The attention recession meets the economic recession

We are living in uncertain times. The cost-of-living crisis is hitting consumers’ pockets, driven by rising fuel and food prices. The effects of the pandemic are still present, the global economy may be entering a recession, and the geo-political landscape is being increasingly shaped by conflict. All of this will impact the entertainment industries, but unlike other market sectors, entertainment is already dealing with its own recession: the attention recession. The circumstances bear resemblance to the credit crunch in 2007 when the music industry was still dealing with its own piracy-catalysed recession. But this time, it is a market dynamic that affects all forms of entertainment. 

The coming recession may also be unlike previous ones, in that there may be close to full employment – but spiralling inflation will likely mean surging wage poverty. It is the onset of the confluence of these unique market dynamics that inspired MIDiA to launch a brand new coverage area: Critical Developments, to help our client navigate these unchartered waters. We recently published the first report in this service (The attention recession: Post-peak behaviour). Here are some highlights from that report.

The attention economy has followed five key phases:

  1. Growth (<2019): Up until 2019, the booming digital entertainment sector filled consumers’ down time. Gone were staring out of the window, being bored at a train station, doing nothing in a Starbucks’ queue, replaced by entertainment. Everything hit new heights in the race for attention.
  2. Peak (<2019): By 2019 the slowdown had started. With just 9% of addressable consumer entertainment time remaining, many entertainment companies found it harder to maintain growth at previous rates. Growth began to become binary, with a minute gained being done so at another proposition’s expense.
  3. Lockdown boom (2020-2021): Just before the effects of peak attention began to be felt, the global pandemic hit, opening up a new wave of attention growth. During the lockdown boom, media time went up by 12% and all forms of home entertainment boomed.
  4. Post-lockdown dip (2021-2022/3): As people started to return to pre-pandemic behaviours, the first signs of contraction showed, but not all sectors were impacted evenly. Pandemic boom sectors, like audiobooks and podcasts, saw larger chunks of their newly-found consumption time disappear.
  5. New peak (>2023/4): The good news for digital entertainment is that when this contraction period finally ends, and the lockdown deluge recedes, the high-water mark will be higher than pre-pandemic. This is because life patterns are changing, e.g., more working from home.

Attention inflation

Despite this new, higher water mark, entertainment companies across the board are feeling the effects of the post-lockdown slowdown, as evidenced by Netflix reporting the loss of a million subscribers in Q2.Nonetheless, activity is beginning to rise in some categories. Thus, while video weekly active users (WAUs) fell from Q1 2021 to Q1 2022, music, games and social were all up (social, in fact, was the only category to grow without pause from pre- to post-pandemic). But even where entertainment companies are not feeling the pinch, the hours of their audiences have become devalued because of the rise of multitasking: as consumers try to keep up as many of their lockdown consumption patterns as they can, with fewer hours to do so. This is what MIDiA terms attention inflation.

Economic inflation

It is economic inflation though that is most tangible for consumers, with an average of around a fifth of them stating they would cancel subscriptions across music, video, TV and games if they felt the impact of inflation. It will be the nightlife sectors that will be hit hardest though, with far larger shares of consumers stating they would eat out less and go out less. Even live consumers said they would go to fewer gigs.

The responses are similar to when we asked consumers how they would respond to a potential recession back in 2019, but with one major difference: back in 2019, consumers were generally more concerned then, than they are now. Whether that is misplaced optimism is another thing entirely.

Survive-to-thrive

All entertainment and leisure companies will feel the combined effect of the attention recession. 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 onto their newly found boosts to revenue and users, let alone grow. The shocks to the global economy and geo-politics will compound matters further. 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.

In this coming attention recession, it will be the entertainment companies that are able to quickly and fluidly adapt their models, billing, pricing, programming, and user engagement strategies that will be best placed to retain, even win, audiences during the downturn.

