How the DNA of a hit has changed over 20 years

Recorded music has always evolved to fit the dominant format of the era, from three-minute songs to fit on 7-inch vinyl, through eight-song albums to fit on LPs, through to 16+ song albums to fill CDs. Format-driven change is nothing new, but streaming’s impact on the making of music itself is arguably more revolutionary than that of previous formats because it is both the consumption and discovery format rolled into one.

In the heyday of the album, the focus would be both on what makes a great album and what tracks would work on radio, and later MTV. Now all the considerations are rolled into the song itself, the central currency of the streaming era.

20 years of dna of hits

To illustrate just how significant this change is, we have taken a snapshot of the Billboard Top 10, now and 20 years ago. The caveats here are that this is just that: a snapshot in time, rather than a comprehensive data analysis – and it is a view of just the very top of the pile, the megahits of the day. Nonetheless, it provides some clear illustration of how the DNA of a hit has changed over the course of 20 years:

  • Shorter, snappier songs: The average length of the top 10 hits has fallen by 16% to 221.5 seconds (three minutes and 42 seconds, down from four minutes and 22 seconds). Meanwhile, intros have fallen from 13.1 seconds to 7.4 seconds. In the streaming economy where release schedules are weaponised with increased volume and velocity of releases, there is often just one chance to catch the attention of the listener. With ever fewer younger music fans listening to radio, there is little opportunity for the listener to hear the track again if they skip it in their streaming playlist.
  • Hip Hop’s apogee: The July 2000 top 10 was evenly split between pop, rock and RnB, with the latter two having the edge. In today’s top 10 Hip Hop reigns supreme, accounting for six of the top 10 tracks. Starting with the rise of EDM and now continued with Hip Hop, the hits business has become more focused, doubling down on one leading genre and in turn making it even more dominant.
  • The industrialisation of songwriting: As the buy side of the song equation, record labels are reshaping songwriting by pulling together teams of songwriters to create genetically modified hits. The more top-class songwriters, so the logic goes, the greater the chance of a hit. The average number of songwriters increased from 2.4 per track in 2000 to 4 in 2020. The upside for songwriters is more work, the downside is having to share already small streaming royalties with a larger number of people. Interestingly, the average age of songwriters increased from just under 27 to just over 31. It points to longer careers for songwriters but it does beg the question whether this means songwriters’ life experiences are that little bit more distant from those of young music fans.
  • The rise of the featured artist: Adding super star collaborators onto tracks has become a go-to strategy for streaming-era hits. In the July 2000 top 10, none of the tracks had a featured artist, by July 2020 that share had jumped to 60%.

The dominant theme underpinning these changes in the DNA of hits is reducing risk. More songwriters, more collaborations, shorter songs, shorter intros, fewer genres all point to honing a formula, following a blueprint for success. This evolution will continue to gather pace until the next format shift rewrites the rules. Until then, record labels, songwriters and artists need to ask themselves whether they are striking the right balance between business and creativity. If they are not getting it right, then the inevitability is that (at the hit end of the market) pop will eat itself. And if it does, expect an audience shift away from the increasingly homogenised head, down to the more diverse tail.

Time to stop playing the velocity game

We all know that streaming has transformed consumption and business models alike, but this is not a ‘now-completed’ process. Instead it is one that continues to evolve at pace, and the dynamic of pace is the pivotal variable. Consumer adoption continues to accelerate in terms of both time spent and take up. The streaming services – which are entirely geared to driving and responding to this behaviour – rapidly hone their systems accordingly. Labels, artists, publishers and songwriters are stuck playing catch up, running after the streaming train before it disappears over the horizon. The marketing strategies and royalty systems that worked yesterday struggle to cope today. But this ‘upstream’ side of the music business is inadvertently making it harder for themselves to ever actually catch up. By trying to play by the new rules they are in fact feeding the machine, ceding further control of their own destinies. It is time for a reset.

