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

Are rights holders missing the point with Twitch?

Twitch has apologised to its users for the growing volume of rights holder takedown notices for music used in Twitch videos. Twitch is in an awkward transitionary phase with music rights holders, not dissimilar to where YouTube was when it was acquired by Google. 14 years on from that acquisition, YouTube’s relationship with rights holders is in a better place but short of where it should be. Article 17, weaving its way between the competing lobbying efforts of rights holders and tech platforms, is just the latest mile marker on a long and winding rocky road. Twitch, like YouTube, does not fit the licensing norms of most streaming services, resulting in repeated stand offs. But just like the music industry still hasn’t grasped the full potential of YouTube, it may be making a similar mistake with Twitch.

Firstly, for sake of clarity, MIDiA firmly believes that copyrighted work should be used correctly and remunerated. We are not, in any way, suggesting that a platform should be able to use music without permission. However, the current licensing structures are:

  1. Not flexible and agile enough to truly capitalise on user-generated content (UGC) music (a market which will be worth $4 billion by year end – download our major new FREE report on UGC music here)
  2. YouTube and Twitch represent an opportunity to create new growth drivers, especially for artists, that can help fix the ‘broken record’

A lack of sync in sync

Let’s address the first point, well, first. Platform-native creators on YouTube, Twitch and TikTok create content so frequently they make the music industry’s volume and velocity problem look like child’s play. Usually, creators who want music in their videos have a choice: 1) get sync licenses, 2) get library music, 3) use music without permission and get taken down or demonetised. 

The problem with option one is that sync clearance is a lengthy process that can take weeks and cost a lot. Not a great fit for creators who create and upload videos the same day. Companies like Lickd are trying to fix this with catalogues of pre-cleared music, but the industry as a whole is moving too slowly. For the record, MIDiA’s preferred solution is for platforms securing large ‘sandboxes’ of pre-cleared tracks for creators and developers to work with. An early example of this is the NFL making all of its soundtracks available for creators on a Synchtank powered site.Unless music rights holders want to cede the growth in the music UGC space (which will be worth $5.9 billion by end 2022) to library music companies, they need to put alternative approaches at the core of their licensing strategy, not simply pursue them as interesting ‘edge’ experiments.

Going beyond the stream

However, the biggest music industry opportunity is not licensing music. It is monetising fandom. The #brokenrecord debate has shone a light on how streaming’s scale benefits do not trickle down at a sufficient rate to creators. Artists compete for tiny bits of highly valuable ‘real estate’ – playlists, artist profiles etc – but most often do not get enough to earn a living. While efforts like user-centric licensing and better songwriter rates will help, they will not change the underlying fundamentals of streaming economics. The counter argument is that scale will change everything, but:

  • Average revenue per user (ARPU) is falling. Spotify’s premium ARPU fell 34% between Q1 2016 and Q3 2020, a 34% decline
  • Streaming growth is slowing in developed markets
  • Consumption is slowing – last quarter Spotify reported an increase in consumption hours to pre-COVID levels but as there were 49 million new monthly active users (MAUs) compared to pre-COVID this implies a reduction in hours per user
  • Emerging markets are growing but a) ARPU is lower and b) domestic repertoire will drive most of the long-term consumption – so this means only a small uplift for Western creators

Before live stopped, streaming existed in a mutually beneficial ecosystem, giving artists more fans for concerts and merch. Now that live is out of the equation, streaming isn’t enough. 

This is where platforms like YouTube and Twitch can come in. They enable creators to build loyal fanbases of which they can monetise the loyal core to build sustainable careers. The idea of ‘1,000 True Fans’ was first put forward years ago by Kevin Kelly but now the dynamics of social platforms have made this a realistic possibility for any creator. Nevertheless, music artists are still way off the pace. 

Micro-communities

Twitch and YouTube enable creators to build (often small) loyal fanbases that can generate them income that far exceeds what artists get from streaming. MIDiA terms this dynamic ‘micro-communities’ and we think it will be one of the trends that will shape the music business in 2021 and beyond. As part of our creator tools research we will be exploring how platforms like Splice and Landr will be able to build their own artist-fan communities that can be as valuable to artists as Bandcamp is to many already. 

Streaming created a superstar economy where even within the non-superstars, superstars exist. For example, Tunecore states it has ‘thousands’ of artists that make more than $100,000 a year. A simple bit of arithmetic shows that this means the remainder make less than $100.

