WMG is moving beyond superstars – and that is a good thing

Warner Music Group’s (WMG’s) Steve Cooper recently stated that the major is no longer financially dependent on superstars – which is, of course, quite a different thing from not being culturally dependent on them, but we’ll get to that. For a major’s CEO (exiting or not) to make such a claim is both bold and a reflection of the reality on the ground. In fact, it is a natural milestone in a trend MIDiA identified years ago: fragmented fandom. As streaming audiences and consumption fragment, so does the impact of superstars. As with any transition, the shift is not linear and there will continue to be more Olivia Rodrigos and Billie Eilishes, but they will be fewer and farther between, and crucially, they will be smaller than their pre-fragmentation peers.

Superstars getting smaller is music to the ears of independent labels and artists alike, but it is far from the death knell for big labels. Instead, it simply reflects the new environment in which they will operate. Indeed, Cooper said WMG is pursuing a “portfolio” strategy “across a bigger number of artists” to reduce financial “dependency on superstars”. This comes after BMG’s CEO, Hartwig Masuch, said of their latest results: “The extraordinary thing about our first half result is that we grew revenue 25% with virtually no hits”. Having no superstars does not mean having no hits, instead it means more, smaller hits.

In 2019, MIDiA wrote that “Niche is the new mainstream”, that the water cooler moments of the linear era were being replaced by cultural moments. Audiences are in different places at different times, with algorithms delivering them different personalised content. Concepts, such as ‘song of the summer’, are becoming different for everyone. Each listener has their own song of the summer. In the era of fragmented fandom, water cooler moments across the masses, where everyone heard the song on the radio at the same time, are replaced by smaller groups of people finding pockets of likeminded fans across the world.

The consequence for artist marketing is a progressive shift from ‘carpet bombing’ mass media in order to build artist brand reach, to campaigns that, instead, reach real fans with laser-focused targeting. In the old model, a superstar artist was a household name, with mum and dad just as likely to know them as their kids. But what was the value of mum and dad knowing the artist if they were not the target audience? It might play to the artists’ egos, but it was an inefficient spend of marketing budget. Now, targeted marketing reaches the consumers who care. The result is smaller, but more passionate, fanbases. This is marketing to build fans rather than audiences. It is just a shame that western DSPs are built for passive audiences rather than fandoms. That will need to change. DSPs paradoxically triggered the fragmentation, but they do not provide the mechanisms for artists and labels to benefit. A cynic might argue that that is by design.

Indeed, the fragmentation of listening that streaming is pushing consumption towards the middle, away from the superstars, as Music Business Worldwide’s Luminate chart for streams of the US top-10 tracks shows.

For the superstars who are used to mega-fame from the pre-fragmentation days, a new release’s performance can look like diminishing success when measured by traditional metrics – just ask Beyonce. But, because fragmentation means it is truer fans that engage with the music, the cultural relevance of these smaller hits can actually be bigger – again just ask Beyonce.

There are, however, extra complications. As we are currently in a transition phase, pre-fragmentation hangovers are muddying the streaming waters. Pre-fragmentation hits stick around for longer on streaming because they had the pre-fragmentation brand reach. Since they benefited from the old-world mainstream media exposure, their hits cut through on streaming in a way that newer ones often struggle to. These pre-fragmentation hangovers have the effect of fragmenting new hits even further as they take up so much of streaming’s consumption. The result is that streaming is not so much a level playing field as a field of all levels.This transition phase will play out, and while it does, there is a world of opportunity for artists and labels that can harness the deeply held fandom that fragmentation creates.

The rise of scenes

The most exciting knock-on effect of fragmentation is the rise of scenes and micro scenes. In the old world, consumers had a limited range of things with which they could identify themselves, as everyone was watching the same TV, reading the same magazines, listening to the same radio, and shopping in the same shops. Now, consumers can build their own identity from an ever more diverse set of attributes, across fashion, music, TV / film, games, politics, etc. 

As my colleague Tatiana Cirisano put it:

“The result is that scenes are becoming more complex and splintered. Consider the seemingly endless range of subcultures on TikTok, from #cottagecore to #EGirl, or the Instagram account @starterpacksofnyc, which has garnered more than 64,500 followers by crystallising super-specific, yet eerily-familiar, personality types.”

This rise of scenes is what will shape the future of marketing, with scenes becoming the new territories, transcending borders and cultures. Superstars will get smaller, but they will get better at monetising their superfans (this is why Taylor Swift’s Universal Music Group deal includes a broader range of rights than just recordings, as her sales were only going to go in one direction). Superstars are not dead, they are changing, become smaller and less, well, super. It is an inevitable second-order consequence of streaming splintering listening and the smart labels will harness the trend rather than try to fight it.

C.R.E.A.T.E. An entertainment manifesto

When we first formed MIDiA eight years ago, we saw the new entertainment world was going to require a new joined up approach for entertainment businesses. With the start of the ascent of the smartphone we made an intellectual bet that everything was going to become more interconnected, inter-dependent and inter-competitive. Our vision then, was to build analysis and data that cut across siloes, to help previously unrelated industries understand they were becoming connected. The ‘connecting the dots’ tagline that we launched with in 2014 was right for the time, but now the world has moved on. The dots are now connected. That job is done. Now it is time to decide what to do with those connections.

