In the spectrum of entertainment stocks, music stocks are being somewhat ignored by investors. And there are billions of reasons for that. The power of streaming video was on display when Hamilton hit Disney+ over the Fourth of July weekend. While Disney (NYSE:DIS) hasn’t released new subscriber numbers as of this writing, they are expected to be huge.
Streaming video, however, still can’t totally eclipse the opportunity that exists in music stocks. According to the Recording Industry Association of America (RIAA), streaming service revenues in 2019 reached $8.8 billion. That was a year-over-year increase of nearly 20%. Not bad for an industry that is considered to be mature in comparison to other entertainment sectors.
Digital music was the tip of the iceberg when it came to the entertainment revolution. And once this transformation started, it has only accelerated. We barely had become accustomed to MP3 players when streaming music services allowed us to play our favorite music directly from our phone. And now we can sync our play lists to our cars and virtual assistants.
As I mentioned above, this is a mature industry, and yet it can still seem fresh. It’s a category that spans a variety of demographic and social categories. And there are several opportunities for investors to profit from this category. Here are five music stocks that have some of the top subscriber numbers.
- Spotify (NYSE:SPOT)
- Apple (NASDAQ:AAPL)
- Amazon (NASDAQ:AMZN)
- Tencent (OTCMKTS:TCEHY)
- Sirius XM (NASDAQ:SIRI)
Music Stocks: Spotify (SPOT)
Spotify has long been seen in the streaming music world like Kleenex is in regards to facial tissue. The company has been aggressively moving into podcasts, and investors seem to like it. Since March, SPOT stock is up over 102%.
The company has several exclusive contracts including with Joe Rogan and Kim Kardashian West. This is a key feature for the company’s future growth. Streaming services, like social media, have a kind of inertia. Once listeners start using a service, they are likely to continue with it because it’s familiar and there’s no discernible difference between services. For example, Spotify offers 50 million songs in its catalog. Apple Music has 60 million. There’s not enough distinction to make a competitive difference.
Original and/or exclusive content can change that. That’s what Spotify is counting on. These deals open up its addressable market to new consumers. And once consumers are on the platform, it gives the company the opportunity to move up to its pay-per-month, ad-free Spotify Premium service.
They say big things come in small packages. And that’s the story of the Apple iPod. Today it’s easy to forget that Apple created the digital music category. However this revolutionary device changed the way millions of consumers listened to music. And it didn’t stop with the consumer. Along with the iPod, Apple introduced iTunes. The iTunes platform changed the way artists could sell and produce their music.
A lot has changed in 20 years, but Apple continues to be one of the most significant players in streaming music. And even though iTunes has been rebranded as Apple Music, it still has the same song catalog as iTunes. But now the company has broken out its podcasts, movies and shows into separate apps.
Investing in AAPL stock is not a pure play on digital music, but because Apple Music is part of Apple’s iOS ecosystem, it has a distinctive advantage, particularly when you consider that the company still enjoys robust sales of its iconic iPhone.
Amazon rounds out what could be called the big three of digital music stocks in the United States. Like Spotify, Amazon has a tiered membership program, but it has a significant difference. Prime Music members receive free access to a limited catalog of around 2 million songs. By upgrading to Amazon Music Unlimited, listeners have access to Amazon’s full catalog of nearly 60 million songs. As Amazon describes it, if a listener wants to listen to an artist’s full album, they’ll want to upgrade to the unlimited package.
However, like Apple Music, Amazon is not a pure play as a music stock. But it is tied into the Amazon ecosystem, and that should mean something to investors. In fact, this may be the most compelling reason to consider investing in Amazon as a music stock. The company has proven that once it sets its mind on something, it tends to not just enter a category. It tries to dominate it.
While China stocks are falling out of favor with some U.S. investors, TCEHY stock is up over 40% for the year. Tencent Music is called “the Spotify of China.” I grow weary of these analogies. And in the case of Tencent, it only fits if you’re looking at Tencent Music (NYSE:TME).
That’s because while Tencent Music combines many of the qualities of Spotify, it combines them with a well-defined social media channel. This combination is what means that although Tencent still lags well behind Spotify in total paid subscribers (approximately 40 million to over 100 million), the company is profitable while Spotify is not.
The parent company of Tencent Music is Tencent, which operates WeChat. This gives Tencent Music listeners access to WeChat’s 1 billion monthly active users (MAUs). Simply put, if you use the internet in China, you probably use WeChat. And WeChat promotes Tencent Music’s apps by enabling sharing and allowing Tencent Music to pre-load a user’s WeChat connections on its app.
Sirius XM (SIRI)
The last of the music stocks to consider is the riskiest of the bunch. Since collapsing in February, SIRI stock has failed to rally, and is currently down over 20% for the year.
One of the reasons is that satellite radio is a luxury that many people may not be able to afford. Many corporations have recently made job cuts that will inevitably add millions to the unemployment rolls who may not apply for benefits due to severance packages.
Nevertheless, those families will be looking for ways to trim expenses, and a satellite radio may be a good option, particularly as we’re still not driving much these days. And another related factor affecting SIRI stock is its reliance on new car sales.
However, Warren Buffett’s conglomerate Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) recently renewed its commitment to the stock. The company faces the risk of a prolonged recession. But prior to the outbreak of the novel coronavirus, the stock had a strong track record.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.