The attention recession has hit Spotify too

Spotify added two million subscribers in Q1 2022. Yes, this incorporates the impact of 1.5 million lost Russian subscribers and is set against Netflix having lost 0.2 million subscribers over the same quarter. But while Spotify did well to not suffer the same fate as Netflix, it was not able to buck the broader trend affecting the entertainment market: the attention recession. The attention recession is the combined impact of: 1) the end of the Covid entertainment boom (consumers have less time and money as pre-pandemic behaviours resurface); 2) economic headwinds (rising inflation and interest rates), and 3) the geo-political situation (the Russo-Ukrainian war). Spotify’s Q1 earnings provide further early evidence of the attention recession’s impact. Spotify’s earnings were shaped by all three.

Looking at the ad-supported and paid users of a number of leading digital entertainment companies that have already reported their Q1 2022 results, a clear trend emerges: paid user growth slowed in Q1 2022, while free users continued to grow strongly. With consumers having less time on their hands and less money in their pockets, free is growing faster than paid.

Entertainment monetisation trends followed an almost mirror opposite of user behaviour. The first quarter of every year is typically down from the preceding fourth quarter for ad businesses, with the Q4 advertiser spend surge receding. Yet the declines in Q1 ad revenues for Snap and YouTube were both significantly bigger in 2022 than in 2021, with a combined drop of 22% compared to 13% the year before. Snap’s Evan Spiegel even went on record to explain just how problematic a quarter Q1 2022 had been and how there are growing concerns about the outlook for ad spend. This is because, as consumers have less disposable income, they buy less, which means advertisers get lower returns on their spend. Ad revenue is most often an early victim of a recession.

Conversely, Q1 2022 subscription revenues were up slightly, though much less so than in Q1 2021, and Spotify’s premium revenues were down 1%. Nonetheless, the key takeaway is that subscription monetisation was less vulnerable in the first phase of the attention recession. While free services and tiers benefited from incoming cost-conscious users, they were not able to harness the shift commercially. 

As MIDiA said back in 2020, all companies were going to feel the impact of the attention recession, which we identified was imminent following the pandemic. It is a case of simple arithmetic: more time and more spend during the pandemic benefited all companies. Post-pandemic, both of those increases recede, which means that all entertainment companies have to fight hard to hold on to their newly-found boosts to revenue and users, let alone grow. When we made that prediction, it was before the additional elements of economic and geo-political trends raised their heads. Rising inflation is going to hit all consumers’ pockets (with food and fuel prices being particularly hit), forcing many households to make trade-offs between essentials and luxuries. 

Though Spotify’s move to wind down Russian operations was admirable, it illustrates how the impacts of the Russo-Ukrainian war on digital entertainment will be both varied and far reaching, not least because of its impact on inflation due to its disruption of global food and fuel supplies. 

We are living in ‘interesting times’ and the future is always uncharted, but especially so now. 

Fake artists are what happens when fandom dies

The topic of ‘fake artists’ refuses to go away. For those who have been on Mars for the last couple of years, fake artists refer to artists who release under a streaming pen name but do not build any artist profile around the music. Most of this music comes from production music libraries (typically ‘royalty free’) and is seen by the traditional music business (record labels especially) as a means of gaming the system – especially as the assumption is that DSPs pay less for such music (even though record labels have started playing the game themselves). Although the ‘if you can’t beat them, join them’ might seem like a pragmatic solution, it, of course, only exacerbates the problem. Because the problem is not fake artists, but it is, instead, the way in which streaming is killing fandom.

Streaming is racing to be radio, not retail

Streaming is fast becoming more of a replacement for radio than it is retail. Retail used to be where (engaged, smaller scale) fans went, while radio was where (passive, larger scale) audiences went. As streaming got bigger, there was always going to come a point in which its focus would be the large passive audience segment rather than the smaller engaged fan segment. But what has happened is that streaming is turning everyone into the passive massive, even fans. Streaming has turned music into a utility, like water coming out of the tap. This might have helped drive global scale, but it came at the cost of fundamentally eroding the cultural impact of music, by making it about consumption rather than fandom. 

Streaming music soundtracks our everyday lives. There are playlists for everything we do (study, fitness, relaxing, cooking, working, etc.). By becoming pervasive, music has lost some of its magic. The fandom that was inherent in people buying music because they loved it is gone. The biproduct of ubiquity is utility. In the immortal words of Syndrome from the Incredibles: “When everyone is super, no one will be…”

The problem is that, from the ground up, Western streaming is geared for consumption not fandom. From playlists through to economics, streaming is all about consumption at scale. Songs fuel consumption, not artists. Which is the breeding ground for mood music, of which ‘fake artists’ are but one sub-strand. 

