Understanding ’15’: How Record Labels And Artists Can Fix Their YouTube Woes

The artist-and-labels-versus-YouTube crisis is going to run and run, even if some form of settlement is actually reached…the divisions and ill feeling run too deep to be fixed solely by a commercial deal. What’s more, a deal with better rates won’t even fix the underlying commercial problems. Music videos under perform on YouTube because they don’t fit YouTube in 2016 in the way they did YouTube in 2010. The 4 minute pop video was a product of the MTV broadcast era and still worked well enough when online video was all about short clips. But the world has moved on, as has short form video (in its new homes Snapchat, Musical.ly and Vine). Short videos are no longer the beating heart of YouTube viewing and quite simply they don’t make the money anymore. This is why music videos represent 30% of YouTube plays but just 12% of YouTube time. If record labels, publishers, performers and songwriters want to make YouTube pay, they need to learn how to play by the new rules. And to do that they need work out what to do with ‘15’.

youtube monetization

There Is A Lot More To YouTube Revenue Than Some Would Have You Think

The recorded music industry gets radio, and it is beginning to get streaming. Both are all about plays. Each play has, or should have, an intrinsic value. They are models with some degree of predictability. But YouTube does not work that way, which is why the whole per stream comparison thing just does not add up. In MIDiA’s latest report ‘The State Of The YouTube Music Economy’ we revealed that YouTube’s effective per stream rates (that is rights holder revenue divided by streams) halved from $0.0020 in 2014 to $0.0010 in 2015.

Sounds terrible right? And make no mistake, there is no way to spin it into a good news story. However, it didn’t fall because of some nefarious Google ploy. It fell because of many complex reasons (all of which we explore in the report) but the 2 biggest macro causes were:

  • YouTube pays out as a share of ad revenue (55%) not on a per stream basis. So when the value of its ad inventory goes down (due to factors such as more views coming from emerging markets with weaker ad markets) the revenue per stream goes down too. This is something the labels can do little about, though an increased revenue share will soften the blow as YouTube globalizes.
  • YouTube serves its in-stream video ads (the most value ad format) on a time-spent basis, not on a per-video basis. Our research found that the average number of video ads per hour of viewing comes out at about 4. That means if you have 15 minute videos (like many YouTubers do) you will get a video ad every play. But if you have 3 or 4 minute pop videos you may only get 1 video ad for every 4 or 5 plays. Which means 4 or 5 times less video ad revenue. In fact, our research revealed that just 26% of music video views have video ads. This is the underlying issue the industry needs to address, and unlike global ad market dynamics, this is something it can indeed fix.

The 15 Scale

This is where the magic number 15 comes in. Right now music video sits in the same 3-4 minute slot it has done so ever since MTV said it wanted videos that length. Yet video consumption is now polarized between the 15 second clip on lip synch apps like Musical.ly and Dubsmash and 15 minute YouTuber clips. Falling in between these two ends is revenue no-mans land. As I have written about before, labels and publishers need to figure out how to harness the 15 second clip as an entirely new creative construct and shake off any old world concepts that this is actually anything about marketing and discovery. It is consumption, plain and simple…it just happens to look unlike anything we’ve seen before.

At the opposite end of the 15 scale labels and artists need to start thinking about what 15 minute formats they can make. Think of this as a blank canvas – the possibilities are limitless. For example:

  • 3 track ‘EP’ videos interspersed with artist narrative and reportage coverage
  • Live sessions (recorded by, and uploaded by labels so they get revenue as well as publishers)
  • Mini-documentaries such as ‘the making of’s
  • On-the-road features

15 Minutes Does Not Have To Break The Bank

And before you cry out ‘but this stuff will cost so much more to make’, it doesn’t have to if more is made out of current assets and processes. For example, ensure that one of the support crew has a handheld camera to film some shoulder footage for reportage. The whole thing about YouTube is that it doesn’t have to be super high production quality, in fact the stuff that does best patently isn’t. YouTube videos that work best are those that are an antidote to the old world of inaccessible glamour. If you really want to do things on the cheap, simply splice three music videos together into a single long form video (e.g. tag 2 older tracks onto the new single). Doing so will nearly treble the video ad income.

And before you think this isn’t what audiences want, ask Apple about ‘The 1989 World Tour LIVE’ and Tidal about ‘Lemonade’.