Streaming’s ‘upstream’ fault lines

There are three major fault lines for the upstream music business:

  1. Volume and velocity: releasing more music than ever before to meet the accelerating turnover of content
  2. The demotion of the artist: once the centrepiece of music consumption the artist is becoming a production facility for playlists
  3. Royalties: royalty payments built for the much more monolithic streaming model of the late 2000s do not reflect the complexities and nuances of streaming consumption in the 2010s 

Each of these are inherent attributes of the current model and favour the ‘downstream’ end of the equation (i.e. streaming services) far more than they do the upstream. Each problem needs fixing.

Volume and velocity

This is the most important and insidious factor, yet it is deceptively innocuous. Labels are releasing an unprecedented volume and velocity of music to try to keep up with streaming – especially the majors. But it is a Sisyphean task, no matter how many times you roll that boulder up the hill, the next one needs rolling up all over again and the hill gets steeper every time. Spotify is adding around 1.4 million tracks a month so, for example, if UMG wanted to release tracks on a market share basis it would have to release 420,000 every month.

Now that the data era has arrived in music, the risk of signing a new artists has been significantly reduced, but at the same time, an artist whose numbers are already trending does not come cheap to sign nor does she come with a guarantee of longevity. Many artists can do enough to have a successful song, but far fewer can make a habit of it. Labels have to decide how willing they are to bet on an artist one song at a time.

It feels impossibly hard not to play the game because everyone else is playing it and the system is geared that way. Feeding the velocity game habit is like feeding a crack cocaine habit. And yet, labels know better than most businesses that by breaking the rules, creative businesses can have more, not less, success.

The demotion of the artist

Western streaming services, unlike many Eastern ones, are built around tracks not artists and consequently consumption is too. Inadvertently, labels are feeding this dynamic because they are so focused on making tracks work that an artist is much less likely to be given the benefit of a long term strategy if her songs do not stream. The problem with chasing streams is that the process for one song might not apply to another. Failing at streams will often be a reason for pulling the plug on an artist, simply because ‘Plan B’ does not have a boiler plate. The more they push tracks the more they help the de-prioritisation of artists.

Fandom should come first, streaming second. A longer-term view is needed, one that puts building the artist’s fanbase first and streaming second. If an artist has a large, engaged fanbase then streams will usually follow. But if an artist gets a lot of streams on a playlist a fanbase does not necessarily follow. Marketing campaigns need to shift emphasis to a longer-term, audience-centric focus. It may be harder to measure the near-term ROI with this approach, but it will deliver better long-term returns.

Royalties

The #brokenrecord debate is not about to go away, especially as it will likely be 2022 before live music is operating at full capacity again and thus delivering artists the income they are currently missing. As I have previously discussed this is a complex problem for which there is no single solution but instead will require coordinated efforts from multiple stakeholders. A reassessment of the entire royalty streaming structure is needed from upstream to downstream.

Downstream, we need to stop thinking that every song is equal. They are not. Listening to 30 minutes of 35-second storm sound ‘songs’ in a mindfulness playlist should not be paying the same royalties as an album listened to its entirety. Also, some form of user-centred licensing solution is needed that rewards fandom, whether that is a user opt in model (‘support favourite artists’) or an actual re-work of the royalty mechanism, or a combination of the two.

Labels also need to work out how they can pay more to artists. Lowering their A&R risk exposure could free up some income. Of course, this is something that many have tried and failed at, but what if labels were to allocate 10% of their marketing budgets to top-of-funnel activity so that they can do even more work than they currently do around identifying talent early. This needs a commercial model that protects their funnel (e.g. first refusal terms for artists) and also needs to play in the creator tools space: the tools creators user to make music is the real ‘top of funnel’ – this is where the first relationships are established.

The holy grail for improving label profits would be for the label to improve the overall success rate for the artists in the portfolio. However, in the history of music, it is safe to say that no label has quite cracked it. Instead they live with it as a reality and a cost of doing business.

Labels do though, have some margin slack to play with. WMG improved its OIBDA from 11.9% in 2018 to 14.0% in 2019 while UMG improved its EBITDA from 16.7% in 2017 to 20.0% in 2019. Clearly, improved profitability is important in its own right and for investors, but the way to see this is a near-term expense to secure long-term profitability. A label without artists is not a label.

