AI will transform music; the question is how?

Every new technology goes through a period of being overhyped before the dust settles, and that technology either fades or builds steadily thereafter. Think 3D printing, VR, NFTs. In my 20+ years as a media and tech analyst, only three technologies have had a level of hype that felt like it was going to live up to expectations: 1) the internet (which was already in full swing by the time I started out – I’m not that old); 2) smartphones / apps; and 3) AI. Those technologies have one big thing in common: what they could become is ungovernable by its originators. But while it was human-power that unlocked that potential of the first two, it is the technology itself that is the accelerant for AI. Of course, people will amplify it as well, but AI itself is already creating many of the new pathways. The business, societal and even humanity implications are so vast that the implications for music are small in comparison. This, however, does not mean that they will not be equally transformational and disruptive within the confines of the music business. Which brings us nicely onto ‘heart on my sleeve’.

For those of you that have been on Mars for the last few days, this AI-generated track mimics the musical style and voices of Drake and The Weeknd. As Trapital’s Dan Runcie observed “[It] isn’t that good, but it’s an improvement from 2020’s TravisBott and other generative music attempts in recent years”. UMG’s response was to encourage DSPs not to host generative-AI tracks, and Drake himself was not happy with the last time a ‘fake Drake’ track did the rounds. Drake will probably be even less happy with this latest AI addition to the Fake Drake roster, which raises the question: will Fake Drake Break Drake?! While there are valid concerns from both parties, there is a real risk of this becoming an old world versus new world conflict, and in such scenarios, the new most often comes out on top.

AI is going to change the future of music. That genie is well and truly out of its bottle. Should more have been done by the traditional music industry to work with music AI companies earlier on? Of course, but we are where we are. So the focus now should be on trying to work out how to influence and shape what the future might be, through collaboration as much as (perhaps more than) enforcement:

We have been here before: The music industry was vehemently against P2P piracy (and I am old enough to remember that). After more than a decade of trying to fight it, the music business finally built an entirely new business around piracy’s successor technology – streaming. P2P infringed copyright, it took control out of the hands of the traditional business, and it created previously impossible use cases. AI is doing the same. What is different now is that the very ecosystem that streaming created (along with social platforms) puts AI into the hands (and ears) of billions of people, whereas P2P reached just tens of millions. Consumers will experience AI at scale before the industry can shape it. And in the digital world, consumers tend to get what they want.

Guitar or tape machine?: These two old technologies both reshaped music. One was about creating, and one was about copying. AI is a mix of both, which is what makes the response so difficult. Assistive and generative AI is already a mainstay of music creation, such as iZotope’s Neutron 4 and Splice’s CoSo. AI music is a continuum, from tweaking mixes through to composition, with virtually everything else in between. There is not one single, simple answer for ‘what to do with AI?’

Enforcement will be difficult: With the best will in the world, copyright law was not designed for AI. Music rightsholders will do their best to apply existing law, but they will face challenges in doing so. Meanwhile, there will simply be too much output to effectively pursue plagiarism cases, which take time and ultimately depend on the personal interpretation of non-expert judges and juries. If you think 100,000 tracks being uploaded per day to streaming now is a problem, when generative AI goes mainstream among consumers (which it most likely will), the number of new ‘songs’ created daily could easily be a hundred times that – perhaps even a thousand. 

Focus on the input not the output: So, the most scalable solution for music rightsholders will be to fix the problem at the top, by ensuring that generative AI tools only learn from what they have permission to learn from. ‘heart on my sleeve’ can only sound like Drake and The Weeknd because the tech learned from theirmusic. A number of generative-AI companies already only learn from selective, pre-authorised datasets. If this becomes the norm then an entire new licensing opportunity emerges for music rightsholders. Artists and songwriters will likely need to consent first, similar to how sync works. The alternative (trying to license and / or collect royalties on the millions, billions or trillions of songs that will be created) would be a fool’s errand.

The reason why AI feels so frightening to much of the music business is not just because of what it is, but also because it is a catalyst for pre-existing market shifts. The last half decade was characterised by the rise of non-traditional music, in the shape of ‘fake artists’, mood music, and independent artists. All of which have eaten into the market share of traditional music companies and creators. 

Streaming’s finite royalty pot makes revenue a zero sum game. Whatever may be done to try to ‘formalise’ AI music, it is almost certainly going to accelerate the fragmentation paradigm shift, by putting music creation in the hands of consumers. Radiohead once sang that “anyone can play guitar”. In practice, most people cannot, and do not. But literally anyone can ‘play’ AI.

