Take Five (the big five stories and data you need to know)

Apple ups its artist analytics but do artists care? Kobalt and Spotify both helped reshape the music industry’s understanding of what role data should play and how it should be presented. Apple announced its Apple Music for Artists (AMFA) is coming out of betawith a whole host of cool dashboards and analytics that dive down to city level. Powerful stuff indeed. The problem, though, is not data scarcity but data abundance. Overwhelmed by dashboards and tools, artists and their managers are becoming victims of data paralysis.

Streaming video endgame:Paradigm-shifting announcements don’t come along often and when they do it is not always obvious that they are so important. This is one of them: Disney announced it will bundle its forthcoming Disney+ with Hulu and ESPN+ all for just $12.99.For a tiny fraction of a cable subscription, Disney is giving the average family everything it needs from a TV package. The bundle simultaneously competes with Netflix and the traditional pay-TV companies Disney relies upon for carriage fees. This is go-big-or-go-home for Disney and is perhaps the biggest, boldest move yet in the streaming wars.

 

Star Wars – too much too soon: When Disney bought Lucasfilm for $4.1 billion in 2012 it was a statement of intent, particularly following the 2009 acquisition of Marvel. Marvel prospered with the almost TV-episode frequency of releases; the Star Wars franchise less so. With toy sales down, Galaxy’s Edge underattended, and disgruntled fansCEO Bob Iger cited ‘Star Wars fatigue’ and committed to slowing the release schedule. The temptation to saturate markets to compete in the attention economy can be hard to resist.

Pluto drives Viacom growth: Viacom’s ad-supported streaming service Pluto TV hit 18 million active users at the end of July, up from 12 million at the start of the year– with its connected TV user segment growing 400% year on year. Growth is so fast that 50% of ad inventory remains unsold. Nonetheless, coupled with Viacom’s Advanced Marketing Solutions (AMS) division US ad revenues returned to growth (6%) in the quarter while total Viacom revenues were up 6% also, to $3.35 billion. Maybe you can teach an old dog new tricks.

Sports bubble? What sports bubble? With pay-TV companies losing subscribers and overspending on drama to hold off Netflix, budgets for sports rights are going to feel the pressure. But in the English Premier League (EPL) the mantra is make hay while the sun shines. Total transfer spending before the pre-season deadline reached £1.41billion which was fractionally below the £1.43billion record set in 2017. More than half the clubs broke their individual player transfer records. The market will likely get even more heated when streaming players start increasing their spend, but if they get a market stranglehold they will do what they do best: ‘bring efficiencies into the supply chain’, which is west coast code for squeezing suppliers. Be careful what you wish for sports leagues.

State of the Streaming Nation 3.0: Multi-Paced Growth

MIDiA Research State of the Streaming Nation 3Regular followers of MIDiA will know that one of our flagship releases is our State of the Streaming Nation report. Now into its third year, this report is the definitive assessment of the streaming music market. Featuring 16 data charts, 37 pages and 5,700 words, this year’s edition of the State of the Streaming Nation covers everything from user behaviour, weekly active users of the leading streaming apps, willingness to pay, adoption drivers, revenues, forecasts, subscriber market shares, label market shares, tenure and playlist usage. The consumer data covers the US, Canada, Brazil, Mexico, Australia, Japan, South Korea, Sweden, Denmark, Germany, Austria and the UK, while the market data and forecasts cover 35 markets. The report includes the report PDF, a full Powerpoint deck and a six sheet Excel file with more than 23,000 data points. This really is everything you need to know about the global streaming market.

The report is immediately available to MIDiA clients and is also now available for purchase from our report store here. And – for a very limited-time offer, until midnight 31stJuly (i.e. Wednesday) the report is discounted by 50% to £2,500. This is a strictly time-limited offer, with the price returning to the standard £5,000 on Thursday.

Below are some details of the report.

The 20,000 Foot View: 2018 was yet another strong year for streaming music growth, with the leading streaming services consolidating their market shares. Consumer adoption continues to grow but as leading markets mature, future growth will depend upon mid-tier markets and later on emerging markets. Disruption continues to echo throughout the market with artists direct making up ground and Spotify spreading its strategic wings. Utilising proprietary supply- and demand-side data, this third edition of MIDiA’s State of the Streaming Nation pulls together all the must-have data on the global streaming market to give you the definitive picture of where streaming is.