In more recent years we identified new drivers of the entertainment economy, such as:

  • Fragmented Fandom
  • The Attention Economy
  • The Attention Recession
  • Creator independence
  • Rise of creator tools
  • Reaggregation

When we introduced those concepts they took some time to land, but now are increasingly widely accepted as industry currency. Even other research companies have started following our lead, with webinars and research on the attention economy, the attention recession and fandom fragmentation.

But although those trends will continue to play crucial roles, it is an entirely new set of market dynamics that will shape the future as the world enters a period of uncertainty and disruption unprecedented in modern times:

  • Attention inflation: As consumers return to pre-pandemic behaviours, they are trying to squeeze all their new-found entertainment behaviours into less available time. Multitasking is rocketing which means each entertainment minute is less valuable as it is increasingly being done alongside something else. Many more consumption hours than actual hours results in attention inflation.
  • The splintering of culture: Water cooler moments may not yet be dead but they are fading. Hits are getting smaller (just ask Beyonce) and audiences are fragmenting. But cultural relevance can actually increase within these fragmented fanbases (again, just ask Beyonce). Culture is splintering but may end up more vibrant as a result.
  • Scenes and identity: Underpinning and resulting from culture splintering is the rise of scenes, especially micro scenes which populate platforms like Twitter. Scenes are more than just groups of fans, they a cultural movements that that people look to for identity and belonging. Fandom is merely a subcomponent.
  • Lean through: Consumers used to just, well, consume. Now though, every more of them want to participate. The line between creation and consumption is blurring. Leaning forward is no longer enough, now audiences want to lean in and create.
  • The creator economy: Perhaps the single biggest shift in entertainment in recent years is the rise and rise of the creator economy, straddling virtually every entertainment format. The creator economy is so much more than vloggers and influencers. It represents a reshaping of culture, remuneration and audiences. As such it will reshape entertainment forever. 
  • Post-peak growth: With inflation soaring and a recession looming, consumers will have less money to spend on entertainment and leisure. Some sectors will suffer, some will sustain but others will grow. Whether it is to survive or to thrive, entertainment companies will need to reshape both their strategies and purpose.
  • Rediscovery is the future of discovery: The first phase of streaming was all about discovery. Now, with a surplus of supply and demand constrained by the attention recession, what consumers want as much as what is new, is to re-find what they already know and love.

Business as usual is gone. The next chapter of the business of entertainment will require a completely new approach. This is MIDiA’s C.R.E.A.T.E. Entertainment Manifesto for what is required of entertainment companies in this brave new world.

  • Cultivate every moment: Multitasking means consumption minutes are losing value. Every moment needs to be made as valuable and as entertaining as it possibly can be. Entertainment companies need their audiences notice what they consume.
  • Reward the creator economy: Streaming and social platforms are increasingly dependent on the long tail. The scale economics work for platforms by summing up a multiplicity of niches but they do not work for long tail creators. Platforms and rightsholders need to nurture not just harvest the creator economy.
  • Empower the consumer as a creator: Lean through consumers are also super fans. More platforms and services need to give consumers the sort of participation tools that TikTok built is success upon. Not just because it is what audiences want but because it also builds fandom and amplifies entertainment brands.
  • Add value and escapism: As consumers’ wallets tighten, subscriptions and ad spend are both at risk. But this need not be an entertainment Armageddon. Instead, entertainment companies should offer consumers what they want: 1) value for money, 2) escape from the harsh realities of daily life.
  • Target the middle: While it is tempting to always chase the big hit, the reality is that hits are getting smaller. Success in these coming years will be most easily found by cultivating a collection of mid-sized hits rather than placing all bets on mega hits.
  • Embrace scenes and identity: Scenes and identity are the undervalued super power of entertainment. Music, games, sports, creators, books, movies, TV shows – they all move people and they all help define who we are. Truly understanding and harnessing identity will be the difference between survive and thrive. 

We hope that the C.R.E.A.T.E. framework and our new Critical Developments coverage help companies and creators plot their paths through the troubled waters ahead. But even more important, is to develop a sense of purpose, a definition of why you do what you do, and to communicate that to your audiences and partners. The entertainment industries have 

Web 3.0 is a lane, not a highway

Facebook was not the first web 2.0 company, but it was the one that took it mainstream to a global audience. Consumers’ digital lives would never be the same again. Whereas web 1.0 had enabled them to visit and read websites, much like a digital evolution of newspapers and magazines, Facebook enabled consumers to participate, to comment, upload photos, converse, etc. It was a total transformation of the internet and enabled much of the digital world in which we live now. But it did not mean the end of web 1.0. Indeed, 18 years after Facebook’s launch, web 1.0 is alive and well, with websites being an integral part of our everyday digital lives. Sure, many of those have adopted web 2.0 components, such as comment fields, but they are still fundamentally web 1.0. With all the hype, or even, post-hype of web 3.0, it is tempting to think that our entire future digital lives will be lived in VR glasses and on the blockchain. But the actual future will be more prosaic, with web 3.0 being another lane to the internet’s highway, rather than an entirely new road to replace the old one. And that is no bad thing, nor does it undermine the vast potential that web 3.0 has. Nonetheless, it does warrant a reassessment of just what role web 3.0 will play.