There is growing concern among investors that this will mean market share erosion for the majors (and it probably will), but there is still a play for traditional labels and publishers, by licensing AI at the top. In doing so, they can benefit from the shift, just in the same way that major labels benefit from the rise of independent labels and artists through owning distribution platforms. That opportunity, though, requires the right approach and for it to be taken fast. The time is now.

I will leave the final words to President Biden, whose comments on AI as a whole apply just as neatly to AI in music:

“Look what’s happening with artificial intelligence right now. It poses enormous promise and enormous concern. Our world stands at an inflection point. The choices we make today are literally going to determine the future of this world.”

Music creators and independent labels – have your voice heard!

MIDiA is currently fielding two separate surveys that will help us create the definitive view of the contribution from music creators and independent labels to the global music market. We are exploring what it means to be a label and a creator in today’s fast-changing and challenge-strewn music business. We are listening to what challenges they face and how they feel about the coming year.

We have already got some great responses, but we want more! Not only will these surveys give you the chance to have your voice heard, we will share a summary of the results with all respondents. This means you will be able to benchmark yourself against your peers to get a better sense of how you are doing and assess whether your concerns and aspirations are shared by others.

Crucially, we do not share ANY respondent-level data. What this means is that your responses only ever go into the total average responses. Nothing is ever attributable to you and we have a comprehensive privacy and data protection policy that you can read when you take the survey.

The two surveys are:

• Music creator survey: if you are an artist, songwriter, producer / engineer, performer, sound designer, and / or composer then this survey is the one for you. Click here to take the survey
  
• Independent label survey: if you are a record label or distributor of any size that is not a division of a major record label, then this is the survey for you. Click here to take the survey. (Note – the extra reason for independent labels and distributors to take this survey is that we use the data to help create the global market shares data, to create the most accurate reflection of the contribution of independents possible)

If you have any questions then please email info@midiaresearch.com

The music industry needs a new format

Non-DSP streaming was one of – arguably the – differences between steady growth and stellar growth for the music business in 2021. With three billion dollars of retail revenues in 2021, non-DSP has quickly become a key source of revenue, but not without bringing its own set of challenges. Music rightsholders have been criticised in the past, including by MIDiA, for being too prescriptive in their licensing approaches, often curtailing the potential of new ventures. The homogenised nature of Western DSP streaming being a case in point. But with non-DSP partners, rightsholder recognised that it was still too early to define exactly what the dominant use cases would be and opted for blanket type deals instead, thus monetising new partners while leaving room for innovation. Now though, creators and rightsholders alike are coming to the point of view that the time is right for greater clarity and definition, with calls for ad revenue share as a starting point. But even if these changes were to come into play, there is a much more fundamental issue at hand: the music business does not have a format to license to non-DSP partners.

Value gaps

Much has been made of the comparison between YouTube and TikTok, and their perceived ‘value gaps’ (YouTube’s former value gap, and TikTok’s current one). YouTube’s road to music industry partnership was a rocky one, but now the relationship is positively rosy, as is YouTube’s contribution to music industry revenues. In 2021, YouTube delivered around $3.4 billion in revenues to record labels alone, with ad supported accounting for around two thirds of that. YouTube has gone from pariah to the second largest contributor of label streaming revenue. But, regardless of all the infighting, negotiating and lobbying that happened in the intervening years, it would not have been able to become the success it has were it not for the fact it was already using a well-established music industry format: music videos. This contrasts with non-DSP partners, like TikTok, Meta and Snap, that are, instead, licensing music to soundtrack their formats. In many respects, this is 21^st century sync, soundtracking the parts of digital entertainment where traditional sync does not reach. Indeed, the deals also tend to be classed as sync deals. 

Sync’s strengths and weaknesses 

Sync’s strength is being able to take music to places where music formats do not exist. Its problem, however, is that there has always been a massive value gap between its cultural impact (not least giving music exposure) versus its revenue contribution (less than 10% of 2021 retail revenues). But there is an even bigger challenge with this new ‘digital sync’: whereas traditional sync simply enhances traditional audio-visual formats (TV, games, ads, etc.), in many of digital sync’s use cases it is actually a central component of the experience. Duets, lip-syncs and other lean-through behaviour has music at its core. Without music, the behaviour does not exist. So a licensing structure that leans on monetising a soundtrack falls short of music’s defining role in many of these non-DSP experiences. On top of this, there is much that music creators do on non-DSP platforms (e.g., live chats, non-music posts) that delivers value to the platforms (by generating ad impressions) but do not generate income for those creators nor their rightsholders (if they have them).

