About Mark Mulligan

Music Industry analyst and some time music producer. Vice President and Research Director with Forrester Research

How iPod changed everything

Apple just announced that it is finally ending production of the iPod. At 21 years of age, it outlived many of the dramatic changes it witnessed and triggered. In this age dominated by streaming (and a vinyl resurgence) the iPod did not really have a place anymore, other than with its ever diminishing base of super fans. It should probably have ceased production long ago, but the iPod holds a special place in Apple’s heart and sentimentalism likely played a role in allowing it to reach its 21st birthday before it was finally put out to pasture. And there is no doubt that the iPod earned that special place, because it was the change catalyst that transformed Apple into the mega corporation that it is today. But the iPod did even more than that, it was the trailblazer that created the environment in which today’s digital entertainment world could exist.

Back in my early days as an analyst I went to my first ever Apple analyst briefing, for the launch of the second generation. I felt like a fish out of water, with the room full of dry tech analysts asking Apple about its education strategy, its server products, its enterprise computing strategy. Then little me in the corner, asked about the iPod, and the entire room turned to me with bemused faces, just like the pub scene in American Werewolf in London.

Every successive briefing session I went to, the iPod became an ever bigger deal and the other analysts in the room started asking questions about it too. The iPod shuffled along at a steady pace until the launch of the iTunes Music Store, at which point it suddenly had a purposes it previously lacked, and sales lifted off. Apple has never looked back.

It is no coincidence that it was music that propelled the iPod to tech immortality. Steve Jobs was a massive music fan and it was his passion that helped ensure the iPod continued to receive the support it needed, even when it was not yet showing signs of fulfilling its huge potential. Apple has always been a company that is as obsessed with content as it is hardware and this is why the iPod and subsequent Apple devices have been so central to the growth of digital entertainment.

As the iPod evolved from scroll wheel to touch screen it became the launchpad for something even bigger for Apple: the iPhone (the first gen iPhone was a direct evolution of the iPod touch, at a time when smart phones were all keys). With the iPhone came apps. Just in the same way that the iPod was not the first digital music player, so Apple was not the first to make mobile apps nor of course the first to make a smartphone. But in all three cases, Apple took a promising but struggling format and made it ready for primetime. This early follower strategy underpinned Apple’s success in the 2000s and the early 2010s.

Pandora was an early beneficiary of Apple’s app strategy, being natively installed on US iPhones. The result was another lift off, with Pandora soon becoming he most widely used streaming app on the planet, even though it was only available in the US. Just as with the iTiunes / iPod combination, Apple understood the cruciality of an integrated content / device experience and its App Store became the launch pad for today’s digital entertainment economy. It did so by allowing app developers across the world to find a global audience which did not need to worry about clumsy installations and fragmented billing. Everything happened in one place, seamlessly and effortlessly. Google soon followed with its own take on the app store. Now you will struggle to find a games, music, video, news, podcast or book provider that does not use the Apple App Store, nor indeed a consumer that does not use apps to consumer content. 

Apple’s subsequent launch of the iPad and Apple TV further accelerated the adoption of digital content, giving audiences and content companies more choice about where they could benefit from the app economy. Apple Music, Apple TV, Apple Books, Podcasts, News, Arcade and more followed, helping cement Apple not just as a catalyst for the digital entertainment economy, but also as a major content player in its own right.

None of this would have happened without the iPod. So even though many readers will be too young to have even owned an iPod, spare a thought for this now departed member of the digital ecosystem, because without it, the devices you use and the entertainment you consume would look very, very different.

Farewell iPod!

Music industry earnings 2021: Riding the wave

Universal music’s Q1 2022 earnings showed continued growth but a noticeable slowdown in streaming growth, with streaming revenues up 12% year-on-year (YoY) in USD terms compared to a growth of 35% one year earlier.* As results trickle in from across the music business over the coming months, we will get a fuller sense of how much the wider business is slowing down after an exceptional 2021. Until then, it is worth looking at how leading companies across the wider music business fared across all of 2021. To that end, MIDiA has just published its inaugural ‘Music Industry Earnings’ report, tracking the revenues of 12 leading music companies across recordings, publishing, streaming and live**. MIDiA clients can download the full report and dataset here. Here are some of the findings.

The overall trajectory of travel for the music industry in the late 2010s and early 2020s was positive, but growth was not always spread evenly. Self-releasing artists direct consistently outpaced record labels, streaming revenues grew fast in some markets while others lagged, and Covid turned the live music business upside down – 2021 was different. Similarly, strong growth was present in most parts of the music industry, with most companies and geographies benefiting in broadly similar ways.

