About Mark Mulligan

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

Welcome to the Age of the Artist

As it enters the third decade of the millennium, the recorded music business is in rude health. Revenues are about to enter the second half of a decade of annual growth, streaming is booming and investment is pouring in. Simultaneously, the fundamentals of the business are changing – from artist and songwriter careers, through music company business models to audience behaviour. The coming decade will underpin a story of old versus new, of insurgents and incumbents. There will be winners and losers on both sides. We are entering the music business’ next era, one that will be defined by factors such as artist empowerment, fandom, global culture, independence, amplification, creation, fragmentation and agility. One of the driving forces in this period will be the continued rise of the independent artist. In fact, we expect the role of the artist to be so impactful that we are calling this next era The Age of the Artist.

age of the artistEach of the previous music business eras have been defined by and named after the dominant formats of the time. Industry business models were transformed by these technology shifts and the resulting changes in consumer behaviour. Nevertheless, the underlying relationship between artists and labels remained relatively unchanged, with the label very clearly the senior partner. Now that is beginning to shift. Artists are more empowered and informed than ever because of:

  • Access to audiences: The combination of streaming, social media and artist distributors mean that artists can find global audiences without the need for a label. Of course, a label, or some other entity providing label-like services such as a distributor, can usually amplify this many times over – but artists can now either make a start for themselves or even never rely on a label’s marketing muscle at all.
  • Alternative models: Signing rights away in perpetuity with a traditional record label deal is no longer the only option on the table. In fact, just 8% of independent artists interviewed by MIDiA said that they want to sign a traditional label deal, with more than half wanting to sign a label services deal instead. Of course, many artists might change their minds when a nice fat advance is waved under their noses – but the intent is there. This new generation of artists have a strong sense of independence and they and their managers are helping forge a reshaped industry built upon new, more-equitably balanced contracts and deal structures.
  • Labels as a service: Because streaming is essentially the only consumer music proposition in town, early stage investors have to put their money in B2B services if they want a part of the music business action. As a consequence, we now have a vibrant marketplace of artist tools and services. So much so that an artist could build their own virtual label if they wanted to. Of course, these tools can lack the personal touch of a label, but the potential is there nonetheless.

Creator tools – the new top of funnel

It is the tools covered in that last bullet that look set to drive the music industry’s next growth curve. Artist tools – encapsulating everything from collaboration, through production to marketing, are growing fast and will grow even faster still. For a number of years now, larger record labels have been actively building their artist and label distribution capabilities. This ‘top of funnel’ strategy is well established, and enables them to fish upstream for talent early on as it appears. However, the real top of the funnel is one step earlier: the creation of music itself. The companies that establish relationships with artists and songwriters as they are creating music have the first connection, a platform for bigger, longer-term relationships. In fact, this may be the starting point for the label of the future. It might sound crazy, but so did the concept of major record labels distributing unsigned artists. And Spotify doesn’t think it sounds crazy – the likes of SoundBetter and Soundtrap in its two-sided marketplace look like bets on the future of artists and whatever labels look like five years from now.

But it doesn’t matter who ‘wins’ on the supply side (not that there will be any clear winner). The more entities competing for artists’ business, the more choices artists have. Welcome to the Age of the Artist.

The concepts in this blog are just a few of those explored in much more depth in the MIDiA report: Insurgents and Incumbents | How the 2020s Will Remake the Music Business. If you are not yet a client and would like to learn more about how to access MIDiA’s insight platform then please email stephen@midiaresearch.com

What UMG’s IPO Means for the Business of Music

Finishing 2019 on $6.4 billion, Universal Music is to go to IPO hot on the heels of Warner Music’s announcement to do the same. This of course also follows the Tencent-led agreement to acquire 10% of UMG for $3 billion with an option to acquire another 10%. Added into the context of a total of $10 billion in music rights mergers and acquisitions (M&A) in the last decade, we have a clear case of capital flowing into the booming recorded and music publishing businesses. The global recorded music market looks set to have reached a little under $21 billion in 2019, up 10% on 2018 (MIDiA’s definitive market estimate will be ready within the next few weeks). That 10% growth was up on the 8% seen in 2018. Investors of all sizes are either already invested in the music business or are looking for a route in, and UMG just gave them a new, very attractive option. But where is all this heading? How far can it go? And what are the implications for the business of music itself?

Looking for a return

The power behind UMG parent Vivendi is Vincent Bolloré. Although he stepped down from the board last year, he helped instigate a share buyback programme that will leave his family the majority shareholder and could even trigger a mandatory takeover. Additionally, Vincent Bolloré remains as a ‘censor and special advisor’ to Vivendi’s chairman, his son Yannick. This all matters because the motivations of Vivendi’s prime mover are, according to investors we’ve spoken to, focused on maximisation of value for Bolloré Group and for investors. This is not inherently a bad thing. The Bolloré Group has invested billions in Vivendi, so it is only natural that it will be seeking a return on that investment. And the likelihood is that Vivendi will only list a minority of UMG stock, otherwise Vivendi – Bolloré Group’s key financial interest here – would most likely lose value.

Why an IPO?