A new format for non-DSP

So, how can this circle be squared? The solution is simple in concept but complex in practice: the music industry needs a new format for non-DSP environments, one that will ideally pave the way for metaverse monetisation also. Non-DSP music behaviours rarely revolve around the full-length song, nor full-length music videos. Instead, they revolve around components and snippets of songs, as well as the music creator’s non-music activity. The music industry needs a licensable format that reflects this new usage, not least because everything points to ‘lean through’ and the consumerisation of creation growing, not shrinking. A 15-30 second music format would be one solution, but that would likely be too static, as the more that creator culture grows, the more cultural value will reside in the music being modified by users – as illustrated by TikTok’s new partnership with Stemdrop – which could also form part of a new format structure. And, of course, it would miss the non-music activity. Last year, MIDiA published a report with Utopia (free to download here) that proposed a creator right that would ensure that value accrues to the creator for all their activity, not just musical. It may sound far-fetched, but it is not much different than an actor getting paid for appearing on a TV show.

The solution likely lies in a combination of short-form music formats and new licensable rights – which does not necessarily need to have legislation, there are other widely licensed ‘rights’ that do not legislative underpinnings. As I have already said, the concept is simple, the implementation is difficult. But things worth doing are often difficult to do. Over to you, music industry!

TikTok Music could change the game

There has been talk for some time now of TikTok parent ByteDance launching a music streaming service in Western markets. It already has Resso in Indonesia, India, and Brazil, but has spiked interest recently with trademark registrations, new Twitter accounts, and reports that ‘more than a dozen’ new markets are being prepped. TikTok has become one of the central forces in the digital music market ecosystem, eroding the cultural capital of traditional streaming services. It is a logical leap to assume that if TikTok becomes a key force in music discovery, it could do the same for consumption. While this is certainly the case, ByteDance’s streaming opportunity is a whole lot bigger and more disruptive than Resso:

TikTok Music: Resso is a perfectly decent streaming service, but similarly to YouTube Music, it only scratches the surface of what it could be. Both TikTok and YouTube have unique content, behaviour, features, and culture that stand in stark contrast to standard streaming. It is difficult to translate much of this because of licensing constraints but doing so should be the priority for both TikTok and YouTube. This will drive differentiation and help the industry carve out genuine new growth pockets rather than just unearthing the remnants of the addressable base for standard streaming. Of even more relevance to the music business, unless rightsholders can empower ByteDance’s streaming offering with something truly different, is the risk that its growth will largely comprise of switching Spotify subscribers. The music business needs the maturing streaming market to be about growth, not substitution. Perhaps TikTok Music Twitter profiles point to something bigger and bolder than Resso.

Discovery is consumption: People used to discover music on the radio and then go and buy it. That model has been turned upside down. Now, people (younger audiences in particular) discover most of their new music on TikTok or YouTube before going to radio-like streaming services to consume it. What is more, much of the ‘discovery’ that happens on TikTok is consumption. It is not just consumption either, it is consumption that streaming cannot replicate. This is before even considering the importance of ‘lean through’ creative behaviour, such as doing a duet or a dance challenge to your favourite artist’s new track. Music is the soundtrack and often the catalyst to this ‘consumption’, but when that music is listened to on streaming, it is stripped of all that creative and cultural context – It is like only listening to the soundtrack of a movie. Movie soundtracks do well as formats, but they only exist because of the movies as that is where the real value lies. All of this is why a TikTok Music service could be so exciting as it could provide both the creative and cultural context, not just the stripped-down audio file.

Ecosystem: The single most important factor of all though is TikTok’s ecosystem play. In the traditional streaming value chain, you have creators, rights, distribution, promotion, and consumption. TikTok achieves these with its superpower: its audience. Creation comes from the audience, who then distribute and market the content (via the user-centric algorithm framework, user shares, recreation, and other means), and then, of course, the audience consumes. It is a self-contained, virtuous cycle – An ecosystem. Right now, artists are pumped into the system by label marketing teams, and independent artists can push out of the system into traditional streaming with SoundOn. Yet, over time, TikTok’s creation, distribution, and consumption will become ever more self-contained, making TikTok part of what MIDiA identified as the music industry counter-culture. TikTok Music could be a major step on that journey.