And (yes another ‘and’) if you can’t get your head around the inescapable need for a completely new music video construct, just think about it this way: 15 minute videos will make you 5 times more video ad revenue. This really is a ‘no brainer’.

Back To The Future

As a final piece of evidence (not that it is needed), cast your mind all the way back to 1982, to Michael Jackson’s landmark video ‘Thriller’. A 13:42 video that is widely recognized as one of the all time music video greats that has also racked up 330 million views on Vevo. So you could say the case for 15 minute video was already made a quarter of a century ago (thanks to MIDiA’s Paid Content Analyst Zach Fuller for pointing that one out).

The 4 minute music video is dead, long live the 15 minute music video.

For more detail on our ‘State Of The YouTube Music Economy’ report check out our blog.

You can also buy the 25 page report with 8 page data set here.

Quick Take: Crowdmix Bites The Dust

6a00d83451b36c69e201bb087c7c61970d-600wiCrowdmix was one of those start ups that promised to change the world. It was going to be a social network focused around music that would transform how people discover music and how audiences and influencers interact. Now it is going into administration. Crowdmix suffered from many things, not least a confused value proposition that no-one outside of Crowdmix seemed to be able to explain properly (so it failed the elevator pitch test). But more importantly Crowdmix failed because it played the venture game too faithfully. In the current venture environment, you need to be a ‘game changer’ to unlock significant scale investment. Which is fine, except that only a tiny handful of companies are ever genuine game changers. So what happens is that too many companies try to live up to inflated promises rather than focusing on building viable products and business models. Every company has to be the ‘Uber or Snapchat of [insert industry]’.

Crowdmix convinced itself it could build an entire new social network around music. It couldn’t because of 3 reasons:

  1. Music is fundamentally not important enough to enough people to build any sort of scale of social network around it
  2. As Google learned the hard way, there is only room for one major scale social network
  3. Social networks are yesterday’s technology. They are how Digital Immigrants and older Millennials interact digitally. Messaging apps have replaced social networks for Gen Z and younger millennials

The average life span of a digital music start up is 5.8 years with an average investment of $79.7 million (though those numbers are skewed up by Spotify’s $1.6bn). Crowdmix made it to 3 years and through $18 million, so below average on both counts. It was a nice enough – if slightly confused – idea that made the simple mistake of believing it could change the world.

The End Of Freemium For Spotify?

‘Leaked’ Spotify numbers emerged today indicating that the streaming service has just hit 37 million subscribers, which puts more clear water between it and and second placed Apple Music, despite the latter’s recent growth. It also means that Spotify is now nearly 10 times bigger than Tidal and probably Deezer (which hasn’t reported numbers since its France Telecom bundle partnership ended). It is beginning to look suspiciously like a 2 horse race. But there is a more important story here: Spotify’s accelerated growth in Q2 2016 was driven by widespread use of its $0.99 for 3 months promotional offer. Which itself comes on the back of similar offers having supercharged Spotify’s subscriber growth for the last 18 months or so. In short, 9.99 needs to stop being 9.99 in order to appeal to consumers. Which is another way of saying that 9.99 just isn’t a mainstream price point.

spotify june 1

As the IFPI’s 2015 numbers revealed, the average label revenue per music subscriber fell globally from $3.16 in 2014 to $2.80 in 2015, with price discounting a key factor. According to Music Business Worldwide, 4 million of Spotify’s newly acquired 7 million subscribers were on promotional offers and around 1.5 million of those are expected to churn out when their promotional period ends. That might sound high but it actually represents a 79% conversion ratio, which is a stellar rate by anyone’s standards. Meanwhile Spotify’s total user base is 100 million which means the free-to-paid ratio is 37%. So price promos are converting at more than double the rate of freemium. Does this mean the end of freemium?

spotify june 2

Freemium proved highly valuable to Spotify in its earlier years and continues to be an important entry strategy for new markets. But last year record label execs started to observe that free just wasn’t converting at the same rate it once did in mature markets like the US. This was because most of the likely subscribers had already been converted and so the majority remaining were freeloaders who were never going to pay, and warm prospects who just couldn’t bring themselves to pay 9.99. This is where price promos come into play. They deliver the impact of mid priced subscriptions, which is enough to to hook those wavering free users. Once they get used to paying the majority tend to stick around when the price goes back up.

