Change Is Afoot In Music Video

Music video’s two power players are both in the news for strategic resets. On the one hand YouTube has announced that it is merging its YouTube Music and Google Play Music teams while on the other hand Vevo has announced it is postponing the launch of its subscription service in favour of prioritising global expansion. These are both important developments in their own rights but together form part of a changing narrative for music video.

Music video is streaming music’s killer app. According to MIDiA’s latest consumer survey, 45% of consumers watch music videos on YouTube or Vevo every month, while 25% of consumers use YouTube for music every week (more than any of the streaming audio services). So what YouTube and Vevo do has real impact.

YouTube Is Where Google Is Placing Its Music Bets

YouTube’s merging of teams is not a huge surprise. It always appeared overkill having 2 separate teams, especially considering that Play was performing so poorly in the market (its weekly active users are measured in single digit percentages) and that Google’s music priority has always been, and will always be, YouTube. Although nothing will change immediately in terms of user proposition, the strategic direction of travel is clear: YouTube is where Google will place its music bets. Which places even greater importance on rights holders and Google coming to an understanding around royalty payments. YouTube moving to minimum guaranteed per stream rates is untenable (for Google) as is the Value Gap/Grab (for rights holders). Something has to give.

My long-term bet is still on Google creating a parallel music industry around YouTube, one that is entirely opted out of the traditional music industry’s rights frameworks. But a more immediate concern for Google is contingency planning in the event of Vevo upping sticks and becoming the centre piece of a revamped Facebook video play. A combination of no Vevo and disgruntled rights holders would be a recipe for disaster for YouTube’s music strategy.

Facebook And Vevo May Be Courting 

Vevo jumping ship to Facebook is not as far-fetched as it might have seemed when it was first mooted a few years ago. Facebook is now the world’s 2nd biggest online video property and has finally admitted that it is a media company. Slowing ad revenues in 2017 will see Facebook double down on ancillary revenue streams and content will be a key plank of that strategy. Games is the biggest addressable market and it has already made moves in that direction. Growing video is another. While streaming music is a relatively small market opportunity for Facebook, it has wide appeal. Launching an AYCE streaming service would be an ill-advised (and highly unlikely) option for Facebook, but partnering with Vevo would be a higher margin, lower risk way of getting into music. It would also be the perfect vehicle with which to showcase Facebook’s next generation of video UI, which will include features such as curation, channels, recommendations etc. In short, a lot less like Facebook video and lot more like YouTube.

The Rise Of Music Inspired Video

Interestingly, Vevo’s CEO Erik Huggers has announced that Vevo will be increasing its focus on short form, non-music video, such as artist interviews, mini-documentaries, and animated shorts. This snackable, highly shareable content bears closer resemblance to the sort of video that works well in Facebook’s more social-centric video platform than YouTube’s more viewer-centric environment. Vevo’s non-music video approach is smart. As we explained in our report ‘From Music Video To Music Inspired Video’, if rights holders want their share of overall video time to grow, or at least hold their own, then they need to start exploring creating music related video rather than just music videos.

The core consumption format will still be the music video, but the additional content expands reach and time spent. In a Facebook environment (especially if Instagram was incorporated) this sort of content would spread like wildfire. Add into the mix that Huggers also referenced Vevo’s prioritization of building its direct audience via its own apps (ie not via YouTube) and we might just be starting to see the emerging shape of a planning-for-life-after-YouTube strategy. Even if Vevo decided to stick with YouTube (which remains the most likely outcome), it could use all of these moves as leverage for getting a better deal.

Change is afoot in the music video space and we may just be beginning to see the two key players beginning to put competitive space between each other. But perhaps most tellingly, as both companies up their game, they are also both, in different ways distancing themselves from their subscription plays. Music video is the killer streaming app for many reasons. The fact that it is free is reason number one, and Vevo and YouTube both know it.

Understanding ’15’: How Record Labels And Artists Can Fix Their YouTube Woes

The artist-and-labels-versus-YouTube crisis is going to run and run, even if some form of settlement is actually reached…the divisions and ill feeling run too deep to be fixed solely by a commercial deal. What’s more, a deal with better rates won’t even fix the underlying commercial problems. Music videos under perform on YouTube because they don’t fit YouTube in 2016 in the way they did YouTube in 2010. The 4 minute pop video was a product of the MTV broadcast era and still worked well enough when online video was all about short clips. But the world has moved on, as has short form video (in its new homes Snapchat, Musical.ly and Vine). Short videos are no longer the beating heart of YouTube viewing and quite simply they don’t make the money anymore. This is why music videos represent 30% of YouTube plays but just 12% of YouTube time. If record labels, publishers, performers and songwriters want to make YouTube pay, they need to learn how to play by the new rules. And to do that they need work out what to do with ‘15’.

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There Is A Lot More To YouTube Revenue Than Some Would Have You Think

The recorded music industry gets radio, and it is beginning to get streaming. Both are all about plays. Each play has, or should have, an intrinsic value. They are models with some degree of predictability. But YouTube does not work that way, which is why the whole per stream comparison thing just does not add up. In MIDiA’s latest report ‘The State Of The YouTube Music Economy’ we revealed that YouTube’s effective per stream rates (that is rights holder revenue divided by streams) halved from $0.0020 in 2014 to $0.0010 in 2015.

