Bifurcation theory | How today’s music business will become two

One of things we pride ourselves on at MIDiA is helping the marketplace peer over the horizon with disruptive, forward-looking ideas and vision. We have a long track record of doing this (you can find a list of report links at the bottom of this post). While many of these ideas were difficult to swallow, or a little ‘out there’ at the time of writing, they became (or are still becoming) a good reflection of where markets ended up heading. Well, it is now time for another of those big market shaping ideas: bifurcation theory.

Today, MIDiA publishes its major new report: ‘Bifurcation theory | How today’s music business will become two’. The full report is available to MIDiA clients here and a free synopsis of the report for non-clients is on our bifurcation theory page here. So, check those out to find more, but in the meantime, here is an overview of just what bifurcation theory is, and why it is going to affect everyone in the music business, whatever role you play in it. 

The old maxim that change is the only constant feels tailor-made for the 21st century music business. Piracy, downloads, streaming, and social all triggered music industry paradigm shifts. Now, all the indicators on the disruption dashboard are flashing red once more. AI is, of course, standing centre stage, but it is not the cause of the coming change. It is simply a change enabler.The causal factors this time round are all direct byproducts of today’s music business, unintended consequences of a streaming market that has cantered along its natural path of least resistance. Everyone across the music industry’s value chain has played their role, often unwittingly. Whether that be shortening

songs, increasing social efforts, changing royalty systems or following viral trends, each of these micro actions has contributed to a macro effect.

The fracture points of today’s music business are simultaneously the catalysts for tomorrow’s. For example, the commodification of consumption is resulting in a raft of apps and industry initiatives that try to serve superfans; the rise of the creator economy’s long tail is resulting in both traditional rightsholders raising the streaming drawbridge (long tail royalty thresholds) and a fast-growing body of creators opting to invest less time in streaming.

Streaming was once the future but now it is the establishment, the cornerstone of the traditional music business. It has rocketed from a lean forward, niche proposition for superfans into a lean back, mass market product for the mainstream. Music consumers have always fallen into two buckets:

1.    Fans

2.    Consumers

The former used to buy music, the latter used to listen to radio. Streaming put them both into the same place, pulling up the average spend but pulling down fandom into consumption. Streaming is the modern day music business’ radio, just much better monetised than the analogue predecessor. Now though, everyone across the music industry’s complex mesh of interconnected value chains is realising there needs to be something more, built alongside, not instead of, streaming. This is the dynamic behind bifurcation theory. This report explores how today’s music business challenges are becoming the causal factors of a new business defined by two parallel consumer worlds.

The music business is bifurcating – splitting into two – with streaming emerging as the place for mainstream music and lean back consumption, and social as the spiritual home of fandom and the creator economy. We identify these two segments as:

1.    LISTEN (user-led): streaming services, monetising consumption at scale

2.    PLAY (creator-led): highly social destinations where fans lean in to create, connect and express identity

Of course, this process has already started, but social is still largely seen as a driver for streaming. Many artists who try to get their fans to participate on social do so primarily in the hope of driving streams rather than for the inherent value of fans participating in their creativity. However, many next-generation creators are realising they will simply never reach the scale needed to earn meaningful income from streaming.They are therefore shifting focus to building fan relationships on social media and monetising them elsewhere, be it via merchandise or brand sponsorships. Meanwhile, a new generation of fans are creating as a form of consumption, whether that means using songs in their TikTok videos or modifying the audio of their favourite song. While copyright legislation and remuneration have lagged behind these developments, they will be an important part of the future of PLAY. Over time, PLAY will evolve as a self-contained set of ecosystems, built around the artist-fan relationship. It will not be an easy transition. Mainstream streaming will become even more lean back, and social and new apps will exert what will increasingly look like a stranglehold on fandom and the creator economy.

Social apps are plagued with challenges (royalty payments not the least of them) but they will emerge as a parallel alternative to streaming, rather than simply a feeder for it. To this end, the full bifurcation theory report not only describes the lay of the future land, but also presents bold visions of how we think both sides of the music business equation should evolve. We present detailed frameworks for what PLAY services will look like and how LISTEN services can evolve, focusing on core competences to continue to appeal to the mainstream but also deepen appeal to – and better monetise – superfans.

AI will play a key role in the future of both sides of the bifurcated music business, but rather than being tomorrow’s business, it will act as an accelerant for the underlying dynamics of bifurcation theory.

Bifurcation is such a big concept with so many layers and nuances, we have only been able to skim through some of the highest level trends here. We encourage you to check out the full report and report synopsis to learn more.