Image credit: Wikipedia https://en.wikipedia.org/wiki/Gartner_hype_cycle#/media/File:Gartner_Hype_Cycle.svg

Many of you will be familiar with Gartner’s iconic hype cycle. The premise is brilliantly simple. When a new technology arrives, the world becomes obsessed with its transformative potential. The tech press builds it up, investors pour in money, and the world is awash with innovative new start-ups, from one-person passion projects to heavily funded companies with lavish booths at tech trade fairs and conferences. This is the peak of inflated expectations. Then, inevitably, the technology’s progress cannot keep pace with those elevated expectations. The tech press starts to turn, with stories emerging at an accelerating rate about failing start-ups and how they have overpromised and underdelivered. The image of well-funded Magic Leap’s AR prototype being the size of a backpack is a perfect example. As the hype turns into derision and doubt, the technology slips into the trough of disillusionment (which I always think sounds like a Radiohead album title). Sometimes this is the graveyard of new tech, but, most often, it is simply a recalibration. With the fierce gaze of the tech world no longer there, the new tech sector can start to grow at a more sustainable, organic pace. Eventually it will start to fulfil its true potential and steadily build up the slope of enlightenment, before fulfilling its original promise. 

This is the path that most new tech is destined to follow. This is because, when thinking about new technology, it is easy to underestimate the near-term potential but overestimate the long-term potential. And this is due to humans adopting new tech in depressingly predictable ways. The early adopters (who are most often also the ones who first make the new tech) can see the potential and adopt immediately, despite all of its bugs and teething problems. It is only when the tech is ready for primetime that early followers come on board, eventually opening up adoption from the mainstream and even the tech-hesitant laggards.

Web 3.0 is now shifting from the inflated peak to the trough. Just look at all of the stories about undersold NFT auctions, falling crypto prices, etc. But we have been here before, many times, even in recent years. Just think about how VR and 3D printers were hyped to change the world. Once the hype subsided, both sectors started to build sustainable futures.

With this considered there are four major factors that will define the future of web 3.0:

  • Recalibration: Web 3.0 is neither dead nor dying – it is recalibrating. Will there be a wave of failed start-ups and investors losing money? Yes. But that is part of a long-proven pattern.
  • Realism: We need to be realistic about what web 3.0 will be when it does finally reach the slope of enlightenment. Yes, it will change our digital lives, but it will not be all of our digital lives. Just like web 2.0, it will run alongside the rest of the internet. Will it replace some of it? Yes – but not all of it. Instead, the internet highway will have a third, new lane.
  • User interface: Web 3.0 is still missing a crucial component: a user interface. Facebook succeeded not because it was a set of revolutionary protocols, but because it was a transformative user experience, allowing consumers to create, share and participate. Web 3.0 needs its interface. We have the building materials for web 3.0 but we do not have the building. Heck, you could argue that we do not yet even have the architectural plans.
  • Focus: Web 3.0’s scope and remit are so vast that, in truth, it represents a collection of entirely different propositions that may have an underlying technology link but, to consumers, are entirely separate. Fortnite and Ethereum are as far apart as consumer experiences as a football and a credit card are. An overdependence on reaching for commonality may help get investors on board, but it makes it harder to build the necessarily diverse consumer messages if widespread adoption is to ever happen.

Web 3.0 will change the internet, but it will need to change itself first.

This is not a blip

When change happens it often takes the perspective of looking back years, or even decades, later to appreciate just how meaningful that change was. Other times, it happens so fast that it can be difficult to appreciate its magnitude because people become desensitised to the perpetual torrent of bad news. It is the latter situation in which we find ourselves now. What appears to be a succession of unrelated events (war, political crisis, climate change, inflation, etc.) are actually all indicators of a wider and connected wave of change that is going to reshape the world. And not just for a matter of months, but for a generation, perhaps more. It is tempting to think that the entertainment and consumer tech industries are, at the very least, insulated. But they are not.

First, let us look at all of the main components of the change and disruption:

In normal times, we might be facing one of these challenges, but now we face all of them with cumulative and interconnected effect. The result will most likely not just be a blip that lasts for a year, but, instead, what will be a realignment of the global economy, and that is without even considering the dramatic changes to the global geo-political situation with  Ukraine and Taiwan.

It is difficult for any of us to properly grasp how all of these changes will reshape the world, because the combination of factors is unprecedented in modern times (particularly because of climate change), which means that no one alive has experienced this before, and so all our reference points have limited use.

