The Meta Trends that Will Shape 2019

MIDiA has just published its annual predictions report. Here are a few highlights.

2018 was another year of change, disruption and transformation across media and technology. Although hyped technologies – VR, blockchain, AI music – failed to meet inflated expectations, concepts such as privacy, voice, emerging markets and peak in the attention economy shaped the evolution of digital content businesses, in a year that was one to remember for subscriptions across all content types. These are some of the meta trends that we think will shape media, brands and tech in 2019 (see the rest of the report for industry specific predictions):

  • Privacy as a product: Apple has set out its stall as the defender of consumer privacy as a counter weight to Facebook and Google, whose businesses depend upon selling their consumers’ data to advertisers. The Cambridge Analytica scandal was the start rather than the end. Companies that can – i.e. those that do not depend upon ad revenue – will start to position user privacy as a product differentiator.
  • Green as a product: Alphabet could potentially position around environmental issues as it does not depend as centrally on physical distribution or hardware manufacture for its revenue. For all of Apple’s genuinely good green intentions, it fundamentally makes products that require lots of energy to produce, uses often scarce and toxic materials and consumes a lot of energy in everyday use. Meanwhile, Amazon uses excessive packaging and single delivery infrastructure, creating a large carbon footprint. So, we could see fault lines emerge with Alphabet and Facebook positioning around the environment as a counter to Apple and potentially Amazon positioning around privacy.
  • The politicisation of brands: Nike’s Colin Kaepernick advert might have been down to cold calculation of its customer base as much as ideology, but what it illustrated was that in today’s increasingly bipartisan world, not taking a position is in itself taking a position. Expect 2019 to see more brands take the step to align themselves with issues that resonate with their user bases.
  • The validation of collective experience: The second decade of the millennium has seen the growing success of mobile-centric experiences across social, music, video, games and more. But this has inherently created a world of siloed, personal experiences, of which being locked away in VR headsets was but a natural conclusion. The continued success of live music alongside the rise of esports, pop-up events and meet ups hints at the emotional vacuum that digital experiences can create. Expect 2019 to see the rise of both offline and digital events (e.g. live streaming) that explicitly look to connect people in shared experiences, and to give them the validation of the collective experience – the knowledge that what they experienced truly was something special but equally fleeting.
  • Tech major content portfolios: All of the tech majors have been building their content portfolios, each with a different focus. 2019 will be another year of content revenue growth for all four tech majors, but Apple may be the first to take the next step and start productising multi-content subscriptions, even if it starts doing so in baby steps by making Apple original TV shows available as part of an Apple Music subscription.
  • Rights disruption: Across all content genres, 2019 will see digital-first companies stretch the boundaries and challenge accepted wisdoms. Whether that be Spotify signing music artists, DAZN securing top tier sports rights, or Facebook acquiring a TV network. These are all very different moves, but they reflect a changing of the guard, with technology companies being able to bring global reach and big budgets to the negotiating table. Expect also more transparency, better reporting and more agile business terms.
  • GDPR sacrificial lamb: In 2018 companies thought they got their houses in order for GDPR compliance. Most consumers certainly thought they had, given how many opt in notifications they received in their inboxes.
    However, many companies skirted around the edges of compliance, especially US companies. In 2019 we will see European authorities start to police compliance more sternly. Expect some big sacrificial lambs in 2019 to scare the rest of the marketplace into compliance. They will also aim to educate the world that this is not a European problem, so expect some of those companies to be American. Watch your back Facebook.
  • Big data backlash: By now companies have more data, data scientists and data dashboards than they know what to do with. 2019 will see some of the smarter companies start to realise that just because you can track it does not mean that you need to track it. Many companies are beginning to experience data paralysis, confounded by the deluge of data, with management teams unable to decipher the relevance of the analysis put together by their data scientists and BI teams. A simplified, streamlined approach is needed and 2019 will see the start of this.
  • Voice, AI, machine learning (and maybe AR) all continue on their path: These otherwise disparate trends are pulled together for the simple reason that they are long-term structural trends that helped shape the digital economy in 2018 and will continue to do so in 2019. Rather than try to over simplify into some single event, we instead back each of these four trends to continue to accelerate in importance and influence. 

For music, video, media, brands and games specific predictions, MIDiA clients can check out our report here. If you are not a client and would like to get access to the report please email arevinth@midiaresearch.com.

Tech Majors Market Shares Q2 2018

The tech world has no shortage of acronyms for the big tech companies (GAFA, GAAF, Fang, the four horsemen…). At MIDiA we like to keep things simple, just like the major record labels and major TV studios we call the big four tech companies the Tech Majors. Each quarter the MIDiA team deep dives into the financial filings of Alphabet, Amazon, Apple and Facebook to create our quarterly Tech Majors Market Shares reports. (The Q2 edition is available to clients here.). In these reports we focus on the metrics that are most important for media and content companies. Here are some highlights of our latest report.

tech majors market shares q2 2018 midia research

Tech major Q2 2018 revenue totalled $152.1 billion, down from Q1 2018 – $155.3 billion –  but up 28% from Q2 2017 and 51% from Q2 2016. These growth rates mirror the year-on-year Q1 growths for 2016, 2017 and 2018. The tech majors are thus as a group growing at a consistent rate, despite seasonality and differences as a company level.