Streaming’s torrent of ubiquity

This is not to say that there is anything inherently bad about consumption, after all, radio has been a corner stone of the music business for, well, pretty much forever. Labels have had a love / hate relationship with radio, but they valued the way in which it drove sales and delivered exposure for songs and artists (especially as DJs talk about the music being played, interviewing artists, etc.). With streaming, though, the discovery journey is the destination. So, the post-consumption part of the equation just disappeared. And a consumption-first environment, tailored to individuals’ daily lives and shorn of the artist context delivered by DJs, is fertile ground for mood music. In fact, mood music is the natural evolution of a consumption-first system. A system in which artists get washed away by streaming’s torrent of ubiquity. 

Add poor remuneration for mid and long-tail artists into the mix, and you have a perfect storm. Why? Because artists are compelled to diversify their income mix to eke out every extra dollar they can get from their creativity, with production music libraries being eager customers of their ancillary work.

Fandom has moved up the value chain

Streaming may have killed off fandom within its own environment, but fandom itself has not died. It has gone elsewhere (Bandcamp, Twitch, TikTok, etc.). It is TikTok that has arguably done the most to reinvigorate fandom in recent years. But, crucially, it has inserted itself before consumption instead of after it. You will be hard pushed to find a mainstream music marketing campaign that does not include TikTok as the place to kick start discovery and (if all goes well) virality. TikTok has thus become the top of the funnel for consumption. Yet, rather than filtering out what is valuable, the process is more like panning for gold, i.e., filtering out what is not valuable – consumption. Fandom, identity, recreation, engagement, and connection are all left with TikTok, while consumption flows through to streaming. Little wonder, then, that TikTok is diluting streaming’s cultural capital. 

It does not have to be this way. Chinese streaming services demonstrate that streaming can be fandom machines too. Tencent Music Entertainment makes around two thirds of its revenue from non-music, fandom revenue. But perhaps the most startling example of just how much is being left on the table by Western streaming services, is found in NetEase Cloud Music’s inaugural earnings release. 212 million music users generated RMB 3.6 billion. 0.7 million social entertainment users generated RMB 3.7 billion. Yes, that means an audience that is 0.32% the size of the music audience generated more income in fandom-related revenue than the music audience did in music revenue. Right now, if anyone in the West is going to be streaming fandom machines, it is probably going to be TikTok (a Chinese company) and Epic Games (a company 40% owned by a Chinese company).

Fandom remains the under-tapped resource in the West, but its value is not simply in the revenue potential. Fandom is the essence of what makes music move us. Under-invest in it, and music will continue on its path of commodification. Which might serve the streaming platforms well, but not the wider music business. ‘Fake artists’ will become the norm, not the exception. To misquote syndrome “when everyone is fake, no one will be…”

Recorded music market shares 2021 – Red letter year

We suggested back in 2020, that 2021 was going to be a strong year for the recorded music market. As it turns out, 2021 was the fastest growing year in living memory, with growth across most formats, contrasting strongly with 2020 when streaming was the only growth segment. 

After 2020 was constrained by the global pandemic, the global recorded music market rocketed into stellar growth in 2021, growing by 24.7% to reach $28.8 billion (the largest annual growth in modern times). 2020 growth was a much more modest (7%), but this reflected the suppressing effect of the global pandemic in the first half of the year.

2021 was a big year for the music business, with a record amount spent on music catalogue acquisitions and IPOs for Warner Music Group (WMG), Universal Music Group (UMG) and Believe Digital. These developments turned out to be the symptoms of a surge in global market growth, with recorded music revenues. 

Streaming revenues reached $18.5 billion, up by 29.3% from 2020, adding $4.2 billion – also a record increase. One of the key drivers of streaming growth was non-DSP revenue, representing deals with the likes of Meta, TikTok, Snap, Peloton and Twitch. Non-DSP streaming recorded music revenue totalled $1.5 billion in 2021, a massive uplift from 2020. DSP streaming (Spotify, Apple Music, Amazon Music, YouTube Music, etc.) also grew strongly too, reaching $17 billion. 

UMG remained the biggest label, with $8.2 billion, giving it a market share of just under 29%. However, for the second successive year, Sony Music Group (SMG) was the fastest growing major, and it increased its market share by growing significantly faster than the total market. For the first time since 2017, the major labels did not see their collective market share decrease.

