Playlist Malfeasance Will Create a Streaming Crisis

Streaming economics are facing a potential crisis. The problem does not lie in the market itself; after all, in Q1 2019 streaming revenue became more than half of the recorded music business and Spotify hit 100 million subscribers. Nor does it even lie in the perennial challenge of elusive operating margins. No, this particular looming crisis is both subtler and more insidious. Rather than being an inherent failing of the market, this crisis, if it transpires, will be the unintended consequence of short-sighted attempts to game the system. The root of it all is playlists.

Streaming makes casual listeners ‘more valuable’ than aficionados

Streaming took the most valuable music buyers and turned them into radio listeners. Now, as the market matures, it is taking more casual music consumers and also turning them into radio listeners. Although curated playlist penetration is still low (just 15% of streaming consumers listen regularly to curated playlists, fewer than listen to podcasts), the impact on listening over indexes.

While a lean-forward, engaged music listener may select an album or a handful of tracks to listen to and then move on, casual listeners might put on a 60-track peaceful piano playlist in the background while studying, doing housework etc. The paradox here is that casual fans have the potential to generate more streams than engaged listeners.

With casuals being the next wave of streaming adopters, their impact will increase. But despite being ‘more valuable’ they will also reduce royalties, because more streams per user means revenue gets shared between more tracks, which means lower per-stream rates. The music industry thus has an apparently oxymoronic challenge: it is not in its interest to significantly increase the amount of media consumption time it gets per user, but instead it will be better served by getting a larger number of people listening less! 

Current market trajectory points to more streams per user, which – for subscriptions, where royalties are paid as a share of revenue – means lower per-stream rates.

Playing the game

Against this growing background consumption trend, streaming services, labels, songwriters and artists are all making matters worse by gaming the system whether that be by structuring songs to work on streaming, creating Spotify friendly soundsor simply gaming playlists.

With playlists being so important for both marketing and revenue, it was inevitable that people would seek out ways to attain any possible advantage. Consequently, playlists are becoming gamed, whether that be major labels getting more than their fair share of access to the biggest playlistsor ‘fake artists’filling them out.Most recently, Humble Angel’s Kieron Donoghue identified a cynically constructed playlist called ‘Sleep & Mindfulness Thunderstorms’(all terms optimised for user searches) that contained 330 one-minute songs of “ambient noise of rain and a few thunder storms thrown in for good measure”. The one-minute track length ensures they are long enough to qualify for a royalty share, but short enough to ensure that a typical listening session will generate a vast quantity of streams, thus generating more royalties.

The twist to this story is that this playlist was created by Sony Music and the artist behind all these tracks appears to be a Sony Music artist. Crucially Sony isn’t the only one doing this, with UMG getting in on the actand Warner Music signing an algorithm.

Playlist deforestation

This sort of activity may make absolute commercial sense but is creatively bankrupt. It certainly makes record complaints about ‘fake artists’ ring less true. Just because you can do something does not mean that you should. This model works until it doesn’t. In fact, there are parallels with deforestation. A logger in the Amazon will likely not be thinking about the destructive impact on the environment he is directly contributing to. In similar manner, it is unlikely that the people creating these playlists realise that they are contributing to a market-level crisis. This is because, the more of these types of playlists that are created, the lower per-stream rates they will generate for everyone.

Well, not ‘everyone’. If overall streaming revenue rises but stream rates decline, then the companies with large catalogues of music, especially those that are also creating arsenals of playlist-filler ammunition, will still feel revenue growth. For individual artists and songwriters, however, royalty payments could actually fall.

Fixing the problem

The casual listening problem will not fix itself. In fact, despite labels worrying about declining ARPUthe only way they can keep ahead of declining streaming rates is by increasing their share of streams. That means more of this sort of playlist gaming activity, which further accentuates the problem.

There is however a simple solution: reduce per-stream rates for lean-back playlist plays.This would ensure the songs people actively seek out get better pay-outs. The demarcations between lean back and lean forward used to be elegantly simple (e.g. Pandora versus Spotify), but now curated playlists and other forms of streaming curation are supporting radio-like behaviour on the same platforms as on-demand. It is time for royalty models to catch up with this new reality.

