Here’s Why Apple Just Killed Off iTunes

Apple CEO Tim Cook speaks during Apple’s annual Worldwide Developers Conference in San Jose, California, U.S. June 3, 2019. REUTERS/Mason Trinca

Apple has announced that it is closing iTunes and replacing it with three new apps:Apple Music, Apple Podcasts and Apple TV Apps. While this doesn’t (yet) mean the end of the iTunes Storeit is a major development for Apple. In fact, in many ways, it reflects the way in which Apple is becoming ever more later a follower. The great unbundling process has been going on across digital services for years, with Apple the tech major to cling closest and longest to a unified app experience. Now, just as Facebook, Google and Amazon have a suite of specialist apps, so does Apple. Unbundling is a natural part of the digital cycle, giving users the ability have dedicated user experiences that serve specific needs well rather than many (at best) no so well, (at worst) poorly. Indeed Apple’s Craig Federighi’s tongue-in-cheek quip”One thing we hear over and over: Can iTunes do even more?” hints at just how bloated and no longer fit for purpose iTunes had become.

iTunes never did really shake off its origins

iTunes actually started off as a tool for ripping and burning CDs. In fact, its original marketing slogan was ‘Rip Mix Burn’. It evolved into a tool for managing and playing music and supporting the iPod. Over time it layered in videos, books, apps, Apple Music etc etc. But one thing iTunes never excelled on, even before it suffered from feature bloat, was being a great music player. It was if it could never quite shake off its origins. Apple Music has of course picked up the player baton and run with it for Apple. Now that iTunes has splintered into three apps, we should start to see the evolution of three distinct sets of user experiences. Apple hasn’t pushed the boat out yet because it has a fundamentally conservative user base that has to have change implemented at a steady rate in order not to alienate it.

Unbundling and beyond

With hardware sales are unlikely to drive strong growth again for Apple until it finds its next big device hit, and although Watch and TV could still both rise to the challenge, it is more likely to be a new form factor. Until then, Apple needs its content and services business to pick up the slack. Right now, the App Store generates the lion’s share of Apple’s content and services revenue and there is clearly an imperative for Apple to ensure that it is driving more revenue from its own products rather than simply extracting a tenancy fee from those of others’. With its new suite of subscription services (Apple Arcade, TV+, News+) Apple is now poised to go deep across a wide range of content offerings. Unbundling its apps and subscriptions gives it the agility to build sector specific user experiences and marketing campaigns. Separating out podcasts is particularly interesting, as Apple is making the call that they do not belong with music. A stark contrast to Spotify’s approach. Indeed, Spotify may just be approaching its own iTunes moment, with an app that is trying to do too many things for too many different use cases. iTunes just committedhara-kirito enable Apple to compete better in the digital content marketplace. Spotify may need to do something similar soon.

Extra little thought: does Apple Music the subscription service now become Apple Music+ in order to differentiate itself from the Apple Music app?

How ByteDance May Just Be About to Drive the Next Streaming Paradigm

download-5Streaming music is approaching a decision point. Right now, music subscriptions are doing a fantastic job of monetising consumption, but next we need to learn how to monetise fandom. Global streaming revenues were up 30% in 2018 to reach $19.5 billion in retail values. Streaming’s current focus, in the west at least, is utilitarian – it focuses on getting tracks onto our devices and connecting us with music we will listen to, if not necessarily love. Many years ago there was a theory that music was going to be become like water. This was seen as a transformational aspiration, but now that we have that future the sheen has come off. Now, much as we may depend on the water that comes out of our taps, we do not attribute emotional value to it, we do not identify ourselves by it, we do not have conversations around it; water is a utility. Streaming has commodified music in the same way. Monetising consumption was a perfectly sensible ‘play it safe’ strategy to turn around the global recorded music business, but now the next streaming paradigm is needed, and TikTok might just have started the ball rolling.