The creator economy’s post-lockdown growth

The Covid pandemic created a unique catalyst for the music creator economy. More time on hands and more cash in pockets gave novices and veterans alike the opportunity to spend both more time and money making music. Though the pandemic was a peak, it also marked the start of a new era for the music creator economy across every one of its aspects, from revenue to creation to remuneration. In MIDiA’s new landmark report ‘State of the music creator economy’ we provide the definitive assessment of this exciting marketplace, covering everything from creator behaviours, creator personas, all the way through to workflows, market sizes, and growth forecasts. The full report and datasets are available to MIDiA clients here. Here is an overview of some of the key themes explored in the report.

A new generation of music makers

The music creator tools space is being transformed by the increasing availability of simple, affordable music-making tools, plus a new generation of consumers that is steeped in creator culture. We are entering a new era for the music creator economy. Yet, despite all the dramatic changes, underpinning this new era of creator behaviour are suites of complex software that arose over two decades ago and, at their core, have seen little substantial change. The digital audio workstation (DAW) is the foundation of modern music making, but was not designed for the modern music maker. This presents fertile soils for seeds of disruption as more casual music making, centred around mobile devices and sharing music online, becomes the new top of funnel for the music creation space, and the music industry as a whole. 

Having grown up as social media mainstreamed creativity, the new generation of music makers expects to achieve professional results quickly. However, as their aspirations clash with the harsh reality of streaming economics, more creators are seeking out a diversity of income streams — from selling beats to mixing and engineering — underscoring the need for creator tools companies to help drive creator remuneration. Combined with the growth of casual creators, catalysed by embedded tools on social platforms, like TikTok and BandLab, the result is a newfound fluidity in defining what it means to be a music creator. 

Though much of that generational shift will take time to permeate through to the current market, seismic change is already manifesting. Nowhere is this better seen than in the that hardware music creators use. As recently as five years ago, music creators would have invested in hardware mixing desks, synthesisers, and outboard effects. But today, the most widely owned hardware is devices that plug into computers, such as controller keyboards and audio interfaces. These affordable devices free up creators to spend on the software and sounds on their computers, relying on the hardware to control sound making, rather than actually making the sound.

And it is the spending on software, sounds and services that is currently propelling the market. With an average creator spending more than $600 a year on music creation, promotion, distribution, and commercial tools. For beginners this can mean spending three and half times more than they earn from music, while for advanced creators it is a little over one tenth. In total, the music creator tools market was worth $4.1 billion in 2022, across learning, collaboration, production software, sounds, funding, commerce, distribution, marketing and commercial, with distribution and production software being the two largest segments.

In 2021, the cumulative number of creators paying for software, sounds, skills sharing, and learning was under 30 million – by 2030 there will be nearly 100 million with learning and skills sharing becoming the largest single group of buyers. Learning and skill sharing were among the fastest growing components of the music creator economy in 2021, with strong rise in both formal and informal learning as well as in skills sharing. Just under half of the learning revenue was from companies that were largely or entirely focused on music production learning. With 83% of creators feeling that they still have much to learn and improve upon, the opportunity for learning is pronounced and will become even more so because of the fast-changing nature of the sector.

However, much of all this may seem like a separate and parallel industry to those in the traditional music business (labels, publishers, streaming services, etc.), the creator tools market that commands much of the attention, time and spend of artists and songwriters. Streaming is only around a fifth of the income of the average creator, with many aspects of the creator tools marketplace representing new ways that they can earn meaningful income, whether that is selling singing sessions on skills marketplaces, writing soundpacks for sounds platforms or producing tracks for other creators. Furthermore, clear connections are being made across the two industries, such as Avid and LANDR both offering distribution, Sony Music Publishing striking a partnership with BeatStars and Spotify launching a bundle subscription for its Cloud DAW Soundtrap. The most impactful synergies, however, will come from audience platforms, like TikTok and Shorts, that are already home to music creators and already provide their own creator tools. But what they have that rightsholders and most creator tools companies do not, is audience. As the culture of creation spreads towards audiences themselves, it is these sorts of companies that have the ability to play the most transformative role in the future of music creation.

If you are interested in learning more about MIDiA’s state of the music creator economy report, email stephen@midiaresearch.com

C.R.E.A.T.E. An entertainment manifesto

When we first formed MIDiA eight years ago, we saw the new entertainment world was going to require a new joined up approach for entertainment businesses. With the start of the ascent of the smartphone we made an intellectual bet that everything was going to become more interconnected, inter-dependent and inter-competitive. Our vision then, was to build analysis and data that cut across siloes, to help previously unrelated industries understand they were becoming connected. The ‘connecting the dots’ tagline that we launched with in 2014 was right for the time, but now the world has moved on. The dots are now connected. That job is done. Now it is time to decide what to do with those connections.