Sounds terrible right? And make no mistake, there is no way to spin it into a good news story. However, it didn’t fall because of some nefarious Google ploy. It fell because of many complex reasons (all of which we explore in the report) but the 2 biggest macro causes were:

  • YouTube pays out as a share of ad revenue (55%) not on a per stream basis. So when the value of its ad inventory goes down (due to factors such as more views coming from emerging markets with weaker ad markets) the revenue per stream goes down too. This is something the labels can do little about, though an increased revenue share will soften the blow as YouTube globalizes.
  • YouTube serves its in-stream video ads (the most value ad format) on a time-spent basis, not on a per-video basis. Our research found that the average number of video ads per hour of viewing comes out at about 4. That means if you have 15 minute videos (like many YouTubers do) you will get a video ad every play. But if you have 3 or 4 minute pop videos you may only get 1 video ad for every 4 or 5 plays. Which means 4 or 5 times less video ad revenue. In fact, our research revealed that just 26% of music video views have video ads. This is the underlying issue the industry needs to address, and unlike global ad market dynamics, this is something it can indeed fix.

The 15 Scale

This is where the magic number 15 comes in. Right now music video sits in the same 3-4 minute slot it has done so ever since MTV said it wanted videos that length. Yet video consumption is now polarized between the 15 second clip on lip synch apps like Musical.ly and Dubsmash and 15 minute YouTuber clips. Falling in between these two ends is revenue no-mans land. As I have written about before, labels and publishers need to figure out how to harness the 15 second clip as an entirely new creative construct and shake off any old world concepts that this is actually anything about marketing and discovery. It is consumption, plain and simple…it just happens to look unlike anything we’ve seen before.

At the opposite end of the 15 scale labels and artists need to start thinking about what 15 minute formats they can make. Think of this as a blank canvas – the possibilities are limitless. For example:

  • 3 track ‘EP’ videos interspersed with artist narrative and reportage coverage
  • Live sessions (recorded by, and uploaded by labels so they get revenue as well as publishers)
  • Mini-documentaries such as ‘the making of’s
  • On-the-road features

15 Minutes Does Not Have To Break The Bank

And before you cry out ‘but this stuff will cost so much more to make’, it doesn’t have to if more is made out of current assets and processes. For example, ensure that one of the support crew has a handheld camera to film some shoulder footage for reportage. The whole thing about YouTube is that it doesn’t have to be super high production quality, in fact the stuff that does best patently isn’t. YouTube videos that work best are those that are an antidote to the old world of inaccessible glamour. If you really want to do things on the cheap, simply splice three music videos together into a single long form video (e.g. tag 2 older tracks onto the new single). Doing so will nearly treble the video ad income.

And before you think this isn’t what audiences want, ask Apple about ‘The 1989 World Tour LIVE’ and Tidal about ‘Lemonade’.

And (yes another ‘and’) if you can’t get your head around the inescapable need for a completely new music video construct, just think about it this way: 15 minute videos will make you 5 times more video ad revenue. This really is a ‘no brainer’.

Back To The Future

As a final piece of evidence (not that it is needed), cast your mind all the way back to 1982, to Michael Jackson’s landmark video ‘Thriller’. A 13:42 video that is widely recognized as one of the all time music video greats that has also racked up 330 million views on Vevo. So you could say the case for 15 minute video was already made a quarter of a century ago (thanks to MIDiA’s Paid Content Analyst Zach Fuller for pointing that one out).

The 4 minute music video is dead, long live the 15 minute music video.

For more detail on our ‘State Of The YouTube Music Economy’ report check out our blog.

You can also buy the 25 page report with 8 page data set here.

Soundcloud, Amazon, Tidal: Streaming’s Other Runners

Apple, Spotify and YouTube have all been grabbing the streaming headlines of late, albeit for different reasons. While these companies will continue to set the pace over the next couple of years (again, for different reasons) there is much more to the streaming market than these three. Here’s what three of the other main streaming contenders have been up to in recent weeks:

Click here to read the full post on the MIDiA blog

Is YouTube Building A New Music Industry?

Complexity and opacity continue to act as brakes on the digital music market. For all the progress of companies like PledgeMusic and Kobalt, this emerging ‘alternative’ music industry is still very much at a formative stage. Some years from now this generation of companies could underpin the emergence of a counter-industry, an interconnected mesh of disruptive rights and tech companies that give artists and songwriters different routes to market and greater transparency and accountability. Heck, it might even have Blockchain underpinning it. But before this counter-industry movement gets to scale, it could have the wind stolen out of its sails by none other than YouTube.

The YouTube Paradox

Although YouTube has never had the closest of relationships with the music industry, it has clearly found the last few months particularly challenging, portrayed as pretty much everything that is wrong with the digital music market. While there is no doubt that YouTube’s revenue-to-audience ratio is below that of audio streaming peers, it is also clear that YouTube is the music app of choice for more consumers than any other service (and it’s growing faster too). YouTube is both a crucially important part of the digital music market and a disruptive partner.

Parent company Google has long had an at-best ambivalent attitude to copyright (in stark contrast to its staunch support for patents) and the record labels’ current crusade to have safe harbour legislation revised belies an industry perception that YouTube is sailing as close to the wind as it can get. That may well be the case, and there is no doubt that Safe Harbour was not designed to underpin the business model of a global tech titan. Yet it is also clear that a whole generation of non-music YouTubers have worked out how to build vibrant careers on the platform. So YouTube’s potential is only partially tapped for music.

YouTube’s New Music Industry?