2021 was a year like no other in recent memory, with the music industry rebounding from the pandemic. In many respects, 2021 was a catch-up year for the wider economy, with additional business being done that had been put on hold during the worst of the pandemic. Although the music business is largely a consumer business, it does have a B2B component (advertising) and the uplift in wider economic activity filtered down to consumers as employees. The result was a blended 37.7% increase in revenues for leading companies across recordings, publishing, streaming and live.

This figure, though, was skewed upwards by the unusual dynamic of the live music industry recovering revenues after a pandemic-induced collapse. With live therefore excepted, organic growth was broadly similar across all other sectors, with labels (26.7%) and streaming digital services providers (DSPs) (27.0%) performing strongest. Music publishers were up 20.5%.

Live increased its share of total to 13%, up from 5% in 2020, but this was still far below its 29% 2019 share. It remains likely that live will not reclaim such a high share, even if it recovers fully, principally because music rights companies grew revenue by nearly two and half times faster in 2021 than in 2020. The net effect will be a net increase in organic market share once the live recovery process is complete.

Within labels, HYBE was the fastest growing (across its recorded music revenues), up by 70.4%, in publishing it was Warner Chappell (23.7%), while NetEase Cloud music led the way in subscriber growth, up by 81.1% (far ahead of Spotify’s 16.1% growth). However, Spotify grew its free userbase far faster than NetEase while Tencent Music Entertainment saw its free userbase decrease by 1.1%.

While Covid turned many industries upside down, live music was the only component of the music industry that did not continue to grow throughout the pandemic. For investors, the appeal is clear of an asset class that can flourish even in difficult times. The remainder of 2022, and potentially beyond – depending on what happens in the global economy and geo-political environment – will be a sterner test. Rocketing fuel bills and food costs will cut into consumer discretionary spending, but, as music subscriptions are relatively low cost products that tend to be held by consumers with meaningful disposable income, the risk exposure may be low. Though the fact that UMG grew its subscription revenues by just 10% in Q1 YoY, we may even be seeing a slow down there.

Whereas a few years ago, a subscription slowdown would have been as worrying for labels and publishers as it would have been for DSPs, the emergence of non-DSP revenue (Meta, TikTok, Peloton, Snap, Twitch, etc.) means that rightsholders now have an established plan B. A point illustrated by UMG’s 17% growth in ad supported streaming in Q1 2022 YoY. The economic headwinds during the remainder of 2022 will be challenging for sure, but the performance in 2020 and 2021 point to a robustness that will help it weather the storm in a way that other consumer-centric industries may not enjoy.

*All values in current currency terms, using the exchange rates published by Vivendi for each corresponding quarter.

**List of companies tracked in MIDiA’s 2021 Music Industry Earnings report:

  1. Believe
  2. HYBE
  3. Live Nation
  4. LiveXLive
  5. NetEase Cloud Music
  6. Pandora
  7. Reservoir Media
  8. Sony Music Group
  9. Spotify
  10. Tencent Music Entertainment
  11. Universal Music Group
  12. Warner Music Group

The attention recession has hit Spotify too

Spotify added two million subscribers in Q1 2022. Yes, this incorporates the impact of 1.5 million lost Russian subscribers and is set against Netflix having lost 0.2 million subscribers over the same quarter. But while Spotify did well to not suffer the same fate as Netflix, it was not able to buck the broader trend affecting the entertainment market: the attention recession. The attention recession is the combined impact of: 1) the end of the Covid entertainment boom (consumers have less time and money as pre-pandemic behaviours resurface); 2) economic headwinds (rising inflation and interest rates), and 3) the geo-political situation (the Russo-Ukrainian war). Spotify’s Q1 earnings provide further early evidence of the attention recession’s impact. Spotify’s earnings were shaped by all three.

Looking at the ad-supported and paid users of a number of leading digital entertainment companies that have already reported their Q1 2022 results, a clear trend emerges: paid user growth slowed in Q1 2022, while free users continued to grow strongly. With consumers having less time on their hands and less money in their pockets, free is growing faster than paid.

Entertainment monetisation trends followed an almost mirror opposite of user behaviour. The first quarter of every year is typically down from the preceding fourth quarter for ad businesses, with the Q4 advertiser spend surge receding. Yet the declines in Q1 ad revenues for Snap and YouTube were both significantly bigger in 2022 than in 2021, with a combined drop of 22% compared to 13% the year before. Snap’s Evan Spiegel even went on record to explain just how problematic a quarter Q1 2022 had been and how there are growing concerns about the outlook for ad spend. This is because, as consumers have less disposable income, they buy less, which means advertisers get lower returns on their spend. Ad revenue is most often an early victim of a recession.

