Spotify and music listening 10 years from now

July marks ten years since Spotify’s US launch. Although the tendency among some is to consider this ‘year zero’ for streaming (thus ignoring everything that had happened in prior years both within and outside of the US) it does present a useful opportunity to reflect on what the next decade might hold for Spotify. 

Rather than focus on the business outlook, I am going to explore how Spotify and other streaming services, could change the way in which music is consumed ten years from now. But first, three quick future business scenarios for Spotify:

  1. It continues to be the global leader but with reduced market share due to the rise of regional competitors in emerging markets
  2. It loses market momentum, stock price tumbles and is acquired by another entity 
  3. It morphs into a true multi-sided entertainment and creation platform, doing for entertainment what Amazon now does for retail but with more tools and services

So, on to the future of music consumption.

To map the future, you need to know the past. These are (some of) the key ways streaming has transformed how we engage with music:

  • We listen to a larger number of artists but spend less time with individual artists
  • We listen to tracks and playlists more, and albums less
  • Music is programmed (by ourselves and by streaming services) to act as a soundtrack for our daily lives and routines
  • Genre divisions are becoming less meaningful
  • Artist brands are becoming less visible
  • Music fandom is becoming less pronounced

Music is more like the soundtrack to daytime TV than blockbuster movies

In 2015 Spotify’s Daniel Ek said that he wanted Spotify to ‘be the soundtrack of your life’. Undoubtedly, Spotify and other streaming services are achieving that but the utopian vision is more prosaic in practice. Less ‘that was the best day of the summer’ and more ‘put on some tunes while I cook’. It is a soundtrack, but less the soundtrack to a blockbuster movie and instead more like the soundtrack to daytime TV. Music has become sonic wallpaper that is a constant backdrop to our daily mundanity. (Though the pandemic, the climate crisis and stagnant labour markets can make even the mundane look aspirational for many).

Like it or loathe it, this sound tracking dynamic is likely to play a key role in what the future of music consumption looks like. But it is not all sonic dystopias; personalisation, algorithms, user data and programming also have the potential to reinvigorate music passion. Here are two key ways in which Spotify and other streaming services could transform music listening ten years from now:

  • Dynamic and biometric personalisation: The current recommendation arms race works from a comparatively small dataset, focused on users’ music preferences and behaviour. The next battle front will be the listener’s entire life. Any individual user can appear to be a dramatically different music listener depending on the context of their listening. Even the same time of day can have very different permutations; for example, looking for chilled sounds at 7pm after a manic Monday but banging beats at the same time on a Friday. If streaming services could harvest data from personal devices and the social graph, elements such as heart rate, location, activity, facial expression and sentiment could all be used to create a music feed that dynamically responds to the individual. Instead of having to actively seek out a workout or study playlist, the music feed would automatically tweak the music to the listener’s behaviour and habits. The faster the run, the more up-tempo the music; the later in the evening, the more chilled (unless it’s 9pm and you’re getting ready for a big night out). Selecting mood and activity-based playlists will look incredibly mechanical in this world. Think of it like the change from manual gear change to automatic in cars.

  • Music catalogue reimagined: Just as activity and mood-based listening will become more push and less pull, so can music catalogue. Traditionally catalogue consumption is driven by a combination of user behaviour (‘I haven’t listened to that band in a while’) and marketing pushes by labels, publishers and now music funds’ ‘song management’. But it needn’t be that way anymore. Over the years, streaming services have collected a wealth of user data. Just as Facebook introduced memories for users’ posts, so streaming services could deliver music memories, showing users what they were listening to on this day ten years ago, or what the soundtrack to your summer was way back in 2021. Clearly Spotify is already making steps in this direction with Wrapped but this would be much bigger step, routinely delivering nostalgia nuggets throughout a day, week, month, year. In many respects the result would be a democratisation of catalogue consumption. It wouldn’t simply be the rights holders with the biggest marketing budgets and smartest campaigns on TikTok (or whatever has replaced TikTok ten years from now) that get the biggest catalogue bumps. Instead, catalogue consumption across the board would boom. This could make the current 66% of all listening look like small fry in comparison. What that means for frontline releases finding space is another question entirely.

These are of course just two well-educated guesses, and their weaknesses are that they are based on what has happened so far rather than what currently unforeseen consumption shifts may happen in the future. Indeed, streaming itself may have been surpassed ten years from now. But tomorrow’s technology often looks more like today than it does tomorrow. Henry Ford’s model T Ford looked more like a horse and trap than it did the swept wing aerodynamics of 1950s cars. Change takes time. But ten years is a long time in the world of technology, so even if neither of the above come to pass, you can be sure that music listening is going to look a whole lot different than it does now.