Streaming needs to bring back the heart and soul to music

Music does something very special in a way that most other forms of media cannot. It represents us. It reflects how we feel and who we are, especially when we are young. Music is the soundtrack to our formative years, helping shape and identify who we, creating treasured shared moments and effectively sound-tracking our lives. In the old days of recorded music, from the 1950s right through to the 1990s, music was the central cultural identifier for youth, to the extent that you could tell what music people liked by the way they looked. Teenage bedrooms would be full of records, tapes or CDs that immediately told the musical story of that person. When someone said ‘Yes I like that band, I’ve got their album’, it was a statement of fandom: that person liked the band so music they had spent money to buy the record. Fast forward to now, and so many of the tools for cultural identification have been stripped away. The shelves of albums are replaced with ever-changing personal and curated playlists (i.e. a snapshot of ‘how I’m feeling now’ rather than ‘this is who I am’). Saying ‘yes, I’ve streamed that artist’ means little; anyone can access a stream, and there’s no financial commitment from the listener. Even ‘I follow that artist’ is becoming less useful, as following is simply becoming an over-abundant sorting tool for listeners. In short, streaming needs to figure out how to bring heart and soul back to music.

Context and fandom

There are two fundamental ways to fix the problem:

  1. Add context
  2. Add fandom

The first is all about discovery: yes, that much referenced but rarely actually delivered concept. Streaming is all about discovery, right? 50 million tracks, new music playlists everywhere you swipe. But it turns out that there is a very big difference between hearing new music and discovering new music. Little wonder then that even among streaming users, streaming is only the fourth most effective way of discovering music (even hearing songs on TV shows rates higher). Radio may be haemorrhaging listeners but it still does discovery best, thanks to DJs calling out track names, recurrent tracks to familiarise audiences, artist features etc.  This is not to say that streaming should simply mimic radio, though that might be part of the answer, but instead to think how it can layer context and meaning around music.

Monetising fandom

The second element is fandom. As I have written about before, Chinese service providers, Tencent in particular, have done a great job of building experiences around music rather than building pure music experiences. Tencent’s services, especially We Sing, make available tools like tipping, virtual gifts and badges to let its users express themselves via music. It does virtually what CDs and posters on teenager’s bedroom walls used to do. Right now, teenagers in the west only really have Instagram, Snapchat and Fortnite to do that with. YouTube and Soundcloud are the closest we have to fandom-powered music services due to features such as comments, likes, lyric videos etc. It is no coincidence that teens heavily over index for all of these activities (clients, check out MIDiA’s awesome consumer data portal for more on this).

It is time for audio streaming services to start following the lead of YouTube, Soundcloud and Tencent, and even to start embracing some of the off-platform apps that are trying to fix the problem themselves. Of course, they are going to need some support from rightsholders to make this happen.

Why TikTok may be the market catalyst

Enter TikTok, whose parent company ByteDance is reported to be prepping a streaming service. TikTok has more than 30% penetration among 16-19s and is the heir apparent to Musically, which Byte Dance acquired before then shuttering. TikTok lets its users express themselves with music as the soundtrack and has the power to turn obscure tracks into viral megahits. Let’s work on the assumption that ByteDance leverages its TikTok assets and doesn’t get browbeaten by rightsholders into launching a Spotify clone (the fact it has focused so far on non-western labels like T-Series suggests it is looking to break the licensing mould). The combination of a fandom-focused streaming service that also looks like it will be targeted at emerging markets could spur the next stage of streaming growth. So far only Tencent has successfully monetised fandom at scale. Now ByteDance looks set to follow suit. Western streaming services can either watch from the side lines or start working with rightsholders to bring heart and soul back to music. The future is monetising fandom.

New MIDiA Latin American Streaming Report, in English, Spanish and Portuguese

MIDiA Latin America Streaming reportMIDiA has just published its latest report on the Latin American streaming music market, and we have versions available in English, Spanish and Portuguese.

