Exclusive: Deezer Is Exploring User Centric Licensing

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One of the great, though less heralded, successes of streaming in 2016 was keeping the lid on artist angst. Previous years had been defined by seemingly endless complaints from worried and angry artists and songwriters. Now that torrent has dwindled to a relative trickle. This is largely due to a) a combination of artist outreach efforts from the services, b) so many artists now seeing meaningful streaming income and c) a general increased confidence in the model. Despite this though, the issues that gave creators concern (eg transparency, accountability) remain largely in place. The temptation might be to simply leave things as they are but it is exactly at this sort of time, when stakeholders are seeing eye to eye (relatively speaking at least), that bold change should be made rather than wait for crisis to re-emerge. It is no easy task fixing a plane mid flight. So it is encouraging to hear that Deezer is looking to change one the key anomalies in the streaming model: service centric licensing.

Service Centric Licensing

Currently streaming services license by taking the total pot of revenue generated, dividing that by the total number of tracks streamed and then multiplying that per stream rate by the number of streams per track per artist. Artists effectively get paid on a share of ‘airplay’ basis. This is service centric licensing. It all sounds eminently logical, and it indeed it the logic has been sound enough to enable the streaming market to get to where it is today. But is far from flawless. Imagine a metal fan who only streams metal bands. With the airplay model if Katy Perry accounted for 10% of all streams in a month, the 10% of that metal fan’s subscription fee effectively goes towards Katy Perry and her label and publisher. Other than aggrieved metal fans, this matters because those metal bands are effectively seeing a portion of their listening time contributing to a super star pop artist. To make it clearer still, what if that metal fan only listened to Metallica, yet still 10% of that subscriber’s revenue went to Katy Perry?

User Centric Licensing

The alternative is user centric licensing, where royalties are paid out as a percentage of the subscription fee of the listener. So if a subscriber listens 100% to Metallica, Metallica gets 100% of the royalty revenue generated by that subscriber. It is an intrinsically fairer model that creates a more direct relationship between what a subscriber listens to and who gets paid. This is the model that I can exclusively reveal that Deezer is now exploring with the record labels. It is a bold move from Deezer, which though still the 3rd ranking subscription service globally has seen Spotify and Apple get ever more of the limelight. While Deezer will undoubtedly be hoping to see the PR benefit of driving some thought leadership in the market, the fact it must find new ways to challenge the top 2 means that it can start thinking with more freedom than the leading incumbents. And a good idea done for mixed reasons is still a good idea.

Honing The Model

Deezer has had encouraging if not wildly enthusiastic feedback from labels, not least because this could be an operationally difficult process to implement. The general consensus among labels I have spoken to is cautious optimism and a willingness to run the models and see how things look. When I first wrote about user centric licensing back in July 2015 I got a large volume of back channel feedback. One of the key concerns was that the model could penalize some indie labels as fans of their acts could be more likely be music aficionados and thus listen more diversely and more heavily. This could result in the effective per stream rate for those fans being relatively low. By contrast, a super star pop act might have a large number of light listeners and therefore higher effective per stream rates.

The truth is that there is not a single answer for how user centric licensing will affect artists and labels. Because there are so many variables (especially the distribution of fans and the distribution of plays among them) it is simply not possible to say that a left field noise artist will do worse while a bubble gum pop star will do better. But in some respects, that shouldn’t be the determining factor. This is an intrinsically more transparent way of paying royalties, that is based upon a much more direct relationship between the artist and their fan’s listening. There may well be some unintended consequences but ultimately if you want fairness and equality then you don’t pick and choose which fairness and equality you want.

If Deezer is able to persuade the labels to put user centric licensing in place, it will be another sign of increasingly maturity for the streaming market. Streaming drove $1bn of revenue growth for the recorded music business in 2016, without it the market would have declined by $1bn (due to revenue decline elsewhere). Streaming is now a monumentally important market segment and there is no better time to hone the model than now. User centric licensing could, and should, be just one part of getting streaming ready for another 5 years of growth. Deezer might just have made the first move.

Welcome To The Post-DIY Era

I recently took part in the True Music Forum in Madrid, an event organized by Boiler Room. I was on a panel that explored whether DIY is now coming of age with a host of high profile artists, most of them urban artists, bypassing or twisting the traditional label model and still achieving stand-out success. On the surface, these look like golden years for DIY, and in many ways they are, but much of what is happening at the top end of the scale has little to do with DIY. Streaming is transforming how artists view recorded music income and is making it possible for artists to pick and choose what label capabilities they want. But more often than not, it is a variation of the label model that succeeds rather than a replacement of it. This is the start of the post-DIY movement.