Preparing for the Post-Album Industry

This is a guest post by Keith Jopling, MIDiA’s Consulting Lead. It is a follow-up piece to What’s Next In Playlist Innovation?

Every week I’m still excited to check out the latest album releases. They are the gift that keeps on giving. But that gift feels different these days, more like receiving flowers or chocolate and less like anything you might say is a keepsake.

It’s becoming very rare these days for me to fall in love with an album the way I used to. I miss it, but there it is. Some of this is a conscious trade-off, since I enjoy compiling and curating playlists. But to some extent, it just feelslike I don’t have the time to give (i.e. invest in repeated listens) in the way albums – good ones – truly deserve.

Broader listening trends confirm that this applies to people in general. The penetration of adults that claim to listen to whole albums monthly, stands at just 16% (Q4 ‘18 data from MIDiA, a drop from 22% in the previous quarter), compared with say, 35% listening to music on the phone.

This is self-reported of course. Behavioural data on actual album listening is a patchwork of proxy measures, such as ‘listens (to individual album tracks) from the artist’s album page’ on Spotify. To be fair, we never ever really knew how consumers who bought albums actually listened to them. Survey data I saw a long time ago, before the streaming era kicked-in suggested that some purchased albums were played on average, just over once.

Competing in the attention economy

As the management consultants say, what can’t be measured won’t get done, and so in a world of real-time statistical feedback, why make an album if you cannot know who is listening and how? There is already a creative conversation in the industry about “skip-rate reduction” and one way to achieve this is to front load albums with the catchiest tracks, but where does that leave the art of album sequencing and story-telling?

The album’s competitive pressures go wider than music. In the attention economy, albums compete with Netflix, Fortnite, TikTok and Instagam. In music’s own attention economy, albums compete with singles, playlists, games, podcasts and box sets. And those latter two categories are literally stealing the show. This is unsurprising in the streaming world – a better way of coping with the content waterfall is a ‘consume-once-only’ approach. The idea of spending the same 45 minutes over & over to build up familiarity with a record seems taxing.

Albums are no longer water cooler moments

What seems particularly telling for music, is that ‘Netflix and shows’ is the water cooler conversation now. Pop culture talk is all about what you’ve watched, are watching or should watch, and any similar conversation about listening is conspicuous by its absence. The ‘event album’ seems to be over. Is it just me or do artists seem to want to drop albums with less fuss now anyway? Perhaps the element of surprise (Bowie’s legacy yet again) is smarter than facing the “aftermath of promotion”. But it’s also not without risk given the tonnage of new music flowing through. Coupled with this, some artists are either eschewing the format or at the very least questioning it. If we take the world’s biggest artist right now, Ariana Grande – what role did her album play in the scheme of things?

What choices does this leave labels and artists?

When the CD began to give way to streaming, it’s fair to say the labels embraced it. In some ways, the CDs decline was ushered in rather than managed out. Back around 2012 I was in the room when one label boss took hold of a CD and flung it across the room smashing it into shards. I was impressed if surprised. But are labels taking the same level of aggressive-progressive when it comes to succeeding the album?

I’ve already argued previously that the main format to succeed the album is the playlist, and that there is further innovation to go (also acknowledging Apple’s release regarding a more creative approach top playlist cover art). Meanwhile there is no doubt that the EP has made a comeback, and has become a useful vehicle for new artists to drop a collection of songs as a showcase of their repertoire.

But let’s take a look at some other options:

  • (Bring back) Album Exclusives:With some services so favouring the single track, could the labels divide & rule with full album licensing fenced off to other album focused services? Now I know we’ve been there before, and ‘nobody’ liked it much, but things are different now, and platform differentiation is a strategy both labels and platforms need when it comes to content. If some services stepped up in full support of the album, it stands a better chance longer term. A more radical option? Sell full albums exclusively on label-owned streaming services.
  • Physical Exclusives (through vinyl):Favouring both the true fan and the artist, perhaps vinyl should become the exclusive way to hear the whole collected work. With traditional vinyl at capacity one innovation I am keeping an eye on is Virylsteam-based manufacture. For artists looking to do something truly different, this is an option. Pre-order, custom versions, pre-sale and merch during tours, and pop-ups, as well as sell-through Amazon, Bandcamp and brick & mortar, the product sale potential is larger than it looks.
  • More visual outputs:Universal has doubled-down on video. Apple has doubled-down on video. Video remains huge, and continues to grow in short-form, and now long-form too. TV and theatrical productions are hunting very actively on music’s turf. It’s fascinating but by definition, not the same ubiquity potential of audio formats. Music films can do wonders for song catalogues however, Bohemian Rhapsdoy has proven that.
  • Experiment with entirely new formats:Easy to say, harder to do. New platforms such as voice and the car provide options without a doubt. Of course, an option for the producer sector is to do nothing much – simply wait for the technology sector to stumble on the next scaleable format. They are certainly trying, from Spotify’s Canvas moving images, to Pandora’s new Stories format, to Apple’s continued video format innovations such as Up Next. The platforms pitch these formats to artists as much as labels. One problem for labels is keeping up with the tail wagging the dog. Without knowing if the format will last, should they invest and convince artists to make stuff the platforms want? For example, should they make vertical videos just because Spotify wants vertical videos that month, or podcasts because it’s now all about podcasts, until it isn’t?
  • Expand into the live sector: Not easy. Wider representation of artists got a bad rap with the ‘360’ degree deals, but yet again, times have changed and a re-evaluation is due. With money coming in from streaming as well as outside investment, labels could buy smaller live promoters and venues.

What does this mean to the artist proposition and label economics?

Okay, so now we are down to the rub. The album is still the format that drives industry economics as a whole. The conversation around the artist proposition (and therefore the deal) has been changing for some years, but still essentially centres on the album as the economic unit. This must surely see more rapid change, to be replaced by agreed song numbers, or simply a time period covering numerous ‘artist projects’. We’ve already seen the first ‘lifetime’ deal between Elton John and Universal.

For the vast majority of artists, revenues are now following a pareto curve, with their ‘top songs’ (between five and ten say) making up a fraction of their catalogue but the large majority of their streaming income. When an established active artist releases a new album, the impact is often on those jewels in the crown more than the new collection, and if one or two songs make it into the crown, then bingo! The project pays off. The goal of any artist project is to get another jewel in the crown, but is an album the critical vessel to achieve that goal?

Perhaps the golden rule here is that the one size fits all model is becoming unfit for purpose. We’re already seeing some innovation, especially from Hip Hop artists like Migos, Drake and Kanye, but this trickle needs to turn into a flood. We’re getting to the time for ‘throw everything at the wall and see what sticks’.

The last days of All Killer No Filler?

I still use my primary source of the past 20 years to find new records, The Guardian G2 and Pitchfork. I can’t find any new albums via Spotify’s personalised feeds, because that’s mostly now just ‘for me’, or singles. Apple Music does a better job of presenting new release albums, and I guess both the streaming rivals are serving their own listener base appropriately.

Despite everything you read above, I feel the album will endure. The digital streaming age is a challenge to artists to make better albums, the ‘all killer no filler’ approach. The album as a canvas still feels relevant for some artists, but only some.

The album is already a niche in consumption terms, unmeasurable in streaming terms, but still the essential deliverable in the deal. That’s out of step, and those labels and artists with one eye on the mid-term future will already be planning for what the game looks like going forward. It’s what Reed Hastings calls “constantly worrying about what’s next” and it’s worked for him so far.

We don’t just write it. For a ‘post album world’ conversation with Keith & Mark contact us at MIDiA. We’ve already been helping labels, artists and managers rethink the album, drop us a line at info@midiaresearch.comto see how we could work with you.

 

What’s Next For Playlist Innovation?

This is a guest post from MIDiA Research’s Keith Jopling.

In this era of access to all music and everything about it, I do enjoy reading artist interviews, and pay attention to artists’ views on the modern music industry. What caught me recently were Mark Ronson’s remarks on songwriting in the age of the playlist in The Guardian:

“Everything has to be produced so it sounds competitively as loud as possible coming out of an iPhone or as loud as possible when it comes out of a Spotify hits playlist; you have to make sure the kick drum and the guitar have the same loudness and presence all the way through the whole fucking song or you don’t stand a chance. It’s kind of crazy how you have to think about music now.”