Q2 2018 was a quarter of winners and losers for the tech majors. All four companies reported strong revenue growth but Facebook missed some Wall Street estimates and saw $119 billion wiped of its stock value, the single biggest one day loss in US stock market history. Meanwhile Apple beat analyst estimates, in part due to booming services revenues, and ended up becoming the first ever company to have a market capitalization $1 trillion. Amazon and Alphabet both had solid quarters but it is the extremes of Apple and Facebook that provide salutary evidence of the risks that lie ahead for the tech majors. All four companies continue to grow at highly impressive rates despite already being of vast global scale and the dominant player in each of their respective core markets. But the potential of the consumer tech marketplace is finite and growth will slow. Even though Silicon Valley eagerly awaits the next billion digital consumers, these consumers will be lower spending and predominately in markets where most tech majors are not strong, such as India and sub-Saharan Africa.

Services revenue on the up

Tech major advertising and services revenue – the two revenue streams that most directly impact the businesses of media and content companies – totalled $60.7 billion in Q2 2018, up 32% YoY. Tech major advertising and services revenue growth is accelerating and becoming a progressively larger share of total tech major revenue, growing five points, up to 40% in Q2 18.

Services is still the junior partner by some distance, representing 29% of combined advertising and services revenue in Q2 18, but growing one point a year. Nonetheless, tech major services revenue for the 12 months up to Q2 18 was $64.8 billion which was 3.7 times more than global recorded music revenue in 2017 and 19% of global TV revenues in 2017.

Read the full report hereor email stephen@midiaresearch.comto find out how to get access.

From Ownership to Access

MIDiA PanelLast Wednesday we held the third MIDiA Quarterly forum, exploring the shift from ownership to access across different media industries. In addition to MIDiA analyst presentations we had panellists from Sky, The Economist, Beggars Group, Reed Smith and Readly. The event was held at The Ministry in London and was a great success. Be sure to make it to our next one! Here are some of the key themes we explored.

Change is a coming

We opened with three quotes that summarise the tensions and transformations taking place in the digital content marketplace:

 ‘The fine wines of France are not merely content for the glass making industry’, Andrew Lloyd-Webber

‘We’re competing with sleep…sleep is my greatest enemy’, Reed Hastings, Netflix

‘Content may still be king but distribution is the queen and she wears the trousers’, Jonah Peretti, BuzzFeed

All three quotes represent very different worldviews and illustrate how different things can look from the perspective of the companies being disrupted, those doing the disruption and those building businesses to harness the disruption. All three viewpoints are simultaneously valid, but the media landscape is changing at rapid pace, and fighting a rear-guard action against change only gives the disruptors a freer rein to, well, disrupt.

access slide 1Across most media industries – music, video and news especially, the future of content monetisation will be built around advertising for the mass market and subscriptions for the aficionados, while additional opportunities exist for one-off transactions within both environments (e.g. Tencent live streaming  Chinese boyband TFBoysand Epic Games selling $100 million a month of virtual items in Fortnite). What is going as a mainstream proposition is selling physical media, though niche markets for collectables will thrive—ironically exactly because of the demise of physical media. In an age without shelves full of CDs, DVDs and games, collectors want a physical manifestation of their tastes.

Music and video are plotting the most directly comparable paths towards access-based models, though there are also some very telling differences:

  • Scale:Globally there were 206 million music subscribers at the end of 2017, compared to 452 million video subscribers. But while subscriptions represented 45% of retail music revenues, it was just 12% of pay-TV revenues. Music though is a far smaller industry than pay-TV (11% of the size), so like-for-like comparisons aren’t always that useful.
  • Concentration:What is worth comparing though, is the degree of market concentration. In music, the top four subscription services account for 72% of subscribers, compared to just 54% for video. And while the long tail for music services isn’t very, well, long, in video there is a vast number of smaller services: there are around 60 different services in the US alone.
  • Variety:While music services largely offer the same catalogue, with the same usage terms at the same price, video is defined by diversity and exclusives. Using the US as an example again, more than half of the services are niche – such as Korean drama, 4K nature, horror, reality – and there are 23, yes 23, different price points.

Aside the different heritages of these industries – consumers are used to paying for different slices of TV content, there is another key reason for the differences: rights holder distribution. In music three big companies account for the majority of revenues; in TV there are dozens of key studios and networks. This means that in video, the distribution companies can play rights holders off each other and effectively set the pace of change. In music, the major record labels shape the market.

