Boyd Muir, Executive Vice President, Chief Financial Officer, and President of Operations at Universal Music Group, expects “super-premium” subscription tiers to start appearing in 2025 – and he expects that between 20% and 30% of paying music subscribers will eventually sign up.
Next year, “you’ll see the first of those offerings,” Muir told an audience at Morgan Stanley’s European Tech, Media and Telecom Conference in Barcelona this week.
While the term “Super-Premium” has been attached specifically to Spotify’s plans for a new “deluxe” subscription tier, Muir noted that other digital service providers (DSPs) are also planning their own versions of a subscription tier meant to appeal to the superfans who are willing to pay more for music subscriptions, in exchange for a better music experience.
“We’re talking to all the platforms about what their premium offering might look like. They’re all a bit different. The types of things we’re talking about are early release of music, things like premier events around music, things like chat room between artist and fan, collectibles,” Muir said.
Muir suggested Spotify’s own Super-Premium plan actually may be called “Music Pro,” seemingly confirming rumors in the media earlier this year. But while many of those rumors focused on Music Pro being an add-on option that offers Spotify users high-fidelity audio, we know from Spotify CEO Daniel Ek that this new subscription tier will likely include more than that.
Super-Premium – or Music Pro, as the case may be – will be a “deluxe version of Spotify that has all of the benefits that the normal Spotify version has, but a lot more control, a lot higher quality across the board, and some other things that I’m not ready to talk about just yet,” Ek said earlier this year.
Muir made it clear he expects that most music streaming services will introduce something similar.
“Once it’s in the market, you sort of have to have a competitive offer,” he said.
Muir expects that, in terms of revenue for UMG, the company will benefit “proportionally” to the higher price charged for this new tier. And he expects that between 20% and 30% of paying music subscribers will sign up to the new tiers within two to three years of them becoming available.
“We’ve done lots and lots of consumer research on this because it’s been very important to us. But also… all the platforms are doing their own research, and it’s all kind of colliding [in] the range [of] somewhere between 20% and 30% of today’s existing subscribers,” he said.
Notably, he suggested that this is the proportion of listeners willing to shell out twice as much for a subscription that offers additional benefits. While Spotify’s Ek suggested the Super-Premium tier would cost $5 more per month than the Premium tier (or $16.99 per month in the US at current prices), Muir’s assessment suggests a price point closer to $22 or $24 per month for these deluxe tiers could be possible in the US.
Here are three other things we learned from Boyd Muir at the Morgan Stanley conference:
UMG has 1,300 direct-to-consumer stores – and the margins are huge
UMG isn’t just counting on music streaming services to monetize superfans for them. At the company’s most recent Capital Markets Day, this past September, the company’s leadership highlighted a growing focus on direct-to-consumer (D2C) business.
So far, the strategy is proving highly successful. UMG’s EVP, Digital Strategy, Michael Nash, said the company’s D2C business has seen a 33% compound annual growth rate (CAGR), making it easily one of UMG’s fastest-growing business segments.
And at the Morgan Stanley conference this week, Muir expanded on that, reporting that UMG now has 1,300 D2C stores – for example, taylorswift.com – catering directly to music fans.
“We’ve been quietly kind of building this as a revenue stream for a good few years now,” Muir said.
“When we develop a product, and we connect the fan with the artists, with the product, the demand is breathtaking.”
Boyd Muir, Universal Music Group
He noted that the customer base for these stores has grown to around 50 million people, as measured by the number of people who opted in to receive communications from UMG.
And, because there’s “no such thing as a fan of just one artist,” there is plenty of potential for consumers to cross over from store to store.
Not only is the D2C business growing rapidly, it’s also yielding high margins. While touring has margins of 8% to 10%, and music retail has margins of around 15%, D2C margins are more in the range of 25%, Muir said.
But he noted that those margins might not stay quite as high as the D2C business grows, because in its early stages, D2C has sold some “very high-priced products where the demand has been exceptional.”
Nonetheless, he expects demand to remain strong in the D2C segment.
“When we develop a product, and we connect the fan with the artists, with the product, the demand is breathtaking.”