Regular readers will know that I have explored at length what makes YouTube’s native creators succeed in ways that music artists do not. But I think we may now be on the verge of YouTube flicking the switch on an entirely new platform for artists, to help them get as much out of YouTube as the likes of PewDiePie and SMOSH. This could be nothing short of an entirely new music industry, one that sits outside of the constraints and structures of today’s business.

Here’s how and why…

Back in 2011 Google bought royalty reporting company RightsFlow to help it identify rights holders on YouTube. RightsFlow’s team and technology were widely recognized as best-in-class and Google paid handsomely, swiftly integrating the team into the YouTube organization. My theory is that this was one of the first steps in a much bigger journey. Since then, Google has invested in next gen publisher Kobalt and next gen label 300 Entertainment. It was even reported to have looked at buying the Jackson Estate’s 50% share of Sony/ATV. Most recently YouTube announced its implementation of the DDEX Digital Sales Report Flat File Standard (DSRF), an open source digital supply chain standard aimed at faster, more accurate royalty reporting and distribution. Each component in isolation paints one picture, but put them together and you have the makings of the foundations for a full service music company. What I think could happen is for YouTube to turn its platform into a self contained music business, taking care of everything from rights through creation to monetization. Here’s how the components could stack up:

  • Rights reporting: My take is that RightsFlow will form the basis for a highly effective, real time, totally transparent rights reporting platform. One that will make traditional music industry reporting look positively prehistoric. And of course, YouTube would take full advantage of being able to compare and contrast against the traditional sector. Couple that with Google’s DDEX work and you have the potential of a truly robust and scalable toolset
  • Simplified rights: Music rights are complex, with any given song having a veriitable smorgasbord of associated rights. YouTube will most likely be pushing for something far simpler. Perhaps for a singer songwriter it would be as simple as a single music right, with flexibility in terms of assignment of usage rights
  • Direct monetization: YouTubers have learned how to make YouTube pay, now many YouTube artists are beginning to too. For example, Conor Maynard’s covers of new pop hits typically clock up 10 million views each, translating into around $10,000 of ad revenue for him
  • Promotion: Curated playlists are becoming a pivotal force in audio streaming services, but have a less central role in YouTube. A) that will likely change, but B) YouTube has many more assets and algorithms it can use to promote artists. Expect YouTube-only artists to over index in search results and recommendations in this new model. A couple of years ago Netflix announced it was going to ensure its originals over index, that is the model YouTube will likely follow
  • Margins: The added benefit of over indexing on originals is better margins, which could give YouTube some wiggle room in its current conversations with labels, allowing it to feel more comfortable about taking the short term pain of higher per stream rates.

An Alternative Industry, Not Simply A New Element

To be clear, all of this would be intended as an alternative to the traditional label / publisher / PRO model. For artists that sign up, every single right would be assigned to, and flow through the YouTube system so that there would be no remit for PROs, labels or publishers. Of course it would only work really well for a specific type of artists e.g. singer songwriters but YouTube would iterate the model over time to give it broader appeal.

 

The earliest iterations would probably be pragmatic compromises. For example, many YouTuber musicians rely on doing cover versions to drive traffic so Google would still need to work closely with music publishers. In fact, around 14% of plays of the most popular music videos on YouTube are cover versions or parodies. (Which helps put the Sony/ATV rumour into context.) Over time though, YouTube would make its music infrastructure as self contained as possible. And over time, as it acquires a bigger body of artists that have had no previous label or publisher deal, progressively more of its music catalogue would become YouTube only. Think of it like resetting the clock to zero.

I doubt YouTube’s aspirations are solely limited to its platform. The strategic investments in next gen music companies and its DDEX work could form tendrils stretching out into the broader industry, extending YouTube’s reach and influence. They days of YouTube simply as a place to promote your latest song are long gone. What we have now is a powerful, global platform that wants to make music work, with or without traditional rights holders. Google’s approach to business has always been about bringing, scale, effectiveness and efficiency to supply chains. Music is no different, but the embedded nature of the traditional companies has meant that YouTube has only been able to partially deliver on that basis. That could well be all about to change.

IFPI First Take: Declining Legacy Formats Continue To Hold Back Growth

 

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This post has been updated following a conversation with the IFPI

The IFPI today announced its annual assessment of the size of the global recorded music business.  For the first time in a long time the music industry has been able to announce a significant growth in revenue: 3% up on 2014 to reach $15 billion. Except that the growth isn’t quite what it first appears to be. In fact, the IFPI reported $15 billion last year for 2014, and for 2013 too. So on the surface that appears to actually be three years of no growth.

The IFPI has done this before. For example, it had previously announced a small 0.2% growth in 2013 (which was the big headline of the numbers that year). But it then downgraded that to a small decline the following year before then upgrading it to a small growth again in 2015.

The IFPI explained that they have retrospectively downgraded their 2014 number to $14.5 billion to reflect some changes in the way they report performance royalties (a minor revenue impact) and, more importantly, to create ‘constant currency’ numbers i.e. to try to remove the impact of currency exchange fluctuations. That approach works well for company reports but less well for the macro picture. The IFPI have to report this way as they are essentially summing up company reports, however when we are talking about global macro markets we run into difficulties, for example looking at music revenue as a % of GDP etc.