Conversely, Q1 2022 subscription revenues were up slightly, though much less so than in Q1 2021, and Spotify’s premium revenues were down 1%. Nonetheless, the key takeaway is that subscription monetisation was less vulnerable in the first phase of the attention recession. While free services and tiers benefited from incoming cost-conscious users, they were not able to harness the shift commercially. 

As MIDiA said back in 2020, all companies were going to feel the impact of the attention recession, which we identified was imminent following the pandemic. 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 on to their newly-found boosts to revenue and users, let alone grow. When we made that prediction, it was before the additional elements of economic and geo-political trends raised their heads. 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. 

Though Spotify’s move to wind down Russian operations was admirable, it illustrates how the impacts of the Russo-Ukrainian war on digital entertainment will be both varied and far reaching, not least because of its impact on inflation due to its disruption of global food and fuel supplies. 

We are living in ‘interesting times’ and the future is always uncharted, but especially so now. 

Forget peak Netflix, this is the attention recession

Netflix’s Q1 2022 results caused a stir, with subscriber numbers down by 0.2 million from one quarter earlier. Some are calling this ‘peak Netflix’, but this is not a Netflix-specific issue. The decline illustrates that Netflix does not operate in isolation, and is, instead, but one part of the interconnected attention economy – an attention economy that is now entering recession. This is a recession that MIDiA first called back in February 2020, and that the wider marketplace has started to wake up to.

The attention recession – after the boom

When MIDiA made the prediction of ‘the coming attention recession’ over a year ago, we identified that once the world started returning to pre-pandemic behaviours, the Covid-bounce in entertainment time would recede, creating an attention recession. The attention economy had already peaked back in late 2019, which meant that the pandemic and its lockdown attention boom delayed the inevitable negative effects of companies that are competing in a now saturated attention economy. During the lockdown boom, media time went up by 12% and all forms of home entertainment boomed, but as we warned at the time, the effects were temporary, so entertainment companies needed to plan for post-lockdown life. 

A return to a smaller and recently constrained, pre-pandemic attention economy was always going to be painful. We termed this contraction a recession because we knew there would be clear economic aftershocks. Not least because the impact has been unevenly felt. As the first signs of contraction showed, not all sectors were impacted evenly. Pandemic boom sectors, like audiobooks and podcasts, saw larger chunks of their newly-found consumption time disappear. Music clawed back some of its lost share. Video (Netflix included) fell, but social and social video buckled the trend entirely, not simply clawing back some lost share, but actually growing throughout the entire pandemic period to end it with more hours than when it entered it. The arithmetic is simple: total attention hours are falling, social is growing hours, therefore, the remainder of the attention economy collectively experiences a double whammy of decline of time and money. 

The wider economy is beginning to bite too

But, unfortunately, there is more. Since MIDiA made the case for an attention recession, the global geo-political and economic situations have changed – to put it mildly. Inflation was already spiking before Russia invaded Ukraine, and the war’s impact on grain and energy supplies will only accelerate inflation even further. Put simply, consumers will feel growing pressure, with wages racing to keep up with price rises. Discretionary entertainment spend will be one of the earliest victims. Video subscriptions inadvertently made themselves an easy target. The sheer volume of choice and competition, combined with rolling monthly subscriptions, make it all too easy to drop one subscription without seriously denting your overall video experience. But while streaming services now face a potential savvy switcher cataclysm, traditional pay-TV companies have their subscribers locked into legally binding, long-term contracts. It usually costs consumers MORE money to cancel contracts, defeating the purpose of trying to reduce spend. Consequently, we may even see the cord cutting / SVOD growth dynamic invert for a while.

Back in 2020, when we first started writing about the potential impact that an economic recession would have on entertainment, we identified that 22% of consumers would cancel one or more video subscriptions, and that 22% would downgrade from paid to free on music. Netflix’s earnings are the first signs of this consumer intent manifesting. Other subscription video on demand (SVOD) services should not consider themselves immune. Even if the economy was to stabilise tomorrow, the long-term outlook for SVOD will most likely be defined by savvy switchers continually hopping across services to watch the shows they want. SVOD subscribers had found themselves thinking the new boss looked pretty much like the old boss, having to subscribe to so many services that their SVOD spend ended up looking a lot like those old pay-TV bills. In a recession, consumers will need SVOD to deliver on the price benefit more than ever before. 