Key findings: 

THE MARKET

  • Streaming revenue was up $X billion on 2017 to reach $X billion in 2018 in label trade, representing X% of total recorded music market growth
  • Universal Music consolidated its market-leading role with $X billion, representing X% of all streaming revenue
  • There were X million music subscribers globally in Q4 2018 with Spotify, Apple and Amazon accounting for X% of all subscribers, up from X% in Q4 2015
  • With X% weekly active user (WAU) penetration YouTube dominates streaming audiences, representing X% of all of the WAU music audiences surveyed

CONSUMER BEHAVIOUR

  • X% of consumers stream music for free, peaking at X% in South Korea and dropping to just X% in Japan
  • X% of consumers are music subscribers, peaking in developed streaming markets Sweden (X%) and South Korea (X%)
  • Free streaming penetration is high among those aged 16-19 (X%), 20-24 (X%) and 25-34 (X%) while among those aged 55+ penetration is just X%
  • Podcast penetration is X% with pronounced country-level variation, ranging from just X% in Austria to X% in Sweden

ADOPTION

  • 61% of music subscribers report having become subscribers either via a free trial or a $1 for three months paid trial
  • Costing less than $X is the most-cited adoption driver for music subscriptions at X%
  • Today’s Top Hits and the Global Top 50 claim the joint top spot for Spotify playlists among users, both X%
  • As of Q1 2019 there were X YouTube music videos viewed one billion-plus times, of which X were two billion-plus view videos and X were three billion-plus

OUTLOOK

  • In retail terms global streaming music revenues were $X billion in 2018 in retail terms, up X% on 2017, and will grow to $X billion in 2026
  • There were X million music subscribers in 2018, up from X million in 2017 with Xmillion individual subscriptions

Companies and brands mentioned in this report: Alexa, Amazon Music Unlimited, Amazon Prime Music, Anchor, Anghami, Apple, Apple Music, Beats One, CDBaby, Deezer, Deezer Flow, Echo, Gimlet, Google, Google Play Music, KuGou, Kuwo, Loudr, MelOn, Napster, Netflix, Pandora, Parcast, QQ Music, RapCaviar, Rock Classics, Rock This, Sony Music, Soundcloud, SoundTrap, Spotify, Tencent Music Entertainment, Tidal, Today’s Top Hits, T-Series, Tunecore, Universal Music, Warner Music, YouTube

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.

The Classical Music Market: Streaming’s Next Genre?

MIDiA-Research-Idagio-Classical-Music-Market_Image-724x1024Classical music has long been viewed by many as a rarified genre that stands apart from other forms of music. While there is clearly something in that, something new is happening to the classical market: streaming is opening up a new, more diverse base of fans. Many of these are finding new entry points to classical music, such as hearing piano concertos on Relaxing Piano playlists. These new audiences bring with them new expectations about what classical music listening should be like and they present a major new opportunity for the classical market.

I am excited to announce the release of a report on the global classical music market that covers this concept and much, much more. MIDiA researched and wrote the report on behalf of classical music streaming service Idagio. (To be clear, this report is an objective and independent analysis of the classical market, not one of those ‘white papers’ that exists to champion the virtues of the client’s proposition.)

With that important caveat out of the way, I strongly recommend you download the full report for free here. It is packed with exclusive new consumer data that presents a unique view of classical music consumers and how they are engaging with streaming. The survey was fielded in the US, UK, Mexico, Sweden, Denmark, Austria, Germany and South Korea.

A fill list of contents is at the bottom of this post.

Here are a couple of paragraphs from the report that helps contextualise why classical music is gaining new relevance in today’s streaming world:

Classical music fans are a crucial music consumer segment that is too often overlooked in the mainstream of the music industry, and especially within the streaming market. However, the clear picture that has emerged in this report is one of a large and diverse group of consumers that include large volumes of mainstream music consumers who are also fans of other genres. The traditional image of Classical fans of only being older, traditionally minded and musically aloof does not stand up to scrutiny. Instead we see a group of people that are increasingly both youthful and digitally savvy, and that have wide tastes that go beyond just Classical music. This though, is not just a reflection of the diversity of these consumers but also of the way in which streaming is helping Classical music find a new, younger generation of fans.

Alongside this, streaming services risk getting locked in a race to the musical middle-ground in order to build the biggest audiences possible, with record labels and producers rushing to fill this overcrowded space with increasingly formulaic playlist-optimized songs. Songs that like fresh fruit are designed for quick, immediate consumption, not for longevity. This vicious circle of song optimization / playlist optimization may be the path of least resistance but it can ultimately lead to an unsatisfying overall music experience. Classical music provides an antidote to the algorithm-defined mainstream, and of the status update driven chaotic maelstrom that is digital life. Now we are starting to see the signs of a new generation of Classical music fans searching for a refreshing, reassuring alternative to the tumult and homogeneity of mainstream.