We’ve spent a long time gestating this concept, so we’d love to hear your thoughts. We’re not expecting bifurcation theory to be to everyone’s taste, but if nothing else, hopefully it will spark some creative thinking and debate.

Don’t forget to check out our bifurcation page for a video discussion of bifurcation theory and a free pdf report synopsis.

As mentioned above, here are some of MIDiA’s most impactful future vision reports, in (roughly) chronological order:

Agile Music (Free report)

Music Format Bill of Rights (Free report)

Rising Power of UGC (Free report)

Independent Artists (Free report)

Music Rights Disruption

Insurgents and Incumbents

Creator Culture

Rebalancing the Song Economy (Free report)

New Top of Funnel

Slicing the Funnel

Music’s Instagram Moment

Scenes – a New Lens for Music Marketing

Attention Recession

Creator Rights (Free report)

Creator Hubs

Music Product Strategy

Fan Powered Royalties (Free report)

Addressable Creator Markets

Misaligned Incentives

Artist Subscriptions

Field of All Levels

Kill the Campaign

Rise of a Counterculture Industry

Can’t cross the moat? Walk around it

The music business is bifurcating. On one side, a new AI, fandom, and creation centred business is coalescing. On the other, the traditional business is pulling the draw bridge over its moat by pushing up streaming royalty thresholds to ensure the soon-to-explode long tail knows it is not welcome. AI has arrived at just the right time, acting as the change catalyst that will propel the consumerisation of creation to the fore. The news of music AI start up Udio’s $10 million raise is just another piece in the puzzle.

The traditional music business has a long tradition of building moats. The genesis of the recorded music business was the first moat. Until the phonograph, everyone and anyone could be a performer and take part in music. Then suddenly, a business was built around those deemed ‘good enough’ to be able to record. The music business’ moat was thus dug, with the audience on one side and the artists firmly on the other. In later years, the moat was widened with a succession of developments, such as record label marketing budgets, TV appearances, exclusive licensing deals, expensive recording technology, and so forth.

The rise of the creator economy, AI, and consumer creation will probably not drain that moat. High quality music and artists are not going to be replaced – that is simply not the point of AI. Virtual artists are an entirely different proposition (!) but AI and consumer creation open up another, entirely new path. Instead of having to swim across the traditional industry’s century-old moat, this new, parallel movement / industry can, and will, simply walk around it and carve out its own space. This will be a good thing for both sides of the future industry and mirrors what already happens in video.

No one confuses a TikTok short for a Netflix original because they operate in entirely different lanes. Right now, both sides of music occupy the same places (streaming and social). For as long as it was only the long tail of single millions of independent artists, that awkward cohabitation just about worked. But not for much longer. Now, we have tens of millions of creators uploading music to social (but not streaming) and we face the prospect of hundreds of millions of consumer creations, perhaps even a billion, according to BandLab’s Meng Ru Kuok.

And as much as this consumerisation trend will largely happen outside of the moat, some of it will happen inside it too. Look no further than the reports that Spotify is planning to allow users to modify songs. So, perhaps the demarcation will be modification within the moat and fully fledged creation outside of it.

What is fast approaching in the music industry’s rear view mirror is what MIDiA termed ‘Music’s Instagram Moment’, where making music becomes just as accessible to the average consumer as photos and video are now. Thom Yorke might have uttered the words ‘anyone can play guitar’ but in practice, most people don’t – either because they do not have a guitar or the will to learn. But anyone can write a text prompt. The traditional music industry’s moat kept the accomplished safely clear of the enthusiast. AI changes all of that.

Of course, the counter argument is that all this consumer creation will likely be garbage. But that misses the point. This is not about music as consumption, nor even fandom. It is music as expression and identity. Professional photographers did not look at Kodak and call them merchants of garbage because they enabled millions of consumers to take overly exposed holiday snaps with fingers obscuring the lens. 

The current fear around AI is it creating million stream songs, but that is not the point either. Don’t worry about the one AI track with a million streams, worry about the million AI tracks with one stream.

After all, who is going to listen to all this consumer creation? The friends and family of those who make it.  If each consumer creator has, say, ten people who will listen to what they create, and they make a track a month, that results in 120 streams minimum per year (assuming each person only listens once). Turn that one consumer creator into 100 million people (15% of Spotify’s current user base) and you end up with 12 billion streams. Now imagine that 25% of those 100 million consumer creators make two tracks a month, have more than 30 friends that listen, and that their music is good enough for those friends to each listen twice, then the total annual streams becomes 45 billion. Now imagine if those consumer creators make music every single day….