I have heard similar views from artists in recent years and they do have grounds, though you’ll be hard pressed to prove that streaming and playlists have truly altered music per se. After all how would that equate with the huge success of ‘slow music’ playlists, from Peaceful Piano to Esquenta Sertanejo to Your Favourite Coffeehouse?

There has certainly been an industry skew towards ‘streaming hits’ though. More artists are making “Spotify-core” (i.e. music that will do anything to avoid being skipped) and that’s a genre perhaps lacking in subtlety, But can it be accused of crowding out other, subtler types of music?

I would argue that playlists have changed the way we listen more than they have changed music itself. If the first port-of-call for music consumers is to hear songs on playlists, a lot of context around the music is lost. Already, research has shown that listeners are hard pushed to recall song titles, let alone the albums those songs are taken from. Speaking of albums, it strikes me as high time the industry now evaluate just what a ‘post-album’ world will look and sound like. So perhaps somewhere to start is to think about more innovation with the format that in essence, has replaced the album – playlists.  

Are playlists now set in stone as 30-50 tracks that are forever subject to optimisation tools and analytics? I very much doubt it. Despite playlists becoming valuable commercial music real estate in their current form (at least on Spotify) it seems to me that there is plenty of scope for further creative development of the format. We are far from ‘peak playlist’. A glance at the latest MIDiA global consumer data for Q4 2018 would back this up, with just 17% of music streamers claiming to listen to playlists regularly. though that number nearly doubles for Spotify subscribers to 31%. Critical mass for Spotify but hardly mass behaviour for the market overall.

That said, playlists do greatly reflect the way consumers interact with music: compiling or selecting, listening and sharing, sometimes adding context along the way. The opportunities these behaviours offer as a vehicle for promoting and monetizing artists are immense and perhaps still largely untapped, especially with regard to contextualization of new talent, as well as the creative resurfacing of songs from within music catalogues too.

A slowdown in playlist innovation

Spotify came to be the platform that really owns the playlist format, and it achieved this through a breakneck period of innovation between July 2015 and September 2016, with curated playlists brands like Rap Caviar and Today’s Top Hits augmented with the personalised “made for you” power triangle of Discovery Weekly, Release Radar and Daily Mix.

But since then, in over two years there has been little of that same calibre, other than somewhat lighter initiatives such as “Your Time Capsule”. More recently, Spotify has begun to fuse some curated playlists together with algorithmic suggestions (‘algotorial’). The strategy to personalise more playlists not only makes it harder for its competitors to copy, but introduces many more song slots for direct or independent artists to fill. The strategy is smart but perhaps lacks imagination.

Playlist Innovation Timeline: There has been a slowdown following 18 months of blistering innovation led by Spotify between July ‘15 and September ‘16.

Playlist-Timeline

Despite this, remarkably none of the major streaming competitors have made moves to innovate in the playlist space either, which seems a shame when streaming services are desperate for differentiation strategies. Instead, Amazon, Apple and Deezer seem to have largely played a game of follow the leader, with similar playlists themes, visual presentation and even ever blander names. In recent days Pandora has launched something called Stories, a mesh of podcast + playlist, which seems not only to lack imagination but to be muddled. Isn’t that just a tweak on radio?

Many artists and labels are concerned about the power that services have with regard to playlisting. While getting tracks on to the current raft of major playlist properties represents a challenge for A&R and marketers the music industry, the more accessible platform-hosted independent curated playlist have been around since Napster.

There are few, if any, limits to the potential reach of these playlists, and their value is determined in part by how creative they are, and in part how shareable they are. The recording industry’s earlier efforts to build playlists or influence playlists have fallen short though lack of imagination, global thinking, context and shareability, but that just means that the industry is free to work more creatively with the wider playlist community. It surprises me that Spotify, which plays host to independent curators still (and hopefully will continue to) doesn’t do more to tend to the community. But this perhaps creates room for others to do so.

Personally, I can see new exciting playlist platform tools like Soundsgood helping global playlist curators reach audiences more easily, providing many more opportunities for artists, labels and creators in the process. Other platforms like Stationhead and Lost are doing interesting things too with curators and tracks, but perhaps could get more traction if they switched focus to playlists?