The approach also has the effect of generating very different growth rates. For example, if we assume that the top 10 music markets each grew at 3% in local currency terms in 2015, using the exchange rates the years took place (i.e. 2014 USD to local currency and 2015 USD to local currency) there would only have been 0.48% growth in US dollar terms. If, however, we take the constant currency approach we see 3.2% growth. When we are talking about individual companies there is a lot of value in reporting at constant currency rates as those companies are dealing with repatriating and recording revenue from across the world into their local reporting HQs. But when we are talking about global markets comprised of many local companies (e.g. the vast majority of South Korean and Japanese revenues stay in local companies so are not directly shaped by currency fluctuations) the methodology is less useful. The cracks really begin to show when you take the long view. For example if we went back 5 years with constant currency rates the value of the music business as a % of the global economy would be over stated.

So, with all that said, for the purposes of this analysis I am going to use as my baseline for comparison the IFPI’s previously reported 2014 numbers stated in its ‘Recording Industry In Numbers, 2015 Edition’.  Here are some of the key takeaways (further charts at the end of this post):

  • Revenue was flat: Despite all of the dynamic growth in streaming declining legacy formats (CDs and downloads) offset their impact, keeping revenues flat. Also, once performance and synchronization revenues are removed from the mix, revenue fell slightly. This highlights the industry’s transition from a pure sales business into a multi-revenue stream model. It also emphasises the fact that we are still some way from a recovery in consumer spending on music
  • Downloads and physical still both falling: Download revenue was down 16% while physical was down 4.5%. The physical decline was lower than the 8% decline registered in 2014 and played a major role in helping total revenues grow. If physical revenue had fallen at the same rate as 2014 there would have been $0.25 billion less revenue which in turn would have brought total revenues down into decline. The Adele factor can once again be credited for helping the industry out of a sticky patch. The download decline was more than double than in 2014 (6.6%) and that drop is accelerating in 2016, with Apple Music playing a major role in the cannibalization / transition trend (delete as appropriate depending on your world view). What is clear is that downloads and subscription growth do not co-exist. Though it is worth noting that the move away form purchase and ownership is a bigger trend that long preceded Spotify et al.
  • Streaming growth accelerating, just: Total streaming revenue was up 31% in 2015, growing by $0.69 billion compared to 39% / $0.62 billion in 2014. This is undeniably positive news for subscriptions and a clear achievement for the market’s key players. However, it is worth noting that over the same period the number of subscribers by 63%, up from 41.4 million to 68 million (for the record MIDiA first reported the 67.5 million subscribers tally last week based on our latest research). So what’s going on? Well a big part of the issue is the extensive discounting that Spotify has been using to drive sales ($1 for 3 months) coupled with 50% discounts for students from both Spotify and Deezer and finally the surge in telco bundles (which are also discounted).  The number of telco partnerships live globally more than doubled in 2015 to 105, up from 43 the prior year. But even more significant was…
  • Ad supported revenue fell: Ad supported streaming revenue was just $0.634 billion in 2015, down very slightly from $0.641 billion in 2014. YouTube obviously plays a role, and that was a key part of the IFPI’s positioning around these numbers. You’ll need to have been on Mars to notice the coordinated industry briefings against YouTube of late, and these numbers are used to build that narrative.  But YouTube is far form the only ad supported game in town, with Soundcloud, Deezer and Spotify accounting for well over a quarter of a billion free users between them. Also, the IFPI doesn’t count Pandora as ad supported, one of the most successful ad supported models. Then there are an additional quarter of a billion free users across services like Radionomy, iHeart and Slacker. So the music industry doesn’t just have a YouTube problem, it has an ad supported music problem.
  • Streaming ARPU is up but subscription ARPU is down: The net effect of streaming users growing faster than revenue is that subscriber Average Revenue Per User (ARPU) fell to $2.80, from $3.16 in 2014, and $3.36 in 2013. Ad supported ARPU was down from $0.10 to $0.08 while subscription ARPU was down. The fall in subscriber ARPU is down to a number of factors including 1) discounting, 2) bundles, 3) churn, 4) growth of emerging markets services such as QQ Music (monthly retail price point $1.84) and Spinlet (monthly retail price point $1.76). For a full list of emerging markets music service price points check out the MIDiA ‘State Of The Streaming Nation’ report. The irony is that the major record labels are increasingly sceptical of mid tier price points yet they have inadvertently created mid tier price points via discounted pricing efforts. Total blended monthly streaming ARPU for record labels was $0.37 in 2015. And if you’re wondering how ad supported and subscription ARPU can both be down but total ARPU up, that is because subscriptions are now a larger share of total streaming revenue (up to 78% compared to 71% in 2014).

So the end of term report card is: an ok year, with the years of successive decline behind us, but long term questions remain about sustainability and the longer term impact of incentivized growth tactics.