Mid Priced Subscriptions Will Drive The Market, Even If By Stealth

I have long argued that mid priced subscriptions are crucial to driving the streaming market, and the burgeoning success of Spotify’s mid-priced-subscriptions-by-stealth strategy provides a bulging corpus of supporting evidence. In fact, the average spend of Spotify’s 7 million net new subscribers in Q2 2016 was $3.09 a month.  The tantalizing question is whether that 1.5 million promo users that are expected to churn out would take a $3.99 product if it was available?

As the streaming market becomes increasingly sophisticated, the leading players will have to rely ever more heavily on differentiation strategies. For Tidal and Apple that means urban focused exclusives, for Spotify (for now at least) that means algorithmic, personalized curation and aggressive price discounting. And in Q2 2016 it is Spotify’s strategy that is winning out, resulting in 2.3 million net new subscribers each month compared to 1.4 million for Apple Music and 0.3 million for Tidal.

Freemim is dead, long live price promos?

 

 

How Apple Music And Tidal Transformed Streaming (And Why Apple May Be Buying Tidal)

 

It is 15 months since the launch of Tidal (which was 2 months after Jay-Z’s Project Panther Bidco bought Aspiro) and it is 12 months since the launch of Apple Music (which was a year after Apple bought Beats Music). The streaming world has changed a lot in that time and both those companies have had a disproportionately large amount on influence on the market’s direction of travel. Their arrivals defined Spotify’s role as incumbent while simultaneously casting Apple and Beats as challengers. They have performed their roles of disruptive entrants well, reshaping the competitive marketplace with a strong focus on brand and artist exclusives. Now reports emerge that Apple is in talks to buy Tidal. First victory in the exclusives war or overspending for market share?

When Is An Exclusive And Exclusive?

In the streaming video world an exclusive means exactly that. If you want to watch ‘House Of Cards’ you need Netflix, if you want to watch ‘Man In The High Castle’ you need Amazon Prime. But in music the rules are far more flexible.

exclusives

Looking at the flagpole exclusives across Apple Music, Tidal and Spotify, most of these are available on other platforms as downloads, while many are available to stream. For example, Beyoncé’s ‘Lemonade’ is only available to stream via Tidal but was available to download on iTunes within 24 hours of release. Understandably, the exclusive albums of each company’s respective godfather are genuinely exclusive. But Rihanna’s ‘Anti’ was given away by Samsung while Spotify’s rock legends exclusives are streaming only.

Apple is beginning to push the envelope though, pitching creative solutions to labels and artists, resulting in output like videos for The Weekend and Drake. At the same time it is beginning to look suspiciously like a record label with the release of Chance The Rapper’s ‘Colouring Book’ mixtape. The net result of all this clamouring to be seen as the ‘home’ of an artist is resounding confusion and frustration for music fans. An avid TV fan may well accept the need to have both a Netflix and Amazon subscription because no video service claims to have all the TV shows and movies on the planet. However, the central proposition of streaming music services is exactly that…or at least it was until Tidal and Apple Music upset the the apple cart (ahem). The irony is that in scoring a quick win against Spotify, Tidal and Apple may have fundamentally undermined the long term positioning of the entire streaming music product.

Exclusives Cannot Recreate The 1990s

Apple Music’s head of original content Larry Jackson has said he wants to make Apple Music to emulate the success of MTV in the 80’s and the 90’s, creating the sense that artists ‘live there’. It is an admirable goal but the music world of the 2010’s is a dramatically different one. In those days there was scarcity (you had to buy music to listen on demand) and there was a finite amount of radio and TV. It was possible to control both the message and the audience. Now we are in the Era of Distributed Audiences where people are simultaneously in multiple digital places, with artists and labels racing after them in all those places. No amount of exclusive windowing is going to change that. The genie is well and truly out of the bottle.

The Economics Of Exclusives

Where the streaming video and streaming music markets match up is that content budgets are currently being used to drive user acquisition. While streaming services have a long way to go before they reach Netflix’s $6 billion annual content budget, both types of streaming service will overspend to get market share and will reel budgets back in later. So it should be no surprise that the amounts being spent on artists don’t really add up.

