2017.08.28 - Goldman - Music in The Air

August 28, 2017
GS Music in the Air Series
And the beat goes on…

Equity Research
Raising streaming forecast by 16% to $28 bn by 2030
Raising paid streaming market estimate by 16% to $28 bn by 2030

Lisa Yang
We raise our global paid streaming market estimate by 16% to $28 bn by +44(20)7552-3713 lisa.yang@gs.com
2030 on the back of recent positive market developments and commentary Goldman Sachs International
from industry players. We expect the number of paid streaming users to
reach 847 mn by 2030, or 14% of the global smartphone population (from 9%
Masaru Sugiyama
previously). We refine our analysis to include subscribers and ARPU +81(3)6437-4691 masaru.sugiyama@gs.com
forecasts for each main market – notably, we expect EMs’ share of streaming Goldman Sachs Japan Co., Ltd.
dollars/ subscribers to grow to c.40%/60% by 2030 from c.10%/20% in 2016.
Furthermore, we assess the incremental revenue opportunity enabled by the
rise of smart speakers and connected cars, which we estimate at up to $8 bn Heath P. Terry, CFA
(212) 357-1849 heath.terry@gs.com
(a 30% uplift to our 2030 forecasts) but do not currently incorporate. Goldman Sachs & Co. LLC
Vivendi & Sony the main beneficiaries: Our PTs rise by 8%/2%
We continue to see the major labels (Vivendi’s UMG and Sony’s SME) as the
Piyush Mubayi
main beneficiaries of the growth in streaming, as they receive 55%-60% of +852-2978-1677 piyush.mubayi@gs.com
royalties for every piece of content that is being monetised. While Goldman Sachs (Asia) L.L.C.
disintermediation risk has been raised as a concern by investors, we expect
the labels’ position to remain intact for the foreseeable future given the READ THE SERIES
current copyright structure and competition among streaming services. Music in the Air: Stairway to Heaven
and Paint it Black (Oct. 4, 2016)
Vivendi: We raise our DCF-based valuation for UMG by 16% to €19.5 bn
from €16.8 bn to reflect our new industry forecasts. As a result, our 12-month In our Music in the Air series, we lay out the
SOTP-based price target for Vivendi rises by 8% to €25.2. With UMG worth converging trends that we expect to almost
70% of its EV at the current market price (vs. 53% in our SOTP), we view double global music revenues over the next
15 years, as well as the risks that could derail
Vivendi as the most attractive content story in the EU Media sector and our thesis.
reiterate our Buy (Conviction List); see our accompanying report Vivendi:
Streaming keeps on rocking: UMG valuation up to €19.5 bn; CL-Buy.
Sony: We raise our SME valuation by 12% to ¥2.16 tn from ¥1.93 tn,
based on the EV/sales multiple implied by our valuation for UMG. Our 12-
month SOTP-based price target for Sony rises to ¥5,600 from ¥5,500. Music
is 38% of Sony’s MV at the current market price and its second most
valuable business after PlayStation. With Entertainment at 92% of MV (vs.
74% in our SOTP), we view Sony as an undervalued content giant and
reiterate our Buy (Conviction List).
Rising tide lifts all boats: On the distributor side, we note Amazon (CL-
Buy), Pandora (Buy), Tencent (Buy) and Apple (CS) as beneficiaries of the
rising consumer adoption of music streaming, with YouTube (Alphabet –
CL-Buy) also favourably exposed to the growing monetisation of music
videos through advertising.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision. For Reg AC certification and other
important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by
non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research

August 28, 2017 And the beat goes on…
Contents
Overview: Raising streaming forecasts and valuation for UMG/SME 3

Deconstructing subscriber/ARPU assumptions by market 6
(1) Dissecting our subscriber assumptions 7
(2) Dissecting our ARPU assumptions 9
(3) Sensitivity analysis 9
Digging into the EM opportunity 11
Connected cars & smart speakers: A potential $8 bn opportunity 14
Company implications 17
Disclosure Appendix 27
Prices in this report are based on the market close of August 25, 2017.
Goldman Sachs Global Investment Research 2

Overview: Raising streaming forecasts and valuation for UMG/SME

We raise our global recorded music market estimate by 12% to $41 bn and our paid
streaming market estimate by 16% to $28 bn by 2030 on the back of recent positive market
developments and commentary from industry players (see our reports Music in the Air:
Streaming drives material acceleration in music growth in 2016, April 3, 2017, and Music in
the Air Conference Takeaways, June 29, 2017).
Our increased estimates reflect greater assumed penetration of streaming services (14% of
global smartphone population from 9% previously), slightly offset by a lower average
ARPU given the dilution from faster EM growth.
We refine our analysis to include subscribers and ARPU forecasts for each main market.
Notably: (1) we raise more substantially our forecasts for EM, which we expect to account
for c.40%/60% of paid streaming dollars/users by 2030, up from c.10%/20% in 2016. (2) Our
forecast of 14% penetration of global smartphone users by 2030 is based on 32%
penetration in DM and 10% in EM, compared with 10% and 1% in 2016, respectively. (3)
Our average ARPU forecast of $34.4 in 2030 is based on an ARPU of $52.6 in DM and $23.1 in
EM, implying a -1% CAGR for 2016-30 given the growing share of EM consumers. Within the
mix, we forecast a CAGR of 1% in DM ARPU and 2.5% in EM ARPU for 2016-30.
In addition, we assess the incremental revenue opportunity enabled by the rise of smart
speakers and connected cars at up to $8 bn; this would represent up to a 30% uplift to our
2030 forecasts, which do not incorporate this opportunity.
While the entire music streaming ecosystem should benefit from the growth in streaming,
we continue to see the major labels as the main beneficiaries, as they receive 55%-60% of
royalties for every piece of content that is being monetised. Although disintermediation
risk has been raised as a concern by investors, we expect the top three labels’ position to
remain intact for the foreseeable future given the current copyright structure and
competition among streaming services. As the owners of the world’s largest recorded
music companies, Vivendi and Sony are our preferred picks, and we reiterate our Buy
ratings on both stocks (also on their respective regional Conviction Lists). As a result
of our higher market estimates, we raise our valuations for UMG and Sony Music by 16%
and 12%, and our 12-month price targets for Vivendi and Sony by 8% and 2% to €25.2 and
¥5,600, respectively.
On the distributor side, we note Amazon (CL-Buy), Pandora (Buy), Tencent (Buy) and
Apple (Coverage Suspended) as beneficiaries of the growing consumer adoption of
music streaming, with YouTube (Alphabet – CL-Buy) also favourably exposed to the
growing monetisation of music videos through advertising.

Exhibit 1: We raise our 2030 Paid Streaming market estimate by 16% and our UMG/SME
valuations by 16%/12%
New vs. old estimates and valuations; price targets have a 12-month timeframe
2016 2030E Chg Chg
Actual New Old (Abs) (%)
Music Market
Global Music Market ($bn) $56 $119 $106 $14 13%
Recorded Music Market ($bn) $16 $41 $36 $4 12%
Paid Streaming Market ($bn) $3 $28 $24 $4 16%
KPIs
Paid Subscribers (mn) 112 847 652 195 30%
Developed Market (mn) 86 316 NA
Emerging Market (mn) 26 531 NA
Smartphone Penetration % 3% 14% 9% 5%
Annual ARPU ($) $38.8 $34.4 $38.1 -$4 -10%*
Vivendi
EBITA Margins% 14.0% 23.1% 20.6% 2.5%
UMG Valuation (€bn) € 19.5 € 16.8 € 2.7 16%
Vivendi Target price (€) € 25.2 € 23.3 € 1.9 8%
Sony 2020E
SME EBITA Margins% 11.7% 14.6% 14.2% 0.4%
SME Valuation (€bn) € 16.6 € 14.9 € 1.7 12%
SME Valuation (¥bn) ¥2,155 ¥1,932 ¥223 12%
Sony Target price (¥) ¥5,600 ¥5,500 ¥100 2%
*Note: Reduction mainly reflects change in IFPI reporting
Source: IFPI, Goldman Sachs Global Investment Research
Exhibit 2: We forecast the global music industry to grow to $119 bn by 2030 from $56 bn in
2016...
Global music industry revenue ($ bn)
$130
$120
$110
$100 Other (artists, songwriters, live

ex ticketing)
$90 Ticketing
$80
Streaming (net of royalty
$70 payments)
$60 Label
$50
Publishing
$40
Download (net of royalty
$30 payments)
$20 Physical (net of royalty

payments)
$10
$0
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018E
2020E
2022E
2024E
2026E
2028E
2030E
Source: IFPI, Goldman Sachs Global Investment Research

Exhibit 3: …with record labels a major beneficiary of the growth in streaming

Global recorded music industry revenue ($ bn) and % growth
$45 10%
8% 8%
8%8%8%8% 8% 8%
$40 7% 8%
7%
6% 6%6%5%6%
6%
$35
4%
3%
4%
$30
1% 1% 2%
$25 0%
-1% -1% 0%
$20 -2% -2%
-2%
-2%
-3% -2%
$15
-5% -4%
-6%
-6% -7%
$10
-8% -7% -6%
$5 -8%
$0 -10%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
Physical Download Other Streaming Global market growth
Source: IFPI, Goldman Sachs Global Investment Research.
Exhibit 4: Major streaming services have continued to grow

Paid subscribers by platform (mn)
60
50
40
30
20
10
0
Jun‐15
Dec‐15
Apr‐16
Jun‐16
Jan‐17
Mar‐17
Jun‐17
2010
2011
2012
2013
2014
Sep‐16
Tidal Apple Music Spotify Napster/ Rhapsody

Deezer Tencent Google Play Music
Source: Company data, press reports, compiled by Goldman Sachs Global Investment Research