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Streaming Hits 67.5 Million Subscribers But Identity Crisis Looms

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For our recently published MIDiA report ‘State of the Streaming Nation’ we conducted an exhaustive programme of research to assess the global streaming music market, from each of the consumer, market and service perspectives. In pulling together subscriber numbers for each of the music services (there’s a full table in the report) we found that there were 67.5 million subscribers globally in 2015. That was 24 million more subscribers compared to 2014 (also nearly double the number of new subscribers in 2014). It is clear that global subscriptions are gathering pace. However, all is not as it may at first appear:

  • Zombies still walk the streaming streets: Back in 2013 I ruffled a few feathers highlighting the issue of zombie subscribers, music subscribers that are recorded in the headline numbers but that are actually inactive, normally because they are on telco bundles. Fast forward to 2016 and the issue is more firmly in the public domain due to Deezer’s IPO filings. Zombies coupled with overstating by music services accounted for around 12 million subscribers in 2015 so the active ‘actual’ subscriber number was nearer 55 million.
  • Emerging markets are gaining share: Emerging markets will play a key role for streaming over the next few years. They are already driving growth for Apple and Spotify and they will collectively bring the most dynamic growth with western markets nearing saturation for the 9.99 price point. Much of the growth though will come from indigenous companies, such QQ Music (China), KKBOX (Taiwan), MelOn (South Korea) and Saavn (India).
  • Free still dominates: For all the scale of of subscriptions, free still leads the way with free streaming services accounted for nearly 600 million unique users (1.3 billion cumulative users if you add together the user counts of all the services). Free thus outweighed paid by a factor of 10-to-1.

Streaming’s Identity Crisis

Streaming must overcome its identity crisis. Depending on where you sit in the music industry, streaming is either the future of retail or the future of radio. It can be both, but there is increasing pressure for it to be retail only. That would see only a fraction of the opportunity realised. Throughout its history, a small share of people have accounted for the majority of spending. Casual buyers and radio accounted for the rest.

17% of music buyers account for 61% of spending. These are the people who are either already subscribers or that will become subscribers over the next couple of years. Which leaves us with the remaining 83% of consumers. The majority of these listen to radio while a growing minority use free streaming (mainly YouTube). The question the music industry must now answer is how seriously does it want to treat the opportunity represented by these consumers? Does it want to only serve its super fans or does it also want to be global culture? Radio enabled music to be global culture in the 20th century, free streaming will enable it to be in the 21st.

The Free Streaming Debate Is As Complex As It Is Nuanced

This is why the free streaming debate is important but also so complex. Yes, too much free music will curtail the opportunity for paid subscriptions, but too little could consign music culture to the margins. With streaming there is an opportunity to monetize a bigger audience at higher rates than radio ever enabled. At the moment free streaming bears the burden of being all about driving sales (either subscriptions or music purchases) but that misses the far bigger opportunity for free in the streaming era: mass monetization.

What we have now is a dysfunctional system. Freemium services have licensing minimas (the minimum that must be paid per stream) that effectively prevent them from building profitable ad supported businesses, while YouTube has licenses unlike any other but is the industry’s bête noire. Only Pandora has a model that is both (largely) acceptable to the industry and (theoretically) profitable. I say, ‘theoretically’ because Pandora could get towards a 20% margin if it wasn’t investing so heavily in ad sales infrastructure and other companies.

Out of those three disparate models an effective middle ground can and should be found so that the streaming debate becomes one of free AND paid rather than free VERSUS paid. Then we will have the foundations for creating a market that enables subscriptions to thrive within their niche and for global audiences to be monetized like never before.

The Labels Still Don’t Get YouTube And It’s Costing Them

This is the fifth post in my YouTube economy series. You can read the other posts here, here,here and here

2015 was the year that streaming came of age across global markets (it had already got there in the Nordics and South Korea of course). In the UK and the US stream volumes grew by 85% and 93% respectively in 2015. These markets matter because they are the 1st and 4th largest recorded music markets and between them account for 40% of global revenue. But as strong as a validation of the music streaming model as those numbers might be, the real success story here isn’t Spotify, Deezer or Apple Music…it’s YouTube. In both the US and UK YouTube outgrew audio streaming services. With YouTube delivering so much less back per stream to rights holders than freemium audio services and the whole issue of safe harbour and un-monetized tracks (however good Content ID has gotten) it is little wonder that the record labels are having an identity crisis over YouTube. Indeed, as I wrote last year, the YouTube discovery journey has become the consumption destination. The advert has become the product. But there’s even more to it than this. Not only is YouTube outperforming the audio pure plays, music is being outperformed on YouTube by its growing body of native creators, the new generation of YouTubers.

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YouTube started out as a place simply to watch (and upload) videos but has evolved into a sophisticated entertainment platform that supports a multitude of diverse use cases, both in terms of content and audience. Nowhere is this more pronounced than in channel subscriptions. In many respects ‘channel’ isn’t the most appropriate term as they are in effect talent feeds rather than channels in a traditional video / TV sense. Nonetheless, or perhaps because of this, they have become the lifeblood of native YouTube creators as diverse as Michelle Phan, PewDiePie, Zoella, SMOSH, stampylongnose and IISuperwomanII.

These are creators who often do everything from writing, filming, production through to front-of-camera. DIY superstars if you like. And they are fast becoming the lifeblood of YouTube. Of the 330 million subscriptions in the top 50 YouTube channels, YouTubers account for 34%. Compare and contrast with the measly 15% music artist and label channels have. And despite all the excitement around the increased subscribers Adele and Justin Bieber have racked up these last few months – they gained 8 million subscribers between them, making them the two fastest gainers across all of YouTube – music artists as a whole lost ground, accounting for just 31% of the top 50 gains during the last 90 days compared to 53% for YouTubers.

Music Is Losing Ground To Native YouTubers

Music does fare better in terms of views with 36% of the 41 billion top 50 views in the last 90 days. However it still plays second fiddle to YouTubers who account for 45%. But it is the direction of travel that reveals the most telling trend. Over the last 90 days 42% of the 50 top 50 growing channel views compared to 39% for music. In itself that may sound like a modest difference, but this is just the latest 90 day chapter in a much longer story. Music used to be the clear focal point of YouTube but that is changing. In terms of all time views music actually outpaces YouTubers with 42% compared to 41%. But at current rates that lead will be wiped out in the next 90 days. And here’s the paradox: music’s hold on YouTube is slipping even though YouTube is outperforming music services.

