2025年中国流媒体音乐市场的高端化机遇报告

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Morgan

stanley

RESEARCH

GlobalInsight

October28,202510:10PMGMT

Media&Entertainment

LessonsfromChina:The

PremiumMusicStreamingOpportunity

What’sChanged

WarnerMusicGroupCorp.(WMG.O)PriceTarget

From

$35.00

To

$37.00

WetakeadetailedlookatChina'smusicmarket,TME'sSVIPtier,andtheprospectofsimilarpremiumofferingsoutsideofChina.ThiscarriesopportunityacrossOWsSPOT/UMGandEWWMG,inourview,butlikelyrepresentsasinglecontributortomulti-factorpricinggrowthformusicstreaming.

KeyTakeaways

Weremainbullishonmusicstreaminggrowthglobally,forecasting10-11%CAGRthrough'28,as~16%smartphonepenetrationandpricingbothincrease.

ThereremainexpectationsthatSpotifywilllaunchapremiumtiertodrivepricingnear-term.WeviewthatprospectasmoresupplementalvsacoreARPUdriver.

MappingTencentMusic'sSVIPsuccesstoSpotify(OW)suggests10-15%additionalupsidetoour$800PT,ifitwerefullyincremental.

AtUniversalMusic(OW)andWarnerMusic(EW),revshareroyaltymodelswithstreamingplatformswouldrequireactionfromallplatformsforsimilaruplift.

OurcollaborativeworksuggeststhatmappingTencentMusic'sSVIPsuccessto-dateontostreamingplatformsoutsideofChinamaybeoverlyoptimistic.

Withthisreport,CameronMansson-PerroneassumesleadcoverageofWarnerMusicGroup(WMG).

Canpremiumtiersubscriptions(MusicPro,VIP,or"superfan")liftthemusic

ecosystem?Thereremainsamarketexpectationthatapremium-priced"superfan"orVIPofferingfromSpotifyanditsUS-basedpeerscouldproveameaningfulmusicindustrygrowthdriver.Weevaluatethisopportunity,andtakeanin-depthlookattheargumentsfor(andagainst)usingTencentMusic'sSuperVIP(orSVIP)tierasaproxyforsuccess.

WhyisTencentMusic'sSVIPtierheldupasareplicablemodel?Weseethreeprimaryareasthatlikelydrivethecomparison:

1.ManyofthefeaturesthatSVIPofferstoitssubscribers-exclusive

merchandise,first-lookcontent,hi-fiaudio,concerttickets-couldfeasiblybeincludedaspartofapremiumSpotifyoffering.

2.TencentMusicEntertainment("TME")hasasimilarhistoryofshiftingusers

MorganStanley&Co.LLC

CameronMansson-Perrone

EquityAnalyst

+1I212761-7079

cameron.Mansson-perrone@

BenjaminSwinburne,CFA

EquityAnalyst

+1212761-7527

Benjamin.swinburne@

MorganStanleyAsiaLimited+

YangLiu

EquityAnalyst

+8522239-191I

yang.Liu@morganstanley.com

MorganStanley&Co.Internationalplc+

EdYoung

EquityAnalyst

+44207677-176l

Ed.young@morganstanle:

MorganStanleyMUFGSecuritiesCo.,Ltd.+

KazuoYoshikawa,CFA

EquityAnalyst

+8I36836-8408

kazuo.yoshikawa@morganstanleymufg.com

MorganStanley&Co.LLC

GraceSong

ResearchAssociate

+121276I-4931

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HidetakaSuzuki

ResearchAssociate

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MorganStanley&Co.Internationalplc+

ConstantinPKollmann

ResearchAssociate

+44207425-3268

constantin.kollmann@morganstanley.com

Media&Entertainment

NorthAmerica

IndustryViewIn-Line

MorganStanleydoesandseekstodobusinesswith

companiescoveredinMorganStanleyResearch.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldafecttheobjectivityofMorganStanley

Research.InvestorsshouldconsiderMorganStanley

Researchasonlyasinglefactorinmakingtheirinvestmentdecision.