It is when you consider this sort of scale that it becomes clear why it is good for both sides of the business that they occupy different spaces, because they serve different purposes. 

Yes, consumer creation will compete for time. It will turn a considerable amount of time that is currently spent listening into time spent creating. Surely that is only a positive thing. Music as a form of expression and creation. It can – and should – be for everyone. 

If this kind of thing interests you, then keep an eye out for a major new report coming from MIDiA: Bifurcation theory: How today’s music business will become two. More on that soon!

Fan economy: expanded rights are worth $3.5 billion, now what?

MIDiA recently, and exclusively, revealed that expanded rights now represent 10% of the recorded music market with revenues of $3.5 billion. These revenues, derived principally from monetising the brand of the artist (merch, sponsorships, branding, live, etc.), represent a shift in strategic focus for the global music business. It is moving from a consumption economy to a fan economy. This is only the start. To truly harness the vast potential of a fan economy, three key things need to be addressed:

1. Image and likeness: The music industry’s current social media focus might be the UMG / TikTok spat, but the real battle will be over the cultural value of artists on social. As music creators invest increasingly more time into making social content, their images and likenesses are powering social media engagement and revenues. We are at the point where some value exchange needs to be established. Back in 2021, we laid out the case for a creator right (the linked report is free to download) that ensures creators are remunerated whenever they generate value, regardless of whether their music is being performed. With the ascent of generative AI, the concept is needed more than ever. The music business is waking up to the importance of image and likeness. The catalogue deal for Tina Turner included these rights, while Bob Marley’s estate sold his catalogue but retained his image rights because they have used them to create a global Marley branded empire. Likeness rights have a long history, with the first big ‘win’ being actor Crispin Glover settling with Universal Studios in 1990 for infringing his likeness when they altered the appearance of another actor to look like him with prosthetics as George McFly in Back to the Future Part II. This resulted in The Screen Actors Guild prohibiting its members from mimicking other actors. Music needs a George McFly moment. The state of Tennessee protecting artists’ voice and likeness may be a first step.
   
2. Reconfiguring streaming: MIDiA has been saying for years now that there is a lot Western streaming can learn from China’s fandom-focused approach to streaming. While Chinese fandom revenues have recently taken a hit due to governmental policy shifts, the underlying premise of making streaming about fandom and expressing identity remains crucial. Artist subscriptions are an obvious next step, making streaming about lean in fandom rather than lean back consumption. We have written about artists subscriptions a lot – recently; more than a decade ago; and in governmental policy submissions. James Blake’s escapes may have soured appetite, but that is, in part, because stand alone subscription apps face an uphill struggle. The most obvious opportunity is to make them part of the core streaming experience. The old internet was ‘build it and they will come’, today’s is ‘go where the audience is’. But there is more to do than artist subscriptions. Giving users profile pages where they can buy and earn fandom badges is probably the most important first step, something pioneered in the West by Audiomack and also seen on apps like Fave and Renaissance. HYBE is prepping Weverse for international expansion, Spotify looks set to make some moves soon, and both Sir Lucian Grainge and Rob Kyncl are leading their respective companies in this direction too.
   
3. Nurturing, not harvesting, fandom: There are two dangers inherent in record label superfan strategies: 1) weaned on lean back streaming, superfans might not be super enough, and 2) it is all  too easy to focus on monetising fandom rather than nurturing it. As much as Korean labels like HYBE, SM, and JYP might be industrialising fandom and exploiting fans, they at least understand the importance of building and nurturing fandom (take a look at the chart from JYP’s earnings to understand their fandom approach). Record label expanded rights were up 16% in 2023 and will continue to grow strongly. It is incumbent on record labels to consider fans as a scarce resource to be cultivated, not simply monetised, otherwise the soil will be left exhausted and barren.

Along with non-DSP and vinyl, expanded rights represent part of the modern music industry’s multi-faceted fan strategy and 2023 was arguably the first year of this new music business era. Streaming is not going away. Indeed, it will be part of this future, but the consumption-focused approach of the 2010s is going to be shunted to the side as fandom takes centre stage. Not a moment too soon.

Global recorded music revenues grew by 9.8% in 2023

Growth is back! After a slower 2022, global recorded music revenues grew by 9.8% in 2023 to reach $35.1 billion, compared to 7.1% in 2022, which means that the market is now more than double (124.5%) the size it was in 2015. 2023 was the year in which the industry settled back into a positive growth trajectory after the volatility of the pandemic and post-pandemic years. But the numbers also point to a market that is embarking on a major period of change.