For example, Apple is reported to have spent $19 million on Drake and was rumoured to have bid up to $25 million for Harry Styles. If Styles had signed, even if he had racked up the same number of streams as Drake on Spotify in 2015 (1.8 billion, the highest number of any artist) he would still only have generated gross revenue of $18 million and net revenue of revenue of around $14 million, leaving something like an $8 million loss for Apple when Apple Music’s additional retailer margin is factored in. Apple would however have been able to make up the remainder on album sales, but Styles would have needed to have shifted a good number of albums. (Adele’s ‘25’, the biggest selling download album in the US in 2015 drove around $15 million in label revenue.) So for now, it takes selling albums to make the economics of streaming exclusives add up.

apple vs tidal

Jay-Z paid $56 million for Aspiro’s 512,000 subscribers, $110 per subscriber. Assuming he’d want a similar per subscriber price, that would put Tidal’s price tag at around $440 million. That’s no small amount of money for around 5% of the global subscriber market. Or to put it another way, Apple could another 23 Drake exclusives for that money which most likely would have a bigger impact on subscriber growth. Indeed, on all growth measures Apple Music has outperformed Tidal over the last 12 months, adding 12.5 million new subscribers to Tidal’s 3.1 million, growing by an average of 1.4 million subscribers a month compared to 0.3 million for Tidal. Apple even has the edge in % growth terms (352% compared to 328%).

So why is Apple in the market for Tidal (albeit reportedly)? Probably more than anything it is about taking an irritatingly threatening competitor out of the market. Tidal has been stealing Beat’s core customer base from right under its nose. It’s no coincidence that Apple Music’s exclusives strategy has had a strong urban bias. Apple wants its Beats customers back, just like it wants its iTunes customers back from Spotify.

Even if Apple does buy Tidal, don’t expect the exclusives wars to go away. Indeed, Spotify just acquired its own exclusives supremo in the shape of Troy Carter, and Apple clearly has its mind set on continuing to spend heavily. So the next few years of streaming will be  defined by streaming services getting closer to artists (with Connect becoming much more important for Apple) which in turn will see the distinctions between what constitutes a streaming service and a record label blur all the more.

As science fiction write William Gibson wrote: the future is already here, it’s just not evenly distributed yet…

 

Yonder Music Unlocks The Emerging Market Opportunity

One of the high profile digital music casualties of recent years was the failed ‘next generation’ service provider Beyond Oblivion. There were numerous factors behind Beyond Oblivion’s failure but a key one was the fact the market was not yet ready for its telco bundled music offering. Now 5 years on the digital music and telco content markets are very different propositions, with the number of telco music bundles global totaling 105, up from 43 in 2014.  With the proliferation of data plans and smartphones, mobile carriers are now eagerly seeking out streaming music and video services as a means of driving subscriber uptake, ARPU and market differentiation. The 11.5 million telco bundled music subscribers that now exist globally represent a vibrant marketplace that was almost non-existent back in 2011. So why the potted history? Because, as MIDIA reported back in November 2015 Beyond Oblivion’s founder Adam Kidron is back for another bite of the Apple with a new take on the model with his latest venture Yonder. Now, 7 months after its Malaysian launch Yonder has racked up an number of impressive regional metrics that act as further evidence that the telco market is ripe for music bundles.

Yonder’s partnership with a number of Axiata telcos in multiple markets is off to a flying start. Yonder’s music bundle is available across a range of tariffs including both pre-paid and post paid. With an already sizeable 300,000 strong subscriber base Yonder users are using markedly more data than users of other music services on the same tariffs. But of most interest from a telco perspective is the much lower rates of churn for Axiata’s Yonder users, on both pre-paid and paid. Though these numbers must be caveated by the fact that Yonder is available on tariffs that appeal to Axiata’s most valuable and loyal customers – a caveat that applies to most music telco bundles. But even with that considered, Yonder users have a fraction of the churn even of other same tariff users that do not have Yonder.

Axiata has demonstrated its belief in Yonder by both taking a 25% stake in Yonder and by committing to launching in another 9 emerging market territories, with further markets in the pipeline.

Axiata, Celcom’s parent company, has demonstrated its belief in Yonder by both taking a 25% stake in Yonder and by committing to launching in another 9 emerging market territories, with further markets in the pipeline.