Bringing back context

I like playlists as much as the next music fan, but like Mark Ronson and many other artists and music fans, I also feel they have commodified music somewhat. One thing I would like to see much more of for playlists is context. Why can’t we have sleeve notes for playlists about how they were put together (let alone by whom and why?). It looks to me like there is an opportunity to bring some context and personality back into playlisting. Mixtapes from the cassette age were lovingly compiled, often with handwritten notes and homemade cover art.

I’ve played with some of these ideas with my own playlist site the Song Sommelier. The Song Sommelier was created as a passion project to bring mixtape and vinyl values back to playlisting. Each playlist is accompanied by bespoke artwork by ‘resident’ artist Mick Clarke, and a reader or ‘digital sleeve notes’ by the playlist curator. For this project we chose to use the Soundsgood player to allow users of any streaming service access the playlists, doing away with those widgets that direct the music fan to either Spotify or Apple. It’s still more than a two horse race after all.

My hope is that with the artwork, sleeve notes and more original themes for the playlists, will make fans and listeners listen to playlists more like they used to with albums – paying more attention and hopefully connecting with the song collection on a deeper level. At least that might make Mark Ronson cheer up a bit (though his new “Club Heartbreak” playlist on Apple Music suggests it might be a while).

Perhaps a key question is how important is context to the music itself? It depends on your point of view, but context may be the thing that divides the passionate music fan from the casual one. Really, who wants to listen to a collection called “Get Home Happy” or “Prime Chill”, whether it’s curated or personalised? Except I guess some people do. Mostly, I would welcome some more creative thinking and innovation that can take playlists to another level.

The Meta Trends that Will Shape 2019

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

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

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

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

Musical.ly Sells For $800 Million But Peaked By Being Too Silicon Valley

Untitled

News has just emerged that lip synching app Musical.ly is to be sold for between $800 million and $1 billion to Chinese company Jinri Toutiao, which also bought Musical.ly predecessor Flipagram. I’ve long held the belief that Musical.ly and competitor companies like Dubsmash represent some of the only genuinely needle moving user experience innovation in music of recent years. Musical.ly introduced the concept of the 15-second song and shone a light on how to engage Gen Z with music-led experiences by playing by their rules not the traditional music industry’s rules. In doing so it created a whole generation of Musical.ly stars, such as Baby Ariel with 20 million Musical.ly followers.

But as with all previous lip synching and music messenger apps, Musical.ly has run into its inevitable user base peak and is now starting its equally inevitable decline. According to data from MIDiA’s Quarterly Brand Tracker, weekly active users (WAU) across the US, UK, Canada and Australia and was just 1.4% in Q3 2017, down from a high of 2.1% in Q1. Dubsmash is following a similar trajectory.

So, what’s gone wrong for Musical.ly?

To be clear, Musical.ly is not a failing company but it is beyond its peak. Musical.ly did an amazing job of laser targeting, becoming one of the destinations of choice for teen and tween females. More than four fifths of its user base are female. It recognized that the opportunity for this segment wasn’t full albums, nor even full tracks. It was short clips of music that they could use to express, and identify, themselves. In Musical.ly, music was the tool for Gen Z identity, not consumption. It tapped into Gen Z’s desire to digitally peacock, or to show off and say who they are. The problem for Musical.ly is that Snapchat and Instagram do a great job of this for these consumers too. Musical.ly became a one trick pony that suffered from not being able to use its core functionality as a beachhead for something much bigger. In the 20th century the railroad companies were disrupted by cars because they thought they were railroad companies and didn’t realise they were transportation companies. Similarly, Musical.ly got caught up with being a social music company rather than a social company.

In many respects Musical.ly was a victim of the West Coast VC bubble, following the mantra of obsessing with doing one thing really well. As a result, Silicon Valley has a habit of churning out feature companies rather than product companies. This isn’t a problem for VCs as it is easier for a company to buy and integrate a feature company, than it is a product company. But, it does leave the digital landscape unbalanced.

Jinri Toutiao has every opportunity to build a music messaging powerhouse with its acquired assets but to succeed, it will need to recognize that these are features not products.