For more information on MIDiA’s new Critical Developments coverage area, email jonathan@midiaresearch.com

Why Spotify’s TAM is only part of the story

Spotify just held an investor day in which it ran through its vision for growth. Spotify has long touted the concept of its total addressable market (TAM), its path to a billion users and the role of emerging markets as the surest path to this figure. Spotify’s presentation focused on monthly active users (MAUs), but, for the purpose of this blog, subscribers will be the key focus for two reasons: 1) MAUs are an inflated reach measure, while weekly (WAU) and daily (DAU) active users measure a far more tangible quantity of actual engagement. The tech giants, like Meta, focus on WAU and DAUs in their filings. In the saturated attention economy, monthly use can be one step away from total inactivity. 2) Ad revenue was just 12% of Spotify’s 2021 revenue, and while it is getting better at ad monetisation (due in large part to podcasts), it has a much weaker track record of ad monetisation than it does subscriptions. Subscriptions are where Spotify makes its money and are also where the music business makes its money. 73% of 2021 global label streaming revenue was from subscriptions (and that is based on a number inflated by non-DSP streaming).

First off, a bluffer’s guide to TAMs. TAMs are actually just one part of a three-step way of measuring opportunity:

  • Total addressable market (TAM): the total potential audience
  • Serviceable addressable market (SAM): how much of it is relevant to your product
  • Serviceable obtainable market (SOM): how much of it you think you can convert

Another way to think about it is: how many fish are there in the pond, how many fish you think you can catch, how many fish you think you will actually catch.

Why TAMs alone are not enough

MIDiA employs a TAM / SAM / SOM methodology in its forecasts, as follows:

  • TAM: those with smartphones and data plans
  • SAM: of this, those who are interested in paying for music
  • SOM: the SAM adjusted for urbanisation rates and music streaming affordability on a purchasing power parity (PPP) basis

The SOM stage is crucial for emerging markets. Broadly speaking, it is consumers in urban conglomerations who are most likely to be addressable by streaming subscriptions. A rice paddy worker in rural Bangladesh might have a phone, but they are likely to a) have very little disposable income, b) use their phone most as a utility, and c) have bigger worries than whether to pay for a music subscription. The TAM and SAM figures might be reassuringly larger figures, but, in truth, it is the wealthier, more tech-centred, urban elites in emerging markets who are most likely to convert.

Real terms affordability is crucial too. A subscription in India is around five times cheaper in dollar terms than in the US, but, on a PP basis (i.e., adjusted for local affordability), it is 12 times more expensive. Which further emphasises the role of urban elites in emerging markets for streaming subscriptions.

When we map MIDiA’s SOM alongside Spotify’s TAM, the market opportunity immediately looks bigger. And it is. But Spotify does not operate in isolation. It is one player in a competitive marketplace. In 2021, there were already 554 million paid subscribers globally, of which, 180 million were Spotify users. The global subscriber base represents 92% of Spotify’s TAM. The global subscriber figure is swelled by China’s nearly 100 million subscribers, a market in which Spotify does not operate due to its ‘poison pill’ equity swap relationship with Tencent. But even removing China from the equation, 76% of Spotify’s TAM was already addressed by itself and its competitors in 2021.

Does this mean Spotify’s growth ambitions are unrealistic? Not necessarily. There is a huge amount of growth left in the market, as MIDiA’s forthcoming music market forecasts will show (and from where the figures in the chart come). But the opportunity must be gauged in the context of where Spotify sits in the wider competitive marketplace, not in isolation.

It is no coincidence that Spotify is focusing here on free users rather than paid. Free users are the funnel for Spotify’s wider business (i.e., including podcasts and audiobooks, which it can best monetise via ads). But even the free streaming market is hyper competitive, with close to 1.5 billion free users already globally in 2021. Most importantly, though, the free user numbers are biggest in the most populous emerging markets, and it is local players that dominate. The future of music streaming in emerging market is going to (at the very least) be shaped as much by local emerging market players (e.g., Boomplay, JioSaavn, NetEase Cloud Music) as it is Western streaming services. In fact, there is an argument that Western streaming services looking at the emerging markets world as their target for colonising with streaming users is actually Western-tech imperialism.

NOTE: MIDiA’s annual music forecasts are close to complete and will contain historical and forecast data for streaming revenues and users, and much, much more, with revenues both in label terms and retail terms (i.e., inclusive of publishing and DSP shares). If you are not yet a MIDiA client and would like to learn more about MIDiA’s forthcoming forecast, email stephen@midiaresearch.com

The Attention Recession: How inflation and the pandemic are reshaping entertainment

Netflix and Meta were the canaries in the proverbial mine for the attention recession and it is looking increasingly likely that difficult times lie ahead. If the attention crunch was not enough on its own, it has been compounded by the perfect storm of headwinds: the cost of living crisis, rising interest rates, energy and global grain supply constraints, and the Russo-Ukrainian war. The question is not whether the entertainment sector is going to be impacted by these trends, but rather by how much and for how long? The good news is that MIDiA is going to help answer these questions in our upcoming free-to-attend webinar; The Attention Recession: How inflation and the pandemic are reshaping entertainment.