Foranalystcertificationandotherimportantdisclosures,refertotheDisclosureSection,locatedattheendofthis

report.

+=AnalystsemployedbynonU.S.afiliatesarenotregisteredwithFINRA,maynotbeassociatedpersonsofthememberandmaynotbesubjecttoFINRArestrictionson

communicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbyaresearchanalystaccount.

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upthevalue(andprice)curve,offeringarangeoftierstodaywithvariedfunctionalityandtargetingdifferentconsumerpreferencesandprice

appetite(Exhibit17).

3.Spotify(8%ofTME)andTencentMusic(2-3%ofSpotifybut9%acrossTencententities)continuetohavecross-equityholdings-increasingthepossibilitytheymaysharestrategicoperationallearnings.

The'bluesky'scenario-outliningthetheoreticalupliftacrossthemusic

industry,Spotify,andlabels:Forpurelyillustrativepurposes,weanalyzetheupliftacrosstheindustryandvaluechainby:(1)applyingTME'ssuccesswithSVIP(pricepremiumandadoptioncurve)toSpotifyanditspeersonaglobalbasis,and(2)

assumingthatupliftisfullyincrementaltocurrentexpectations.

Theresultisaroughly$3.5bnupliftinglobalconsumerspendingonsubscription

streamingin2027.AssummarizedinExhibit1(seeExhibit8foranalysis),acrossSpotify,UniversalMusic,andWarnerMusicthiswouldtranslateintoroughly10-15%earningsupsideby2027anddriveasimilarmagnitudeofequityupsidebeyondourrespectiveYE26pricetargets.

However,theunderlyingassumptionsherearecritical,andthefocusofthisreport.Forone,theaboveassumesthehypotheticalVIPtierislaunchedataroughly150%pricepremiumtoSpotify'scurrentofferings,onaverage.

Exhibit1:Intheory,andassumingsuccesswerefullyincrementaltocurrentexpectations,mappingTencentMusic'sSVIPsuccessontoSpotifyandpeerssuggestsupsidetoestimatesandequityacrossthemusicecosystem.Weviewthisasanillustrativeexercise,andexpectanyupliftinpracticetolookmore

modestandplayoutgradually.

Hypothetical"BlueSky"Scenario:VIPUpliftAcrossMusicEcosystem

13%

12%

11%

10%

9%

8%

7%

6%

5%

4%

3%

12%

12%

11%

10%

9%

9%

8%

8%

4%

3%

EquityUpside

BeyondOurPT

EquityUpside

BeyondOurPT

PaidStreaming

Uplift(2027E)

Industry

EBITDAUplift

(2027E)

EBITDAUplift

(2027E)

RevUplift

(2027E)

RevUplift

(2027E)

RevUpliftEBITDAUpliftEquityUpside

(2027E)(2027E)BeyondOurPT

WarnerMusic

Spotify

UniversalMusic

Source:Companydata,MorganStanleyResearch;*Note:forsimplicitythisanalysiscapturestheRecordedMusicuplifttoWarnerandUniversal,butnottheMusicPublishinguplift,andthereforesomewhatunderstatestheimpact.

Raisingourindustryforecaston1H25USoutperformance,butrefrainfrom

bakingincrementalpricingfromVIPintoourbasecaseestimates:Despitethe

commoncomparison,weviewusingTencentMusic'sSVIPsuccessasaproxyfor

Spotifyanditspeersasanoversimplification.Whilethescenarioaboverepresentsaninterestingthoughtexerciseinattemptingtoestablishaframeworkinthisreport,weviewtheChinesemusicmarketandTencentMusic'spositioninthatmarketas

quitedistinctfromtheglobalstreamingmarketbroadly.However,wenotethat

theseofferingscouldhelpsupportourexistingbasecasepricingexpectationsor

evendrivestreaminggrowthtowardbullcasesacrossourmusicindustrycoverage.