When price increase can be hindrance, not a help

A lot has been made of how great a job Netflix has done in increasing its prices while streaming music has not – heck, even I did it. Increasing prices above the rate of inflation may a) reflect Netflix’s actual market worth, and b) help drive revenue growth, but it makes Netflix exposed in a hyper-competitive SVOD market that is entering an attention recession and, potentially, an economic recession. 

Circumstances may well look very different for music. Firstly, the vast majority of music subscribers only have one subscription, so if you cancel, you lose all the benefits of a paid account, not just a slice of choice. Secondly, music subscriptions have reduced in real terms because they have not kept track with inflation. In fact, prices have hardly moved at all in 20 years. While this has long been seen as a problem, in the current circumstances, it might be an asset. Music subscriptions represent good value for money, and with inflation pushing upwards, they will represent even better value for money as every month passes. Perhaps now is not the best time for music price increases.

Reasons, not ways, to spend attention

So, with all this doom and gloom, how can entertainment companies survive – perhaps even thrive? Long term, annual billing for digital subscriptions is a logical step, but for those who do not have them, now is not the best time to try to commit to large payments, unless there is some serious discounting in place. Multi-format bundles, like Apple One and Amazon Prime, will also be well placed. Ad supported services will also do well. But it will take more than clever billing and bundling. It will require a fundamental reassessment of the relationship with the audience.

One of the key calls MIDiA made in our 2022 predictions report was the new need for reasons, not ways, to spend attention in the attention recession:

“[Entertainment companies] will not only lose time, but end up lower than pre-pandemic levels. With such fierce demands on their time, audiences will need to be given reasons, not ways, to spend their attention.”

This might also be the moment for the next generation of emerging tech majors like Byte Dance and Tencent who’s businesses have a strong focus on ad supported and monetizing fandom rather than the commodified model of monetizing consumption. As Facebook’s declining user numbers showed, even in the booming social sector, a realignment of the marketplace is happening.

In the attention recession, entertainment companies need to start appreciating that consumer attention is a scarce resource, not an abundant one – a resource that must be won, not claimed. Those who do not will be the most vulnerable to the vagaries of the attention recession.

Fake artists are what happens when fandom dies

The topic of ‘fake artists’ refuses to go away. For those who have been on Mars for the last couple of years, fake artists refer to artists who release under a streaming pen name but do not build any artist profile around the music. Most of this music comes from production music libraries (typically ‘royalty free’) and is seen by the traditional music business (record labels especially) as a means of gaming the system – especially as the assumption is that DSPs pay less for such music (even though record labels have started playing the game themselves). Although the ‘if you can’t beat them, join them’ might seem like a pragmatic solution, it, of course, only exacerbates the problem. Because the problem is not fake artists, but it is, instead, the way in which streaming is killing fandom.

Streaming is racing to be radio, not retail

Streaming is fast becoming more of a replacement for radio than it is retail. Retail used to be where (engaged, smaller scale) fans went, while radio was where (passive, larger scale) audiences went. As streaming got bigger, there was always going to come a point in which its focus would be the large passive audience segment rather than the smaller engaged fan segment. But what has happened is that streaming is turning everyone into the passive massive, even fans. Streaming has turned music into a utility, like water coming out of the tap. This might have helped drive global scale, but it came at the cost of fundamentally eroding the cultural impact of music, by making it about consumption rather than fandom. 

Streaming music soundtracks our everyday lives. There are playlists for everything we do (study, fitness, relaxing, cooking, working, etc.). By becoming pervasive, music has lost some of its magic. The fandom that was inherent in people buying music because they loved it is gone. The biproduct of ubiquity is utility. In the immortal words of Syndrome from the Incredibles: “When everyone is super, no one will be…”

The problem is that, from the ground up, Western streaming is geared for consumption not fandom. From playlists through to economics, streaming is all about consumption at scale. Songs fuel consumption, not artists. Which is the breeding ground for mood music, of which ‘fake artists’ are but one sub-strand. 

Streaming’s torrent of ubiquity

This is not to say that there is anything inherently bad about consumption, after all, radio has been a corner stone of the music business for, well, pretty much forever. Labels have had a love / hate relationship with radio, but they valued the way in which it drove sales and delivered exposure for songs and artists (especially as DJs talk about the music being played, interviewing artists, etc.). With streaming, though, the discovery journey is the destination. So, the post-consumption part of the equation just disappeared. And a consumption-first environment, tailored to individuals’ daily lives and shorn of the artist context delivered by DJs, is fertile ground for mood music. In fact, mood music is the natural evolution of a consumption-first system. A system in which artists get washed away by streaming’s torrent of ubiquity. 