The switch to artist-centric payment models isn’t happening as quickly as UMG would like
Universal Music Group is undoubtedly the leading company in the music industry pushing for changes to streaming services’ payout model.
UMG Chairman and CEO Sir Lucian Grainge is credited with coining the phrase “artist-centric” to describe a new payment model that – in broadest terms – places greater value on those artists who have the largest and most devoted fan bases, and do the most to bring listeners to music streaming services.
Artist-centric marks a significant departure from the pro-rata model traditionally used by DSPs to calculate royalties. Under the pro-rata model, each stream of a song counts equally towards royalty payouts, regardless of whether that song is from a popular artist with an engaged fan base – or whether it comes from a fraudulent track composed of noise or copyright-infringing material.
The first step towards the artist-centric model took place roughly a year ago, when UMG signed a deal with France-headquartered streaming service Deezer to begin implementing an artist-centric payment model that would see artists rewarded with a larger share of royalties if they have a certain minimum number of listeners or are actively searched for by listeners. Warner Music Group followed suit, signing on to an artist-centric model with Deezer for royalties in France.
While UMG and others argue the artist-centric model helps to stem the tide of streaming fraud, some – like Believe CEO Denis Ladegaillerie – have criticized the model as disadvantaging new artists by making it harder for them to start earning from streaming.
“There’s a very real issue with fraud. And for the sake of our artists and our songwriters, we’re going to be very active in working with all of the platforms to eliminate fraud at least to the best extent possible.”
Boyd Muir, Universal Music Group
However, since the Deezer deals, we’ve seen little progress on the artist-centric model. (One exception may be Spotify’s tweak to its payment model, which can be seen as shifting towards a “semi-artist-centric” model with a new rule, implemented at the start of this year, that requires a track to receive a minimum of 1,000 plays over the previous 12 months to qualify for royalty payments.)
At the Morgan Stanley conference, Muir conceded that the switch to artist-centric isn’t happening as quickly as UMG would like.
“Would we like it faster? Yes, we would, because everything we do, we like to happen quickly,” he said.
“There’s a very real issue with fraud. And for the sake of our artists and our songwriters, we’re going to be very active in working with all of the platforms to eliminate fraud at least to the best extent possible.”
Muir continued: “There’s a number of bad actors out there that need to be held liable for their actions… That’s something that the platforms are all… nervous about. Reputationally, what does this mean when their subscribers are [trying to] listen to Lady Gaga but find out it’s Gaaga, and it’s not the actual wonderful Lady Gaga herself? That’s not a good customer experience.”
Asked by Morgan Stanley analyst Ed Young whether UMG is seeing “resistance” to switching to an artist-centric model among some DSPs, Muir said there is some.
“I think there’s still some denial out there. ‘That doesn’t happen on our platform.’ So [our] efforts are about, ‘Well, I’m sorry, but here is Lady Gaaga. You are this legendary platform, your reputation is important. Your customers are important.’
“So there’s a little bit of… denial. But once the facts are presented, there’s action – the action is taken.”
UMG wants to overtake Sony as the world’s biggest music publisher
While Universal Music Group may be the world’s biggest music recording company, it isn’t the world’s largest music publisher (i.e. owner of the musical compositions underlying recorded music).
That distinction belongs to Sony Music, whose Sony Music Publishing division owned some 5.5 million songs as of 2022, or more than half of all the compositions owned by the three majors (Sony, Universal, and Warner).
And “we don’t like that,” Muir said at the Morgan Stanley conference.
He suggested that UMG has been closing in on Sony, in terms of song ownership, saying the publishing team have “captured market share” and are “getting very close to Sony in terms of a leadership position. And I wouldn’t underestimate their ambition.”
While Muir didn’t offer any specific numbers, he said he’s “sure they [Sony] can feel us coming.”
Perhaps UMG breathing down their necks has something to do with Sony’s high-profile acquisition spree this year, which saw the company acquire half of the publishing and recording masters catalog of Michael Jackson for $750 million, and shell out $1.27 billion for the recording and publishing rights to Queen’s music. (Sony’s $400 million purchase of Pink Floyd’s catalog didn’t include publishing rights.)
On the publishing side, “hopefully, we can keep pushing forward and outpacing market growth,” Muir said.Music Business Worldwide