The IPO announcement follows a previous statement from Vivendi that it would look for other equity buyers for UMG. The IPO may well reflect that this course of action has not delivered fruit. But this does not mean the IPO would struggle. Equity buyers may have balked at the valuation and the lack of company control they would acquire. Stock investors, however, have a different perspective. For example, asset managers will be looking to add a profile of asset class that slots into a particular segment of their portfolios. Meanwhile, hedge funds would see UMG stock as a way to directly bet for (and against) rights in the emerging ‘rights versus distribution’ investment thesis. Finally, publicly-traded stock inherently reflects what the market values a company at, not what the company values itself at.

Investing back into the music business

Sales and IPOs during the peak of markets are usually a good way of maximising return. The question is how much of the income from the equity sales and IPO will flow back into the UMG business, compared to profit taking by investors. The same question of course applies to Len Blavatnik’s Access Industries’ proposed WMG IPO.

In its earnings release Vivendi stated that the income from the various UMG transactions “could be used for substantial share buyback operations and acquisitions”. Share buyback suggests further potential consolidation of the Bolloré Group’s relative dominance of Vivendi shareholding, while acquisitions could refer to activity at both Vivendi and UMG levels. There is a strong case for IPO proceeds being reinvested in the businesses of both UMG and WMG. The music market is growing and both companies outperformed total market growth in 2019 – but a slowdown is coming. Both UMG and WMG added less new streaming revenue in 2019 than they did in 2018. Not by much, but the early signs are there.

Time for plan B, C and D

Emerging and mid-tier markets will drive much of the growth over the next half decade, but the lower average revenue per user (ARPU) rates mean that subscribers will grow faster than revenue. So, the record labels need a new revenue driver. UMG actually saw physical sales grow a little in 2019 (due in part to deluxe editions of Beatles classic releases). But physical is not going to be the long-term revenue driver. Innovating in new revenue streams (e.g. creator tools) and new business models (e.g. streaming services that monetise fandom rather than consumption) is more promising. There is an opportunity here for UMG and WMG to supercharge growth beyond the coming streaming slowdown. In fact, MIDiA would go further and say there is an imperative to do so. Larger independents such as Downtown Music Holdings, Kobalt, BMG and Concord are collectively taking billions worth of capital and investing it in growing their businesses. If the majors do not follow suit, then they will lose ground to this emerging generation of innovative music companies.

This is looking to be the time to capitalise on the music industry’s revenue renaissance. Which begs the question: if/when will Sony spin off some of Sony Music via an IPO?

WMG to IPO: Here’s What You Need to Know

Throughout the last decade more than $10 billion has been invested into music catalogues. UMG bookended the merger and acquisition (M&A) boom with the Tencent-led $3 billion stake in its business, but was exceptional in that the majority of the investment was otherwise going into the independent sector (especially independent publishers). It follows that this remaining $7 billion flowing into the independent sector, even if only a minority is reinvested into the companies themselves, is going to boost the sectors’ capabilities vis-à-vis majors. UMG wanted a piece of the action – and now so does WMG, having just announced its intention to IPO. Current owner Len Blavatnik’s Access Industries will rightly be expecting a good return for the $3.2 billion it cost to acquire WMG in 2011. No doubt this is a good time for an IPO – but we are also on the cusp of disruptions and innovations that will transform the music business, many of which WMG hints at in its S1 filing.

Revenue performance

WMG’s S1 filings hold fewer surprises than most, as it has been filing SEC-compliant documents since the Access takeover as part of debt obligations. Nonetheless, WMG’s Q4 results and its stated risk factors, with a little bit of interpretation, present an intriguing view of where WMG sits in the fast-changing competitive marketplace.

Firstly, a quick review of some key financial metrics:

  • WMG full-year (FY) 2019 (calendar year basis) recorded music revenues were $3,883 million, up 11% year-on-year (YoY) – in line with the total market which should come in at around $21 billion, giving WMG around 18% market share.
  • However, Q4 revenues were only up 4% YoY which reflects the continued decline of physical and the start of the streaming slowdown. This is a secular trend, not a WMG-specific one.
  • Artist and repertoire (A&R) and production costs were 52% of 2019 revenues (fiscal year basis) and grew in line with revenue over the same period, though A&R grew more slowly than production costs (which were up 18% YoY). In Q4 A&R spend was actually flat from Q3, while production was up 12% (three times faster growth than revenues). Key takeaway: it is costing more to make major label quality music.

Market outlook

Risk factors are an integral part of company filings and are normally so intentionally bland as to make the risk factors look like they’re not really risks at all. With a little bit of focussed interrogation, however, they can be revealed. Here are the key ones for WMG:

“Our prospects and financial results may be adversely affected if we fail to identify, sign and retain recording artists and songwriters and by the existence or absence of superstar releases.”

WMG references rising competition from the ‘technological developments’ of insurgents. This points to the emerging generation of those such as AWAL and Downtown Music Holdings that are employing new, tech-led approaches with businesses built for the digital era rather than having to evolve into it. All traditional labels are playing catch-up. That doesn’t mean they won’t get there, but they are having to work doubly hard to do so. It is often far easier to compete as an insurgent stealing market share than it is to be an incumbent defending it.

“If streaming adoption or revenues grows less rapidly or levels off, our prospects and our results of operations may be adversely affected.”