Even though the entertainment economy pales in importance compared to most of these factors, it will, nonetheless, be shaped by it, with the attention recession adding further spice. Subscriber declines and slowdowns will likely be a near-term impact, but the longer-term shifts will be more meaningful. This could manifest in a multitude of different ways, such as the rise of bundles (e.g., Apple One, Amazon Prime, Google One and Play Pass); the growth of the creator economy; and the long-term rise of ad supported and integration of ads into subscriptions, such as Netflix and Disney+.

Might consumers turn more to entertainment as times get tough? Sure. Might they start engaging more with digital entertainment because they cannot afford to go out as much anymore? Yes. But whatever direction(s) the entertainment market goes, two things are clear: 1) change is coming, 2) the companies that do best will be those that are willing to embrace and drive change.Whatever direction(s) the entertainment market goes, two things are clear: 1) change is coming, 2) the companies that do best will be those that are willing to embrace and drive change.

As the traditional Chinese curse goes “may you live in interesting times”.

Re-creating the creator economy

Everyone is a creator! Or so goes the dismissive put down of many a traditional media executive when talking about the creator economy. But regardless of what your perspective on the creator economy might be, there is no denying its meteoric rise. Perhaps what stokes the ire of some elements of traditional media is that the creator economy is evolving from being simply a talent funnel for traditional entertainment companies, into something self-contained and self-sustaining. But, for all of the positive change, there is much that is also problematic about the space. 

Harnessing aspiration at scale

First and foremost, the creator economy is a business model for the platforms and adjacent services, one that is built upon harnessing the hopes, dreams, and aspirations of large-scale creator audiences. While each of those creators individually craves success – however they might measure it – the platforms do not need the creators to find success for their respective business models to work. This is because, they monetise creators by harnessing aspiration at scale. If there are enough creators – and the pool is growing fast – a multitude of small-scale audiences are enough to drive the platforms’ strategic objectives of driving audience engagement, which, in turn, drives revenue.  What complicates matters further is the fact that creators are developing platform dependence – merely renting space on the platforms they depend upon, rarely with tenancy rights and often slave to the algorithm. It might be the creator economy, but creators fuel it rather than drive it.

Platforms are using audience as the new form of distribution

What has enabled this conflicted set of priorities to become established is the rise of platforms that use audience as the new form of distribution. Whereas traditional entertainment services, like Netflix and Spotify, license and create content to distribute to audiences, audience platforms, like TikTok and Twitch, pull their content from the audiences themselves. Even though most users consume rather than create, the creators come from their ranks. The old paradigm of license / create-distribute-audience has been replaced by audience-create-audience. If the traditional entertainment business depends on cannon balls, the creator economy trades in bullets.

Audiences are becoming creators, too, with 18% doing some form of content creation and 10% using creation tools in social platforms. Only 33% of consumers only ever purely consume content. Audiences went from lean back in the analogue era, lean in during the streaming era, and now lean through in the creator era. A growing body of creators is learning to harness this growing demand for creation, as evidenced by music creators, like Pink Panthress, Sadie Jean and Russ, canvassing input from their fanbases on TikTok.

The current surge in the creator economy is opening more doors for more creators than ever before while also bringing audiences ever closer to creation, too. But, as the number of creators grows, fandom and consumption fragment. The longer the tail, the harder it is for creators to cut through, find audiences, and build careers. Creators find themselves locked in a perpetual cycle of create / produce / perform / engage, with their host platforms demanding ever higher levels of frequency and volume of output. 

With creators’ constant fear that jumping out of the creator hamster wheel will see them disappear from the algorithm, there is a growing awareness that owning their audiences and having direct communication with them has never been more important. Yet today’s creator economy is not built this way. The rise of companies like Pico, Disciple Media and India’s ChargeBee point to the growing recognition of the ‘off-platform’ opportunity. But the majority of creators have the majority of their audiences on platforms where they are slave to the algorithm.

Owning audience is just one item on a long list of structural challenges (e.g., remuneration, discovery) that the creator economy must address if it is to transition from its current phase of undoubted opportunity, into something that can genuinely reshape and redefine the future of entertainment itself. There is both a duty of care and a window of opportunity that creator-economy companies must seize with both hands, but the second cannot be achieved without the first. That is why it is time to re-create the creator economy.

Whether you are in music, video, games, sports, or even comics, the creator economy is reshaping your business, your audience, your content, and, of course, your creators. Building upon MIDiA’s years of work in the creator economy, we have just published a landmark new report: Re-creating the creator economyIn this report, we present data, analysis and case studies of the creator economy across music, video, social, games, podcasts, sports and more, covering topics such as creator remuneration, women creators, business strategy, distribution and what independence really means.

If you are not yet a MIDiA client and would like to find out how to access this report then email stephen@midiaresearch.com

The attention recession meets the economic recession

We are living in uncertain times. The cost-of-living crisis is hitting consumers’ pockets, driven by rising fuel and food prices. The effects of the pandemic are still present, the global economy may be entering a recession, and the geo-political landscape is being increasingly shaped by conflict. All of this will impact the entertainment industries, but unlike other market sectors, entertainment is already dealing with its own recession: the attention recession. The circumstances bear resemblance to the credit crunch in 2007 when the music industry was still dealing with its own piracy-catalysed recession. But this time, it is a market dynamic that affects all forms of entertainment. 