In more recent years we identified new drivers of the entertainment economy, such as:

• Fragmented Fandom
• The Attention Economy
• The Attention Recession
• Creator independence
• Rise of creator tools
• Reaggregation

When we introduced those concepts they took some time to land, but now are increasingly widely accepted as industry currency. Even other research companies have started following our lead, with webinars and research on the attention economy, the attention recession and fandom fragmentation.

But although those trends will continue to play crucial roles, it is an entirely new set of market dynamics that will shape the future as the world enters a period of uncertainty and disruption unprecedented in modern times:

• Attention inflation: As consumers return to pre-pandemic behaviours, they are trying to squeeze all their new-found entertainment behaviours into less available time. Multitasking is rocketing which means each entertainment minute is less valuable as it is increasingly being done alongside something else. Many more consumption hours than actual hours results in attention inflation.
• The splintering of culture: Water cooler moments may not yet be dead but they are fading. Hits are getting smaller (just ask Beyonce) and audiences are fragmenting. But cultural relevance can actually increase within these fragmented fanbases (again, just ask Beyonce). Culture is splintering but may end up more vibrant as a result.
• Scenes and identity: Underpinning and resulting from culture splintering is the rise of scenes, especially micro scenes which populate platforms like Twitter. Scenes are more than just groups of fans, they a cultural movements that that people look to for identity and belonging. Fandom is merely a subcomponent.
• Lean through: Consumers used to just, well, consume. Now though, every more of them want to participate. The line between creation and consumption is blurring. Leaning forward is no longer enough, now audiences want to lean in and create.
• The creator economy: Perhaps the single biggest shift in entertainment in recent years is the rise and rise of the creator economy, straddling virtually every entertainment format. The creator economy is so much more than vloggers and influencers. It represents a reshaping of culture, remuneration and audiences. As such it will reshape entertainment forever. 
• Post-peak growth: With inflation soaring and a recession looming, consumers will have less money to spend on entertainment and leisure. Some sectors will suffer, some will sustain but others will grow. Whether it is to survive or to thrive, entertainment companies will need to reshape both their strategies and purpose.
• Rediscovery is the future of discovery: The first phase of streaming was all about discovery. Now, with a surplus of supply and demand constrained by the attention recession, what consumers want as much as what is new, is to re-find what they already know and love.

Business as usual is gone. The next chapter of the business of entertainment will require a completely new approach. This is MIDiA’s C.R.E.A.T.E. Entertainment Manifesto for what is required of entertainment companies in this brave new world.

• Cultivate every moment: Multitasking means consumption minutes are losing value. Every moment needs to be made as valuable and as entertaining as it possibly can be. Entertainment companies need their audiences notice what they consume.
• Reward the creator economy: Streaming and social platforms are increasingly dependent on the long tail. The scale economics work for platforms by summing up a multiplicity of niches but they do not work for long tail creators. Platforms and rightsholders need to nurture not just harvest the creator economy.
• Empower the consumer as a creator: Lean through consumers are also super fans. More platforms and services need to give consumers the sort of participation tools that TikTok built is success upon. Not just because it is what audiences want but because it also builds fandom and amplifies entertainment brands.
• Add value and escapism: As consumers’ wallets tighten, subscriptions and ad spend are both at risk. But this need not be an entertainment Armageddon. Instead, entertainment companies should offer consumers what they want: 1) value for money, 2) escape from the harsh realities of daily life.
• Target the middle: While it is tempting to always chase the big hit, the reality is that hits are getting smaller. Success in these coming years will be most easily found by cultivating a collection of mid-sized hits rather than placing all bets on mega hits.
• Embrace scenes and identity: Scenes and identity are the undervalued super power of entertainment. Music, games, sports, creators, books, movies, TV shows – they all move people and they all help define who we are. Truly understanding and harnessing identity will be the difference between survive and thrive. 

We hope that the C.R.E.A.T.E. framework and our new Critical Developments coverage help companies and creators plot their paths through the troubled waters ahead. But even more important, is to develop a sense of purpose, a definition of why you do what you do, and to communicate that to your audiences and partners. The entertainment industries have 

Re-creating the creator economy

Everyone is a creator! Or so goes the dismissive put down of many a traditional media executive when talking about the creator economy. But regardless of what your perspective on the creator economy might be, there is no denying its meteoric rise. Perhaps what stokes the ire of some elements of traditional media is that the creator economy is evolving from being simply a talent funnel for traditional entertainment companies, into something self-contained and self-sustaining. But, for all of the positive change, there is much that is also problematic about the space. 