At the start of last year MIDiA predicted that streaming revenue growth would slow towards the end of 2020. We are seeing the first signs of this and all labels, WMG included, know it is coming. The question is not ‘if’, but ‘by how much’. MIDiA’s view is that despite growth slowing to single digits by 2021 the market will still nearly double between 2019 and 2026. The bigger question is whether we will have a plan B for streaming by then, alternative to the 9.99 model dominated by three global players – which brings us onto the next point…

“We are substantially dependent on a limited number of digital music services for the online distribution and marketing of our music, and they are able to significantly influence the pricing structure for online music stores and may not correctly calculate royalties under license agreements.”

With the big three digital service providers (DSPs) accounting for 66% of global subscribers (80% if we remove single-market DSPs like Tencent) labels are becoming worried about the hard power (licensing negotiations) and soft power (curation and discovery) of Spotify, Apple and Amazon. Labels have been unable to exercise ‘divide and rule’ over them so far and really need a new competitive force in the market. Few investors would back a vanilla 9.99 challenger, so rightsholders need to think about licensing the next new thing. MIDiA’s bet is on monetising fandom (virtual gifts, tipping, live streaming etc.) to complement the current model of monetising consumption.

“Our business may be adversely affected by competitive market conditions, and we may not be able to execute our business strategy.”

The emerging generation of new competitor music companies are building a complex web of entirely new music business structures. The only unifying factor is diversity. Major labels are responding in kind. Expanded rights were the first step, label services the next. But we are just at the start of this journey, and much more will need to be done. WMG dipped its toes into the ‘top of funnel’ business with the launch of Level in 2018. This will remain a crucial growth area, but creator tools are becoming the new top of funnel. Spotify is currently leading the charge here. WMG and other majors will need to follow suit, or be left behind.

“We face a potential loss of catalogue to the extent that our recording artists have a right to recapture rights in their recordings under the U.S. Copyright Act.”

Although this risk factor specifically refers to the US Copyright Act, there is a more fundamental market dynamic at play: as more artists move towards label services deals, major record labels will grow their owned catalogues much more slowly than their revenues due to artists retaining their rights. Just 8% of independent artists plan to sign a traditional record label deal. The music business is about to be transformed by the emerging generation of artists.

Right place, right time – but choppy waters ahead

This is good time for WMG to IPO. The music rights M&A market has until now been constrained by supply. Now, large institutional investors have another way in which they can place bets in the burgeoning recorded and music publishing businesses. Unlike owning shares in UMG parent Vivendi or Sony Music parent Sony Corporation, this is a direct investment not diluted by other corporate assets. But we are also on the cusp of what will be the most transformational era that the music business has been through in decades. The 2010s was the decade of streaming, the foundation for business model transformation. The 2020s will be the decade of the artist. To thrive in this new world, WMG will have to follow one guiding principle: putting the artist first.

Spotify Q4 2019: First Signs of the New Spotify

Spotify’s Q4 2019 results reflect another strong quarter and a good year for Spotify. Look a bit deeper, however, and there are the first signs of the new company that Spotify is building – and they point to a very different and much bolder future.

First, here are the headline metrics:

  • 124 million subscribers (exactly in line with MIDiA’s forecast built earlier in the year. In fact, we’ve been pretty good with our quarterly subscriber forecasts throughout the year – see the chart at the bottom of this post).
  • Six million inactive subscribers (flat from Q3 2019).
  • 271 million monthly average users (MAUs) and 153 million ad-supported MAUs, which is a paid conversion rate of 45.8%, down a little from Q3 2019 and Q4 2018 with Rest of World the fastest-growing ad-supported region. This fits with early-stage growth for Spotify in new markets. Unlike markets in Europe and the Americas, Spotify will likely see ad supported remaining a much larger share of the user base long term in markets like India, with less ability to monetise via ad revenue. Spotify needs some big telco deals, especially in India.
  • Subscriber churn was down to 4.8% from 5.2% one year earlier. This is slow but steady progress that helps stabilise Spotify’s business and helps net adds grow faster.
  • Subscriber average revenue per user (ARPU) was €4.65, down 5% on Q4 2018. Spotify stated that much of this decline was down to “the extension of the free trial period across our entire product suite in the quarter”.
  • Total revenue was €6.8 billion, up 29% from 2018 with ad supported just 10% of that.

So much for the old, now in with the new…

Spotify’s uphill journey towards profitability is well documented (net margin fell into negative territory again in Q4 2019, to -€77 million). The circa-70% rights costs base is the core issue here, and rights holders have little (no) desire to go any lower – in fact, publishers want increases. Spotify has had to explore where else it can grow its business with cost bases that are less than 70%. Podcasts, marketing and creator tools are the three publicly stated places where Spotify has placed its bets, and the Q4 results show small and early – but nonetheless crucially important – movements in each:

  • Podcasts: As MIDiA reported last month, Spotify has been growing its audience very quickly and is now the second-most widely used podcast platform. 44.8 million Spotify users now listen to Spotify podcasts, with total usage up 200% year-on-year (YoY). Though podcast revenue is still only around 1% of Spotify’s total revenues, this reflects Spotify’s overall relative underperformance in ad revenue. This needs to be fixed – at least in a few of the bigger digital ad markets – but podcasts have the additional benefit for Spotify of diluting the royalty pot and thus improving gross margin. Current license agreements have a strict cap on how much the pot can be diluted (and labels have no intention of increasing that cap). But by MIDiA’s estimates, even within the current deals, Spotify could potentially shave off up to seven points of music royalty payments. Little wonder, then, that Spotify said this in its earnings report: “Any decision to accelerate our investment in podcast and technology spend should be viewed as an indication of our belief that our strategy is having tangible results. We have gained even more confidence in the data, particularly around the benefits from podcasts, and as a result, 2020 will be an investment year.”