Here is an early overview of some of what we will be covering:

Back in late 2019 when it looked like the world might be entering a recession, MIDiA asked consumers about how they expected to change their entertainment behaviours and spending if they found themselves facing financial pressures. Now, more than two years later, as the world faces a cost of living crisis, we asked almost exactly the same questions once again. Even though the already-present cost of living crisis is far more tangible to most consumers than a potential financial recession, broadly speaking, consumers are less concerned now than they were in 2019. Whether that is misplaced optimism is another thing entirely…

However, what is consistent between the 2019 and 2022 responses is the tendency for consumers to prefer options to do less of something rather than stop entirely. So, going out and eating out less both get significantly higher response rates than cancelling subscriptions. This makes sense: going out less does not mean stopping going out entirely, but cancelling a music or games subscription is an all-or-nothing decision.

Video subscriptions are a bit different of course as the majority of subscribers have more than one video subscription. Cancelling one is similar to going out less: it is a do-less decision, not a do-nothing decision. Given the finite number of TV shows released each month that match an individual’s tastes, more consumers will likely become savvy switchers, dipping in and out of different video services to watch the shows they want, when they are available. While video services can try to counter this with annual subscriptions, these are a hard sell during a cost-of-living crisis. Far better to start thinking about user retention in a more fluid way, considering the share of a subscriber’s months you can retain during a calendar year rather than expecting all twelve of them. 

This concept of what MIDiA terms dynamic retention is just one illustration of how the coming period of uncertainty is not just going to be about economic disruption, but a catalyst for business and technology innovation. Something that also applied to the pandemic, that accelerated the adoption of already emerging trends, such as remote working, video conferencing, and virtual concerts.

There is no doubt that life is going to get difficult for many consumers over the coming months, which in turn means that entertainment companies (as consumer centred businesses) are also going to feel the pinch. For some companies the focus will be to survive but for others it will be to thrive. One company’s challenge can be another’s opportunity. Recessions always leave scarring, with the process acting as something of a reset, clearing out the dead wood from the pre-recession economy and setting up the next gen companies that will define the post-recession economy. 

In this coming attention recession, it will be the entertainment companies that are able to quickly and fluidly adapt their models, billing, pricing, programming, and user engagement strategies that will be best placed to retain, even win, audiences during the downturn. Truly effective monetisation may not come until later, but audience acquisition and retention start right now.

Join us on Thursday 26th of May at 4.30pm BST / 3.30pm CET / 11.30am EST / 8.30am PT to hear much more on these themes from MIDiA’s analysts. Sign up for free here.

Music industry earnings 2021: Riding the wave

Universal music’s Q1 2022 earnings showed continued growth but a noticeable slowdown in streaming growth, with streaming revenues up 12% year-on-year (YoY) in USD terms compared to a growth of 35% one year earlier.* As results trickle in from across the music business over the coming months, we will get a fuller sense of how much the wider business is slowing down after an exceptional 2021. Until then, it is worth looking at how leading companies across the wider music business fared across all of 2021. To that end, MIDiA has just published its inaugural ‘Music Industry Earnings’ report, tracking the revenues of 12 leading music companies across recordings, publishing, streaming and live**. MIDiA clients can download the full report and dataset here. Here are some of the findings.

The overall trajectory of travel for the music industry in the late 2010s and early 2020s was positive, but growth was not always spread evenly. Self-releasing artists direct consistently outpaced record labels, streaming revenues grew fast in some markets while others lagged, and Covid turned the live music business upside down – 2021 was different. Similarly, strong growth was present in most parts of the music industry, with most companies and geographies benefiting in broadly similar ways.

2021 was a year like no other in recent memory, with the music industry rebounding from the pandemic. In many respects, 2021 was a catch-up year for the wider economy, with additional business being done that had been put on hold during the worst of the pandemic. Although the music business is largely a consumer business, it does have a B2B component (advertising) and the uplift in wider economic activity filtered down to consumers as employees. The result was a blended 37.7% increase in revenues for leading companies across recordings, publishing, streaming and live.