This dynamic is what Clayton Christensen outlined in the Innovator’s Dilemma. There are two key types of innovation:

  1. Sustaining innovations:the smaller, more evolutionary changes that companies make to improve their existing products. Every company does this if they can, it’s how to maintain the status quo and grow revenues predictably
  2. Disruptive innovations:these are dramatic, industry-altering changes that rarely come from the incumbents but instead from disruptive new entrants. P2P file sharing was the big one that shook the TV and music industries. TV responded by fighting free with free, by launching services like iPlayer, ABC.com and Hulu. The music industry responded by licensing to the iTunes Music store. One embraced disruption, one fought it.

Talking of disruption, the big existential threat media companies will have to face over the coming decade, is ceding power, willingly or otherwise, to the tech majors (Alphabet, Amazon, Apple and Facebook). Europe’s Article 13aims to offset some of the growing reach of the tech majors, but ultimately these companies will shape the future of media, across both ad supported and subscription models.

The tech majors generated $40.7 billion in ad revenue in Q1 2018 alone, including around $2 billion for Amazon, the global advertising revenue powerhouse that many still aren’t paying enough attention to. The tech majors have already sucked away much of the news industry’s audience and ad revenues; with assets such as YouTube and IGTVthey are competing for radio and TV too. But it is the content and services revenue that media companies need to pay most attention to. With $16.9 billion in Q1 alone – nearly the same as the recorded music market for the entirety of 2017, this is a sector that all four tech majors are taking seriously, very seriously. And even though Facebook is a late arrival to the party, it is making up for lost time with its new music offeringand evolving video strategy.

The reason all this matters for media companies is that the strategic objectives of the tech major are rarely aligned with those of media companies. The tech majors each use media as a means to an end, a tool for driving their core strategy. Access based models underpin the content strategies of these companies who often control distribution and access to consumers via tools such as app stores, mobile operating systems, search and social platforms. Thus, the shift from ownership to access could also translate into a shift towards a tech major dominated media world.

Could Spotify Buy Universal? 

Vivendi is reported to be proposing to its board a plan for spinning out Universal Music. It is certainly the right time for a spin off (always sell before the peak), but a full divestment would leave Vivendi unbalanced and a shell of its former self. Canal+ is facing the same Netflix-inspired cord-cutting pains as other pay-TV operators (and is relying heavily on sub-Saharan Africa for subscriber growth), while other assets such as those in Vivendi Village have failed to deliver. With CEO Vincent Bolloré having invested heavily in Vivendi, he would be devaluing his own wealth. For a man who is not shy of saying that he’s in the game to make money, this scenario simply doesn’t add up. As one investment specialist recently suggested to me, this talk of a spin-off is probably exactly that, talk. Talk aimed at driving up Vivendi’s valuation by association and, at most, potentially resulting in a partial spin-off or partial listing. However, it is not beyond the realms of possibility that a big enough offer for Universal would persuade Bolloré to sell. So, let’s for a moment assume that Universal is on the market and have a little fun with who could buy it.

The Chinese option

It is widely rumoured that Alibaba was in advanced discussions with Vivendi to buy some size of stake in Universal. Those conversations derailed when the Chinese government tightened up regulations on Chinese companies buying overseas assets, which is why we now see Tencent buying a growing number of minority stakes in companies rather than outright acquisitions. So, an outright Chinese acquisition is likely off the table. This doesn’t rule out other Asian bidders (Softbank had an $8.5 billion bid rejected in 2013), though perhaps Chinese companies are the only ones with the requisite scale and access to cash that would meet a far, far higher 2018 price point.

The tech major option

The most likely scenario (if Universal were for sale) is that one of the tech majors (Apple, Alphabet, Amazon, Facebook) swoops in. Given Google’s long-held antipathy for the traditional copyright regime, Alphabet is not the most likely, while Facebook is too early in its music journey (though check back in 18 months if all goes well). Apple and Amazon are different cases entirely. Both companies are run by teams of older executives whose formative cultural reference points were shaped by traditional media companies. These are companies that, even if they may not state it, see themselves as the natural evolution of media, moving it from the physical era of transactions to the digital era of access. Thus far, Apple and Amazon have focused principally on distribution, although both have invested in rights too. Apple less so, (e.g. Frank Ocean, Chance the Rapper) but Amazon much more so (e.g. Man in the High Castle, Manchester by the Sea). Acquiring a major media company is a logical next step for Amazon. A TV studio and, or network would likely be the first move (especially as Netflix will likely buy one first, forcing Amazon’s hand), but a record label wouldn’t be inconceivable. And it would have to be a big label – such as UMG, that would guarantee enough share of ear to generate ROI. Apple though, could well buy a sports league, which would use up its budget.

The Spotify option

While the tech majors are more likely long-term buyers of Universal, Spotify arguably needs it more (and is certainly less distracted by other media formats). Right now, Spotify has a prisoner’s dilemma; it knows it needs to make disruptive changes to its business model if it is going to create the step change investors clearly want (look at what happened to Spotify’s stock price despite an impressive enough set of Q1 results). But it also knows that making such changes too quickly could result in labels pulling content, which would destroy its present in the hope of building a future. Meanwhile, labels are worried Spotify is going to disintermediate them but can’t risk damaging their business by withdrawing content now – hence the prisoner’s dilemma. Neither side dares make the first move.