Global music subscriber market shares Q1 2021

The music industry’s growing obsession with declining ARPU will continue to colour the outlook for the global streaming market in revenue terms, but the positive driver of this equation is the rapid growth of music subscribers. There were 100 million new music subscribers in 2020, taking the total to 467 million. (In 2019 there were just 83 million net new subscribers). A further 19.5 million new subscribers in Q1 2021 pushed the number up to 487 million. While the failure of subscription revenues to keep up with the pace resulted in ARPU falling by 9% in 2020, this lens detracts from the huge momentum in paid user adoption. Subscription revenue might not be increasing as fast as some would like, but the global music subscriber base is not just growing – it is growing faster than ever.

Spotify continues its global dominance, adding 27 million net subscribers between Q1 2020 and Q1 2021, more than any other single service. However, it lost two points of market share over the period because its percentage growth rate trailed that of its leading competitors. Google was the fastest-growing music streaming service in 2020, growing by 60%, with Tencent second on 40%. Amazon continued its steady trajectory, up 27%, while Apple grew by just 12%.

Google’s YouTube Music has been the standout story of the music subscriber market for the last couple of years, resonating both in many emerging markets and with younger audiences across the globe. The early signs are that YouTube Music is becoming to Gen Z what Spotify was to Millennials half a decade ago.

Emerging markets are now central to the music subscriber market, with Latin America, Asia Pacific and Rest of World accounting for 60% of all 2020 subscriber growth. This is of course, also a key reason why global ARPU declined. Nonetheless, a number of emerging markets services now boast large subscriber bases. Beyond Tencent’s 61 million, China’s NetEase hit 18 million subscribers in Q1 2020 and Russia’s Yandex hit 8 million. (For more on streaming in emerging markets check out MIDiA’s latest free report: Local Sounds, Global Cultures.)

MIDiA will be publishing its country-level music subscriber numbers as part of the global music forecast report and dataset which will be available to clients Monday 12th July. If you are not yet a MIDiA client and would like to know how to get access to the data, email stephen@midiaresearch.com

Emerging markets may be about to change the superstar business

The traditional recorded music business was all about selling units, which naturally meant that the most important markets were not the most populous but the wealthiest. Throughout the late 20th century this created a ‘global’ market that was dominated by North America, Europe and a few others. This is why (among other political reasons) Japan became the biggest Asian music market, rather than China. 

Today’s music business is different. Streaming (particularly via ad-supported and bundles) can monetise large-scale audiences in lower per-capita GDP markets. Suddenly population size matters, and emerging markets become the world’s largest addressable music audience. The emerging markets opportunity has the western music and investment sectors salivating, but there is another layer many have missed: this shift is going to change how western record labels operate, not least by challenging the very notion of the global superstars which they trade in.

Anglo repertoire’s traditional dominance

Prosperity drives prosperity. Where music sales did well, music businesses did well. The music business did best in the US, as well as to a lesser degree in the other big English-speaking markets. These countries also benefited from English being the most exportable language for music. By the start of the 2000s (and excluding the US), of the top 10 music markets, domestic repertoire represented more than half of sales in only Japan and France. Anglo repertoire dominated the global music market and was extending its reach. Most countries across the globe were seeing their domestic repertoire shares falling year-on-year as we entered the new millennium. This of course meant less money feeding back into the local scenes, which meant more opportunity for international superstars to dominate. It was a cultural vicious circle. And then piracy happened.

A decade of piratical wilderness hit domestic repertoire hardest in many countries. For example, in Spain, the best way to keep track of domestic artists was ‘la manta’ chart. Literally ‘the blanket’, referring to the guys who would unfold a blanket on the street corner full of counterfeit CDs. So many local music scenes in lower-income emerging markets essentially remained largely organic and local for a decade. Then came along streaming, and suddenly artists can find their audiences in ways previously unimaginable. In geographically large countries like India and Brazil, touring the country was not a realistic option for most artists, so streaming enabled them to reach across their countries, and beyond, in an instant. 

Streaming, cultural catalyst for local scenes

Streaming’s cultural impact on local scenes was actually first seen at scale in Europe, with German, Dutch and French rap scenes fast emerging that found massive domestic popularity but that rarely export. In the old model, the lack of ‘exportability’ meant no record deal which meant no local scene. Streaming changed that. Another early milestone was the rise of Latin American music, especially Reggaeton. Although some Latin American artists have broken through on the global stage, the most important impact has been the rise of both domestic and regional superstars. This is the future that we are entering.

