Although Universal Music Group’s first-quarter revenue jumped 17.8% to 1.77 billion euros ($1.946 billion), compared with 2019, analyst Julien Roch, Barclays’ managing director of European media equity research, projects that UMG will finish the year with revenue down 1%. Label groups within the majors, which were anticipating revenue growth of between 8% and 20% for 2020, now think that number might be flat, or down as much as 10% over the next three quarters.
The rise of subscription streaming that has fueled most of the growth in recent years continues to be a bright spot amid the pandemic. While many executives remain hopeful that the stability of streaming revenue can carry record labels on its back until things return to normal, most record companies are diversified and could face declines in their other businesses, including publishing and merchandise. And while music subscriptions so far remain steady -- and an MRC Data survey on life with COVID-19 shows that some consumers are subscribing to an additional music or video service -- some label executives fret that consumers who are unemployed for a while could be tempted to cancel. Already, they worry the number of streams has declined by double digits in some markets outside the United States, while streams remain flat to slightly down here.
Moreover, during the pandemic, emerging markets' currencies continue to weaken against stable currencies like the dollar (Warner Music Group), the euro (Universal Music Group) and the yen (Sony Music Entertainment) and are further exacerbating the picture when music companies move to repatriate revenue.
The pandemic is changing music streaming in other ways, too. Stuck at home, consumers are increasingly listening on computers and TVs, rather than smartphones, shifting from higher-paying audio streams to lower-paying video streams that depend more on ads that are themselves declining in price.
Looking ahead, record labels are pushing back some releases later in the year. But what happens if all the delayed releases don’t come out; or if too many releases come out in the fourth quarter, causing some key releases to miss revenue projections in the glut? That could also hurt revenue projections, which is why most labels are playing it safe and projecting 2020 revenues to be flat to slightly down.
But that’s not all. Physical music sales, already in decline, have fallen even faster since a majority of stores selling music are closed, though online CD sales are seeing a Christmas-like surge, according to Alliance Entertainment CEO Bruce Ogilvie. Synch revenue from master recordings has dried up due to the shutdown of commercial film and TV production, and merch sales are down since tours are on hold and stores are closed.
Publishing, normally the steadiest part of the music industry, also faces challenges. The publishing divisions of labels expect performance royalties to shrink, both because bars, restaurants and music venues aren’t paying to license music at the moment -- although some of those payments won’t begin to fall short until later this year and early next year due to the lag in royalty collections, distributions and reporting in the publishing sector. In addition, the TV networks and radio stations that pay publishers a percentage of ad revenue are expecting to bring in less ad revenue. And like the master recording side of synchronization, that income stream also is also falling for publishers, although songs with hopeful themes are experiencing a surge from brands looking to identify with consumers during the pandemic.
So far, the major labels haven’t announced any layoffs, or even pay cuts. But senior executives told Billboard that they could reevaluate their staffing strategies in the summer, depending how revenues are flowing then and how attempts to open up the economy turn out.
The pandemic has already imposed its own form of cost-cutting. Label spending on travel, entertainment and marketing are way down. “When the world begins to renormalize, will it have taught the industry new things about how they do business to achieve their numbers?” one indie-label executive asks. “They might ask, ‘Why are we traveling so much?’”
A version of this article originally appeared in the April 25, 2020 issue of Billboard.