Whileweraiseourindustrysubscriptiongrowthestimates,nowexpecting10-11%

TableofContents

ExecutiveSummary

WhatTencent'sSVIPTierTellsUsAboutSpotify'sPremiumOfferingOpportunity

ThePotentialUpliftforMusicLabels

ACloserLookatChina'sMusicMarket

TheNon-SubscriptionBusinessinChina

ConsumptionPatterns:HowisChinaSimilarorUnique?

GlobalMusicIndustryForecastWMGFinancials

4

11

21

28

36

41

45

49

growthannuallythroughI28)thisimprovedoutlookisdrivenbybetterthan

expected1H25performance)primarilyintheUS.Thatexpectationreflectsnearly

200bpsofannualratebenefit)drivenbyunderlyingpricingacrossdigitalservice

platforms(orDSPs).Thisrategrowthisnotexplicitlytiedtothelaunchand/or

successofVIPtiers)thoughintimetheymaycontribute.OurhigheroutlookleadsustoraisestreamingestimatesmodestlyatWMGandweincreaseourPTto$37)

implying13-13.5xfwd.EBITDA)broadlyconsistentwithcurrentlevels-remainEqual-weight(EW).

SeetheExecutiveSummaryforfurtherdiscussiononinvestmentimplicationsacrossSpotify)UniversalMusic)WarnerMusic)andLiveNation.

PleaseaskforourMorganStanleyGlobalMusicIndustryForecastifinterestedinadeeperlookatourupdatedindustryoutlook.

Exhibit2:AFinancialSummaryofRelevantMusicIndustryParticipants

Source:Companydata,MorganStanleyResearch;Note:*TMEandUMGEBITDACAGRsuseadj.EBITDA;**ForvaluationandmarginpurposesusingEBITDAincludingstock-basedcomp;***TMEandUMGFCFrepresentsCFFO-SBC-capex;reflectsmarketcloseonOctober27,2025.

OverviewofStreamingMusicEquities

$millions

Platforms

ContentOwners

Tencent

UniversalWarner

SpotifyMusic

MusicMusic

EnterpriseValue,USD(YE25E)

$127,000$33,000

$52,000$21,000

RevenueCAGR('25-'28E)

14%11%

7%6%

GrossMargin(2025E)

32%45%

44%46%

EBITDACAGR('25-'28E)*

35%13%

9%9%

EBITDAMargin(2025E)**Valuation

13%35%

21%21%

EV/'26EBITDA**

32x18x

16x13x

P/'26EPS

47x24x

21x26x

P/'26FCF***

38x23x

23x20x

MorganStanleyResearch3

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ExecutiveSummary

IndustryandInvestmentImplicationsfromOurDetailedLookatPremiumMusicinChina

Herewesummarizeourupdatedexpectationsformusicindustrygrowth,andframethepotentialupliftfrompremium(orVIP)offeringsacrossthemusicvaluechain,usingconclusionsfromourdeepdivelookat

TencentMusic’sSVIPtier.

Wealsoaddressmoredirectlyinvestmentimplicationsacrossourcoverage,including:OverweightsSpotify,UniversalMusic,LiveNation,Sony,andEqual-weightWarnerMusic.

WhatPremiumTierOfferingsCouldMeanfortheMusicIndustry

Weseeopportunityforpremiumstreamingofferingstohelpsupportdoubledigit

globalmusicstreaminggrowthoverthenextfewyears:Ourupdatedindustrymodelforecastssubscriptionstreaminggrowthaveraging10-11%through2028(Exhibit3).Thisisprimarilydrivenbyvolumegrowth)withratecontributingnearly200bps)reflecting

healthierunderlyingpricing)offsetbydilutionfromsubgrowthinlowerARPUmarkets.