Announcing MIDiA’s State Of The Streaming Nation 2 Report

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

Key features for the report:

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

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

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

Selected Key Findings

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

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

MRM1707-infographic-promo.png

List of Figures In The Report

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

Streaming Music Pricing: Inelastic Stretching

Pricing has long been an issue for streaming music subscriptions, with the $/€/£ 9.99 price point above what most people spend on music each month. Streaming services have navigated around the issue with a combination of tactics such as telco bundles and aggressive price discounts (e.g. $1 for 3 months). However, these tactics place long term pressure on the 9.99 price point as they create a consumer perception that streaming music should be cheaper than it is. There is no doubt that discounts are doing a great job of converting users and of easing otherwise reluctant consumers into the 9.99 pricing, but the next phase of the streaming market requires a more sustainable approach to pricing strategy, coupled with some serious product innovation.

To explore this issue in detail, MIDiA has published its latest music report: Streaming Music Pricing: Inelastic StretchingIn it we use proprietary MIDiA data to assess how much of the 9.99 opportunity has been tapped, how much further opportunity exists and what level of demand exists for different price points.

midia music subscriber projections

These are some of the key takeaways from the report:

  • 2017 will be a stellar streaming year: A combination of enough growth being left in the market and the continued success of pricing discounts should see subscriber numbers grow at a slightly faster rate in 2017 than they did in 2016, hitting 146.6 million. This is up 44.3 million from the 106.3 million hit in 2016. (That 2016 figure is 5.9 million more than our provisional estimate published back in the start of January, as the result of receiving a couple of slightly stronger than expected numbers. However, the increase is not due to the very high subscriber numbers reported elsewhere for some Chinese services. We consider these numbers to be high and we place our estimate closer to half of those.) By 2018, subscriber growth will begin to lessen and by 2019 we’ll be in market maturation phase. Around 2/3 of the readily addressable opportunity for 9.99 has already been tapped and this remainder is what will drive the 2017 growth. New tactics will be required for the rest of the cycle.
  • Beyond 9.99: Emerging markets, new partnerships and discounts will all be important growth tactics, but pricing will also be key. Many readers will be familiar with my longstanding enthusiasm for mid tier streaming pricing. Unfortunately, mid-tier pricing by stealth (e.g. price discounts, student offers) coupled with an overly resplendent free marketplace (YouTube, Vevo, Spotify free, etc.) have combined to suck most of the oxygen out of the mid tier sector. Nonetheless, there is a major need for something to cater for the lower end of the market. One of the key sections in the report reveals that streaming pricing is inelastic and the change in demand is smaller than the change in pricing. Even dropping the main price to $6.99 would only result in reducing the size of the streaming market.
  • Unbundling: So how do we square the circle? By using super low prices (e.g. 2.99; 3.99) to launch laser focused niche apps aimed at specific demographics and genres. This can be done both by standalone specialists (e.g. the Overflow, FreqsTV) and by the big incumbents taking a leaf out of Facebook’s app strategy and creating standalone, unbundled apps. In order for them to work, they cannot simply look like a thin slice of Spotify or Apple Music. They have to be as different from their parent apps as Instagram and Whatsapp are from Facebook. That means new user experiences, new functionality, different approaches to programming/ curation and standalone branding. To work, mid tier products have to look like something unique, not a compromised, watered down version of the full fat product. Mid tier services risk looking like low-fat, gluten-free, sugar-free, organic, diet, hand knitted soya milk. While there is a market for it, it shouldn’t come as a surprise that the market is in fact tiny.

So, a good 2017 looks on the cards for streaming, one which will confirm the maturity of the streaming sector as a whole. But the next stage of the market will require product and pricing innovation, at both the high end and the low end. Now is the time to start putting the pieces in place for 2018 and beyond.

The report from which this insight is taken (Streaming Music Pricing: Inelastic Stretching) is immediately available to MIDiA report subscribers. To find out how to become a MIDiA subscriber email info@midiaresearch.com.  If you just want to buy the report and the supporting data then visit our report store here.