To expect emerging markets to lap up Anglo repertoire just because they are now streaming not only smacks of cultural imperialism, it also misses the underlying fundamentals of how music scenes and consumption are changing. The steady rise of Anglo repertoire up to the early 2000s has been replaced by a rise in local and regional music. Globalism is becoming replaced by internationalism, homogeneity with diversity. All of which means that global Anglo superstars will feel the pinch. The superstar business was already facing the headwinds of fragmenting fandom, so emerging markets are an accelerant to a pre-existing trend, along with multipliers such as the growth in the number of artists, releases and personalised recommendations. 

Build from within, not from without

None of this, however, necessarily means western labels cannot prosper in emerging markets. After all, they have the resources and expertise that decades of global success bring. They will need to shift their mindset from looking for export markets to territories where they can build new, domestic talent-centred business. A smattering of joint ventures from the western majors in Asia and Africa suggest the first steps are being made, but to succeed these strategies will have to be seen as the central plank of repertoire strategy for emerging markets, not a supporting strand. 

However, the western majors should not assume they will be able to out-perform local and regional labels. In Japan and South Korea, the western majors are minority players, having been unable to unseat the dominant local ‘majors’. Interestingly, both countries are long-term exceptions to Anglo repertoire dominance. Both are high per-capita markets with large economies that can sustain thriving domestic music businesses. Also, Anglo repertoire does not import as well to these markets (despite endless western acts trying to ‘break’ Japan), with international repertoire stuck at around a quarter of sales in both markets at the turn of the millennium. Now in the third decade of the millennium, it is South Korea that is exporting music to the world, from ’Gangnam Style’ through to Black Pink and BTS. This shows that global superstars will still be a long term-feature of the music business – though fewer will be Anglo artists. 

The outlook will thus be defined by:

  • Fewer Anglo global superstars
  • A rise in non-Anglo superstars
  • The rise of regional superstars
  • The rise of local scenes and domestic artists

It is an exciting time for music culture across the globe and we are most likely entering what will be the most culturally diverse era the global recorded music business has ever known.

If you are interested in emerging markets themes, then keep an eye out for a free report MIDiA will be publishing next week. Watch this space!

How Bandcamp could really fix the music business

“A thought: has streaming become the place to address consumers and the likes of Bandcamp the places to engage fans? i.e., fans and fandom inherently matter less on streaming because it/they are a minority.” 

I recently posted this tweet questioning whether streaming has become the place for finding fans, while Bandcamp is the place where fans really are. Some of the resulting conversation got me thinking that there are several related but disconnected industry dynamics which define today’s music business but are second-order effects of streaming’s rise rather than how anyone planned for things to pan out. If someone could join the dots between them then we might just have the makings of a solution to many of the problems artists face in the streaming song economy. And perhaps that someone could be Bandcamp…

When being empowered does not feel as empowering as it should

One of the great ironies of this era of empowered artists is that the empowerment only extends so far. Sure, they can choose whether to work with a label, whether to retain their rights, which distributor to use etc., but the vast majority are beholden to streaming. Streaming is where they build and find their audiences; streaming metrics are the success currency that drives or helps shape most of everything else that happens in their careers. Yet the economics for most middle class and independent artists do not add up. Even the ability to get bigger live audiences thanks to streaming does not help pay the bills for most emerging artists as they are still in the stage of their careers where they lose money touring. This is of course why Bandcamp has resonated so strongly in recent years: it is the place where artists bring the audiences they are building on streaming to a place where they can earn meaningful income. 

Streams or fans?

This discover on Spotify / monetise on Bandcamp flow works well enough, but it is like bottom-trawling fishing: most of what you catch you discard. But there is more to it than that. If labels and artists are investing their marketing efforts in driving streams as the way to find audiences and build fan bases but few listeners actually convert, this means that the streaming platforms are benefiting much more from that marketing spend than they are. Add to that the fact artists cannot build direct relationships on most streaming services (excepting, as always, Soundcloud and YouTube), then the question becomes: what are artists building on streaming apart from streams? Of course, there is always the unicorns and rainbows hope that they might blow up on streaming – but artist careers cannot be built around the hope of winning the lottery. What is pointedly not being built is, you guessed it, fandom. Audiences may fall in love with the music on streaming and they may follow the artist etc., but they build their fandom elsewhere, going to Google, Wikipedia, Instagram, forums, articles and the like to really get to know the artist.

