The music industry’s centre of gravity is shifting

Regular readers will know that MIDiA has been analysing the creator tool space for some time now and building the case for why the changes that are taking place will be transformational not just for the creator tools space itself but for the music business as a whole. In fact, we believe that the coming creator tools revolution could be at least as impactful on the wider music business as streaming was. Firstly, it establishes a new top-of-funnel that sits above distribution companies, meaning that creator tools companies are now able to fish upstream of labels for the best new talent. Secondly, audio will become the next tool with which consumers identify themselves, following the lead of images (Instagram) and video (TikTok). But there is another factor too: the fast-growing volume of institutional investment is changing where the centrifugal forces of the music industry reside.

Outside of the currently crippled live business, the record labels used to be the undisputed central force of the music business. Then streaming services grew in scale and attracted the first wave of inward investment into the industry. Alongside labels, streaming services became the joint central force of the music business, around which all else orbited. Big investors started to make bets on either side of a binary equation: rights or distribution.

The publishing renaissance

Then music publishers and publishing catalogues started to attract investment. At the time, the only real place big institutional investors could place their bets on the rights side of the equation was Vivendi – and even then, it was an indirect bet as UMG was just one part of Vivendi. SME is just too small a part of Sony Corporation for the parent company to be a viable music industry bet. Since then, UMG divested 20% of its equity and is on path towards an IPOWMG went public and Believe is on track to an IPO also

When growth isn’t growth

Investors may be given pause for thought by the way in which leading music industry trade associations such as ARIA in Australia and Promusicae in Spain have restated their 2019 figures, having the effect of making what would otherwise be declines in 2020 instead look like growth. Take a look at Australia (2019 total revenues AUD 555 million here versus 2019 total revenues AUD 505 million here) and Spain (2019 subscriptions €159 million here versus 2019 subscriptions €138 million here).

Publishing catalogues by contrast look more predictable, with performance still largely shaped by non-recorded music market trends, including radio and public performance – though COVID-19 threw a lot of that stability down the toilet. Music publishers used the inward investment to diversify their businesses. Kobalt pushed into artist distribution (recently sold to Sony), neighbouring rights and a PRO; Downtown pushed hard into the independent creator sector (CD Baby, Songtrust); while Reservoir is going public with a Spac merger; and then of course there is Hipgnosis.

The creator tools gold rush

With music publishing catalogue valuations over-heating, big investors started looking for places where they could still play in the music market but get better value for money. Enter stage left creator tools. Key moves include Francisco Partners’ moves for Native Instruments and Izotope; Summit Partners’ investment in Output; and Goldman Sachs’ investment in Splice

What this means is that the music industry now has an additional gravitational force at its core. Just as music publishers and streaming services used their newfound investment to push into other parts of the music and audio businesses, expect creator tools companies to do the same. With hundreds of millions of dollars pouring into creator tools (and lots more set to follow), investors are making big bets on audio in a broader sense, with bold ambitions that will not be sated by staying in the creator tools lane as it is currently defined. Avid’s recent move into distribution follows on from LANDR’s similar move, and of course Bandlab has 30 million ‘users’. Adding label-like services (e.g. marketing, debt financing) and streaming functionality are logical next steps for creator tools companies.

Streaming may be the change agent that has enabled all of these shifts – but streaming is the start of the story, not the end point. The process of music business diversification is only just beginning and the next chapter may be the most exciting yet.

Native Instruments and iZotope: creator tools major in the making

At the start of the year private equity firm Francisco Partners acquired a majority stake in creator tools stalwart Native Instruments. It always looked like it was going to be the start of something big and today we saw the next step on Native’s new journey, with leading audio plugin company iZotope added to the Francisco roster. Although both companies will operate independently for now, this is the first step of a standard private equity strategy of creating a ‘roll up’ play, with Native the lead acquisition around which a portfolio of creator tools companies will be created. This is one of the first big moves of the new era of creator tools that MIDiA identified last year.

The cultural shift in music making

The music streaming market has enabled many things, not least the era of the artist. A new generation of empowered independent artists have an unprecedentedly rich (and fast growing) array of self-serve tools and services that enable them to replicate the traditional roles once performed only by record labels, marketing agencies and studios. This shift is underpinned by a seismic cultural trend: the act of musical creativity has been simultaneously simplified, amplified, and improved. Creators can go from one to 100 faster than ever before. Creativity has been accelerated and intensified. In doing so, the creator tools space has merely borrowed from wider consumer culture, where new tools enable the masses to make great content without having to put in the years of hard graft to learn the ropes. Just like Instagram did for photos and TikTok did for videos.