Deconstructing subscriber/ARPU assumptions by market

We have refined our analysis to include subscriber and ARPU forecasts by market. We have
also slightly changed our calculation of ARPU and paid streaming revenue to reflect a
recent methodology change in IFPI reporting, and now exclude freemium services
advertising revenue from the overall paid streaming revenue. This implies a 10% dilution to
ARPU calculated under the previous methodology.
Our increased streaming market estimate of $28 bn in 2030 reflects a greater assumed paid
streaming penetration among smartphone users, at 14% vs. 9% previously, implying 847 mn
subscribers (from 652 mn previously). Our more positive view stems from recent favourable
market developments and commentary from industry experts. Some speakers at our Music in
the Air conference in June 2017 predicted that 1 bn paid streaming users (implying 16%
penetration) and 1.5-2 bn ad-funded users could be reached in ten years, while Warner
Music’s CEO likewise expected to reach double-digit paid streaming penetration over time.
Our assumption of 14% global paid streaming penetration is based on 32% penetration in
developed markets and 10% in emerging markets. Our DM forecast is supported by trends
in the most advanced markets (namely Nordics), which have already achieved penetration
rates of over 30% in the space of ten years and continue to grow strongly (Sweden
recorded music market +6% yoy, Norway +12%, Denmark +8% in 2016). As another
benchmark, we note that online video streaming service Netflix reached 50% of US
broadband homes and over 10% of addressable homes outside the US in 2016.
Exhibit 5: Our 14% global paid streaming penetration rate Exhibit 6: The Nordic music markets have already
assumption is based on 32% penetration in developed surpassed 30%+ penetration and continue to grow
markets and 10% in emerging markets strongly
Global streaming subscriber penetration of smartphone Paid streaming as % smartphone owners in various markets
users (2012–30E)
35% 35%
30% 30%
25%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
2008
2009
2010
2011
2012
2013
2014
2015
Total DM EM
Sweden Western Europe Global
Source: IFPI, Goldman Sachs Global Investment Research Source: IFPI, Goldman Sachs Global Investment Research
Exhibit 7: Netflix subs have already reached c.12% Exhibit 8: Streaming in music accounts for a higher share
penetration of eligible homes outside the US (50% in the US) of consumer time vs. video
NFLX penetration (% of broadband homes) and paid music Average streaming minutes in music/video streaming
streaming penetration (% of smartphone users)
80%
300 80%
69%
Streaming as % total consumption
70% 254
70%
Consumption per day (mins)
250
60% 214 60%
50% 200
50%
40% 148
150 31% 40%
30%
30%
20% 100 78
10% 20%
50
0% 10%
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
0 0%
Video Music
NFLX US penetration % Paid music streaming penetration % NFLX US penetration %
Streaming Consumption Total Consumption %
Source: IFPI, Digital TV Research, Company data, Goldman Sachs Global Source: Nielsen, Variety, Company data, Goldman Sachs Global Investment
Investment Research Research

As a sanity check, our new estimates imply that music revenue as a percentage of
entertainment spend will rise to 6.4% in 2030 (previously 5.6%) from 4.2% in 2016, which is
still below the level of 7.6% attained in 1998. As a percentage of consumer spend, this
implies music’s share will rise to 0.17% in 2030 (previously 0.15%) from 0.13% in 2016,
which is also well below the 1998 level of 0.30%.
Exhibit 9: We forecast music revenue as a % of Exhibit 10: … and music revenue as a % of consumer
entertainment spend to increase to 6.4% by 2030, still spend to increase to 0.17% compared with 0.30% in 1998
below the 7.6% attained in 1998… Global music revenue as % of total consumer spend
Global music revenue as % of entertainment spend
(entertainment includes: Recreational and Cultural Services,
Newspapers, Magazines, Books and Stationery)
8.00% 0.30%
7.50%
7.00%
0.25%
6.50%
6.00%
0.20%
5.50%
5.00%
0.15%
4.50%
4.00%
3.50% 0.10%
2016E
2018E
2020E
2022E
2024E
2026E
2028E
2030E
2016E
2018E
2020E
2022E
2024E
2026E
2028E
2030E
1998
2000
2002
2004
2006
2008
2010
2012
2014
1998
2000
2002
2004
2006
2008
2010
2012
2014
Source: Euromonitor, Goldman Sachs Global Investment Research Source: World Bank, IFPI, Goldman Sachs Global Investment Research
(1) Dissecting our subscriber assumptions

To derive our forecast of 847 mn paid subscribers (652 mn previously) by 2030 we have
used the following assumptions:
 Global population rising to 8.5 bn in 2030 from 7.4 bn in 2016, as per World Bank
projections;
 Smartphone penetration rising to 72% in 2030 from 47% in 2016, implying 6.1 bn users
by 2030 (based on our hardware team’s projections for major economies); and
 Streaming penetration among smartphone users rising to 32% in developed markets and
10% in emerging markets, from 10% and 1% in 2016. This implies global streaming
penetration rising to 14% in 2030 from 3% in 2016. Our previous forecast of 9% penetration
by 2030 implied roughly 27%-32% in developed markets and 4%-5% in emerging markets.

Exhibit 11: We forecast streaming subscribers to account for 14% of smartphone owners by 2030 versus 3% in 2016
Smartphone ownership and paid streaming subscriber penetration by country/region
Smartphone Owners (mn) 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Total 1,586 2,077 2,697 3,148 3,508 3,801 4,072 4,292 4,506 4,656 4,807 4,959 5,113 5,268 5,425 5,583 5,742 5,902 6,101
DM 644 720 786 821 844 862 874 886 898 908 919 929 939 949 959 969 979 989 999
USA 216 246 275 286 295 306 311 316 318 321 323 326 328 331 333 336 338 340 343
UK 37 44 50 54 54 55 56 56 57 58 59 60 61 62 63 64 65 66 67
South Korea 37 47 51 52 52 51 49 49 51 51 51 51 51 52 52 52 52 52 52
Germany 47 55 62 68 69 69 69 69 70 71 71 72 73 74 74 75 76 76 77
France 38 45 51 55 56 56 57 57 58 59 60 60 61 62 63 64 65 66 67
Japan 72 80 86 89 92 95 97 99 100 101 102 103 104 104 105 106 107 107 108
DM ex List 197 204 211 217 226 230 235 240 244 248 252 256 260 264 269 273 277 281 285
EM 942 1,357 1,911 2,326 2,665 3,002 3,263 3,471 3,608 3,747 3,888 4,030 4,174 4,319 4,465 4,613 4,762 4,913 5,103
China 281 525 824 1,039 1,080 1,097 1,116 1,130 1,145 1,159 1,172 1,185 1,198 1,211 1,223 1,234 1,246 1,257 1,267
India 59 92 155 238 314 403 497 587 638 689 741 793 847 901 956 1,011 1,067 1,123 1,180
Brazil 32 53 79 96 100 103 103 104 111 118 125 131 138 145 152 159 166 173 180
Mexico 19 32 48 59 61 63 64 65 69 74 79 83 88 93 98 103 108 113 118
Russia 25 38 54 65 73 78 83 85 87 90 92 95 97 100 102 105 107 109 112
Ex BRICS+Mexico 526 616 752 829 1,037 1,258 1,400 1,500 1,558 1,618 1,679 1,741 1,805 1,869 1,935 2,001 2,069 2,137 2,245
Streaming as % Smartphone 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Total 1% 1% 2% 2% 3% 4% 5% 6% 7% 8% 9% 9% 10% 11% 12% 12% 13% 13% 14%
DM 2% 3% 4% 6% 10% 13% 16% 18% 21% 23% 25% 27% 28% 30% 30% 31% 31% 32% 32%
USA 3% 3% 3% 5% 11% 15% 19% 22% 25% 28% 30% 32% 34% 36% 36% 36% 36% 36% 36%
UK 4% 5% 6% 9% 17% 20% 23% 25% 27% 29% 31% 33% 35% 36% 36% 36% 36% 36% 36%
South Korea 5% 6% 8% 9% 10% 13% 16% 19% 22% 25% 27% 29% 31% 32% 32% 32% 32% 32% 32%
Germany 1% 1% 2% 4% 8% 11% 14% 17% 20% 23% 25% 27% 29% 30% 31% 31% 32% 32% 33%
France 3% 3% 3% 5% 7% 10% 13% 16% 19% 22% 24% 26% 28% 29% 30% 31% 31% 32% 32%
Japan 0% 1% 2% 3% 4% 7% 10% 13% 16% 19% 21% 23% 25% 26% 27% 28% 28% 29% 29%
DM ex List 2% 4% 5% 9% 12% 13% 14% 15% 16% 17% 18% 20% 21% 22% 23% 24% 25% 26% 26%
EM 0% 0% 0% 1% 1% 2% 2% 3% 3% 4% 5% 5% 6% 7% 8% 8% 9% 10% 10%
China 0% 0% 0% 0% 1% 1% 2% 3% 4% 5% 5% 6% 7% 8% 9% 9% 10% 11% 12%
India 2% 1% 1% 1% 1% 1% 2% 3% 4% 5% 5% 6% 7% 8% 9% 10% 10% 11% 12%
Brazil 1% 1% 1% 1% 3% 4% 5% 6% 7% 8% 8% 9% 10% 11% 11% 12% 13% 13% 14%
Mexico 0% 1% 1% 2% 4% 5% 6% 7% 8% 8% 9% 9% 9% 10% 10% 11% 11% 12% 12%
Russia 0% 0% 0% 0% 2% 2% 3% 3% 3% 4% 4% 5% 5% 6% 6% 7% 7% 8% 8%
Ex BRICS+Mexico 0% 1% 1% 1% 1% 1% 2% 2% 2% 3% 3% 4% 5% 5% 6% 7% 7% 8% 8%
Source: IFPI, World Bank, Goldman Sachs Global Investment Research
In addition, we cross-reference our streaming subscriber estimates with the World Bank’s
population classification by income. We believe the addressable population for streaming
services will consist of the ‘higher income’ and ‘upper middle’ income population, which
accounted for 51% of the global population in 2016. Our forecast of 316 mn and 531 mn
streaming subs in DM and EM by 2030 would imply 25% penetration of the higher
income population and 19% of the upper income population, respectively.
The World Bank classifies higher income as GNI per capita of more than $12,475, and
upper middle income as between $4,036 and $12,475. Assuming $55/$21 of annual
streaming spend per capita for DM/EM equates to c.0.4%/0.3% of GNI, respectively (using
average GNI for upper middle income in EM).
Exhibit 12: We believe the higher income and upper Exhibit 13: We believe roughly 21% of the global
middle income population is the addressable market for addressable population will subscribe to music
streaming services – i.e. 51% of the global population streaming services by 2030, from 4% currently
World Bank Income classification ($) and % addressable % subscribers by income bracket
global population by income bracket
0.6 30%
Total Streaming Addressable
Market / Global Population
25%
0.5 25%
21%
0.4 19%
20%
35%
0.3
15%
2017E
0.2
9%
10% 2030E
0.1
16%
4%
5%
0 2%
2016
0%
High Income Upper Income DM as % High EM as % Upper Total as %
Income Income High+Upper
World Bank GNI per Capita Income
Classification Bracket ($)
Higher Income $12,475+
Upper Middle Income $4,036 - $12,475
Lower Middle Income $1,026 - $4,035
Lower Income < $1,026
Source: World Bank, IFPI, Goldman Sachs Global Investment Research Source: World Bank, IFPI, Goldman Sachs Global Investment Research

