We Are At a Turning Point for Social Music

In recent days we have seen three major developments that, collectively, are a potential pivot point for social music:

1. TikTok close to a US-entity buyout by Microsoft to avoid potential sanctions, following hot on the heels of an India blackout
2. Facebook launched a (US-only) YouTube competitor for music videos
3. Snap Inc signed a licensing deal with WMG and others, also for music videos

As cracks begin to appear in the audio streaming market, there is a growing sense in the music industry of the need for a plan B. This has been driven by growing discontent among the creator community, and a slowdown in revenue growth (UMG streaming revenues actually fell in Q2 as did Sony Music’s); the tail wagging the artist-and-revenue (A&R) dog. The search for new growth drivers is on, and social music – for so long a promise unfulfilled in the West – is one of the bets. TikTok was meant to be a major part of that bet. But with the US future of the app so at risk that a Microsoft US-entity buyout may be the only option, and the continued impact of COVID-19 on core revenue streams, the future is beginning to look a little more troublesome. Perhaps now more than ever, the music industry needs social music to start delivering.

There are three key issues at stake here:

1. How consumers discover music
2. How (particularly younger) consumers engage with music
3. Competing with YouTube

How consumers discover music

Among the under-aged 35 demographic, YouTube is the primary music discovery channel, followed by music streaming, then radio, and only then by social. Streaming discovery is heavily skewed towards tracks and playlists, and away from artists and release projects, which is fine for streaming platforms but impedes building sustainable artist careers. Radio is losing share of ear and YouTube… well, YouTube is YouTube (more on that below), so the music business needs a new discovery growth driver. Social has the potential to be just that. But spammy artist pages on Facebook and more-than-perfect Instagram photos are not it. TikTok, for all its amazing momentum, actually has a really uneven impact on discovery. Some tracks blow up out of nowhere while most do little, and rarely is it because of a smart label marketing strategy but instead because certain tracks just work on the platform and the community leaps on them. For now, TikTok is too unpredictable to plan around. Facebook (Instagram especially) and Snap Inc have a fantastic opportunity to do something special here. They have the audience and the social know-how. Whether they can deliver is a different matter entirely.

How (particularly younger) consumers engage with music

What TikTok lacks in consistent marketing contribution it makes up in consumption. Following on from Musical.ly’s start, TikTok has reimagined how music can be part of social experiences for young audiences. It has made music a highly relevant and integral part of self-expression, something that CD collections and music dress codes used to do in the pre-digital world but that soulless, ephemeral playlists wiped out. While labels pin hopes on TikTok successes to drive wider consumption, the discovery journey is also the destination for most TikTok users – they hear the track in a video and swipe onto the next one. That is no bad thing. This is a new form of consumption, and if TikTok were to disappear or fade then someone else needs to pick up the baton. Whether Facebook and Snap Inc can do so is, again, an open question.

Competing with YouTube

Now we get to the heart of the Facebook and Snap Inc deals. As important as the previous two points are, they were not the overriding priorities of the commercial teams driving these deals. Instead they were focused on expanding the revenue mix and part of that is creating more competition for the notoriously low-paying YouTube. Well, maybe not that low paying after all.

The internet is full of statements from trade associations, rightsholders and creators about how much less YouTube pays than Spotify. YouTube does pay less, because it manages to escape paying minimum per-stream rates for ad-supported videos – but it is a more nuanced picture than lobbyists would have you believe. Firstly, in terms of its Premium business, Google is entirely on par with Spotify. But then, that is the part that is licensed in the same way as the rest of the market.

Ad-supported is a mixed story. In North America, where there is a mature digital ad market, YouTube’s ad-supported average revenue per user (ARPU) is entirely on par with Spotify’s. However, on a global basis, ad-supported ARPU is dragged down by its large user base in emerging markets where digital ad markets are nascent. Spotify’s ARPU is 66% higher, in part because it has to pay minimum per-stream rates, i.e. it pays a fixed rate per stream regardless of whether it has sold any ad inventory against the track. This boosts ad-supported ARPU but it risks making the model unstainable, to the extent that Spotify reported -7% gross margin for ad-supported in Q1 2020 (and note, that’s gross margin, not net margin).