  • Marketing: Spotify launched its paid ad tools for labels and artists in beta in Q4 2019. Early results are positive: +30% click-through and listener conversion rates, and on the sponsored recommendations side, Caroline Music’s Trippie Redd’s fourth album was helped to #1 with sponsored recommendations. Though there has been some pushback from labels feeling that they shouldn’t have to pay to reach their own audiences, Spotify is not doing anything particularly unusual here. The strategy is directly comparable to what Facebook and YouTube do. In fact, record labels spend about a third of what they earn from YouTube on YouTube advertising. The impact of that sort of revenue exchange on Spotify’s commercial model cannot be understated.
  • Creators: 2020 is going to be a massive year for creators. Our early estimates are that artists direct generated around $820 million in 2019, growing more than twice as fast as the overall market. 2019 was another big year for the top of the funnel, but we think the even more interesting space is one step earlier: creator tools. Creator tools are the new top of the funnel, before music even makes it onto streaming services. In fact, we think this might be the music industry’s next big growth area – and Spotify is already betting big, with acquisitions like online collaboration tool Soundtrap and artist marketplace SoundBetter. The music industry was, understandably, preoccupied with Spotify competing with it by signing artists and ‘becoming a label’. Spotify backed off from this strategy, but by focusing its efforts on the creator end of the spectrum it is building the foundations for what a record label of the future will look like. Spotify may just be competing with the labels’ future business before they have even realised it. Spotify’s quote says it all (at least to those who are listening for it): “We will continue to grow and expand the marketplace strategy, including with services such as Soundtrap and Soundbetter.As an example, while still early days, Soundtrap doubled its paying subscriber base in Q4. Expect more innovation of products over the coming years.”

 The margin impact of these three business areas is already being felt: “The largest driver of outperformance stemmed from slight improvement in the non-royalty component of Gross Margin, including payment fees, streaming delivery costs, and other miscellaneous variances.” 

Picks and Shovels

These are the three pillars of the new Spotify – one that will continue to be powered by music, but with profit coming from ancillary services. In the California Gold Rush in the 19th century, the first person to make a million dollars was a man called Samuel Brannan. But he wasn’t a miner; he sold mining equipment. If there is a gold rush, you want to be selling picks and shovels. Spotify has found its picks and shovels.

spotify subscribers by quarter 2019

Schubert Music Is the Latest Publisher to Push Into Recordings

Schubert Music Europe, the holding company of Schubert Music Publishing, today announced a deal with Sony’s independent label distribution division The Orchard. Under the deal, Schubert will distribute ten new record labels. This is just the latest example of an emerging trend that MIDiA identified back in November in a report entitled ‘Music Publishing | A Full-Stack Revolution’. The concept is a simple but important one: a growing number of music publishers are using the growing flow of capital going into music publishing catalogue mergers and acquisitions (M&A) to reverse into the recordings business. It is a trend with major implications for the future of the music business. 

The rise of the full-stack music company

Historically labels and music publishers have been largely distinct entities, even though the major music companies all have both within their corporate entities. There were some good historical reasons for the divisions, but these have become progressively less relevant in today’s global music market. A wave of both new and older companies are building a whole new take on what a music company should be, acquiring catalogues across both masters and publishing, as well as other assets such as library music (e.g. Anthem / Jingle Punks / 5 Alarm Music) and distributors (e.g. Downtown Music Holdings / AVL / Fuga). The future of music companies is one of diversification and the emergence of many different types of ‘full-stack’ music companies, meaning that categorisations such as ‘label’ and ‘publisher’ are becoming much less useful.

This is the model that Schubert Music, which already has some label assets, is pursuing. As  CEO Andreas Schubert explained,we want to set new impulses and, in combination with our other services such as publishing, management and booking, be an attractive label alternative for artists from various genres”.

Getting a bigger share of revenue

Underpinning this market-level shift is a very simple but very important commercial imperative: publishers wanting a bigger share of streaming revenue. To heavily over-simplify, master recordings get around 50-55% of streaming revenue, compared to around 15% for the publishing side of the equation. This means that masters streaming revenue will grow much more than publisher streaming revenue in absolute terms. Assuming for illustrative purposes that rates do not change (though they will), a record label with the same number of rights and same market share as a music publisher will see its average streaming revenue per copyright increase by 3.5x more than a publisher in absolute revenue terms by 2026. Although the publisher’s revenue per copyright will grow at a faster rate, masters will gain more earning power. This is why publishers are building out their capabilities on the masters’ side of the equation (and I am saying ‘masters’ rather than ‘label’ as independent artists are very much part of this equation also).

Expect plenty more announcements like Schubert’s in 2020. This new decade is going to be more transformative for the structure of the music business than the last one was… and that one was pretty transformational!

