Shares of Universal Music Group (UMG.AS), the renowned music label representing top artists such as Taylor Swift, Drake, Justin Bieber, and Adele, experienced a significant decline of 23% on Thursday. This drop followed underwhelming results in the company's streaming and subscription businesses, signaling challenges in the fiercely competitive streaming market.

In the second quarter, UMG's subscription revenue witnessed slower growth compared to the previous year, reaching only 6.9% (excluding foreign exchange) compared to the 12.5% growth recorded in the first quarter. This figure also fell short of the Bloomberg consensus estimate of 11% growth. Furthermore, streaming revenue exhibited a notable decline, decreasing by 3.9% ex-FX in Q2, a sharp downturn from the 10.3% growth achieved in the first quarter.

UMG attributed this setback to a "deceleration in growth at key advertising-based platform partners" as well as certain platforms experiencing delays in deal renewals. The company has been grappling with challenges in its partnerships with social media platforms. For instance, UMG terminated a partnership with Meta Platforms (META) in May, citing a lack of popularity among Facebook's user base for the licensed premium music video offering.

Additionally, UMG disclosed that it suffered a loss of one month's worth of revenue during its high-profile negotiation battle with TikTok over a new licensing agreement. Although the dispute was eventually resolved, it had a noticeable impact on the company's finances.

During an earnings call, UMG's Vice President and CFO Boyd Muir indicated that the deceleration in subscription growth was partially influenced by the timing of price increases from its partners. The company's partners include major audio streaming platforms like Spotify (SPOT), Amazon Music (AMZN), and Apple Music (AAPL), all of which have progressively raised prices in recent years, contributing to UMG's subscription revenue growth. Muir also mentioned a slowdown in subscriber growth at certain platforms, without specifying which ones, and emphasized the need for product innovation through ongoing dialogue with key partners.

Despite these challenges, UMG experienced strong growth in merchandising revenue, which saw a 44% increase in Q2, buoyed by artists like Taylor Swift. Other successful performers in the first half of 2024 included Morgan Wallen, Noah Kahan, Billie Eilish, and Ariana Grande.

Total revenue for UMG continued to soar for the 12th consecutive quarter, reaching 2.93 billion euros ($3.18 billion) and representing approximately 9% year-over-year growth, surpassing consensus estimates. Adjusted EBITDA increased by over 11% from the previous year (excluding foreign exchange) to 649 million euros or $705 million.

Earlier this year, UMG launched a restructuring plan aimed at generating annual savings of 250 million euros by 2026. This endeavor includes job cuts as the company seeks to navigate the evolving music landscape.

Overall, Universal Music Group faces formidable challenges in the competitive streaming market, as reflected in the recent decline in shares. The company continues to explore avenues for innovation and growth while leveraging its strong lineup of top-selling artists.