Rightsholders will be hoping for Facebook and Snap Inc to bring a similar level of competition to music video as exists in streaming audio, which in turn may give them a path to higher global ad-supported ARPU rates and a healthier marketplace. However, what will determine that objective is not business strategy but product strategy. The key question is what can they both do with music videos that YouTube cannot? YouTube has years of experience and user data around music videos, Snap Inc and Facebook do not. They will be playing catch-up with a weaker portfolio of content assets: Snap Inc is only partially licensed and both it and Facebook have only licensed official music videos. Unofficial videos (mash ups, covers, lyrics, TV show appearances etc.) account for 25% of the views of the top 30 biggest YouTube music videos. Those videos are crucial in that they provide the lean-forward element for viewers; they are crucial to making YouTube music social rather than just a viewing platform.

YouTube has dominated the music video globally for more than a decade. This might just be the time that this position starts to be challenged. But if Facebook and Snap Inc are going to do that, they will have to bring their product strategy A-game to the field. If they can, then the we may indeed witness a social music turnaround in the West.

The Song Economy

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

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

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

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

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

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

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

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

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

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

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

Ellie Goulding and Billie Eilish Are Streaming’s New Normal

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

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

Fusing consumption and retail

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

‘More of more’

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

Catalogue Darwinism

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

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

Ellie Goulding: niche mainstream

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

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

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

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

Quick Take: Crowdmix Bites The Dust

Crowdmix was one of those start ups that promised to change the world. It was going to be a social network focused around music that would transform how people discover music and how audiences and influencers interact. Now it is going into administration. Crowdmix suffered from many things, not least a confused value proposition that no-one outside of Crowdmix seemed to be able to explain properly (so it failed the elevator pitch test). But more importantly Crowdmix failed because it played the venture game too faithfully. In the current venture environment, you need to be a ‘game changer’ to unlock significant scale investment. Which is fine, except that only a tiny handful of companies are ever genuine game changers. So what happens is that too many companies try to live up to inflated promises rather than focusing on building viable products and business models. Every company has to be the ‘Uber or Snapchat of [insert industry]’.

Crowdmix convinced itself it could build an entire new social network around music. It couldn’t because of 3 reasons:

1. Music is fundamentally not important enough to enough people to build any sort of scale of social network around it
2. As Google learned the hard way, there is only room for one major scale social network
3. Social networks are yesterday’s technology. They are how Digital Immigrants and older Millennials interact digitally. Messaging apps have replaced social networks for Gen Z and younger millennials

The average life span of a digital music start up is 5.8 years with an average investment of $79.7 million (though those numbers are skewed up by Spotify’s $1.6bn). Crowdmix made it to 3 years and through $18 million, so below average on both counts. It was a nice enough – if slightly confused – idea that made the simple mistake of believing it could change the world.

Consumer Spending On Digital Music Actually Fell In 2014 (Yes You Read That Right)

The following are excerpts from recent MIDiA Research blog posts.  If you’re not already signed up to the newsletter type your email address in the box on the blog home page and you’ll get analysis and data on the digital content economy straight to your inbox every Monday.

Spending money on recorded music has become a lifestyle choice, an honesty box for the conscientious consumer.  No one really needs to pay for music anymore.  That much is familiar to most, but what is new is that it is now manifesting itself in a new worrying way.  In 2014 consumers actually spent less on digital music than they did in 2013. Though the drop was small – 1% – it was still nonetheless a drop at a period when digital spending should be booming.  In some key markets the consumer spending decline was significantly larger, such as a 3% fall in the UK.  Of course, overall digital music revenue grew globally in 2014 but all of that growth came from the 37% increase in digital music B2B revenues, such as advertising income and telco bundles.  In short, the music industry is getting better at selling to businesses and worse at selling to consumers in the digital arena.

With B2B digital revenues 6 times smaller than consumer digital revenues the music industry is not about to suddenly become a B2B2C business.  But the direction of travel indicates that there is a problem.