Bringing it all together

Make no mistake, streaming does an amazing job of helping people hear new music and it does a pretty good job of helping people discover new music (there is of course a massive difference between hearing a new song once and really discovering new music). But the missing bit is nurturing fandom; feeding curiosity, enabling connections with others, facilitating self-expression, getting beneath the skin of an artist. A certain scale of audience is needed to turn Bandcamp into truly meaningful income for artists and right now too much of that responsibility lies with streaming. This is where Bandcamp has a ‘go big or go home’ opportunity.

What if discovery, consumption and fan building could all happen on Bandcamp, not just e-commerce? Apart from a little editorial, right now Bandcamp is not designed as a destination but instead as the place people go to buy stuff. Imagine if Bandcamp was also a place to listen to music, discover cool new artists (based on users’ stated preferences and behaviour to deliver personalised recommendations) and learn about those artists. A place for bands and alternative singer-songwriters. A place to reclaim the essence of ‘independent’ from major label-owned ‘independent’ artist platforms.

Of course, there is a tension: if Bandcamp suddenly starts doing streaming, then it puts sales at risk – the very essence of its market proposition. But Bandcamp doesn’t need to play by the streaming rule book. It doesn’t need to license the majors (or even the big indies); instead, it can build a completely new model with smaller labels who are open to creating something new. 

For example, a listener might be able to stream the songs from an album twice before then having the option to pay to unlock the album for unlimited streams using pre-purchased credits. Effectively creating a full streaming catalogue that can be unlocked one album / EP / artist at a time, rather than ‘simply stream before you buy’. This would combine the best of both worlds: streaming consumption and sales income for the artist. Once you start thinking about things in this way, the possibilities light up the horizon.

A fan accelerator

So now we have Bandcamp driving discovery, consumption and commerce. But it could do more still: it can become a fan accelerator. By combining all these assets and ensuring artists can always talk directly to their fans and know exactly who they are (opt-in emails, names, DOB, interests etc.) artists would be able to build fan bases like nowhere else. But rather than simply provide the tools to artists, Bandcamp could help them with guidance, support and fan roadmaps. Not all artists are one million follower artists; some might only ever be 100 follower artists. Using its data and expertise, Bandcamp could help artists understand what the right path is for them. For some, it would be providing the tools to get to 10,000 followers; for others, it might be how to truly engage 100. 

This might sound like common sense, but too much of the music business is shaped by over-inflating artists’ expectations, trading on unrealistic dreams. The first chapter of the independent artist economy was about establishing them as a serious force in the music business and getting platforms to scale. The next chapter should be shaped by independent artist tools and platforms shouldering a duty of care to their customer bases, to help them plot the right paths for them. There are as many different models for success as there are artists. Success needs redefining for those artists that will never hit it big, nor may ever even be able to give up the day job. Finding those ‘100 true fans’ can still be success; it just needs measuring differently.

There are plenty of other directions this could go in, and there are plenty of other entities that could go in this direction. What matters is that the siloes the industry finds itself with are broken down and that fandom and creator remuneration do not fall between the cracks. With new foundations, we could truly see the emergence of the empowered artist.

The paradox of small

When the history books are written about our current times, the rise of creator culture will likely go down as one of the most impactful paradigm shifts. It is a dynamic that extends far beyond music, but it is impacting the music industry more directly than it is other entertainment industries – in large part because the music business is not yet set up for the economies of micro audiences. Until it is, artist royalty woes will remain a festering wound that risks infecting the entire business. The solutions will require a combination of a new approach to monetisation and a realistic understanding of what streaming can truly deliver to an artist community that is continuing to grow faster than streaming revenues.

More mouths to feed

Despite the challenges of the pandemic, streaming revenues grew by 20% in 2020, with subscriber numbers growing even faster. Over the same period, the number of releasing artists grew by more than a third. The arithmetic is brutally simple: more new artists than more new music revenue meant lower average income per artist. As economist Will Page puts it, there are more mouths to feed. Even within the fast-growing artists direct segment, where revenues grew dramatically faster than the overall market (34%), the average income per artist grew by just 2% to $234 a year – that’s right, just $234 a year, across all recorded music formats. And of course, that figure is heavily skewed up by a few thousand ‘superstar’ independent artists, with the vast majority earning far, far less.

Big numbers, small income

With artists direct numbering five million in 2020, never have there been so many people releasing their music to the global public. This creator revolution is unprecedented and represents five million dreams being chased. But with just $234 of annual income up for grabs, the reality is that nearly all of those dreams will be unfulfilled. It has always been thus with music, but the difference now is that expectations have been raised, with matters compounded by the fact that streaming numbers can appear big but deliver only small revenues. For example, a self-releasing artist that racks up 100,000 streams might only take home $500, which could easily feel like a very modest return to an artist that does not have a comprehensive grasp of how streaming royalties work.

