Amid the tariff wars and other uncertainties in the global economy, the music industry is proving to be an oasis of stability that holds out the promise of continued earnings growth in the quarters to come.
That’s according to analysts at New York-headquartered investment bank TD Cowen, in their latest music earnings preview.
“We generally view the music industry as being attractively defensive given the currently overly dynamic political/economic situation,” analysts Doug Creutz and Mei Lun Quach wrote in the report released on Monday (April 14).
“Digital goods are unaffected by tariffs.”
They noted that the majority of revenue at Universal Music Group, Warner Music Group, and Spotify comes from subscription streaming, which “are unlikely to see meaningful increases in churn” even if the economy goes into recession.
The resilience to a potential recession is thanks to music’s “high value/price proposition, particularly compared to other entertainment options… Music fundamentals should generally remain strong regardless of macro turbulence.”
Like many others in the industry, the TD Cowen analysts noted that music spending has lots of runway: “Consumer spending on recorded music relative to overall personal consumption expenditures remains at less than half the level reached during the peaks in the 1990s, before the industry was disrupted by digital distribution,” the analysts wrote.
“Not only is music still relatively inexpensive, it also has benefitted from a vastly improved consumer experience, as streaming services offer access to a library of virtually all music ever created on easily portable devices.”
Additionally, people “have important emotional connections to music that become more important during times of stress. While [UMG, WMG and Spotify] do have some ad exposure, it is less than 20% of revenue,” they added.
And “historically, the live music business has also been resilient during recessions, we think again due to audience affinities to music and also because concerts are ‘time-limited’ events.”
“We generally view the music industry as being attractively defensive given the currently overly dynamic political/economic situation.”
TD Cowen
As a result, concert giant Live Nation’s fundamentals “generally have less risk than the average business that depends on discretionary spending,” the analysts wrote.
They rate Sony, UMG, WMG, and Live Nation as a “buy,” while giving Spotify a less attractive “hold” rating.
“We are less bullish on the aggregation [i.e. streaming] portion of the music value chain due to high competitive intensity and content owner bargaining power,” the analysts wrote.
That “content owner bargaining power” is translating into better deals with Spotify for music rights holders, TD Cowen said.
The analysts said that Spotify’s rapidly rising margins, combined with a slowdown in streaming revenue growth at record labels, has spurred the creation of “a new deal structure” between DSPs and record companies. They singled out the recent deal inked between Spotify and UMG.
“We believe the new structure includes step-ups in contractual floors, allowing the labels to secure revenue increases that are independent of the decisions of the DSPs to raise (or not raise) prices,” they wrote.
“Not only is music still relatively inexpensive, it also has benefitted from a vastly improved consumer experience, as streaming services offer access to a library of virtually all music ever created on easily portable devices.”
TD Cowen
They noted that these recent deals included direct licensing agreements between Spotify and the publishing arms of UMG and WMG, which circumvent performance rights organizations (PROs) and their industry standard rates.
“We expect that the result will be publishing payments that are closer to what the publishers earned before Spotify initiated its bundled offerings,” the analysts wrote.
Spotify’s decision last year to reduce mechanical royalty payouts in the US because its music service is now “bundled” with audiobooks caused an uproar in the music industry and triggered legal action. Although the lawsuit ended in a win for Spotify, the company’s decision on bundling payouts almost certainly triggered the new agreements between publishers and the streaming service.
“The benefits of the new deals are unlikely to become apparent in record label financials until 2026. However, we think the existence of the deals should help the labels achieve higher multiples,” the TD Cowen analysts wrote.
The situation is somewhat different at YouTube Music, which the TD Cowen analysts believe has been “the fastest growing music subscription service,” with the caveat that a “meaningful majority” of YouTube Music subscribers are subscribed through YouTube Premium, which offers more than music.
“It’s important to note… that according to our conversations with the record labels, the labels aren’t currently participating (at least not fully) in YT Premium price increases due to the current contractual language,” the analysts wrote.
“We expect that to be addressed in the next round of contract discussions between Google and the labels (likely starting with UMG).”
The analysts estimated that overall consumer spending on music streaming grew 12% YoY in 2024, “and will sustain a [high single digits/low double digits] rate with +10% YoY expected in 2025 and +9% YoY in 2026.”
Below are the TD Cowen analysts’ investment theses for select major music companies, as well as highlights from their earnings previews for those companies.
Warner Music Group (rating: buy)
Investment thesis: “We generally view the record labels as undervalued as we believe they will be able to exert pricing power vs. the music DSPs and sustain double-digit earnings growth…”
Earnings preview: “We are making some tweaks to our estimates, including [foreign currency exchange] impacts. Our FY25 revenue and AOI estimates are going a hair lower from $6.50 billion to $6.49 billion and from $1.40 billion to $1.39 billion, respectively.”
Universal Music Group (rating: buy)
Investment thesis: “Same as WMG; we marginally prefer WMG to UMG as UMG’s current 2026E EBITDA multiple is at the high end of what we view as a fair range of 2x-3x.”
Earnings preview: “For Q1:25, our revenue estimate of €2.78 billion [USD $3.15 billion at the current exchange rate] is roughly in line with consensus, and our adj. EBITDA estimate of €646 million [$731 million] is modestly lower than consensus €652 million.”
Sony (rating: buy}
Investment thesis: “We like Sony’s music business as much as we do WMG’s and UMG’s.”
*TD Cowen did not provide an earnings preview for Sony, as its Sony coverage appears in the investment bank’s reports on the video game industry.
Live Nation Entertainment (rating: buy)
Investment thesis: “2025 is expected to be a big year for stadium concerts, and Live Nation should benefit with accelerated growth. It remains a unique asset in the live entertainment category with dominant market power.”
Earnings preview: “We are modestly lowering our FY25 revenue estimate from $26.0 billion to $25.8 billion, primarily to reflect a heavier mix of smaller and indoor venue events (festivals/clubs) during the winter months in North America in the Concerts segment. Our FY25 AOI estimate is roughly unchanged at $2.41 billion.”
Spotify (rating: hold)
Investment thesis: “We expect margin gains to continue for at least a few more quarters, along with continued DSP share take from Apple and Amazon. However, margin gains are likely to be more muted in 2025 than they were in 2024.”
Earnings preview: “We are adjusting our gross margin forecast a bit lower for the year (largely Q2/Q3) and adjusting our social cost estimates for the recent market downturn. Our FY25 revenue estimate is unchanged at €18.0 billion [$20.4 billion], while our operating income estimate goes from €2.40 billion to €2.38 billion [$2.69 billion] and our EPS estimate goes from €10.16 to €10.09.”Music Business Worldwide