Here’s Why The Music Industry Needs To Dump Non-Discretionary Pricing

Spotify’s 2015 UK accounts painted a vibrant picture with both profits and above average Average Revenue Per User (ARPU). However, a little caution is required before assuming all the answers to the streaming market’s woes can be found here. Firstly, only a portion of Spotify’s costs are based in the UK. For example, much of the (more highly paid) exec team is in the US and much of the development team is based in Sweden. Such are the vagaries of financial reporting for multi-territory companies. More importantly though, is Spotify’s higher UK subscriber ARPU (€6.47 per month compared to €5.20 per month globally according to the ever insightful Music Business Worldwide). On the surface this is clear success (and indeed the UK may well have a higher paid-to-free ratio). However, the main reason for the ARPU difference is the music industry’s fixation with non-discretionary pricing. 9.99 is 9.99 in the US, the UK and the Euro zone, even though each of those currencies have very different values. Especially now post-Brexit referendum.

subscription pricing

At current exchange rates, the Euro Zone €9.99 is equivalent $10.86 and the UK £9.99 price point is equivalent to $12.18. Thus Euro Zone subscribers are paying 9% more than US subscribers while UK subscribers are paying 22% more. What makes matters even worse is that US per capita GDP (a measure of relative wealth of the population) is 55% higher in the US than in the EU and 27% higher than in the UK. So in effect that means a combined pricing ‘swing’ of 63% for the US compared to the Euro Zone and 49% compared to the UK.

In short, European subscribers are getting doubly hit by the music industry’s insistence on non-discretionary pricing for music subscriptions. While there are a host of commercial factors that can be cited in favour of the approach (e.g. it helps mitigate against currency fluctuations) there is zero customer value, unless of course you happen to be a US resident consumer.

Regular readers will know I am a long term advocate of a more sophisticated approach to subscription pricing (e.g. mid tier products and super-premium options) but before we get there, a first step should be to ensure that European music fans get a fair deal compared to their US peers. Or of course, we could try the alternative: increasing US subscriptions by 63% which would mean a $16.32 price point. Sounds crazy right? Exactly…

How Spotify Can Become A Next Generation “Label”

Spotify on iPhoneOne of the themes my MIDiA colleague Tim Mulligan (the name’s no coincidence, he’s my brother too!) has been developing over in our online video research is that of next generation TV operators. With the traditional pay-TV model buckling under the pressure of countless streaming subscriptions services like Netflix (there are more than 50 services in the US alone) pay-TV companies have responded with countless apps of their own such as HBO Go and CBS All Access. The result for the consumer is utter confusion with a bewildering choice of apps needed to get all the good shows and sports. This creates an opportunity for the G.A.A.F. (Google, Apple, Amazon, Facebook) to stitch all these apps together and in doing so become next generation TV operators. Though the G.A.A.F. are a major force in music too, the situation is also very different. Nonetheless there is an opportunity for companies such as these to create a joined up music experience that delivers an end-to-end platform for artists and music fans alike. Right now, Spotify is best placed to fulfil this role and in doing so it could become a next generation “label”. I added the quote marks around the word “label” because the term is becoming progressively less useful, but it at least helps people contextualise the concept.

Creating The Right Wall Street Narrative

When news emerged that Spotify was in negotiations to buy Soundcloud I highlighted a number of potential benefits and risks. One thing I didn’t explore was how useful Soundcloud could be in helping Spotify build out its role as a music platform (more on that below). As I have noted before, as Spotify progresses towards an IPO it needs to construct a series of convincing narratives for Wall Street. The investor community generally looks upon the music business with, at best, extreme caution, and at worst, disdain. To put it simply, they don’t like the look of low-to-negative margin businesses that have little control over their own destinies and that are trying to sell a product that most people don’t want to buy. This is why Spotify needs to demonstrate to potential investors that it is working towards a future in which it has more control, and a path to profitability. The major label dominated, 17% gross operating margin (and –9% loss) 9.99 AYCE model does not tick any of those boxes. Spotify is not going to change any of those fundamentals significantly before it IPOs, but it can demonstrate it is working to change things.