The new, predominately younger, generation of music consumers expect to be able to make great sounds at the swipe of a finger. New companies like Landr and Output have created tools that focus on great user experiences rather than overloading on features and complexity, the latter of which is the modus operandi of traditional creator tools companies.

Embracing the new

Native and iZotope both make great tools, but fall into the traditional category. If they are to represent the backbone of a future creator tools powerhouse, then Francisco Partners will also need to start integrating some next gen creator tools companies which can act as innovation catalysts for Native and iZotope. Key to this will be developing compelling subscription offerings. 

Thus far, most of the subscriptions from creator tools companies have been rudimentary, making the false assumption that subscriptions are a billing mechanism rather than a customer relationship. Output’s Arcade subscription (a sampler tool with daily content and a well-thought-out CRM strategy) is a better indication of where creator tools subscriptions need to go. It is this sort of thinking that is often embedded in new, young digital insurgents that needs baking into the DNA of traditional incumbents.

Going wide

The other move that Francisco Partners will be most likely considering, is how to construct a creator tools ecosystem that goes beyond music creation, and into all the other aspects of an artist’s needs. It is not a giant leap to think that rights management (e.g. Stem), distribution (e.g. Amuse), collaboration (e.g. Delic), sounds (e.g. tracklib) and marketing (e.g.  Linkfire) companies could be built into the portfolio. Perhaps even a certain DAW company might be in the sights.

The future of music companies

When Spotify was going big on independent artists the labels pushed back and it was forced to put its plans on ice, shifting focus to podcasts as its next growth driver. Meanwhile, it continued to leave its creator tools assets (Soundbetter, Soundtrap) to tick over, finally giving them some love in its recent Stream On event. As MIDiA has long argued, the labels may have stopped Spotify from competing with its business of today, but could do nothing to stop it building out what will likely become its business of tomorrow. 

Just as every label of size now has a distribution play to give it access to the ‘top of funnel’, sometime soon(ish) they will also need a creator tools play. Creator tools are simply becoming the future of what a music company is. Francisco Partners has an opportunity to not only build a future creator tools company, but the future of what a music company is. In fact, Francisco Partners might have the opportunity to create the first creator tools major. It is certainly showing more enthusiasm for it than Spotify is right now.

Snapchat buys Voisey to enter the music market

Snapchat parent company Snap Inc is reported to have acquired music collaboration tool Voisey. Voisey is a relatively new start-up, having raised its first major round mid-2019 and launching later the same year. Snap has acquired Voisey not for what it has achieved, but for what it can be. We are on the cusp of a revolution in music making, with a host of new tools and services set to create the fastest growth in music creativity ever seen. Snap wants to be a part of that.

There is more activity, inward investment and innovation in the music creator tools space than ever. Companies like Splice, LANDR, Output and BandLab are changing the face of music making, empowering creators to go from zero to one hundred faster than ever before. But in many respects, these companies are the second chapter in the original story. The first phase belongs to a growing body of apps that give consumers intuitive tools to be able to make high quality music via gamified experiences. It is all part of a broader trend of audiences being empowered with creative tools that let them achieve with one swipe what in the past would have taken years of experience and complex control panels to achieve. TikTok enables consumers to create high quality videos; Instagram, high quality photos. The new generation of creator tools are enabling consumers to make music quickly and easily. Snapchat sees itself being able to be at the centre of that.

Voisey joins a growing body of consumer-facing music creator tools, with Popgun’s Splash sound pack game in Roblox racking up 21 million players earlier this week. While the majority of these gamers will not go on to make music in a more structured way, many will who would not have otherwise done so. This is not actually the point, however. The point is that just like TikTok made amateur video making a mainstream consumer activity as Instagram did to photography, so this new generation of apps and games are aiming to do the same with music.

In the history of music, only a minority of people could ever actually express themselves through playing an instrument. That has now changed. These are truly exciting times for music, with the emergence of an industry that goes far beyond the confines of the way it is defined today, and the companies that function in it today. 

If Radiohead was releasing its debut album in 2020 perhaps it would have contained the single ‘Anyone can play gamified AI beats and sounds’.

MIDiA has been working on a major new report on the music creator tools space which we will be announcing next week. The report is already available to MIDiA clients. If you would like to find out more about MIDiA’s creator tools research email stephen@midiaresearch.com