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We bring you our Daily Intelligence Briefing courtesy of McAlinden Research Partners. The report is provided to Hedge Connection members for free. Below is snapshot, login to view the full report. Not a member? Join today. McAlinden Research Partners is currently offering a complimentary full month subscription of the DIB. Activate yours today by contacting hugh@mcalindenresearch.com |
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Daily Intelligence Briefing
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Identifying Change-Driven Investment Themes
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Wednesday, April 17, 2019
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Each Daily Intelligence Briefing has five sections, explained here. Click the blue links to jump to the relevant section for more extensive coverage:
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Big Tech Makes Moves to Break Spotify’s Music Streaming Stranglehold
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News of Amazon preparing to rollout their own free, ad-supported music streaming service rocked Spotify stock this week, but Amazon is only one of many big tech challengers, including Apple and Alphabet’s Google, that are taking shots at disrupting Spotify’s domination of the growing, multibillion-dollar industry.
Apple music’s premium service recently surpassed Spotify’s in the US and is now seeing stronger growth globally. Meanwhile, the stage is being set in India for a streaming service battle royale that could serve as a proxy for what the future of music streaming services might look like.
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In the midst of the video-streaming boom, apps like Netflix, Amazon Prime Video, and Hotstar already have millions of subscribers. However, many believe music streaming platforms could achieve even greater success.
Global recorded music revenues jumped 9.7% in 2018 to reach $19.1 billion — up from $17.4 billion in 2017. Streaming music revenues, in particular, now account for nearly half of global revenue, thanks to sizable 32.9% growth in paid streaming last year. This brought streaming revenues to $8.9 million in 2018, and puts them on track for a further jump in 2019. In the US, an even more impressive 75% of overall revenue for the record industry now comes from streaming.
The biggest pure play in music streaming, Spotify, has capitalized on the digital shift to music over the last few years and, thus far in 2019, has seen their stock price rocket up more than 20% in 2019. Pandora used to be the industry leader in music streaming, but has gradually had its share of the market eaten away by Spotify. Earlier this year, Sirius XM completed their acquisition of Pandora and are now in the process of re-tooling the service to try and turn the tide. Specifically, Sirius plans to offer a Pandora NOW station on their XM radio platform, and also expand Pandora’s free and premium podcast services to host almost two dozen SiriusXM radio shows across a variety of genres. It’s a bold move, but it will take some time before Pandora can ever truly hold a candle to Spotify again.
Spotify’s real competition is coming from other big tech firms who do not specialize in music streaming, but they do bring brand recognition and far superior infrastructure that threatens to seriously disrupt the sector.
Upon news that Amazon is preparing the rollout of their own free, ad-supported music streaming platform for their Echo devices, Spotify shares tumbled nearly 4%. Amazon’s current Prime Music package offers two million a la carte songs to subscribers of its Prime service. Its Music Unlimited has a much bigger library for an $8 monthly fee. Spotify, meanwhile, has a $10 premium product, as well as an ad-supported free tier seen as a subscription funnel. But, at the moment, Amazon is likely the least of Spotify’s worries.
Last month, Apple Music surpassed Spotify in paid U.S. subscriptions. Paid streaming is crucial since it accounts for the majority of streaming’s contribution to revenues, with a 37% share of the market versus ad-supported streaming’s 10% share. While Spotify is still dominant globally, Apple Music’s is working on closing that gap – expanding at a faster rate, with a worldwide monthly growth rate of about 2.6%, compared to Spotify’s 1.5% to 2%.
Although music streaming used to produce a bit of distinction in their products, recent offerings have become much more uniform, allowing just about anyone with enough capital to serve up a free to premium streaming service. Deloitte notes that “once a differentiator, catalogues today don’t matter as much since music companies are happy to license their titles to whoever”, making competition much less about the music and more about accessibility. Apple has built huge gains on that front since the company’s iPhone comes with Apple Music already downloaded and synchable with the company’s iTunes platform. This also benefits Apple since their main objective in offering Apple Music is to keep users engaged with the iPhone. And it’s not just Apple that threatens pure plays like Spotify and Pandora.