Exhibit3:Weraiseourestimatesmodestlyon1H25outperformance(primarilyintheUS)andcurrentlyexpectglobalsubscriptionstreamingtogrowata10-11%CAGR

through2028

14.0%

13.0%

12.0%

11.0%

10.0%

9.0%

8.0%

7.0%

6.0%

GlobalSubscriptionStreamingIndustryEstimates

11.4%

10.9%

10.4%

10.2%

10.9%10.5%

10.7%10.4%

8.8%

7.6%

202320242025E2026E2027E2028E

14.0%

13.0%

12.0%

11.0%

10.0%

9.0%

8.0%

7.0%

6.0%

CurrentPrior

Source:Companydata,IFPI,RIAA,PwC,Magna,Ovum,MorganStanleyResearch

Premiumstreamingofferings)akintotheSVIPtiercurrentlyofferedbyTencentMusic

(OW-rated)coveredbyYangLiu))representanopportunityforglobalDSPstodriveARPUgrowththroughofferingadditionalvaluetoconsumers.Inourviewofsuccess)thiscouldhelpunderpinourmusicindustryestimates)andreducethecadenceofrequired"regular"(i.e.)baseplan)pricehikesneededtodeliveragainstourexpectations.

Judginghowincrementalpremiumtiersmaybetotheecosystemisdifficult)however)as

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platformsarelikelytoviewpricingholistically)withsuccessofanypremiumtierofferingseducatingthepaceofpricetakingacrossothertiersinanefforttomanagesomelevelofoverallARPUgrowth.Tosomeextent)thisisalreadyreflectedinbothourandmarket

expectationsatSpotify(Exhibit4).

Exhibit4:OurforecastalreadyreflectssomecreditfrompricinggrowthoverthenextseveralyearsatSpotify,asdoconsensusestimates

10.0%

8.0%

6.0%

4.0%

2.0%

0.0%

-2.0%

SpotifyPremiumARPUYoYGrowth(ex-FX)

8.7%

6.9%6.9%

5.3%

6.9%

5.8%

3.7%

Consensus

2.2%

MSe

1.7%

-0.3%

202320242025E2026E2027E2028E

Source:Companydata,MorganStanleyResearch;Note:consensusreportedARPUgrowthadjustedtoex-FXusingMSeFXimpact.;reflectsVisibleAlphaasofOctober27,2025.

Aswelookforwardto2026)whenweexpectanewparadigmofper-subscriberminimum(orPSM)royaltygrowthescalationtokickinacrossSpotifyandotherplatforms)raisingpricewillbekeytoDSPsdrivingmarginexpansion.WeviewVIPor"superfan"offeringsasadditiveindrivingthatpricinggrowth.

WhatmightaVIPtierdoforSpotify?InExhibit5weapplya50%pricepremium

consistentwithpressreports(seehere)andassume20%ofSpotifysubscribers

ultimatelypayforaVIPtier.Thissuggests~10%Premiumrevenueuplift.Acknowledgingtheuncertaintyaroundtheseassumption)weshowasensitivityvaryingbothpriceandopt-inrateinExhibit6.

Exhibit5:Thetheoreticalupliftfrom20%ofSpotify'ssubscriberbaseelectingtopayupforaVIPtierata$6/monthpremium

$millions

2026E

VIPTierPremiumAssumption

SpotifyARPU(USD)

$5.70

USindividualplan

$11.99

VIPtierpremium

50%

VIP$mark-up

$6.00

Avg.Premiumsubs%opt-in*

302.3

20%

VIP%mark-up

50.0%

Incrementalrevenue

Premiumrevenue(MSe)**

$2,069

$20,676

Impliedrevenueincl.VIP

$22,746

%Uplift

10.0%

*impliesVIPavailableforeachtierwithsameproratamark-up

**representspublishedMSbasecasePremiumsubscriptionrevenue

Source:Companydata,MorganStanleyResearch

6

Exhibit6:SensitivityAnalysis:upliftonSpotifysubscriptionrevenuefroma

hypotheticalVIPtierforeachincrementaldollarchargedonanindividualPremiumplananddependingonshareofthesubscriberbasethatoptsintoVIP