Micro-communities represent an opportunity for artists to fill the income gap that streaming leaves without live in the mix. This probably does not reflect a direct revenue opportunity for rights holders – indeed, that would be missing the point. Instead, they can ensure those platforms are supported to empower artist monetisation without speed bumps. Why? Quite simply, rights holders have a model that works for them (streaming), so now they need to support a model that works for their creators so that they can in turn continue to support the streaming model that works for rights holders. 

If the industry does not support this new virtuous circle ecosystem, then it could bring the streaming model crashing down due to creator discontent. 

Discovery Mode: Understanding how Spotify thinks

Spotify’s Discovery Mode announcement looked at the very best a poorly timed announcement, coming at a time when artists and songwriters are more concerned about their income than at any other since the music business returned to growth more than half a decade ago. If the initial responses of the creator community are anything to go by, the announcement has had the effect of taking the broken record debate, breaking it some more, and turning it into the pulverised record debate. Yet, judging the impact of the announcement on the creator community alone misses the wider strategic worldview that Spotify operates within, and understanding why Spotify would make such a move now.

Spotify has three competing interest groups:

1 – Investors

2 – Audiences

3 – Rightsholders and creators (a group which it sometimes splits, for example with its temporarily aborted Direct Artists move)

It has to keep all three happy or it does not have a business. As it gets bigger and more established, however, it feels that it can afford to make moves that may antagonise rightsholders / creators and audiences but that will keep investors happy. The logic is that Spotify is getting so big that those two audiences cannot do without it (the ‘too big to fail’ stage) but that investors have many other places to put their money. So, investors are more ‘at risk’ than the others.

The new normal 

As we discussed last week, since going public Spotify has told investors to measure it on growth and market share rather than margin or average revenue per user (ARPU). This clearly serves the investor segment better than rightsholders and creators. Now, however, as it embarks on a long-term podcast strategy that will not see full return on investment for many years, Spotify needs to show investors that it is able to turn its core music business into a profitable one. Price increases, which it kicked off last week and Daniel Ek trumpeted in his investor note, are key to this. The strategy delivers benefits for both investors and rightsholders / creators, though goes against the interests of the audience, which will always prefer to pay less, not more.

Audiences are at the back of the queue 

Though they are very different propositions, Discovery Mode, along with Marquee, have the similar effect of improving profitability but have the consequence of reducing the net amount of income that goes back to rightsholders because they are spending more of their income on marketing. They shift the ‘balance of trade’ between Spotify and rightsholders  and creators. This will also mean more deductions for creators, which in turn means less streaming income. 

Thus, these tactics are primarily focused on appeasing the investor segment. Interestingly, both are actually negative for the audience, damaging the user experience by delivering music that has paid its way into a user’s listening rather than solely because it matches the user’s tastes. Spotify has long positioned itself as an alternative to radio but is becoming ever more like the very thing it is trying to replace. It is making the assumption that it is so entrenched with its users that it can afford to make such moves without risking losing audience. Apple, Amazon, Google and Deezer will be running their hands with glee.

The next Spotify chapter

We are entering the next chapter in Spotify’s story. Podcasts will take centre stage, while the core music business is treated as a mature subscription business rather than a growth category – at least in Western markets. The underlying tactics are aimed at improving investor sentiment but will deliver long sought benefits to rightsholders / creators, not least improved ARPU and per-stream rates. Interestingly, podcasts could improve per-stream rates too: if podcasts steal music time (which they will) but the royalty pot remains set at its current share, then there will be fewer streams to share the royalty pot between. Hence, higher rates.

Increased royalty income but a bumpy road

The net impact of this new strategic direction will be beneficial for investors first and rightsholders / creators second. On balance, the impact of increased prices, fewer promotions and increased lifetime value should offset the impact of efforts like Marquee and Discover Mode. Rightsholders and creators should see a steady increase in rates in Western markets. However, they should not expect to be happy with everything Spotify does, as this is first and foremost about pleasing investors. Do not expect Discover Mode to be an isolated event.