(2) Dissecting our ARPU assumptions

We calculate a global annual ARPU of $38.8 in 2016 based on the streaming revenue and
number of paid subscribers reported by IFPI, with our analysis of subscriber mix implying
DM ARPU at $46 and EM at $16. We note that this is c.35% lower than the theoretical ARPU
of $57 computed through the standard $10/month offer (in DM) net of c.18% VAT, 30%
platform share and 10% publisher share, which reflects, on our calculations:
 $9 dilution from lower EM ARPU

 $4 dilution from telecom bundles
 $5 drag from other discounted offerings (e.g. student and family plans).
Over 2016-30, we forecast global ARPU to decline at a 1% CAGR, from $38.8 to $34.4,
owing to greater dilution from EM as growth continues to outpace DM. Within the mix, we
forecast DM ARPU to rise at a 1% CAGR for 2016-30 to $52.6, as price rises and lower
discounting should more than offset a slightly lower label cut (55% vs. 58%-60%), while we
expect EM ARPU to rise at a 2.5% CAGR to $23.1, driven by price increases and lower
discounting.
Exhibit 14: The difference in theoretical DM ARPU and Exhibit 15: We forecast blended ARPU to decrease at a
actual ARPU stems from emerging market dilution, as 1% CAGR to 2030 owing to dilution from EM, but both
well as telco bundles and other discount offers DM and EM ARPU to increase, by 1% and 2.5% CAGRs
ARPU mix analysis (2016) Global paid streaming ARPU (2013-30E)
$120 $60
120
DM ARPU to Actual Global ARPU Bridge
110 $22 $50

100
$40
90
80 $30
$41
70
$20
60 $57
$4 $10
50 $9
$39
40 $5 $0
30
DM retail VAT Platform/ DM label Telco EM Other Reported
ARPU Publisher ARPU label ARPU
cut
DM EM Global ARPU
Source: IFPI, Goldman Sachs Global Investment Research Source: IFPI, Goldman Sachs Global Investment Research
(3) Sensitivity analysis

We have used the above assumptions on subscribers and ARPU as our base case, which
gives a global paid streaming market of $28 bn by 2030. We note, based on our sensitivity
analysis, that:
 A 1 pp change to streaming penetration (assuming the DM/EM mix remains the same)
would have a $2.1 bn impact on the paid streaming market.
 A 1 pp change to ARPU (assuming the DM/EM mix remains the same) would have a
$280 mn impact on the paid streaming market.
 A 1 pp change in DM penetration would change our streaming market estimate by

around c.$520 mn, while a 1 pp change in EM penetration would change it by around
c.$1.2 bn.

Exhibit 16: Our base case assumptions to derive a $28 bn paid streaming market by 2030E Streaming industry growth by
market
CAGR
2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
(2016-30)
Revenue ($mn)
DM 594 953 1,290 1,992 3,132 4,591 5,939 7,207 8,396 9,666 10,826 11,917 13,049 14,089 14,852 15,379 15,890 16,223 16,499 10%
EM 99 119 160 257 360 514 835 1,228 1,706 2,335 3,148 3,933 4,810 5,787 6,823 7,884 9,030 10,265 11,632 27%
Total 693 1,072 1,450 2,250 3,492 5,104 6,774 8,435 10,103 12,001 13,974 15,849 17,859 19,876 21,676 23,262 24,920 26,488 28,131 14%
Mix %
DM 86% 89% 89% 89% 90% 90% 88% 85% 83% 81% 77% 75% 73% 71% 69% 66% 64% 61% 59%
EM 14% 11% 11% 11% 10% 10% 12% 15% 17% 19% 23% 25% 27% 29% 31% 34% 36% 39% 41%
Growth%
DM 60% 35% 54% 57% 47% 29% 21% 17% 15% 12% 10% 10% 8% 5% 4% 3% 2% 2%
EM 20% 35% 61% 40% 43% 63% 47% 39% 37% 35% 25% 22% 20% 18% 16% 15% 14% 13%
ARPU ($)
DM $42 $51 $48 $49 $46 $46 $47 $48 $48 $49 $50 $50 $51 $51 $52 $52 $53 $53 $53 1%
EM $42 $23 $21 $18 $16 $14 $14 $15 $16 $17 $19 $20 $20 $21 $22 $22 $22 $23 $23 3%
Global ARPU $38 $41 $39 $38 $39 $38 $37 $36 $36 $36 $36 $36 $36 $36 $36 $36 $35 $35 $34 -1%
Subscriber penetration
DM 2% 3% 4% 6% 10% 13% 16% 18% 21% 23% 25% 27% 28% 30% 30% 31% 31% 32% 32%
EM 0% 0% 0% 1% 1% 2% 2% 3% 3% 4% 5% 5% 6% 7% 8% 8% 9% 10% 10%
Total penetration 1% 1% 2% 2% 3% 4% 5% 6% 7% 8% 9% 9% 10% 11% 12% 12% 13% 13% 14%
Source: IFPI, Press Reports, Goldman Sachs Global Investment Research
Exhibit 17: Our base case is 14% paid streaming penetration and -1% ARPU CAGR for
2016-30E
Sensitivity analysis of paid streaming market ($ mn) to penetration of smartphone users (2030E)
and ARPU CAGR 2016-30E
Paid Streaming Penetration %

23,902 5% 8% 11% 14% 17% 20% 23%
-4% 6,239 10,184 14,128 17,909 22,017 25,962 29,906
-3% 7,213 11,774 16,334 20,705 25,455 30,015 34,576
-2% 8,327 13,592 18,856 23,902 29,385 34,650 39,914
ARPU
-1% 9,801 15,997 22,193 28,131 34,585 40,781 46,977

0% 11,049 18,035 25,020 31,715 38,991 45,977 52,962
1% 12,701 20,730 28,760 36,456 44,819 52,849 60,878
2% 14,579 23,796 33,014 41,847 51,448 60,665 69,882
Source: Goldman Sachs Global Investment Research.
Exhibit 18: Sensitivity of subscribers and ARPU to Exhibit 19: Every 1 pp change in DM/EM penetration has
DM/EM penetration a c.$520 mn/$1.2 bn impact on the streaming market
Sensitivity analysis of paid streaming penetration and ARPU Sensitivity analysis of paid streaming market ($ mn) to
to streaming penetration as % of smartphone users in streaming penetration as % of smartphone users in
developed and emerging markets (2030E) developed and emerging markets (2030E)
Paid Streaming market ($mn)

Streaming Subs (mn) DM streaming penetration
DM streaming penetration 28,131 20% 25% 32% 40% 45%
847 20% 25% 32% 40% 45%
penetration
streaming
5% $15,805 $18,417 $21,884 $26,254 $28,866

penetration
5.0% 455 505 572 655 705 8% $18,696 $21,309 $24,776 $29,145 $31,758
streaming
EM
7.5% 582 632 699 782 832 10% $22,051 $24,663 $28,131 $32,500 $35,112
EM
10.4% 730 780 847 930 980 13% $24,480 $27,092 $30,560 $34,929 $37,541
12.5% 838 888 954 1,037 1,087 15% $27,372 $29,984 $33,451 $37,821 $40,433
15.0% 965 1,015 1,082 1,165 1,215
Streaming ARPU
DM streaming penetration
34 20% 25% 32% 40% 45%
penetration
streaming
5% $37 $38 $40 $42 $42

8% $34 $35 $37 $39 $39
EM
10% $31 $33 $34 $36 $37

13% $30 $32 $33 $35 $36
15% $29 $31 $32 $33 $34
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research

Digging into the EM opportunity
Emerging markets to account for 40% of streaming revenue by 2030E

We believe emerging economies represent one of the biggest opportunities for the music
industry as music streaming helps tap into the ‘mobile-first’ population in EM (with
smartphone penetration levels close to DM) and create new, legal and more sustainable
monetisation avenues for rights holders for the first time in history in these regions. The
growth of streaming is further supported by a growing recognition of the value of IP, a
proliferation of streaming services (many of which have been launched by local players), and
the emergence of new business models (ad-funded, prepaid, telecom bundles etc.) and
payment capabilities. As of 2016, EM still accounted for c.10% of the global recorded music
market and 10% of the global paid streaming market (although including ad funded
streaming, we estimate that EM accounted for c.15% of total streaming revenue). Average
annual spend on recorded music per capita in EM stood at less than $1 compared with
around $15 in DM.
While we expect DM to continue to be the major contributor to the paid streaming market
in absolute terms, we believe EM will become a significantly larger contributor in terms of
percentage growth, and have raised our EM forecasts more substantially. For 2017-30, we
forecast a 27% paid streaming revenue CAGR in EM compared with 10% in DM, giving a
14% global revenue CAGR. By 2030, we estimate that EM will account for c.40% of the total
streaming market, up from 10% in 2016, while by 2025, the number of streaming
subscribers in EM should exceed that in DM. Notably, we forecast China and India to
account for 13%/9% of global paid streaming revenue by 2030, compared with 2%/0%
currently. We believe the growth in China will be mainly driven by the rising conversion
from ad-funded to paid users, as well as price inflation, while India will predominantly be
driven by volume growth.
Exhibit 20: We expect streaming revenue to grow at a Exhibit 21: We expect EM’s share of the total streaming
14% CAGR to 2030, driven by a 27% EM CAGR market to grow to c.40% in 2030 from 10% currently
Revenue growth by market (developed/emerging) Streaming market mix by developed and emerging market
30% 100%
27% 10%
90% 17%
25% 80% 41%
70%
Reveue CAGR
20% 60%
50%
14% 90%
15% 40% 83%
10% 30% 59%