The coming recession may also be unlike previous ones, in that there may be close to full employment – but spiralling inflation will likely mean surging wage poverty. It is the onset of the confluence of these unique market dynamics that inspired MIDiA to launch a brand new coverage area: Critical Developments, to help our client navigate these unchartered waters. We recently published the first report in this service (The attention recession: Post-peak behaviour). Here are some highlights from that report.

The attention economy has followed five key phases:

  1. Growth (<2019): Up until 2019, the booming digital entertainment sector filled consumers’ down time. Gone were staring out of the window, being bored at a train station, doing nothing in a Starbucks’ queue, replaced by entertainment. Everything hit new heights in the race for attention.
  2. Peak (<2019): By 2019 the slowdown had started. With just 9% of addressable consumer entertainment time remaining, many entertainment companies found it harder to maintain growth at previous rates. Growth began to become binary, with a minute gained being done so at another proposition’s expense.
  3. Lockdown boom (2020-2021): Just before the effects of peak attention began to be felt, the global pandemic hit, opening up a new wave of attention growth. During the lockdown boom, media time went up by 12% and all forms of home entertainment boomed.
  4. Post-lockdown dip (2021-2022/3): As people started to return to pre-pandemic behaviours, the first signs of contraction showed, but not all sectors were impacted evenly. Pandemic boom sectors, like audiobooks and podcasts, saw larger chunks of their newly-found consumption time disappear.
  5. New peak (>2023/4): The good news for digital entertainment is that when this contraction period finally ends, and the lockdown deluge recedes, the high-water mark will be higher than pre-pandemic. This is because life patterns are changing, e.g., more working from home.

Attention inflation

Despite this new, higher water mark, entertainment companies across the board are feeling the effects of the post-lockdown slowdown, as evidenced by Netflix reporting the loss of a million subscribers in Q2.Nonetheless, activity is beginning to rise in some categories. Thus, while video weekly active users (WAUs) fell from Q1 2021 to Q1 2022, music, games and social were all up (social, in fact, was the only category to grow without pause from pre- to post-pandemic). But even where entertainment companies are not feeling the pinch, the hours of their audiences have become devalued because of the rise of multitasking: as consumers try to keep up as many of their lockdown consumption patterns as they can, with fewer hours to do so. This is what MIDiA terms attention inflation.

Economic inflation

It is economic inflation though that is most tangible for consumers, with an average of around a fifth of them stating they would cancel subscriptions across music, video, TV and games if they felt the impact of inflation. It will be the nightlife sectors that will be hit hardest though, with far larger shares of consumers stating they would eat out less and go out less. Even live consumers said they would go to fewer gigs.

The responses are similar to when we asked consumers how they would respond to a potential recession back in 2019, but with one major difference: back in 2019, consumers were generally more concerned then, than they are now. Whether that is misplaced optimism is another thing entirely.

Survive-to-thrive

All entertainment and leisure companies will feel the combined effect of the attention recession. It is a case of simple arithmetic: more time and more spend during the pandemic benefited all companies. Post-pandemic, both of those increases recede, which means that all entertainment companies have to fight hard to hold onto their newly found boosts to revenue and users, let alone grow. The shocks to the global economy and geo-politics will compound matters further. Rising inflation is going to hit all consumers’ pockets (with food and fuel prices being particularly hit), forcing many households to make trade-offs between essentials and luxuries.

In this coming attention recession, it will be the entertainment companies that are able to quickly and fluidly adapt their models, billing, pricing, programming, and user engagement strategies that will be best placed to retain, even win, audiences during the downturn.

For more information on MIDiA’s new Critical Developments coverage area, email jonathan@midiaresearch.com

MIDiA music forecasts: the new era of growth

MIDiA has just published its latest music forecasts, available to clients in full here. Here are some of the highlights.

2021 was a huge year for the recorded music business with retail values up 23% to reach $51.9 billion (retail values include masters, publishing, and retailers / DSPs). Label trade revenue was up 20% to reach $22.9 billion. Part of the reason for the wide gap between retail and label growth was the rise of non-DSP streaming that sees a much higher share go to publishing than for DSP streaming. Non-DSP streaming was worth $3.0 billion in 2021 across masters, publishing, and platforms. Production music (a segment missed out of most other market estimates) was another strong performer, generating around one billion dollars.

MIDiA forecasts global recorded music revenues to reach $89.1 billion by 2030 in retail terms. That is an increase of 72% on 2021. The $37.2 billion that will be added by 2030 will be more than was added between 2014 and 2021, meaning the music business is not even yet halfway through a long-term rebound phase. While there is a well-reasoned argument that music revenues are still not back to pre-Napster levels, the coming years should right that anomaly (rampant inflation permitting). 