Time to stop playing the velocity game

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

Streaming’s ‘upstream’ fault lines

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

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

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

Volume and velocity

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

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

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

The demotion of the artist

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

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

Royalties

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

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

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

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

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

Breaking the habit

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

The Global Music Industry Will Decline in 2020

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

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

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

music industry revenue forecasts 2020 midia research

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

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

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

This is how we are thinking about each sector:

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

 

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

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

The IFPI Confirms 2019 was the Independents’ Year for Streaming

UPDATE: this post has been updated to correct an erroneous data point. Previously it stated that independent market share was 41%. It has been corrected to 29%

Recently I wrote about how a little-known Spotify statistic revealed that independents (labels and artists) outperformed the majors on its platform in 2019. The IFPI’s latest global revenue estimates provide further evidence of 2019 being a stellar streaming year for independents. As we have two sets of fixed reported figures (major label reports, and the artists direct sector reported by MIDiA) we can simply deduct these figures from the IFPI’s streaming figures to reveal what the IFPI estimates independent label revenues to be. The tl;dr: Independents grew by 39% while majors grew by 22%, which means that the independents’ global share of streaming revenue increased by two whole points from 27% to 29%.

ifpi midia 2020 streaming

The IFPI reported global streaming revenues of $11.2 billion, however these figures include YouTube but not Pandora ad supported revenues. So, to match up the IFPI’s definition with how the record labels report the revenue we need to add in Pandora ad revenue which takes us to $11.9 billion which is almost exactly what MIDiA reported two months ago.

Although independent labels and artists grew fastest in relative terms in 2019, the majors grew most in absolute terms, adding nearly twice as much net new revenue ($1.5 billion compared to $0.8 billion). The majors remain the powerhouse of the streaming economy but independents are rapidly making this space their own. If they were to add another four or five points of share across 2020 and in 2021, then independents would be represent a third of the entire streaming market. But a crucial consideration is that these figures are on a distribution basis, so the major revenue includes independents they distribute. According to the last WIN study, the independent market share went up another c12%. On that basis, by 2021, the independent label share of streaming could be approaching 50%. That would be a genuine paradigm shift, the clear announcement of a newly aligned music business.

Soon we’ll be writing on how the majors can turn this around. Watch this space.

Spotify Q1 2020: Choppy Waters Ahead

Spotify’s first quarter earnings were a mixed bag, with a largely positive picture for Q1 but some warning signs for the remainder of the year:

  • Subscribers: Spotify’s Q1 earnings may not have matched Netflix’s for over-performance but subscriptions did show over performance, reaching 130 million, one million above MIDiA’s pre-COVID forecasts. This represented six million net new subscribers in the quarter. Netflix expected seven million and reached 15.8 million. COVID-19 has been more of a boon for video than music, largely because key music listening slots (commute, the gym) have been wiped out by lockdown. Whereas video has seen the opening up of new viewing slots.
  • Active users: With audio streams down across the board in early-to-mid March, active usage was always going to be at risk. Although monthly active users (MAUs) held up, daily active users (DAUs) were down in early lockdown markets Spain and Italy. MAU is in effect a reach measure rather than an engagement metric. Checking an app once a month is not active usage. So DAU and WAUs are where scrutiny needs applying. As Spotify does not regularly report these figures we have to interpret its narrative: “the ratio of daily active users relative to monthly active users was strong in the quarter. We did see a bit of a decline over the last few weeks of March…[and] higher than in Q1 of 2019.” Strong does not mean up, and the fact it was reported as higher than 12 months ago but no reference to last quarter, suggests ‘strong’ may not be that useful an adjective here. Also, the dip in the latter weeks of March is concerning as by this stage lockdown behaviours were normalising and streams as a whole were picking up. So, Spotify should have been seeing an uplift in the MAU/DAU ratio, not a dip. Something to keep an eye on for Q2.
  • Advertising: A global recession is now more an inevitability rather than a possibility. Advertising spend is an early indicator and this is reflected in Spotify’s earnings. Ad revenue has been Spotify’s Achilles’ heel in recent quarters, with targets often missed and tech rollouts dragging. Spotify says it was on course to beat its targets for Q1 but then missed them, falling 20% below target in the latter months of March. So, the COVID-19 drop off was quick and dramatic. Do not expect this to recover anytime soon. Weakening digital ad spend is going to be a secular trend. Even Alphabet reported slowing Google ad revenue in Q1.
  • Revenues: Premium ARPU continued to slip, down €0.23 from Q4 2019 to €4,42. This was the single biggest quarterly decline since Q1 2018. Meanwhile in revenue terms, premium was higher than expected (due to the subscriber over performance) so even with the under-performance of advertising, total revenues (€1,848 million) were in line with expectations. Nonetheless, Spotify has downgraded its annual revenue forecast by 5.5% from an average of €8.48 billion to €8.05 billion, with the top end of its revised guidance now lower than the bottom end of its previous guidance. This largely reflects the weak outlook for digital advertising but if the coming recession persists for long then growing subscriber churn is a real risk. A fifth of consumers state that they would consider cancelling their music subscriptions if faced with having to reduce their entertainment spend in a recession.
  • Podcasts: Whereas most media experienced a COVID-bounce, podcasts did not. Google searches for podcasts declined throughout the lockdown period, though there was a small uplift mid-April. Spotify stated that “the current environment has shifted listening patterns temporarily” which is likely code for consumption is down. Although Spotify added that “nothing we have seen changes our long-term view of the potential”. What is particularly interesting about the podcast impact at a market level is that COVID-19 hit mid-way through the format transition process. Radio has enjoyed a resurgence during lockdown, reversing, if even only temporarily, the format transition.