Madrid True Music Forum, March 8th-28

The First Wave Of DIY

Firstly, to be clear, DIY is alive and well, better than it has ever been in fact. With labels increasingly only signing artists once they have seen them build up following and ‘a story’, it is becoming increasingly common for artists to spend the formative stages of their careers ‘DIY’, releasing their own music, managing their social campaigns, making their own videos, booking their own tours etc. Added to that, the combination of streaming, direct-to-fan platforms and social apps have combined to make it possible to build niche audiences on a global scale. So it is now possible for a new tier of artists to exist, a tier of artists that may never dent the charts (for whatever they may be worth these days) but that can build solid, sustainable careers by engaging their fans directly. Stalwarts like Bandcamp and CD Baby have never had it so good, while a whole crop of new entrants, such as the much hyped BandLab is emerging to drive the market forward. And of course, Soundcloud, for all its financial challenges, provides artists with a platform to engage massive audiences globally without need for any middleman whatsoever.

DIY Versus Empowered Superstars

That is the DIY movement that will go down in history as one of the most culturally significant legacies of the Napster market shock. An organic, grass roots musicians’ revolution. Now though, we are seeing the emergence of a more commercially minded take on DIY, one that draws on the practices of its predecessor but that combines them with the big label model to take full advantage of the best of both worlds. This new breed of superstar DIY artist enjoys the benefit of fiercely held independence with world class distribution and marketing. They are taking the tools of DIY but not all of the ethos. The superstar DIY artist typically builds a strong brand and buzz (and often, but not always, a big live following) and then uses that as a platform to strike a deal with a major label (or a major label subsidiary company) to get the benefits of major label scale without giving up control (nor masters). This can take various forms, such as:

In each scenario the artist retains large amounts of control (or at least more than in a traditional label deal) but gets the support of world class, global infrastructure and marketing. The artists picks the services s/he wants, like an advertiser does with a full- service ad agency. The label services and standalone distributor models have been around for some time, but now they are being used by business savvy, super ambitious superstars in-the-making. And the artist gets to retain an aura of authenticity and independence.

For those artists that want to push the needle even further, streaming services are emerging as an additional weapon in the armoury. Chance the Rapper revealed that Apple paid him $500,000 to become the exclusive streaming partner for ‘Coloring Book’, following hot on the heels of Frank Ocean’s Apple Music exclusive for ‘Blonde’. Apple is setting itself up as a modern day equivalent of the Medici – the medieval Italian family that was a driving force in the Renaissance through its patronage of artists such as Rafael, Leonardo Da Vinci and Michelangelo. Some time or another, Spotify will follow Apple’s lead. The superstar artist fits this streaming-service-as-label model best because an artist with big potential is going to deliver much better ROI for streaming services that are eager to drive market share and differentiation via original content.

Hip Hop Is Setting The Innovation Bar

Urban music, and hip hop in particular, has become a hotbed of artist-led business innovation. Although hip hop has always had stronger commercial sensibilities than other genres, streaming has brought the business innovation to the fore, ranging from the original hip hop superstar businessman Jay Z and his Tidal service, through Frank Ocean’s Apple Music released ‘Blonde’ to Stormzy’s streaming record breaking streaming success.  And the innovation is happening at the grass roots of hip hop too. As the brilliant Kieran Yates noted on the Boiler Room DIY panel, many UK Grime artists are now signing publishing deals before label deals as a) this can often mean bigger advances in today’s indie music market, and b) there is a perception that this means giving up less control, which in turn empowers the artist to strike a better deal with a label, or label-owned company. This also opens up a world of opportunity for independent music marketing agencies etc who can become part of new, agile teams.

Streaming has been continually rewriting the rule book for many years now, but we are entering a period of even faster change, with many of the more fundamental effects being the indirect consequences, such as the rise of post-DIY. It would be wrong, however, to think of this as a ‘death of the label’ narrative. Because the labels (majors and indies) are being smart enough to be as flexible and agile as artists need them to be. Artists are changing and labels are changing just as fast to meet their new needs and terms of reference. Perhaps, the best way to capture the approach of the new era of post-DIY artist is to go back to Jay Z’s classic ‘Diamonds From Sierra Leone’ lyric: I’m not a businessman; I’m a business, man!