Curation And Pre-Pay Are Key 

Yonder has four key assets that that have driven success so far:

  1. A curated content offering
  2. A telco optimized business model
  3. A focus on emerging markets
  4. An offering for pre-pay customers

Emerging Markets Are The Next Big Streaming Opportunity

Emerging markets are the next big opportunity for digital music. Western markets dominated the 20th century music industry because it was built on buying units of pre-recorded media and thus skewed towards countries with high levels of disposable income. Now though, as we move into the streaming era, it is consumption that is monetized and thus it is the markets with the biggest populations (typically emerging markets) that represent the bigger opportunity. This realignment of the music industry’s world order won’t happen overnight, and the big western markets will still dominate, but a realignment is taking place. The obvious way to capitalize on this is ad supported (which is YouTube’s big play) and indeed that is where the big numbers will come. But it is telco bundles that will drive the meaningful revenue in these markets because:

  1. telcos have the billing relationships (a crucial asset as credit card penetration is typically low)
  2. telcos can shoulder some or all of the cost to drive data plan uptake and make the music feel like free

Crucially, in order to tap this emerging market opportunity, the standard, premium AYCE offering is not enough. Curation and Pay As You Go (PAYG) bundling are the assets needed to unlock this opportunity and right now Yonder and MusicQubed’s MTV Trax are pretty much the only services bringing this combination to market.

2016 is already proving to be a big year for the big streaming services, but with finite remaining growth opportunity remaining in developed markets, the really interesting long term growth lies in PAYG and emerging markets.

The telco music market statistics quoted in this report are featured in the MIDiA report ‘Telco Music Strategy: Ironing Out The Strategic Kinks As Objectives Evolve’ which is available to MIDiA subscribers and can also be bought individually on the MIDiA report store herebought individually on the MIDiA report store here

This post was amended on June 28th

Soundcloud, Amazon, Tidal: Streaming’s Other Runners

Apple, Spotify and YouTube have all been grabbing the streaming headlines of late, albeit for different reasons. While these companies will continue to set the pace over the next couple of years (again, for different reasons) there is much more to the streaming market than these three. Here’s what three of the other main streaming contenders have been up to in recent weeks:

Click here to read the full post on the MIDiA blog

Why Apple Music Matters So Much To Apple

Apple today announced a much anticipated refresh to Apple Music at its WWDC event. Apple Music has found itself at the centre of long running criticism from many parts due to its perceived product weaknesses. This is the bar against which Apple is measured. It has spent years building a well earned reputation for high quality products so its users understandably measure its services by the same standards. Apple Music was a highly ambitious version 1.0 that has since been iterated to iron out user journey kinks. Now today’s feature announcements look set to move Apple Music onto its next stage.

Being An Early Follower Requires Super High Standards

As an early follower rather than a leader Apple always sets itself the challenge of being measured against incumbents that have had years to refine their product offerings. With hardware, Apple normally meets and exceeds those standards. With Apple Music it launched a product that was light years ahead of where most of the incumbents were at launch, but that didn’t compare as favourably against their current offerings. Google Music Play All Access faced a similar challenge. The streaming music market has evolved so much since Spotify and Deezer’s inceptions that a music service cannot now afford to simply launch with the basics. It must do so much more.

applemusicwwdc

Image courtesy of the Verge

The revamped Apple Music includes a new simplified white interface, lyrics integration and better interaction with cloud libraries (a long running bug bear). These are not exactly step change innovations but they are a significant move forward in what is proving to be a process of continual change. Ultimately this update is about making Apple Music more intuitive and for it to make more sense to mainstream users. Is all this enough to blow Spotify and Tidal out of the water? No, but add in Apple’s bottomless pockets for exclusives and marketing, and you have a potent mix.apple music wwdc

Apple also announced a subscriber milestone, hitting 15 million subscribers. The number suggest that Apple’s growth is beginning to outpace that of its key challenger Spotify. Last year I suggested Apple would reach 20 million subscribers by the end of 2016. These numbers show it is well on track. Apple could yet be the leading music service by the end of 2017 if it starts to fully leverage all its ‘unfair advantages’.

Other metrics that Apple announced included:

  • 130 billion App Store downloads
  • 2 million apps available
  • $50 billion paid out to developers
  • 60 million Apple News users

10 Years On, Music Matters To Apple Once Again

Apple Music matters to Apple not because it will generate large profits (it won’t) but because it is the pace setter for Apple’s strategic shift towards being a services company. Apple is building a new narrative for Wall Street that focuses on the revenue it generates from its existing customer base (in order to distract attention from slowing device sales). Apple Music is the proof of concept. If it gets Apple Music right it will demonstrate its ability to deliver on best-in-class digital services. And because Apple still hasn’t been able to launch its TV subscription (it instead launched a partnership integration with Sling TV) it needs to get Music right until it is able to get the requisite TV deals in place.