Breaking the habit

It takes a brave – some might say foolish – label to stop playing by streaming’s rules of engagement, to risk losing share in those crucial playlists. But label business models are not structured for the economics of single tracks – dance labels excepted. Their P&Ls are built around artists. When streaming behaviour started killing off the album, labels complained but then got used to building campaigns around tracks. However, this is not the destination, it is a stopover on the long-term journey towards a post-artist world. Playing streaming’s velocity game perpetuates an increasingly dysfunctional model. It feeds shortening attention spans, degrades the role of the artist and downgrades music to fodder for playlists. It is time to jump off the merry-go-round.

The Global Music Industry Will Decline in 2020

Sorry to be the bearer of bad tidings but the global music industry will decline in 2020.

Although we are now nearing the post-lockdown era in many countries across the globe, we are only just at the start of the recession phase that is coming next. Over the coming months we will start to see concrete examples of the downturn (including Q2 financial results) that will transform the recession from an abstract possibility into something far more tangible.

Although live music is the most obviously impacted, all elements of the music industry will be hit. In a forthcoming MIDiA client report we will be publishing our detailed forecasts of exactly what this impact could look like. In this blog post I am sharing some of the top-level trends.

music industry revenue forecasts 2020 midia research

In order to forecast recessionary impact on music revenues MIDiA broke down all of music’s sub-industries (recorded, publishing, live, merch, sponsorship) and all relevant sub categories (streaming, sync etc.), and then divided these into the financial quarters of the year. We then modelled the impact of lockdown, longer-term social-distancing measures and the recession on each of these quarters. We then put this model through bear, mid and bull cases. The sum totals are what you see in the chart above. In all cases, the Q2 decimation of live revenue and the subsequent slow clawback in the remainder of 2020 account for the majority of the decline.

In our mid case (i.e. what we consider to be the most likely case) we forecast a 30% decline on 2019 revenues with the following sector-level changes:

  • Recorded music (retail values) +2.5%
  • Publishing -3.6%
  • Live -75%
  • Merch -54%
  • Sponsorship – 30%

This is how we are thinking about each sector:

  • Recorded music: Music streaming will be far less affected by a recession than many other sectors. But under no circumstances is it immune, and ad supported in particular is anything but ‘resilient’. When the recession bites, consumers will cut discretionary spending, including subscriptions. We expect the increase in existing music subscriber churn to be relatively modest but the growth of new subscribers to slow in markets hardest hit by a recession. Unfortunately, millennials – streaming’s heartland – are the most vulnerable to job cuts. Ad supported is going to struggle whichever way you look at it. Spotify was struggling to make ad supported work even before the recession, while Alphabet was seeing a weakening Google ad business even last year. But it is the other parts of the labels’ businesses that lockdown has hurt most so far: physical sales due to store closures; sync due to the halt in TV and film production; performance due to store and restaurant closures. Q2 revenues could average out at between -2% and +1.5% up on Q1. If the recession deepens significantly in the second half of 2020, the combined effect of higher unemployment and reduced consumer spending could result in a worst case scenario of -4.0% annual growth for recorded music. If the economy recovers in 2021, recorded music revenue will return to growth also.
  • Publishing: Music publishing has been a steady earner for so long and as a consequence has enjoyed an influx of investment in recent years. 2020 though looks set to be a year of revenue decline. Our base case is for a -3.6% change on 2019. Key to this are: reduced syncs due to the halt in filming; reduced performance royalties due to a) live music decline; b) commercial radio declines; c) retail and leisure closures. Physical mechanicals, though small, will be hit by store closures. If the economy recovers in 2021, music publishing revenue will return to growth also, though performance revenues will see long-term transformation due to changes in lifestyles, e.g. more homeworking means less commuting (less radio) and less time spent in urban centres (less retail and leisure) both of which impact publisher income. If the economy recovers in 2021, publishing revenue will return to growth also.