As of late, India, one of the fastest-growing music streaming markets, has become ground zero for the most intense competition in the industry. The two biggest competitors for market share in the world’s most populous country are Spotify and Google’s YouTube Music platform. India’s titanic consumer base, where the average streamer spends nearly 21.5 hours a week listening to music, compared with the global average of 17.8 hours, makes it a strong bellwether for which companies have the greatest ability to expand across other emerging markets. India’s $150 million music-streaming market is estimated to touch $400 million by 2023.
Within a week of Spotify’s highly-anticipated Indian launch in late February, the company picked up 1 million unique listeners. While this was impressive, YouTube music’s entrance to the country left an even bigger mark, racking up 3 million downloads in their own first week of operations. Similar to Apple, Google manufactures its own phones equipped with Google Play app store. Google Play cites more than five billion installs for YouTube on Google’s Android smartphones. With that kind of installed base, Google simply has to inform existing users that they can now purchase a premium music streaming service.
Pricing also sets up an advantage as users receive the first month of YouTube Music for free, after which they have to pay 99 Indian rupees (Rs) a month. Spotify’s premium users also get the first month free, but then must pay Rs 129 per month if they want to keep enjoying the premium service. Apple Music’s premium price was similar to Spotify at Rs 120, until they recently decided to undercut Spotify by reducing their going rate to the Rs 99 per month mark to match YouTube Music’s offering.
The Indian play is being made increasingly difficult for Spotify due to homegrown startup competition as well. JioSaavn and Gaana, India’s major domestic music streaming services, both slashed their annual subscription prices by 70% this month. Those cuts were focused on undercutting Apple, Youtube, and Spotify’s monthly rates, and keeping customers away from the competition for a whole year. The recent discounts saw JioSaavn’s premium tier drop to Rs 299 per year — 70 percent down from Rs 999. Meanwhile, Gaana Plus was discounted to Rs 298 per year instead of Rs 1098, as before. Gaana is especially interesting as one of its major investors is Chinese conglomerate Tencent. Tencent Music is the largest music streaming platform in China.
So, if the US and India are any indicator, big tech definitely has what it takes to not only compete with pure plays like Spotify and Pandora, but even to outperform them due to hardware and pricing advantages. While Spotify is still sitting comfortably in the pole position globally, investors should be aware that there are plenty of new players entering the arena of music streaming and some are off to very hot starts.
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Spotify vs Sirius XM vs Tencent Music vs Apple vs Alphabet vs S&P 500
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Source material for today’s market insight…
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Streaming
Streaming accounted for nearly half of music revenues worldwide in 2018
The scales are about to tip in favor of streaming music becoming the number one driver of global recorded music revenues — a shift that appears to be on track for sometime this year. According to a new industry report, global recorded music revenues jumped 9.7 percent in 2018 to reach $19.1 billion — up from $17.4 billion in 2017. Streaming music revenues, in particular, now account for nearly half (47 percent) of global revenue, thanks to a sizable 32.9 percent jump in paid streaming last year. This brought streaming revenues to $8.9 million in 2018, and puts them on track for a further jump in 2019.
This is the fourth consecutive year of growth for the global music market, and the highest rate of growth since IFPI — the music industry trade group behind the new report — first started tracking the market in 1997.
Paid streaming accounted for the majority of streaming’s contribution to revenues, with a 37 percent share of the market versus ad-supported streaming’s 10 percent share. At year-end, there were 255 million users of paid subscription streaming accounts, the report found.
Meanwhile, physical disks dropped 10.1 percent over the past year, to account for 24.7 percent of revenues. Within that segment, vinyl is still growing — it posted its 13th consecutive year of growth, to reach a 3.6 share of the market. But it couldn’t make up for the fact that physical format revenue, overall, still declined.
Read the full article from TechCrunch +
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Streaming
Apple Music Overtakes Spotify in Paid U.S. Subscribers
Apple Music has surpassed Spotify Technology SA in paid U.S. subscriptions, according to people familiar with the matter, in a shift that escalates the music rivals’ contest for listeners world-wide.
Apple Inc.’s streaming-music service has been adding subscribers in the world’s biggest music market more rapidly than its Swedish rival—a monthly growth rate of about 2.6% to 3%, compared with 1.5% to 2% for Spotify—the people said.