MIDiA has been tracking the Latin American music market for over five years, including annual consumer data and market metrics.

Our latest report ‘Latin America Streaming Music Market: YouTube and Spotify Take Hold’is written by our long term Latin American music analyst Leo Morel and features data on Mexico, Brazil and the region as a whole.

 

 

The report includes analysis and data on:

  • Consumer adoption of YouTube, Spotify, Apple Music, Deezer and other streaming services
  • Playlist penetration
  • Wider consumer music behaviour eg downloads, CDs
  • Streaming revenues (subscriptions, ad supported music ad supported video)
  • Streaming users (subscriptions, ad supported music ad supported video)

Companies and brands mentioned in the report: Apple, Deezer, Google, iPhone, iTunes, Movistar, Spotify, TIM, Virgin Mobile, Vevo, Vivo, YouTube

The reports are immediately available to our clients, while you can purchase the individual reports here:

The reports each come with PDF, Slides, Excel and infographic.

For any questions please email info@midiaresearch.com

2018 Global Label Market Share: Stream Engine

Recorded music revenues grew in 2018 for the fourth consecutive year, reaching $18.8 billion, up $2.2 billion from 2017. Streaming was the engine room of growth, up 30% year on year to reach $9.6 billion. For the first time streaming became the majority of label revenue (51%), and its growth continues to outpace the decline of legacy formats. Major label rankings remained unchanged in 2018, but the majors enjoyed varying fortunes and the continued meteoric rise of Artists Direct points to market transforming changes that are reshaping the entire business of record labels.

2018 was shaped by three key factors:

  • Continued growth: Global recorded music revenues grew 7.9%. Though 2017 revenues grew by a higher 9.0%, the market grew the same in absolute terms in 2018, adding $1.4 billion of net new revenues as in 2017. Since 2015 the total market has increased by 26%, adding $3.9 billion of net new revenue.
  • Stream powered: Though relative growth is slowing, streaming added the same amount of net new revenue – $2.2 billion – in 2018 as it did in 2017. Though 2019 will see mature streaming markets such as the US and UK slow, mid-tier markets such as Mexico and Brazil, coupled with Japan and Germany, will ensure that streaming revenues grow by another $2 billion in 2019.
  • Artists Direct:The major record labels retained the lion’s share of revenues in 2018, accounting for 69.2% of the total. Changes in global market shares typically move at a relatively slow pace, particularly at a major vs independent level. However, Artists Direct – i.e. artists without record labels – are changing the shape of the market, growing nearly four times as fast as the total market to end 2018 with $0.6 billion of revenue.

midia music market shares 2018

There were mixed fortunes in terms of market shares. Universal Music and Warner Music both gained 0.6 points of market share in 2018, up to 30.3% and 18.3% respectively, with Sony Music losing 1.5 points of share in 2018. Though Sony’s 2018 revenues were constrained in part by the company implementing new revenue recognition practices in 2018, Universal’s market share lead over the second placed label is now an impressive 9.7 points.Artists Direct and Independents together accounted for 30.8%, though this figure is measured on a distribution basis (i.e. Major revenues include independent labels distributed by majors and major owned companies). The independent share based on an ownership share will therefore be higher.

More of the same, but change too

In many respects 2018 was a re-run of 2017: total revenues grew in high single digit percentage terms; streaming was the engine room of growth and added more revenue than the prior year; Warner Music gained most major market share; Universal Music added more revenue than any other label; Artists Direct gained most market share.  But it is this latter point that may say most about where the overall market is heading. The range of tools now available to an artist are more comprehensive than ever before, while deal types that labels are offering (e.g. label services, joint ventures) are changing too. Artists are effectively able to custom-build the right model for them. The market will always need labels, but what constitutes a label is becoming a fluid concept. And in so becoming, it may put us on the verge of the biggest shift in record label business models since, well, ever.