 

  • Live: Even if live events can be put on in Q3, reduced capacities and some venues not being able to operate at all will mean that live revenue growth will be a slow clawback – a process that will run into 2022 and that will only be partially offset by the (much needed) growth in virtual event revenue.
  • Merch: Although there have been some great merch success stories during lockdown (including veteran UK synth poppers OMD selling £75,000 of merch during one live stream) merch sales are so often closely tied to live. Once the lockdown bump is over, the natural cycle of merch sales will remain disrupted by live’s slow clawback.
  • Sponsorship: Artist sponsorship will be hit by brands scaling back their marketing budgets as the advertising economy contracts.

In addition to the forthcoming MIDiA client report we will be exploring these themes and others in our free-to-attend webinar next week: Recovery Economics: Bounce Forward Not Back. Register here.

The COVID Bounce: How COVID-19 is Reshaping Entertainment Demand

The economic disruption and social dislocation caused by the COVID-19 pandemic is not evenly distributed. Some business face catastrophe, while others thrive. Across the entertainment industries the same is true, ranging from a temporary collapse of the live business through to a surge in gaming activity. As we explain in our free-to-download COVID-19 Impact report, the extra time people have as a result of self-isolation has boosted some forms of entertainment more than others – with games, video and news the biggest winners so far.

midia research - the covid bounceTo further illustrate these trends, MIDiA compiled selected Google search term data across the main entertainment categories. The chart below maps the change in popularity of these search terms between the start of January 2020 up to March 27th. Google Trends data does not show the absolute number of searches but instead an index of popularity. These are the key findings:

  • Video streaming: All leading video subscription services saw a strong COVID-19-driven spike, especially Disney+ which managed to coincide its UK launch with the first day of national home schooling.
  • Music streaming: Little more than a modest uptick for the leading music services, following a long steady fall – reflecting a mature market sector unlike video, which has been catalysed by major new service launches.
  • Video demand: With the mid- to long-term prospect of a lot more time on their hands, consumers have been strongly increasing searches for TV shows, movies and games to watch and play. The fact that ‘shows for kids to watch’ is following a later but steeper curve reflects the growing realisation by locked-down families that they have to stop the kids going stir crazy while they try to work from home.
  • Music demand: Demand for music has been much more mixed, including a pronounced downturn in streams in Italy. Part of the reason is that music is something people can already do at any time in any place. So, the initial instinct of consumers was to fill their newfound time with entertainment they couldn’t otherwise do at work/school. As the abnormal normalises music streaming will pick up, as the recent increase in searches for music and playlist terms suggests. Podcasts, however, look like they will take longer to get a COVID bounce.
  • Games: Games activity and revenues have already benefited strongly from the new behaviour patterns, as illustrated by the fast and strong increase in search terms. However, the recent slowdown in search growth suggests that the increase in gaming demand may slow.
  • News: The increased searches correlate strongly with the growth of the pandemic, but the clear dip at the end provides the first evidence of crisis-fatigue.
  • Sports: The closure of all major sports leagues and events has left a gaping hole in TV schedules and the lives of sports fans. The sudden drop in search terms shows that sports fans have quickly filled their lives with other entertainment and have little interest in keeping up with news of sports closures.
  • Leaders: Finally, Boris Johnson has seen his search popularity grow steadily with the pandemic, while Donald Trump’s has dipped.

Why Music Streaming Could Really Do with a Disney+

The music and video streaming markets have long been best understood by their differences rather than similarities, but the flurry of video subscription announcements in recent months have upped the ante even further. New services from the likes of Disney, Warner Bros, Apple and AMC Cinemas point to an explosion in consumer choice. These are bold moves considering how mature the video subscription business is, as well as Netflix’s leadership role in the space. Nevertheless, Netflix is going to have to seriously up its game to avoid being squeezed. The contrast with the music streaming market is depressingly stark.