$2$4

$6

$8$10

IncrementalMonthlyDollaronIndividualPlan

-

2.5%0.4%0.8%

5.0%0.8%1.7%

7.5%1.3%2.5%

10.0%1.7%3.3%

12.5%2.1%4.2%

15.0%2.5%5.0%

17.5%2.9%5.8%

20.0%3.3%6.7%

22.5%3.8%7.5%

25.0%4.2%8.3%

1.3%

1.7%2.1%

3.3%4.2%

5.0%6.3%

6.7%8.3%

8.3%10.4%

IIIII10.0%IIIIIIIIIIIIII12.5%IIIIIII

11.7%14.6%

13.3%16.7%

15.0%18.8%

16.7%20.9%

2.5%

3.8%

5.0%

和6.3%

7.5%

8.8%

10.0%

11.3%

12.5%

ShareofPremiumSubBaseOptingIn

Source:Companydata,MorganStanleyResearch;Note:assumesanequivalentpercentageupliftforeachdollarbasedonaUSindividualplanacrossgeographiesandacrossStudent,Duo,andFamilyplans.

Ifstructuredasanopt-in)however)reaching20%adoptioncouldtakeyears-asitdidforTMEIsoriginalGreenDiamondplan)andasweestimatewillbethecaseforSVIP(Exhibit7).Amortizedoverasevenyearperioda10%subscriptionrevenueupliftwouldequatetoonly~150bpsofratebenefitonanannualizedbasisoverthattimeframe.

Exhibit7:IfwebenchmarkadoptionofTME'sGreenDiamondplanto2018whenitbegantoearnestlyfocusonpaidconversionthroughcontentgating,weseeasimilarrampinSVIPadoptionthroughthreeyearsandbelievethatcancontinuetomirrorthehistoricaloverallpayratiocurvethrough2028

TencentMusicPayingandSVIPAdoptionRatios(AnnualAvg)

25%

20%

15%

10%

5%

0%

21%

18%

20%15%

17%

12%

14%

8%

8%

11%

5%

4%

1%

4%

Year1Year2Year3Year4Year5Year6Year7

——Paidsubs(%ofMAUs)SVIP(%ofpaidsubs)

Source:Companydata,MorganStanleyResearch

Nevertheless)thatwouldrepresentanaccretiveadditiontoARPUandhelpsupport

expectationsforsteadyrategrowthoverthenextseveralyears.Asaresult)weseethesetiersasapositivepotentialdevelopmentacrossthemusicvaluechain)withsuccess

supportingOW-ratedSPOTaswellasmusiclabelshares(OW-ratedUMG/EW-rated

WMG)andOW-ratedSony(ownerofSonyMusicGroup)coveredbyKazuoYoshikawa).

Importantly,wenotetheseofferingshavenotyetcometomarket.Assuch,thisdiscussionisprimarilyaimedatestablishingapreliminaryframeworkandcontextualizingthe

opportunityinvolved.

Settingtheceiling-a"bluesky"scenario:Whilethescenarioandsensitivityabove

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attemptstooutlineamorerealistic"basecase"expectation)wealsolookata"bluesky"hypothetical)oneinwhichweassumethatSpotify(andotherDSPs)weretomirrorthesuccessthatTMEhasbeenabletodrivewithitsSVIPtier.

Namely)thisassumesasimilar150%pricemark-uptoexistingARPUandasimilaradoptioncurve(reaching~5%penetrationaftertwoyears).Itfocusesonestimateupliftby2027

andassumestheupliftisfullyincrementaltoexistingARPUexpectations.

Exhibit8:Intheory,andassumingsuccesswerefullyincrementaltocurrent

expectations,mappingTME'sSVIPsuccessontoSpotifyandpeerssuggestsupsidetoestimatesandequityacrossthemusicecosystem.Weviewthisasanillustrative

exercise,andexpectanyupliftinpracticetolookmoremodestandplayoutgradually.