 

How Ed Sheeran Broke The Charts

Unknown.jpegUnless you have been hiding under a stone on Mars this last few weeks you will have struggled not to hear or see some clip of Ed Sheeran one way or another. Atlantic Record’s carpet bombing market campaign has tipped Sheeran into global ubiquity. At the centre of this approach is a ‘be everywhere’ streaming strategy which saw Sheeran clock up over 68 million Spotify streams in 1 day (a record for any single artist). Though, the 1 billion views he clocked up for ‘Divide’ on YouTube shows where the real streaming audience of scale resides. But what makes Sheeran’s ‘Divide’ campaign stand out is what it has done to the charts. Or rather, the weaknesses in the charts that ‘Divide’ shines a light on.

What Role Should Streaming Era Charts Play?

As of March 13th, Ed Sheeran’s ‘Divide’ album accounts for 9 of the UK top 10 singles, while all of the 16 tracks on the album are in the top 20. If there was ever a sign that streaming is breaking the charts then this is it.

The writing has been on the wall for charts ever since the recorded music business decided to incorporate streams into them. Doing so was a perfectly understandable move but it is one that has incapacitated the charts. As we predicted back in 2014, incorporating streams into charts would fall over because the charts were being forced into trying to simultaneously measure sales trends and airplay. As I wrote 3 years ago: “try simultaneously [measuring airplay] with measuring sales and you end up with a diluted mish mash that does not do either job properly.”

Underpinning all of this is an existential industry debate over whether streaming is replacing retail or radio. In truth, of course it is replacing both, but which is it doing more? The answer to that determines the role charts should be trying to play. However, the answer looks very different depending on where you sit. If you are a record label you see streaming growing by 57% in 2016 to reach $5.4 billion. Streaming is indeed becoming the future of retail. But it is also how you break artists and releases now, therefore it is a bit of both. Go over to the artist side of the equation and streaming becomes a crucial tool for driving exposure and helping sell concert tickets. As Ed Sheeran himself said during his last album promo cycle, for him it is all about live. Indeed, for most successful artists, recorded music revenue is just a small part of the revenue mix. So at its most extreme, streaming is a marketing campaign that pays you instead of you paying for it.

Reach Or Engagement?

In the old charts model an Ed Sheeran super fan buying ‘Divide’ and playing it a hundred times in the first week would only show as one sale, and an album sale at that. There would be no impact on the singles chart. But in the current UK streaming charts, not only does that fan’s album listening now get counted in the singles charts (instead of just the album charts), the resulting 1,600 streams (16 tracks*100) become 160 chart placings (100 streams = 1 sale for singles charts). Consequently, the charts are conflating audience reach with audience engagement. It is the equivalent of Facebook merging Monthly Active Users and Daily Video Views into a single metric. It wouldn’t work for Facebook and it just doesn’t work for music.

A Fiendishly Difficult Problem To Fix

There is no doubt that ‘Divide’ is a fantastically successful and popular album, the problem is that because the charts are conflating sales with consumption we simply don’t know just how successful it really is. And that does a disservice to both Sheeran and his fans. Don’t get me wrong, I truly feel for the various charts organizations across the globe. This is a fiendishly difficult problem to fix, but the current solution just isn’t working. In all likelihood, a dynamic solution is going to be needed, one that has the flexibility to evolve as the streaming market and its industry role changes.

The Time May Have Come For A Separation Into 2 Charts

Ultimately the recorded music business needs to decide what it wants the charts to measure. In old parlance: sales versus airplay, in contemporary terms: reach versus engagement. One near term fix would be to only consider cached streams towards the charts (perhaps with a smaller deflator than the current 100). This would have the advantage of making the measure more reach focused rather than engagement led. It would also have the effect of reducing the impact on ‘push’ curated playlists, which depending on where you sit, can be either an entirely good thing or an entirely bad thing.

If such an approach was taken then some sort of purer engagement chart would need creating to sit alongside the main chart, one that weighted total streams alongside traditional radio. The argument for a streaming-led airplay chart is even stronger than revising the sales chart. With playlists now accounting for 58% of all streams (see MIDiA’s Streaming Music Healthcheck report for more) and curated playlists a third of those, streaming is becoming less about on-demand and more about lean back, radio-like experiences. Streaming is seemingly making radio programmers of the entire recorded music business. It is time for a chart that reflects this change.