The recorded music market is becoming more diversified, and although streaming is still the centre piece, its role is lessening. Streaming revenues hit $21.9 billion in 2023, up a relatively modest 9.6% on 2022. For the first time ever, streaming grew slower than the total market, to the extent that its share of total revenues actually fell (to 62.5%). Interestingly, over the same period, the five publicly traded DSPs grew revenue by 15.9%, and Warner and Sony collectively grew music publishing streaming revenue by 18.4%. Value is beginning to shift across the streaming value chain.

In other years, the recorded music streaming slowdown would have been cause for concern, but not in 2023. This is because other formats picked up the slack. Physical, after a decline in 2022, was up again (4.6%) in 2023, as was ‘other’. Interestingly, physical is emerging as the industry kingmaker: so far in this decade, over each of the two years that physical revenues grew, industry revenue growth was strong, and in the two years physical fell, industry growth was slow. Physical is the difference between good and great.

The growth in physical revenues, however, is more than just a revenue story, it reflects an industry strategic shift. Anticipating the streaming slowdown, labels and artists alike have been looking for diversification and new growth drivers, with superfans emerging as the central target. The strong growth of physical and ‘other’ revenues in 2023 are the first fruits of the new superfan focus.

The most compelling evidence for the superfan shift, is expanded rights. A subcategory of ‘other’, expanded rights reflect labels’ revenue from sources such as merchandise and branding. In short: superfan formats. Traditionally, expanded rights are not tracked as part of recorded music industry revenues, but last year, because of the industry’s growing fandom focus, we decided we had to include them, even if other entities still do not. 2023 underscored the importance of that decision. Expanded rights revenue grew by 15.5% to hit $3.5 billion – 10% of all global revenues. Expanded rights are one of the main building blocks of tomorrow’s music business.

Change was not constrained to formats. Market shares took some interesting turns, too. Non-major labels had a great year (and we’re calling them that, rather than independents, because a lot of the bigger ‘independents’, such as HYBE, have little in common with what people think of as traditional indies). Non-majors grew revenues by 13.0% in 2023, compared to 9% for the major labels. This meant that non-major label market share was up for the fourth consecutive year, reaching 31.5%. (Though, note this is measured on a distribution basis, not an ownership basis. Therefore, independent revenue that is distributed via a major record label or a wholly owned major label distributor will appear in the revenue of the respective major record label. So ‘actual’ non-major share is higher).

Non-major labels had a great year in expanded rights, outgrowing the market, in large part thanks to Korean labels, which accounted for nearly 70% of non-major label expanded rights revenue.

In stark contrast, 2023 was a tough year for artists direct (i.e., self-releasing artists), with various streaming market developments seeing them grow streaming revenue and their number of streams much more slowly than in previous years. 2023 was the first year artists direct lost market share. Streaming revenue grew just 3.9% in 2023, compared to 17.9% in 2022 and 35.5% in 2021. The result was a 0.4 point decline in streaming market share. Despite a difficult 2023, artists direct revenue in 2023 was 57.7% higher than in 2020, though the impending streaming royalty changes will likely see growth slow further.

On the majors’ side of the equation, Universal remained the largest label group, with its $10.0 billion representing 28.3% market share, but for the first time since 2020, Sony was the fastest growing major, increasing revenues by 11.6%, growing market share 0.3 points to 20.3%

Concluding thoughts

2023 was a very positive year, and it may prove to be the one we look back upon as ‘when things started to change’. Streaming growth slowed, on the recordings side of the equation, at least; monetising fandom became a serious part of the industry; non-majors locked into long-term market share growth; and self-releasing artists started to see a clear divergence between what they streamed and what they earned. 

The industry is beginning to bifurcate between the traditional, streaming-focused business, and a new one in which fandom and creation will take centre stage. Welcome to the first year of tomorrow’s music business.

MIDiA clients read the full report here

MIDiA independent label and distributor survey

MIDiA is fielding its annual independent label and distributor survey. This is the chance for the independent sector to have its voice heard. Given all of the changes that are taking place in the streaming economy, there has perhaps never been a more important time for this. In the survey, we ask about topics such as two-tier licensing, artist cut through, AI, catalogue and marketing.

All participants will get a copy of the final report so you can get a definitive view of how the wider independent marketplace is performing and how it is responding to today’s market challenges and opportunities. 

