar constant currency figures for the previous year were applied to 2021 figures, Warner's recorded music revenue for that year would be $231 million less, its copyright revenue would be $35 million less, and its overall revenue would be $266 million less.
03
Sony vs Warner:
What is the copyright agency gap?
In terms of music rights, Sony's global business (including Sony's independent Japanese copyright agency, and its main global music rights agency, Sony Music Rights Agency), generated $2.01 billion in revenue in 2022. That's $1.03 billion higher than Warner Music's music rights turnover in the 12 months of the same year.
In the last calendar year (2021), Sony's annual music rights agency turnover was about $915 million ($1.73 billion vs. $815 million) higher than Warner Music. In other words, considering the "start-up size" of the two companies at the beginning of 2022, the revenue gap between the two companies did not grow significantly in 2022.
In other words, Sony's music rights agency widened its annual revenue gap with Warner Music by about $120 million in 2022 compared to 2021. It is worth mentioning that as an independent entity, Sony's global music rights business is the world's first in terms of annual revenue, Universal Music Copyright Group ranks second, and Warner Chappell Music ranks third.
04
Sony vs Warner:
Recorded music + copyright agency income
= $2.5 billion gap
If we combine the 2022 annual global recorded music revenue (including merchandise and other ancillary revenue) of the music industry's second and third largest music rights companies, we can derive the revenue gap between the two.
Sony's global music rights operations (excluding "Visual Media and Platforms") generated revenues of more than $2.58 billion, while Warner's revenue was comparable. Warner's total turnover (recorded music + music rights) for the year was $5.8 billion, and Sony's $8.38 billion.
The gap between the two companies' annual recorded music plus music rights agency revenue created by $2.5 billion, an increase of approximately $600 million from 2021 ($1.91 billion).
Sony's recorded music business boosted in 2022, which will be its first full year with AWAL, with major successes in global market charts by artists such as Bad Bunny, Harry Styles and Beyoncé also fueling Sony's growth. In addition, Sony also acquired a majority stake in Todd Moscowitz's Alamo label in 2021 for about $200 million, adding more content advantages to it.
For Sony Music Group and its management, can Sony maintain this growth momentum in a global music landscape where experts predict that streaming subscription growth in major markets will stagnate significantly in 2023?
For Warner Music Group and its new leader, Robert Kyncl, it also raises a completely different question: How can Warner close the revenue gap with Sony? Is doing so an important part of Warner Music Group's future strategy? (Review: From TikTok, AI development, share dilution to technology investment, Warner Music CEO's top 5 views worthy of industry attention during the call)
05
The earnings report is about to be released
Universal Music Performance Forward-looking
At the end of January 2023, according to people familiar with the matter, Universal Music Group, the industry's big brother, is in talks with large streaming platforms "to overhaul the economic situation of the industry and invest more money in artists, hoping to completely change the way musicians make money."
At the same time, the world's largest music company is increasingly concerned about the proliferation of content on platforms like Spotify, which is adding 100,000 new songs a day, and the industry's growing problem of manipulating systems, including the use of bots to inflate listening numbers.
Global has not yet reported earnings, but recently some analysts believe that March will be a strong buy.
In terms of share, Universal Music Group is a global leader in music entertainment. With offices in 60 regions, covering more than 200 markets and more than 3 million records, the company has notable labels such as Abbey Road, EMI, Decca, Geffen and Virgin, and the most famous musicians include Rihanna, The Beatles, Mildew, Drake, Queen, Kendrick Lamar, Gunflower, Justin Bieber and BTS. In 2021, 4 of the top 5 artists on Spotify were from Universal Music Group, and 8 of the top 10 artists on the US Billboard chart were from Universal Music.
According to analyst reports, Universal Music Group's business is divided into three segments: recorded music, music rights and merchandising. The Recorded Music segment is dedicated to discovering and developing musicians and marketing, promoting, distributing, selling, and licensing the music they create. The Music Copyright Division works to acquire and manage rights to musical works and to authorize their use in multiple formats. The Sales Section ("Bravado") represents the right to sell musicians and entertainment brands and assets. Bravado provides an end-to-end merchandise ecosystem, providing customers with services including sales, licensing, branding, marketing, e-commerce and creative resources, as well as innovative experiences for fans around the world.
In the recorded music segment, Universal Music Group derives its revenue from the digital and physical consumption of its music, as well as licensing agreements. Digital consumption includes listening to music through streaming services such as Apple music, Spotify and Deezer. Digital consumption also includes downloading albums or songs on paid listening services such as iTunes, and using music on social media such as Instagram Reels or TikTok. Physical consumption is the sale of vintage CDs or vinyl records. Licensing includes the use of the company's music in TV shows, movies, video games, and commercials.
In the field of music copyright, the revenue streams are essentially the same. The only difference is that they can only use the songwriting copyright, not the sound recording right. The copyright sector derives its income from live performances, including concerts and radio or television. There is no need to explain the merchandising process, Universal Music makes money by selling merchandise related to its artists.
In 2021, the global recorded music industry generated $25.9 billion in revenue, up 18.5% from the previous year. More than 71% of consumption comes from digital consumption, including streaming, downloading, or synchronizing licenses.
In the first nine months of 2022, Universal Music generated revenue of €7.4 billion, up 23.6% year-on-year, while Warner Music's sales were $4.3 billion, up 8.5% year-on-year.
Overall, analysts see Universal Music Group as very potential. As for the H2-23 earnings report, which will be released in early March, analysts expect Universal Music Group's revenue to reach 5.7 billion euros and EBITDA to reach 1.1 billion euros, up 23.6% and 33.6% year-on-year, respectively.
In recent years, financial firms, mostly private equity firms, have entered the music industry through some major deals. While these do affect Universal's ability to purchase a music library, these financial players often partner with a large music company to manage the music library. As an industry leader, Universal Music is well aware of every potential deal, but the company's strategy is to selectively acquire the music library, so the music library trading market remains hot.
Today, the amount of time spent on music is increasing, and now it has reached 20.1 hours per week. It is estimated that there are more than 616 million music streaming users worldwide. Although 30% of music listeners still use unauthorized or illegal means to obtain music, the music industry is still experiencing tremendous growth.
Based on the above analysis of the market and companies, analysts believe that Universal Music Group's share price is 22% below its fair value, and expect the March earnings report to be very good and will be a strong buy.
Source references: MBW, seekingalpha, chorus.fm
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