These findings are highlights of the MIDiA Research report: Recorded Music Market 2018: Stream Engine. If you are a MIDiA client you can access the full report, slides and datasets here. You can also purchase the report and all its assets here.

Podcasts: a Netflix Moment for Radio But Perhaps not the Future of Spotify

spotify gimlet anchor podcasts midiaWednesday was a busy day for Spotify: it reported above-expected subscriber growthto hit 96 million paid subscribers, strong total user growth to hit 207 million MAUs, improved margins and its first ever profitable quarter, registering an operating profit of €94 million. And the news didn’t stop there, Spotify also announced the acquisition of two podcasting companies, Gimlet and Anchor.Spotify unsurprisingly referenced podcasts in its earnings note, pointing to 185,000 podcast titles available, ‘rapidly’ growing consumption and 14 exclusives to including the 2nd season of Crimetown, The Rewind with Guy Raz, and the Dissect Mini Series hosted by Lauryn Hill. Podcasts is clearly becoming a big part of Spotify’s plans and the rationale is simple: more owned content, and more cheaply licensed content means higher margins than can be generated by record label content. But for all its commitment to the format, Spotify may find the podcast battle harder to win than expected.

An opportunity with many intertwined layers

After many years stuck on the side lines, podcasts are now becoming sought after by everyone from radio companies, streaming services, newspaper publishers to TV companies and many, many more. Media brands of all forms see podcasts as a part of their future, a way to increase and diversify listening time (streaming services); fight back against streaming (radio); reach new audiences (news); and extend audience engagement (TV). To some degree podcasts can probably deliver on all those expectations, and while the creative possibilities are clear, the path ahead is not so straight forward:

  • A Netflix moment for radio: Netflix transformed the TV market not just by giving consumers a cheap, value-for-money way of getting great TV, but by changing forever the way in which TV is made. No longer shackled by the constraints of linear schedules and needing to keep everyone on the sofa happy at the same time, studios and networks started smashing the boundaries of what could be made and what a TV show looks like. We are now in the golden age of TV. Podcasts do the same for radio, allowing every niche topic under the sun to be explored in huge detail and without any constraints on number or length of episodes. Podcasts create even more of a blank canvass for what was once only radio content than Netflix did for what was once only TV content.
  • Apple iTunes stranglehold: Apple is the powerhouse of podcast distribution. In what is otherwise a highly fragmented podcast distribution landscape, Apple is as close as it gets to a unified podcast platform – which is also integrated into Apple Music. During podcasting’s wilderness years, Apple quietly built up a loyal base of podcast users. Given that more than half of Spotify’s subscribers are iOS users, those that are podcast users are most likely also Apple podcast users. Spotify will have to bank on converting those users while simultaneously flicking the ‘market creation’ switch by converting new users to podcasts. A double challenge.
  • Radio:As MIDiA identified early last year, radio is streaming’s next frontier. Spotify has built a sizeable ad supported audience – 11 million as of Q4 2018 – but it has not yet built a viable ad model – ad user ARPU is just $0.28 which is just one cent up on Q4 2017. To persuade radio’s big advertisers to switch, it needs to woo more of radio’s core audience but it currently lacks the content assets (news, weather, sports etc). Podcasts are a step in that direction but radio companies will feel they have a better chance of owning this space than Spotify, and many are currently investing heavily in podcasts. As Apple has been learning with Beats 1, just because you want to do something does not mean you necessarily can, even if you hire many of the industry’s power players.
  • Programmatic ad buying:Spotify is doubling down on its programmatic ad buying and this will be crucial to monetizing podcasts. Spotify reported in its Q4 earnings that programmatic is growing fast and, along with self-serve, now accounts for 25% of all ad sales – though as ad ARPU is flat (up just $0.15 y-o-y), it is not growing fast enough.
  • Use cases:Lastly, but most importantly, the underlying use cases for podcasts potentially limit the market opportunity for podcasts. The addressable audience for podcasts is not all the time spent listening to audio. Listening to music is a lean back experience that we can do while doing other things like work and study. Podcasts tend to require more of our attention and thus the use cases for podcasts are more limited. Also, unlike TV shows, users are less likely to have a large number of podcasts on the go at the same time. Spotify will hope that it will be able to generate appointment-to-listen behaviour, with users tuning in for their favourite podcasts on a specific day. But that necessitates users re-learning how they use Spotify.