Apple Music had more than 28 million subscribers in the U.S. as of February, compared with Spotify’s 26 million, the people said. Neither service publicly breaks out regional subscriber counts, and those figures include only paying users, excluding those in trial offerings that the companies can count in their public subscriber disclosures. Including nonpaying listeners of its ad-supported tier, who generate a fraction of the revenue subscribers do, Spotify has more users overall in the U.S.
Apple was expected to reach its milestone more than six months ago, but Spotify intensified efforts to maintain its lead, expanding various promotions including a discounted subscription bundle with video-streaming service Hulu. More recently, the Swedish company filed an antitrust complaint in Europe claiming Apple abuses its control over the App Store to advantage the iPhone maker’s service, something Apple denies.
Read the full article from The Wall Street Journal +
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Streaming
Why two music-streaming giants have entered India in less than a month
Less than three weeks after Stockholm-based Spotify launched its app in India, Google-owned YouTube Music entered the country on March 12, with premium plans starting at Rs99 ($1.44). The new entrants will now compete with Apple and Amazon Music, besides homegrown rivals Gaana, JioSaavn, and Hungama.
The heightened interest in India’s music-streaming segment comes at a time when the over-the-top (OTT) industry is having its moment in the sun thanks to increasing smartphone and internet adoption, coupled with sliding data prices. The on-demand video industry is already the rage in the country, and experts believe music streaming is the next frontier. But tapping into the space is getting more challenging.
The OTT boom in India is being fuelled by Reliance Jio, the telecom firm promoted by India’s richest man, Mukesh Ambani. With its nearly-free data charges, Jio has made streaming popular not only in big metros but also smaller Indian towns. While video-streaming apps like Netflix, Amazon Prime Video, and Hotstar already have millions of subscribers, experts believe music-streaming platforms could achieve greater success.
Read the full article from Quartz +
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Streaming
Amazon is reportedly exploring ad-supported music streaming
Reports have surfaced that Amazon is in talks to create a new free, ad-supported music streaming service, per Billboard. Amazon already offers two distinct pay-for-play music services: Prime Music and Amazon Music Unlimited.
It’s unclear how exactly this new music service will fit with the existing options. The reports have indicated that Amazon will use its Echo smart speaker lineup to market the streaming service. A bigger move into music streaming makes sense given Amazon’s strategic pushes around both smart speakers and growing its advertising business.
Smart speakers are the primary way consumers access Alexa in the home. Amazon’s smart speakers grew at 78%year-over-year (YoY) from 2017 to 2018, per Edison Research for NPR. And by the end of 2018, 31% of US consumers owned an Alexa-enabled device. Consumers mostly use these devices to listen to music: 66% of US consumers chose listening to music as their top use case.
And advertising revenue is Amazon’s fastest-growing segment: The tech giant earned $10.1 billion from ads in 2018, up 115% YoY from about $4.7 billion reported for 2017. Recently, Amazon has been pushing to grow its ad business beyond its main site, where it earns the majority of its ad dollars.
Read the full article from Business Insider +
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Monetary Policy →
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Fed
Republicans Warm to Easy Money
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Construction & Real Estate →
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Homebuilders
Homebuilder sentiment inches higher, but affordability is still a problem
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Services →
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Streaming
Streaming accounted for nearly half of music revenues worldwide in 2018
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Streaming
Apple Music Overtakes Spotify in Paid U.S. Subscribers
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Streaming
Why two music-streaming giants have entered India in less than a month
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Streaming
Amazon is reportedly exploring ad-supported music streaming
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Cannabis
Cannabis companies say they are growing enough pot, they just can’t deliver it
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Video Games THEME ALERT
Apple said to be spending more than $500M on Arcade gaming subscription effort
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Manufacturing & Logistics →
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3DP THEME ALERT
UPS leads $48M funding round for 3D printing startup
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Transportation →
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Aviation
Boeing can’t deliver the 737 Max to customers, and now the planes are clogging up its storage lots
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Autonomous Vehicles
China’s Rolling Out Dedicated Highway Lanes for Self-Driving Cars
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Commodities →
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Lithium THEME ALERT
Global Lithium-Ion Battery Planned Capacity Update: 9% Growth In A Single Month
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Oil THEME ALERT
U.S. Risks Roiling Oil Markets in Trying to Tighten Sanctions
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Oil & Gas THEME ALERT
The 2020 Elections Could Be A Turning Point For Oil & Gas
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Meat THEME ALERT
Morgan Stanley Says Rally ‘Has Just Begun’ for World’s Biggest Meat Seller
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Energy & Environment →
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Renewables
100% renewable energy across all sectors possible by 2050 with solar leading the way, study says
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Endnote →
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Fintech
Southeast Asia Is Historically Underbanked. Fintechs Are Finally Seizing The Opportunity.
