Making money in the music industry has become increasingly challenging, but according to Goldman Sachs, artificial intelligence (AI) has the potential to transform the sector. In a note to clients, analysts led by Lisa Yang stated that the industry is on the verge of another major structural change due to several factors, including the under-monetisation of music content, outdated streaming royalty payout structures, and the deployment of Generative AI.
Goldman Sachs predicts that streaming services will continue to increase their subscription fees, as their current pricing has remained relatively stagnant despite growing popularity. The analysts estimate that revenue per audio stream has fallen by 20% over the past five years, and the revenue per hour streamed for music on Spotify is four times lower than that for Netflix. However, recent price increases by Apple Music and Amazon Music indicate that the industry may move towards regular price hikes, particularly in the face of rising inflation.
AI is expected to play a significant role in the future of music creation, offering increased productivity and reduced costs. The analysts believe that Generative AI will enhance the speed of music production, as vocals and instruments can be generated without the need for multiple recording sessions. This, in turn, is predicted to lead to a surge in the number of songs created and will shape the industry’s landscape.
The live music segment is also expected to experience continued growth in the coming years, driven by demand generated through social media and supported by demographic and consumer trends. Millennials, in particular, prioritize attending live music events more than other generations.
To tap into the potential upside presented by these transformative trends, Goldman Sachs recommends investing in five stocks. However, it is important to note that these recommendations are made by analysts and not endorsed by the firm itself.
In conclusion, the music industry is at a critical juncture as AI and other technological advancements reshape the sector. Streaming services are poised to increase prices, while AI will enable artists to create music more efficiently. The live music segment is expected to thrive due to evolving consumer preferences. While the industry faces significant challenges, it also presents unique opportunities for investors seeking to navigate this shifting landscape.