The 0.05%

This is the paradox of small: more artists can reach global audiences and drive sizeable streaming metrics but have little or no realistic prospect of meaningful income. Much of the streaming income debate has revolved around the plight of the middle class artist but the bigger dynamic at play is the creation of the amateur enthusiast class. In the old music business, these artists lived in a different world from professional artists. They played in local bars and sold a handful of CDs there that they recorded in a local studio. Now they use the same creator tools as the pros and have their music on the same platforms. This can give the impression of playing in the same league as the pros, but they’re not. If they are good enough, do the right things and get the breaks then they can get into that league, but that will only happen for 0.05% of them.

Dreams just out of reach

Having dreams appear to be within touching distance but somehow never quite within grasp is fertile ground for breeding discontent and resentment. The parts of the music business that trade on this segment (artist platforms, digital distributors, streaming services, creator tools) have a duty of care that must move beyond its current remit of trading on artists’ dreams.

Fixing streaming royalties will not change things. Even if you doubled royalty rates, 100,000 streams would still only generate $1,000 for an independent artist. Meanwhile, it would result in streaming services losing 40 cents on every dollar earned, and that’s just to cover the royalty rates, i.e., not even considering things like having a product, staff, offices, marketing or operations.

Looking elsewhere for income

Streaming royalties are never going to add up for most independent artists, in the same way radio would never do so. And this is not just a self-released artist problem: most artists will never get paid ‘enough’ money from streaming, and trying to make streaming royalty mechanisms do so is tilting at windmills. As I have previously written about, the music business needs to build out its ancillary revenue streams for music creators. There are already lots of options, such as:

  • Selling song writing services on Soundbetter
  • Selling beats on Splice
  • Selling merch on Bandcamp
  • Selling subscriptions on Twitch
  • Selling royalty free music on Artlist
  • Sell live stream concert tickets with Driift
  • Selling artist subscriptions on Fan Circles
  • Selling digital collectibles on Fanaply

Record labels, management, distributors, streaming services, and creator tools companies all need to invest in helping their artists build their fan bases and income on such platforms. This investment in their creators’ incomes will ensure that they are better able to continue to make the music that fuels the business models that all those other entities have learned to make work in a way most individual creators have not and cannot.

Streaming services must fix the problem… or someone else will

Nevertheless, the market also needs something more – a platform glue that binds together creation, audience and consumption. Contrast a music artist with a games streamer. A games streamer creates, streams, finds and monetises their audience all within one platform (e.g., YouTube or Twitch). A music artist, however, creates music in one platform, takes it to another for distribution which then feeds it into streaming platforms where the artist has no direct relationship with their audience. There are exceptions to the rule (Bandlab, Soundcloud and YouTube especially) but they are just that: exceptions, not the rule.

Either streaming services need to start backing up their creator-first language with creator-first tools, or instead watch from the side lines as someone else does it for them. Whoever leads the charge, the paradox of small will finally become slightly less of a paradox.

We’re Hiring (again)

The pandemic rewrote the rules of digital entertainment, creating new opportunities and threats at an unprecedented rate while also intensifying competition for consumer attention. Never before has the interconnected nature of the digital entertainment landscape been more important, which also means that never before has MIDiA’s holistic, cross-industry view been more important. I am very pleased to say that this has resulted in a record period of growth for MIDiA, and even though we added three awesome new team members at the start of the year, we are now hiring again to keep up with demand.

These are three truly exciting roles which will play an important part in the next chapter in MIDiA’s story:

Music Industry Analyst and Consultant

The person in this role will join MIDiA’s four-person music analyst and consultant team. You’ll get to write analysis for all the biggest players in the global music business as well as work on exciting consulting projects to support the strategy of some of the most interesting and innovative companies in the industry. We’re looking for someone with a good amount of industry experience for this role; at least five to seven years ideally at a record label, music publisher, digital distributor, streaming service or management agency (but we’re open to experience in other parts of the music industry, too).

Podcast and Audio Analyst

MIDiA has established a reputation for high-impact podcast research and data. We are taking this a step further and will soon be launching a new Podcast and Audio service, covering podcasts, audiobooks and other emerging audio formats. The successful candidate for this role will lead our audio coverage within this new research service. We’re looking for someone with at least three years’ experience working within the podcast sector in a commercial, strategy or analysis role.

Forecast and Modelling Analyst

MIDiA’s industry models and forecasts are relied upon by global companies and investors to help inform strategy, understand where markets are heading and to assess market opportunity. We invest immense effort, time and resources into building our datasets which has helped us earn a reputation for authoritative, accurate market sizing and credible forecasting. We are now looking for an experienced Forecasting and Modelling Analyst to expand our data capabilities, supporting both our syndicated research service and our consulting team.