This figure, though, was skewed upwards by the unusual dynamic of the live music industry recovering revenues after a pandemic-induced collapse. With live therefore excepted, organic growth was broadly similar across all other sectors, with labels (26.7%) and streaming digital services providers (DSPs) (27.0%) performing strongest. Music publishers were up 20.5%.

Live increased its share of total to 13%, up from 5% in 2020, but this was still far below its 29% 2019 share. It remains likely that live will not reclaim such a high share, even if it recovers fully, principally because music rights companies grew revenue by nearly two and half times faster in 2021 than in 2020. The net effect will be a net increase in organic market share once the live recovery process is complete.

Within labels, HYBE was the fastest growing (across its recorded music revenues), up by 70.4%, in publishing it was Warner Chappell (23.7%), while NetEase Cloud music led the way in subscriber growth, up by 81.1% (far ahead of Spotify’s 16.1% growth). However, Spotify grew its free userbase far faster than NetEase while Tencent Music Entertainment saw its free userbase decrease by 1.1%.

While Covid turned many industries upside down, live music was the only component of the music industry that did not continue to grow throughout the pandemic. For investors, the appeal is clear of an asset class that can flourish even in difficult times. The remainder of 2022, and potentially beyond – depending on what happens in the global economy and geo-political environment – will be a sterner test. Rocketing fuel bills and food costs will cut into consumer discretionary spending, but, as music subscriptions are relatively low cost products that tend to be held by consumers with meaningful disposable income, the risk exposure may be low. Though the fact that UMG grew its subscription revenues by just 10% in Q1 YoY, we may even be seeing a slow down there.

Whereas a few years ago, a subscription slowdown would have been as worrying for labels and publishers as it would have been for DSPs, the emergence of non-DSP revenue (Meta, TikTok, Peloton, Snap, Twitch, etc.) means that rightsholders now have an established plan B. A point illustrated by UMG’s 17% growth in ad supported streaming in Q1 2022 YoY. The economic headwinds during the remainder of 2022 will be challenging for sure, but the performance in 2020 and 2021 point to a robustness that will help it weather the storm in a way that other consumer-centric industries may not enjoy.

*All values in current currency terms, using the exchange rates published by Vivendi for each corresponding quarter.

**List of companies tracked in MIDiA’s 2021 Music Industry Earnings report:

  1. Believe
  2. HYBE
  3. Live Nation
  4. LiveXLive
  5. NetEase Cloud Music
  6. Pandora
  7. Reservoir Media
  8. Sony Music Group
  9. Spotify
  10. Tencent Music Entertainment
  11. Universal Music Group
  12. Warner Music Group

Epic Games, Bandcamp, and fandom for the ‘me’ generation

Honestly, it has been a struggle to find the inspiration to write a blog post about the music industry, considering what is going on in the world at the moment. But along came this story, which is eye opening enough to put virtual pen to paper: Epic Games buys Bandcamp. Not only does a games company buying a music company make this an interesting story, but also the apparent cultural mismatch. Which means there is likely a series of really interesting strategic drivers underpinning the move. Most of all, though, this is a creator economy play, but one that puts the consumer at the centre of creation.

Fandom machines

Epic Games, Bandcamp, and TME, the music subsidiary of Tencent (40% owner of Epic Games), all have one thing in common: they are fandom machines. All of them enable their respective userbases to communicate their identities and tribes via fan products, from badges to Fortnite skins, through to t-shirts and vinyl. It is the art and science of fandom that underpins the Epic Games and Bandcamp alignment – but much more in the sense of what future they can build, rather than what they are now.

Epic Games is establishing the infrastructure for the company it wants to become, rather than for the company that it currently is. That vision, if successful, will be of a diversified business, with games as its engine – but notjust about games. It obviously needs to tread carefully and ensure that it does not get too distracted and ‘do a Rovio’ – the maker of Angry Birds had the biggest game on the planet for a while, but it pushed focus so far away from its core that it failed to make a follow-up smash-hit game, and has since dwindled in importance.