Independents also had a good year, with strong growth across both larger and smaller labels. But it was, once again, artists direct (i.e., self-releasing artists) who were the big winners, driving $1.5 billion of revenue and increasing market share to 5.3%. They also added more revenue than in the prior year, something the segment has done every year since 2015. However, because 2021 was characterised by all segments performing strongly, artists direct’s increase in market share was smaller than in previous years.

The concept of evenly distributed growth was also reflected across geographies and formats, with physical and other (i.e., performance and sync) all growing strongly. Physical growth was so strong that revenues surpassed 2018 levels.

The recorded music market looked vulnerable in 2020, relying entirely on streaming for growth, with the outlook inextricably tied to that of DSPs. 2021 was a very different story, with growth on most fronts, but, most importantly, the rise of non-DSP revenue, reflecting an increasingly diversified future in which labels can fret a little less about the prospect of slowing subscriber growth in mature markets. When coupled with longer-term growth opportunities (NFTs, the metaverse, etc), the outlook is positively rosy. Although 2021 was boosted by exceptional circumstances (e.g., the wider economy rebalancing after the Covid-depressed 2020, and much of the non-DSP income being in the form of one-off payments), annual growth of 24.7%, points to the emergence of a new era for an increasingly diversified recorded music business.

The full report and dataset (with quarterly revenue by segment and format going back to Q1 2015) is available here. If you are not a MIDiA client and would like to learn how to get access to our research, data and analysis, email stephen@midiaresearch.com

Music subscriber market shares Q2 2021

MIDiA’s annual music subscriber market shares report is now available here (see below for more details of the report). Here are some of the key findings.

The global base of music subscribers continues to grow strongly with 523.9 million music subscribers at the end of Q2 2021, which was up by 109.5 million (26.4%) from one year earlier. Crucially, this was faster growth than the prior year. There is a difference between revenue and subscribers – with ARPU deflators, such as the rise of multi-user plans and the growth of lower-spending emerging markets – but growth in monetised users represents the foundation stone of the digital service provider (DSP) streaming market. So, accelerating growth at this relatively late stage of the streaming market’s evolution is clearly positive.

Spotify remains the DSP with the highest market share (31%), but this was down from 33% in Q2 2020 and 34% in Q2 2019. With Apple Music being a distant second with 15% market share, and Spotify adding more subscribers in the 12 months leading up to Q2 2021 than any other single DSP, there is no risk of Spotify losing its leading position anytime soon – but the erosion of its share is steady and persistent. Amazon Music once again out-performed Spotify in terms of growth (25% compared to 20%), but the standout success story among Western DSPs was YouTube Music, for the second successive year. Google was once the laggard of the space, but the launch of YouTube Music has transformed its fortunes, growing by more than 50% in the 12 months leading up to Q2 2021. YouTube Music was the only Western DSP to increase global market share during this the period. YouTube Music particularly resonates among Gen Z and younger Millennials, which should have alarm bells ringing for Spotify, as their core base of Millennial subscribers from the 2010s in the West are now beginning to age.

But the biggest subscriber growth came from emerging markets. Between them, Tencent Music Entertainment (TME) and NetEase Cloud Music added 35.7 million subscribers in the 12 months leading up to Q2 2021. Together, they accounted for 18% of global market shares, despite being available only in China. Yandex, in Russia, was the other big gainer, doubling its subscriber base to reach 2% of global market share.

Combined, Yandex, TME and NetEase account for 20% of subscriber market share, but they drive 37% of all subscriber growth in the 12 months leading up to Q2 2021.

The strong growth in subscribers holds an extra meaning going into 2022. The surge in non-DSP streaming in 2021 means that the streaming market is no longer dependent on the revenue contribution of maturing Western subscriber markets (nor indeed ARPU-diluting emerging markets). With non-DSP streaming revenue looking set to have contributed between a quarter and a third of streaming revenue increase in 2021, streaming revenues look set for strong growth, even if subscriber growth lessens. That is what you call a diversified market.

A little more detail on the subscriber market shares report:

The report has 23 pages and 13 figures featuring country level subscriber numbers, revenues and demographics by DSP. The accompanying data set has quarterly subscriber numbers and annual revenue figures from Q4 2015 to Q2 2016 by DSP by country, with 33 markets and 27 DSPs. The report and dataset is available to MIDiA subscribers hereand also available for individual purchase via the same link.

Email stephen@midiaresearch.com for more details.

Major label revenue surged in 2021, but what does that mean?