10% 20%
10%
5% 0%
2017E 2020E 2030E
0% DM EM
DM EM Global

Exhibit 22: We expect EM’s share of streaming Exhibit 23: …to 63% in 2030E
subscribers to grow from 23% in 2016… Streaming subscriber mix by country (2030E)
Streaming subscriber mix by country (2016)
8%
1% USA USA
2%
3% UK UK
15%
2% South Korea 22%
3% South Korea
29% Germany Germany
2%
7%
France France
1% 3%
Japan 3% Japan
2%
Other DM 3% 4% Other DM
China China
8% 9%
24% India India
17%
5% Brazil Brazil
5% Mexico Mexico
4% 3% 18%
Russia Russia
A focus on China
China offers a useful case-study of a large, under-monetised music market, where
streaming is opening up sizeable new monetisation avenues at a time when the value of IP
is being increasingly recognised. In 2016, the Chinese music market was the 12th largest in
the world (up from #14 in 2015), exceeding Sweden for the first time and recording 20%
growth yoy to c.$200 mn, driven by 31% growth in streaming. Of note, streaming
accounted for 84% of total recorded music revenue in 2016. According to iResearch, there
were nearly 530 mn monthly active users of online music in 2016 or c.72% of the total
mobile/internet population, while data from Analysys points to 720 mn monthly active
mobile user accounts currently (which includes users with more than one account).
Exhibit 24: Chinese online music users expected to reach Exhibit 25: A large proportion of users listen to music on
c.569 mn by 2018 mobile in China
China's online music users, 2010-18 Penetration of China's online & mobile music, 2010-18
600 568.7 20%

548.9
527.0 18%
90%
501.4
500 478.1
16% 79.2% 78.3%
453.1 80% 77.3% 75.6%
435.9 75.2% 73.4% 73.7% 72.8% 73.1%
14%
400 385.9 73.9%
362.2 70% 72.0% 73.5%
12%
67.2%
65.8%
13.0% 60%
300 10%
58.2%
8% 50%
200
50.9%
6% 46.2% 45.7%
6.5%
40%
5.5%
4.9% 5.1% 4%
100 4.0% 4.2%
3.6% 30%
2%
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
0 0%
Share of online music users in internet users (%)
2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
MAU of China's online music (mn) Growth (%)
Share of mobile online music users in mobile internet users (%)
Source: iResearch, CNNIC. Source: iResearch, CNNIC.
While the number of Chinese streaming users is already significant, the industry operates
largely on a freemium model supported by advertising revenue, with optional premium
subscriptions starting at RMB8, or $1.2 a month. We estimate that c.3% of monthly active
mobile accounts currently pay for a music subscription. We therefore expect future
revenue growth to be mainly driven by the increased conversion of users from free to pay.

Exhibit 26: China’s music market grew at a 44% CAGR in Exhibit 27: Streaming music subscriptions remain low in
2014-16, driven by a 50% streaming CAGR absolute terms
China’s recorded music market ($ mn) Tencent paid streaming subscribers (mn)
250 16 15
Tencent Music Paid Subscribers (mn)
14 Tencent Music gains
control of KuGou and
200 12 KuWo in July 2016
10
10
150
8
6 5
100
4
50 2
0
in 2015
in 2016
mid‐2017
0
2012 2013 2014 2015 2016
Physical Streaming Other digital Sync
Source: IFPI. Source: Tencent Music, compiled by Goldman Sachs Global Investment
Research.
We believe the three major labels UMG, Sony Music and Warner Music are currently
under-represented in China given the prevalence of local content and the high degree of
fragmentation in the label industry. We estimate Western artists make up on average less
than 10% of all music streamed across Chinese streaming platforms. That said, the majors
have stated their intentions to invest and grow their market shares in China, and all three of
them already have licensing deals in place with Tencent, the largest music streaming
operator in China through QQ Music, Kugou and Kuwo (over 70% market share, according
to IFPI). In May 2017, UMG granted the exclusive distribution of its content in China to
Tencent, for which Tencent is reported to have paid an upfront fee according to Caixin
(August 11, 2017).

Connected cars & smart speakers: A potential $8 bn opportunity

We believe streaming-enabled connected cars and IoT-enabled smart homes offer
structural tailwinds to the consumption of music streaming – an opportunity that we
evaluate at up to $8 bn (30% uplift to our 2030 forecasts) and which we do not currently
factor into our estimates.
In particular, we estimate that in-car paid streaming could represent up to a $6 bn

incremental revenue opportunity for record labels. Tesla has recently announced plans
to launch a music streaming service for its customers, and the CEO of BMG noted at our
Music Conference that connected cars would represent the next game-changing step for
music streaming services based on discussions with major car manufacturers. GSMA
estimates that there will be 562 mn streaming enabled cars globally by 2022, up from 88
mn in 2015. Using Sirius XM’s penetration of c.35% of enabled cars in the US in 2016, and
a price point of $4.99 (a 50% discount to the $10 standard offer) for an in-car only music
streaming service, this would imply a revenue opportunity of up to $5.7 bn by 2022 (vs. our
current streaming forecasts of $14 bn in 2022 and $28 bn in 2030). We acknowledge that
there could be a risk of cannibalisation of the existing $10/month standard subscription
services, although this should be limited given that: (1) such services would only work in
the car; and (2) paid streaming subscription rates are currently very low.
At various subscriber numbers and cannibalisation rates, we estimate that connected cars
could add up to c.20% to our 2030 base streaming forecasts.
Exhibit 28: Streaming enabled cars are expected to grow Exhibit 29: …and looking at SIRI enabled cars gives
6x to over 560 mn cumulatively by 2022… potential indications of where penetration could get to
Streaming enabled cars (mn) Sirius XM enabled vehicle penetration %
600.0 562 60%
Streaming enabled connected cars (mn)
53%
500.0 50%
SIRI Enabled Vehicle
400.0 6.4X
penetration %
40% 35%
300.0
30%
200.0
88 20%
100.0
10%
0.0
1%
2015 2022E
0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
2020E
2021E
2022E
Streaming enabled cars (cum)
Source: GSMA, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
Exhibit 30: 25% of music consumption in the US currently Exhibit 31: …and within the car, radio is currently the
takes place in the car… predominant source of music consumption
US music consumption by activity/location, % US music consumption in the car, % of respondents
50% 80% 75%
45%
45% 70%
40%
60%
35%
50%
30%
25% 40%
25%
20% 30%
15% 15%
15% 20% 15%
10% 10%
5%
0%
0% AM/FM CD Digital Streaming Podcast
Work Chores Car Rest Radio
Source: Nielsen, Goldman Sachs Global Investment Research Source: Music Biz Consumer Insights, LOOP, Goldman Sachs Global
Investment Research

Exhibit 32: We believe in-car streaming offerings by Exhibit 33: Our sensitivity analysis points to potential for
either incumbents or new entrants could add significant up to 20% additional revenue (versus our base case
incremental revenue streaming market revenue estimate) by 2030
Illustrative in-car paid streaming service impact Incremental in-car streaming revenue sensitivity to
subscribers (car units in mn) and cannibalisation rates
Hypothetical in‐car streaming Pricing comparison to SIRI
New in‐car music streaming price (monthly) $5 SIRI Annual Monthly
$mn In‐Car subscribers
New in‐car music streaming label ARPU (monthly) $2 XM Select $192 $16 1716 10 50 100 150 200
Cannibalization
Streaming enabled cars (mn) 562 All Access $240 $20
0% 287 1,437 2,874 4,311 5,748
% penetration of streaming services 35% Mostly Music $132 $11
200 10% 230 1,149 2,298 3,447 4,596
Rate%
Revenue ($mn, annual) $5,748
25% 143 717 1,434 2,151 2,868
Cannibalization Rate 30% 40% 57 285 570 855 1,140
Standard streaming price (monthly) $10
Standard streaming ARPU (monthly) $5 50% ‐1 ‐3 ‐6 ‐9 ‐12
Cannibalization ($mn, annual) $3,456
% 2030E Rev In‐Car subscribers
Incremental Revenue ($mn) $2,292
0 10 50 100 150 200
Global Paid Streaming market (2030E) $28,131
0% 1% 5% 10% 15% 20%
Cannibalization
Accretion 8%
10% 1% 4% 8% 12% 16%
Rate%
25% 1% 3% 5% 8% 10%
40% 0% 1% 2% 3% 4%
50% 0% 0% 0% 0% 0%
Source: Company data, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research
In addition, we believe the rise of IoT enabled homes and smart speaker adoption further
increases the convenience of streaming services and therefore boosts music consumption,
as streaming platforms are already being integrated into smart speakers, and voice
activation removes the need to swipe a screen.
Voice-controlled speakers have proliferated over the last year, with VoiceLabs reporting 7 mn
Amazon Echo devices in households in 2016, Google Home launching in November 2016
and Apple’s HomePod set to launch in December 2017. Gartner forecasts that 3.3% of
global households (implying around 100 mn) could adopt a VPA-enabled wireless speaker
by 2020. A VoiceLabs study showed that 46.7% of respondents used their Amazon Echo or
Google Home device to play music and books. At our Music in the Air conference in June,
Sonos’ CEO also highlighted 2x higher listening hours in homes where Sonos connected
speakers are integrated.
While higher music consumption does not necessarily lead to higher revenue, we believe
this is still beneficial to the music industry through a reduction in churn for existing music
streaming users. Similar to Amazon’s $3.99 music subscription offering on the Echo
speaker, we also see opportunities for other in-home only streaming services, which we
estimate could add up to 8% to our base case streaming market forecast (we do not
currently factor in any additional contribution from in-car/in-home offering subscribers).
In our illustrative example, we assume 300 mn smart-speaker homes and 20% penetration
of in-home only offerings at a price point of $4/month, consistent with Amazon’s $3.99
music subscription on its Echo player (implying $2 label ARPU).