Add poor remuneration for mid and long-tail artists into the mix, and you have a perfect storm. Why? Because artists are compelled to diversify their income mix to eke out every extra dollar they can get from their creativity, with production music libraries being eager customers of their ancillary work.

Fandom has moved up the value chain

Streaming may have killed off fandom within its own environment, but fandom itself has not died. It has gone elsewhere (Bandcamp, Twitch, TikTok, etc.). It is TikTok that has arguably done the most to reinvigorate fandom in recent years. But, crucially, it has inserted itself before consumption instead of after it. You will be hard pushed to find a mainstream music marketing campaign that does not include TikTok as the place to kick start discovery and (if all goes well) virality. TikTok has thus become the top of the funnel for consumption. Yet, rather than filtering out what is valuable, the process is more like panning for gold, i.e., filtering out what is not valuable – consumption. Fandom, identity, recreation, engagement, and connection are all left with TikTok, while consumption flows through to streaming. Little wonder, then, that TikTok is diluting streaming’s cultural capital. 

It does not have to be this way. Chinese streaming services demonstrate that streaming can be fandom machines too. Tencent Music Entertainment makes around two thirds of its revenue from non-music, fandom revenue. But perhaps the most startling example of just how much is being left on the table by Western streaming services, is found in NetEase Cloud Music’s inaugural earnings release. 212 million music users generated RMB 3.6 billion. 0.7 million social entertainment users generated RMB 3.7 billion. Yes, that means an audience that is 0.32% the size of the music audience generated more income in fandom-related revenue than the music audience did in music revenue. Right now, if anyone in the West is going to be streaming fandom machines, it is probably going to be TikTok (a Chinese company) and Epic Games (a company 40% owned by a Chinese company).

Fandom remains the under-tapped resource in the West, but its value is not simply in the revenue potential. Fandom is the essence of what makes music move us. Under-invest in it, and music will continue on its path of commodification. Which might serve the streaming platforms well, but not the wider music business. ‘Fake artists’ will become the norm, not the exception. To misquote syndrome “when everyone is fake, no one will be…”

Did independents really do three times worse than the majors in 2021?

Today, the IFPI released its estimates for the global recorded music market, with reported revenues of $25.9 billion. Last year, the IFPI estimated global revenues to be $21.6 billion (note that the IFPI retrospectively changes its historical figures every year, but you can see its actual 2020 figure here), which implies a growth rate of 20% (18.5% against the IFPI’s rebased 2020 figure of $16.9 billion). The IFPI estimate is significantly below MIDiA’s figure of $28.8 billion – but before getting into the reasons for the differences*, it is worth diving into just what the IFPI’s $25.9 billion figure implies for the size and performance of independent sector.

The major labels’ combined revenue in 2020 was $15.2 billion, and in 2021 it was $18.7bn, representing 25% annual growth. If you simply deduct those figures from the IFPI figures you end up with an implied independent figure of $6.5bn for 2020 and $7.0 billion for 2021. Here is where things start to get interesting. The implied indie growth rate is therefore just 9%, i.e., indies (according to the IFPI) grew three times more slowly than the majors, with implied market share dropping from 30% to 27%. Everything that MIDiA has been hearing from the market suggests that 2021 was actually a strong year for the non-majors. Indeed, Believe just reported a 31% growth, while the ‘label’ portions of HYBE’s revenues increased by 29% (though, not all of that growth was organic). If we remove the revenues of those two labels from the IFPI’s implied indies figure, the remainder of independents would have grown by just 4% in 2021.

To take this line of thought a step further, if we additionally remove the artists direct (i.e., self-releasing artists, which grew by 30%) revenue from the IFPI’s implied indie segment, the growth drops to minus three percent. Even accounting for bigger, older independent labels that did not fare so well in 2021, a -3% growth does not feel like a reflection of an otherwise vibrant sector.

One key reason for the growth and values looking smaller in the IFPI’s figures is that they may not include non-DSP revenue (TikTok, Meta etc), which MIDiA pegged at $1.5 billion in 2021. The IFPI reported all streaming revenues as $16.9 billion which is in line with MIDiA’s $17.0 billion for DSP-only streaming. It is worth noting that majors have around 65% market share on DSP streaming. If the IFPI’s streaming figures do include non-DSP, the implied market share for majors would be 74% (total major label streaming revenue was $12.6 billion in 2021).