Read the original post in full here.

The music industry has long been viewed as a canary in the mine for how media industries transition into the digital era.  In many respects that role has now been outlived.  Book publishers quickly realised that after a few short years they had moved beyond where the labels had got to in 10.  Meanwhile games publishers (mobile, console and PC) have learned how to monetize their super fans in a way the music industry could only dream of.  But it is the video sector that provides the starkest contrast.

39% of consumers regularly stream music for free, nearly four times the rate that pay for music subscriptions.  While free tiers of paid services play a clearly defined subscriber acquisition role, the purpose of standalone free services is becoming less clear-cut:

• Old favourites trump new gems: Half of free streamers say they use these services mainly to listen to music they already know. While it would be unrealistic to expect anything other than the most on-trend of super fan to be spending all their time sampling new tunes, these trends illustrate that free on demand streaming services are most used as consumption destinations.
• The end goal has changed: Just under a third of free streamers go onto buy the music of artists they discover on these service while 37% simply stream newly discovered artists more. Both use cases will coexist for some time, but with with music purchasing fading phenomenon, the latter will dominate.

Read the original post in full here.

The TV business is of course a vastly bigger one than music but it is, in years spent terms at least, at far earlier stage of its streaming subscription transition.  And yet already there are more than twice as many online video subscribers as there are music subscribers and the nascent online video subscription market is already bigger than the entire recorded music business.

Even discounting the relative scales of each business, the comparisons illustrate the contrast between what can be achieved with a niche product aimed at largely male, high spending super fans (music) and the reach a lower priced, more broadly targeted product can do (even with the hindrance of limited catalogues).

 

The days of other media industries learning from the music industry are gone. Now it is time for the music industry to heed its lessons from its peers.

Read the original post in full here.

Spotify And (Fixing) The Tyranny Of Choice

Regular readers will be familiar with my concept of the ‘Tyranny of Choice’ namely that there is so much music choice now as to be counter productive. 30 million tracks (and counting) is a meaningless quantity of music. It would take three lifetimes to listen to every track once. There is so much choice that there is effectively no choice at all.

A host of music discovery services and apps tried to fix the problem a few years ago but most of them failed and went out of business. A new generation of music services such as Songza, Beats Music, MusicQubed and blinkbox Music are now all trying again with heavily curated approaches, delivering music fans the tracks that matter.

It looks like the Tyranny of Choice isn’t just an issue for the mainstream fan. Look at this quote from the Spotify Insights blog that discusses the rise of Mr Probz in the US:

“What’s clear is that the ‘lean back’ mechanism of curated playlists (as opposed to the ‘lean forward’ method of search which drove European streams) led to the early success of Mr Probz in the US”

Even in Spotify, the global home of the engaged music aficionado, curated lean-back experiences are coming to the fore. The access services are stealing some of the clothes of listen services. This is no bad thing but it does highlight the importance of this 4^th phase of the digital music market, the ‘Curation Era’. Spotify gave consumers access to all the music in the world, now it – and others – is trying to help make sense of it all.

Google’s Acquisition Of Songza And ‘Fixing Discovery’

Google yesterday confirmed the much rumoured purchase of curated music service Songza for somewhere between $15 and $39 million. While it is not a vast investment for a company with the recent $3.2 billion acquisition of Nest as a benchmark, it is nonetheless a significant one for a company that already has a couple of streaming music services of its own. It is not a Beats sized deal but then if Google had wanted one of those it would have bought Spotify. So just why did Google splash the cash on Songza?

Access to all the music in thee world can be overwhelming, with so much choice that there is effectively no choice at all. This is the Tyranny of Choice. For all the efforts and intent of music services to ‘fix’ discovery no one has yet nailed it. Listen Services like Nokia Mix Radio, O2 Tracks and Pandora present one solution: effectively removing the burden of excessive choice by delivering a curated stream of music that requires little or no effort from the user. But this approach does not translate well to All You Can Eat (AYCE) services like Spotify and Googles’ Play Music All Access. These services are built on the foundations of giving access to everything, the exact opposite of what Listen Services are about. Which is why AYCE services are doubling down on enhancing their internal curation and recommendation capabilities. Spotify moved first with its acquisition of the EchoNest, Rdio followed by acquiring TastemakerX and now this move from Google. Beats Music took a different route entirely, building its service on the foundations of programming rather than superimposing it.

