Apple Music has gotten more expensive, and that’s good news for shareholders of Universal Music Group, according to analysts at Barclays.
On Monday, Apple announced that individual subscription plan costs would move to $10.99 from $9.99, a 10% increase, and family plans would rise to $16.99 from $14.99, a 13% increase.
For UMG, one of the big three music corporations along with Sony Music and Warner Music Group, that means more money for them too. Case in point, if all platforms followed Apple’s lead and hiked prices by 10%, that would increase UMG’s fiscal 2023 earnings per share by 8%.
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“We would expect most music streaming platforms to follow each other when it comes to prices,” Barclays analysts wrote. “In terms of timing, this is a nice surprise. We were expecting price increases sometime in the coming years but thought that the risks of churn in a weak macro environment meant that price increases were quite unlikely in 2023E.”
Spotify Inc reports earnings after the closing bell on Tuesday, and analysts will be watching closely for any similar price movement. However, even if it doesn’t come to fruition, Apple Music’s price increase alone makes a substantial impact.
“If we assume that Apple is the only one increasing prices and that family plans are 20% of total, then subscription streaming revenues would go up by 1.6% (10.7% price increase x 15% market share),” Barclays analysts said. “That would add 1.2% to UMG’s FY23E EPS, all else being equal.”
In fact, Spotify CEO Daniel Ek expressed that price increases would be unlikely speaking on the company’s second quarter earnings call, analysts noted.
“We feel really confident in our ability of the value that we’re providing to consumers and that over time, we should be able to translate that value into price increases,” Ek said at the time. “But given the macro uncertainty in the marketplace, we’re obviously going to be very careful before making any such moves.”
Shares of UMG were up more than 7% in New York Tuesday morning, with Warner Music up more than 4%.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
Follow him on Twitter @andrew_kessel