Numbers are important, as they are what enable people to understand how markets are performing and what decisions to make. MIDiA’s overriding objective is always to provide the most comprehensive and authoritative data as possible, in an entirely agenda-free way. We have no intention nor objective to make the market look any bigger than we think it actually is. In fact, MIDiA has a well-earned reputation for being on the bearish side of market sizing and forecasts. Nonetheless, this year, our work has led us to the viewpoint that 2021 was a great year right across the recorded music market, with majors and indies alike finding success in a rejuvenated marketplace. And long may that continue.

*The main distinctions between MIDiA’s revenue figures and the IFPI’s are the following:

  • MIDiA includes all reported major label revenue
  • MIDiA includes the masters side of music production music libraries (including royalty free)
  • MIDiA includes a portion of D2C independent artist and label revenue that does not get tracked via traditional tracking methods
  • MIDiA includes some independent label revenue that does not get tracked via traditional tracking methods

NOTE: a previous version of this post had incorrectly stated non-majors have around 65% share on DSP streaming. It now reads ‘majors’

Recorded music market shares 2021 – Red letter year

We suggested back in 2020, that 2021 was going to be a strong year for the recorded music market. As it turns out, 2021 was the fastest growing year in living memory, with growth across most formats, contrasting strongly with 2020 when streaming was the only growth segment. 

After 2020 was constrained by the global pandemic, the global recorded music market rocketed into stellar growth in 2021, growing by 24.7% to reach $28.8 billion (the largest annual growth in modern times). 2020 growth was a much more modest (7%), but this reflected the suppressing effect of the global pandemic in the first half of the year.

2021 was a big year for the music business, with a record amount spent on music catalogue acquisitions and IPOs for Warner Music Group (WMG), Universal Music Group (UMG) and Believe Digital. These developments turned out to be the symptoms of a surge in global market growth, with recorded music revenues. 

Streaming revenues reached $18.5 billion, up by 29.3% from 2020, adding $4.2 billion – also a record increase. One of the key drivers of streaming growth was non-DSP revenue, representing deals with the likes of Meta, TikTok, Snap, Peloton and Twitch. Non-DSP streaming recorded music revenue totalled $1.5 billion in 2021, a massive uplift from 2020. DSP streaming (Spotify, Apple Music, Amazon Music, YouTube Music, etc.) also grew strongly too, reaching $17 billion. 

UMG remained the biggest label, with $8.2 billion, giving it a market share of just under 29%. However, for the second successive year, Sony Music Group (SMG) was the fastest growing major, and it increased its market share by growing significantly faster than the total market. For the first time since 2017, the major labels did not see their collective market share decrease.

Independents also had a good year, with strong growth across both larger and smaller labels. But it was, once again, artists direct (i.e., self-releasing artists) who were the big winners, driving $1.5 billion of revenue and increasing market share to 5.3%. They also added more revenue than in the prior year, something the segment has done every year since 2015. However, because 2021 was characterised by all segments performing strongly, artists direct’s increase in market share was smaller than in previous years.

The concept of evenly distributed growth was also reflected across geographies and formats, with physical and other (i.e., performance and sync) all growing strongly. Physical growth was so strong that revenues surpassed 2018 levels.

The recorded music market looked vulnerable in 2020, relying entirely on streaming for growth, with the outlook inextricably tied to that of DSPs. 2021 was a very different story, with growth on most fronts, but, most importantly, the rise of non-DSP revenue, reflecting an increasingly diversified future in which labels can fret a little less about the prospect of slowing subscriber growth in mature markets. When coupled with longer-term growth opportunities (NFTs, the metaverse, etc), the outlook is positively rosy. Although 2021 was boosted by exceptional circumstances (e.g., the wider economy rebalancing after the Covid-depressed 2020, and much of the non-DSP income being in the form of one-off payments), annual growth of 24.7%, points to the emergence of a new era for an increasingly diversified recorded music business.

The full report and dataset (with quarterly revenue by segment and format going back to Q1 2015) is available here. If you are not a MIDiA client and would like to learn how to get access to our research, data and analysis, email stephen@midiaresearch.com

Why Dolly Parton may want to wait before selling her catalogue

In a recent interview with the BBC, Dolly Parton said that she is considering selling her publishing catalogue, stating that she would simply launch a new publishing company and start all over again. On the one hand, this is not the first time she has publicly pondered the move (the first time was in December 2020), and is thus probably aimed at pushing up buyer demand and creating a bidding war. But on the other, it is an interesting illustration of the mindset of older artists who look to sell – they feel confident enough in their careers to simply be able to look at like an author who is selling the rights of their latest novel and moving onto the next one. But even more importantly, while cashing in might seem like a safe bet, there is risk for both sides, not just risk of whether valuations are too high, but also that they may not be high enough.