The Song Economy

The following is a guest post from MIDiA’s Consulting Director Keith Jopling

When Journey’s song Don’t Stop Believin’ was originally released as the second single from the album Escape in 1981, it was a modest US chart hit (Billboard Hot 100 no. 9). Fast forward 28 years, in 2009 the track had two very prominent syncs: The Sopranos finale and Glee (the song featured in six episodes). From there, the song’s ascendance into global popular culture (and commerce) is well known. In 2009 it re-entered the Billboard Hot 100, this time peaking at no. 4, and finally became a UK top 10 hit following several renditions on The X Factor. However, it is on streaming platforms where the song truly thrives, steadily working its way into the ‘one billion club’ (at 757 million just now, but clearly in it for the long game).

Sony Music understands this success very well indeed. Don’t Stop Believin’ is an evergreen streaming success for the label. It is revered. Sony Music also has similar success with another 1981 song, Toto’s Africa (actually a 1982 release chosen as the third single from Toto IV). Africa was a much bigger hit on first release than Don’t Stop Believin’ and has had continual success on radio. And again, Africa has seen a meteoric rise on streaming – sitting at 711 million. Both these early eighties tracks are millennial sensations, and both are mini-industries in their own right.

My third example just happens to be another Sony Music track, though this post is not about Sony as such. Nevertheless, there is no doubt that SME has been instrumental in the calculated success of Mariah Carey’s All I Want For Christmas. This 1994 release was in fact the number-one streamed song in Germany for all of 2019.  Consistently a top 10 streaming catalogue hit for the label since the dawn of the streaming era, 2019 (thanks to a finely-tuned and bigger marketing campaign) amounted to a new peak for the track – the year in which it finally made the holy grail some 15 years after release: Billboard no. 1.

As I said, to even out the copy a bit – every label and publisher with known catalogue – Queen, Elton John, Radiohead, Led Zeppelin, R.E.M. to name just a few, is operating at full-tilt utilisation of song assets – even if that means investment in other media assets. It’s movies, documentaries, new videos, re-masters, re-issues and myriad of strategies to generate more and more streams. No wonder Def Leppard, Peter Gabriel and other long-term streaming hold-outs finally succumbed only last year. They saw the future clearly but took their time to realise they will just have to learn to love it or lump it.

The three songs illustrate the development of the song economy. The Song Economy is the new music industry’s growth engine. It’s why publishing and songwriter catalogues are being acquired at multiples of between 10-20 of annual royalty revenues. It’s why playlists are the most valuable real estate on streaming platforms. It’s why labels and publishers are staffing up their sync teams around the world. It’s why some publishers – the administrators of the music business – are investing in creative and marketing talent and signing artists with great songs before their record label counterparts. And it’s why those publishers and labels are being pulled together under one leadership, from Downtown to Sony Music.

The Song Economy is critical for new songs just as it is for old ones. Hit songs are more important than they have ever been. That’s why, according to New York-based Hit Songs Deconstructed (which does indeed deconstruct the elements that make a major hit song, so that others can do their best to emulate that success) has been reporting a steady rise in the number of songwriters per hit (in 2018-19 a quarter of Billboard top 10 hits had no less than four songwriters) as well as producers (two per hit is more usual than just a single producer).

In all of our future-gazing industry work at MIDiA, we often look at what will drive the next big growth curve for music (indeed, we report on that very thing here), expecting that to be a new tech platform or a brand new music format. However, the real driver perhaps for the next few years at least, will be the micro-growth driven by individual songs – those big enough to qualify as mini industries. 

Sure – streaming has made it much more competitive for songs, composers, artists and their representatives. But those songs that break through into millennial streaming culture (or blow-up in Gen Z streaming culture as memes and TikTok sensations) will be pinching share of ear from the rest. At the same time, songs in popular culture are helping to keep music up there in the attention economy – competing with TV, games, books, spoken word and sports. Indeed, it is only those mini-industry songs that can claim a spot across every slice of media, through sync to podcasts to multiple forms of video. Those are the songs we want to know all about and hear over and over again.

Those songs have always been pots of gold to the industry, but in the global streaming economy they have become something quite different. They can be revived and multiplied. They can be hits over and over again. They are, in fact, industries in themselves. Welcome to The Song Economy. Don’t Stop Believin’!

Keith Jopling is MIDiA’s Consulting Director – contact him on keith@midiaresearch.com. He also helps drive The Song Economy via the discovery & playlist venture https://www.songsommelier.com/

Amazon Music: From Dark Horse to Thoroughbred

Neatly ahead of Spotify’s Q4 earnings, Amazon has taken the rare step of announcing subscriber metrics for Amazon Music (inclusive of Prime Music and Music Unlimited). Amazon Music closed 2019 with 55 million ‘customers’ across free and paid. Based on our Q2 2019 numbers for Amazon and the fact that Amazon’s free tier was only rolled out in late 2019 across a few markets, MIDiA estimates Amazon Music’s actual subscriber number to be 50 million. This implies a subscriber growth of 16 million on 2018. Make no mistake, this is a really strong performance. From a bit-part player in 2015 and 2016, Amazon Music is now firmly established in streaming’s leading pack and looks set to overtake Apple Music in 2020. What’s more, unlike Apple and Spotify, Amazon’s wider business is not a top-tier player in dozens of countries, so Amazon Music’s geographic footprint is uneven – making its global figure even more impressive. Indeed, underneath this headline figure Amazon is the number two player in some of the world’s biggest music markets. Amazon is now in the big league.