What Epic could do with Bandcamp

So, just what can Epic Games do with Bandcamp, and vice versa. Here are a few options:

  1. A consumer creator tools play: play music games (Harmonix + Epic / Fortnite) and try selling what you make on Bandcamp, then have it pumped into Fortnite radio 
  2. Fandom: Epic Games has a proven ability to monetise gamers’ desire to express identity. Physical fandom products are an obvious growth area. Similarly, artists selling into games. This could mean scarce digital goods, which would mean NFTs without being NFTs
  3. Metaverse play: (yes, we had to get the ‘M’ word out of the way). Artists sign up to Bandcamp and sell on a version of the Fortnite store (sound clips, emotes, skins, etc.)
  4. Virtual artists: K/DA-type Fortnite band(s) that are exclusively available on Bandcamp and Fortnite, also utilising Bandcamp’s nascent streaming
  5. Virtual events: Bandcamp and Fortnite together could create a range of hybrid livestream / gameplay formats that would help virtual events coexist with IRL concerts
  6. A mix: Combining much of the above, Bandcamp could become the Beatport for virtual artists and gamer / creators

There are, thus, many directions Epic could go with this deal, but our bet is that the first item is the most important. Much has already been made of Epic building a creator tools ecosystem (cf the acquisitions of Sketchfab and of ArtStation), but Epic is most likely looking one move ahead of everyone else when it comes to the creator economy. The big focus (in music at least) has been on creators as the next music business, engaging a much bigger base of music makers than the current business. But Epic is thinking much bigger and, perhaps, even thinking of the creator economy gold rush as little more than an interim step. Epic has its eye on consumers themselves. Just as TikTok and Instagram turned consumers at scale into video creators, so Epic could make them music creators at scale. MIDiA first wrote about this creator culture opportunity last year, and Epic might be the one to make it happen. 

It is all about the consumer

Turning consumers into creators certainly fits into Epic’s long-term vision. As far back as 2016, Epic Games’ CEO Tim Sweeney said (of the future of games):

“It’s going to be user driven. Users are going to build stuff…It’s all going to be about empowering the users to make this stuff happen on their own.”

Obviously, the rights situation for potentially billions of items of user-created music would be chaotic, and the current industry architecture would probably collapse under its weight. A self-contained music / games / creation ecosystem would enable Epic to bypass much of that complexity, though a content ID system and PROs would still both need to be part of the equation. 

Within a couple of years, we will be watching Epic and TikTok fighting it out to be the future of the consumer music creator, with a bunch of usual suspects playing catch up. At the core of this creator culture revolution will be a reinvention of fandom. Up until now, fandom has largely been expressed through following stars. In more recent years, fandom has fragmented from a few massive stars to a bigger body of smaller stars. The natural end point of this evolution when everyone becomes fans of themselves and their friends. Creator tools have fostered this fandom of self, from selfies to Snapchat filters, through to Instagram posts and TikTok videos. Regardless of whether this is the zenith or nadir of fandom and creation, their increased connection is clear – and it might just be that Epic and TikTok are both be building the ultimate fandom platforms for the ‘me generation’.

‘Middle class’ artists need niche, not scale

Streaming continues to grow strongly, as evidenced by the 28% growth reported by the RIAA for H1 2021 in the US. Everything looks great for the build-up to the impeding Universal Music Group (UMG) IPO. But all is not well in the creator community, as many artists and songwriters continue to be unhappy with streaming income (seen most pertinently in the UK parliamentary DCMS inquiry). However, the origin of so much of their ills, even if they do not yet realise it, is the mechanics of streaming itself rather than any party (labels, publishers or streaming services) not passing on enough money. Could these entities transfer more to their creators? Yes, of course. But there is no increase that could transform the outlook for most of these creators without potentially breaking the entire streaming economy. The crucial, emerging dynamic is that most mid-tier creators are never going to be big enough to gain adequate streaming scale to use as a reliable income source. In fact, they need the opposite of scale – they need niche.

Streaming income is always going be different from sales income

One of Daniel Ek’s Spotify ambitions is to create and empower a new ‘middle class’ of artists, enabling a new wave of creators to build careers from their creativity. But the irony is that the ‘middle class’ (depending on how you define this amorphous group) is, perhaps, least well served by streaming. Here is why: in the old world, a ‘middle class’ five person band might sell 50,000 copies of an album in a year, for, say, $10 each – thus receiving $35,000 each*. In streaming, this group might generate 10 million streams in a year, which would result in $7,000 each. The old model delivers far fewer fans but far more income. In isolation, the streaming model is less beneficial, however, in a wider context, the streaming-era group is likely to generate more live performance, merch and branding income as a result of streaming’s bigger audience. This is why streaming received much more critical creator attention during the pandemic, as the halo effect across other income avenues was cut off at the knees.