That’s the problem with the ‘do a Netflix’ argument: do it too fast and the whole edifice comes tumbling down. Moreover, original content will not be the same silver bullet for Spotify as it was for Netflix. This is mainly because there is a far smaller catalogue of TV content than music, so a dollar spent on original video goes a lot further than a dollar spent on original music. It is not beyond the realm of possibility that Spotify will get to a tipping point, where the labels see a shiny-toothed wolf lurking under the lamb’s wool, and with its cover blown it will be forced to go nuclear. If this happened, buying a major label would become an option. And, as with the tech majors, it would have to be a major label to deliver enough share of ear.

But that scenario is a long, long way off. First, Spotify has to prove it can be successful and generate enough revenue and market cap to put itself in a position where it could buy a major. And that is still far from a clear path. For now, Spotify’s focus is on being a partner to the labels, not a parent company.

All of this talk might sound outlandish but it was not so long ago that an internet company (AOL) co-owned Warner Music and a drinks company (Seagram) owned Universal Music, before selling it to a water utilities company (Vivendi), and, long before that, EMI was owned by a light bulb company (Thorn Electrical Industries). We have got used to this current period of corporate stability for the major record labels, but this situation is a reflection of the recorded music business being in such a poor state that there was little M&A interest. Nonetheless it is all changing, potentially heralding a return to the past. Everything has happened before and will happen again.

MIDiA Research Predictions 2018: Post-Peak Economics

With 2017 drawing to a close and 2018 on the horizon, it is time for MIDiA’s 2018 predictions.

But first, on how we did last year, our 2017 predictions had a 94% success rate. See bottom of this post for a run down.

Music

  • Post-catalogue – pressing reset on the recorded music business model: Revenues from catalogue sales have long underpinned the major record label model, representing the growth fund with which labels invested in future talent, often at a loss. Streaming consumption is changing this and we’ll see the first effects of lower catalogue in 2018. Smaller artist advances from bigger labels will follow.
  • Spotify will need new metrics: Up until now Spotify has been able to choose what metrics to report and pretty much when (annual financial reports aside). Once public, increased investor scrutiny on will see it focus on new metrics (APRU, Life Time Value etc) and concentrate more heavily on its free user numbers. 2018 will be the year that free streaming takes centre stage – watch out radio.
  • Apple will launch an Apple Music bundle for Home Pod: We’ve been burnt before predicting Apple Music hardware bundles, but Amazon has set the precedent and we think a $3.99 Home Pod Apple Music subscription (available annually) is on the cards. (Though we’re prepared to be burnt once again on this prediction!) 

Video

  • Savvy switchers – SVOD’s Achilles’ heel: Churn will become a big deal for leading video subscription services in 2018, with savvy users switching tactically to get access to the new shows they want. Of course, Netflix and co don’t report churn so the indicators will be slowing growth in many markets.
  • Subscriptions lose their stranglehold on streaming: 2018 will see the rise of new streaming offerings from traditional TV companies and new entrants that will deliver free-to-view, often ad-supported, on-demand streaming TV.

Media

  • Beyond the peak: We are nearing peak in the attention economy. 2018 will be the year casualties start to mount, as audience attention becomes a scarce commodity. Smart players will tap into ‘kinetic capital’ – the value users give to experiences that involve their context and location.
  • The rise of the new gate keepers part II: In 2018 Amazon and Facebook will pursue ever more ambitious strategies aimed at making them the leading next generation media companies, the conduits for the digital economy.

Games

  • The rise of the unaffiliated eSports: eSports leagues emulate the structure of traditional sports, but they may have missed the point. In 2018, we’ll see more eSports fans actually seeking games competition elsewhere, driving a surge in unaffiliated eSports.
  • Mobile games are the canary in the coal mine for peak attention: Mobile games will be the first big losers as we approach peak in the attention economy – there simply aren’t enough free hours left in the day. Mobile gaming activity is declining as mainstream consumers, who became mobile gamers to fill dead time, now have plenty of digital options that more closely match their needs. All media companies need to learn from mobile games’ experience.

Technology

  • The fall of tech major ROI: Growth will come less cheaply for the tech majors (Alphabet, Apple, Amazon, Facebook) in 2018. They will have to overspend to maintain revenue momentum so margins will be hit.
  • Regulation catches up with the tech majors: Each of the tech majors is a monopoly or monopsony in their respective markets, staying one step ahead of regulation but this will change. The EU’s forced unbundling of Windows Media Player in the early 2000s triggered the end of Microsoft’s digital dominance. 2018 could see the start of a Microsoft moment for at least one of the tech majors. 