Crucially, all of the data is treated as strictly confidential. We never share respondent level data with anyone and we only use the respondent level data to create the aggregate market figures. This means your company-level responses are not seen by anyone else.

MIDiA has fielded this survey for years now and have been trusted with their data by many hundreds of labels and distributors.

Click here to complete the survey.

Music creators – take our survey!

MIDiA is fielding its annual music creator survey and if you are a music creator we would like you to take part. Whether you are a songwriter, artist, producer, engineer, vocalist, DJ, instrumentalist, soundtrack composer, or whatever you may be, we want to hear from you. This is an opportunity for you to have your voice heard on some of the most important issues facing music creators in today’s industry. 

On top of that, all participants will receive full access to the results of the survey so you can benchmark yourself against your peers. You will be able to compare against the industry average for things like workflows, tools used, income mix, challenges faced, platforms used, etcetera. It is a great opportunity to get a sense of how you are doing and learning about how other creators are carving out their careers, too.

If you need any further persuasion, all respondents will be entered into a prize draw of five $100 prizes.

All responses will be treated as strictly confidential. We will never present or even analyse your individual responses. Instead, they will be aggregated into the survey totals along with hundreds of other respondents.

Just follow this link to complete the survey.

Music subscriber market shares 2023: New momentum

With UMG leading the charge to reshape the music industry into a more label-friendly form, 2023 may, with hindsight, go down as the year before everything changed. Whatever lies ahead though, new models will take time to deliver benefits. Music subscriptions are therefore going to remain the bedrock of music rightsholder revenues for the foreseeable future. So, it is a good thing that music subscriptions had such a good year in 2023.

As of Q3 2023, there were 713.4 million music subscribers globally, which was 90 million up on the 623.4 million one year earlier in Q3 2022. This matters for two reasons:

1. We are already nearly three quarters of the way to having one billion music subscribers globally. That is no small achievement. For context, as recently as five years ago, we had only just passed the quarter of a billion subscriber mark
   
2. The 90 million subscribers added in the 12 months to Q3 2023 was more, yes more(!), than the 83.5 million added one year earlier. In fact, the number added was nearly as many as those added in 2020. Not bad for a maturing category with key markets hitting near-saturation

However, there is a bit of a problem with looking at the global market: it is increasingly no longer a global market, but instead, one of two halves: the West and the Global South, with each region throwing off dramatically different metrics and growth narratives.

Nowhere is this better illustrated than in the market share rankings:

• Spotify dominated the global music subscriber base in Q3 2023 with 31.7% market share. More than that, it actually increased its share from 0.4 points from Q3 2022. So, for all the flak Spotify has thrown at it, it outgrew the market in 2023. Newer, emerging market territories were central to this growth, but it was Spotify’s traditional heartland (North America and Europe) that drove the majority (59%) of its subscriber growth. Compare and contrast this with the all-DSP picture, where North America and Europe drove just 29% of subscriber growth, with Asia Pacific accounting for nearly two thirds of all non-Western subscriber growth
  
• China, a market in which only Apple of the Western DSP operates, underpins this non-Western growth, and the clearest manifestation of this is Tencent Music Entertainment (TME). With 102.7 million subscribers in Q3 2023, TME represents 14.4% of all global subscribers, despite this being an effectively China-only number. NetEase Cloud Music (6.1% share and China-only) and Yandex (3.4% share and Russia-only), further represent the dynamic growth from regions where Western DSPs largely do not operate. This is the new, bifurcated nature of the global music subscriber market
  
• Apple Music (12.6%), Amazon Music (11.1%) and YouTube Music (9.7%) represent the remainder of the leading Western DSP pack. Along with Spotify, these three DSPs represent 65% of the global market, but only 59% of 2023 growth. Western DSPs are still the core of the market, but they are collectively losing share. But, even within these four, there is a diverging picture, with YouTube Music and Spotify gaining share in 2023 while Amazon and Apple lost share. Between Q3 2022 and Q3 2023, Spotify added more subscribers than all three other leading Western DSPs combined

2023 was a strong year for music subscriptions, delivering more growth than perhaps had been expected in such challenging macro-economic and geo-political circumstances. Even North America and Europe grew slightly faster in 2023 than in 2022. But, as commendable as squeezing more growth out of otherwise mature markets is, the inescapable paradigm shift is the emergence of the Global South as the growth driver of tomorrow’s music subscriber base.