Go download the free report! (No registration required)

classical music report contents

Spotify Takes Aim at Radio, Again

Spotify has launched a radio-like feature set for premium subscribers in the US called Your Daily Drive.Although it is only positioned as a playlist, the content mix includes podcast news content and plays music the listener already likes with a sprinkling of new tracks. This might not sound that special, but this ‘recurrent heavy’, news-anchored programming is Spotify taking the essence of US drive time radio and translating it into a playlist. As we wrote back in early 2018, radio is streaming’s next frontier, and nowhere is that more true than in the US.

streaming playlist usage midia research podcasts

Right now, streaming consumption is fragmented across multiple programming formats with no stand-out use case. Curated playlists are not for music what binge watching is for video. While this is positive in the context of multiple use cases being met within an increasingly diverse user base, if streaming is ever going to seriously challenge the mainstream mass-market audience that is radio, it needs a binge watching equivalent. Streaming needs a simple, easy to understand and access format that translates seamlessly to traditional radio audiences. Your Daily Drive is a very small first step on that journey.

The playlist is now just a delivery vehicle

If we were to rewind just a few years ago, the idea of Spotify delivering drive-optimized playlists interspersed with news may not have sounded totally outlandish but it would nonetheless have only felt a distant possibility. But now that Spotify has extensive podcast capabilities under its belt and a very proven willingness to insert podcasts throughout the music user’s experience, the concept of what constitutes a playlist needs rethinking entirely…largely because that is exactly what Spotify has just done. The industry needs to start thinking about playlists not as a collection of music tracks but instead as a targeted, personalized and programmed delivery vehicle for any combination of content. In old world parlance you might call it a ‘channel’, but that does not do justice to the vast personalization and targeting capabilities that playlists, and Spotify’s playlists in particular, can offer.

In this context, Your Daily Drive is not simply a playlist but instead Spotify’s first foray into next-generation radio broadcasting. There will doubtless be further Spotify playlist announcements over the coming months that leverage podcast content. As with Your Daily Drive, they won’t just be playlists; instead, pay attention to what they are aiming to compete with to understand their true intent.

Making radio work takes more than just making radio work

Radio programming itself will take a long time for Spotify to master – just look how long it is taking Apple. Even when it does, the even bigger challenge is monetisation. Ad-supported revenue simply isn’t growing fast enough, and the Q1 earnings (which recognized the revenue of its new podcast companies) did not indicate that podcasts were going to bring a big bump anytime soon either. To compete with radio in a meaningful way, Spotify will have to invest heavily in ad sales and ad tech to the same extent that Pandora has. That means having people pounding the streets, knocking on the doors of mom and pop stores selling local spot ads, through to competing with Google, Facebook and Amazon to deliver world class ad tech. No small task, but the rewards could be huge.

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.

Music Sync: A Market Ripe for Change

Florence and the Machine’s performance of Jenny of Oldstones, which appeared over the closing credits of the April 21st HBO’s Game Of Thrones episode, has registered the most Shazams in 24 hours ever.The placing of a song has always had the ability to transform its fortunes, and that has never been more the case than now. The music sync market is booming, with the number of syncs higher than ever and more platforms and productions seeking new music. It is also a market with a host of structural challenges, which is the focus of MIDiA’s latest major new report on the music sync market – Music Sync Market Assessment: A Market Ripe for Change. Clients can access here and non-clients can purchase here from our report store.

We interviewed senior sync market executives of labels, publishers, sync agencies, sync tech, TV, games etc. for the report to help create the definitive take on this important but problematic sector. Here are some brief highlights of the report.

midia music sync tech landscape

The music sync market has long been a source of high-margin income for rights holders as well as a means for helping break artists, with a well-placed, successful track having the ability to transform the career of an emerging artist. The growth of channels such as games, social video, and online video (like Netflix), and the corresponding renaissance in TV drama production, have combined to create an unprecedented volume of demand for the sync marketplace. A wave of tech start-ups has followed, each trying to fix parts of an otherwise very ad hoc and relationships-based industry.