The podcast opportunity is undoubtedly strong but there will be many competing to be the owner of podcasting’s future and radio may well do a better job of winning this battle than it has retaining its music listeners. Spotify is betting big on podcasts being part of the future of streaming, but the future of podcasts may lie elsewhere.

Can Spotify Ever Meet Investors’ Expectations?

Spotify just posted another solid set of results, adding four million subscribers and beating profit and revenue estimates, yet its share price fell. What’s going on? Spotify is on track for where it should be, slightly below, but on track. Before Spotify went public MIDiA laid out three growth scenarios (low, mid, high). Our mid forecast put Spotify at 87.8 million subscribers for Q3 2018, it reported 87 million. So, Spotify is pretty much exactly where it should be. It’s not exceeding expectations, nor missing them, but is plotting a strong, solid course, all the while improving operational metrics such as churn and profitability. Yet still, this is not enough for investors. The reason is simple: misaligned expectations.

Investors want more

Spotify has pretty much had this problem all year, delivering good, steady growth that is good enough for the music industry, but isn’t good enough for investors. Record labels measured Spotify’s success relative to the performance of their revenues, which were coming out of a tailspin. Investors have a higher bar for success. They want faster growth, profitability (never really a label priority – it was Spotify’s problem to fix) and market disruption. Spotify is building its business at a decent rate that meets / exceeds music industry expectations, but not investor expectations. It is also laying the foundations for future self-sufficiency (artists direct, podcast etc.) but investors want more, now.

Tech stocks are the benchmark

The problem with going public as music company is that your investors are not music specialists; most aren’t even media specialists. Consequently, they don’t have the same situational industry expertise that music industry specialists have. They don’t get bogged down with the minutiae of collection society reciprocal agreements, mechanical rights, label marketing strategies, publisher concerns or artist contracts. They can’t. Music is too small a part of an institutional investor’s portfolio to commit the time required to truly understand what is a very complex industry. So instead they look at the big picture and benchmark against Netflix and other tech stocks.

I remember a comment Pandora’s founder Tim Westergren made to me on a panel last year, to the effect that Spotify better be careful what it wished for by going public. Tim learned first-hand that investors didn’t have the appetite to understand the nuances that shaped his business and eventually he paid the ultimate price, foisted out of his own company.

Game changer or industry ally?

In music industry terms Spotify is doing a great job, in tech stock terms, less so. Either it has to start performing even more strongly – no easy task in a maturing market – or it has to start talking up the disruption angle. Tech investors like backing game changers, betting big on something that is going to change the world. In the way that Facebook, Google, Netflix, Amazon (and for a while, Snapchat) did. Thus far Daniel Ek has trodden a difficult middle ground, remaining the firm ally of the music industry but also promising disruptive change. If the stock continues to underperform, he and his exec team might just be forced to start talking up disruption. At that stage it will be gamble time, because Spotify will be swapping allegiances that could make or break the business.

Emerging Music Markets: Streaming’s Third Wave

MIDiA has just published a new report that deep dives into how streaming is, or in some cases is not, lifting off in emerging markets. The regions we focused on were Russia, the Middle East, sub-Saharan Africa, China and India. The report ‘Emerging Music Markets: Streaming’s Third Wave’ is immediately available to MIDiA subscription clients and can also be purchased, along with its full dataset (including service- and country-level subscriber and free users numbers, as well as consumer data for India and China) on our report store here.