‘Divide’ is an exceptional album in terms of commercial performance and audience reach, as is its impact on the charts. But in the latter respect, it is simply a trail blazer for the way in which big albums are going to play out on streaming. ‘Divide’ might not be the hair that breaks the camel’s back but it has certainly fractured it.

Ed Sheeran’s Ticketing Fiasco Shines A Harsh Light On A Broken Industry  

Ed Sheeran has hit the news, bemoaning the inflated prices that tickets for his forthcoming tour are being sold at on ticket reseller websites. Some tickets have sold for as much as £999, compared to the original face value of £77. As the chart below shows, even the standard resold tickets are selling for up 5 times the original price.

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Sheeran is in the fortunate position of being one of the most in demand artists of the moment, but the broken nature of the ticketing market is locking his core fans out of his gigs. It is just the latest example of an industry in dire need of change:

  • Ticketing companies are playing double agent: Over the course of the last decade the live music market has grown almost dollar-for-dollar at the same rate the recorded business has declined. In 2000 live was around 30% of the global music business, now it is around 2 thirds. The live boom has long been seen as the good news for the music business, held up as evidence of value simply shifting from one part of the business to another, and the new way in which artists can build vibrant careers. The problem is that a) much of that growth has come in ticket price inflation, and b) most of the money does not make it back to artists. In fact, on average, artists only earn 14% of ticket sales revenue. Ticket resellers are a major contributory factor. Hiking up the prices and only distributing a small fraction back to artists, often in many cases (eg ticket marketplaces) nothing at all. The big ticketing companies are not merely passive observers, they are actively driving the reseller market, essentially acting as double agents and often cross promoting  reseller destinations they own. For example, Ticketmaster is also the parent company of Seatwave and GetMeIn. Though Ticketmaster’s reseller destinations do not bulk buy tickets, some independent resellers have teams of people that do exactly that.
  • Resold tickets put gigs out of reach of core fans: Resellers argue that there is a market for high priced tickets. There is, but it is a different market than that of core fans. Many sports leagues have seen a ‘gentrification’ of crowds, with older, more affluent fans being the only ones that can afford inflated ticket prices. The result is more subdued crowds and less vibrant atmospheres. The same thing is happening to live music, with young fans being forced out in favour of older audiences. It might be good for the ticket resellers and venues and booking agents, but it is bad news for bands and fans. The presence of ticket reselling marketplaces actively encourages nefarious behaviour, with a whole segment of professional resellers that use technology such as bots to bulk buy tickets before real fans get their hands on the tickets. There is an opportunity, nay a moral obligation, for more connected action to be taken to eradicate this sort of behaviour.
  • It is a problem that can be fixed, but it requires coordinated effort: Ed Sheeran’s camp has told fans not to buy from resellers at inflated prices. But Sheeran’s camp have to shoulder some of the blame.  The solution is as simple as it is complex. The simplicity is not to allow tickets to go to resell and to only admit fans whose names are on the tickets (which cuts out the ticketing marketplaces like Seatwave). But the complexity is that vested interests apply pressure to ensure this doesn’t happen. Nonetheless, action can be taken. Adele and her manager Jonathan Dickins took a bold stance last year, only allowing named ticket holders to attend some of her gigs. They even went as far as cancelling some resold tickets for other gigs. Mumford and Sons went one step further and booked Wembley directly, cutting out all the middle men.

But isolated action is not enough. Unless artists, managers and labels act together, to take a bold stance, change will not happen. And the losers then will be the fans.

Here’s Why Vinyl Isn’t About To Save The Music Business And Why Albums Need Rethinking

The BPI announced that ‘album equivalent sales’ were up by 1.6% in volume terms in 2016, with vinyl and streaming identified as the key drivers. Many people retain a nostalgic soft spot for vinyl, so an apparently vinyl led revival is always going to get people’s attention. But not only is vinyl not the future (it was just 2.6% of sales in 2016), the big differences between the most popular vinyl, streaming, singles and album artists reveal just how fragmented the music business has become.

Each of the top 10 charts (album sales, singles, top streaming artists, vinyl sales) almost reads as a standalone group of artists with remarkably little cross over. In fact, only 2 artists (the ubiquitous Drake and Justin Bieber) appear across streaming, singles and albums. None appear across all four charts.