Exhibit 34: Amazon Echo currently has a dominant Exhibit 35: …reaching an installed base of 11 mn in that
market share in the US… market as of 1Q17
US Voice enabled speaker users by company share Amazon Echo installed based in the US as of April 2017 (mn)
12.00
Other
6%
10.00
8.00
Google
Home
6.00
24%
4.00
Amazon
Echo 2.00
70%
0.00
2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17
Source: Consumer Intelligence Research Partners Source: eMarketer
Exhibit 36: Gartner forecasts 100 mn voice-activated Exhibit 37: Playing music & books is the most used
wireless speakers by 2020 feature on smart speakers
Smart home speakers forecast (mn) Why do you like your Amazon Echo or Google Home?
120 50.0%
46.7%
100 40.0%
80
30.0%
29.1% 29.1%
60 26.5%
20.0%
40
10.0%
20 2.7%
1.1%
0.0%
0 Play Music & Smart Home Games and News & Brand Content Business
2016 2017E 2020E Books Devices Entertainment Podcasts Services
Source: Gartner, VoiceLabs Co Source: VoiceLabs Co Consumer Survey December 2016
Exhibit 38: We believe in-home streaming offerings could Exhibit 39: We believe an in-home only streaming
also be accretive offering could also add revenues beyond our base case
Illustrative in-home paid streaming service impact Incremental in-home streaming revenue sensitivity to
subscribers (mn) and cannibalisation rates
Hypothetical in‐home streaming only $mn In‐home subscribers

New in‐home music streaming price (monthly) $4 517 10 25 50 75 100
New in‐home music streaming label ARPU (monthly) $2 0% 230 575 1,149 1,724 2,298
Cannibalization
Smart speaker homes 300
10% 172 431 861 1,292 1,722
Rate%
% penetration of streaming services 20%
20% 115 287 573 860 1,146
Revenue ($mn, annual) $1,379
30% 57 143 285 428 570
40% ‐1 ‐1 ‐3 ‐4 ‐6
Cannibalization Rate 10%
Standard streaming price (monthly) $10
Standard streaming ARPU (monthly) $5 % 2030E Rev In‐home subscribers
Cannibalization ($mn, annual) $346 0 10 25 50 75 100
0% 1% 2% 4% 6% 8%
Cannibalization
Incremental Revenue ($mn) $1,033 10% 1% 2% 3% 5% 6%

Rate%
Accretion (2030E) 4%
20% 0% 1% 2% 3% 4%
30% 0% 1% 1% 2% 2%
40% 0% 0% 0% 0% 0%
Source: Company data, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research

Company implications
While the entire music streaming ecosystem should benefit from the growth in streaming,
we continue to see the major labels as the main beneficiaries, as they receive 55%-60% of
royalties for every piece of content that is being monetised. Although disintermediation
risk has been raised as a concern by investors, we expect the top three labels’ position to
remain intact for the foreseeable future given the current copyright structure and
competition among streaming services. This is also consistent with the views from our
conference speakers that the scale and leverage of labels remained especially important.
That said, we do factor in greater redistribution of profits to artists over time, partly in
response to the emergence of a-la-carte models offering the options for artists and
songwriters to pay for administrative services and retain their IP.
As the owners of the world’s largest recorded music companies, Vivendi and Sony are
our preferred picks, and we reiterate our Buy ratings on both stocks (also on their
respective regional Conviction Lists). As a result of our higher market estimates, we raise
our valuations for UMG and Sony Music by 16% and 12%, and our 12-month price targets
for Vivendi and Sony by 8% and 2% to €25.2 and ¥5,600, respectively.
On the distributor side, we note Amazon (CL-Buy), Pandora (Buy) and Apple (CS) as
beneficiaries of the growing consumer adoption of music streaming, with YouTube
(Alphabet – CL-Buy) also favourably exposed to the growing monetisation of music videos
through advertising.
Vivendi (CL-Buy; last close €18.83): Raising UMG valuation by 16%

to €19.5 bn and 12m price target by 8% to €25.2
We see Vivendi as a main beneficiary of the recovery in the music industry through UMG, the
world’s largest record company and second-largest music publisher. UMG accounted for 49%
of 2016 group revenue and 79% of EBITA (pre corporate costs). We believe UMG will not only
benefit from overall music market growth, especially in the recorded segment, but will also
drive new revenue streams and synergies in synchronisation and live music through greater
integration with Vivendi’s other businesses and partners: leading online video services
Dailymotion and VEVO, TV, video games, ticketing and telecom partnerships (Telecom Italia,
Orange). UMG should also increasingly benefit from the marketing, branding and PR
expertise brought in as Vivendi integrates Havas, the world’s sixth-largest advertising agency.
Feeding through our new industry model, we now forecast 2017-30 CAGRs of 7% in group
revenue, 12% in streaming revenue and 9% in EBITA for UMG. Our estimates are based on:
 Labels’ share of retail revenue decreasing to 55% from 60% over time, reflecting
our view that labels will have to concede a slightly greater portion of streaming
revenue to distributors as they scale up.
 UMG’s share of the streaming market eroding slightly over time to 32% given the
dilution from EM, where it has a lower (but growing) market share.
 An 800 bp EBITA margin expansion to 23% by 2030 from 2017E given the highly
attractive unit economics of streaming and scope for greater overhead cost efficiencies,
partly offset by a greater payout to artists over time. Within this, we assume that
streaming margins will rise to 25% over time, although we believe that a range of
25%-50% is possible depending on the evolution of A&R costs (see Exhibit 40). We
believe this is feasible given the operating leverage that labels have over distribution,
other product costs such as handling and packaging, and G&A expenses. In our view, as
streaming gains traction, the value of library will increase, allowing labels to achieve
operating leverage on their marketing spend, although we do not currently assume any
leverage from A&P costs. While labels do not break out streaming revenue, even at the
segment level, incremental margins already exceed 20%.

Exhibit 40: We estimate paid streaming could command up to 50% EBITA margin from
leveraging distribution and G&A costs
Illustrative streaming subscriber unit economics
Streaming ‐ subscription
Average spend per person $120 % of gross revenue

VAT $22 18%
Net revenue $98
Split: % of net revenue
Distributor revenue $34 35%
Content pool $64 65%
Split Publishing $10 10%
Split Record company $54 55%
Record company costs % of record revenue
Artists & Repertoire $14‐$27 25‐50%

Production & Distribution $0 0%
Other Product Costs $0 0%
Gross margin $27‐$40 50‐70%
Selling & Marketing $12 23%
G&A $0 0%
EBITDA Margin $15‐$28
Depreciation $1 3%
EBITA margin $14‐$27 26‐51%
Source: Company data, Goldman Sachs Global Investment Research
Exhibit 41: Paid streaming has highly attractive unit economics, with an estimated EBITA per user >3x greater than in
Physical and >2x greater than in Downloads…
Illustrative unit economics by music consumption format
Physical Download Streaming ‐ ad funded + subscription Streaming ‐ subscription
Average spend per person $ 55.0 % of gross revenue Average spend per person $ 48.0 % of gross revenue Average revenue per user $ 41.0 % of gross revenue Average spend per person $ 120.0 % of gross revenue
VAT $ 9.9 18% VAT $ 8.6 18% VAT $ 7.4 18% VAT $ 21.6 18%
Net revenue $ 45.1 Net revenue $ 39.4 Net revenue $ 33.6 Net revenue $ 98.4
Split: % of net revenue Split: % of net revenue Split: % of net revenue Split: % of net revenue

Distributor revenue $ 13.5 30% Distributor revenue $ 11.8 30% Distributor revenue $ 10.1 30% Distributor revenue $ 29.5 30%
Record company revenue $ 31.6 70% Record company revenue $ 27.6 70% Content pool $ 23.5 70% Content pool $ 68.9 70%
Split Publishing $ 3.4 10% Split Publishing $ 9.8 10%
Split Record company $ 20.2 60% Split Record company $ 59.0 60%
Record company costs % of record revenue Record company costs % of record revenue Record company costs % of record revenue Record company costs % of record revenue

Pay away to publishers $ 4.5 14% Pay away to publishers $ 3.5 13%
Artists & Repertoire $ 5.7 18% Artists & Repertoire $ 6.1 22% Artists & Repertoire $ 5.0 25% Artists & Repertoire $ 14.8 25%
Production & Distribution $ 4.4 14% Production & Distribution $ ‐ 0% Production & Distribution $ ‐ 0% Production & Distribution $ ‐ 0%
Other Product Costs $ 1.6 5% Other Product Costs $ 2.8 10% Other Product Costs $ 4.0 20% Other Product Costs $ 11.8 20%
Gross margin $ 15.4 49% Gross margin $ 15.2 55% Gross margin $ 11.1 55% Gross margin $ 32.5 55%
Selling & Marketing $ 7.3 23% Selling & Marketing $ 6.3 23% Selling & Marketing $ 4.6 23% Selling & Marketing $ 13.6 23%
G&A $ 4.9 15% G&A $ 4.1 15% G&A $ 3.0 15% G&A $ 8.9 15%
EBITDA Margin $ 3.3 10% EBITDA Margin $ 4.7 17% EBITDA Margin $ 3.4 17% EBITDA Margin $ 10.0 17%
Depreciation $ 0.79 3% Depreciation $ 0.69 3% Depreciation $ 0.50 3% Depreciation $ 1.48 3%
EBITA Margin $ 2.5 8% EBITA margin $ 4.0 15% EBITA margin $ 2.9 15% EBITA margin $ 8.6 15%
+64% ‐28%
+19% +112%
+250%
Source: Goldman Sachs Global Investment Research

Exhibit 42: …and this is already evident in segment level Exhibit 43: Our estimate reflects c.1,100 bp of EBITA
EBITDA margins at UMG and BMG, which were likely margin expansion in streaming by 2030, with the
also dragged down by physical and digital incremental margin ramping up to 35%
UMG and BMG EBITDA margin% UMG streaming EBITA per paid subs and streaming margin, %
30.0% 3.0 30%
UMG EBITA per paid subscriber (€mn)
UMG Streaming EBITA Margin %
24.4% 2.5 25%
25.0% 22.6% 22.8% 22.6%
2.0 20%
EBITDA Margin %
20.0%
13.9% 14.2% 1.5 15%

