MUSIC

Spotify Has Conquered the Streaming Industry. Will Raising Prices to Turn a Profit Cause It to Lose Everything?

Spotify ($SPOT) can’t hear the music anymore — with all the money in its ears. After expanding to 180+ countries and amassing over 239M premium subscribers and 376M free users, Spotify is running out of musicians to conquer — and now has to find new ways to grow. That’s even harder, considering it pays most of its revenue to labels and artists — and has struggled to generate consistent profits since its launch in 2006.

Bittersweet symphony: Spotify has spent years toying with new product categories like podcasting and audiobooks to diversify beyond music streaming. But after bleeding millions from these efforts, it’s turned to raising subscription prices in the US twice in the last year. While this has lifted its stock by 105% over the past year, it risks alienating music fans by charging extra for features.

• Spotify’s subscription tiers are now more expensive than those of competitors like Apple Music ($AAPL), TIDAL ($SQ), and Deezer.

• Making matters worse, the long-awaited higher-quality music feature will be pricier than competitors’ offerings.

This Doesn’t Sound Good

Spotify is also facing issues with creators and labels — delaying higher royalty rates for years by exploiting loopholes in music law. Now, the company claims its premium subscriptions are a bundle, which could allow it to pay songwriters $150M less this year — angering rights-holders, leading to legal action.

• The Mechanical Licensing Collective, which collects certain US royalties, sued Spotify, alleging it underpaid millions in royalties owed to songwriters.

• Music organizations like The Recording Academy expressed disappointment, accusing Spotify of prioritizing cost-cutting over its relationship with artists.

End of the détente: Spotify’s actions have disrupted the peace in the music industry. National Music Publishers’ Association CEO David Israelite remarked, “Spotify once again has gone to war with songwriters.” With the influence of labels, radio, and artists waning, Spotify is betting it’s now more powerful than the artists who built it. If victorious, Spotify might finally live up to its rich stock valuation.

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LARGECAP RECAP

📄 Advertising Spending Will Accelerate Faster Than Expected In 2024, Says GroupM

First, they came for your jobs. Then, they went for the dried mangos. Finally, they turned off the ad bucks. Since 2022, investors have urged companies to do as their consumers would — be frugal, do more with less, and cut back on spending. But with interest rates expected to start falling, companies are once again embracing a major form of discretionary spending: the ad market. This could be a good sign for the economy and US growth.

• According to advertising giant GroupM ($WPP), global ad spending is expected to grow 7.8% year-over-year to $989.8B, up from the previously forecast 5.3% growth.

• GroupM also upgraded its forecast for 2025, predicting the ad industry’s first $1T year — a banner milestone primarily led by the US and China.

When big guys get bigger: Outside of a modest downturn in ad revenues in 2022, tech giants like Google ($GOOG) and Meta ($META) barely saw a dip in ad spending — and are expected to become the biggest beneficiaries of faster advertising growth. Mahoney Asset Management’s President expects Meta, the only Magnificent Seven company that hasn’t done a stock split yet, to do so this year.

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Markets & Economy

Lipstick index shows Americans remain resilient: In the face of economic adversity, the “lipstick index,” a famous alternative economic indicator, remains strong, according to a CNN interview with Estée Lauder CEO Fabrizio Freda. [Read]

FDA recommends Eli Lilly’s ($LLY) Alzheimer’s drug: An advisory panel of the Food and Drug Administration (FDA) has recommended the approval of Eli Lilly’s donanemab for next year. If approved, it would be the second new Alzheimer’s drug in two years, ending a decades-long drought. [Read]

Norway discovers rare earth metal deposits: China was once thought to own the majority of the planet’s rare earth metals, but countries continue to unearth (literally) new discoveries — including Norway, which discovered Europe’s largest known deposit of rare earth metals this week. [Read]

Business & Wealth

Traveling in the era of the strong dollar: With the dollar surging against foreign currencies, The New York Times says Americans are taking advantage — recommending trips to neighboring Mexico and faraway countries like Japan. [Read]

WNBA hits viewership record: Thanks to high-profile women’s basketball players like Caitlin Clark and Angel Reese, the Women’s NBA says that the number of viewers watching games has tripled, while fan attendance has reached its highest in 26 years. [Read]

Delta ($DAL) to roll out transcontinental premium economy: The airline will launch premium economy on flights between New York City and Los Angeles this month, targeting affluent travelers seeking extra legroom on shorter, transcontinental flights. [Read]

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DIGIT OF THE DAY

US Equities Captured 48% of Global ETF Investments in May

US investors went all-in on ETFs in May — it was practically “Every Trader's Favorite” month. US stocks grabbed the spotlight, securing $56B out of the total $116B poured into exchange-traded funds (ETFs). Actively managed ETFs also saw $22B in inflows, marking their 50th straight month of gains.

• While most investments flowed into US equities, there was also considerable interest in European equities and the utility sector.

• High-yield bond ETFs received $5.4B in net inflows — their strongest influx since November — due to their attractive high yields.

Go with the flow: Over the past decade, assets in ETFs have grown nearly 4x while mutual funds grew just 71%. Today, investors can find ETFs for almost anything, including leveraged single-stock ETFs, ones centered on companies in the weight loss industry, and this year, the debut of a spot bitcoin ETF (with Ethereum ETFs on the horizon). ETFs have become the go-to investment for many, thanks to their tax efficiency compared to mutual funds and greater diversification compared to individual stocks. Seems like ETFs are clearly the favorite, and this trend shows no signs of stopping.