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The fragmentation adds complexity to an already sophisticated and nuanced landscape:

  • Two tribes: Only one of the top single artists of 2016 (Justin Bieber) was also a top album artist. This is why the album vs playlist album argument will continue way beyond 2017. Both realities co-exist with one catering more towards older audiences and the other to younger ones. The top 10 albums list is like browsing through a high street music store CD rack circa 2005: Elvis Presley, David Bowie (twice), Coldplay, Michael Ball. Of course, there is some overlap with streaming, an inescapable overlap considering that streams are now (for all the wrong reasons) counted towards album sales. Thus, we see contemporary artists Little Mix, Drake and Jess Glyn fill the 7,8 and 9 slots, while Justin Bieber is at #4. But first and foremost this is a tale of 2 tribes, 2 groups of music fans whose tastes and consumption patterns rarely overlap.
  • Old format, old bands: Vinyl sales may have hit their highest level in the UK since 1991 but this is hardly a sign of what is to come. Indeed, a quick look through the top 10 vinyl albums of 2016 reveals that all but one of the artists were releasing music back in 1991! The exception is Amy Winehouse and she’s dead. The majority of the volume of vinyl sales is driven by nostalgic older music fans. Of course, younger people do buy vinyl too, but interestingly they generally do so as either a form of merch or as a way of supporting their favourite artist. In fact, many under 30’s vinyl buyers don’t even have turntables.

The really important takeaway from all this though, is what it means for driving sales and marketing artists in 2017. One size stopped fitting all long ago, but now there are clearly two broad groups of music audiences which must be addressed in entirely different ways, across different channels and with different tactics. At the most base level this is a case of youth versus grey, of digital native versus digital immigrant, of playlist versus album, of sales versus consumption. But it is also more complex and nuanced than that. There are overlaps and cross pollination. They may be relatively thin on the ground right now, but like some long-lost treasure map, they may point to how bridges can be built across these two worlds. If no such links can be made then ultimately this will be a story of one world hurtling to oblivion while the other booms. That is of course the more likely scenario, highlighted by the fact that (in volume terms) UK CD sales fell by 12% and download sales by 26% in 2016 while streams were up 67%.

As large volumes of older consumers switch to streaming (and Amazon should play a key role here) there will be more opportunity to join the dots. But do not mistake this simply as an opportunity to try to revive yesterday’s formats in today’s platforms. The album is clearly fading. According to MIDiA Research survey data, 68% of subscribers state that playlists are replacing albums for them. It is time to start investing though and effort in rethinking what album experiences should be in the digital era. And that conversation should have no bounds, everything should be on the table (number of tracks, street date vs continual updates, interactivity, changing content etc.).

The 2016 sales figures show us that the album in its traditional format still has a very solid, albeit quickly declining, audience. But if it is to outlive that dwindling customer base it must be rethought for the streaming era.

Just What Is BandLab Up To With Rolling Stone?

News emerged yesterday that Singapore music creator community and collaboration platform BandLab bought a 49% stake in Rolling Stone. For those unfamiliar with BandLab this might have prompted a ‘What? Who? Why?’ moment. BandLab is the creation of Kuok Meng Ru, the son of one of Singapore’s most wealthy and successful businessmen Kuok Khoon Hong who founded and built the world’s largest Palm Oil business. Unsurprisingly the father has backed the son in his venture and so, yes, Rolling Stone has been bought, albeit indirectly, with Palm Oil money. But the question remains, why?

Kuok Meng Ru has a bold vision and ambition for Bandlab, he sees this as an opportunity to create a full stack music company from the ground up, built around the next generation of creators rather than trying to carve a slice out of the incumbent industry. There is no doubt that the music industries are a complex web of inefficiencies and that if they were being redesigned tomorrow that they would be a far more streamlined, effective and transparent proposition. This on the surface makes the music business ripe for disruption. But unlike fully open markets like the smartphone business, the music industries are interwoven with complications such as de facto monopolies, statutory licensing frameworks and global networks of reciprocal agreements. All of which shelter the business from the full impact of disruption. Change happens slowly in the music business.