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March 29, 2019
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Time for Gold →
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Although gold has not had a rally anywhere close to its largest of all time in 2010 – 2011, it has still been quite resilient in the face of tightening monetary policy over the last several years. And now that the Fed is putting rateson hold, the underlying fundamental trends in gold markets, including a long-term slowdown in production and a spikein demand from central banks, is setting the precious metal up for stronger performance through 2019 and beyond.
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Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we’ve written about that theme, allowing you to track its progress.
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US Industrial Output Falls Unexpectedly
US industrial output edged down 0.1 percent from a month earlier in March 2019, reversing a 0.1 percent advance in February and missing market expectations of a 0.2 percent gain.
Click here to access the data +
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US Homebuilder Sentiment at 6-Month High, as Expected
The NAHB Housing Market Index in the United States increased to a six-month high of 63 in April of 2019 from 62 in each of the previous two months and in line with market expectations.
Click here to access the data +
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Gold Prices Extend Losses
Gold prices fell nearly 1% to $1276.4 an ounce on Tuesday, hitting the lowest level since December 27th, after strong economic data eased worries about the global economy. Gold prices have been under pressure after positive economic data from the US and China diminished investors’ intentions to turn to safe-haven assets while optimist regarding the trade deal between the two countries also supported the prices.
Click here to access the data +
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Lean Hogs Prices Rally on Tuesday
Lean Hogs prices went up to $90.5 on Tuesday, the highest level since July 2017, due to a decline in the Chinese pig production. China’s purchases of US pork sharply increased in March, after the African swine fever, a viral disease of domestic and wild pigs, hit the world’s top hog market since last August.
Click here to access the data +
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MARKET INSIGHT UPDATES: SUMMARIES
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Fed
Republicans Warm to Easy Money
President Donald Trump’s appetite for easier money chimes with a broader shift within the Republican Party as politicians shed some of the hawkish plumage they donned in the aftermath of the Great Recession.
The president unquestionably counts as an outlier among Republicans in demanding this month that the Federal Reserve unleash a new blast of bond-buying stimulus as well as lowering interest rates. But faced with an inflationary dog that failed to bark, and a president demanding low rates as he seeks to bolster the economy ahead of the 2020 election, Republican policymakers appear much less anxious to brandish hard-money credentialstoday. The shift comes as they preside over a major expansion of the budget deficit, despite past vows to control public debt.
Governing parties naturally gravitate toward lower rates as they seek re-election, and the change in mood within the broader party is in part a reflection of Trump’s ability to make the political weather, says Michael Strain, director of economic policy studies at the conservative American Enterprise Institute. “The president is an easy-money guy. That has an effect,” he says.
Read the full article from OZY +
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Construction & Real Estate
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Homebuilders
Homebuilder sentiment inches higher, but affordability is still a problem
The nation’s homebuilders are pleased with the strong demand they’re seeing this spring, but they continue to see buyers being held back by today’s high home prices. Builder confidence rose 1 point to 63 in April in the monthly National Association of Home Builders/Wells Fargo Housing Market Index. It was at 68 last April, and then hit a 2018 high of 70 in May. Sentiment has remained in the low 60s for the past three months. Anything above 50 is considered positive.
“Builders report solid demand for new single-family homes, but they are also grappling with affordability concerns stemming from a chronic shortage of construction workers and buildable lots,” said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Connecticut.
Of the index’s three components, current sales conditions increased 1 point to 69. Buyer traffic rose 3 points to 47 but is still in negative territory. Sales expectations over the next six months fell 1 point to 71.