Part of driving force is out of the hands of the labels: video is eating the world, with more than 5 trillion short form views in 2015 alone. Music is always the first mover in digital content consumption, the trailblazer for other media. Once distribution, bandwidth and consumer sophistication all improve, video moves in.

Time To Stop Using YouTube Like School Kids Use Instragram

But record labels and artists can seize some control of their destiny, by taking a more sophisticated view of YouTube and exploring how to build strategies that work for YouTube in 2016 not for YouTube in 2010.  Right now record labels are using YouTube like school kids use Instagram, obsessing with vanity metrics such as views rather than thinking more deeply about how to build lasting relationships with YouTube audiences. A new generation of music artists is emerging that have created and nurtured audiences on YouTube, often with little or no help from labels. Artist like Dave Days, Tyler Ward, Boyce Avenue and Hannah Trigwell have built their fanbases on YouTube, often starting with covers but also crucially often non-music content such as parodies and vlogs. Raised in YouTube these artists are entirely native to the platform. They understand what audiences want because that’s where they come from.

If the big traditional artists and labels want to start making up some ground on the YouTuber revolution they could do worse than take a few hints from this new breed of YouTube artist.

Why Moving Video Centre Stage Is About More Than Just Doing Deals With YouTube Stars

 

 

This is the fourth post in my YouTube economy series. You can read the other posts here, here and here

The music industry has a long history of underplaying the role of video, insisting on seeing it as merely a tactic for driving sales.  In doing so it let two businesses that understood the wider value of music video become global superpowers.  MTV and YouTube knew that music fans, especially younger ones, could connect with their favourite artists via video in way that they could not with audio alone.  The labels were able to put MTV and YouTube down as an irritating mistake (albeit the exact same one made twice) because for a long while they were still selling units of music product, albeit in reducing numbers by the time YouTube arrived on the scene.  Now though, as we accelerate into the consumption era all bets are off.  Consumers want to pay for access to content – either with money (subscription) or with attention (ads).  With revenue generated by streams rather than up front transactions, both access models demand increased engagement.  This means that video must shift from marketing tactic to revenue bearing product.  Slowly but surely labels are waking up to this new reality and Sony Music’s deal with YouTube star Kurt Hugo Schneider hints at what the future may hold.

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Sony’s Schneider Deal Is A Nod To The Future Music Economy

Sony’s partnership with Schneider will see the creation of a 10 episode series of shows featuring Sony artists performing their songs with him.  Crucially the shows will be distributed via Schneider’s YouTube channel which has 6 million subscribers and 40 million monthly views.  5 years ago, even trying to build the business case for such a project around a frontline Sony artist would have been nigh-on impossible with production costs failing to justify likely TV licensing revenue.  But with YouTube Sony can both spend less on production and cut out the TV network middleman, going direct to the audience. Whilst a big part of the internal business case justification at Sony will likely centre around the ‘exposure’ Sony’s artists will get, there will be no small number of Sony execs who know that the real value of this is the video series itself, both in terms of audience engagement and revenue.

As I explained in my previous YouTube posts, the platform is emerging as the single most important content destination for Millennials and their younger siblings Generation Edge (i.e. those born since 2000).  Right now traditional music artists are at a marked disadvantage to native YouTube creators: they put out 1 music video maybe once every 3 months while a YouTuber will put out that many videos a week.  A middle ground exists between those two extremes, one that can provide the vital ingredients for helping music artists get more viewing time and help transition music video from low income marketing tool into a meaningful revenue generating product in its own right.

Universal’s KSI Deal Only Scratches The Surface

Universal Music have taken a more traditional approach to tapping YouTube, picking a successful YouTuber and turning him into a pop star.   The YouTuber in question is British gamer KSI who numbers 2 billion YouTube views, 11 million subscribers and $4.5 million in annual YouTube earnings, making him the fifth highest YouTuber globally.  So far his cross over pop/Grime singles have had modest success though Island will be hoping his latest collaboration with JME, ‘Keep Up’ will make bigger sales waves.  But even if it does that will be missing so much of KSI’s potential.  By his own admission KSI is a YouTuber first and a rapper second.  Island should be exploring all the ways they can make that distinction blur into insignificance.  Partnering with YouTubers like KSI is an invaluable first step, but the real opportunity for Universal is to explore how KSI can take them on a journey into the YouTube industry not for them to take KSI on a journey into the music industry.

Online Video Momentum Is Acclerating, And Some

The direction of travel of the video market is hard to discount.  Short form video is growing at an unprecedented rate: there were 5.9 trillion short from video views in in the first three quarters of 2015 with growth more than doubling from Q4 2014.  (See the MIDiA report ‘Short Form Video Growth’ for more).  Meanwhile the glut in online display ad inventory driven by content farms like Outbrain and Taboola is making video advertising an increasingly sought after commodity.  Will video revenue ever be enough to offset lost music sales revenue at an industry level? Perhaps not, but it certainly can at an artist level.  Not too many artists can boast KSI’s $4.5 million annual income.