BandLab Is Built By Music Super Fans For Music Super Fans

None of this means that change is not happening and that the rate of change will not continue to happen. But the odds are heavily stacked against a single entity aiming to unseat the marketplace with an end-to-end creation-to-marketing-to-distribution solution such as BandLab. Don’t get me wrong, I love the concept of BandLab. As a life long musician and as a music super fan, it is exactly the sort of platform I would probably build i.e. a musician’s platform for musicians. But the harsh reality is that the majority of consumers (67%) are casual fans and less than 5% create music and upload it to the web. BandLab is a platform full of cool creator tools and community features. It nurtures a creative feedback loop between fans and artists. In fact, it adheres neatly to the principles of Agile Music that I laid out in 2011 and it fits in with the zeitgeist of the death of the creative full stop. But a mainstream proposition it is not. At least not in its current guise.

Kuok Meng Ru wants BandLab to do to music what Flickr did to photo sharing and creativity. But there are many, many more people that create and share photos than create and share music. Soundcloud is arguably the single biggest cloud creator platform, yet the vast majority of its growth happened when it cowed to investor pressure and pursued the listener rather than the creator. As I said last month in a Bloomberg article about BandLab, There’s always going to be far bigger audience of listeners than there is of creators. And unfortunately the vast majority of aspiring creators are not good enough, nor ever will be, to amass sizeable audiences. If BandLab decide to start licensing in established repertoire, or acquiring it unofficially (Soundcloud style), then it can build audience at scale.

Where Next For Rolling Stone?

So, back to the title of this post, just what is BandLab up to with Rolling Stone? Rolling Stone and BandLab plan to open a Singapore subsidiary focused on live events and marketing. For Rolling Stone this means diversifying revenue and growing its South East Asia footprint. For BandLab this means leveraging Rolling Stone’s brand as a short cut to credibility and extending the promotional capabilities of its creator platform. Who will do best out of this deal is hard to say. It’s a tough time to be a news publisher and so when big money comes calling it is hard to say no. But whether this is the right deal for Rolling Stone is another question entirely. My money is on Rolling Stone being sold on in reduced circumstances some time within the next 3 years (5 at the outside) when BandLab either gets bought or refocuses its ambitions.

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.

Kanye West, Leonard Cohen And Death Of The Creative Full Stop

When Kanye West started tinkering with ‘The Life Of Pablo’ he triggered a minor maelstrom of chatter among the music business and his fans alike. From a month after the album had been made available exclusively on Tidal, Kanye started changing track names here, adding lines there, re-mastering here, giving guest vocalists more space there. Cynics might argue that the changes started to happen just after the Tidal free trial period ended for fans who’d signed up to access the album. But the changes carried on months after and doubtlessly will continue to do so. As intriguing as Kanye’s tampering may be though, the really surprising thing is its exceptionality – why in these digital days, where shelves of physical products are a dying breed, do 99.99% of artists and labels still allow themselves to be constrained by the straight jacket of the album, turning everything into a creative full stop?

The Long And Windy Road Of Hallelujah

imgres-5In his excellent podcast series ‘Revisionist History’, Malcolm Gladwell – he of ‘The Tipping Point’ – focuses one episode on Leonard Cohen’s ‘Hallelujah’. Nowadays ‘Hallelujah’ is widely recognized as a masterpiece but it went on an epic journey to acquire that status. ‘Hallelujah’ starts out as a mediocre track on a 1984 album ‘Various Positions’ that Cohen’s label CBS refused to release and is instead put out by indie Passport Records. The release, as Gladwell puts it, “barely makes a ripple”. The magic in the song was all but invisible at this stage. But Cohen doesn’t see that 1984 recording as the end of the story, in fact it is just the start. Over the following years playing live he tinkers, tampers and reworks ‘Hallelujah’, slowing it down, making it twice as long, changing verses and making it even darker.

Finally, John Cale sees Cohen playing a reworked version at a gig and there is enough magic in it to compel him to ask Cohen to send him the lyrics so he can record his own version. Cohen then faxed Cale fifteen pages of lyrics (reflecting just how much tinkering he had done) and Cale “went through and just picked out the cheeky verses.” His recording of ‘Hallelujah’ is the first of the song as the world knows it – in part because it ended up on Shrek. The magic is finally released, or as Gladwell puts it Cale “cracks the code of ‘Hallelujah’”.

imgres-6Cale’s version appears on an obscure Leonard Cohen tribute album put together by a French Music magazine ‘I’m Your Fan’ which by pure serendipity ends up in the CD collection of a woman who a certain Jeff Buckley is house sitting for. He hears Cale’s version, is blown away, and performs his take on Cale’s take. A Colombia A&R exec hears Buckley performing it, is equally blown away, signs him up and records it in what would prove to be Buckley’s only – but highly influential – 1994 studio album ‘Grace’. Buckley’s version becomes the defining version of ‘Hallelujah’ and connects it with the world.