15.0%
1.0 10%
10.0%
0.5 5%
5.0%
0.0 0%
0.0%
2015 2016 Incremental Margin%
BMG UMG Streaming EBITA per sub Streaming Margins %
Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research
As a result, our DCF-derived valuation for UMG increases to €19.5 bn from €16.8 bn.
Depending on UMG’s market share and incremental streaming margin growth, its value
ranges between €12 bn and €34 bn on a 20%-40% market share and 25%-55% incremental
margins, respectively (Exhibit 45). Based on the 8.2% WACC and 2.5% terminal growth rate
that we use, at our current valuation, UMG’s terminal multiple is around 11.9x EV/EBITA
and 18.0x EV/UFCF (Exhibit 46).
Our 12-month SOTP-based target price for Vivendi increases to €25.2 (from €23.3), mainly
reflecting a higher valuation for UMG – for further details please see our accompanying
report on Vivendi, Streaming keeps on rocking: UMG valuation up to €19.5 bn; CL-Buy.
We continue to value Vivendi’s stakes using: (1) Goldman Sachs target prices for covered
companies such as Telecom Italia; (2) public market values for listed companies such as
Ubisoft; and (3) relevant peer or deal-based multiples, or disclosed rounds of private
funding for private companies.
At the current price, our SOTP analysis implies that UMG accounts for c.70% of Vivendi’s
EV. Our new valuation for UMG further highlights the valuation discrepancy in Vivendi’s
asset portfolio, with our SOTP analysis suggesting that the market currently ascribes €8.0
bn of value for the remaining assets compared with our valuation of €14 bn.
Key risks to our view and price target for Vivendi relate to a potential exclusion from Euro
Stoxx 50 at the next index rebalancing, lower streaming adoption than we expect,
disintermediation of record labels, cord cutting and greater competition in French Pay TV,
and capital allocation/M&A.
 Index rebalancing: The annual review of the Euro Stoxx 50 will take place in September.
Selection is based on the free float market capitalisation as of the cut-off date (last trading
day of August), and Vivendi could be at risk of being excluded based on that criteria.
 Lower-than-expected streaming adoption than we expect, which would affect our long-
term music forecasts and UMG valuation.
 Disintermediation risks for UMG should streaming platforms consolidate and gain
greater bargaining power.
 Cord cutting and greater competition for sports rights (notably from SFR) could
negatively affect Canal+’s turnaround.
 Capital allocation/M&A: Value-destructive M&A or strategic missteps could pose a

downside risk to the stock.

Exhibit 44: Our DCF for UMG implies a value of €19.5 bn

€ mn, except per share data in €
UMG MODEL (€mn) 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
UMG streaming revenue 1,483 1,991 2,562 3,148 3,737 4,268 4,900 5,497 6,130 6,760 7,318 7,808 8,316 8,799 9,302
% growth 55% 34% 29% 23% 19% 14% 15% 12% 12% 10% 8% 7% 7% 6% 6%
% of total streaming market 35% 36% 36% 36% 36% 35% 34% 34% 34% 34% 33% 33% 33% 32% 32%
Download revenue 755 572 410 300 228 193 164 140 119 101 86 73 62 53 45
% growth ‐26% ‐24% ‐28% ‐27% ‐24% ‐15% ‐15% ‐15% ‐15% ‐15% ‐15% ‐15% ‐15% ‐15% ‐15%
Physical revenue 1,225 1,041 864 735 624 531 478 430 365 311 258 206 165 132 106
% growth ‐13% ‐15% ‐17% ‐15% ‐15% ‐15% ‐10% ‐10% ‐15% ‐15% ‐17% ‐20% ‐20% ‐20% ‐20%
Licence & other (artist services) 725 754 776 799 823 848 873 899 926 954 983 1,012 1,043 1,074 1,106
% growth 0% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Publishing 792 856 880 924 970 1,019 1,070 1,123 1,180 1,238 1,300 1,365 1,434 1,505 1,581
% growth 5% 8% 3% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%
Merchandising 313 323 332 348 366 384 396 407 420 432 445 459 472 486 501
% growth 13% 3% 3% 5% 5% 5% 3% 3% 3% 3% 3% 3% 3% 3% 3%
Intercompany eliminations ‐26 ‐26 ‐26 ‐26 ‐26 ‐26 ‐27 ‐27 ‐28 ‐28 ‐29 ‐29 ‐30 ‐30 ‐31
Total UMG revenues 5,267 5,510 5,799 6,228 6,723 7,217 7,854 8,470 9,112 9,768 10,361 10,894 11,461 12,019 12,609
% growth 3% 5% 5% 7% 8% 7% 9% 8% 8% 7% 6% 5% 5% 5% 5%
UMG streaming EBITA 212 285 410 535 665 792 956 1,124 1,307 1,496 1,669 1,826 1,994 2,158 2,334
% margin 14% 14% 16% 17% 18% 19% 20% 20% 21% 22% 23% 23% 24% 25% 25%
% incremental margin 15% 14% 22% 21% 22% 24% 26% 28% 29% 30% 31% 32% 33% 34% 35%
UMG physical + download EBITA 190 180 143 115 87 72 64 57 48 41 34 28 23 18 15
% margin 10% 11% 11% 11% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
UMG licensing & other margin 87 91 93 96 99 102 105 108 111 115 118 121 125 129 133
% margin 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12% 12%
UMG Publishing EBITA 225 243 250 262 276 290 307 325 343 363 384 406 429 453 479
% margin 28% 28% 28% 28% 28% 29% 29% 29% 29% 29% 30% 30% 30% 30% 30%
UMG merchandising EBITA 24 25 26 27 28 30 30 31 32 33 34 35 36 37 39
% margin 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8% 8%
Total UMG adj EBITA 738 823 922 1,035 1,155 1,227 1,401 1,580 1,774 1,976 2,164 2,338 2,524 2,710 2,909
% margin 14.0% 14.9% 15.9% 16.6% 17.2% 17.0% 17.8% 18.6% 19.5% 20.2% 20.9% 21.5% 22.0% 22.5% 23.1%
Restructuring charges (44) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30) (30)
Working capital 8 (40) (40) (40) (40) 0 0 0 0 0 0 0 0 0 0
Capex (49) (50) (52) (56) (61) (62) (63) (64) (65) (67) (68) (70) (71) (72) (74)
Taxes (222) (247) (277) (311) (346) (368) (420) (474) (532) (593) (649) (701) (757) (813) (873)
FCF 432 457 523 599 678 767 888 1,012 1,146 1,287 1,417 1,537 1,666 1,795 1,933
% growth 50% 6% 15% 14% 13% 13% 16% 14% 13% 12% 10% 8% 8% 8% 8%
Long Term WACC = +8.20%

Long term growh rate = +2.50%
Undiscounted terminal value 34,758
Discounted terminal value 11,531
Enterprise value (€ mn) 19,486

Exhibit 45: Our €19.5 bn UMG valuation is based on a Exhibit 46: Implied terminal multiple is around c.12x
32% market share and 35% incremental margin by 2030 EV/EBITA and c.18x EV/UFCF
UMG value sensitivity to market share, streaming Implied terminal multiple sensitivity to WACC and terminal
incremental margins and cost of capital/terminal growth % growth %
Implied UMG Valuation (€mn) Implied Terminal Multiples (X)
UMG Streaming Market Share EV/EBITA WACC

19,486 20.0% 25.0% 30.0% 35.0% 40.0% 12 7.20% 7.70% 8.20% 8.70% 9.20%
25.0% 11,764 13,430 15,096 16,761 18,427 1.0% 10.8X 10.0X 9.3X 8.7X 8.2X
Incremental
30.0% 12,532 14,654 16,776 18,897 21,019 1.5% 11.8X 10.9X 10.1X 9.4X 8.8X
Streaming
Terminal
growth%
Margin%
35.0% 13,301 15,878 18,456 21,033 23,610 2.0% 13.0X 11.9X 10.9X 10.1X 9.4X
40.0% 14,069 17,102 20,135 23,169 26,202 2.5% 14.5X 13.1X 11.9X 11.0X 10.2X
45.0% 14,837 18,326 21,815 25,304 28,794 3.0% 16.3X 14.6X 13.2X 12.0X 11.0X
55.0% 16,373 20,774 25,175 29,576 33,977 3.5% 18.6X 16.4X 14.6X 13.2X 12.1X
WACC EV/UFCF WACC

19,486 7.20% 7.70% 8.20% 8.70% 9.20% 18 7.20% 7.70% 8.20% 8.70% 9.20%
Terminal growth%
Terminal growth%
1.0% 20,474 18,573 16,951 15,553 14,337 1.0% 16.3X 15.1X 14.0X 13.1X 12.3X
1.5% 21,581 19,460 17,670 16,142 14,824 1.5% 17.8X 16.4X 15.1X 14.1X 13.2X
2.0% 22,902 20,502 18,505 16,819 15,380 2.0% 19.6X 17.9X 16.5X 15.2X 14.2X
2.5% 24,503 21,745 19,486 17,606 16,018 2.5% 21.8X 19.7X 18.0X 16.5X 15.3X
3.0% 26,486 23,253 20,657 18,530 16,759 3.0% 24.5X 21.9X 19.8X 18.1X 16.6X
3.5% 29,005 25,119 22,076 19,633 17,630 3.5% 28.0X 24.6X 22.0X 19.9X 18.2X
Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research

Exhibit 47: Vivendi SOTP analysis

€ mn, except per share data; price target has a 12-month timeframe
Assets % EBITDA EV/EBITDA EV Vivendi's Value per %

owned 2018E at 100% share share of Total EV
Core Media (C+ / UMG / Havas ) 2,109 14.3X 30,216 28,302 22.5 76.3%
Canal Plus Group 100.0% 780 9.0x 7,049 6,637 5.3 17.9%
Canal+ France 100.0% 353 7.0x 2,471 2,471 2.0 6.7%