Want even more detail? Check out the full music subscriber market shares report and data set, with data for more than 20 DSPs across more than 40 territories, with data for every quarter from Q4 2015 to Q3 2023.

For more info email stephen@midiaresearch.com

MIDiA’s 2024 predictions: The algorithm is not listening

November is one of my favourite times of year, as an analyst anyways. Why? Because it is when the MIDiA team pool their collective brainpower to formulate our end-of-year predictions. What gives our predictions their unique angle is that they are constructed within an inter-connected framework, factoring in the cross-industry trends that will shape the coming years. A music industry trend does not happen in isolation of social media trends, nor vice versa, and so forth. We boast a solid track record, with an 88% success rate in both our 2023 and 2022 predictions, following 84% and 79% in the previous two years. The report is available to clients here. Meanwhile, here is a quick look at some of the meta (not the company) themes:

·   The algorithm is not listening anymore: This is our headline prediction and one that we think will have far reaching impact across all forms of entertainment. Algorithms on large scale platforms once super-served users, encouraging them ever closer to their respective niches. Now algorithms are increasingly pushing users to the content that supports platform monetisation priorities over user priorities. Users end up feeling that the algorithm is not listening to them anymore. This trend will accentuate in 2024 among the world’s biggest consumer platforms, resulting in user dissatisfaction and creating a window of opportunity for new, user-need-focused platforms, starting the cycle all over again.

·   Creation as consumption: If the late 2010s and early 2020s were the era of the creator, the remainder of the coming decade will become the era of the consumer creator. The proliferation of consumer-focused creator tools on major social platforms and beyond, will herald the next phase of the consumerization of creation. Not only will this see more content be user created (thus competing for consumption time), creation itself will become entertainment, thus adding to the competition for time.

·   Rise of the threataverse:  The metaverse may feel like a bus that never quite arrives, but something much more tangible is already gaining scale – the threataverse. This is the growing trend of social platforms becoming toxic environments in which diversity of opinion is transforming into intolerance, divisiveness and hate speech. Accentuated by bot farms and clandestine actors, enabled by failing platform moderation policies, social platforms are shifting from places to share opinions, to platforms where more moderate voices no longer feel safe to speak up. Threats, bullying, fake ‘facts’ and aggressive counter-commentary have created the new defining framework of the online social world – the threataverse.

·   The future will be gated communities: Change is wrought as much by reaction as it is by action. The rise of the threataverse creates the foundations for what will come next: the shift from open-social worlds into gated communities, where groups of like-minded individuals can converse safe in the knowledge that they will not be subject to abuse and attack. The early promise of ‘everywhere, everyone social’ has proven toxic and unworkable. Expect more social platforms, to ramp up gated community features. These will also prove to be a boon for fandom. Artists and other creators will be able to converse with fans without having to worry about torrents of negative discourse from users who can currently occupy and even co-opt, their open fan spaces.

·   AI will continue to reshape entertainment: While the rights framework will continue to be disputed and defined in 2024, AI technology will continue to accelerate, both in sophistication and adoption. It will find its loudest voice in the consumerization of creation but its subtler and more pervasive impact will be a steady assimilation into creative workflows, becoming an ever more utilised set of tools for creation across all forms of entertainment, from Chat GPT creating lines of code for games, through Eleven Labs generating podcast narration, to Beatoven creating soundtracks for influencer videos.

Like what you have seen so far? Then come and engage with MIDiA’s stellar analysts as they walk through their industry-specific predictions in our free-to-attend webinar, the algorithm is not listening, on the 11^th of January, 2024.You can find the full report here with 32 predictions across music, games, video, social, audio, and media and marketing.

State of the music creator economy – The consumer era

MIDiA is excited to announce the publication of the latest edition of its annual ‘State of the music creator economy’ report. Based on months of research, MIDiA creator and consumer surveys, market sizes and forecasts, this report is the definitive assessment of the music creator tools industry. The report is available to clients here.

The highlights:

The pandemic triggered a surge in the music creator economy, bringing an influx of interest and investment. Suddenly, everyone was talking about music creator tools while investors ploughed investment into leading companies, like Native Instruments and Splice, while newer entrants, like LANDR, carved out new models. 

By 2022, the industry found itself in a post-pandemic lull – always a possibility, even before the subsequent cost-of-living crisis. But, as our report reveals, the slowdown does not represent a sector returning to a pre-inflated level, but instead, a natural rebalancing before long-term, dynamic growth kicks in. This is because the pandemic did not create the market but catalysed an already growing sector, driven by a new wave of creators focused on simplicity and efficiency. The pandemic compressed three years of user growth into one and a half years, so slowing revenues are, in large part, a reflection of the bedding in of this cohort. 