Catalogue investment is booming

The rate of music catalogue M+A acquisitions is accelerating, with announced transactions exceeding 12 billion in 2021, more than doubling since 2020*. Though those figures are boosted by some big institutional plays, such as UMG divesting some of its business ahead of its IPO, there is a rapid acceleration in the number of artists and songwriters who are selling. The market looks set to continue to be buoyant. On the buy side, there is a growing number of new investment vehicles and institutions entering the space, and thus driving up demand in a market of finite supply. On the sell side, though many big names have already sold, these are a minority of the big names of recorded music. This misalignment of supply and demand is helping push prices up, consequently accelerating the market even further.

Old, white, English-speaking males dominate

An interesting characteristic of today’s music catalogue M+A market is its bias towards old, white, male, Anglo repertoire. This reflects the investment thesis of many acquirers, which are building investment cases on valuation methodologies that revolve around historical cash flows. Put crudely, this means investments are being shaped on yesterday’s performance as an indication of tomorrow’s success. In most asset class markets, this is a very sensible approach, and in music it is a crucial component – but it is not enough alone. This is because streaming (e.g., Spotify) and social video (e.g., TikTok) are transforming how music is being consumed. Fandom is fragmenting and listening is splintering, meaning that the big hits of yesteryear are unlikely to perform the same way on streaming tomorrow as they do on radio today. At the very least, this introduces a significant degree of volatility into any outlook an investor may have. It should be of little surprise that this is where MIDiA spends a lot of its time in the consulting and advisory work we do for music investment funds.

The next music business is building 

This is where the artist and songwriter’s appetite for risk comes in. For an older songwriter or artist, selling up represents an opportunity to bank previous success, to capitalise on the unprecedentedly buoyant music market. But the market has a lot of growth left in it yet. In fact, the best days are likely still ahead of us. 2021 was the biggest growth in the recorded music market in modern times (watch out for MIDiA’s official figures, which are coming very soon)! Even if the digital service provider (DSP) streaming market, epitomised by Spotify, may be maturing, non-DSP streaming (TikTok, Meta, Twitch, etc.) is only just getting going and contributed significantly to 2021 growth. On top of this, new horizons are being set in the shape of the Metaverse, NFTs, Blockchain, and decentralized autonomous organisations (DAOs). Web 3.0 is riddled with risk and inflated expectations, but, as with all cases of looking at future tech, it is easy to overestimate the near-term impact and underestimate the long-term effect. Meanwhile, there are moves across the globe to increase the amount of streaming money that flows to the creators themselves. Add in the growth of emerging markets; growing rights transparency; and the booming music creator and creator tools economies and you have the foundations of an entirely new chapter for the music business. 

Which brings us back to Dolly Parton. In many ways, she is like the gambler sat at the poker table with a pile of chips in front of her. If she walks away now, she banks a fortune, but what of she plays for just a little longer. Except that, in the case of the music business, the odds are not even. Unless Russia dives the global economy into a disastrous drop – which, of course, is no small possibility – things are only going to get better for the music business. But, just like on the poker table, an artists or songwriter does not need to go all in. A growing number of investors are becoming more sophisticated with how they work with creators. For example, allowing them to retain certain rights, or a portion of overall rights. This means that the creator gets to benefit from the future upside while also benefiting from the up-front cash. It also means that the creator remains vested, with an incentive to help keep those old songs alive (and, as a result, increasing their value for all parties) rather than simply moving onto the next chapter. 

There is no doubt that the music catalogue sector has boomed, and there is also an argument that prices are inflated, at least in comparison to yesterday and today’s business. But for creators and investors who are prepared to take a long-term view, things might only just be starting.

*Look out for much more market analysis and data in a forthcoming MIDiA report on music catalogue acquisition by my colleagues Tatiana Cirisano and Kriss Thakrar

Epic Games, Bandcamp, and fandom for the ‘me’ generation

Honestly, it has been a struggle to find the inspiration to write a blog post about the music industry, considering what is going on in the world at the moment. But along came this story, which is eye opening enough to put virtual pen to paper: Epic Games buys Bandcamp. Not only does a games company buying a music company make this an interesting story, but also the apparent cultural mismatch. Which means there is likely a series of really interesting strategic drivers underpinning the move. Most of all, though, this is a creator economy play, but one that puts the consumer at the centre of creation.

