Goldman Sachs report: Music in the air!

The key takeaways today:

• Live concerts are helping drive the music industry’s revenues
• The improving liquidity of US stock markets
• Is the UK economy finally turning the corner?
• US house prices are likely to remain high
• Briefings Brainteaser: Which asset has delivered the highest total return this year?

The music industry is buoyed by emerging markets, concerts, and the publishing business

Live concerts, music publishing, and streaming services in emerging markets are helping drive the music industry. After a landmark year in 2023, Goldman Sachs Research forecasts that global music sales will grow 7.6% in 2024, slightly above its earlier estimate of 7.4%. The number of new tracks available to stream rose 11% year on year in 2023, according to a Goldman Sachs Research report titled Music in the Air.

Price bumps Global streaming services implemented their first-ever round of major price increases over the past 18 months, with no meaningful impact on churn or subscriber acquisition. As consumption of streaming rises, the revenue per stream track even decreased in 2023, suggesting that music streaming services continue to provide compelling value for consumers. “Future rounds of price increases may take the form of headline price increases across all plans or more nuanced product or feature-led price increases (e.g. charging for audiobooks or Hi-Fi audio, or the launch of new super premium plans catering to superfans),” Lisa Yang, head of the European Media and Internet Research Team, writes in the report.

• Growth areas The main drivers of Goldman Sachs Research’s forecast upgrade are music publishing, forecast to grow 9% in 2024-25, and live concerts, which grew 25% year on year in 2023, well above the prior estimate of 6%. Revenues from touring will likely normalize after a bumper 2023. But thanks to the globalization of music, whereby artists from anywhere in the world can have global fan bases through streaming platforms, our analysts see long-term growth in touring revenues.

• New audiences Emerging markets contributed 60% of net subscriber additions to streaming platforms in 2023, a share that is likely to rise to 70% by 2030. As a result, major music companies will invest more in growing their share of local acts for these markets over the years to come. But the average revenue per user in emerging markets is around four times lower than in developed markets, and EM users convert from freemium to paid at lower rates.
• Machine music The past year has largely allayed initial fears around the AI’s impact on music labels. “We have seen broad alignment across the major industry participants in limiting AI deepfakes and ensuring a controlled deployment of the new technology, while the flood of new AI-generated content onto streaming services has not yet materialised,” Yang writes. But this is still an experimental phase, new gen AI music start-ups are proliferating, and the protection of music copyrights remains a challenge.

There are signs that US stock market liquidity is improving — that it has become easier and less expensive to buy and sell equities at quoted prices, according to Goldman Sachs Global Banking & Markets. Top-of-book liquidity on the S&P 500 Index rose to $18 million on May 6, up from $8 million a year ago, and has more than doubled in the last two weeks, says Scott Rubner on the Emerging Markets Ex-Asia Derivative Sales and Macro Execution team. Top-of-book liquidity refers to the difference between the highest bids and the lowest asks in the order book. A larger number signals a deeper, more liquid market.

Why has liquidity improved? Rubner says it’s because US stocks have been less volatile, there’s been less demand from traders for hedging, and markets have rallied, handing investors better returns. There’s also more clarity around where central banks may go from here when it comes to interest rates.

The UK economy has lagged behind the US and some European counterparts in recent years, but it’s now starting to show signs of growth. Inflation is also beginning to moderate, which should contribute to real income growth in the coming year, says Jari Stehn, chief European economist of Goldman Sachs Research. “Despite some of the recent upside surprises, the disinflation process in the UK is pretty much on track,” Stehn says on Goldman Sachs Exchanges.

And while the UK economy still faces challenges, small businesses are optimistic about the economic outlook. But further government support is needed, says Charlotte Keenan, who leads Goldman Sachs’ Office of Corporate Engagement’s international responsibilities.

To learn how the UK’s small businesses could help support the UK economy, read Generation Growth: The Small Business Manifesto.
Why US home prices could remain high

The housing market is primed to stay strong despite high mortgage rates, according to Susan Maklari, who covers homebuilders for Goldman Sachs Research.

Mortgage rates have risen substantially in the past two years, which would generally be seen as a problem for home prices. But Maklari points out that prices are essentially flat since 2022 and are up nearly 50% from 2019.

“This is because rising mortgage rates don’t just impact demand — they also impact supply,” Maklari says. She notes that two-thirds of US homeowners have mortgages locked in at or below 4%. With rates now much higher, these owners are loath to move, which is one reason the number of existing homes for sale is down 37% since 2019.

This could ultimately spell opportunity for homebuilders. Maklari says the supply imbalance “could normalize as homebuilders add supply — and indeed, new homes have accounted for 16% of transactions, the highest since before the financial crisis.”

Watch Susan Maklari explain the US housing and mortgage markets.