2021 was an anomalous year for the recorded music market. Two of the majors did an IPO, the pandemic continued to disrupt the marketplace, and major label revenues grew at unprecedented rates. If the fourth quarter majors’ earnings follow similar seasonality patterns to previous years, collective major label recorded music revenue will be up by 29% in 2021, reaching $19.6 billion (a more bearish estimate is $19.3 billion). By way of comparison, 2020 growth was 6%, and 2019 was 10%. To put it another way, major label revenue increased by $787 million in 2020, and in 2021 it was up by $4.4 billion. 2021 was a red-letter year for the major labels, but was it a one-off or an industry pivot point?

To get to the answer, we first need to contextualise major label revenue growth within the wider market. 

Streaming 

Predictably, streaming was the core driver of major label revenue growth in 2021, accounting for 67% of the revenue, and up by 31% to reach $12.8 billion. That level of annual streaming growth has not been seen since 2016. 2020 streaming growth was 18%. But streaming’s leading player, Spotify, did see that kind of growth. Spotify’s full year 2021 revenues look set to hit €9.6 billion (which would be up by 22% from 2020), and if we only consider premium growth (i.e., the part that is not boosted by podcast revenue), then growth was just 19%. And it is not as if Spotify is losing much ground in the global streaming market – its subscriber growth was largely in line with the global market average (excluding China). So, the majors grew streaming faster, somewhere beyond Spotify.

The total market

The major labels’ total revenue growth also follows a different trajectory to other parts of the market, The year-to-date performance of just one of the top four recorded music markets matches the majors’ trend (bear in mind that these four markets were 62% of global label revenues in 2020, so they shape global growth trends):

  • US: 27.1% growth (H1) – RIAA
  • Japan: -1.0% (Jan-Nov) – RIAJ 
  • UK: 8.7% (FY) – ERA
  • Germany: 12.4% (H1) – BVMI

(It will be interesting to see how the IFPI allocates the revenue. There may well be quite a gap between their global total and the sum total of all the individual countries if this is indeed largely attributable to one off payments rather than reflecting organic, country level revenue.)

All of this means that the additional major label growth is likely reflective of factors such as:

  • Large, one-off payments from the likes of ByteDance, Twitch and Facebook
  • Licensing income from the same parties
  • Increased contribution from other markets
  • Market share increase from catalogue acquisitions 
  • Revenue growth from major-distributed independents
  • Organic market share growth

While all of these factors will be at play, it is the first two factors that are likely the most consequential. MIDiA estimates that these new non-DSP streaming income sources accounted for between $0.8 and $1.2 billion in 2021. Even at the lower end of the estimates, that revenue alone would have driven the same amount of growth in 2021 as all major label revenue growth combined in 2020. 

There is a clear narrative that post-digital service provider (DSP) revenue is now becoming a central growth driver for the recorded music business. Clearly a very beneficial narrative to have had during an IPO year, especially if the trend was accentuated by one-off payments and settlements – which would help explain the divergence between major label growth and local market growth. 

There are two key potential scenarios:

  1. Upfront payments for post-DSP streaming partners exceed organic mid-term revenue, resulting in slower growth rates in 2022 and 2023
  2. Post-DSP streaming partners meet / exceed expectations, making 2021 and 2022 look much like the late 2000s and early 2010s did for DSP streaming, with minimum guarantees being more often than not 

So, by 2023 we should be able to tell whether 2021 was a spike or a pivot point. If I was a betting man, I would probably put money on the outlook being closer to 2 than to 1.

Can Spotify break out of its lane?

After years of relative stability, music consumption is shifting, with the DSP streaming model beginning to lose some ground as illustrated by the major labels growing streaming revenue by 33% in Q2 2021 while Spotify was up by just 23%. It is never wise to read long-term market trends into one quarter’s worth of results, but there was already enough preceding evidence to suggest we are entering a genuine market shift. The question is whether Spotify and the other Western DSPs are going to find themselves left behind by a fast-changing market, or can they innovate to keep up the pace?

Social music is streaming’s new growth driver, generating around $1.5 billion in 2020 and growing fast in 2021. It represents a natural evolution of social media rather than an evolution of streaming. Audio is just another tool for social expression, along with video, pictures and words. MIDiA has long argued that Western streaming focuses too heavily on monetizing consumption, at the expense of fandom. While social video does not fix the fandom problem, it does cater to some of the key elements of fandom: self-expression, identity and community. Which means that, in some respects, Spotify and the other DSPs only have themselves to blame for having kept fandom out of their propositions. In doing so, they created a vacuum that TikTok and Instagram eagerly filled.