2017 Predictions

For the record, here are some of our correct 2017 predictions:

  • Digital will finally account for more than 50% of revenue
  • Spotify will still be the leading subscription service
  • eSports to reach $1 billion
  • Streaming holdouts will trickle not flood
  • AR will have hype but not a killer device.
  • VR players will double down on content spend
  • Google doubles down on its hardware ecosystem plays
  • 2017 will not be the year of Peak TV
  • Original video content to arrive on messaging apps

Here are some that we got wrong or were inconclusive:

  • Tidal finally sells ($300 million stake from Softbank was a partial sale – full sale likely in 2018)
  • Apple will launch an Apple Music iPhone – didn’t happen but the Home Pod may be the bundled music device in 2018 (see below)
  • Spotify will be disrupted – it actually went from strength to strength with no meaningful new competitor, yet

Disney, Netflix and the Squeezed Middle: The Real Story Behind Net Neutrality

Unless you have been hiding under a rock this last couple of weeks you’ll have heard at least something about the build up to the decision over turning net neutrality in the US, a decision that was confirmed yesterday. See Zach Fuller’s post for a great summary of what it means. In highly simplistic terms, the implications are that telcos will be able to prioritize access to their networks, which could mean that any digital service will only be able to guarantee their US users a high quality of service if they broker a deal with each and every telco. As Zach explains, we could see similar moves in Europe and elsewhere. If you are a media company or a digital content provider your world just got turned upside down. But this ruling is in many ways an inevitable result of a fundamental shift in value across digital value chains.

net neutrality value chains

Although the ruling effectively only overturns a 2015 ruling that had previously guaranteeing net neutrality, the world has moved on a lot since then, not least with regards to the emergence of the streaming economy across video, music and games. In short, there is a lot more bandwidth being taken up by streaming services and little or no extra value reverting to the upgraded networks.

Value is shifting from rights to distribution

Although the exact timing with the Disney / Fox deal (see Tim Mulligan’s take here) was coincidental the broad timing was not. The last few years have seen a major shift in value from rights companies (eg Disney, Universal Music, EA Games) through to distribution companies (eg Facebook, Amazon, Netflix, Spotify) with the value shift largely bypassing the infrastructure companies (ie the telcos).

The accelerating revenue growth and valuations of the tech majors and the streaming giants have left media companies trailing in their wake. The Disney / Fox deal was two of the world’s biggest media companies realising that consolidation was the only way to even get on the same lap as the tech majors. They needed to do so because those tech majors are all either already or about to become content companies too, using their vast financial fire power to outbid traditional media companies for content.

The value shift has bypassed infrastructure companies

Meanwhile telcos have been left stranded between rock and a hard place. Telcos have long been concerned about becoming relegated to the role of dumb pipes and most had given up any real hope of being content companies themselves (other than the TV companies who also have telco divisions). They see regulatory support for better monetizing their networks by levying access fees to tech companies as their last resort.

In its most basic form, this regulatory decision will allow telcos to throttle the bandwidth available to streaming services either in favour of their favoured partners or until an access fee is paid. The common thought is that telcos are becoming the new gatekeepers. In most instances they are more likely to become toll booths. But in some instances they may well shy away from any semblance of neutrality. For example, Sprint might well decide that it wants to give its part-owned streaming service Tidal a leg up, and throttle access for Spotify and Apple Music for Sprint users. Eventually Spotify and Apple Music users will realise they either need to switch streaming service or mobile provider. Given that one is a need-to-have, contract-based utility and the other is nice-to-have and no contract and is fundamentally the same underlying proposition, a streaming music switch is the more likely option. Similarly, AT&T could opt to throttle access for Netflix in order to give its DirecTV Now service a leg up. Those telcos without strong content plays could find themselves in the market for acquisitions. For example, Verizon could make a bid for Spotify pre-listing, or even post-listing.

The FCC ruling still needs congressional approval and is subject to legal challenges from a bunch of states so it could yet be blocked. If it is not, then the above is how the world will look. Make no mistake, this is the biggest growing pain the streaming economy has yet faced, even if it just ends up with those services having to carve out an extra slice of their wafer-thin margins in order reach their customers.

Shazam Is Apple’s Echo Nest

apple music shazam midia

Shazam finally found a buyer: Apple. Ever since its affiliate sales revenue model crumbled with the onset of streaming (there’s no business in an affiliate fee on a $0.01 stream), Shazam has been trying to find a new business model. It doubled down on providing tools for TV advertisers but never got enough traction for that to be a true pivot. Shazam’s problem has always been that it was a feature rather than a product – as so many VC funded tech companies are. The fact that it sold for $400 million – just 2.8 times its total investment ($143 million) and well below its previous pre-money valuation of $1 billion, illustrates how much value has seeped out of Shazam’s business. The Apple acquisition though, is one of the few ways that Shazam’s ‘hidden’ value can be realised.

Cool tech without a business model

Shazam was a digital music pioneer. I remember getting a demo from one of the founders back in the early 2000s, and I was blown away by just how well the tech worked. However, quality of tech was never Shazam’s problem, and once the app economy appeared it also had a very clear and compelling consumer use case. Despite competition from challengers in more recent years – especially Soundhound, which has also been compelled to pivot but may now decide to double back down on its core competences – Shazam continued to be the standout leader in music recognition. The irony is that its use case is stronger now than it was back in the download era because people are listening to a wider array of music than ever before. The problem was a lack of revenue model.

