Alphabet Inc.-owned (GOOG) YouTube’s two new long-term partnerships with Universal Music Group and Sony Corp.’s (SNE) Music Entertainment unit will help pave the way for a new paid streaming service in 2018, Bloomberg reported. In response to the deal, one team of analysts expects a large boost to Japan-based Sony’s music earnings. (See also: Google Pulls YouTube From Amazon Devices.)
The recently announced agreement on the royalty rates for professional music videos and user-uploaded clips follows two years of tough negotiations. As for Alphabet, the tech giant’s new deals with two top music labels follow previous agreements signed with Warner Music Group in May. It was previously reported that the global search platform was planning to launch a new music subscription service in March 2018.
In response to the deal, Jefferies analyst Atul Goyal released a note indicating that the Japanese conglomerate’s streaming revenue was growing at an impressive rate even before a deal. He highlighted Sony’s streaming revenue up 78% year-over-year (YOY) and 38% quarter-over-quarter (QOQ) in Q2.
Goyal expects a new alliance with YouTube, “which appears the most prolific use of Music audio/videos” to “drive upside to Music earnings” at Sony. He wrote that the music industry’s compliant has been that Google is not paying for its fair share of music consumption, as YouTube comprises 63% of music streaming yet music companies only generate 11% of their revenue share from the platform. “This may change now that YouTube entered an agreement with Warner Music in May and has also just reached an agreement with Sony and Universal Music Group … This could significantly increase Sony’s revenues and profits in Music business,” he stated
The Jefferies analyst, who maintains a buy rating on Sony, expects shares to gain another over 35% over 12 months to 6,970 yen ($61.41) from Thursday morning at 5,156 yen. Shares have gained 60.7% year-to-date (YTD), compared to the S&P 500’s 19.7% increase over the same period. (See also: Facebook Debuts a YouTube Rival for Video Makers.)