The Role Of Labels Is As Important As Ever

At the moment Spotify is a retail channel with bells and whistles. But it is acquiring so much user data and music programming expertise that it be so much more than that. The role of record labels is always going to be needed, even if the current model is struggling to keep up. The things that record labels do best is:

  1. Discover, invest in and nurture talent
  2. Market artists

Someone is always going to play that role, and while the distribution platforms such as Spotify could, in theory at least, play that role in a wider sense, existing labels (big and small) are going to remain at the centre of the equation for the meaningful future. Although some will most likely fall by the wayside or sell up over the next few years. (Sony’s acquisition of Ministry Of Sound is an early move rather than an exception.) But what Spotify can do that incumbent labels cannot, is understand the artist and music fan story right from discovery through to consumption. More than that, it can help shape both of those in a way labels on their own cannot. Until not so recently Spotify found itself under continual criticism from artists and songwriters. Although this has not disappeared entirely it is becoming less prevalent as a) creators see progressively bigger cheques, and b) more new artists start their career in the streaming era and learn how to make careers work within it, often seeing streaming services more as audience acquisition tools rather than revenue generators.

The Balance Of Power Is Shifting Away From Recorded Music

Concert crowd.In 2000 record music represented 60% of the entire music industry, now it is less than 30%. Live is the part that has gained most, and the streaming era artist viewpoint is best encapsulated by Ed Sheeran who cites Spotify as a key driver for his successful live career, saying “[Spotify] helps me do what I want to do.” Spotify’s opportunity is to go the next step, and empower artists with the tools and connections to build all of the parts of their career from Spotify. This is what a next generation “label” will be, a platform that combines data, discovery, promotion (and revenue) with tools to help artists with live, merchandise and other parts of their career.

How Spotify Can Buy Its Way To Platform Success

To jump start its shift towards being a next-generation “label” Spotify could use its current debt raise – and post-IPO, its stock – to buy companies that it can plug into its platform. In some respects, this is the full stack music concept that Access Industries, Liberty Global and Pandora have been pursuing. Here are a few companies that could help Spotify on this path:

  • Soundcloud: arguably the biggest artist-to-fan platform on the planet, Soundcloud could form a talent discovery function for Spotify. Spotify could use its Echo Nest intelligence to identify which acts are most likely to break through and use its curated playlists to break them on Spotify. Also artist platforms like BandPage and BandLab could play a similar role.
  • Indie labels: Many indie labels will struggle with cash flow due to streaming replacing sales, which means many will be looking to sell. My money is on Spotify buying a number of decent sized indies. This will demonstrate its ability to extend its value chain footprint, and therefore margins (which is important for Wall Street). It could also ‘do a Netflix’ and use its algorithms to ensure that its owned-repertoire over performs, which helps margins even further. But more importantly, indie labels would give Spotify a vehicle for building the careers of artists discovered on Soundcloud. Also the A&R assets would be a crucial complement to its algorithms.
  • Tidal: Spotify could buy Tidal, taking advantage of Apple’s position of waiting until Tidal is effectively a distressed asset before it swoops. Though Tidal is most likely to want too much money, its roster of exclusives and its artist-centric ethos would be a valuable part of an artist-first platform strategy for Spotify.
  • Songkick: In reality Songkick is going to form part of Access’ Deezer focused full stack play. But a data-led, live music focused company (especially if ticketing and booking can play a role) would be central to Spotify driving higher margin revenues and being able to offer a 360 degree proposition to artists.
  • Musical.ly: Arguably the most exciting music innovation of the decade, Musical.ly would give Spotify the ability to appeal to the next generation of music fans. The average age of a Musical.ly user is 20, for Spotify it is 27. Spotify has to be really careful not to age with its audience and music messaging apps are a great way to tap the next generation in the same way Facebook did (average age 35) did by buying up and growing messaging apps. (e.g. Instagram’s average age is 26).
  • Pandora: A long shot perhaps, but Pandora would be a shortcut to full stack, having already acquired Ticket Fly, Next Big Sound and Rdio. If Pandora’s stock continues to tank (the last few days of recovery notwithstanding) then who knows.

In conclusion, Spotify’s future is going to be much more than being the future of music retail. With or without any of the above acquisitions, expect Spotify to lay the foundations for a bold platform strategy that has the potential to change the face of the recorded music business as we know it.

For more information on the analysis and statistics in this post check out MIDiA Research and sign up to our free weekly research digest.

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

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

Artist-Label Relationships Are Changing

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

Streaming Exclusives Represent Another Option For Artists

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

Album Releases Require More Time Than Apple Probably Has

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

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

Streaming Exclusives Are Unlikely To Turn Into A Flood

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

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

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