The Business Case For YouTube’s Music Economy Role Needs To Be More Rounded

We need to take a realistic view of YouTube’s current role in the music ecosystem.  It can no longer be justified as a loss leader for driving sales and ‘exposure’.  The number one activity that consumers do after they discover a new artist on YouTube is….watch them on YouTube some more.  65% of under 25’s say they use YouTube this way. So more value needs to extracted from those users when they are on YouTube, rather than hoping for them to pop over to Spotify or iTunes to do something that creates bigger chunks of direct music industry revenue.  Sure some of that is still going to happen but it will do so in dwindling numbers over the next 5 years, with music sales revenue declining by 39% by 2020.

The business case for YouTube has to be much more rounded and nuanced while the industry continues through its transition phase. Sales and access will coexist for many years, occasionally giving the impression of a schizophrenic nature. Adele encapsulates the twin-speed nature of the music industry as it transitions between eras.  As impressive as Adele’s sales figures are they are an anomaly, a temporary high tide while the music sales waters continue to irretrievably recede.  Plotted against the longer music sales trend it is clear that ‘21’ followed exactly the same path – a dramatic stand out success that was a blip on the downward curve.  Adele is also unique in having such strong audience reach among older consumers that still buy music and younger ones that stream. So while she’s been busy breaking sales records she has also excelled on streaming, racking up half a billion views of her ‘Hello’ video.

For Better Or For Worse, YouTube Is Generation Edge’s Punk

Music fans exist in multimedia, on demand environments where video, social engagement are the norm and authentic connections with stars are the gold dust that they seek out.  YouTube is the punk movement of Generation Edge.  It is an antidote to the over-produced, generic, middle of the road, overtly commercialism of traditional media.  YouTube creators may still be finding their creative voices but the fact Sid Vicious couldn’t really play bass was part of the entire point of the Sex Pistols.  It was a big fat two fingers up at the establishment.  Sure, most YouTubers are hardly rebels without a cause but they are outside the traditional media establishment and therein lies the real power of video that the music most learn how to participate in without ending up looking like a dancing dad.

YouTube And The Attention Economy

This is the third in the series of posts exploring how the music industry can better leverage the potential of the YouTube economy.  You can see the first post here and the second here.

Short form video is accelerating at a rapid pace, racking up 4.2 trillion views in the first half 2015.  While challengers Facebook, Snapchat and others now account for just over half of that total, few platforms of scale yet provide content creators and owners comparable ability to build engaged audiences and income.  For music the situation is even more pronounced – no other platform is even on the same lap of the race (and I include Vevo as an extension of YouTube). YouTube is the most popular online music destination by far (46% of consumers use it regularly) and its role for Digital Natives cannot be exaggerated – 65% of US under 25’s use YouTube for music regularly.  But the share that regularly watch YouTube as a whole is even higher: 76%.  The added complexity is that most artists and labels do not feel that YouTube is pulling its weight in revenue terms.  Free music streamers – of which YouTube is the largest single component – comprise 92.5% of all music streaming users and just 32% of all streaming revenue.  Yet a whole generation of non-music creators like PewDiePie, Smosh and the Janoskians have via YouTube built audiences and income that most artists could only dream of.  So what’s the secret?

Talk Don’t Shout

One of the key factors is the way in which YouTubers use the platform, releasing 2, 3 or more videos every week.  Contrast this with an artist releasing a music video maybe once every couple of months.  YouTubers treat the platform as place to build relationships with their audiences and to engage them in regular interaction.  The prevailing approach among artists, their managers and labels is to simply view YouTube as a place to promote.  YouTubers use YouTube as an interactive digital platform for engaging in conversations.  The music industry uses it as a broadcast channel, a soap box from which it can shout about its wares.

While clearly it doesn’t make sense for most artists to be creating 3 videos a week there has to be a compelling middle ground between that and one promo video every quarter.  Nearly half of music’s super fans say that music for them is more than just the song, that they want to know the artist’s story.  Music videos, the highly stylized form that they are, are hardly a vehicle for telling the artist’s story.  In fact there are few mediums less suited for the task.  But there is so much around the video that can be harnessed.  Imagine how much extra content could be created by adding half a day to the video shoot to film extras such as goofy outtakes, the band talking about the song, a making of, behind the scene reportage etc.

Think Of It Like DVD Extras That People Actually Want To Watch

And the costs should be modest.  YouTube is DIY.  Part of the authenticity most YouTubers deliver is by not being over produced.  So only a fraction of the crew used for the music video shoot would be needed.  The resulting video extras could then be planned into a release schedule on the artists’ YouTube channel, building up weekly to the main music video and then maintaining interest thereafter.  This is just one illustration of how it is entirely feasible to create lots of added value content with relatively little additional burden on the artist.  Yes, this might feel like creating the extras for the bonus disc on a DVD, and in some ways it is.  But there is a crucial difference.  DVD bonus discs are a means of charging more for a release and usually go unwatched.  Among young YouTube viewers this sort of content is often of comparable – though different – value to the song itself.

Prospering In The Attention Economy

In the sales era fans invested in their favourite artists by buying an album.  That cash investment usually meant a fan would spend time listening to the album again and again.  And that familiarity became the foundations of a long term relationship that would result in buying concert tickets and future albums.  But now as sales dwindle (down by 29% in the last 5 years) music fans are investing in their favourite artists in time and attention rather than money.  We now operate in an attention economy.  YouTubers totally get this, artists and labels less so.