Harnessing aspiration at scale

First and foremost, the creator economy is a business model for the platforms and adjacent services, one that is built upon harnessing the hopes, dreams, and aspirations of large-scale creator audiences. While each of those creators individually craves success – however they might measure it – the platforms do not need the creators to find success for their respective business models to work. This is because, they monetise creators by harnessing aspiration at scale. If there are enough creators – and the pool is growing fast – a multitude of small-scale audiences are enough to drive the platforms’ strategic objectives of driving audience engagement, which, in turn, drives revenue.  What complicates matters further is the fact that creators are developing platform dependence – merely renting space on the platforms they depend upon, rarely with tenancy rights and often slave to the algorithm. It might be the creator economy, but creators fuel it rather than drive it.

Platforms are using audience as the new form of distribution

What has enabled this conflicted set of priorities to become established is the rise of platforms that use audience as the new form of distribution. Whereas traditional entertainment services, like Netflix and Spotify, license and create content to distribute to audiences, audience platforms, like TikTok and Twitch, pull their content from the audiences themselves. Even though most users consume rather than create, the creators come from their ranks. The old paradigm of license / create-distribute-audience has been replaced by audience-create-audience. If the traditional entertainment business depends on cannon balls, the creator economy trades in bullets.

Audiences are becoming creators, too, with 18% doing some form of content creation and 10% using creation tools in social platforms. Only 33% of consumers only ever purely consume content. Audiences went from lean back in the analogue era, lean in during the streaming era, and now lean through in the creator era. A growing body of creators is learning to harness this growing demand for creation, as evidenced by music creators, like Pink Panthress, Sadie Jean and Russ, canvassing input from their fanbases on TikTok.

The current surge in the creator economy is opening more doors for more creators than ever before while also bringing audiences ever closer to creation, too. But, as the number of creators grows, fandom and consumption fragment. The longer the tail, the harder it is for creators to cut through, find audiences, and build careers. Creators find themselves locked in a perpetual cycle of create / produce / perform / engage, with their host platforms demanding ever higher levels of frequency and volume of output. 

With creators’ constant fear that jumping out of the creator hamster wheel will see them disappear from the algorithm, there is a growing awareness that owning their audiences and having direct communication with them has never been more important. Yet today’s creator economy is not built this way. The rise of companies like Pico, Disciple Media and India’s ChargeBee point to the growing recognition of the ‘off-platform’ opportunity. But the majority of creators have the majority of their audiences on platforms where they are slave to the algorithm.

Owning audience is just one item on a long list of structural challenges (e.g., remuneration, discovery) that the creator economy must address if it is to transition from its current phase of undoubted opportunity, into something that can genuinely reshape and redefine the future of entertainment itself. There is both a duty of care and a window of opportunity that creator-economy companies must seize with both hands, but the second cannot be achieved without the first. That is why it is time to re-create the creator economy.

Whether you are in music, video, games, sports, or even comics, the creator economy is reshaping your business, your audience, your content, and, of course, your creators. Building upon MIDiA’s years of work in the creator economy, we have just published a landmark new report: Re-creating the creator economy. In this report, we present data, analysis and case studies of the creator economy across music, video, social, games, podcasts, sports and more, covering topics such as creator remuneration, women creators, business strategy, distribution and what independence really means.

If you are not yet a MIDiA client and would like to find out how to access this report then email stephen@midiaresearch.com

Why Spotify cannot afford to make it three out of three with podcasts

It has been a couple of weeks that Spotify would be glad to forget – if it could. Although many of the arguments have been emotionally charged and the debate says as much about people’s political beliefs as it does business strategy, it is indisputable that there is a lot at stake for Spotify. Podcasters are its big bet on the future, music artists are the current bet that pays the bills. Both constituencies need to be kept happy, but can they both be kept happy enough and at the same time? Spotify’s big-future podcast vision has been sold to investors, divesting or censoring Joe Rogan would shake those investors’ confidence in Spotify’s ability to execute on podcasts. But it would be more than just that, it would be the third time that Spotify has had to backtrack on a big bet. Once may be careless, twice bad luck, but three times would most certainly not be a charm.

It is worth remembering why Spotify is betting big on podcasts. Strategically, it wants a slice of the $30 billion radio advertising business, and it wants to ensure it is competing in all lanes of audio. But that is more about the opportunity, the potential. There is also a more prosaic motivation: podcasts represent the ability to grow higher margin revenue and give Spotify more control over its own destiny. Rather than be beholden to music rightsholders and face continual calls for higher rates from artists and songwriters (which risks making margins even smaller), Spotify can plot a course to a future where it owns much of its own content. This means both more control and higher margins. Win-win.