Total sync revenues grew by 11% in 2017, but remain a minority component of music publisher revenue and have even less value for labels. Despite a boom in demand, much of the opportunity remains untapped. This is largely because the sync market is a complex, interconnected web of closely guarded personal relationships that operate on tradecraft, reputation and personal connections. It is a marketplace that technology has only brushed the edges of – but when it has, the results have been mixed. For example, streaming playlists have quickly become an established tool used by music supervisors, but on the other hand, many of the new start-ups addressing the space have failed to gain meaningful traction. In part this is because it is a sector that has modest appetite for change. Indeed, with personal reputations an industry currency, and lack of pricing transparency a well-used tool for securing price premiums, there is more internal incentive to remain in stasis than to embrace innovation.

A host of technology companies have come to market attempting to improve the music sync workflow, but many require pre-cleared rights. This is something that would undoubtedly accelerate the market but that rightsholders are typically unwilling to agree to because:

  1. They need individual creator approval
  2. They do not want to cede negotiating power

The music sync market has managed to remain strong by changing far less than most other parts of the music business. However, strategic shifts by newer, large-scale buyers such as Netflix, coupled with wider technology shifts, mean that the sync market will not be able to resist change for much longer.

Micro licensing (e.g. YouTube content) represents a major opportunity, especially if Facebook manages to execute on its thus-far underwhelming social music strategy. However, that requires a technology solution (e.g. Qwire, OCL) and simply cannot work on the same highly-manual and very slow mechanisms that mainstream sync operates with. Unless a tech solution is created, it will be royalty-free music providers like Epidemic Sound that will take most of the scale opportunity.

To read much more on the music sync market, check out the report here (Clients)   (Non-clients).

Companies and brands mentioned in the report:A+G Sync, Amazon, Beggars Group, Cue Songs, DISCO, Electronic Arts, Epidemic Sound, HBO, Jingle Punks, Jukedeck, Lickd, Musicbed, Music Gateway, MXX, Netflix, OCL, Proctor and Gamble, Qwire, Reverbnation, Songtradr, Sony/ATV, Soundvault, SyncFloor, Synchtank, Tunefind, Universal Music, Warner Chappell, YouTube

Creator Support: A New Take on User Centric Licensing

User-centric licensing (i.e. stream pay-outs based on sharing the royalty income of an individual user split across the music they listen to) has stimulated a lot of debate. I first explored the concept of user-centric licensing back in 2015and stirred up a hornet nest, with a lot of very mixed feedback. The big issue then, as now, was that it is a very complex concept to implement which may well only have modest impact on a macro level but may also have the unintended consequence of worsening income for smaller artists. Fans of smaller artists tend to be more engaged listeners who generate a larger number of streams spread across a larger number of artists. The net result could be lower average income for smaller indie artists, and higher income for mainstream pop acts who have listeners with lower average streams spread across a smaller number of artists. Since then, Deezer has actively explored the concept and it continues to generate industry discussion. It is unlikely there will ever be consensus on how user-centric licensing should work, but the underlying principle of helping artists earn from their fans remains a valid one. So, here is an alternative approach that is both pragmatic and far simpler to implement: creator support. A new way to solve an old problem.

Creator support is gaining traction across the digital content world

In the on-demand world, monthly streaming income for creators can be both modest and unpredictable. Amuse’s Fast Forward,YouTube’s channel memberships and Patreon are illustrations of how the market is developing solutions to give content creators (especially artists, podcast creators, YouTubers and Twitch streamers) an effective way to supplement income. But it is Epic Game’s ‘Support-A-Creator’ model that provides the best example of an alternative to user-centric licensing. Epic Games enables Fortnite players to choose a favourite creator to support (which typically means YouTube and Twitch Fortnite players). Epic Games then contributes the equivalent of around 5% of all in-app purchases that the gamer makes to that creator.

How creator support can work for music streaming

Using Spotify and a selection of artists as an illustration, here is how a creator support approach could work for streaming music:

  • All Spotify subscribers get given the option to ‘support’ up to two of their favourite artists
  • For each artist that a subscriber supports, 1% of the record label royalties derived from that subscriber’s subscription fee goes directly to the artist, regardless of how many streams that user generates
  • The label of each artist then pays 100% of this ‘support’ income

creator support midia streaming model

To illustrate how creator support can work, we created a model using Spotify and a selection of diverse artists. We assumed that 75% of Spotify subscribers support an average of 1.5 artists. In the above chart we took five contemporary frontline artists across major labels and label services, and we assumed that 10% of their monthly Spotify listeners support them. Factoring the different types of deals and royalty rates these artists have, as well as the ratios between average monthly streams and monthly listeners, there is an intriguing range of revenue impact that creator support delivers. For Taylor Swift (on a major deal, but one in which she held the negotiating whip hand), Lauv and Rex Orange Country (both on Kobalt label services deals) the creator support income is between 18% and 22% of their existing streaming royalties from Spotify. For Billie Eilish and Circa Waves, both on their first major label deals, creator support income would represent a much larger 78% and 65% of streaming royalties. The rate is higher for Billie Eilish as she has a higher streams-to-listeners ratio.