amazon music 55 million users 50 millionn subscribers midia research

Since Q4 2016, Spotify has averaged 34.8% global music subscriber market share, meaning that despite fierce competition it has managed to stay ahead of the pack, actually increasing share slightly from 34.2% to 35.3%. Amazon’s success is in some respects even more impressive. In Q4 2015 Amazon Music’s subscriber base was just 18% of Spotify’s. By Q4 2019 (assuming Spotify hit the 124 million that MIDiA predicted for Q4 2019) Amazon’s 55 million subscribers represented 40% of Spotify’s – more than doubling its relative scale.

However, the DSP that should be paying most attention is Apple Music. Over the same period Amazon Music went from 49% of Apple’s subscriber base to 82%. At this rate Amazon could trump Apple for second place in 2020. It has already done so in a number of major music markets, including Germany, the UK and Japan – three of the world’s top four recorded music markets.

Extending the market

Amazon is often competing around, rather than with, Spotify and Apple. The combination of Prime Music and Echo / Alexa means that Amazon is extending the addressable market for streaming by unlocking older, higher-income households that do not fit the young, mobile-first demographic mold that the streaming market generally trades upon. Ellie Goulding’s Amazon exclusive ‘River’ claiming the UK Christmas number one spot illustrates that this under-served segment is far from a niche. Of course, Amazon is now also competing for the younger, mobile-centric consumer – Music Unlimited grew by more than 50% in 2019 – but, along with its new ad-supported and HD tiers, Amazon is pursuing a segmented strategy that is pushing beyond its older Prime Music beachhead.

Amazon Music’s success trades heavily on Amazon’s overall brand reach and existing customer relationships, so its global brand reach will always be less evenly distributed than Apple and Spotify’s. However, throughout 2018 and 2019 Amazon has been assertively building its reach in non-core markets through music and video. Traditionally Amazon has been a retailer first and a content brand second. Now, in newer markets across the globe, Amazon is building a reputation as a digital content provider first and retailer second. Though Amazon is clearly going to remain a retailer first globally, streaming is proving to be a powerful tool for establishing the company in markets that would have previously taken years and hundreds of millions of dollars to set up as fully functioning e-commerce markets.

While rightsholders will have well-grounded concerns about Amazon’s corporate objectives of using content to help sell consumer products, what is now undeniable is that Amazon Music and Video are both top-tier content services. Back in 2017 we suggested that the dark horse of Amazon was emerging from the shadows; now it is clear to see it is a thoroughbred in its own right.

Spotify AND Apple Lead Podcasts – It’s All Down to How You Measure It

midia podcast tracker q4 2020The podcast platform data from MIDiA’s Q4 tracker is in. These are the high-level findings:

  • Apple still leads overall: A recent report showed that Spotify has become the leading podcast platform in the US. MIDiA’s Q4 Tracker data shows that among regular podcast users, Spotify is very nearly but not quite the leading platform in the US, just trailing Apple’s podcast app – though the difference is so small that it could be within margin of survey error. However, when Apple Music is factored into the equation, Apple remains the leading platform.
  • Spotify the leading single platform: In terms of single platforms – i.e. considering Apple Music and Apple’s podcast apps separately – Spotify has quickly established a leading position across all markets surveyed except the US. Spotify is betting big on podcasts, but this bet is as defensive as it is offensive. Spotify knows that its users over index for podcasts – 28% use them weekly, compared to 15% of overall consumers. If it did not go big with podcasts it was always at risk of losing share of ear as podcasts grew, in the same way Amazon lost CD buyers to Apple’s iTunes. It has taken Amazon years to start winning back the spend of its music consumers, but it could tolerate that inconvenience as it makes most of its money elsewhere. Spotify has no such luxury.
  • National broadcasters faring well: Radio broadcasters lost their younger music audiences to streaming. They were not going to sit back and let streaming services then go and steal their older, spoken word audiences without a fight. In many respects, radio broadcasters have a greater chance of being power players in podcasts because their decades of programming expertise will take time for streaming services to learn. With music, they were sitting on the shoulders of a decade of experience learned by Apple’s iTunes. The three national broadcaster apps we tracked (BBC Sounds, NPR One, CCBC Listen) had mixed fortunes, but all have solid adoption. None more so than BBC Sounds, which is the second-most widely used single platform in the UK – a testament to the BBC’s sometimes controversial Sounds strategy. However, one major factor is that broadcaster podcast app users are much older than streaming service podcast users, and indeed of dedicated apps like Acast and Stitcher. This shows that broadcasters are doing a good job of bringing their older audiences over to podcasts but are not yet making podcasts an entry point for younger users lost to streaming.

These findings come from MIDiA’s quarterly tracker survey and will be presented in much more detail in MIDiA’s forthcoming ‘Podcast Platforms’ report.