But it is post-pandemic trends that will grow the market most: a) the rapid rise of AI, and B) the rise of the consumer-creator. Consumer-creators transformed photography (Instagram) and videography (TikTok); music will be next. Not only will casual music creation become mainstream, it will trigger an unprecedented widening of the music creator economy funnel. So the market’s future will be defined by: 

1. Simplification
2. Consumerization 

Perhaps the clearest sign that the music creator space continues to grow at pace, despite lacklustre results from some key companies, is that the number of creators grew by 12% to reach 76 million, with the number of those who upload their music growing by more than double that rate. Interestingly, the number of artists who self-release into the traditional streaming supply chain grew at half this rate. A forking of the music business is taking place before our very eyes, with the streaming ecosystem playing the traditional establishment, and social apps and new platforms, like BandLab, representing a new, future-facing, creator-centred ecosystem. 

Humans like to think of history in chapters, and music is no different – sorted into neat sections: the CD, piracy, downloads, streaming. We are now entering the creator era. A paradigm shift that will see the creator become centre stage, with creation itself being entertainment, and fans being given ever-more ways to participate and create themselves.

The new, post-streaming models will be defined by characteristics that are almost mirror opposites to the DSP model: 

• Creator-centric versus rights-centric 
• Creation versus consumption 
• Dynamic versus static 
• Non-linear versus linear 
• Fans versus audiences 

The streaming-centred music business and creator tools used to be separate industries but they are now becoming part of one, extended value chain. With revenues of nearly six billion in 2022, and rising to $10 billion by 2030, the creator tools sector is going to have both commercial and cultural transformational impact. Though hardware will continue to be a crucial part of the market, creation is becoming increasingly virtual, software, sounds and services will account for the majority of future growth.

The growth of the creator tools market to date has resulted in a surge of new tools and services. In fact, there are too many, making it hard for creators to identify what they need and why. Cloud services, such as the recently launched FL Cloud, which combine multiple tools to create joined-up workflows, are a new and important part of the market. This reaggregation approach will become far more prevalent, with subscriptions gaining share, up from a quarter of software, sound and services revenues in 2022, to nearly a third in 2030.

AI will, of course, also be a key growth driver, building on an already long history in creation. Current music AI tools cluster around three groups: 

1. Assistive tools 
2. Generative creator tools 
3. Generative consumer tools 

Established creators will increasingly use generative tools as sound sources, but they will play a more foundational role for younger, newer creators. AI’s biggest impact will be its opening up of the consumerization of music, which itself will comprise of three key components: 

1. Voice
2. AI
3. The phone 

The days of audience, creation, rights and distribution being discreet sectors are numbered. Creation is going to become the linking element, with a new generation of fast-moving creators opting into new models that enable them to operate across all elements simultaneously. The shift of cultural capital will be industry-changing and, in this context, ByteDance launching its creator tools, Mawf and Ripple, demonstrates it is staking its claim to be a key player in this brave new world.

Even though this post covered a lot of ground, it is only a tiny fraction of the 7,000 word, 46 page, 18 figure report! It includes four sections, covering:

1. Music creators
2. AI
3. Market size
4. Future models

With deep data on music creators, consumer creators, market sizes and forecasts, AI vendor mapping and future business models, there is simply no other report you need to understand both the creator tools market and its growing influence on music business and culture.

If you are not yet a MIDiA client and would like to learn more about how to become one, email stephen@midiaresearch.com.

Finally, here is a list of the companies and brands mentioned in the report: Ableton, Amp, Apple, Arturia, Audiocipher, Avid, BandLab, Bandzoogle, Beatclub, BeatStars, Boomy, ByteDance, CD Baby, Coursera, Discord, Discovery Mode, Distrokd, Fender Play, Final Cut Pro, Fiverr, Focusrite, FL Cloud, FL Studio, FRTYFVE, Google, HIFI, IK Multimedia, Image-Line, Instagram, iZotope, Jamahook, Korg, LALAL.AI, LANDR, LANDR Network, Linkfire, Live, Logic, Loopcloud, MasterClass, Mawf, Meta, Moises, Moog, Native Instruments, Neutron, Pandora, Ripple, Roland, SongStarter, SoundBetter, SoundCloud, Songtradr, Spitfire Audio, Splice, Spotify, Stem, Submix, Suno Chirp Bot, Symphony OS, TB303, TikTok, Tracklib, TuneCore, United Masters, Waves, Yamaha, YouTube, YouTube Shorts 