We’re super excited about these new roles and we’re looking forward to hearing from you if you think that you could be the right fit for one of them.

Full details of these positions are on the MIDiA website here; please carefully consider the stated requirements and whether you meet them or equivalent, as we have put a lot of thought into what we really need to support the rest of the team and continue growing in the right direction. Applications should be sent to info@midiaresearch.com.

The productisation of music rights

News that New York-based Pershing Square Tontine Holdings is planning to acquire 10% of UMG is the latest in a wave of financial transactions in the music rights space. Alongside this, Believe’s impending IPO has the potential to be one of the biggest things to happen to the independent music sector in some time, and comes as part of a wave of IPOs (e.g. WMGUMG), SPACs (e.g. AnghamiReservoir) and no end of catalogue funds and acquisition vehicles. This trend, with good cause, has been referred to as the ‘financialisation of music’ but that only captures part of what is at play here. This is more than simply an influx of capital and debt; financial institutions are now becoming part of the plumbing of the music business, and in turn they are changing the definition of what constitutes success. This shift in objectives and desired outcomes has the potential to rebalance how the music industry operates.

Though the strategies and aspirations of financial entities that are investing in music are diverse, they are usually very different to those held by music companies, particularly those of traditional music rights holders. What constitutes success for one may not matter much for the other. For example, a credible music industry objective (e.g., get playlisted) might have little immediate relevance to asset class value. Even the macro market trends illustrate the disconnect: the value of publicly announced music catalogue transactions grew by 14% in 2020, while global music publisher and label revenues each grew by just 8%, i.e., the financial value of music catalogues grew faster than their ability to generate revenue. 

Music rights have become established as an asset class, with their value defined differently than how the music industry typically measures value. The value of a song to the music industry resides in its commercial and cultural performance. A hit is a hit. But that same song’s value as part of a catalogue as a financial asset is also defined by a wider range of factors, including the relative value of music as an asset class compared to other financial asset classes. When entities such as pension funds and investment managers acquire music rights, they add them to diverse portfolios of assets, with music representing a particular tier of risk and return. Those financial institutions accrue value by repackaging the assets in derivative financial products that they then sell on. A pension plan is a straightforward example. This is the productisation of music rights.

This all matters because the strategic objectives of the financial entities will inevitably shape those of the music rights company. For example:

  • The Tencent-led consortium that acquired 20% of UMG has made a bet on rights versus a bet on distribution (e.g. Spotify) and as such will have a set of views about what UMG’s relationship with streaming services should be. Right now, those views most likely align closely with those of UMG leadership, but if at some stage they were to diverge then UMG’s strategy itself could be affected. 
  • The Ontario Teachers’ Pension Plan’s investment in Anthem Entertainment forms part of an investment strategy that will expect an increase in asset value and return. Depending on the specifics of the strategy, this could, for example, favour Anthem focussing on catalogue acquisition over riskier creative investments in specific songwriters.

Neither of these examples are inherently positive or negative, they simply illustrate that the scale and nature of the investments coming into music rights are also changing how the music business operates. In some instances that will result in conservatism, in others bold opportunism. But the determining factors will be less about the music ethos of the music company and more about the investment thesis of the financial backer. 

External finance has long played an important role in the music business, but never before at this sort of scale. Music catalogue M&A transactions (not including IPOs, SPACs etc.) have already 74% of what was a record level in 2020. The scale of this inward investment shows no sign of slowing. So, whatever your views on the productisation of music rights, this is a market dynamic that is going to help shape the future of the music business.

Music and podcasts are competing for the same time

The pandemic changed media consumption. Consumers acquired an extra 12% of entertainment time and though everything was up, some categories grew much faster than others. One of the biggest gainers was spoken word audio, with podcasts and audiobooks seeing dramatic rises and while music hours grew too, the increase was below 12%, which means that music lost share. In the current entertainment environment of plenty this may be an academic concern, but when life returns to some form of normality (commutes, going out, gyms etc.) some or all of that extra 12% of entertainment time will go, which means that growing by less than the market average could translate into decline.