The data in the above chart comes from MIDiA’s latest music consumer survey report which is available now to MIDiA clients and is also available for purchase here.

Rights holder licensing met market demand

Spotify and the other DSPs are the dominant, core component of recorded music and they will remain so for the foreseeable future. But whereas a couple of years ago it looked like they might be the entire story, now music consumption is moving beyond, well, consumption. Finally, we are seeing music becoming an enabler of other experiences. Historically this was restricted to non-scalable, ad hoc sync deals. Now rights holders have established licensing frameworks that are flexible, dynamic and scalable enough to enable a whole new generation of experiences with music either in a central or supporting role.

DSPs occupy one of streaming’s lanes

The implication of this is that Spotify and the other DSPs now risk looking like they are stuck in just one lane of the streaming market. What looked like a highway is now just a single lane – and Spotify, Apple and Amazon do not have the assets to build propositions that can get them out of it. Being part of this social music revolution requires both massively social communities and video. They could all build that, of course, but with little guarantee of success. YouTube is a different case, having launched Shorts in a belated bid to ward off TikTok’s audience theft – but at least it is now running that race, and Alphabet reported 15 billion daily global views for Q2.

An increasingly segmented market

Spotify and other DSPs now find themselves not being part of streaming’s new growth story and, YouTube excepted, with no clear path to becoming part of it. To be clear, Spotify will continue to be the world’s largest subscription revenue generator and the DSP subscription model will continue to be the biggest source of revenue, at least for the foreseeable future. But revenue growth will increasingly come from elsewhere. In many respects this simply reflects the maturation of the music streaming market. Consider video streaming. Netflix added just 1.5 million subscribers in Q2 2021 while YouTube grew by 84% and TikTok went from strength to strength. Netflix occupies just one lane in a multifaceted streaming market. The same is now becoming true of the DSPs.

Time to do a Facebook?

So, what can Spotify and the other DSPs do about it? If Spotify really wants to ‘own’ audio, then it will have to do what Facebook did to ‘own’ social: create a portfolio of standalone sister apps. Facebook would have become the Yahoo of social media if it hadn’t bought / launched Instagram, WhatsApp and Messenger. The signs are already there for Spotify. Even ignoring the slowdown in monthly active user (MAU) growth in Q2 2021, podcast users stopped meaningfully growing as a share of overall MAUs in Q4 2020. It turns out that trying to compete with yourself in your own app is hard to do. The time may have come for a standalone podcast / audiobook app (by the way, I’m just taking it as read that Spotify is going to take audiobooks a whole lot more seriously). If Spotify does launch a podcast app, then the case suddenly becomes a lot clearer for other audio-related apps, all of which could include subscription tiers, such as social short video, karaoke, and artist channels.

The more probable outlook however is for specialisation, with segments going deep and vertical rather than wide and horizontal. While Spotify, and other DSPs, might have success in one or more side bets, it will be the specialists who lead in streaming’s other lanes. Whatever the final market mix looks like as a result of this change, the streaming market is going to be more diverse and innovative for it.

The record labels are weaning themselves off their Spotify dependency

The major labels had a spectacular streaming quarter, registering 33% growth on Q2 2020 to reach $3.1 billion. Spotify had a less impressive quarter, growing revenues by just 23%. After being the industry’s byword for streaming for so long, Spotify’s dominant role is beginning to lessen. This is less a reflection of Spotify’s performance (though that wasn’t great in Q2) but more to do with the growing diversification of the global streaming market. 

Spotify remains the dominant player in the music subscription sector, with 32% global subscriber market share, but streaming is becoming about much more than just subscriptions. WMG’s Steve Cooper recently reported that such ‘emerging platforms’ “were running at roughly $235 million on an annualized basis” (incidentally, this aligns with MIDiA’s estimate that the global figure for 2020 was $1.5 billion). 

The music subscription market’s Achille’s heel (outside of China) has long been the lack of differentiation. The record labels showed scant interest in changing this, but instead focused on licensing entirely new music experiences outside of the subscription market. As a consequence, the likes of Peloton, TikTok and Facebook have all become key streaming partners for record labels – a very pronounced shift from how the label licensing world looked a few years ago.

The impact on streaming revenues is clear. In Q4 2016, Spotify accounted for 38% of all record label streaming revenue. By Q2 2021 this had fallen to 31%.