If you are not already a MIDiA client and would like to learn more about how to get access to MIDiA’s research, data and analysis, then email stephen@midiaresearch.com

The Meta Trends that Will Shape the 2020s

MIDiA Predictions 2020CES, the big annual consumer tech show, is underway in Las Vegas. Unlike in most previous years, there has been little in the way of big new announcements. This is in large part because we are reaching a degree of maturity in the consumer landscape, with big new developments being replaced by smaller, sustaining innovations. Nowhere is this better seen than in smartphones, where manufacturers try to convince consumers that tweaks to the camera represent genuine paradigm shifts worthy of buying a new handset. The same applies to streaming music, where the leading Western services have seen little in the way of substantive change. Yet a slowdown in consumer tech innovation often paves the way for an acceleration in business and cultural change, as the companies and creators begin to grasp and respond to the real potential of the technology at their fingertips. At the start of the millennium’s third decade, this is where the digital content marketplaces stand. Here are MIDiA’s predictions for the meta trends that will shape content and media in the 2020s:

  • Attention saturation: MIDiA’s big call over the last few years has been that the attention economy will peak. This has now happened. As we enter the third decade of the 21st century, this unintended consequence of the digital content economy is entering its next phase. We are now in the era of attention saturation, where every new consumption minute gained comes at the cost of consumption time elsewhere. Mobile games were hit first, and audio will be next, with radio already losing audience share in the audio arena. Attention saturation was always going to be an inevitability. The important question is not why this is happening, but what will come next and what the right strategies are for surviving and thriving in this post-peak world. Measuring sentiment – rather than purely time and money spent – will emerge as the methodology for measuring success in the era of attention saturation.
  • Vertical integration: As we announced in our 2019 predictions report, the tech majors are doubling down on services, e.g. Apple (a whole suite of subscriptions), Google (YouTube Music, YouTube Premium), Amazon (IMDb TV, ad-supported music and Amazon Music HD). Part of this trend in the longer term will be big tech companies acquiring media assets. We saw this start in 2019 with Tencent’s stake in Universal Music, as well as music publishing companies expanding their stacks (e.g. Downtown Music Holdings acquiring CD Baby parent AVL). Watch for record labels, sports leagues, TV networks and games publishers getting snapped up for true vertical integration.
  • Social video will eat the world: Four years ago, MIDiA argued that video was eating the world. Now social video is eating the world. Video is becoming the omnipotent format through which we communicate, consume and share. Captioning looked like it was heralding a new era of silent cinema, but it was in fact a trojan horse – a means of enabling us to fit extra video consumption into our wider consumption patterns. Over time, though, sound has become more important and with the increased tolerance of video we are now far more willing to unmute. Nowhere is this better seen than Instagram and TikTok. Audio is the victim in that equation.
  • User-modified content: Back in 2009 DJ Spooky claimed that the 21st century was going to be ‘the era of mass cus­tomisa­tion’. Ten years on this is starting to come to pass. Progressively more of what we consume has reached us after being adapted by someone else, whether that be personal recommendations, likes or comments. Additionally, more of the content we view has been modified, such as memes, captioned photos, Instagram photos, and TikToks. 2020 will be see the rise of user-modified content (UMC) with more audiences leaning forward and taking ownership of the content they view. The lean-forward shift will accelerate in 2020.
  • Engagement clusters: The first phase of the consumer web was shaped by internet portals such as AOL and Yahoo – these were windows onto the digital world. Today, Facebook, Twitter and TikTok perform a similar role for slices of the digital world – the 21st century portals. Audiences are now fragmented across multiple apps and destinations. Smart – and typically big – companies are therefore building engagement clusters. Sometimes these are ecosystems (e.g. Apple, Amazon), but in other instances they are collections of content experiences, e.g. Disney+, Hulu, ESPN+. More clusters will emerge in 2020. An early move could be Apple adding Arcade to its Apple Music / Apple TV+ student bundle.
  • The abundance paradox and the discovery crisis: Content companies have responded to the attention boom by over-supplying content, resulting in a growing tyranny of choice. We spend so much time trying to find content through the clutter that we either do not find enough new content or have less time to consume. Additionally, we simply experience a lot of new content, flying past us in content feeds and curated playlists, rather than actually discovering it. The emerging abundance overload is the entertainment equivalent of feeling nauseous from eating or drinking too much. 2020 will see this trend accelerate, with slowing and even declining user numbers for incumbents in mature markets.

This analysis is taken from MIDiA’s report 20/20 Vision | MIDiA Research Predictions 2020.

The report includes predictions across music, video, games and sports. Why should you read it? Well, we had an 83% success rate for our 2019 predictions report, including:

  • Apple makes privacy a product; music catalogue acquisitions will accelerate; one more really big merger and acquisition (Sprint / T-Mobile); virtual collective experience (Marshmello / Fortnite); Netflix will lose market share; DAZN will dominate US boxing; tech majors will disrupt gaming (Aracde and Stadia); Spotify will launch a major news podcast (El Primer Café).