The squeezed middle

This comparison is not intended to suggest the streaming model is broken, but for the middle tier of artists, the scale at which streaming delivers is not enough on its own, and instead it catalyses the wider mix of creator income streams. At the other ends of the creator spectrum, superstars get enough scale to earn a truly meaningful streaming income, and the emerging independent artists are able to reach global audiences in way they could never do pre-streaming. So, the ‘middle class’ of creators actually become the ‘squeezed middle’ of the creators’ streaming economy.

Monetise niches, not scale

Even doubling the creator royalty rates would still leave streaming income 2.5 times smaller than sales income, but it would break the streaming model in the process. Rather than break streaming, an alternative attempt at resolve would be to focus on finding an artist’s core fans – the ones who really care – and selling them products and experiences. With this approach, middle tier artists would be able to replicate the same sort of income flows as the old sales model. Clearly, that theoretical five person group would likely sell fewer than 50,000 copies of a product because much of their audience would already be getting all they need from streaming. But this is not about replacing streaming – this is about complementing it, by bridging the income gap. So, while some artists have opted to remove themselves from streaming and focus solely on platforms like Bandcamp, this approach is unnecessarily reductive and will actually hurt the artist’s earning income in the longer-term, as the funnel for acquiring new fans has been massively narrowed.

Fame and fandom

The concepts in this post are not particularly new and I have, in fact, discussed a few of them before. But they are crucially pertinent, nonetheless. ‘Middle class’ artists need to start thinking about streaming more like radio, i.e., a tool for growing fanbases which they can then monetise elsewhere. Streaming delivers the fame, while niche delivers the fandom. And it is fandom where an artist and a fan get the most value, in all possible permutations of the word ‘value’. As long as, of course, the artist does not get lazy and simply try to fleece their super fans!

*These calculations are simplified, do not include cost deductions (other than retailer margin), assume group members each have an equal share of recording and publishing rights, and assume that rights splits are the same across both.

The oncoming fandom crisis

The Chinese authorities’ crackdown on fandom represents the first major growing pain for the global fandom economy. Tencent Music Entertainment (TME) will likely be the bellwether of this shift, with two thirds of its revenues coming from non-music (i.e., fandom) related activities. But this is more than just about China – it shines a light on the dark underbelly of the global fandom machine. The companies behind K-pop and Idol acts industrialised fandom by leveraging, and even exploiting, fan psychology to massive global businesses that trade upon extracting every possible ounce of spend from fanbases. The China crackdown should act as a wakeup call for the global music market. 

The industrialisation of fandom

Regular readers will know that MIDiA has focused on fandom analysis and research for a number of years now, looking at it across all forms of entertainment. The reasons we believe it is so interesting in music is because Western streaming services monetise consumption rather than fandom, leaving both passion and spent on the table

The Chinese music apps illustrate just how much more can be achieved when experiences are built around the music, rather than simply relying on music to always be the experience. Alongside this, the rise of K-pop, which leans heavily on the Japanese Idol model, shows how much fanbases can be willing to support their favourite artists, particularly in terms of both spend and passion. But, as exciting as these models are, they have also been underpinned by the temptation to push fans’ spending and obsession further and further.

Even Western artists are getting in on the act. When Taylor Swift encouraged her fanbase to go and buy the re-recorded version of Fearless, she was looking for their support in her old master recordings ordeal. But who really needed the $50 for a vinyl copy most, Swift or her fans? 

This industrialisation of fandom has actually weaponised it, and, in doing so, puts its very essence at risk.

The oncoming fandom crisis

A fandom crisis is coming. Fandom is far more meaningful and profound for fans than mere consumption. It is also far harder to measure – in fact, it is only the effects of fandom that can be measured (i.e., merch sales, comments, likes, etc.). Fandom is rooted in human psychology. It is about identity, belonging and self-expression. Things that often matter more to younger people than anything else, especially teens in their formative years. It is no coincidence that the industrial fandom machines are primarily built around younger consumers. The Chinese government’s decision to limit fandom, in part because of its negative social impacts, is an extreme move, but it could also act as an ice breaker for regulatory scrutiny in Western markets. 