Looking at headline revenue alone, though, underplays the accelerating impact of streaming’s new players. Because Spotify already has such a large, established revenue base, quarterly dilution is typically steady rather than dramatic. Things look very different though when looking specifically at the revenue growth, i.e., the amount of new revenue generated in a quarter compared to the prior year. On this basis, streaming’s new players are rapidly expanding share. Spotify’s share of streaming revenue growth fell from 34% in Q4 2017 to just 26% in Q2 2021. Unlike total streaming revenue, the revenue growth figure is relatively volatile, with Spotify’s share ranging from a low of 11% to a high of 60% over the period – but the underlying direction of travel is clear.

Spotify remains the record labels’ single most important partner both in terms of hard power (revenues, subscribers) and soft power (ability to break artists etc.). But the streaming world is changing, fuelled by the record labels’ focus on supporting new growth drivers. The implications for Spotify could be pronounced. With so many of Spotify’s investors backing it in a bet on distribution against rights, the less dependent labels are on it, the more leverage they will enjoy. From a financial market perspective, the last 18 months have been dominated by good news stories for music rights – from ever-accelerating music catalogue M&A transactions to record label IPOs and investments. 

Right now, the investor momentum is with rights. Should the current dilution of Spotify’s revenue share continue, Spotify will struggle to negotiate further rates reductions and will find it harder to pursue strategies that risk antagonising rights holders. Meanwhile, rights holders would be surveying an increasingly fragmented market, where no single partner has enough market share to wield undue power and influence. That is a place where rights holders have longed dreamed of getting to, but now – divide and conquer – may finally be coming to fruition.

Spotify and music listening 10 years from now

July marks ten years since Spotify’s US launch. Although the tendency among some is to consider this ‘year zero’ for streaming (thus ignoring everything that had happened in prior years both within and outside of the US) it does present a useful opportunity to reflect on what the next decade might hold for Spotify. 

Rather than focus on the business outlook, I am going to explore how Spotify and other streaming services, could change the way in which music is consumed ten years from now. But first, three quick future business scenarios for Spotify:

  1. It continues to be the global leader but with reduced market share due to the rise of regional competitors in emerging markets
  2. It loses market momentum, stock price tumbles and is acquired by another entity 
  3. It morphs into a true multi-sided entertainment and creation platform, doing for entertainment what Amazon now does for retail but with more tools and services

So, on to the future of music consumption.

To map the future, you need to know the past. These are (some of) the key ways streaming has transformed how we engage with music:

  • We listen to a larger number of artists but spend less time with individual artists
  • We listen to tracks and playlists more, and albums less
  • Music is programmed (by ourselves and by streaming services) to act as a soundtrack for our daily lives and routines
  • Genre divisions are becoming less meaningful
  • Artist brands are becoming less visible
  • Music fandom is becoming less pronounced

Music is more like the soundtrack to daytime TV than blockbuster movies

In 2015 Spotify’s Daniel Ek said that he wanted Spotify to ‘be the soundtrack of your life’. Undoubtedly, Spotify and other streaming services are achieving that but the utopian vision is more prosaic in practice. Less ‘that was the best day of the summer’ and more ‘put on some tunes while I cook’. It is a soundtrack, but less the soundtrack to a blockbuster movie and instead more like the soundtrack to daytime TV. Music has become sonic wallpaper that is a constant backdrop to our daily mundanity. (Though the pandemic, the climate crisis and stagnant labour markets can make even the mundane look aspirational for many).

Like it or loathe it, this sound tracking dynamic is likely to play a key role in what the future of music consumption looks like. But it is not all sonic dystopias; personalisation, algorithms, user data and programming also have the potential to reinvigorate music passion. Here are two key ways in which Spotify and other streaming services could transform music listening ten years from now:

  • Dynamic and biometric personalisation: The current recommendation arms race works from a comparatively small dataset, focused on users’ music preferences and behaviour. The next battle front will be the listener’s entire life. Any individual user can appear to be a dramatically different music listener depending on the context of their listening. Even the same time of day can have very different permutations; for example, looking for chilled sounds at 7pm after a manic Monday but banging beats at the same time on a Friday. If streaming services could harvest data from personal devices and the social graph, elements such as heart rate, location, activity, facial expression and sentiment could all be used to create a music feed that dynamically responds to the individual. Instead of having to actively seek out a workout or study playlist, the music feed would automatically tweak the music to the listener’s behaviour and habits. The faster the run, the more up-tempo the music; the later in the evening, the more chilled (unless it’s 9pm and you’re getting ready for a big night out). Selecting mood and activity-based playlists will look incredibly mechanical in this world. Think of it like the change from manual gear change to automatic in cars.