Canal+ Overseas 100.0% 249 9.5x 2,368 2,368 1.9 6.4%
VSTV 49.0% 32 9.5x 308 151 0.1 0.4%
StudioCanal 100.0% 76 12.0x 917 917 0.7 2.5%
Free TV (C8, Cstar, iTele) 100.0% 12 na 465 465 0.4 1.3%
ITI Neovision 51.0% 58 9.0x 520 265 0.2 0.7%
Universal Music Group 100.0% 919 21.2x 19,486 19,486 15.5 52.5%
Purchase (physical, download) 100.0% 165 10.0x 1,652 1,652 1.3 4.5%
Streaming 100.0% 461 29.8x 13,760 13,760 11.0 37.1%
Recording 100.0% 626 24.6x 15,412 15,412 12.3 41.5%
Publishing 100.0% 264 14.0x 3,696 3,696 2.9 10.0%
Merchandising/ others 100.0% 29 13.0x 378 378 0.3 1.0%
Havas 59.2% 409 9.0x 3,680 2,179 1.7 5.9%
Other consolidated assets 1,227 1,168 0.9 3.1%

See Tickets 100.0% 140 140 0.1 0.4%
Digitick 100.0% 80 80 0.1 0.2%
Wengo 90.0% 50 45 0.0 0.1%
Gameloft 100.0% 30 22.7x 686 686 0.5 1.8%
Dailymotion 80.0% 271 217 0.2 0.6%
Other stakes 86,002 7,885 6.3 21.3%

Vevo 40.0% 1,000 400 0.3 1.1%
Other music stakes 12,959 559 0.4 1.5%
Telefonica 1.0% 45,809 435 0.3 1.2%
Telecom Italia 24.9% 13,635 3,395 2.7 9.1%
Mediaset 28.8% 3,900 1,123 0.9 3.0%
FNAC 15.0% 2,070 311 0.2 0.8%
Ubisoft 25.0% 6,247 1,562 1.2 4.2%
Banijay 26.2% 382 100 0.1
Other adjustments
Net deferred taxation (NPV) 100.0% 600 600 0.5 1.6%
Holding costs 100.0% (100.0) 8.5x (850) (850) (0.7) -2.3%
TOTAL ENTERPRISE VALUE 117,195 37,106 29.6 100.0%

Conglomerate discount (10%) (3,711)
Net cash incl pension and liability (1,801) (1,801) (1.4)
TOTAL EQUITY VALUE 31,594

Number of shares (mn) 1,256
Sum-of-the-part valuation per share (€) 25.2

Sony (CL-Buy; last close ¥4,191): Raising SME valuation by 12% and
Sony 12m price target by 2% to ¥5,600
We believe Sony is one of the key beneficiaries of a recovery in the music industry
alongside Vivendi, and reiterate our Buy (Conviction List). Sony Music is the world’s
second-largest record company and the largest music publisher, and we view Music as
being the cornerstone of Sony’s transition to becoming a global entertainment giant. We
estimate the music segment will account for 8% of group revenue and 15% of operating
profits in FY17. We believe Sony Music is well positioned vs. peers given: (1) its large
catalogue, which should benefit from rising consumption and monetisation of streaming.
Sony’s main label, Columbia Records, founded in 1887, is the oldest record label in the
industry. (2) Cross-media synchronisation opportunity and improved discoverability: Sony
is a large media conglomerate with strong TV production activity in North America,
unprofitable yet large-scale motion pictures studio and the world’s most successful video
game platform, PlayStation.
We raise our Sony Music operating profit estimate by 6% for 2020E and have a positive
outlook for margin expansion in the music business. We now assume a 27% revenue CAGR
(2015-20E) for the streaming business, partly offset by a negative 11% revenue CAGR for
the physical recording business over the same period. Overall, we expect the recording
segment to grow at a 5% CAGR and music publishing at a 4% CAGR. With digital
commanding 7-10 pp higher operating margins than physical, we forecast Sony Music’s
operating margin to improve from 11.7% in FY16 to 14.6% in FY20.
As a result, we raise our Sony Music valuation by 12% to ¥2.16 tn (€16.5 bn), using the
implied EV/sales multiple for UMG, and our 12-month SOTP-based target price for Sony by
2% to ¥5,600 (from ¥5,500). For the games, movies, and music businesses, we apply a
sector average multiple of 14x to FY3/21E NOPAT (net operating profits after tax). In our
view, FY3/21 EV/NOPAT enables the reflection of medium-/long-term earnings in enterprise
value. This is underscored by greater online-related revenue in the games business and the
uptake of subscription services in the music industry in recent years. We value the
hardware business at 6.93x EV/DACF on 2017E, the average of the Asia technology sector.
We value the entertainment business at over ¥5.2 tn, making up 74% of the theoretical
value of the company.
Key risks to our investment thesis for Sony include:
 Delayed movie business recovery: We forecast operating profits of ¥65.0 bn in FY3/19,

rising to ¥131.1 bn in FY3/21, for Sony’s movie business. Any delay in the recovery of
Sony Pictures would be a downside risk for the company. We note that this business is
under the stewardship of a new chairman and CEO.
 Failure of blockbuster game titles: We expect proprietary titles to provide a significant

earnings contribution for the games business, but weak sales of major new titles, such
as Gran Turismo Sports (set for release on October 19) and Spider-Man (in 2018), are
another downside risk.
 Lower-than-expected streaming adoption than we expect, which would affect our long-
term music forecasts and Sony Music valuation.

Exhibit 48: Sony SOTP

¥ mn, except per share data; price target has a 12-month timeframe
Sony Target Price Calculation
Entertainment NOPAT (2020E) 373,441
Global game/internet EV/NOPAT 2020E 14.00
Entertainment EV 5,228,178
Hardware DACF (2017E) 330,821
Asia tech 2017E EV/DACF 6.93
Hardware EV 2,292,588
Ex‐financial CROCI (lease adjusted) 13%
Implied HW&Ent EV 7,520,766
Net debt/ (Net cash) 2017E (333,668)
Leases 2016E 846,229
Implied market cap (ex. Financial) 7,008,205
Sony Financial (8729.T) market cap (60%, at GS TP) 469,800
Other major holdings 337,392
Conglomerate discount ‐10%
Total implied market cap 7,033,857
Number of shares 1,263
Target Price ¥ 5,600
Source: Goldman Sachs Global Investment Research
Amazon (CL-Buy; last close $945.26)

For Amazon, music is a component of its Prime ecosystem that helps to drive customer
engagement, sell devices like the Amazon Echo, and create upsell opportunities. Amazon’s
e-commerce footprint and user base puts the company in a strong position to benefit from
the growth in digital music, offering multiple price-points, incentives, and channels for user
adoption. The Amazon Music Unlimited Family plan allows up to six family members to
use the service for $14.99/month, comparable to Family plan pricing at Spotify and Apple
Music. In addition, the company’s bundling discount of individual Music Unlimited for
Amazon Prime users ($7.99/month vs. $9.99 at competing services) provides a unique
opportunity to take share as the music industry sees growth in paid users. Its price
competitiveness on connected devices ($3.99/month on Echo, Dot, or Tap) along with its
free radio offering on these same devices could also allow the company to take advantage
of growth in voice-activated platforms.
Valuation: Our $1,275 12-month price target is based on a SOTP, implying 27x 2018E
EV/EBITDA.
Key risks: Risks to our view relate to competition, margin pressures from investment, and
valuation.
Pandora (Buy; last close $8.08)

We continue to believe that Pandora is set to benefit from overall growth in the
consumption of streaming music, along with the shift of advertising dollars online as the
company develops both its subscription and advertising-based offerings. With nearly
80mn monthly active users and 5+ billion listening hours quarterly, we believe there
remains significant opportunity for the company to monetize its existing base while driving
growth through new offerings, features, and devices. The company noted that 2Q17 saw
9.7mn active users from consumer electronics (+23% yoy), with 1.6mn from voice-activated
devices (+282% yoy); a category we see significant growth opportunity as ad-monetization
on these platforms is generally early stage. From an ad-supported perspective we see the
connected device opportunity providing upside to advertising RPM numbers in addition to
ad load increases and diversification of inventory in traditional channels.

In our view, Pandora’s unique music discovery functionality, brand and customer
relationships also puts it in a favorable position to upsell its on-demand service to its ~80
mn ad-supported radio customers and better segment its customer base through multiple
price points. The company indicated that there were 390K Premium subs at the end of 2Q
as users began to convert off of trials in mid-May, with 64% of subscriptions coming from
the ad-supported tier with minimal customer acquisition costs. We believe Premium
subscribers will reach 1.6mn by the end of 2017, bringing overall paid subs to more than 6
million vs. 4.4 million at the end of last year.
Valuation: Our 12 month price target of $13 is based on a 2x 2018E EV/sales multiple.
Key risks: Risks to our view relate to competition, content costs, subscriber costs, and
execution.
Alphabet (CL-Buy; last close $930.50)

As the dominant online video platform for music, we view YouTube as particularly well
positioned to benefit from the strong growth in music video consumption and online video
advertising especially on mobile devices. We estimate the platform accounted for c.40% of
the online video market in 2015. We also estimate that YouTube revenues grew at a 50%
CAGR over 2010-15 and forecast a c.30% CAGR over 2015-18, with around 15%-20%
coming from music. While there remains a significant gap between the consumption of
music streams on YouTube (70% of total music streams) and their monetisation (YouTube
accounts for around 6% of total recorded music revenue), we do not foresee any major
change to the safe harbour provisions that benefit YouTube and also note that the music
industry has toned down its criticism of the platform in recent months. However, we
believe that YouTube could face greater competitive pressure from Facebook's entry into
the music video space with the latter being reportedly in talks with record labels over a
music licensing deal (Music Business Worldwide, March 24, 2017).
Valuation: Our 12-month price target of $1,100 (DCF, EV/EBITDA, P/E) is derived from a
three-way equal-weighted valuation approach, which includes a discounted cash flow
(DCF) analysis, an EV/EBITDA multiple analysis, and a P/E analysis. For EV/EBITDA, we use
14x 2018E. For P/E, we use a multiple of 24x FY18E EPS. Our DCF analysis assumes a FCF
perpetuity growth rate of 5%.
Key risks: Risks to our view include weaker-than-expected cost discipline, competition and
dilutive M&A.
Tencent (Buy; last close HK$323)

We also view Tencent as a beneficiary of the rising consumer adoption of music streaming
(see our ‘Focus on China’ section earlier).
Valuation: Our 12-month SOTP-based price target is HK$369.
Key risks: Risks to our view include slower gaming growth and online advertising
competition.