Diverging paths

The diverging paths of the music and video subscription markets tell us much about the impact of rights fragmentation on innovation. In music, three major rights holder groups control the majority of rights and thus can control the rate at which innovation happens. As a consequence, we have a streaming market in which each leading service has the same catalogue, the same pricing and the same device support. If this was the automotive market, it would be equivalent of saying everyone has to buy a Lexus, but you get to choose the colour paint. Compare this to video, where global rights are fragmented across dozens of networks. This means that TV rights holders have not been able to dictate (i.e. slow) the rate of innovation, resulting in dozens of different niche services, a plethora of price points and an unprecedented apogee in TV content.

Now, Apple and major rights holders Disney and Warner Bros have deemed the streaming video market to be ready for prime time and are diving in with their own big streaming plays. Video audiences are going to have a volume of high budget, exclusive content delivered at a scale and trajectory not seen before. There has never been a better time to be a TV fan nor indeed a TV show maker.

The music streaming market could really do with a similar rocket up its proverbial behind right now. The ‘innovation’ that is taking place is narrow in scope and limited in ambition. Adding podcast content to playlists, integrating with smart speakers and introducing HD audio all are important – but they are tweaking the model, not reimagining it. Streaming music needs an external change agent to shake it from its lethargy.

Do first, ask forgiveness later

The nearest we have to that change agent right now is TikTok. TikTok has achieved what it has by not playing by the rules. It has followed that long-standing tech company approach of doing first and asking forgiveness later. Sure, it is now locked in some difficult conversations with rightsholders – but it is negotiating from a position of strength, with many millions of active users. TikTok brought a set of features to market that rightsholders simply would not have licensed in the same way if it had gone the traditional route of bringing a business plan, pleading for some rights, signing away minimum guarantees (MGs) and then taking the neutered proposition to market.

I recall advising a music messaging app client who was just getting going to do the right thing. I hooked him up with some of the best music lawyers, made connections at labels, and basically helped him play by the rules. Two years later he still hadn’t managed to get a deal in place with any rightsholders – though he had racked up serious legal fees in the process. Meanwhile, Flipagram had pushed on ahead without licensing deals, secured millions of users and tens of millions of dollars of investment and only then started negotiating deals – and the labels welcomed it with open arms. To this day, this is my single biggest professional regret: advising this person who was betting his life savings to play by the rules. He lost. The ‘cheats’ won.

We need insurgents with disruptive innovation

The moral of this story is that in the consumer music services space, innovation happens best and fastest when rights holders do not dictate terms. This is not necessarily a criticism. Rights holders need to protect their assets and their commercial value in the marketplace. They inherently skew towards sustaining innovations, i.e. incremental changes that sustain existing products. New tech companies looking to build market share, however, favour disruptive innovations that create new markets. Asking an incumbent to aggressively back disruptive innovation is a bit like asking someone to set fire to their own house. But most often it is the disruptive change that really drives markets forward.

Streaming subscription growth will slow before too long, and as a channel for building artist-fan relationships they are pretty much a dead end. There is no Plan B. Back in 1999 there was only one format; it was growing well, but there was no successor. Looks a lot like now.

Abbey Road 50 Years On: The Two Worlds of Music Listening

Half a century after it first after it first topped the charts, the Beatles’ Abbey Road is back at the summit of the UK charts. With the anniversary editions retailing for between $20 and $100, the impact on Universal Music’s revenue will be even more pronounced than the chart position, as we saw with the deluxe editions of the White Album (which had editions priced up to $145) helping the Beatles become the fourth-biggest UMG artist in revenue terms in 2018. The continued success of the Beatles tells us three main things:

  1. The band has enduring appeal in a way few bands have so long after their demise
  2. Universal is doing a fantastic job of managing the legacy of the Beatles with smart and effective catalogue marketing and product strategy
  3. Older, physical-focused music fans remain the quickest route to high-value, large-scale revenue

It is this last point that is going to be explored here.

Streaming is not yet everything, by a long stretch

While streaming is well established, it is still a minority activity (i.e. less than half of the population streams – the rate is even lower when you factor in emerging market regions such as sub-Saharan Africa). Most of you reading this will have been streaming for many years now, so this may sound a bit crazy, but we all live in our own filter bubbles, surrounded by people with similar world views and behaviours. The reality is that we are still in a transition period where the old and the new coexist. This dual-reality paradigm underpins the Beatles’ continued success.

