As indicated by the typical company data, the demand for music streaming service and content has been strong and growing fast in the past two years thanks to increasing income of consumers and demand and reduced costs of streaming subscription.

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. Generally, the demand, from consumers, for streaming music content (radio subscription) has been very strong and quickly increasing in the past two years. Data proves the fast increase in number of subscribers and as well increase in spending on subscription.

2. Data indicates that the active users (free charge) have been declining in the past two years.

3. Ad revenue continuingly decreases while raising price.

Causes behind the trend

1. Economy and increasing income of consumers may be responsible primarily for the fast growth in subscribers and subscribers’ spending since 2017.

2. Changes (from radio to internet) in consumers’ listening habit and increasing accessibility to internet content of high quality resulted from improved technology may be a reason for streaming radio booming.

3. The existing demand for high quality music content and lower costs of streaming subscription, in terms of absolute price, flexibility, network rentals, and more choices of content help bring more viewers for streaming music service provider.

Industry Future

1. As upward trend in this industry continues, many streaming companies may continuingly gain subscribers and revenue, which in return will enable them to acquire more high quality contents and grab more clients from broadcasting market.

2. Increasing paid users and the resulted increase in subscription revenue may be able to offset the losing ad revenue eventually.

General Financial Performance of Companies In the Sector

It seems that demand for ad-support radio stream of companies in this sector has been weak as indicated by decreasing listeners in the past three years, which probably has been the major reason that caused decline in ad revenue. However, it seems that the demand for paid subscription and on-demand stream has been strong as indicated by increasing number of subscribers (more than 40% in the past two years). With the increased price of subscription and shifting to premium plan, subscription revenue presents 40% and 60% annual growth in the past two years.

While subscribers continuingly increase quickly, it seems that the resulted increase in revenue of subscription cannot offset the decrease in ad revenue.

The growth in revenue has also been, according typical company’s data, outpaced by faster increasing costs including music content acquisition costs driven by increasing rate and operation related costs in the past three years.  The typical company in this sector has a gross margin of 33% in 2018, with a SG&A as percentage of sales of about 46% and R&D as percentage of sales of 10%, and operating margin of 10%.

The typical enterprise price/sales ratio is 1.6(12 months trailing).

Looking for  multiples to help you make decisions in pricing of PE, M&A, or distressed debt transactions?

Please click the button below.