Fandom machines

Epic Games, Bandcamp, and TME, the music subsidiary of Tencent (40% owner of Epic Games), all have one thing in common: they are fandom machines. All of them enable their respective userbases to communicate their identities and tribes via fan products, from badges to Fortnite skins, through to t-shirts and vinyl. It is the art and science of fandom that underpins the Epic Games and Bandcamp alignment – but much more in the sense of what future they can build, rather than what they are now.

Epic Games is establishing the infrastructure for the company it wants to become, rather than for the company that it currently is. That vision, if successful, will be of a diversified business, with games as its engine – but notjust about games. It obviously needs to tread carefully and ensure that it does not get too distracted and ‘do a Rovio’ – the maker of Angry Birds had the biggest game on the planet for a while, but it pushed focus so far away from its core that it failed to make a follow-up smash-hit game, and has since dwindled in importance.

What Epic could do with Bandcamp

So, just what can Epic Games do with Bandcamp, and vice versa. Here are a few options:

  1. A consumer creator tools play: play music games (Harmonix + Epic / Fortnite) and try selling what you make on Bandcamp, then have it pumped into Fortnite radio 
  2. Fandom: Epic Games has a proven ability to monetise gamers’ desire to express identity. Physical fandom products are an obvious growth area. Similarly, artists selling into games. This could mean scarce digital goods, which would mean NFTs without being NFTs
  3. Metaverse play: (yes, we had to get the ‘M’ word out of the way). Artists sign up to Bandcamp and sell on a version of the Fortnite store (sound clips, emotes, skins, etc.)
  4. Virtual artists: K/DA-type Fortnite band(s) that are exclusively available on Bandcamp and Fortnite, also utilising Bandcamp’s nascent streaming
  5. Virtual events: Bandcamp and Fortnite together could create a range of hybrid livestream / gameplay formats that would help virtual events coexist with IRL concerts
  6. A mix: Combining much of the above, Bandcamp could become the Beatport for virtual artists and gamer / creators

There are, thus, many directions Epic could go with this deal, but our bet is that the first item is the most important. Much has already been made of Epic building a creator tools ecosystem (cf the acquisitions of Sketchfab and of ArtStation), but Epic is most likely looking one move ahead of everyone else when it comes to the creator economy. The big focus (in music at least) has been on creators as the next music business, engaging a much bigger base of music makers than the current business. But Epic is thinking much bigger and, perhaps, even thinking of the creator economy gold rush as little more than an interim step. Epic has its eye on consumers themselves. Just as TikTok and Instagram turned consumers at scale into video creators, so Epic could make them music creators at scale. MIDiA first wrote about this creator culture opportunity last year, and Epic might be the one to make it happen. 

It is all about the consumer

Turning consumers into creators certainly fits into Epic’s long-term vision. As far back as 2016, Epic Games’ CEO Tim Sweeney said (of the future of games):

“It’s going to be user driven. Users are going to build stuff…It’s all going to be about empowering the users to make this stuff happen on their own.”

Obviously, the rights situation for potentially billions of items of user-created music would be chaotic, and the current industry architecture would probably collapse under its weight. A self-contained music / games / creation ecosystem would enable Epic to bypass much of that complexity, though a content ID system and PROs would still both need to be part of the equation. 

Within a couple of years, we will be watching Epic and TikTok fighting it out to be the future of the consumer music creator, with a bunch of usual suspects playing catch up. At the core of this creator culture revolution will be a reinvention of fandom. Up until now, fandom has largely been expressed through following stars. In more recent years, fandom has fragmented from a few massive stars to a bigger body of smaller stars. The natural end point of this evolution when everyone becomes fans of themselves and their friends. Creator tools have fostered this fandom of self, from selfies to Snapchat filters, through to Instagram posts and TikTok videos. Regardless of whether this is the zenith or nadir of fandom and creation, their increased connection is clear – and it might just be that Epic and TikTok are both be building the ultimate fandom platforms for the ‘me generation’.

Music creators – we want your insight!

Beyond our role in analysing, reporting, predicting, and consulting within music and media, MIDiA is a team of people – many of us creators too – who are committed to making a fairer, more sustainable and creator-friendly music industry. To this end, we are currently fielding a survey for music creators (who are based in US and Canada) in order to learn about how they are making money and what they consider to be definitions of success. The survey is open to artists, producers and songwriters, as well as managers and business managers.

If you are an artist, songwriter, producer or manager, please help us by filling in this short, 10-minute survey.

The results will be used to develop monetisation tools for artists – This survey is your chance to make a contribution to the music industry, and to help companies build the most efficient finance tool for artists – so please help!

Note, we are looking for around 200 responses and five lucky participants will win $1000 in Amazon gift vouchers from our prize draw!! 

Click here to complete the survey.