The fandom crisis goes beyond music

The oncoming fandom crisis is neither confined just to Asia, nor just to music. In fact, huge swathes of the global social economy are built on exactly the same dynamics. TikTok, Instagram, YouTube, Twitch – all of these platforms exploit the creator / fan relationship and have constructed sophisticated monetisation frameworks around them. The sophistication does not so much lie in payment methods or technology, but instead in deploying products that drive competitive fandom. Fans compete to be the biggest fan, often by spending more. This can be a kid spending their parents’ money to have his comment pinned to the top of a YouTube gamer’s comment stream, or a Twitch user paying to unlock exclusive emotes and sub badges of their favourite Twitch streamer. 

The platforms need to consider a crucial principle: just because you can do it does not always mean that you should do it.

A crucial moment for the business of fandom

Fandom is the ozone layer of the entertainment world, and it is a critical resource that is too often taken for granted and can be irrevocably damaged. 

This is a crucial juncture for fandom. We are beginning to see the emergence of cool new apps, like Fave, and Western labels looking East for inspiration, such as UMG tapping Hybe’s Weverse app for some of its artists. It is crucial that well intentioned efforts do not falter because of a wider fandom backlash. Fandom should be nurtured, not harvested.

Not only is there so much that can be done, the music industry needs more to be done. A key reason there are armies of BTS and Black Pink fans in the West is because a generation of kids were growing up with a sense that something was missing from music for them, that streaming simply did not let them express themselves and feel part of something. Streaming in the West does not do fandom. Streaming in China, perhaps, does it too well. Clearly, there must be a solution somewhere in the middle that enables fans to be fans, while also doing the right thing for them. 

Fandom and ethics should not occupy opposite sides of the debate. They should be intertwined and interdependent. Fandom is about who you are and what you are. Without ethics, what are any of us?

We’re Hiring (again)

The pandemic rewrote the rules of digital entertainment, creating new opportunities and threats at an unprecedented rate while also intensifying competition for consumer attention. Never before has the interconnected nature of the digital entertainment landscape been more important, which also means that never before has MIDiA’s holistic, cross-industry view been more important. I am very pleased to say that this has resulted in a record period of growth for MIDiA, and even though we added three awesome new team members at the start of the year, we are now hiring again to keep up with demand.

These are three truly exciting roles which will play an important part in the next chapter in MIDiA’s story:

Music Industry Analyst and Consultant

The person in this role will join MIDiA’s four-person music analyst and consultant team. You’ll get to write analysis for all the biggest players in the global music business as well as work on exciting consulting projects to support the strategy of some of the most interesting and innovative companies in the industry. We’re looking for someone with a good amount of industry experience for this role; at least five to seven years ideally at a record label, music publisher, digital distributor, streaming service or management agency (but we’re open to experience in other parts of the music industry, too).

Podcast and Audio Analyst

MIDiA has established a reputation for high-impact podcast research and data. We are taking this a step further and will soon be launching a new Podcast and Audio service, covering podcasts, audiobooks and other emerging audio formats. The successful candidate for this role will lead our audio coverage within this new research service. We’re looking for someone with at least three years’ experience working within the podcast sector in a commercial, strategy or analysis role.

Forecast and Modelling Analyst

MIDiA’s industry models and forecasts are relied upon by global companies and investors to help inform strategy, understand where markets are heading and to assess market opportunity. We invest immense effort, time and resources into building our datasets which has helped us earn a reputation for authoritative, accurate market sizing and credible forecasting. We are now looking for an experienced Forecasting and Modelling Analyst to expand our data capabilities, supporting both our syndicated research service and our consulting team.

We’re super excited about these new roles and we’re looking forward to hearing from you if you think that you could be the right fit for one of them.

Full details of these positions are on the MIDiA website here; please carefully consider the stated requirements and whether you meet them or equivalent, as we have put a lot of thought into what we really need to support the rest of the team and continue growing in the right direction. Applications should be sent to info@midiaresearch.com.

