Once an artist has made one hit record, the world expects an equally impressive follow-up. Spotify and major labels such as Universal Music Group are now confronting a version of that challenge. The rise of streaming has driven years of growth: Spotify reached 300 million paying subscribers at the end of June. But as the market matures, the industry’s focus is shifting away from recruiting listeners and towards charging them more for new AI-based tools.
Valuations suggest limited AI enthusiasm
There are reasons to question whether AI is a fad, or a lasting engine of growth for the music industry. UMG thinks there’s evidence of demand. In a survey of some 30,000 consumers in 13 large streaming markets, the group found that 30% were interested in using AI to remix or personalise songs. Yet that also suggests many users are not interested in the new technology. Moreover, there's evidence that the novelty of generative AI tools can quickly wear off. According to data provider Sensor Tower, weekly downloads of OpenAI’s Sora text-to-video tool fell from a mid-November 2025 peak of 1.39 million to 326,800 by the end of December.
Current valuations don’t suggest that investors expect the industry to be a big AI beneficiary. UMG is trading at 14 times its projected earnings for the next 12 months, according to an LSEG poll of analysts, as is Warner Music. Both figures are well below their respective five-year average multiple of 24 and 26 times, per Breakingviews calculations. Spotify has seen its multiple roughly halve in the last year, to 33 times. Those valuations don’t forecast imminent AI-driven disruption: the labels are still trading at a premium to entertainment giant Walt Disney, for example. But they also imply that AI is unlikely to be more than a one-hit wonder.
Revenue growth slows as subscriber gains cool
At first glance, Spotify’s investors don’t have much to worry about. Reported revenue for the three months to the end of June was up 14% year-over-year to €4.8 billion. Still, its guidance implies a slowdown in new users. The group expects to add around 5 million paying subscribers in the third quarter, compared with 7 million in the second.
Elsewhere, the labels are under pressure to extract better licensing deals with their streaming partners. In the second quarter, UMG's recorded music subscription revenue – a measure of royalties from paid streaming subscriptions – rose 6.7% year-on-year in constant currency, excluding acquisitions. That's down from 7.9% in the prior quarter, and below market expectations. Its shares plunged more than 25% on that news.
AI partnerships aim to create licensed music tools
One possible solution, also evidenced by Spotify’s results, is AI. The Swedish group plans to invest €200 million in the technology, and a related marketing push, this year. In May, it signed a deal with UMG that will let fans create AI-generated covers and remixes of songs by participating artists, who get a cut of the revenue. The agreement is designed to create a licensed alternative to AI music generators like Suno and Udio, which critics say trained their models on copyrighted music. In turn, the hope is that Spotify will be able to charge users more for the service and pass some of these gains onto its label partners.
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