MIDiA Index - Top Streamed and Top Listened to Artists - the Beatles 

Looking at data from MIDiA’s forthcoming artist insight platform Index, we can see that the top 15 biggest audiences ranked by overall listening is significantly different from the top 15 streaming audiences. The differences become far more pronounced as we work our way down the rankings. Mass market linear media (especially TV and radio) used to be the only way in which record labels turned artists into mainstream brands. The biggest artists of today (in fact all of the artists in both of the top 15 rankings) built their fanbases sitting on the shoulders of big, traditional media. Big media of course still plays a crucial role – as illustrated by the fact that the top five most-listened to artists have all recently been in major movies. In fact, movies are emerging as the mass medium that can still create globally relevant cultural moments in the way that radio and TV used to.

Niche is the new mainstream

Now though, newer artists are building their fanbases outside of traditional media, using digital marketing channels to laser-target specific audiences rather than the traditional carpet-bombing approach. As a consequence, when we look at the top 15 most-streamed artists based on those audiences that actually know the artist we see a totally different picture with artists like Post Malone, Martin Garrix and Bille Eilish among the top performing. These are still-big artists; artists that have found global niches with genuine scale, but niches nonetheless. This is the era of fragmented fandom. Niche is the new mainstream.

The first global pop band, perhaps

The Beatles were arguably the first big, global pop band – I say ‘arguably’ because there are many other claimants to that title, but whether they were first, or among the first, they helped create the template for artist success that shaped the modern recorded music industry. Now, as part of our cultural history they have an additional emphasis. The film ‘Yesterday’ will have introduced new audiences to the Beatles’ music, as will the hype around the return of Abbey Road. However, the majority of Beatles fans are old (59% are aged over 45) with an average age of 46. This aligns with average age of consumers that still buy CDs and that still listen to albums.

This does not mean that young people are not listening to the Beatles also (and on streaming they skew younger), also even with an average age of 45 this means that a large portion of the core fanbase are not from the Beatles’ original generation.

However, it is a very different demographic from Spotify users (average age 34) and, for example, Billie Eilish fans (29). Beatles fans skew towards older consumers that are more likely to buy and listen to physical albums.

For all the chart modifications, actual album sales still have key impact

 With all of the reformatting of charts to recognise streams, album sales still carry much more weight, because:

  1. A lot of streams are needed to be equivalent to an album (1,500 in the UK, 1,250 paid streams or 3,750 ad-supported streams in the US)
  2. Newer, streaming-centric artists tend to be track artists rather than album artists, and tend to have a larger share of ad-supported listeners, so it is harder for them to top album charts

When a once in a generation event like Abbey Road at 50 comes along, and the older, CD and vinyl buying audience comes out in force, you do not need too many of them to create a chart-topping album. As I illustrated in my post on the White Album, 75,000 sales of a $100 deluxe edition can generate the same label income as more than 60 million streams – though how much Universal actually retains of that due to its commercial relationships with the band and its estates is another issue entirely.

The key takeaway from Abbey Road at 50 is that we still have a long, long way to go on the streaming journey. In fact, you might say it is ‘the long and winding road’.

Take Five (the big five stories and data you need to know) August 23rd 2019

Taylor Swift, pre-sale love: Taylor Swift tends not to adhere to prevailing industry trends. As a millennial artist with a strong Gen Z following, streaming should rightly be the core of her recordings career. Having started her career very young in the album era, however, she and her fans still love album sales. So, on the eve of her first UMG album ‘Lover’, she has hit one million pre-sales– which is kind of spectacular in the post-album era. Add this to BTS helping push South Korean sales into growth, and we have an emerging trend: pop acts mobilising young fanbases on a global scale to buy albums as a gesture of fandom. 