Artists get paid more with minimal impact on the wider royalty pot

Putting aside the irony that this approach would help put many major label artists more on par with what label services and independent artists earn from streaming, the clear takeaway is that creator support can be an effective way of fans ensuring that some of their streaming spending directly benefits their favourite artists. Because we have structured the model to be just 1% per artist (rather than Fortnite’s 5%) the net impact on the total label royalty pot is minimal. Applying the above assumptions to Spotify’s 2018 label payments, the royalty pot (and therefore per-stream rates) would reduce by just 1.13%, meaning that non-supported artists would feel negligible impact.

We think the creator-approach model enables labels and streaming services to deliver on the ambition of user-centric licensing without the complexities and unintended inequities. But perhaps most importantly, it helps put artists and fans closer together, bringing the pledging model to the mainstream.

Let us know what you think. Also, we’ve added the excel model to this post for you to download and test your own assumptions against it.

MIDiA Research Streaming Creator Support Model 4 – 19

Amazon’s Ad Supported Strategy Goes Way Beyond Music

Amazon is reportedly close to launching an ad supported streaming music offering. Spotify’s stock price took an instant tumble. But the real story here is much bigger than the knee-jerk reactions of Spotify investors. What we are seeing here is Amazon upping the ante on a bold and ambitious ad revenue strategy that is helping to reformat the tech major landscape. The long-term implications of this may be that it is Facebook that should be worrying, not Spotify.

amazon ad strategy

In 2018 Amazon generated $10.1 billion in advertising revenue, which represented 4.3% of Amazon’s total revenue base. While this is still a minor revenue stream for Amazon, it is growing at a fast rate, more than doubling in 2018 while all other Amazon revenue collectively grew by just 29%. Amazon’s ad business is growing faster than the core revenue base, to the extent that advertising accounted for 10% of all of Amazon’s growth in 2018.

Amazon is creating new places to sell advertising

The majority of Amazon’s 2018 ad revenue came from selling inventory on its main platform. This entails having retailers advertise directly to consumers on Amazon, so that Amazon gets to charge its merchants for the privilege of finding consumers to sell to, the final transaction of which it then also takes a cut of. In short, Amazon gets a share of the upside (i.e. the transaction) and of the downside (i.e. ad money spent on consumers who do not buy). This compressed, redefined purchase funnel is part of a wider digital marketing trend and underlines one of MIDiA’s Four Marketing Principles.

But as smart a business segment as that might be to Amazon, it inherently skews towards the transactional end of marketing, and is less focused on big brand marketing, which is where the big ad dollar deals lie. TV and radio are two of the traditional homes of brand marketing and that is where Amazon has its sights set, or rather on digital successors for both:

  • Video: Amazon’s key video property Prime Video is ad free. However, it has been using sports as a vehicle for building out its ad sales capabilities and has so far sold ads against the NFL’s Thursday Night Football. It also appears to be poised to roll this out much further. However, Amazon’s key move was the January launch of an entire ad-supported video platform, IMDb Freedive. Amazon has full intentions to become a major player in the video ad business.
  • Music: Thus far, Amazon’s music business has been built around bundles (Prime Music) and subscriptions (Music Unlimited). Should it go the ad-supported route, Amazon will be replicating its video strategy to create a means for building new audiences and new revenue.

It’s all about the ad revenue

Right now, Amazon is a small player in the global digital ad business, with just 6% of all tech major ad revenue. However, it is growing fast and has Facebook in its sights. Facebook’s $50 billion of ad revenue in 2018 will feel like an eminently achievable target for a company that grew from $2.9 billion to $10.1 billion in just two years.

To get there, Amazon is committing to a bold, multi-platform audience building strategy. Whereas Spotify builds audiences to deliver them music (and then monetise), Amazon is now building audiences in order to sell advertising. That may feel like a subtle nuance, but it is a critical strategic difference. In Spotify’s and Netflix’s content-first models, content strategy rules and business models can flex to support the content and the ecosystems needed to support that content. In an ad-first model, the focus is firmly on the revenue model, with content a means to an end rather than the end. (Of course, Amazon is also pursuing the content-first approach with its premium products.)