Builders are trying to cater to strong demand at the entry level of the market, but only a few of the large production companies, like D.R. Horton, were really focused there during the housing recovery. More, like Pulte’s Centex brand, are now turning in that direction, but the bulk of new production is still in the move-up market.
Read the full article from CNBC +
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Streaming
Streaming accounted for nearly half of music revenues worldwide in 2018
The scales are about to tip in favor of streaming music becoming the number one driver of global recorded music revenues — a shift that appears to be on track for sometime this year. According to a new industry report, global recorded music revenues jumped 9.7 percent in 2018 to reach $19.1 billion — up from $17.4 billion in 2017. Streaming music revenues, in particular, now account for nearly half (47 percent) of global revenue, thanks to a sizable 32.9 percent jump in paid streaming last year. This brought streaming revenues to $8.9 million in 2018, and puts them on track for a further jump in 2019.
This is the fourth consecutive year of growth for the global music market, and the highest rate of growth since IFPI — the music industry trade group behind the new report — first started tracking the market in 1997.
Paid streaming accounted for the majority of streaming’s contribution to revenues, with a 37 percent share of the market versus ad-supported streaming’s 10 percent share. At year-end, there were 255 million users of paid subscription streaming accounts, the report found.
Meanwhile, physical disks dropped 10.1 percent over the past year, to account for 24.7 percent of revenues. Within that segment, vinyl is still growing — it posted its 13th consecutive year of growth, to reach a 3.6 share of the market. But it couldn’t make up for the fact that physical format revenue, overall, still declined.
Read the full article from TechCrunch +
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Streaming
Apple Music Overtakes Spotify in Paid U.S. Subscribers
Apple Music has surpassed Spotify Technology SA in paid U.S. subscriptions, according to people familiar with the matter, in a shift that escalates the music rivals’ contest for listeners world-wide.
Apple Inc.’s streaming-music service has been adding subscribers in the world’s biggest music market more rapidly than its Swedish rival—a monthly growth rate of about 2.6% to 3%, compared with 1.5% to 2% for Spotify—the people said.
Apple Music had more than 28 million subscribers in the U.S. as of February, compared with Spotify’s 26 million, the people said. Neither service publicly breaks out regional subscriber counts, and those figures include only paying users, excluding those in trial offerings that the companies can count in their public subscriber disclosures. Including nonpaying listeners of its ad-supported tier, who generate a fraction of the revenue subscribers do, Spotify has more users overall in the U.S.
Apple was expected to reach its milestone more than six months ago, but Spotify intensified efforts to maintain its lead, expanding various promotions including a discounted subscription bundle with video-streaming service Hulu. More recently, the Swedish company filed an antitrust complaint in Europe claiming Apple abuses its control over the App Store to advantage the iPhone maker’s service, something Apple denies.
Read the full article from The Wall Street Journal +
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Streaming
Why two music-streaming giants have entered India in less than a month
Less than three weeks after Stockholm-based Spotify launched its app in India, Google-owned YouTube Music entered the country on March 12, with premium plans starting at Rs99 ($1.44). The new entrants will now compete with Apple and Amazon Music, besides homegrown rivals Gaana, JioSaavn, and Hungama.
The heightened interest in India’s music-streaming segment comes at a time when the over-the-top (OTT) industry is having its moment in the sun thanks to increasing smartphone and internet adoption, coupled with sliding data prices. The on-demand video industry is already the rage in the country, and experts believe music streaming is the next frontier. But tapping into the space is getting more challenging.
The OTT boom in India is being fuelled by Reliance Jio, the telecom firm promoted by India’s richest man, Mukesh Ambani. With its nearly-free data charges, Jio has made streaming popular not only in big metros but also smaller Indian towns. While video-streaming apps like Netflix, Amazon Prime Video, and Hotstar already have millions of subscribers, experts believe music-streaming platforms could achieve greater success.
Read the full article from Quartz +
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Streaming
Amazon is reportedly exploring ad-supported music streaming
Reports have surfaced that Amazon is in talks to create a new free, ad-supported music streaming service, per Billboard. Amazon already offers two distinct pay-for-play music services: Prime Music and Amazon Music Unlimited.