  • Music catalogue reimagined: Just as activity and mood-based listening will become more push and less pull, so can music catalogue. Traditionally catalogue consumption is driven by a combination of user behaviour (‘I haven’t listened to that band in a while’) and marketing pushes by labels, publishers and now music funds’ ‘song management’. But it needn’t be that way anymore. Over the years, streaming services have collected a wealth of user data. Just as Facebook introduced memories for users’ posts, so streaming services could deliver music memories, showing users what they were listening to on this day ten years ago, or what the soundtrack to your summer was way back in 2021. Clearly Spotify is already making steps in this direction with Wrapped but this would be much bigger step, routinely delivering nostalgia nuggets throughout a day, week, month, year. In many respects the result would be a democratisation of catalogue consumption. It wouldn’t simply be the rights holders with the biggest marketing budgets and smartest campaigns on TikTok (or whatever has replaced TikTok ten years from now) that get the biggest catalogue bumps. Instead, catalogue consumption across the board would boom. This could make the current 66% of all listening look like small fry in comparison. What that means for frontline releases finding space is another question entirely.

These are of course just two well-educated guesses, and their weaknesses are that they are based on what has happened so far rather than what currently unforeseen consumption shifts may happen in the future. Indeed, streaming itself may have been surpassed ten years from now. But tomorrow’s technology often looks more like today than it does tomorrow. Henry Ford’s model T Ford looked more like a horse and trap than it did the swept wing aerodynamics of 1950s cars. Change takes time. But ten years is a long time in the world of technology, so even if neither of the above come to pass, you can be sure that music listening is going to look a whole lot different than it does now.


Global music subscriber market shares Q1 2021

The music industry’s growing obsession with declining ARPU will continue to colour the outlook for the global streaming market in revenue terms, but the positive driver of this equation is the rapid growth of music subscribers. There were 100 million new music subscribers in 2020, taking the total to 467 million. (In 2019 there were just 83 million net new subscribers). A further 19.5 million new subscribers in Q1 2021 pushed the number up to 487 million. While the failure of subscription revenues to keep up with the pace resulted in ARPU falling by 9% in 2020, this lens detracts from the huge momentum in paid user adoption. Subscription revenue might not be increasing as fast as some would like, but the global music subscriber base is not just growing – it is growing faster than ever.

Spotify continues its global dominance, adding 27 million net subscribers between Q1 2020 and Q1 2021, more than any other single service. However, it lost two points of market share over the period because its percentage growth rate trailed that of its leading competitors. Google was the fastest-growing music streaming service in 2020, growing by 60%, with Tencent second on 40%. Amazon continued its steady trajectory, up 27%, while Apple grew by just 12%.

Google’s YouTube Music has been the standout story of the music subscriber market for the last couple of years, resonating both in many emerging markets and with younger audiences across the globe. The early signs are that YouTube Music is becoming to Gen Z what Spotify was to Millennials half a decade ago.

Emerging markets are now central to the music subscriber market, with Latin America, Asia Pacific and Rest of World accounting for 60% of all 2020 subscriber growth. This is of course, also a key reason why global ARPU declined. Nonetheless, a number of emerging markets services now boast large subscriber bases. Beyond Tencent’s 61 million, China’s NetEase hit 18 million subscribers in Q1 2020 and Russia’s Yandex hit 8 million. (For more on streaming in emerging markets check out MIDiA’s latest free report: Local Sounds, Global Cultures.)

MIDiA will be publishing its country-level music subscriber numbers as part of the global music forecast report and dataset which will be available to clients Monday 12th July. If you are not yet a MIDiA client and would like to know how to get access to the data, email stephen@midiaresearch.com

How Bandcamp could really fix the music business

“A thought: has streaming become the place to address consumers and the likes of Bandcamp the places to engage fans? i.e., fans and fandom inherently matter less on streaming because it/they are a minority.” 

I recently posted this tweet questioning whether streaming has become the place for finding fans, while Bandcamp is the place where fans really are. Some of the resulting conversation got me thinking that there are several related but disconnected industry dynamics which define today’s music business but are second-order effects of streaming’s rise rather than how anyone planned for things to pan out. If someone could join the dots between them then we might just have the makings of a solution to many of the problems artists face in the streaming song economy. And perhaps that someone could be Bandcamp…

When being empowered does not feel as empowering as it should

One of the great ironies of this era of empowered artists is that the empowerment only extends so far. Sure, they can choose whether to work with a label, whether to retain their rights, which distributor to use etc., but the vast majority are beholden to streaming. Streaming is where they build and find their audiences; streaming metrics are the success currency that drives or helps shape most of everything else that happens in their careers. Yet the economics for most middle class and independent artists do not add up. Even the ability to get bigger live audiences thanks to streaming does not help pay the bills for most emerging artists as they are still in the stage of their careers where they lose money touring. This is of course why Bandcamp has resonated so strongly in recent years: it is the place where artists bring the audiences they are building on streaming to a place where they can earn meaningful income. 

