Borrowing money will become more costly, reducing businesses and consumer spending to rein in inflation.
The Fed’s move had been expected since its first announced its intention to do so on Dec. 15, 2021. By raising the federal funds rate, the Fed will make borrowing money more costly, reducing businesses and consumer spending to rein in inflation. The Fed stated on Wednesday it “anticipates that ongoing increases in the target rate will be appropriate.”
The music business has been an attractive growth story since Spotify went public in 2018. The allure of rapidly rising revenues and expanding margins attracted investors to Warner Music Group in 2020 and Universal Music Group in 2021. Spotify had a peak market capitalization of $74.3 million in Feb. 2021 when Wall Street was enthusiastic about its plan to invest in podcasts to help compensate for the thin margins of music licensing.
“Right now, the markets are not kind to promises of long-term synergies from M&A or unclear returns from catalog investments,” says Bernstein analyst. “If a deal doesn’t increase cash flows next year in a way that’s easy to understand, it’s viewed with suspicion.” As catalog deals become more expensive, returns might not come immediately. “The labels have said they are uniquely positioned to improve the returns” through licensing and other exploitation, says Littunen, “but that might take some time to do.”
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