Google should be able to extract great value from Songza but as with all of these technologies it is just part of the solution. Human programming, as resource intensive as it might be, remains a pivotally important part of the equation, and though all the AYCE services have teams of curators, only Beats so far has done it at large scale.

First, Show People How To Find What They Have Already Found

And still the discovery problem is not fixed. Progress has been made in the last few years, but in many respects it is a case running before learning to walk. Recommendations, discovery and programming are just one part of the music consumption journey i.e. discovering new music. Arguably the most important aspect of the journey is the one that is most neglected: navigating the music people have already discovered. As counter intuitive as it may sound, people first of all need to be shown how to find what they have already found…their pre-existing music collections but also the music they have listened to in a service. Creating playlists and tags of songs is an often burdensome task that requires no small amount of discipline. Which means that newly discovered gems can all too quickly disappear back into bottomless pit of 30 million songs, rendering a discovery journey wasted.

Smart of use of data can provide the foundations for the solution, ensuring that people’s streaming ‘collections’ are dynamically created and programmed. But data alone is not enough. What is needed is an entire new paradigm in music navigation. For all the faults of CDs they were visual reference points. A consumer might not remember the name of an artist or an album but would know roughly where the CD was on a shelf or what colour the cover was. (I remember as a DJ often identifying a record I was about to play only by the colour of the label on the centre of the vinyl).

Digital music lacks such visual reference points. iTunes transformed our music collections into featureless spreadsheets, with playlists emerging as simply another means of sorting the data. New visually rich interfaces in music services help enhance the user experience but most often simply try to shoe horn in the old album art approach into a digital context. This new navigation paradigm must start with a blank sheet and think in terms of multimedia, interactive, dynamic experiences. It will need to leverage rich visuals, touch, dynamic context aware programming, sound, voice control and Shazam, to create an immersive whole that gives the consumer clear, immediate results in a way that engages multiple senses. Only once we have fixed this first step of the music consumption journey can we really start thinking about ‘fixing discovery’.

Why Spotify’s Acquisition of the Echo Nest is a Test Case for the Age of the API

Spotify’s acquisition of music data and recommendation company the Echo Nest is a clear statement from a pre-IPO Spotify to the market that it takes the challenge of the Tyranny of Choice seriously.  In doing so it has established ideological fault lines between it and rival Beats Music. While Beats has put its faith in human curation Spotify has bet big on algorithms. It’s men against machines.  But the most important implication is neither this nor even the fact that Spotify now powers the discovery tools of many of its competitors, but instead the shockwaves that Spotify could send throughout the entire tech start up ecosystem if its screws up how it deals with the Echo Nest’s API.  This is the first major text case for the Age of the API.

Over the last half decade open APIs have become a central component of the technology space with countless start ups opening up their code and data for other start ups to riff off.  It has been a win-win for start ups on both sides of the equation: the givers more quickly permeate throughout their target marketplaces while the takers get to short cut to functionality that might be otherwise unobtainable.  Consequently we now have countless companies that are built upon a patchwork of interconnected APIs and a richer seam of products and services.

This is the exact strategy the Echo Nest pursued, aggressively pushing their API out into the digital music market place with very liberal usage terms and putting themselves at the heart of the Music Hackday movement.  (Few Hackday entrants worth their salt will be found without the Echo Nets API coursing through their virtual veins.)  Only Soundcloud can lay claim to having been more successful in the music API game.