Spotify as a label

The only problem is that as a music platform that has acquired its hundreds of millions of users through music, music rightsholders and creators do not take too kindly to feeling like they are yesterday’s game despite still driving the vast majority of the revenue. And yet, it need not have been this way. The origins of Spotify’s podcast bet lay in the failing of their second big bet: direct artists. In September 2018, Spotify opened up its platform to artists to release their music directly on the platform. The labels of course saw this as a massive threat of disintermediation, shook their fists in fury, and compelled Spotify to swiftly backtrack, dissipating the service in July 2019. The irony is that Spotify was trying to achieve the same objectives with direct artists as it is with podcasts: more control and higher margins. The labels managed to get the strategy killed off, but in doing so they pushed Spotify into pursuing what may be an even more disruptive strategy. Competing with Spotify as a label might have been daunting to the music business, but at least the world’s leading music subscription service was still going to be squarely focused on getting its users to listen to music…

Spotify as a video service

If direct artists was Spotify’s second failed big bet, then video was the first. Back in January 2016, Spotify announced that it was becoming a video service. Featuring original content commissioned from giants of TV, such as Viacom and the BBC, Spotify went big on video. Unfortunately for Spotify, its users did not and Spotify quietly backed away from what briefly looked like a major expansion of Spotify offering away from music. Recognise the trend?

Fortune favours the brave

Spotify’s bet-based strategy is both admirable and has underpinned its huge success to date. It is just unfortunate that the biggest, highest profile bets have not panned out. If Spotify were to fail with the podcast bet too, then the consequences could be catastrophic in terms of investor sentiment. But Spotify has to bet big. It is a tech growth stock, and thus its market value is defined more by what it can be tomorrow than by what it is today. Being the leading player in a commodified and slowing DSP streaming market is not the sort of growth story that underpins valuations like Spotify’s. So it needs big dreams to aim at. 

Yet the irony is, if podcasts do not pan out then Spotify will be back at where it started: as a music streaming company (just as it was after the first two failed bets). This would be an interesting contrast to Netflix, which (occasional foray into games excepted) has had a singular focus on being a video service and is still a video service, with no failed side bets along the way.

The House of Cards moment

The likelihood is that Spotify will make a big success of podcasts, and audio more generally –and the Joe Rogan phase will be looked back on like Netflix’s House of Cards phase: a hint of what will come, the genesis of something much bigger, much more culturally impactful, and far more pervasive. But Netflix did not get to where it is without antagonising (and losing) partners along the way. TV networks that had been licensing their content to Netflix suddenly realised it was now competing with them too. By making their shows available on Netflix they were actually helping a competitor compete against them. Disney and Fox took it so seriously that they pulled their catalogue.

Netflix cause ill feeling among some TV networks and became an outright enemy. That is something Spotify cannot do with music rightsholders and creators. Spotify is currently causing ill feeling among the music community by going to great lengths to accommodate its podcast creator community, which is in stark contrast to the numerous missteps it has made with the music creator ecosystem over the years. It can do so, because it has leverage over music creators (few feel bold enough to remove themselves from Spotify), but Spotify (despite being the leading podcast platform) is still a long way from having that sort of hold over podcast creators.

‘Too big to fail’ is not enough

Netflix survived its backlash, not because it was ‘too big to fail’, but because the video streaming market is fragmented, so it could survive without the networks it antagonised (and two of those networks could go it alone via Disney+). The music streaming market is very different – losing labels and artists would simply reduce Spotify’s value proposition compared to its competitors. Spotify cannot afford its podcast ‘House of Cards moment’ to be followed by a ‘Disney moment’ for music. Matters just got further complicated by a major investor now raising concerns about Spotify’s podcast editorial policy – which means that this is no longer even a clean case of managing investors-vs-the music business. Spotify has an intensely delicate path through which it must find its way.

If it does, then third time really will be a charm for Spotify. 

From binging to burnout: the creator economy’s fault line

The streaming revolution has been built upon audience choice and control, replacing linear with on-demand and in turn opening whole new consumption paradigms. No user behaviour better encapsulates this shift than binge watching, which is done by 60% of video subscribers. But there is an inherent tension with giving the audience so much control: content is consumed much more quickly. If you are a video service, an entire season can be watched in one or two evenings, whereas in the old world, those millions spent on making the show would deliver a return over a period of months, not two nights. Little wonder Disney+ has gone for weekly episodes of its shows. 