Shazam tried to position itself as a tastemaker, with its charts becoming useful heat indicators for radio stations and streaming companies. Labels soon learned to game the system with ‘Shazam parties’ but even without that challenge, this still did little to help Shazam build a business model. Apple however, saw beyond the music recognition and Shazam now gives Apple a music recognition engine. Shazam is Apple’s answer to Spotify’s Echo Nest.

Apple Music needs growth and engagement

Apple, which recently passed 30 million subscribers, continues to lag behind Spotify’s growth. Apple Music is adding around half a million new subscribers a month, while Spotify was adding close to two million a month up until it announced 60 million subscribers in July. The fact Spotify hasn’t announced since then may point to slowing growth, but my money is on a big number being announced in the next five weeks.

Apple’s weekly active user (WAU) penetration is far behind Spotify’s, indicating that Apple needs to do a better job of engaging its users. Better playlists, recommendations and algorithm driven curation all help Spotify stay ahead of the curve. Now, Apple will be hoping that Shazam will provide it with the tools to start playing catch up. And that’s not even mentioning the user acquisition potential Shazam could have when it switches to exclusively pointing to Apple Music. Game on.

Announcing MIDiA’s State Of The Streaming Nation 2 Report

2016 was the year that streaming turned the recorded music business into a good news story, with revenue growth so strong that it drove nearly a billion dollars of total growth. Leading streaming services spent the year competing with ever more impressive metrics while playlisting and streaming exclusives became cornerstones of the wider music market both culturally and commercially. 2017 is set to be another year of growth and the coming decade will see the music industry become a streaming industry in all but name. In this, MIDiA’s 2nd annual benchmark of the global streaming business, we present a definitive assessment of the global market, combining an unprecedented breadth and depth of supply side, demand side and market level data, as well as revenue and user forecasts out to 2025. This is quite simply the most comprehensive of assessment of the streaming music market available. If your business is involved in the streaming music market this is the report you need.

Key features for the report:

  • 32 pages
  • 4,650 words
  • 17 charts
  • 9,000+ data point dataset

At the bottom of this post is a full list of the figures included in the report. The report is immediately available to all paid MIDiA music subscribers.

To find out how to become a MIDiA client or to find out more about the report email Stephen@midiaresearch.com

Selected Key Findings

  • YouTube and Spotify lead Weekly Active User penetration with 25.1% and 16.3%
  • There were 106.4 million paid subscribers in 2016, rising to 336 million in 2025
  • Global streaming music revenue was $7.6 billion in 2016 in retail terms
  • 55% of subscribers create streaming music playlists
  • Universal music had 44% of major label streaming revenue in Q1 2017
  • 79% of streaming services globally have standard pricing as their lead price point

Companies And Brands Mentioned In The Report: 7Digital, Alibaba, Amazon, Anghami, Apple, Apple Music, CDiscount, Cstream, CÜR Media, Deezer, Echo, Google, Google Play Music All Acccess, Hitster, IFPI, KKBox, KuGou, Kuwo, MelON, Merlin, Mixcloud, MTV Trax, Napster, Pandora, QQ Music, Radionomy, Saavn, Slacker, Société Générale, So Music, Sony Music, Soundcloud, Tencent, The Echo Nest, Tidal, TIM Music, Universal Music, Vivo Musica, Warner Music, Worldwide Independent Network, YouTube, Vevo

MRM1707-infographic-promo.png

List of Figures In The Report

  • Figure 1: Penetration Of Key Streaming Music Segments (Subscriptions, Ad Supported Audio, YouTube/Vevo), April 2017
  • Figure 2: Overlap Of Key Streaming Music Consumer Segments (Subscriptions, Ad Supported Audio, YouTube/Vevo), April 2017
  • Figure 3: Key Streaming Adoption Behaviours Of All Consumers, Paid Streamers And Free Streamers (Including, family plans, trials, telco bundles), April 2017
  • Figure 4: Key Streaming Adoption Behaviours Of All Consumers, Paid Streamers And Free Streamers (Including playlist creation, curated playlists, radio impact, spending impact), April 2017
  • Figure 5: Weekly Time Spent Listening To Music And To Streaming Music (Streamers, Overall Consumers), April 2017
  • Figure 6: Age And Gender Distribution Of Streaming Music Consumers By Category (Subscriptions, Ad Supported Audio, YouTube/Vevo), April 2017
  • Figure 7: Average Number Of Tracks Streamed Per Week By Segment (All Consumers, Spotify, Apple Music, Subscribers)
  • Figure 8: End Subscriber Numbers For Individual Streaming Subscription Services, 2014 – 2016, Global
  • Figure 9: Weekly Active User Penetration For Selected Streaming Music Services, Q4 2016
  • Figure 10: Quarterly Major Label Streaming Music Revenue, Q1 15, Q1 16, Q1 17, Global (Millions USD)
  • Figure 11: Number Of Streaming Subscription Services Available By Country, April 2017
  • Figure 12: Key Pricing, Product And Trial Features For Music Subscription Services Across 22 Markets, April 2017
  • Figure 13: Streaming Music Revenue And Streaming Share Of Total Recorded Music Revenue, 2008-2025, Global
  • Figure 14: Global Streaming Music Revenue Split By Subscriptions And Ad Supported, 2008 to 2025
  • Figure 15: Streaming Music Revenue For 10 Largest Streaming Markets And Top 10 Share Of All Streaming Revenue, 2016 And 2025
  • Figure 16: Music Subscribers By Region (North America, Latin America, Europe, Asia Pacific, Rest Of World), 2013-2016
  • State Of The Streaming Nation 2 Infographic