But now that the Echo Nest is deeply embedded in the digital music marketplace what happens if it turns off or dials back its API? Currently it is making all the right noises, that its API will remain both “free and open”.  But there is a big difference between the aspirations of a newly acquired company and the actual behavior of the buyer 12 months or so down the line.  Indeed, a highly plausible scenario is that Spotify will eventually wind down the Echo Nest as a distinct entity, bringing all of its functionality behind the walls.  After all, if you break down what motivated Spotify’s acquisition, other than the prime motive of sending the right message to the street, the core assets are not the data itself – Spotify has plenty enough of that – but instead the expertise and the technology.  Data is worthless if you cannot interpret it properly.  Why let competitors benefit from that?

So right now the technology sector as a whole should be paying close attention to what Spotify does with the Echo Nest’s API.  If it does indeed eventually turn off the tap then it will rightly make investors and start ups alike question the strategic integrity of building businesses on the foundations of third party APIs.  Spotify needs to get this one right because the implications are far bigger than Spotify’s IPO, or indeed even the broader digital music market.  Instead this is the future of the entire technology start up marketplace.

 

The Death of the Long Tail

Today MIDiA Consulting is proud to announce the publication of an important new report: The Death of the Long Tail: The Superstar Music Economy.  The report is available free of charge to Music Industry Blog subscribers.  (If you are not yet a subscriber to this blog simply enter your email address in the box on the right hand column of the home page.)

The 21^st century decline in recorded music revenues continues to send shockwaves throughout the music industry and although there are encouraging signs of digital-driven growth, the impact on artists is less straightforward.  Total global artist income from recorded music in 2013 was $2.8 billion, down from $3.8 billion in 2000 but up slightly on 2012.  Meanwhile artists’ share of total income grew from 14% in 2000 to 17% in 2013.  But the story is far from uniform across the artist community.

The Superstar Artist Economy

The music industry is a Superstar economy, that is to say a very small share of the total artists and works account for a disproportionately large share of all revenues.  This is not a Pareto’s Law type 80/20 distribution but something much more dramatic: the top 1% account for 77% of all artist recorded music income (see figure).

The concept of the long tail seemed like a useful way of understanding how consumers interact with content in digital contexts, and for a while looked like the roadmap for an exciting era of digital content.  Intuitively the democratization of access to music – both on the supply and demand sides – coupled with vastness of digital music catalogues should have translated into a dilution of the Superstar economy effect.  Instead the marketplace has shown us that humans are just as much wandering sheep in need of herding online as they are offline.

In fact digital music services have actually intensified the Superstar concentration, not lessened it (see figure).  The top 1% account for 75% of CD revenues but 79% of subscription revenue.  This counter intuitive trend is driven by two key factors: a) smaller amount of ‘front end’ display for digital services – especially on mobile devices – and b) by consumers being overwhelmed by a Tyranny of Choice in which excessive choice actual hinders discovery.

Ultimately it is the relatively niche group of engaged music aficionados that have most interest in discovering as diverse a range of music as possible.  Most mainstream consumers want leading by the hand to the very top slither of music catalogue.  This is why radio has held its own for so long and why curated and programmed music services are so important for engaging the masses with digital.

Music has always been a Superstar economy and there will always be winners and losers in music sales, with the big winners winning really big.  Over time the improved discovery and programming in digital music services should push the needle for the remainder artist tier but a) it will not happen over night and b) it will still have a finite amount of impact.

The Catalogue Size Arms Race

Matters are worsened by the music services’ catalogue arms race which has become entirely detrimental to consumers’ digital music experiences.  Action needs taking urgently to make sense of 25 million songs, not just through discovery and editorial, but also by taking the brave decision to keep certain types of content, such as sound-alikes, outside of music services’ main functionality.

Until labels, distributors and artists come to together to fix the issue of digital catalogue pollution – sound alikes and karaoke especially – the Tyranny of Choice will reign supreme, hiding 99% of artists under a pervasive shroud of obscurity and giving the Superstars another free lap of the track.