If you are not already a MIDiA client and would like to learn more about how to get access to MIDiA’s research, data and analysis, then email stephen@midiaresearch.com

Ellie Goulding and Billie Eilish Are Streaming’s New Normal

Less than a week into the new decade and we already have the first indications that the streaming rulebook continues to be rewritten faster than the ink can dry on its last entry. Three separate articles, on the surface unrelated, when stitched together create the outline of a new streaming narrative that while firmly rooted in recent developments represents an entirely new chapter for the music industry:

  1. Ellie Goulding’s ‘River’ was the UK Christmas number one despite being an Amazon exclusive
  2. Jimmy Iovine claims Drake and Billie Eilish each have more streams than the entirety of the 1980s
  3. UK streaming revenue growth slowed, adding £191 million in 2019 compared to £210 million in 2019

Fusing consumption and retail

Streaming’s impact is both commercial and cultural, in large part because it fuses what used to be retail and radio. Like some kind of musical nuclear fusion, it smashes discovery and consumption together to create a chain reaction with explosive implications. In the old world, repeated radio spins drove awareness and then sales. In streaming environments, lean-back streams are simultaneously radio-like listens and sales. The distinction does not matter for streaming services – they are focused on user acquisition, engagement and retention, but for labels it challenges the very premise of what marketing campaigns are meant to achieve. It is in this environment that today’s streaming stars are made.

‘More of more’

With streaming services lacking any meaningful way to differentiate, they are forced to compete on who can deliver their users’ the most new music to drive the most listening. This strategic imperative of ‘more of more’ is at direct odds with the objective of any label campaign, which is inherently about ‘more of less’, i.e. listen to this song more instead of more songs. The net result is vast amounts of streams spread widely, but also an environment in which hits become megahits. The songs that get traction experience a domino effect of successive algorithmic decisions, rapidly pushing songs with buzz to a progressively wider number of playlists and users. In the old world this would have been radio airplay success; now it is just volume of streams.

Catalogue Darwinism

Because of the focus on new, streaming-era artists end up with far bigger streaming volumes than older artists that were ‘bigger’ in their respective eras, but an afterthought in the streaming era. Hence, Drake and Billie Eilish being bigger than the entirety of the 1980s. Back in mid-2018 MIDiA published a report predicting that music catalogue was going to decline. We faced a lot of opposition then but now we are beginning to see that catalogue is indeed undergoing a fundamental change. For deep, legacy catalogue, streaming dynamics are stripping out the long tail and boiling down entire decades to a handful of tracks. Think of it this way: if 10% of the artists released in the 1980s were ‘successful’ at the time, and 10% of those were successful enough for their music to still be listened to now, and that the songs that are still listened to are 10% of these artists’ entire 1980s output, then you end up with 0.1% of the music from the 1980s being streamed at any meaningful scale now. Added to that, new music gets pushed to more lean-back playlists so is listened to more times. The multiplier effect for new music acts as a divider for older music. As an illustration, 40 music videos on YouTube have more than one billion views but in October 2019 Guns ‘n Roses ‘Sweet Child o’ Mine’ was the only one from the 1980s that had a billion views.

If you own the rights to those catalogue gems then the value of that asset is arguably higher now than ever before, because it has won the Darwinian game of catalogue evolution. But the rest fall by the wayside.

Ellie Goulding: niche mainstream

So, the current dynamics of streaming programming favour new versus old. It may not always be so, but this is where we are right now. These same dynamics can then be used to create hits – demand creation, if you like. This is where Ellie Goulding comes in. Goulding’s Joni Mitchell cover ‘River’ was an Amazon exclusive yet became the overall UK number one in large part because Amazon ensured it was on just about every holiday-themed playlist. Every time someone asked Alexa to play Christmas music, ‘River’ soon found its way there. Because Echo listening skews so heavily lean-back, ‘River’ simply became part of the sonic festive wallpaper, much in the same way ‘All I Want for Christmas’ did on radio. Just like with radio, lean-back listeners are unlikely to stop whatever else they are doing in order to change the track. Because streaming economics do not differentiate with lean-back and lean-forward listening, passive listening is just as valuable as active listening. Radio has become as valuable as retail but is much easier to manipulate.

The other crucial aspect of this is that Amazon has shown that you only need to find and activate a small slice of the mainstream to have a mainstream hit. As MIDiA first said last year, niche is the new mainstream.

At the start of this post I stated that streaming’s effects are both cultural and commercial. The commercial backdrop to all of these consumption and programming shifts is that the rate of revenue growth is beginning to slow (not just in percentage terms – that is a natural effect of markets getting bigger) but also in absolute terms. Early last year we predicted that streaming growth would start to slow towards the end of 2019 in developed markets and the ERA figures for the UK are the first evidence of this shift. Globally, growth will be sustained by emerging and mid-tier markets, but in markets like the UK and US, growth is peaking. The significance is that the conflation of radio and retail does not matter so much when everything is growing. When growth slows, however, quirks of the market can become business challenges. The ROI of throwing money at campaigns to cut through the audio clutter becomes problematic when the promise of the pie getting ever bigger begins to wane.

All of these things are of course simply part of a maturing and changing market. Nevertheless, the marketing strategies currently employed have been developed in an environment of growth abundance. The challenge for streaming’s next chapter is finding the new rules that are more ROI focused but can still play to streaming’s consumption strengths. Delineating different rates for lean-forward and lean-back streams feels like a logical place to start, but more evolution will need to follow – each iteration of which will trigger its own waves of unintended consequences. Exciting times.