This why the stakes are so high for Apple Music. Get it right, Apple re-establishes its market leadership role. Get it wrong, Apple’s own rescue plan goes down the pan. Music was so important to Apple in the mid 2000’s because it helped sell the iPod which in turn became the platform for growth that Apple trades upon today. Now 10 years on music has just reassumed its importance, this time to help sell Apple itself not just its hardware.

Is YouTube Building A New Music Industry?

Complexity and opacity continue to act as brakes on the digital music market. For all the progress of companies like PledgeMusic and Kobalt, this emerging ‘alternative’ music industry is still very much at a formative stage. Some years from now this generation of companies could underpin the emergence of a counter-industry, an interconnected mesh of disruptive rights and tech companies that give artists and songwriters different routes to market and greater transparency and accountability. Heck, it might even have Blockchain underpinning it. But before this counter-industry movement gets to scale, it could have the wind stolen out of its sails by none other than YouTube.

The YouTube Paradox

Although YouTube has never had the closest of relationships with the music industry, it has clearly found the last few months particularly challenging, portrayed as pretty much everything that is wrong with the digital music market. While there is no doubt that YouTube’s revenue-to-audience ratio is below that of audio streaming peers, it is also clear that YouTube is the music app of choice for more consumers than any other service (and it’s growing faster too). YouTube is both a crucially important part of the digital music market and a disruptive partner.

Parent company Google has long had an at-best ambivalent attitude to copyright (in stark contrast to its staunch support for patents) and the record labels’ current crusade to have safe harbour legislation revised belies an industry perception that YouTube is sailing as close to the wind as it can get. That may well be the case, and there is no doubt that Safe Harbour was not designed to underpin the business model of a global tech titan. Yet it is also clear that a whole generation of non-music YouTubers have worked out how to build vibrant careers on the platform. So YouTube’s potential is only partially tapped for music.

YouTube’s New Music Industry?

Regular readers will know that I have explored at length what makes YouTube’s native creators succeed in ways that music artists do not. But I think we may now be on the verge of YouTube flicking the switch on an entirely new platform for artists, to help them get as much out of YouTube as the likes of PewDiePie and SMOSH. This could be nothing short of an entirely new music industry, one that sits outside of the constraints and structures of today’s business.

Here’s how and why…

Back in 2011 Google bought royalty reporting company RightsFlow to help it identify rights holders on YouTube. RightsFlow’s team and technology were widely recognized as best-in-class and Google paid handsomely, swiftly integrating the team into the YouTube organization. My theory is that this was one of the first steps in a much bigger journey. Since then, Google has invested in next gen publisher Kobalt and next gen label 300 Entertainment. It was even reported to have looked at buying the Jackson Estate’s 50% share of Sony/ATV. Most recently YouTube announced its implementation of the DDEX Digital Sales Report Flat File Standard (DSRF), an open source digital supply chain standard aimed at faster, more accurate royalty reporting and distribution. Each component in isolation paints one picture, but put them together and you have the makings of the foundations for a full service music company. What I think could happen is for YouTube to turn its platform into a self contained music business, taking care of everything from rights through creation to monetization. Here’s how the components could stack up:

  • Rights reporting: My take is that RightsFlow will form the basis for a highly effective, real time, totally transparent rights reporting platform. One that will make traditional music industry reporting look positively prehistoric. And of course, YouTube would take full advantage of being able to compare and contrast against the traditional sector. Couple that with Google’s DDEX work and you have the potential of a truly robust and scalable toolset
  • Simplified rights: Music rights are complex, with any given song having a veriitable smorgasbord of associated rights. YouTube will most likely be pushing for something far simpler. Perhaps for a singer songwriter it would be as simple as a single music right, with flexibility in terms of assignment of usage rights
  • Direct monetization: YouTubers have learned how to make YouTube pay, now many YouTube artists are beginning to too. For example, Conor Maynard’s covers of new pop hits typically clock up 10 million views each, translating into around $10,000 of ad revenue for him
  • Promotion: Curated playlists are becoming a pivotal force in audio streaming services, but have a less central role in YouTube. A) that will likely change, but B) YouTube has many more assets and algorithms it can use to promote artists. Expect YouTube-only artists to over index in search results and recommendations in this new model. A couple of years ago Netflix announced it was going to ensure its originals over index, that is the model YouTube will likely follow
  • Margins: The added benefit of over indexing on originals is better margins, which could give YouTube some wiggle room in its current conversations with labels, allowing it to feel more comfortable about taking the short term pain of higher per stream rates.