Appendix: Global recorded music forecasts
Exhibit 49: We forecast the global recorded music market (label share) to grow to $41 bn, driven by growth in streaming
Global recorded music revenues ($ mn)
RECORDED MUSIC MARKET 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E
Global Recorded Music Revenues 15.7 16.8 18.1 19.5 21.0 22.7 24.5 26.4 28.6 30.8 32.8 34.6 36.6 38.6 40.8
% change 6% 7% 8% 8% 8% 8% 8% 8% 8% 8% 7% 6% 6% 5% 6%
Physical 5.4 4.9 4.4 4.0 3.6 3.0 2.6 2.2 1.9 1.6 1.3 1.0 0.8 0.7 0.5
% growth -7% -9% -10% -10% -10% -15% -15% -15% -15% -15% -20% -20% -20% -20% -20%
% share of total 34% 29% 24% 20% 17% 13% 11% 8% 7% 5% 4% 3% 2% 2% 1%
Digital 7.8 9.3 10.9 12.6 14.3 16.4 18.5 20.7 23.0 25.4 27.6 29.5 31.6 33.6 35.8
% growth 18% 19% 18% 16% 14% 14% 13% 12% 11% 10% 9% 7% 7% 6% 6%
% share of total 50% 55% 60% 65% 68% 72% 76% 78% 81% 82% 84% 85% 86% 87% 88%
Streaming 4.6 6.5 8.4 10.4 12.3 14.5 16.8 19.0 21.3 23.7 25.9 27.9 30.0 32.0 34.2
% growth 60% 40% 30% 23% 19% 18% 16% 13% 13% 11% 9% 8% 7% 7% 7%
% share of total 30% 39% 47% 53% 59% 64% 68% 72% 75% 77% 79% 81% 82% 83% 84%
Paid streaming revenue ($bn) 3.5 5.1 6.8 8.4 10.1 12.0 14.0 15.8 17.9 19.9 21.7 23.3 24.9 26.5 28.1
% growth 70% 46% 33% 25% 20% 19% 16% 13% 13% 11% 9% 7% 7% 6% 6%
Ad supported streaming revenue ($bn) 1.1 1.4 1.6 1.9 2.2 2.5 2.8 3.1 3.5 3.9 4.3 4.7 5.1 5.6 6.1
% growth 37% 21% 19% 18% 14% 13% 11% 12% 12% 11% 10% 9% 9% 9% 9%
Download 2.4 1.9 1.5 1.2 1.0 0.8 0.6 0.5 0.5 0.4 0.3 0.3 0.2 0.2 0.2
% growth -21% -20% -20% -20% -20% -20% -20% -15% -15% -15% -15% -15% -15% -15% -15%
% share of total 15% 11% 8% 6% 5% 3% 3% 2% 2% 1% 1% 1% 1% 1% 0%
Other revenue 0.8 0.9 0.9 1.0 1.0 1.1 1.2 1.2 1.2 1.3 1.3 1.3 1.3 1.4 1.4
% growth 10.0% 10% 10% 5% 5% 5% 5% 3% 3% 3% 3% 2% 2% 2% 2%
% share of total 5% 5% 5% 5% 5% 5% 5% 4% 4% 4% 4% 4% 4% 4% 3%
Performance Rights 2.2 2.3 2.4 2.6 2.7 2.9 3.0 3.2 3.3 3.4 3.5 3.7 3.8 3.9 4.0
% growth 6% 6% 6% 6% 6% 6% 6% 4% 4% 4% 4% 3% 3% 3% 3%
% share of total 14% 14% 14% 13% 13% 13% 12% 12% 11% 11% 11% 11% 10% 10% 10%
Sync 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.5 0.5
% growth 3% 4% 4% 4% 4% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3%
% share of total 2% 2% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 1% 1% 1%
Source: IFPI, Global Investment Research

Disclosure Appendix
Reg AC
We, Lisa Yang, Masaru Sugiyama, Heath P. Terry, CFA, Piyush Mubayi, Heather Bellini, CFA, Se Park, Yusuke Noguchi and Alex Woodgate, hereby
certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their
securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views
expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
Lisa Yang: EMEA New Markets-Media, Europe-General Retail, Europe-Media. Masaru Sugiyama: Japan Internet and Games, Japan-Consumer
Electronics, Japan-Media. Heath P. Terry, CFA: America-Internet. Piyush Mubayi: China Internet. Heather Bellini, CFA: America-Software.
America-Internet: Amazon.com Inc., Bankrate Inc., Blue Apron Holdings, Criteo SA, eBay Inc., Endurance International Group, Etsy Inc., Expedia Inc.,
Groupon Inc., GrubHub Inc., IAC/InterActiveCorp, LendingClub Corp., Match Group, Netflix Inc., Pandora Media Inc., PayPal Holdings, Priceline.com
Inc., Redfin Corp., Shutterfly Inc., Snap Inc., TripAdvisor Inc., Trivago N.V., TrueCar, Twitter Inc., WebMD Health Corp., Yelp Inc., Zillow Group, Zynga
Inc..
America-Software: Adobe Systems Inc., Akamai Technologies Inc., Alphabet Inc., Atlassian Corp., Autodesk Inc., Citrix Systems Inc., Facebook Inc.,
Microsoft Corp., MobileIron Inc., Okta Inc., Oracle Corp., Red Hat Inc., RingCentral, Salesforce.com Inc., Twilio, VMware Inc., Workday Inc..
China Internet: 58.com Inc., Alibaba Group, Baidu.com Inc., Ctrip.com International, Gridsum, JD.com Inc., NetEase Inc., New Oriental Education &
Technology, SINA Corp., TAL Education Group, Tarena International Inc., Tencent Holdings, Vipshop Holdings, Weibo Corp..
EMEA New Markets-Media: Mail.ru Group, Naspers Ltd., Yandex NV.
Europe-General Retail: adidas, ASOS Plc, Associated British Foods, B&M European Value Retail SA, Burberry, Debenhams, Delivery Hero, Dixons
Carphone Plc, Europris ASA, Hennes & Mauritz, Hugo Boss AG, Inditex, JUST EAT, Kering, Kingfisher, Luxottica (Italy), LVMH Moet-Hennessy Louis
Vuitton, Maisons du Monde SAS, Marks & Spencer, Moncler SpA, Next, OVS SpA, Pandora, Pets at Home Group, Prada SpA, Puma, Richemont,
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Kluwer, WPP Plc, ZPG Plc.
Japan Internet and Games: Bandai Namco Holdings, Capcom, CyberAgent, DeNA Co., Kakaku.com, Konami, LINE Corp., Nexon, Nintendo, Rakuten,
Recruit Holdings, Sega Sammy Holdings, Square Enix Holdings, Yahoo Japan.
Japan-Consumer Electronics: Panasonic Corp., Sony.
Japan-Media: Dentsu, Hakuhodo DY Holdings.
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2017.08.28 - Goldman - Music in The Air

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August 28, 2017

GS Music in the Air Series

And the beat goes on…

Raising streaming forecast by 16% to $28 bn by 2030

Raising paid streaming market estimate by 16% to $28 bn by 2030

The Goldman Sachs Group, Inc. Global Investment Research

Overview: Raising streaming forecasts and valuation for UMG/SME 3

Goldman Sachs Global Investment Research 2

Overview: Raising streaming forecasts and valuation for UMG/SME

Goldman Sachs Global Investment Research 3

Source: IFPI, Goldman Sachs Global Investment Research

$100 Other (artists, songwriters, live

$20 Physical (net of royalty

Source: IFPI, Goldman Sachs Global Investment Research

Goldman Sachs Global Investment Research 4

Exhibit 3: …with record labels a major beneficiary of the growth in streaming

Source: IFPI, Goldman Sachs Global Investment Research.

Exhibit 4: Major streaming services have continued to grow

Tidal Apple Music Spotify Napster/ Rhapsody

Goldman Sachs Global Investment Research 5

Deconstructing subscriber/ARPU assumptions by market

Goldman Sachs Global Investment Research 6

(1) Dissecting our subscriber assumptions

Goldman Sachs Global Investment Research 7

Source: IFPI, World Bank, Goldman Sachs Global Investment Research

Goldman Sachs Global Investment Research 8

(2) Dissecting our ARPU assumptions

 $9 dilution from lower EM ARPU

110 $22 $50

(3) Sensitivity analysis

 A 1 pp change in DM penetration would change our streaming market estimate by

Goldman Sachs Global Investment Research 9

Source: IFPI, Press Reports, Goldman Sachs Global Investment Research

Paid Streaming Penetration %

-1% 9,801 15,997 22,193 28,131 34,585 40,781 46,977

Source: Goldman Sachs Global Investment Research.

Paid Streaming market ($mn)

5% $15,805 $18,417 $21,884 $26,254 $28,866

5% $37 $38 $40 $42 $42

10% $31 $33 $34 $36 $37

Goldman Sachs Global Investment Research 10

Digging into the EM opportunity

Emerging markets to account for 40% of streaming revenue by 2030E

10% 30% 59%

Goldman Sachs Global Investment Research 11

600 568.7 20%

Source: iResearch, CNNIC. Source: iResearch, CNNIC.

Goldman Sachs Global Investment Research 12

Physical Streaming Other digital Sync

Goldman Sachs Global Investment Research 13

Connected cars & smart speakers: A potential $8 bn opportunity

In particular, we estimate that in-car paid streaming could represent up to a $6 bn

Goldman Sachs Global Investment Research 14

10% 1% 4% 8% 12% 16%

Goldman Sachs Global Investment Research 15

Source: Consumer Intelligence Research Partners Source: eMarketer

Source: Gartner, VoiceLabs Co Source: VoiceLabs Co Consumer Survey December 2016

Hypothetical in‐home streaming only $mn In‐home subscribers

Incremental Revenue ($mn) $1,033 10% 1% 2% 3% 5% 6%

Goldman Sachs Global Investment Research 16

Vivendi (CL-Buy; last close €18.83): Raising UMG valuation by 16%

Goldman Sachs Global Investment Research 17

Average spend per person $120 % of gross revenue