Music Industry Predictions and Aspirations for 2014

2013 was a year of digital music milestones: 15 years since the arrival of Napster, 10 years since the launch of the iTunes Store and 5 years since the birth of Spotify.  Which begs the question, what will we looking back at in 5 years as the success stories of the ‘class of 2013’?   There have been some interesting arrivals with promise, such as WholeWorldBand, Soundwave, O2 Tracks, Bloom.fm, Google Play Music All Access (ahem)…. As is the nature of start ups many of the dozens that started in 2013 simply won’t go the distance.  Indeed many of Spotify’s ‘class of ‘08’ have fallen by the wayside: MXP4, MusiqueMax, Beyond Oblivion, Songbird etc.   If the ‘class of ‘13’ want to emulate collective success then it is the ‘class of ‘07’ they should look at: a bumper crop of success stories that included Songkick, Topspin, Deezer, Songza and Soundcloud (though Spiral Frog and Comes With Music were notable flops).

So what can the ‘class of ‘13’ and the rest of the music industry expect in 2014?  Well here are a few of my predictions and aspirations:

• Label services will grow and grow (prediction): following the lead of the likes of Cooking Vinyl and Kobalt every label and his dog appears to be getting in on the act.  Which is no bad thing.  The choice used to be binary: DIY or label.  Now labels are borrowing some of the clothes of DIY and in turn transforming the artist relationship from one of employee to client.  Expect many established frontline artists coming to the end of their label deals in 2014 being persuaded to opt for a label services deal with their label rather than jumping ship.
• Downloads will be flat globally (prediction): the download is still the dominant digital product globally but in the markets where streaming has got a strong foothold it is eating into downloads.  A key reason is that the majority of paid subscribers are also download buyers and their behavior is transitioning.  But in most of the big markets, and in most of the non-Northern European markets, downloads are the mainstay of digital and will grow further in 2014, cancelling out declines in the US and elsewhere.
• Latin America and Africa will both grow in importance (prediction): these are two regions with hugely diverse national economies but both also contain a number of markets that are ripe for digital lift off, particularly in Latin America.  However the standard solutions for the western markets will only have limited success.  Expect innovative newcomers to do well here.
• The streaming debate will NOT resolve (prediction): expect strong continued growth in streaming.  Spotify should hit 10 million paying subscribers soon – the free mobile offering may even push it to 100 million users.  Deezer should clock up another milestone soon too.  And Beats Music could get really serious scale if it does indeed bundle with headphone sales.  But the nature of the debate means the bigger streaming gets the more artists will perceive they are being short changed, because individual artists will feel the impact of scale more slowly than the market.  Expect things to really hot up if Spotify goes public, does well and the majors do not distribute meaningful portions of their earnings to artists.
• Spotify, Deezer and Beats Music have a good year (aspiration): to be clear, this isn’t me breaking with years of tradition and suddenly jettisoning impartiality and objectivity.  Instead the reason for the inclusion is that the future of investment in digital music will be shaped by how well this streaming trio fare.  Between them they accounted for 70% of the music invested in music services between 2011 and 2013.  These big bets may not be leaving a lot of oxygen for other start ups, but if they do not succeed expect digital music service funding to get a whole lot more difficult than it is now.
• Subscription pricing innovation accelerates (aspiration): regular readers will know that I have long advocated experimentation with pricing so that portable subscriptions can break out of the 9.99 niche.  In addition to more being done with cheaply priced subscriptions we need to see the introduction of Pay As You Go subscription pricing in 2014.  Pre-paid is what the mobile industry needed to kick start mobile subscriptions, now is the time for the music industry to follow suit.
• More innovation around multimedia music products (aspiration): one of the most exciting things about Beyonce’s album last week was the fact it put video at its heart.  Since I wrote the Music Product Manifesto in 2009 depressingly little has happened with music product strategy.  Of course not every artist can afford to make an album’s worth of flashy videos, but hey, they don’t need to all be flashy.   Here’s hoping that a few more labels follow Sony’s lead and start really pushing the envelope for what music products should look like in the digital era.  Here’s a clue: it is not a static audio file.

P.S. If you’re wondering why I am so harsh on Google Play Music All Access it is because they can and should do so much better.  The market needs innovation from Google, not a ‘me too’ strategy.  Come on Google, up your game in 2014.