Here are some of the key findings and themes of the report.

emerging markets midia streaming

With streaming growth set to slow in mature western markets by 2019, the next wave of fast growth will come from a mixture of mid-tier markets such as Mexico, Brazil, Japan and Germany. The lower income mid-tier markets such as Brazil and Mexico are so populous that the urban elites have been big enough to generate paid user bases that are comparable to those of smaller European markets. The real scale opportunity, however, exists in monetising lower income groups with much cheaper propositions. Beyond that, the streaming market will need to look towards emerging markets for growth. Emerging markets in Asia and Africa present a diverse variety of opportunities, but current evidence suggests that the outlook for these markets is far from uniform.

The rule that defines emerging markets for streaming music is that there isn’t one. China has a large base of free users and a solid base of subscribers. India has large numbers of free users, but a tiny paid base. Russia and the Middle East both have a solid ratio of free-to-paid users while Africa has the lowest per capita metrics for both paid and free.

Arguably, the single most important reason for these differences is mobile data network availability and affordability. In China and India mobile data use is increasingly widespread, making streaming a compelling proposition, while in most sub-Saharan African countries coverage is patchy and expensive.

Despite their differences, these regions will be crucial to the long-term outlook for streaming growth. So, mapping their respective trajectories helps to forecast long-term global market growth for streaming. Rights holders will need to innovate out of their comfort zone if they are to truly seize the emerging markets opportunity. The fact that Nigeria’s MTN only gets a retail ARPU of around $2 a year across sub-Saharan Africa for its music products, including ringtones and downloads, hints at where ARPU expectations may have to be set.

Companies and brands mentioned in the report:Baidu Music, Gaana, Hungama, iRoking, Jio Music, Kugou, Kuwo, Mdundo, Mkito, MTN, MTN Music+, Mzliki, Netease Cloud Music, QQ Music, Quan Min K G, Saavn, Simfy Africa, Vkontakte, Vkontakte Music, Vuga, Wynk Music, Yandex, Yandex Music, Zvook

Click here to view the report on MIDiA’s report store.

Is YouTube Serious About Music Subscriptions This Time Round?

In 2014 YouTube launched its inaugural music subscription service YouTube Music Keyin beta. The following year YouTube announced it was closing it ahead of the launch of YouTube Red, a multi-format subscription video on demand (SVOD) offering, of which music was going to be sub-component. Soon after Music Key’s launch I announced on stage at a Mixcloud Curates event that it would close within two years: and

I’m gonna put my cards on the table and say it [YouTube Music Key] won’t exist in 18-24 months after

Now YouTube is backfor another round at the table with the launch of YouTube Music.

In 2014 my Nostradamusmoment was less about being a psychic octopusthan it was simply a case of joining the strategic dots. YouTube is all about advertising. Advertisers pay most to reach the best consumers, who are also the ones most likely to pay for a subscription service, which is ad free. YouTube’s ad business is high margin and large scale. Its music subscription business is low margin and low scale. Hence, the more successful YouTube’s music subscription business is, the more harm it does to its core business and operating margins. The same principles apply today as they did four years ago.

So why bother at all? Because it has to keep the labels on side. Although the labels scored a lobbying own goal with their Facebook music deal, they are still applying pressure on YouTube for its safe harbour framework and the ‘value gap’. So if YouTube does not play ball on premium, it puts its core ad business at risk. And music is still the largest single source of YouTube’s ad revenue. Total YouTube ad revenue was $9.6 billion in 2017 – that is a revenue stream that parent company Alphabet cannot put at risk.

youtube spotify.png

When YouTube launched Music Key it used those negotiations to get better features for the free YouTube music offering, including full album playlists, which went live the day after the deal was announced and are still there now, even though Music Key is not. YouTube is no slouch when it comes to doing deals. This time however, YouTube Music will last longer. Here’s why:

  • This isn’t actually year zero:Google already has around five million Play Music subscribers and around the same number of YouTube Red subscribers. Red subscribers will become YouTube Premium subscribers, Play Music subscribers will get access to YouTube Music. So, inasmuch as YouTube is launching a cool new app with lots of new features, this is not Google entering the streaming fray, it is simply upping its game.
  • Spotify is making up ground:YouTube Music is not about to become the global leader in music subscriptions, for all the above stated reasons and more, but it can’t stand on the side lines either. Data from MIDiA’s Quarterly Brand Tracker shows that while YouTube is still the leading streaming music app in weekly active user (WAU) terms, Spotify is making up ground. Crucially, Spotify is now more widely used (for music) among 16–19 year olds. And Spotify is betting big on ad-supported, largely because it has finally persuaded the labels and publishers to amend its deals to allow it to, evidenced by the fact that Q1 2018 ad-supported gross margin increased dramatically from -18% to 13% in Q1 2017. YouTube Music is in part a defensive play to ensure it has an enriched offering for thoseconsumers, both now as free users, and for when they want to pay.
  • YouTube is the best featured music service: One of the great ironies of the recorded music industry’s relationship with YouTube is that because it doesn’t have to negotiate deals in the way other services to, it now has the best featured music service. Streaming and social have risen in tandem, but only YouTube has fully embraced this with comments, likes / dislikes, mash ups, user cover versions, parodies, unofficial remixes etc. And all of these features are front and centre in the new service. Spotify and co can’t get that sort of content because the labels can’t license it. Moreover, labels don’t like users being able to thumb down their songs or comment negatively on them. This launch enables YouTube to shout from the roof top about what it has and, by inference, what Spotify does not.
  • Testing:YouTube Music is being rolled out in the same markets as YouTube Red was (US, Australia, New Zealand, Mexico and South Korea). This slightly eclectic mix of markets represent a test base; a wide range of varied markets that will provide diverse user data to enable YouTube to model what global adoption will look like.
  • Upping the ad load: YouTube’s global head of music Lyor Cohen has nailed his colours firmly to the subscription mast. Although Cohen may not be up high in the Alphabet hierarchy he is a strong voice in YouTube’s music business. It also serves Alphabet well to have this particular voice with that sort of message at the forefront. Cohen has gone on record stating that YouTube will up its ad load to force more users to paid, and it is happening, but it is not just a music thing. Ad loads are up across the board on YouTube. Either way, this element was patently missing back in the days of Music Key.

YouTube Music may not be the start of Alphabet’s streaming game, but it is certainly its biggest play yet. And while it will remain focused on protecting its core business, it will likely explore ways to drive ad revenue within its ‘ad free’ premium offerings. Sponsorship and product placement will be one tactic; using MirriAd’s dynamic product placement ad tech could be another. YouTube is unlikely to become the leading music subscription service soon, but there is no denying that it has clearly upped its game.

The data in this chart and some of the analysis will form part of MIDiA’s forthcoming second edition of its landmark ‘State of the YouTube Music Nation’ report. If you are not already a MIDiA client and would like to know how to get access to this report and data, email stephen@midiaresearch.com

Sweden Might Just Have Shown Us What the Future of Music Revenues Will Look Like

Earlier this week the IFPI released its Global Music Report – an essential tool for anyone with a serious interest in the global recorded music business. One interesting trend to emerge was the slowdown in Swedish streaming growth and its knock-on effect on overall recorded music revenues. Sweden has long been the leading indicator for where streaming is likely to head, providing a picture of just how vibrant a sophisticated streaming market can be. But now, with the market reaching saturation, it also gives us some clues as to what the long-term revenue outlook for the global music market could be.

sweden growth

According to the IFPI, Swedish streaming revenues reached $141.3 million in 2017, up from $125.7 million in 2016, with subscriptions accounting for 96% of the total. That was an increase of just $9.3 million, or 7% year-on-year growth, down from 10% in 2016 and 23% in 2015. This is a typical trajectory for a market when it has progressed to the top end of the growth curve. With synchronisationand performance revenues collectively growing by just $1.5 million in 2017 and downloads and physical both continuing their long-term decline, streaming is not only the beating heart of Swedish music revenues, it is the only driver of growth. Consequently, overall Swedish recorded music revenues grew by just 4% in 2017, compared to 6% in 2016 and 10% in 2015. As streaming matures, total market growth slows.