The data in MIDiA’s latest podcast report (Podcasts audiences: Competing for Attention) shows that the audience behaviour is lighter touch than either music or radio, with the majority of users listening to a smallish number of episodes and subscribing to relatively few podcasts. This matters because if this growing audience sticks with podcasts, then they will listen to more podcasts content as their habits deepen. So podcasts will have two key growth drivers:

  1. More listeners
  2. More time per listener

This is a very different story than for streaming music, especially in developed markets, where growth is slowing in both consumption and audience. Music is just one lane in the audio market and its fortunes ever more intertwined with podcasts and audiobooks. Which means that spoken word audio plays a role in slowing audio consumption. To illustrate the point, here is what is happening on Spotify:

  • European and North American MAUs grew by just 1.4% (Q1 2021)
  • In some emerging markets consumption levels had not only fallen during the pandemic but remained below pre-COVID levels (Q1 2021)
  • Global consumption hours continued to ‘grow meaningfully’ (Q1 2021)
  • Podcast hours reached an ‘all time high’ (Q1 2021)
  • Total content hours per MAU fell by 1% (FY 2020)

In short, Spotify’s total consumption is relatively flat on a per user basis, with podcast growing fast, which means the average Spotify user is listening to less music. As Spotify is both the leading music streaming platform globally and the most widely visited podcast platform, what happens on Spotify has a big impact on the wider market.

The Spotify metrics present a clear correlation but are not evidence of causality, i.e., are podcasts directly cannibalising music streaming? Which is where we get to turn to MIDiA’s latest podcast data again. Although more than a third of music streaming users are listening to more audio overall because of podcasts, more than a quarter are listening to less music directly because of podcasts and a slightly higher share the same for radio (again, because of podcasts).

There are only so many hours in the day and while the pandemic gave many consumers more hours for entertainment, even in that environment, music hours lost out to podcast hours. Right now that will not feel like much of a problem because there are more people listening to and paying for streaming now than before the pandemic. So everything is bigger than before. But with the slowdown coming, the beneath-the-surface, per user metrics are going to start translating into much more obvious, above the line trends. Audio is booming, of that there is no doubt. The question is whether there is enough space for streaming, podcasts and audiobooks to all grow?

Hi-Res audio: It’s all about a maturing market

Apple and Amazon made a splash this week by integrating Hi-Res Dolby Atmos audio into the basic tiers of their streaming services. The timing, i.e. just after Spotify started increasing prices, is – how shall we put it, interesting. It also struck a blow against the music industry’s long-held hope that Hi-Res was going to be the key to increasing subscriber ARPU. While that might be true, for now at least, the move is an inevitable consequence of two streaming market dynamics: commodification and saturation.

Music streaming contrasts sharply with video streaming. While the video marketplace is characterised by unique catalogues, a variety of pricing and diverse value propositions (including a host of niche services) music streaming services are all at their core fundamentally the same product. When the market was in its hyper-growth phase and there were enough new users to go around, it did not matter too much that the streaming services only had branding, curation and interface to differentiate themselves from each other. Now that we are approaching a slowdown in the high-revenue developed markets, more is needed. Which is where Hi-Res comes in.

Now that streaming is, as Will Page puts it, in the ‘fracking stage’ in developed markets, success becomes defined by how well you retain subscribers rather than how well you acquire them. As all the key DSPs operate on the same basic model, they need to innovate around the core proposition in order to improve stickiness and reduce churn. Spotify started the ball rolling with its podcasts pivot, but the fact that its podcasts can be consumed by free users means it is not (yet) a tool for reducing subscriber churn.

On top of this, when podcasts are mapped with other positioning pillars, Spotify’s competitive differentiation spread is relatively narrow. Because Apple and Amazon now both have Hi-Res as standard, they not only boost audio quality but value for money (VFM) as well. Bearing in mind, both companies already scored well on VFM because they have Prime Music and Apple One in their respective armouries. 

It is Amazon, though, that looks best positioned of the four leading Western streaming services. In addition to audio quality and VFM, it is building out its podcasts play (as compared to the Wondery acquisition) and it has the potential to bundle in the world’s leading audiobook company, Audible. Given that spoken-word audio consumption grew at nearly twice the rate music did during 2020, being able to play in all lanes of audio will be crucial to competing in what will become saturated streaming markets. 

Immersive audio storytelling 

Finally, Dolby Atmos is more than simply Hi-Res audio; it is an immersive format that enables the creation of spatial audio experiences. If we are truly on the verge of a spoken-word audio revolution, then immersive audio may have a central role to play. Surround sound has been a slow burner for home video, but that may be because the video experience itself has improved so much (bigger screens, HD, more shows than ever) that the audio component has been less important (though the growing soundbar market suggests that may be beginning to change). However, in audio formats there is only the audio to do the storytelling. This could mean that tools like immersive audio become central to audio storytelling, which means, you guessed it, Amazon and Apple would then have a competitive advantage in podcasts and audiobooks that Spotify would not.