Streaming will be 82% of 2030 music revenues and it is therefore streaming market dynamics that will underpin overall market growth: 

Subscriptions: Increased ARPU in Western markets and increased subscribers in emerging markets. Europe and North America will represent just 23% of subscriber growth between 2021-2030

Non-DSP: Emerging social, games, and metaverse platforms will offer new licensing opportunities. Non-DSP provides a licensing and business model framework for future emerging consumer technologies, such as Web 3.0, giving rightsholders crucial revenue diversification as subscriptions mature

Emerging markets: Asian markets in particular will become the engine room of subscriber growth. The Asia-Pacific region alone will have 0.5 billion subscribers by 2030. China accounted for 39% of global subscriber growth in 2021

The US: Even though the US will lose a share of subscriber growth by 2030 (due to China’s growth), it will drive the largest share of subscription revenue growth and will remain the world’s largest market by 2030 in revenue terms

Label trade subscriber ARPU will grow by more than 7% globally by 2030, lifted by price increases equivalent of 17%, but offset by reduction due to the growth of multi-user plans and a drop in label share.

Bull or bear?

With the influx of capital into the music business in recent years (IPOs, catalogue acquisitions, etc.) there is more attention on the space than ever. 2021 was the year in which the music business met those inflated expectations with exceptional performance, underpinned by the early fruits of a new and diversified commercial strategy that is ready to soundtrack the future of the web. 

It was a combination of these factors, forecasting non-DSP for the first time, and accounting for the exceptional performance of China in 2021, that led to MIDiA significantly increasing its forecasts by around 25%. We believe this significant increase (our biggest ever) reflects the new potential of the global music business as it enters a new chapter that will be shaped by non-DSP, Web 3.0, and emerging markets.

But – and it wouldn’t be MIDiA without a ‘but’ – this bullish outlook coincides with the global economy on the brink of entering a tailspin. So, to be prudent, MIDiA’s forecasts also include a detailed bear scenario dataset with label trade revenues slowing to just 3% for 2022, and from there, adding just another 14.3% by 2030.

We think this bear scenario is unlikely to play out, despite being within the realms of possibility. Should the global economy slow, then the likelihood is that while music will prove not be ‘recession proof’, it will neither be recession vulnerable.

If you would like to learn more about MIDiA’s music forecasts email stephen@midiaresearch.com

How (and why) Billie Eilish won Glastonbury

Glastonbury returned to great fanfare after the pandemic-enforced break, which meant it was the first one since 2019. The music world has changed a lot since then, with streaming getting bigger than ever and TikTok now established as a cornerstone of the music business. Back in 2019, the standard thing to do was to look at how much Glastonbury boosted streaming numbers of artists who were on the bill, but in today’s world, it is the impact on an artist’s fanbase that is arguably most important.

The BBC and Glastonbury partnership is a fandom engine room 

Glastonbury plays an important role because it is broadcast (TV and radio) and streamed in the UK by the BBC, which means it is a rare thing in today’s on-demand world: it is a cultural moment. Due to the splintering of culture and the fragmentation of fandom, cultural moments in music have largely gone, replaced by the asynchronous paradigm that streaming enables. In the past, summers were soundtracked by hits that everyone knew, now algorithms and personalisation mean that everyone has their own summer hit. Meanwhile, streaming has turned music into a utility, more of a soundtrack to our daily lives than a cultural touchpoint. If streaming has turned music into water, then what we now need are glasses to drink it from. In the UK, Glastonbury provides a counterpoint to that dynamic, presenting a few days in which everyone, from casual viewers through to due hard music fans, can watch great music – music that is, crucially, often outside of what they would usually listen to. The reason this matters is because streaming algorithms deliver us more of what we like and, thus, narrows our cultural scope. The handpicked and diverse line up of Glastonbury, amplified by the expert curation and programming of a national broadcaster, breaks music listeners out of the algorithm cage. There are not many algorithms that would present Wolf Alice alongside Diana Ross. The Glastonbury / BBC combination thus presents a real-world evidence point for how genuine discovery can be brought back into music. It is not instead of streaming, but, instead, amplifying it. 

Finding new audiences

So much for the consumer case, but what about the artist case? What an artist (and labels) really want is not just a temporary streaming boost, but a long-term lift to fanbases. Big streaming counts are a great calling card, but, unless they are huge, they do not add up for most artists. And a weekend bump is only of any real value if it provides the footprint for a longer term fanbase lift. So, what really matters is how a one-off event drives fandom growth. But how is that measures? Well, it just so happens that MIDiA is currently building a fandom measurement tool that we are calling Music Index. Let us take a look at some of MIDiA’s Index data to show just how much impact Glastonbury has already had on some of the artists who performed there.

One of the key things we do with Index is create artist cohorts to enable comparisons across similar artists, with the top performing artist in each category indexed as 100 and the others against that base. So, we defined a Glastonbury cohort to track fandom and engagement impact across these artists. Looking at the top five artists in our ‘engagement’ metric (a hybrid measure that includes streaming, YouTube, etc.), the clear winner was Kendrick Lamar, with AJ Tracey being a close second and Wet Leg a not-too-distant third. These three artists all saw the biggest gains during and after Glasto.