Amazon is becoming the company to watch

So, while Spotify investors were right to get twitchy at the Amazon rumours, it is Facebook investors who should be paying the closest attention. Amazon’s intent is much bigger than competing with Spotify. It is to overtake Facebook as the second biggest global ad business. None of this means that Spotify won’t find some of its ad supported business becoming collateral damage in Amazon’s meta strategy – a meta strategy that is fast singling Amazon out as the boldest of the tech majors, while its peers either ape its approach (Apple) or consolidate around core competences (Google and Facebook). Amazon is fast becoming THE company to watch on global digital stage.

Spotify, the Decline of Playlists and the Rise of Podcasts

The following is a small excerpt from MIDiA’s forthcoming third edition of its ‘landmark State of the Streaming Nation’ report. For more information about this report email stephen@midiaresearch.com

Most things that Spotify does are scrutinised and cross-examined within an inch of their lives, with vested interests trying to second guess what may be the intended or unintended consequences for them. Most actions are viewed through the disruption lens i.e. how will this hurt or compete with Spotify’s rightsholder partners? The streaming market is of course so much more than just Spotify, but the company acts as a lightning rod for the wider market and most often sets the strategic agenda.

Spotify’s Two Phases of Growth

Two of Spotify’s most significant moves have been playlist curation and podcasts. Spotify is moving into the second major phase of its existence. Phase 1 was about establishing itself as a streaming music powerhouse, Phase 2 is about what it becomes next, extending beyond the streaming music beachhead. This is the typical trajectory of tech companies, establishing themselves in their core competencies and then expanding. This can either be a dramatic expansion – e.g. Amazon moving from eCommerce into video and music – or a more focused value-chain extension – e.g. Netflix moving from simply streaming other’s shows to making its own. For Spotify, playlists were a Phase 1strategy and podcasts are very much part of Phase 2.

midia playlists and podcasts

Podcasts may just have come in the nick of time for Spotify because curated playlists remain much more about potential than they do reality. Just 15% of streaming consumers listen to curated playlists. In fact, of all the key streaming feature activities, curated playlists come lowest. Curated playlists are clearly not to streaming music what binge watching is to streaming video. Instead streaming activity is fragmented across multiple features and just 10% of streaming consumers regularly do all four of the activities listed in the chart above.

‘But wait’ I hear you ask, ‘that doesn’t make sense, look at all these streams we’re getting from playlists’. The key factor here is the difference between the number of playlist users and the number of playlist streams. Playlists over index in terms of contribution to streams. With dozens of tracks per list, lean-back playlist listening can easily generate more streams per user than lean-forward listening. Thus, we have one of the great emerging paradoxes of streaming: passive audiences can generate more streams, and thus rightsholder pay outs, than engaged, aficionados. However, a word of caution, should casual playlist listening become large enough, then the net result will be a dilution of the royalty pool and thus diminishing per stream rates.

Perhaps not the holy grail of promotion

A few years ago, playlists looked like the future of artist marketing, now they are looking a bit like a busted flush. They may be great at generating streams but are not so great at building an artist’s story. The near-obsession with Spotify playlists in label marketing strategy reflects the fact that most record label executives use Spotify and thus often have a Spotify-centric (and therefore playlist-centric) worldview. But labels are now beginning to question the artist ROI of playlists. The growing adoption among casual listeners only compounds matters and means that a playlist ‘hit’ does not necessarily do much to help long-term artist brand building. To put it simply: a playlist is not a shortcut to cultural relevance.

Podcasts could be bigger than streaming

Enter stage left podcasts. With its acquisitions of Gimlet, Anchor and Parcast, Spotify is betting big on podcasts. Already, more streaming users (18%) listen to podcasts than curated playlists while overall consumer podcast penetration is 11%. In Sweden – the early adopter market that gives us a view of where other markets are heading – podcast penetration is 19%, rising to 28% among streamers. Podcasts are a Netflix moment for radio and may even have the potential to be bigger than streaming music (US radio ad revenues alone are $16 billion). Right now, the growth in overall podcast audiences is fairly slow, but engagement is accelerating as are content creation, monetisation and distribution. It is not entirely inconceivable to think that five years from now, podcasts could be a bigger business for Spotify than music. Certainly, creators could be making much more money, even now.

While it remains more likely that music will be the core of Spotify’s business half a decade from now, all the early indications are that Phase 2 will mean a degree of diversification of user experience, business model and revenue stream, with podcasts at the vanguard. Playlists are not dead, but nor are they the golden child anymore.