Music Subscriptions Passed 100 Million In December. Has The World Changed?

In streaming’s earlier years, when doubts prevailed across the artist, songwriter and label communities, one of the arguments put forward by enthusiasts was that when streaming reached scale everything would make sense. When asked what ‘scale’ meant, the common reply was ‘100 million subscribers’. In December, the streaming market finally hit and passed that milestone, notching up 100.4 million subscribers by the stroke of midnight on the 31st December. It was an impressive end to an impressive year for streaming, but does it mark a change in the music industry, a fundamental change in the way in which streaming works for the music industry’s numerous stakeholders?

Streaming Has Piqued Investors’ Interest

The streaming market was always going to hit the 100 million subscriber mark sometime around now, but by closing out the year with the milestone it was ahead of schedule. This was not however entirely surprising as the previous 12 months had witnessed a succession of achievements and new records. Not least of which was the major labels registering a 10% growth in overall revenue in Q2, driven by a 52% increase in streaming revenue. This, coupled with Spotify and Apple’s continual out doing of each other with subscriber growth figures, Spotify’s impending IPO and Vevo’s $500 million financing round, have triggered a level of interest in the music business from financial institutions not seen in well over a decade. The recorded music business looks like it might finally be starting the long, slow recovery from its generation-long recession.

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Spotify Continues To Set The Pace

Spotify has consistently led the streaming charge and despite a continually changing competitive marketplace it has held determinedly onto pole position since it first acquired it. Even more impressively, it has also maintained market share. According to data from MIDiA’s Music Streamer Tracker, in Q2 2015 Spotify’s share of global music subscribers was 42%, H2 15 41%, H1 16 44%, H2 16 43%. Not bad for a service facing its fiercest competitor yet in Apple, a resurgent Deezer and an increasingly significant Amazon. Spotify closed out the year with around 43 million subscribers, Apple with around 21 million and Deezer with nearly 7 million. 2nd place is thus less than half the scale of 1st, while 3rd is a third of 2nd place. Meanwhile Apple and Spotify account for 64% of the entire subscriber base. It is a market with many players but only 2 standout global winners. Amazon could change that in 2017, largely because it is prioritising a different, more mainstream market (as long as it doesn’t get too distracted by Echo-driven Music Unlimited success). Meanwhile YouTube has seen its music streaming market share decline, which means more higher paying audio streams, which means more income for rights holders and creators.

A Brave New World?

So far so good. But does 100 million represent a brave new world? In truth, there was never going to be a sudden step change but instead a steady but clear evolution. That much has indeed transpired. The music market now is a dramatically different one than that which existed 12 months ago when there were 67.5 million subscribers. Revenues are growing, artist and songwriter discontent is on the wane and label business models are changing. But 100 million subscribers does not by any means signify that the model is now fixed and set. Smaller and mid tier artists are still struggling to make streaming cents add up to their lost sales dollars, download sales are in freefall, many smaller indie labels are set to have a streaming-driven cash flow crisis, and subscriber growth, while very strong, is not exceptional. In fact, the global streaming subscriber base has been growing by the same amount for 18 months now: (16.5 million in H2 2016, 16.5 million in H1 2016 and 16.4 million in H2 2016). Also, for some context, video subscriptions passed the 100 million mark in the US alone in Q3 2016. And streaming music had a head start on that market.

At some stage, perhaps in 2017, we will see streaming in many markets hit the glass ceiling of demand that exists for the 9.99 price point. Additionally the streaming-driven download collapse and the impending CD collapses in Germany and Japan all mean that it would be unwise to expect recorded music revenues to register uninterrupted growth over the next 3 to 5 years. But growth will be the dominant narrative and streaming will be the leading voice. 100 million subscribers might not mean the world changes in an instant, but it does reflect a changing world.