It’s unclear how exactly this new music service will fit with the existing options. The reports have indicated that Amazon will use its Echo smart speaker lineup to market the streaming service. A bigger move into music streaming makes sense given Amazon’s strategic pushes around both smart speakers and growing its advertising business.
Smart speakers are the primary way consumers access Alexa in the home. Amazon’s smart speakers grew at 78%year-over-year (YoY) from 2017 to 2018, per Edison Research for NPR. And by the end of 2018, 31% of US consumers owned an Alexa-enabled device. Consumers mostly use these devices to listen to music: 66% of US consumers chose listening to music as their top use case.
And advertising revenue is Amazon’s fastest-growing segment: The tech giant earned $10.1 billion from ads in 2018, up 115% YoY from about $4.7 billion reported for 2017. Recently, Amazon has been pushing to grow its ad business beyond its main site, where it earns the majority of its ad dollars.
Read the full article from Business Insider +
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Cannabis
Cannabis companies say they are growing enough pot, they just can’t deliver it
Pot producers had to scramble to apply the required excise-tax stamps with no glue as legalization kicked off last October, and many are still having to apply them by hand to some packages months later as supply issues continue.
While Organigra has figured out how to automate its production of some products, the Moncton, New Brunswick-based company still must manually apply the tax stamps onto its raw-marijuana containers, Chief Executive Greg Engel told MarketWatch in an interview Monday. “Our pre-roll equipment puts [the tax stamp] on automatically, the oil line does it automatically, but the dry flower jar line, we just can’t get it automatic,” Engel said, adding that he hopes to have a fix in two weeks.
Organigram on Monday joined a chorus of companies saying their challenge in supplying the Canadian cannabis market is not growing massive amounts of marijuana, but transforming the plant into a product that’s ready for sale. Engel said that his company had nearly $30 million worth of dried cannabis at the end of its most recent quarter that it still needed to process, more than it brought in actually selling cannabis in the quarter.
In order to meet demand, the company has begun staffing some parts of its operations 24 hours a day, seven days a week, and it has now contracted Valens Groworks Corp. to perform some of the extraction while expanding its in-house capabilities.
Read the full article from MarketWatch +
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Video Games
Apple said to be spending more than $500M on Arcade gaming subscription effort
Apple’s new gaming subscription service Apple Arcade may have been a bit of a footnote at its Services event earlier this month compared to the stage time given to more prime time-ready efforts like Apple TV+ and Apple News+, but the company is throwing some major funding behind its effort to get people paying a monthly fee for exclusive titles.
The company has already set aside a budget of more than $500 million for its Arcade service, according to a report in the Financial Times. The service, arriving in the fall, will let users play exclusive gaming titles across their Apple devices ad-free and offline. The titles will be free of micro-transactions, unlike many of the popular gaming titles on the App Store.
While the company has already reportedly spent more than $1 billion on its TV+ content service, the gaming subscription world marks another uncharted territory for Apple as it will put the tech giant in the position of curating with its cash by directly funding titles for exclusive launches on Apple Arcade. At its event, the company detailed that it will have more than 100 new and exclusive gaming titles launching as part of its service.
Read the full article from TechCrunch +
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Manufacturing & Logistics
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3DP
UPS leads $48M funding round for 3D printing startup
UPS led a $48 million series B funding round for 3D printing startup Fast Radius. UPS has been working with Fast Radius since early 2016, and the 3PL has participated in two previous rounds of funding for the company via the UPS Strategic Enterprise Fund, a UPS spokesperson told Supply Chain Dive in an email.
“Additive manufacturing is increasingly becoming the logical direction for future supply chain strategies, blurring the lines between physical and virtual warehousing for products in many industries,” Scott Price, the chief strategy and transformation officer at UPS, said in a statement. “Fast Radius’ technology platform and additive manufacturing design processes are bringing the virtual warehouse vision to life for their customers, complementing UPS’ global time-definite logistics expertise.”
The funding will be used to expand Fast Radius’ global footprint and scale up its software development, application engineering and sales teams. 3D printing promises faster design and speed to market with the ability to easily make changes to the manufacturing process. And localized production can simplify supply chains and lead to less reliance on suppliers.
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