So what can we extrapolate from Sweden onto the global market? Firstly, there are a number of unique market characteristics to be considered:

  • Sweden is the home of Spotify, so adoption over indexes
  • Incumbent telco Telia provided a lot of early stage growth for Spotify
  • iTunes never really got going in Sweden, so the legacy download market was a much smaller part of the market than it is globally
  • Physical music sales are further along in their decline (now just 10% of all revenues)

These factors considered imply that Sweden is an indicator of an optimum state streaming market; others may not get there or will not get there so quickly. This could mean that legacy formats decline more quickly in comparison, making total revenue growth slower. However, given that downloads are a bigger chunk of revenues in most markets, these factors should cancel each other out. Therefore, an annual growth of 4% in total music revenues is a decent benchmark for long-term revenue growth.

The question is, what happens to the remnants of declining legacy format revenue? Do those CD and download buyers disappear out of the market, or does some of their revenue switch over to ensure that growth continues further? The likelihood is that Apple will see much of its longer-term growth come from converting higher value iTunes customers into subscribers, but there is a clear case for expanding the market beyond 9.99. The current 10% price hike experiment Spotify is running in Norway is one route. But, a suite of higher tier products is a better solution, as are super-cheap low-end products (e.g. $0.25 a week for Today’s Top Hits) and, of course, boosting ad-supported revenue to steal audience from radio. That latter point is probably the best long-term option for pushing real continual recorded music industry growth.

IFPI Reports $17.3 Billion for Recorded Music in 2017  

Today the IFPI released its estimates for global recorded music revenues in 2017. That figure was $17.3 billion representing an 8.9% growth on the $15.7 billion it reported last year. The numbers are bang in line with the numbers MIDiA reported last week ($17.4 billion / 8.5% growth – see here for more) and reflect a year of fantastic growth. The headlines are:

  • Streaming is the fuel in the engine: Streaming revenues were up 37% to hit $6. Billion (this however underrepresents the value of the market as the IFPI groups Pandora under ‘mobile personalization and other’ wiping out the best part of a billion dollars of streaming revenue). MIDiA’s broader definition of streaming puts 2017 revenues at $7.4 billion. Whichever definition you go with, the narrative is clear: streaming is dragging the entire recorded music industry back into growth (all other sales formats are in decline). The recorded music industry is on track to become a streaming industry in all but name.
  • Legacy format decline is slowing:Physical and download sales fell at a slower rate in 2017 than they did in 2016. This, in turn enabled streaming growth to have a bigger impact on overall revenue growth. The legacy formats will decline steadily now until the channel stops stocking them. The first big step will be when Apple turns off the iTunes Music Store. This is something we predicted back in 2015, forecasting that it would happen by 2020. That bet is still looking good.
  • UMG still leads the pack: As major label revenues are a matter of public record via company reports we can calculate 2017 market shares against IFPI 2017 total. UMG comes in at 29.8%, Sony 22.2%, WMG 18.0%, Indies 27.7% and artists direct 2.7%. These numbers are all within a 10thof a percentage point of the results MIDiA published last week. As we reported then, the key takeaways are that UMG still leads the pack, WMG has grown faster than the other majors while artists direct were the single biggest growth driver in 2017. (Note it appears that artists direct now appear in the IFPI numbers though the $100 million difference between IFPI’s and MIDiA’s numbers mean that has come off either the artist direct or indie numbers)

All in all, a stellar year for recorded music revenues, with plenty of growth yet to come, especially as emerging markets start to deliver at scale.