An Alternative Industry, Not Simply A New Element

To be clear, all of this would be intended as an alternative to the traditional label / publisher / PRO model. For artists that sign up, every single right would be assigned to, and flow through the YouTube system so that there would be no remit for PROs, labels or publishers. Of course it would only work really well for a specific type of artists e.g. singer songwriters but YouTube would iterate the model over time to give it broader appeal.

 

The earliest iterations would probably be pragmatic compromises. For example, many YouTuber musicians rely on doing cover versions to drive traffic so Google would still need to work closely with music publishers. In fact, around 14% of plays of the most popular music videos on YouTube are cover versions or parodies. (Which helps put the Sony/ATV rumour into context.) Over time though, YouTube would make its music infrastructure as self contained as possible. And over time, as it acquires a bigger body of artists that have had no previous label or publisher deal, progressively more of its music catalogue would become YouTube only. Think of it like resetting the clock to zero.

I doubt YouTube’s aspirations are solely limited to its platform. The strategic investments in next gen music companies and its DDEX work could form tendrils stretching out into the broader industry, extending YouTube’s reach and influence. They days of YouTube simply as a place to promote your latest song are long gone. What we have now is a powerful, global platform that wants to make music work, with or without traditional rights holders. Google’s approach to business has always been about bringing, scale, effectiveness and efficiency to supply chains. Music is no different, but the embedded nature of the traditional companies has meant that YouTube has only been able to partially deliver on that basis. That could well be all about to change.

The Real Value Of The Independent Sector

Over the course of the last year MIDiA has been working with WIN (the global indie label trade body) on a major study to define the independent sector’s contribution to the global recorded music business. The default accepted wisdom is that the indies account for something like 20% of the global revenue total. However, this study revealed, that figure strongly underestimates the actual share…it is in fact 37.6%. This matters not for bragging rights but because in the digital marketplace, market share shapes the deals that are struck, with more market share translating into better terms. So a more accurate measure of share can help the independent sector compete on fairer terms.

Distribution Versus Ownership

Distribution is the largest single contributor to the variance in market share. The 20% refers to the labels that distribute the music while the 37.6% refers to which labels actually own the music. Indeed, 3rd party distribution is becoming an ever more central element of the independent sector. The growth of streaming services and social media have helped create a burgeoning international opportunity for independent labels across the world. However, because most of these labels do not have the international infrastructure required to tap this global opportunity they often utilise 3rd party partners for distribution and other services. Often these parties are major labels or major label owned distributors. As the music market becomes more global, 3rd party distribution becomes more important for indies. But while this gives the independent sector global scale it also means that much of their revenue ends up being accounted as major label revenue, creating a distorted view of the market.

Most Indies Use International Distributors

In fact, 72% of independent labels use a 3rd party international distributor while 52% use a major label owned one or go direct via a major for distribution. The impact on the global market is huge. Just look at 2 of the biggest independent artist albums recently: Taylor Swift’s ‘1989’ on Big Machine but distributed by Universal Music, and Adele’s ‘25’ on XL/Beggars but distributed by Sony in the US and South America. 2 leading independent success stories that now appear as major label success stories in investor decks. There is no questioning the value that majors and major owned distributors bring but just as importantly these are nonetheless indie label artists.

A Diverse Global Picture 

Even using the ownership approach, there is a massively diverse global picture, with indie market share ranging from just 16% in Finland, up to 64% in Japan and 88% in South Korea. In fact, Japan, South Korea and the US (where the distribution methodology has been in place for a few years now) account for 64% of all global indie revenue.

The disparity between ownership and distribution measures will only increase as music’s shift to streaming accelerates. The more that international markets open up, the more that smaller labels need to utilize international partners to reach music fans in those markets.  And the more that happens, the less relevant distribution market share becomes.

You can download the entire report by following this link.

Meanwhile, this graphic highlights some of the key findings.

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