What Frank Ocean’s Bombastic Blond Moment Tells Us About The Future Of Artists And Labels

When frank-ocean-blond-compressed-0933daea-f052-40e5-85a4-35e07dac73dfFrank Ocean’s latest album ‘Blond’ dropped, it did so like a nuclear bomb, sending shockwaves throughout the music industry. In one of the audacious release strategies of recent years Ocean and his team at 360 fulfilled the final album contractual commitment to Universal Music by ushering his breaking-the-mold visual album ‘Endless’ onto Apple Music.  Featuring collaborations from the likes of Sampha and James Blake and set as a loose soundtrack to art house visuals, ‘Endless’ looked like the sort of digitally native, creative masterstroke that would win plaudits and awards in equal measure. But no sooner had Universal executives started daydreaming about Grammys then along came what turned out to be the ‘actual’ album ‘Blonde’, self released by Ocean (Universal contractual commitments now of course conveniently fulfilled) and, for now at least, exclusively available on Apple Music. You can just imagine seeing the blood drain from (Universal CEO) Lucian Grainge’s face as the full magnitude of what had just happened came into focus. In truth ‘audacious’ doesn’t even come close to explaining what Ocean pulled off, but where it gets really interesting is what this means for the future of artist careers.

Artist-Label Relationships Are Changing

Quickly sensing the potential implications, Grainge swiftly sent out a memo to Universal staff outlawing streaming exclusives…though voices from within Universal suggest that this diktat had been in the works for some time . A cynic might even argue that it was politically useful for Universal to be seen to be taking a strong stand ahead of the impending Vivendi earnings call. As the ever excellent Tim Ingham points out, in practice Universal could put a streaming exclusives moratorium in place and still have a good number of its front line artists put out streaming exclusives. This is because many of the deals these artists have are not traditional label deals where Universal owns all the rights. And that itself is as telling as Ocean’s bombastic blond moment. Not so much that Universal is probably the major with the highest amount of its revenue accounted for by licensed and distributed works, but that any label’s roster is now a complex and diverse mix of deal types. Artists are more empowered than ever before, and thanks to the innovation of label services companies and next generation music companies like Kobalt, labels have been forced to steal the disruptors’ clothing in order to remain competitive.

Streaming Exclusives Represent Another Option For Artists

Just as labels had started to successfully co-opt the label services marketplace by launching their own – e.g. Universal’s Caroline – or by buying up the competition – e.g. Sony’s acquisition of Essential Music & Marketing – along come streaming services giving artists another non-label route to market. In truth, the threat has remained largely unrealised. Exclusives on Tidal have most often proved to be laced with caveats and get out clauses (e.g. Beyonce’s ‘Lemonade’ arriving on iTunes 24 hours after landing ‘exclusively’ on Tidal). Chance The Rapper’s (in name only) mixtape ‘Colouring Book’ and Ocean’s ‘Blond’ are exceptions rather than the rule. So all that’s about to change now right? Not necessarily…

Album Releases Require More Time Than Apple Probably Has

As anyone who works in a label will tell you, releasing an album is typically a long, carefully planned process with many moving parts. It’s not something you do in a couple of weeks (Ocean started building the hype and expectation for his latest opus a year ago). If, for example, Apple was going to start doing exclusives routinely, even if it just did 20, that’s still a new exclusive to push every 2 weeks. That might work, at a stretch, for music service retailing promotional pushes but is far short of a fully fledged album release cycle. Which means that even for just 20 exclusives Apple would have an intricate mesh of overlapping release campaigns. This is something that labels do with their eyes closed but would it require new organizational disciplines for Apple. Not impossible, but not wholly likely either.

In practice, exclusives are likely to be limited to being the crown jewels of streaming services, their most valuable players, creative playmakers if you like. Even for Netflix, that pioneering exemplar of the streaming originals strategy, only spends 15% of its $3 billion content budget on originals and probably won’t break 20% even by 2020. What Apple and Netflix have in common is that they are using exclusives as a customer acquisition strategy, achieving their aims by making a big noise about each one. But if you’re releasing exclusives every week or two the shine soon wears off. And suddenly the return on investment diminishes.

Streaming Exclusives Are Unlikely To Turn Into A Flood

None of this means that we won’t see more artists striking streaming exclusives. We will, regardless of what labels may actually want to happen. And most of those will probably be on Apple – the service with bottomless pits masquerading as pockets. But the trickle will not turn into a flood, a fast flowing stream perhaps (see what I did there) but not a torrent.

Although they might not realise it yet, Kobalt might find themselves hurting more than the majors from this latest twist in the Exclusives Wars. Kobalt has probably done more than any single other music company to drive change in the traditional music industry in the last 5 years, showing artists and songwriters that there is another way of doing things. But Frank Ocean has just shown that there is now new another option for established artists looking for options at the end of a label deal.

Most importantly of all though, is that streaming exclusives (and indeed label services deals) work best when an artist has already established a brand and an audience. Most often that means after an artist has had a record label recording career. Apple cannot be relied upon to build anything more than a handful of artist brands. One of the founding myths of the web was that it was going to do away with labels and other traditional ‘gatekeepers’. Now, decades later, labels still account for the vast, vast, vast majority of music listening. Make no mistake, a momentous value chain shift is taking place, with more power and autonomy shifting to the creators, but that is a long journey and ‘Blond’ is but one part of this much bigger shift.