The vast majority of established artists do not rely on streaming as their primary income, so measuring engagement is only part of the picture. Which brings us onto our next metric, ‘fandom’, another hybrid metric that captures a large collection of fandom and social behaviours. What is interesting here is that the rankings are very different, with Billie Eilish, who was not even in the ‘engagement’ top five, not only coming out on top, but way ahead of the rest. Unlike with engagement, the distance to second and third spots is much larger. Notwithstanding, Kendrick Lamar grabs another podium spot and also saw a stronger uplift than Megan Thee Stallion, though the latter was already more highly ranked before Glasto and remains ahead.

One of the key inputs into MIDiA’s Music Index is Wikipedia. It is a heavily underrated artist metric that is front of mind for music marketers. Wikipedia is so useful because it reflects a consumer’s desire to go further, to learn more about the artist. It is a fandom lean-in metric. Whereas a Google search may simply be geared to going and finding a track, a Wikipedia view is a first step towards a deeper level of fandom. The Wikipedia spikes for the Glastonbury artist cohort demonstrates a very clear pattern of spikes in line with performances, thus highlighting the huge benefit of a widely broadcast and streamed live performance in penetrating new audiences for artists. Beyond the bigger acts, Sam Fender and Yungblud both saw strong spikes following their performances, further evidence of the unique power of the broadcast and streamed event helping artists connect with new fans.

Taken together, the Glastonbury impact can be defined as follows:

  • Kendrick Lamar might have gotten the biggest consumption bump, but Billie Eilish is likely the one who ended up with the largest long-term uplift to her fanbase
  • The Glastonbury / BBC partnership makes a compelling case for the power of building artist reach to wider audiences via tentpole, live performances broadcast and online 

Artists in the UK understand just how Glastonbury can create career-defining cultural moments – just ask Sam Fender. But the case here should be less about Glastonbury itself and more about how the live / broadcast / stream model presents a global use case for reinvigorating cultural moments in the era of splintered culture.

If you are interested in learning more about MIDiA’s forthcoming Music Index tool (there is a LOT more to it than what was covered here!) then drop a line to stephen@midiaresearch.com

Churn in the era of dynamic retention

Kantar, a survey vendor, has been getting some attention by passing off consumer data as an actual measure of subscribers and suggesting that the music subscriber base actually declined in Q1 2022. It said the same in Q4 2021, but 2021 was a spectacular year for music subscriber growth, with the global base of subscribers growing by 118.8 million in 2021 – the largest ever increase in a single year – to reach 586 million. Of course, it would be obtuse to suggest that all is rosy in the world of digital subscriptions. After all, the attention recession has slowed growth and the actual recession will push up churn rates. But it is wrong to assume that digital subscriptions behave like their traditional counterparts, which is exactly why music subscriptions are well placed to weather the perfect storm of both recessions.

Digital subscriptions are different

Traditional subscriptions (pay-TV, internet, phone etc.) are slow moving, predictable beasts. Consumers are locked into contracts for fixed periods and must pay penalty clauses to exit them early. Which is why, when churn happens in these subscriptions, it is a big deal. It represents a hard break, the end of a subscriber relationship. But digital subscriptions are wired differently:

  • Churn doesn’t necessarily mean churn: Few have contracts, and most are as easy to leave as they are to join. They are built (if not necessarily designed) for hop-on / hop-off behaviour. When someone drops a Netflix subscription, the likelihood is that they will be back in a few months. The same does not apply for traditional subscribers.
  • Digital subscriptions are less critical: Most traditional subscriptions are utilities (phone, broadband etc.). Even a pay-TV subscription is a utility because the TV set may literally stop receiving signal without a subscription. So, cancelling one is a much bigger deal. But digital subscriptions usually just make digital entertainment better (e.g., an extra catalogue of TV shows to watch, music without ads etc.)
  • Many are still getting started: Even though music subscriptions growth is slowing in many markets, large numbers of consumers are still trying out subscriptions for the first time. This means there is always a high turnover of subscribers. Even more so in video and games where new services have come to market.

The last point is perhaps most important. MIDiA’s Q1 consumer data indicates that more people signed up to music subscriptions in the previous year (13%) than cancelled (10%) – both figures are as a share of all consumers that either had or used to have a music subscription.

The takeaway is that music subscriptions are highly fluid at the edges. They resemble a duck in water: elegant and slow moving above the water line, but legs pumping furiously below it. We can see this in Spotify’s reported numbers too. In 2020 Spotify added 25 million subscribers to its tally to reach 180 million. But it actually added twice as many subscribers as that before it also lost 25 million due to churn.

Churn is built into the model

Churn is quite simply part of the equation for music subscriptions. But at risk of sounding too Pollyanna-ish about this, there is no denying that dark clouds are building on the horizon. The cost-of-living crisis is accelerating, inflation and interest rates are going up, and wages are steadfast. As MIDiA’s recession data shows, around a fifth of music subscribers would consider cancelling their subscriptions if their everyday costs spiralled. A subscriber slowdown may indeed come. Those that do cancel should not be considered ‘lost’ but instead as taking a break. They will be there, ready to dive back in as soon as they can. 