The music business in 2021: Joining the dots

It has been one of those weeks, with impactful music business announcements coming thick and fast. As is often the case, a succession of apparently unrelated events actually have a connecting thread. In this instance there are three:

  1. The (continued) astronomic rise of the independent artist
  2. The growth of creator tools
  3. Streaming’s growing pains

This is how the events of the last week or so are both interconnected and interdependent:

  • CD BabyIndependent artist powerhouse CD Baby just released a bucketful of great data, including the fact it increased artist pay outs by 26% in 2020 with $125 million of streaming revenue and 111% growth in YouTube revenue – yes, 111%. MIDiA will be releasing its 2020 music market figures soon and the artists direct number is little short of mouth-watering. 2020 was the year of the independent artist and creator tools and that momentum has continued into the start of 2021. Independent artists are making dramatically more music than the traditional labels (releasing 8.5 times more than major labels in 2020) and there are more of them than ever, with around five million by the end of 2020, up a third on 2019.
  • Another big year for UMGVivendi’s FY 2020 results revealed UMG grew recorded music revenues by 6.9% on a current currency USD basis. Which means they outperformed the total market, again. But this time Sony grew faster (again, on a current currency USD basis) and more significantly, all the majors grew slower than artists direct, again. More on this to follow shortly.
  • Spotify indie growth: Arguably the most significant statistic in Spotify’s annual report is the share of streams accounted for by the majors and Merlin (a proxy for the traditional music business). The 2020 figure was 78%, down from 85% in 2018. Smaller independents and artists direct grew far faster than the label establishment. This changing of the guard has many first and second order impacts but the key dynamic is that the number of small artists and labels is growing faster than streaming revenue is. They are taking a progressively larger share of the pie but they are splitting it more ways. For streaming platforms this means a) more consumption, and b) further fragmentation of their partners, which helps their negotiating position. For artists it is the paradox of more artists reaching more audiences but taking smaller chunks of income.
  • Soundcloud: In what may be the smartest piece of music industry branding ever, Soundcloud introduced its own take on user-centric licensing: fan powered royalties. I for one will be using this term to refer to UCL henceforth. What is significant is that Soundcloud was able to launch this with its pool of independent artists, because these artists that own their own rights represent a much more straightforward way to drive fast, market-defining innovation than navigating the often-complex mesh of the traditional business.
  • Spotify: 2020 was the first year since 2017 that Spotify’s premium revenue growth was less than the prior year (up €1 billion compared to €1.4 billion in 2019). Subscriber growth boomed, however, which meant a continued deterioration of ARPU, down to €4.31 from €4.72 in 2019 and €6.20 in 2016. Meanwhile, ad-supported ARPU was down too, as was podcast ARPU. Spotify is getting better at growing audience but less good at growing revenue.
  • Square buys Tidal: Coming from the left field, Square just acquired a majority stake in Tidal. This is a very different play from MelodyVR acquiring Napster to rebrand and piggyback a user base, albeit a small one. Instead, Square sees Tidal simply as a new vertical within which to drive creator tools growth. Until now, the creator tools space in music has been driven by, well, music creator tools companies. Square’s move reflects an understanding that the combined growth of creator tools, new small independent labels and artists direct represent a tipping point for the music business.

Streaming was the economic shift that the recorded music business needed to take it into the digital era. However, streaming is now experiencing growing pains, due to slowing growth in mature markets, declining ARPU in emerging markets, and more artists and more tracks sharing the royalties. The UK parliamentary inquiry into the economics of streaming may herald a form of equitable remuneration but could hurt songwriters in the process, illustrating that there are no easy fixes to streaming remuneration.

Big money is flowing into the independent artist and creator tools sectors because the big investors have identified that that is where a new, parallel music business can be built. Let’s just hope that the independent artist goldrush ensures that the creator remains at the centre of remuneration and not just the focus of revenue creation. This is an opportunity to build a new, more balanced ecosystem that can complement the existing one, not simply build a reconfigured version of the old one.

Clubhouse session: Is attention is killing culture?

Join myself, Hanna Kahlert and Karol Severin Thursday 25th at 5pm GMT / noon EST / 9am PT on Clubhouse for discussion of the Attention Economy’s second order effects on culture and creativity.

In this session we will be exploring how the focus on capturing audiences’ time and attention at all costs is resulting in a dumbing down of culture and a predominance of caution over bravery. We will also discuss how some entertainment sectors are much better placed to prosper in the attention economy. Here are a few of the things we’ll talk about:

  • COVID’s attention boom
  • The coming attention recession and what it means for entertainment
  • Who were the winners of the attention boom and how will they fare in the attention recession?
  • The rise of attention culture (playlist fodder, ambient video etc.) and what it means for culture
  • Where entertainment needs to go so it can jump off the attention hamster wheel

We want this to be an interactive discussion, so while these are some of the talking points, we will be looking to you to help us steer things too.

See – well, hear – you tomorrow.

LINK: https://www.joinclubhouse.com/event/MzDKLNyB