Streams or fans?

This discover on Spotify / monetise on Bandcamp flow works well enough, but it is like bottom-trawling fishing: most of what you catch you discard. But there is more to it than that. If labels and artists are investing their marketing efforts in driving streams as the way to find audiences and build fan bases but few listeners actually convert, this means that the streaming platforms are benefiting much more from that marketing spend than they are. Add to that the fact artists cannot build direct relationships on most streaming services (excepting, as always, Soundcloud and YouTube), then the question becomes: what are artists building on streaming apart from streams? Of course, there is always the unicorns and rainbows hope that they might blow up on streaming – but artist careers cannot be built around the hope of winning the lottery. What is pointedly not being built is, you guessed it, fandom. Audiences may fall in love with the music on streaming and they may follow the artist etc., but they build their fandom elsewhere, going to Google, Wikipedia, Instagram, forums, articles and the like to really get to know the artist.

Bringing it all together

Make no mistake, streaming does an amazing job of helping people hear new music and it does a pretty good job of helping people discover new music (there is of course a massive difference between hearing a new song once and really discovering new music). But the missing bit is nurturing fandom; feeding curiosity, enabling connections with others, facilitating self-expression, getting beneath the skin of an artist. A certain scale of audience is needed to turn Bandcamp into truly meaningful income for artists and right now too much of that responsibility lies with streaming. This is where Bandcamp has a ‘go big or go home’ opportunity.

What if discovery, consumption and fan building could all happen on Bandcamp, not just e-commerce? Apart from a little editorial, right now Bandcamp is not designed as a destination but instead as the place people go to buy stuff. Imagine if Bandcamp was also a place to listen to music, discover cool new artists (based on users’ stated preferences and behaviour to deliver personalised recommendations) and learn about those artists. A place for bands and alternative singer-songwriters. A place to reclaim the essence of ‘independent’ from major label-owned ‘independent’ artist platforms.

Of course, there is a tension: if Bandcamp suddenly starts doing streaming, then it puts sales at risk – the very essence of its market proposition. But Bandcamp doesn’t need to play by the streaming rule book. It doesn’t need to license the majors (or even the big indies); instead, it can build a completely new model with smaller labels who are open to creating something new. 

For example, a listener might be able to stream the songs from an album twice before then having the option to pay to unlock the album for unlimited streams using pre-purchased credits. Effectively creating a full streaming catalogue that can be unlocked one album / EP / artist at a time, rather than ‘simply stream before you buy’. This would combine the best of both worlds: streaming consumption and sales income for the artist. Once you start thinking about things in this way, the possibilities light up the horizon.

A fan accelerator

So now we have Bandcamp driving discovery, consumption and commerce. But it could do more still: it can become a fan accelerator. By combining all these assets and ensuring artists can always talk directly to their fans and know exactly who they are (opt-in emails, names, DOB, interests etc.) artists would be able to build fan bases like nowhere else. But rather than simply provide the tools to artists, Bandcamp could help them with guidance, support and fan roadmaps. Not all artists are one million follower artists; some might only ever be 100 follower artists. Using its data and expertise, Bandcamp could help artists understand what the right path is for them. For some, it would be providing the tools to get to 10,000 followers; for others, it might be how to truly engage 100. 

This might sound like common sense, but too much of the music business is shaped by over-inflating artists’ expectations, trading on unrealistic dreams. The first chapter of the independent artist economy was about establishing them as a serious force in the music business and getting platforms to scale. The next chapter should be shaped by independent artist tools and platforms shouldering a duty of care to their customer bases, to help them plot the right paths for them. There are as many different models for success as there are artists. Success needs redefining for those artists that will never hit it big, nor may ever even be able to give up the day job. Finding those ‘100 true fans’ can still be success; it just needs measuring differently.

There are plenty of other directions this could go in, and there are plenty of other entities that could go in this direction. What matters is that the siloes the industry finds itself with are broken down and that fandom and creator remuneration do not fall between the cracks. With new foundations, we could truly see the emergence of the empowered artist.