Spotify re-positions two-tier licensing (we are getting closer, and it can be even better)

Spotify released a blog post laying out how it wants the world to understand its new two-tier royalty system. The positioning is clear, leading with the statement that it will drive “an additional $1 billion toward[s] emerging and professional artists” and the PR push included several supporting quotes from the independent sector (with no major label quote to be seen). Positioning-wise, this is certainly now a case of ‘where it started’ (reverse Robin Hood) and ‘how it is going (everyone is a winner). Of course, the truth lies somewhere in between, but we are getting to a better place and there are some really important positive points made by Spotify. 

The main benefits outlined by Spotify are:

• Reducing fraud (financial penalties for actors that manipulate streams)
• Cutting back on ‘noise’ (increasing the minimum stream length to two minutes)

The cumulative impact of these measures will be more money going into the royalty pot for ‘honest hard-working artists’. This is all positive and represents part of a much needed recalibration of the wider model to tackle the long-term rise of unintended consequences of the streaming economy.

However, because the two-tier royalty system is also deployed alongside these measures, it will still be bigger artists that benefit from the larger royalty pool. Spotify states that redistributing the revenues from the end of the tail will be more impactful for ‘these tens of millions of dollars per year to increase payments to those most dependent on streaming revenue — rather than being spread out in tiny payments that typically don’t even reach an artist’. Spotify also makes the important point that most of the royalties from <1,000 stream tracks do not even make it to the artists because they do not meet the minimum payout levels set by labels and distributors.

Of course, this means that labels and distributors who have a substantial numbers of songs with <1,000 streams will see portions of their income withheld. For smaller labels this could be impactful. All labels shoulder risk knowing that a majority of their artists are unlikely to deliver them a profit. Bigger labels, major labels especially, hedge this bet by only paying artists royalties once they have generated more income than the advances the labels pay them. Smaller labels can rarely afford to pay advances and they also typically pay a higher share of royalties (e.g., 50%) to artists. So, having a payout threshold of, say, $50 per track, is their means of hedging risk. Some of that hedged risk will go out of the window for smaller labels. 

And to be clear, I am referring here to genuine smaller labels, not to synical ones that who trade in 30 second noise clips to gain the system. Those labels will suffer in this system, and rightly so.

A larger label might argue that smaller labels should simply focus on signing tracks with more potential, but the label marketplace is a competitive one. The ‘bigger artists want to go to bigger labels’ dynamic applies to the bottom of the tail too – it just translates to ‘not-so-small artists want to go to not-so-small labels’. Unless a label is investor backed, they all need to start small. There is a risk that these smaller labels do not have a voice in this debate.

But, let’s revisit this objective: ‘increase payments to those most dependent on streaming revenue — rather than being spread out in tiny payments’. 

(It is also important to note that the 1,000 streams threshold is for songs, not artists. So, many artists (and labels) will receive royalties for some, but not all of their songs. So this is not just about artists with <1,000 streams.)

While this is true at the input stage, it does not necessarily translate on the output stage. Assuming that the <1,000 streams revenue was worth around $60 million in 2023 (Spotify says “tens of millions”). Then, taking Spotify’s own Loud and Clear figures, applying the $0.03 per stream royalty, and distributing that on a share-of-streams basis for all other artists, provides an income translating to an extra +/- 1% of annual Spotify royalty income for those artists. So, the system takes money that is insignificant to the bottom of the tail and then divides it up into amounts that are insignificant, in relative terms, to the rest.

To be clear, some artists will get a good payout, peaking at somewhere around $20,000 for the top artists. However, as they already earn over a couple of a million each, that amount is probably not meaningful to them in relative terms.

So, where am I driving at with all this? How about we take the proposed system and instead of dividing into micro payments for everyone, just target it at one small group of emerging artists with potential. Turn it into an artist development fund rather than an inverted redistribution of wealth. That way the money can be put to really good use, investing in the very part of the market where the money came from in the first place. 

In summary, Spotify’s new positioning of two-tier licensing is fair, reasonable and positive in most respects. The associated (but separate) noise and fraud measures are super important and will help bring greater fairness and equity to the system. But distribution of the <1,000 stream royalties remains a sticking point. As it will have such a small impact on the income of other artists, surely funnelling these “tens of millions” into an artist development fund is a win-win that the industry can get behind?