Growth drivers – what comes after streaming

The pandemic-defined 2020 was an outlier year across digital entertainment, with the extra 12% of time consumers spent with entertainment boosting everything, including music. One of the effects was that streaming grew more than it would have otherwise, delaying the inevitable slowdown in streaming revenue growth. This artificial 2020 boost meant that the slowdown impact was felt even more strongly when it arrived in Q1 2021. 

The major labels saw streaming revenue grow by just 0.8% between Q4 2020 and Q1 2021, while Spotify saw revenues fall by 1%. Seasonality plays a major role here (a similar trend was seen last year) and year-on-year revenues were up by around a quarter. Nonetheless it reflects a maturing market. 

Back in 2019 Spotify’s revenues grew 15.7% from Q4 2018 to Q1 2019, while the majors’ streaming revenue was up 3% between Q4 2017–Q1 2018. In short, when the market was growing faster, seasonality did not result in flat / negative growth. Streaming is still in good shape and is going to remain the core of recorded music revenues for the foreseeable future, and Spotify’s price increases will bring a little extra revenue in 2021, but it is clearly time to start thinking about what comes next.

There is an argument that in today’s post-format world, we should not even be thinking about the next thing. So, it is better to think about what new business models and user experiences can grow alongside streaming, to diversify the music industry’s income mix. 

Music businesses, labels in particular, are busy exploring where future growth will come from. The more pessimistic argue that this is largely as good as it gets, that there will not be a ‘next streaming’. That might be right in terms of a single revenue source, but the early signs are that there is enough potential in a range of sources to collectively drive growth. Here are a few of the music industry’s potential growth drivers:

  • Games: Ever since the Marshmello Fortnite event, games has acquired a new degree of importance for the music business. WMG’s stake in Roblox points to just how serious labels are taking the opportunity. With global games revenues hitting $120 billion in 2020 (around $100 billion more than the recorded music market) and more than a third of those revenues being driven by cosmetic (i.e., non-gameplay) spend, there is a wealth of opportunity. But to succeed, music companies will need to think about creative ways to enhance the gaming experience rather than simply seeing it as another licensing play.
  • Social: Revenue from the likes of TikTok and Facebook finally became meaningful in 2020, accounting for around three quarters of the growth registered in ad supported. We are still scratching the surface of what social can do for music, but building tools for users to create their own music and audio will be key. Facebook’s Sound Studio could prove to be a defining first step towards the establishment of the consumer’s version of the social studio.
  • Creator tools: As regular readers will know, MIDiA considers the current revolution in the creator tools space to be one of the most important shifts to the entire music business in recent years. Not only is it transforming the culture of music creation, it represents a new set of opportunities for deepening artist-fan relationships and a set of new facets for the future of music companies.
  • Next-generation sync: Although traditional music sync revenues fell in 2020, music production libraries (including royalty free) grew. We are on the cusp of a major new wave of opportunity in sync, with social content, platform and creators representing a scale of demand that far exceeds that of the traditional sync market. And it is the slow-moving nature of that traditional sector which means that the likely winners in the social sync market will be the new generation of companies that offer solutions that are sufficiently agile and fast to meet the scale of micro-sync demand.
  • Live streaming: The pandemic virtually created the live stream marketplace, resulting in a tidal wave of new start-ups rushing to fill the void left by live. While the results have been a mixed bag, there have been enough high-quality successes to suggest that this is a sector with longevity that will outlive lockdown. The services that will prosper when IRL returns are those that deliver genuinely differentiated experiences that complement rather than try to replace IRL live. 
  • Fitness: Another of the pandemic’s second order effects was a surge in consumer spending on home fitness equipment, including Peleton. Right now there is some meaningful music licensing revenue building around the space, but Beyoncé’s Peleton partnership shows that the opportunity goes way beyond simply piping music into workouts. Crucially, the Beyoncé partnership creates an audience that is focusing their entire attention on the artist, which is rarely the case when people are listening to music on audio streaming services.
  • Fandom: Fandom is the next frontier for music monetisation. Western streaming services monetise consumption, whereas Tencent Music Entertainment monetises fandom, with two thirds of its revenue coming from non-music activity. We are beginning to see a flurry of activity in artist subscriptions and meanwhile, Patreon goes from strength to strength. Check out this free MIDiA report for more on how to tap the fandom opportunity.

To reiterate, streaming is, and will remain for many years, the beating heart of recorded music revenue. In fact, more than that, most of these new opportunities exist at such scale because of streaming. Until now, streaming enabled revenue growth in its own right, now it will enable growth in new adjacent markets.