Apple TV+, on its way: Apple confirmed plans to launch its video subscription service by November, part of a drive to reach $50 billion in service sales by 2020. Services represent 21% of Apple’s revenue and it is making a big deal of transitioning to being a services business. A cynic might argue that of course Apple would say this when iPhone sales are dipping below 50% revenue. While wearables are booming, there is no iPhone successor on the horizon, so services need to drive mid-term growth.

Korn, brutal mosh pit: Nu-metal veterans Korn have announced they are doing virtual gigs in MMO games AdventureQuest 3D and AQWorlds. The band have had characters made of them and they promise a ‘brutal mosh pit’ and an ‘unforgettably brutal, monster-filled virtual rock concert’ – as well as the opportunity to take selfies backstage with the band. Making in-game concerts work is no easy task (look at how long it has been since Marshmello’s Fortnite ‘gig’). But the potential is clear, and they will get easier to do.

Google, privacy fightback: Since the Cambridge Analytica scandal, privacy has risen in the agenda. Companies that don’t rely on advertising (Apple in particular) have been able to leverage this to position privacy as a product. Google can’t afford to be a passive observer, as advertising is 83% of its revenue ($33 billion last quarter). Its Chrome team has thus proposed a ‘privacy sandbox’, which aims to deliver accurate targeting for advertisers without compromising user privacy. Blocking cookies can reduce publishers’ ad revenue by half, so Google needs a privacy-friendly version of targeting, fast.

PAOK, licensing brinkmanship: Greek Super League football club PAOK will stream its first match of the season on itsown OTT platform because it hasn’t yet got a licensing deal with national broadcaster ERT. Sports licensing is in an unusual place right now. On the one hand, traditional broadcasters are seeing audiences decline while having to spend more on drama to compete with Netflix (so less to spend on sports), while on the other new streaming players are increasing their spend. Expect more speed bumps like this along the way.

Why Spotify and Netflix Need to Worry About a Global Recession

A growing body of economists is becoming increasingly convinced that a global recession is edging closer. The last time we experienced a global economic downturn was the 2008 credit crunch. Although the coming recession will likely be a bigger shock to the global economy, it nonetheless gives us a baseline for what happens to consumer spending habits. When consumer income declines or is at risk, discretionary spend is hit first and often hardest. Crucially, entertainment falls firmly into discretionary spend so, as in 2008, it will be a canary in the mine for recessionary impact. However, streaming is the crucial difference between 2008 and 2019, and is one that could prove to be like throwing petrol on a fire.

Streaming has driven the rise of the contract-free subscriber

The growth of streaming music and video has been a narrative of the new replacing the old; of flexibility replacing rigidity. Crucial in this has been the role of contracts. Traditional media and telco subscriptions are contract-based, legally binding consumers into long-term relationships that typically need to paid off in order to be cancelled. Digital subscriptions, however, are predominately contract-free. For video this has created the phenomenon of the savvy switcher – consumers that subscribe and unsubscribe to different streaming services to watch their favourite shows. For music, because all the services have pretty much the same music, there has been negligible impact. In a recession, however, all of this could change.

No contract, no commitment 

Faced with having to cut spending, the average streaming subscriber would most likely look to cut traditional subscriptions first. For example, a Netflix subscriber with a cable subscription may want to cut the cable subscription and keep hold of Netflix because a) it is cheaper, and b) it is a better match for their content consumption. However, that consumer would quickly learn that cancelling a cable subscription mid-contract actually costs a lot of money. So, they would end up having to cancel Netflix instead, because there is no contractual commitment. The irony of the situation is that a consumer is having to cut the thing they least want to cut, simply because that is all they can do.

Music subscriptions could be collateral damage

The same consumer may also find themselves having to cancel their Spotify subscription, because cancelling Netflix did not save anywhere near as much money as cancelling cable would have done. On top of this, they probably would not feel the impact of cancelling Spotify anywhere near as much as cancelling Netflix. When Netflix goes, it just stops. Spotify on the other hand has a pretty good free tier, and that’s without even considering YouTube, Soundcloud, Pandora and a whole host of other places consumers can get streaming music for free. Streaming music is essentially recession-proof, but in a way that works for consumers, not for services.