The Pseudo-Permanence Of Mass Media Was A Historical Anomaly

‘Hallelujah’s tale may be an exceptional one yet it also applies to all songs. Singers and bands reworking old songs into their live performances is no new thing, they like to update the songs to make them match where they are now as people, performers and songwriters. But only rarely does that then translate into a new recorded version. And this is the problem with record media. It creates an entirely arbitrary creative full stop. This though, isn’t the natural state of things.

The pseudo-permanence of mass media is an artefact of the distribution era, of the time when people were conditioned to believe that everyone could own their favourite music, movies and TV shows for ever. But of course nothing last for ever, especially not recorded media. Vinyl scratches and warps, cassette tapes degrade, DVDs and CDs lose their reflective quality and crack. And then to compound matters, these physical formats die out as products. So the ‘permanence’ was only ever transient. Nonetheless it ossified the creative output.

imgres-7Until Edison invented the Phonograph in 1887, music, with the exception of the highly regimented genre classical music which was ossified in musical score – though reinterpreted by conductors, was an ever evolving thing. Folk songs morphed out of all recognition as they passed down the generations, jazz musicians would tear apart songs with their own interpretations, blues numbers would ebb and flow like the Mississippi delta with each subsequent interpretation. No one ‘owned’ the music in the moment and no one ‘knew’ the correct performance of it because there was no ‘correct’ official performance. Radio and the phonograph changed all that. But now, with streaming there is no need for this arbitrary ossification of music. Music can return to its living breathing roots rather than imitating a museum piece in a glass case.

Conceptual Innovation Versus Experimental Innovation

There is a very important cultural reason why the creative full stop needs consigning to the waste bin of history: it curtails creativity. In his podcast Gladwell outlines two key types of innovators:

  • Conceptual innovators: they’re the ones who create in an instant, and often burn bright and short. They’re the ones we most often think of as geniuses.
  • Experimental innovators: these are the ones who continually iterate, changing, tinkering, for ever looking to perfect their work.

Both groups have creative geniuses within them. Pablo Picasso was a conceptual innovator, bursting onto the scene and transforming the art world in an instant. Paul Cézanne though, an equally important artist from the same era, was entirely different, he would create endless different versions of paintings, often not finishing or even destroying them. He was on a continual journey of creative discovery, he was an experimental innovator.

Recorded media forces experimental innovators into the confines of conceptual innovators. Which means that so much great music was never allowed to find its true greatness, instead being bound to a recording long before it was ready to be. During his updates to ‘Life Of Pablo’ Kanye wrote “Fixing Wolves 2day… Worked on it for 3 weeks.”  He’s an experimental innovator, a perfectionist. The irony is that the album he continually hones is called ‘The Life Of Pablo’, which quite probably refers to that archetype of the conceptual innovator Picasso (Kanye even said once “My goal, if I was going to do art, fine art, would have been to become Picasso or greater.”). So a more appropriate name for the album would have been called ‘The Life Of Paul [Cézanne]’

Agile Music

images-1Back in 2011 I wrote a report entitled ‘Agile Music: Music Formats and Artist Creativity In The Age of Media Mass Customization’ – you can still download it for free here and you can watch my Midem keynote here. In it I made a case for bringing audiences into the creative process and for the death of the creative full stop; for music to become a living, breathing entity that artists can continually edit and evolve. Almost exactly 5 years on and virtually no one, Kanye obviously excepted, is doing this. Why? Because artists and labels still have static audio files as their reference points. Yet there is simply no need for this to be the case anymore. Sure, there has to be caution – if every single track changes all the time audiences would oscillate between apoplexy and utter confusion. But with moderation and clear context, Agile Music can reclaim music from the orthodoxy of the physical format that somehow still dictates the streaming environment. As more artists and labels embrace the approach, brace yourself for ‘Hallelujah’s becoming the norm not the exception.

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

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

youtube monetization

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

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

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

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

The 15 Scale

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

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

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

15 Minutes Does Not Have To Break The Bank

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

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

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

Back To The Future

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

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

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

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

Is YouTube Building A New Music Industry?

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

The YouTube Paradox

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

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

YouTube’s New Music Industry?

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

Here’s how and why…

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

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

An Alternative Industry, Not Simply A New Element

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

 

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

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