As big as the problem is for media companies, however, it is the creator economy that is most exposed. In order to keep up with insatiable audience demand, music, podcast and video creators (and more) are often pushing themselves to their creative limits. Creators are risking burnout in order to meet their audiences’ demand for binging.

When Daniel Ek suggested that artists should be releasing music monthly, he was simply reflecting the realities of streaming-era music consumption. With just 16% of consumers listening to full albums, music audiences are beginning to replicate wider digital audiences: they expect a steady stream of (mostly) new content. The creator economy first met this audience shift with the rise of YouTubers, signing up millions of followers and delivering ‘content’ every day or so. YouTube subscriptions acted as talent feeds, setting the blueprint for content consumption that now dominates social, from TikTok to Instagram. In this world, the creator is locked in a constant battle for attention with every other content provider, big or small. Creators thus end up in a perpetual cycle of content creation to ensure they can remain present in their audiences’ content feeds.

The harsh reality of this environment is that it creates a vicious circle of influence. The more that creators create in order to try to cut through, the more content there is, which means it is even harder to cut through. This is the exact same challenge that record labels and artists currently face on streaming, forced into the volume and velocity game of releasing more music and doing so more frequently. Creators are forced to focus on volume of output rather than quality, and most often feel that however much they create, it is never enough. The net result is a growing number of creators dealing with burnout and mental health issues.

Audiences and platforms both win in the binge economy, while creators become collateral damage. With content commodified, audiences en masse do not notice as individual creators fall by the wayside, because the platforms’ algorithms will seamlessly slot in another creator who is so close the one that went, that the change will be all but unnoticeable. Platforms may have created the environments in which content is commodified, but by playing the game, the creators themselves have played a central role in commodifying content to the degree that it is content, not the creator, that matters most.

Yet, whatever the role of platforms and creators might be, it is perhaps us, the audience, that is most to blame. It is our ravenous appetite for more that creates the market. Just like Western consumers’ demand for fast fashion underpins Asian sweat shops, binging is creating a digital supply chain which favours production-line output. Some creators are beginning to create work arounds by staggering projects, dropping teasers, or even engaging fans in the creation process and having fan input points become the content they crave. But even these tactics most often require significant creator effort and maintaining a constant dialogue with the audience. 

Despite the best efforts of the creator community, the dominant direction of travel is that there is little room for careful craft. Spend three months making a song or a video, and the algorithms will already consider you history.

What BandLab and Bruce Springsteen tell us about the music business at the end of 2021

2021 was another year in which capital continued to flow into the music business at pace. Two deals that got over the line before year end have shone an interesting light on the differing strategies that are underpinning this investment: Bruce Springsteen sold his catalogue to Sony Music for between $500-550 million, while BandLab raised $53 million against a valuation of $303 million. These two deals represent the opposite ends of music industry investment in 2021.

The Bruce Springsteen catalogue deal reflects the continuing surge in music catalogues as an asset class, with the total value of deals set to far exceed the $4.7 billion that was invested in 2019. The bulk of this investment has been driven by large, institutional investors, such as Private Equity (PE) and pension funds, as well as publishers and labels – many of whom have raised capital specifically to acquire catalogues. Big institutional money is rarely focused on high-risk opportunities, but, instead, often on low-risk, predictable revenue drivers. Music catalogue falls into this category. So, a bet on catalogues is a safe(ish) bet on today’s music business.

In contrast, the investment in creator tools company, Bandlab, reflects a bet on tomorrow’s music business – including investment from venture firm K3 Ventures. Today’s music business is dominated by music rights and by music rightsholders. A growing trend among investors (both venture and later stage) is making a bet that the future of the music business will increasingly be shaped by creators. 

So, we have a situation where big, safer bets are being made on rights, and riskier, bolder bets are being made on creators. There is little irony in the fact that if the riskier bets pay off then they could reduce the value of the safer bets, thus increasing the risk profile of those safe bets. Still with me?

BandLab’s $53 million investment reflected a 17% stake (based on the $303 million valuation). To acquire 17% of the $500 million Bruce Springsteen catalogue, it would cost $83 million (if it was available for purchase, of course). This means that there is effectively a 60% premium on investing in yesterday’s (proven) music business, versus tomorrow’s (unproven) music business.

Such is the nature of venture vs later-stage investments – and there are good arguments as to why this is not an apples-to-apples comparison – but it is nonetheless a useful lens through which to reflect on the music business at the end of 2021: the big money is banking on things staying the same, the riskier money is banking on things changing. Draw your own conclusions…