-the

SpotifyImpact

(AssumesSVIPPricePremium&AdoptionCurve)

US-only

Global

$8.80

150%

68.2

5%

$6.09

150%

326.25%

$1,789$23,856

EarningsImpact(2027)SpotifyARPU(USD)

VIP%mark-up

Avg.Premiumsubs%opt-in

$540$23,856

Incrementalrevenue

2027EPremiumrevenue(MSe)

PremiumRevenueUplift2%8%

IncrementalMargin35%35%

Incremental'27EBITDA$189$626

2027EBITDA(MSe)$5,220$5,220

EBITDAUplift4%12%

EquityImpact

$151$4679

$501$4679

,$4,830

35.7x$172,527

209

,$5,180

35.7x$185,017

209

IncrementalFCF(80%conversion)2027FCF(MSe)

Hypothetical'27FCF

Assumedfwd.multiple

ImpliedEquityValue(YE26)

DilutedShares

$886

$800

$826

$800

ImpliedSharePriceMSBaseCasePT

AdditionalUpsidetoSPOTPT3%11%

WarnerMusicImpact*

(AssumesSVIPPricePremium&AdoptionCurve-AcrossDSPs)

US-only

Global

EarningsImpact(2027)

$540

45%$1,201

50%

18%

$108

55%

$59$1,721

$1,789 50%$3,578

50%

17%

$304

55%

$166$1,721

SpotifyIncrementalRevenueEst.SpotifyMarketShare

IndustrySubscriptionUplift

Est.MusicLabelFlow-ThroughEstWMGMarketShare

.

WMGIncrementalrevenue

IncrementalEBITDAMarginIncremental'27EBITDA

2027EBITDA(MSe)

EBITDAUplift3%10%

EquityImpact

$1,78013.3x

$1,88713.3x

$23,750

($3,599)

(65)

74

$20,159523

$25,181

($3,599)

(65)

74

$21,591523

PF'27EBITDA(MSe)Assumedfwd.multipleImpliedYE26EV

less:NetDebt

less:MinorityInterest

plus:Uncons.Assets

ImpliedEquityValue(YE26)

DilutedShares

$39

$37

$41

$37

ImpliedSharePriceMSBaseCasePT

AdditionalUpsidetoWMGPT4%12%

UniversalMusicImpact*

(AssumesSVIPPricePremium&AdoptionCurve-AcrossDSPs)

US-only

Global

EarningsImpact(2027)

€465

45%€1,034

€

55%

€91€3,079

€1,541

50%

€3,082

50%

30%

€462

55%

SpotifyIncrementalRevenueEst.SpotifyMarketShare

IndustrySubscriptionUplift

Est.MusicLabelFlow-ThroughEstUMGMarketShare

.

UMGIncrementalrevenue

€253€3,079

IncrementalEBITDAMarginIncremental'27EBITDA

2027EBITDA(MSe)

EBITDAUplift3%8%

EquityImpact

€3,33218.5x

€3,17018.5x

€58,636

(€1,671)

-

-

€56,9641,840

€61,640

(€1,671)

-

-

€

59,968

1,840

PF'27EBITDA(MSe)Assumedfwd.multipleImpliedYE25EV

less:NetDebt

less:MinorityInterest

plus:Uncons.Assets

ImpliedEquityValue(YE25)

DilutedShares

€31

€30

€33

€30

ImpliedSharePriceMSBaseCasePT

AdditionalUpsidetoUMGPT3%9%

Source:Companydata,MorganStanleyResearch;*Note:forsimplicitythisanalysiscapturestheRecordedMusicuplifttoWarnerandUniversal,butnottheMusicPublishinguplift,andthereforesomewhatunderstatestheimpact.

Cautionarynote-addressingkeyassumptionsunderlyingourSVIPcomparativeanalysis

•Pricepremium:Thepremiumsassumedintheanalysesabovecarrysignificantweight)andinvolvealowlevelofvisibility.PricingaVIPofferingataSVIP-type150%premiumislikelyonlyfeasibleforplatformswithsimilarlylowabsolutepricinglevels(TMEchargesalistpriceof$6/monthforSVIPtoday).