DSPs will need to think in terms of what MIDiA calls dynamic retention. Instead of being focused on having a subscriber for all 12 months of a year, understand that in the coming economic climate, subscribers will likely require more flexibility. So, think instead of how many subscriber months can be had from that subscriber over a 12-month period, regardless of whether they are consecutive or not. It is certainly a shift in mindset, but this kind of pragmatic and flexible thinking will be crucial for navigating the times ahead.

Why Spotify’s TAM is only part of the story

Spotify just held an investor day in which it ran through its vision for growth. Spotify has long touted the concept of its total addressable market (TAM), its path to a billion users and the role of emerging markets as the surest path to this figure. Spotify’s presentation focused on monthly active users (MAUs), but, for the purpose of this blog, subscribers will be the key focus for two reasons: 1) MAUs are an inflated reach measure, while weekly (WAU) and daily (DAU) active users measure a far more tangible quantity of actual engagement. The tech giants, like Meta, focus on WAU and DAUs in their filings. In the saturated attention economy, monthly use can be one step away from total inactivity. 2) Ad revenue was just 12% of Spotify’s 2021 revenue, and while it is getting better at ad monetisation (due in large part to podcasts), it has a much weaker track record of ad monetisation than it does subscriptions. Subscriptions are where Spotify makes its money and are also where the music business makes its money. 73% of 2021 global label streaming revenue was from subscriptions (and that is based on a number inflated by non-DSP streaming).

First off, a bluffer’s guide to TAMs. TAMs are actually just one part of a three-step way of measuring opportunity:

  • Total addressable market (TAM): the total potential audience
  • Serviceable addressable market (SAM): how much of it is relevant to your product
  • Serviceable obtainable market (SOM): how much of it you think you can convert

Another way to think about it is: how many fish are there in the pond, how many fish you think you can catch, how many fish you think you will actually catch.

Why TAMs alone are not enough

MIDiA employs a TAM / SAM / SOM methodology in its forecasts, as follows:

  • TAM: those with smartphones and data plans
  • SAM: of this, those who are interested in paying for music
  • SOM: the SAM adjusted for urbanisation rates and music streaming affordability on a purchasing power parity (PPP) basis

The SOM stage is crucial for emerging markets. Broadly speaking, it is consumers in urban conglomerations who are most likely to be addressable by streaming subscriptions. A rice paddy worker in rural Bangladesh might have a phone, but they are likely to a) have very little disposable income, b) use their phone most as a utility, and c) have bigger worries than whether to pay for a music subscription. The TAM and SAM figures might be reassuringly larger figures, but, in truth, it is the wealthier, more tech-centred, urban elites in emerging markets who are most likely to convert.

Real terms affordability is crucial too. A subscription in India is around five times cheaper in dollar terms than in the US, but, on a PP basis (i.e., adjusted for local affordability), it is 12 times more expensive. Which further emphasises the role of urban elites in emerging markets for streaming subscriptions.

When we map MIDiA’s SOM alongside Spotify’s TAM, the market opportunity immediately looks bigger. And it is. But Spotify does not operate in isolation. It is one player in a competitive marketplace. In 2021, there were already 554 million paid subscribers globally, of which, 180 million were Spotify users. The global subscriber base represents 92% of Spotify’s TAM. The global subscriber figure is swelled by China’s nearly 100 million subscribers, a market in which Spotify does not operate due to its ‘poison pill’ equity swap relationship with Tencent. But even removing China from the equation, 76% of Spotify’s TAM was already addressed by itself and its competitors in 2021.

Does this mean Spotify’s growth ambitions are unrealistic? Not necessarily. There is a huge amount of growth left in the market, as MIDiA’s forthcoming music market forecasts will show (and from where the figures in the chart come). But the opportunity must be gauged in the context of where Spotify sits in the wider competitive marketplace, not in isolation.

It is no coincidence that Spotify is focusing here on free users rather than paid. Free users are the funnel for Spotify’s wider business (i.e., including podcasts and audiobooks, which it can best monetise via ads). But even the free streaming market is hyper competitive, with close to 1.5 billion free users already globally in 2021. Most importantly, though, the free user numbers are biggest in the most populous emerging markets, and it is local players that dominate. The future of music streaming in emerging market is going to (at the very least) be shaped as much by local emerging market players (e.g., Boomplay, JioSaavn, NetEase Cloud Music) as it is Western streaming services. In fact, there is an argument that Western streaming services looking at the emerging markets world as their target for colonising with streaming users is actually Western-tech imperialism.

NOTE: MIDiA’s annual music forecasts are close to complete and will contain historical and forecast data for streaming revenues and users, and much, much more, with revenues both in label terms and retail terms (i.e., inclusive of publishing and DSP shares). If you are not yet a MIDiA client and would like to learn more about MIDiA’s forthcoming forecast, email stephen@midiaresearch.com