The Self-Isolation Entertainment Boom

MIDiA Research - The Self-Isolation Entertainment BoomMIDiA has just published the latest report in its COVID-19 report series: “The Self-Isolation Entertainment Boom. This post explores some of the key findings and data. The full report is immediately available to clients here and follow this link for details on how to sign up to MIDiA’s special research package for the duration of the COVID-19 outbreak.

This report follows on from our COVID-19 Recessionary Impacts and Consumer Behaviours report which you can get a free version of here. In this latest report we went big on data, combining a survey of media executives, brand new consumer survey data and a major COVID-19 update to MIDiA’s Attention Economy model. This enabled up to triple-source and triangulate the near-term changes to media consumption during the lockdown period.

With much of the world’s population under some form of restriction of movement following the spread of COVID-19, media consumption habits have undergone dramatic change, creating an isolation boom for many aspects of entertainment. We will be diving further into the impact of COVID-19 on entertainment demand and consumer behaviours in a webinar on Wednesday 15th April at 4pm BST. You can register here. Our speakers will be sharing the tools and strategies to help you respond proactively to market shifts and emerging trends.

Although much of this behaviour will normalise even before lock down measures are eased, there will be some changes that will have long-term impact, with the residual high-water mark of some activities left higher than before the consumption deluge.

Streaming lull

Across record labels, streaming volumes were almost universally down across all regions. In most cases consumption was only down modestly and generally speaking the impact was more modest in regions of the world where COVID-19 had so far had less impact. Most labels though pointed to a strong rise in YouTube and Vevo streams, indicating that when stationary at home, many consumers prefer a visual music experience. The initial dip in audio streaming volumes may persist for some time but will be fundamentally temporary in nature. Streaming volumes will grow as a) consumers develop normalised behaviour patterns in their new, abnormal life situations, and b) in the longer term when consumers return to normal work and life. Subscriptions will only be at risk if the recessionary effects of COVID-19 become severe and persistent.

Traditional media boom

Traditional media has been one of the main beneficiaries of the isolation boom with TV, news and radio all up. In Italy, where lockdown measures have been in place for longer than most markets, 72% of consumers are watching more TV. The boom in radio is particularly interesting as broadcasters – both commercial and public service – are reporting particularly strong growth in streaming app usage. Over recent years radio lost swathes of its audience to streaming. Now, many of those lost listeners have returned, looking for that human connection during isolation and have found that the stations they used to listen to on a radio set they can now consume in just the same way they listen to Spotify etc. This is a unique window of opportunity for radio companies to convert some of these temporary win backs into permanent returns, showing streaming users how to ‘re’ fit radio into their daily lives.

Games up, and filling a sporting gap?

Total time spent playing games was up 22% in the US and 20% in the UK, with many core gamers using the time previously spent commuting to game. For the large share of music subscribers that are gaming aficionados, this often meant swapping a chunk of music consumption time for gaming. In stark contrast to gaming, sports is in fierce decline following the cessation of sporting activity. COVID-19 dislocation is forcing sports fans to take a break,  leaving a hole for all other media activities to fill. For those who were teetering on the edge of cancelling their subscriptions this could be the churn catalyst.