•Adoptioncurve:SpotifyanditspeerswouldlikelyexperiencedifferentadoptioncurvesthanTME.Factorsconsideredherewouldbepricing)asmentionedabove)butalsothestrengthoftheproductandconsumerwillingnesstopay(notably)thelattermaybehigheratSpotifyrelativetoTME).Structuringtheofferingasanopt-outratherthananopt-inwouldalsohaveadramaticinfluenceonthepaceof

adoption.

•What'sincremental?Ashighlightedabove)Spotifyandmusiclabelestimatesalreadyreflectsomeassumedrategrowth.DeterminingtheextenttowhichVIPtieruptakeisincrementaltothoseexpectationsischallenging.

•BroaderDSPadoption:TheindustryandlabelimpactwilldependonotherDSPs)notjustSpotify)launchingsimilartiers.Thiscouldplayoutoveranextendedtimeframe)spreadingtheultimatebenefittoindustrygrowthandmusiclabelsover

years.

•Marketdynamics:TheuniquenatureofChinaIsmusicmarketcomplicates

comparison.Wetakeadetailedlookinthisreportathowthevaluechaindiffersandwhatconsumptionhabitslooklike.

InvestmentImplicationsAcrossSPOT(Overweight),UMG

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(Overweight),WMG(Equal-weight),andLYV(Overweight)

ImpactonOWSPOTinvestmentview:Spotifyhasdemonstratedinthepasttwoyearsitcan:(1)addadditionalvalueandusecasestoitscoreflagshiptiers;(2)followthat

increasedvalueaddwithhigherpricesandARPUgrowth;and(3)executethisstrategywithhighincrementalmargins.

ThisstrategyofembeddingvalueintoitsflagshippremiumtierhasallowedittomaximizeearningsbyincreasingmarketshareandincreasingARPUacrossmuchofitspaiduser

base.Thisisasuperioreconomicmodel,inourview,toapremiumtierwhichaimstoextracthighermonthlypricesbutfromaminorityofitscustomerbase.

Theremaybeopportunitiestodoboth,butourbiasisforSpotifytocontinuepushing

popularfeaturesintoitsflagshiptieranddrivethebusinessbymaximizingrevenueacrossitsbase,vs.pivotingtoamore“opt-in”super-fanorVIPapproach.

WeattempttoshowtheincrementalopportunityfromaTMElikepremiumtierinthisreport,butnoteitrunstheriskofdoublecountingthebenefitsoffutureproduct

enhancementsrelativetoourbaseforecast(Exhibit4).

Still,suchapremiumtierwouldprovideanupliftthatwouldsomewhatde-riskestimatesandprovideanadditionallevertoitspricingtoolkitondrivingARPUgrowthovertime.

BothfactorswouldsupportourOWviewandincreaseconvictionaroundregularpricingactivityoveramulti-yeartimeframe.

Foranin-depthdiscussionofourSpotifyinvestmentviewsseeourrecentnote"TopTracks."

Musiclabelimpact-read-throughtoOWUMGandEWWMG:Majorlabelgrowthhashistoricallytrackedindustrygrowthwithinaband,modestlytrailingglobalgrowthasemergingmarkets(wheretheMajorswerepreviouslylessactive)havegrownmore

rapidly.Weforecastlabelstreaminggrowthtocontinuetofollowthisdynamic;asaresult,totheextentpremiumtierssupportindustrygrowth,thelabelsshouldprovebeneficiaries.

Asmentionedabove,webelievetheMajorlabelshavenegotiatednewDSPcontractswithPSMroyaltygrowthguarantees.Inourview,thisshouldbothincentivizeplatformstotakepriceandprovidethemmoreflexibilityindrivingARPUgrowthacrossvariousofferingsinordertoabsorbthatroyaltygrowthwhilestillexpandingmargins.

Critically,inorderforstreaminggrowthatthemusiclabelstoparticipatefullyfromanyVIPuplift,suchtierswouldneedtobeofferedacrossDSPs.Spotify,whilethescaleleader,wouldlikelybeonlyamodestbenefit,inourview.

AtOWU