If we do enter a global recession and it is strong enough to dent entertainment spend, then a probable scenario is that traditional distribution companies will be the key beneficiaries through the simple fact that that have their subscribers locked into contracts. This could even give these incumbents breathing space to prepare for a second attempt at combatting the threat posed by streaming insurgents. It would almost be like winding back the clock.

Tech majors may bundle their way out of a recession

Some companies could use this as an opportunity to aggressively gain market share. Amazon’s bundled approach could prove to be a recession-buster proposition, giving consumers ‘free’ access to a range of content as part of the Prime package. Similarly, Apple could decide to take its suite of subscription services (including Apple Music and Apple TV+) and bundle them into the cost of iPhones. This would enable it to help drive premium-priced device sales in a recession by positioning them as value-for-money options.

Stuck between contracts and bundles

For Spotify, Netflix and other streaming pure-plays, a recession could see them squeezed between traditional distribution companies and ambitious tech majors with contracts on one side and bundles on the other. Streaming services have been the disruptors for the last decade. A recession may well role-switch them into the disrupted.

The Frank Ocean Days May Be Gone, but Streaming Disintermediation Is Just Getting Going

Aaron_Smith
At the start of this month Apple struck a deal with French rap duo PNL. PNL are part of a growing breed of top-tier frontline artists that have opted to retain ownership of their masters. In our just-published Independent Artists report (MIDiA clients can read the full report here)we have sized out the label services marketplace, and when it is coupled with artists direct (i.e. DIY) the independent artist sector was worth 8% of the entire recorded music business in 2018.

While that number may sound relatively modest, it is growing fast and represents the future. Traditional label deals are not disappearing, but they are becoming just one component of an increasingly complex recorded music revenue mix. This is the industry context that enables initiatives such as Apple’s PNL deal and both Spotify and Apple backing Aaron Smith, who incidentally is signed to artist accelerator Platoon, which is a company that Apple acquired in December 2018.

Independent artists open up new opportunities for streaming services

When Apple did its exclusive with Frank Ocean back in 2016it caused such an industry backlash that UMG head Lucian Grainge banned his labels from doing exclusive deals and the movement seemed dead in the water. If there was any doubt, Spotify kicked up so much label ill will when it launched its Direct Artists platform that it officially shuttered the initiative in July. However, now we are seeing that there many more ways to skin the proverbial cat. It is perfectly possible to disintermediate labels without having to actually disintermediate them. Doing an exclusive with an independent artist or giving him / her priority promotion is doubly effective for streaming services as:

  1. Record labels have no right to complain because independent artists have just the same right of access to audiences as label artists
  2. The more exposure independent artists get, the more their market share will grow, which will lessen record labels’ market share, which makes it harder for them to resist and easier for the streaming services to start making bolder moves down the line

Ambiguity will be the shape of things

Even this structure plays into the traditional view of labels versus the rest. The new truth is much more nuanced. For example, when Stormzy was duetting with Ed Sheeran at the Brits, signed on a label services deal to WMG’s ADA, was he a Warner artist or an independent artist? He was, of course, both. The evolution of the market will be defined by progressively more of this ambiguity, which will give streaming services equally more ability to not only play to these market dynamics but to stress-test the boundaries. The simple fact is that streaming services will become ever-agnostic with regards to artists’ commercial partnerships and in turn they will become a more important component of the value chain. Apple Music did the PNL deal because they had much more commercial flexibility dealing with an independent artist than dealing with a label artist. At some stage, labels will have to decide whether they want to revisit the exclusives model. Without doing so, they may not get a seat at the new table.

New MIDiA Artist Survey – Take Part!

Firstly, thanks to all of you who took part in our artist survey last year. If you did so, you should by now have received the link to the free report. If not, email us at info@midiaresearch and we’ll get it to you.

We are now fielding a new artist survey and we’d like you to take part! This time we are diving into the tools and services that artists use and what they think about them. All respondents will get a free copy of the final report when it is published.

You can complete the survey by following this link