This is all so important to artists because YouTube is not suddenly going to start delivering dramatically better music stream rates, largely because labels and publishers haven’t had the courage to demand the requisite fair share it should pay.  Rights owners’ fears are understandable: one senior label executive recounted a YouTube negotiator saying ‘Don’t push us.  Right now you don’t like us much and we’re your friend.  Imagine what we’d be like if we weren’t your friend.’  Sooner or later bullying tactics need standing up to.  But that will not be a quick process, regardless of the steps currently being taken behind the scenes.

So in the meantime artists and labels need to figure out how to get more out of YouTube in a way that complements the other ways they make money digitally.  Put simply that means making more non-music video content to generate more viewing hours and thus more ad revenue from YouTube. Heck, they might even generate some YouTube subscription revenue some time.  But do it they must, else they’ll forever be leaving chunks of YouTube money on the table.

The irony of it all though is that the biggest reason of all for doing it isn’t even about the money.  Treating YouTube as a fan engagement platform rather than a marketing tool is currently the most sure fire way artists have of creating engaged fan bases at scale in the digital marketplace.

Making YouTube Pay: YouTubers Versus Bands

This is the second in a series of YouTube generation posts. See the first one here.

A couple of weeks ago I wrote about Generation Edge – the under 16 millennials – and how they are driving an entire new subculture of YouTube stars that throw the traditional fandom rulebook out of the window. One of the intriguing paradoxes (or at least apparent paradoxes) is how a generation of native YouTube stars can create both vast audiences and revenue while for music artists YouTube is simply a place to build awareness and probably lose net revenue due to YouTube streams cannibalizing paid streams. So how can the model both be broken (for music) and yet buoyant for native YouTuber creators?

pewdiepie2 PewDiePie And Taylor Swift

Compare and contrast the biggest earner in music with the biggest earner on YouTube.   Taylor Swift netted $39.7 million in 2014, compared to $7.4 million for PewDiePie. Seems like a slam-dunk for music right? Except when you start digging a little all is not quiet what it seems. Swift’s numbers are gross revenue so include the revenue earned by everyone else (record labels, promoters, ticket agencies, venues etc.). Let’s say she earns a third of that income which would equate to $12 million (and before anyone suggests it should be higher given her relationship with her label Big Machine ¾ of her revenue came from live in 2014). So suddenly the difference doesn’t look quite so big. Then consider that PewDiePie’s $7.4 million refers just to his YouTube ad revenue and doesn’t take into account his live appearances income or his merch revenue. And, perhaps most importantly, the cost of earning that income was negligible. PewDiePie’s audience is right there on YouTube and his videos are home made. The cost of production, distribution and marketing are close to non-existent. The exact opposite is true of breaking a release like Taylor Swift’s ‘1989’. It’s no secret that most big labels lose money on lots of their bigger front line releases, relying upon a few massive successes and the steady income from back catalogue to pay the bills.

10 Billion Views And Counting

PewDiePie just passed 10 billion views three weeks ago and has 39.9 million subscribers – that’s one for every (gross) dollar that Taylor Swift earned in 2014. Anyway you look at it, those numbers are big. Game Of Thrones, which can lay claim to being one of the mainstream media success stories of the moment, has clocked up around 700 million total views globally over the course of 5 series. And while traditional media apologists will argue that you cannot compare a PewDiePie view with a GoT view try telling a PewDiePie subscriber that their viewing is somehow less worthwhile because it is more than weekly and doesn’t come from a traditional TV set.

Taylor Swift of course also has a pretty hefty YouTube / Vevo presence too, with 16.5 million subscribers and 6.3 billion views. But while she has 20 videos available PewDiePie has nearly 2,500. And therein lies one of the key differences. PewDiePie lives on platforms like YouTube and Twitch. His focus is making content regularly for his audience and engaging directly with them. YouTubers typically make multiple videos every week and often multiply that across multiple different channels. Try squeezing that in around touring, recording, writing sessions, media work etc. Swift, unlike many big pop artists, also knows how to do the native YouTube thing too and has had her own, non-Vevo, YouTube channel since 2006, posting 136 videos there to date. But in stark contrast to her Vevo channel Swift has just 1.4 million YouTube channel subscribers. So even one of the most YouTube-centric of pop artists that also happens to be one of the biggest pop acts on the planet right now simply doesn’t have the time, positioning nor content to compete with a shouty gamer from Sweden.

YouTube Is Generation Edge’s Destination Of Choice

So where does all this leave artists and YouTube. Unless bands want to ditch the guitars and start doing Minecraft commentary videos, becoming a full-on native YouTube creator simply isn’t feasible for most artists. But there absolutely is middle ground between the dominant focus on seeing YouTube simply as a marketing channel for music videos, and the native creator route. Part of the solution is seeing YouTube for what it actually is. It is not a video platform, or a marketing platform, it is one of the most important destinations for Millennials of all ages, especially Generation Edge. It is at once a social network, a TV network, a fun place to hang out, a discovery destination, a place where they can simply be themselves and feel connected. YouTube is all of that and more. In fact the breadth and depth of content means that it is everything to all people.

The Value Of An Authentic Voice

Treating YouTube simply as a marketing channel not only underplays its potential but it also completely misses what it means to your target audience. PewDiePie, Zoella, Stampy, Michelle Phan are all so successful because they speak directly with their YouTube audiences in an authentic voice that communicates that it is the here and now that matters. That it is about the moment not simply an attempt to try to get the viewer to go somewhere else to do something else. Authenticity is a priceless commodity and native YouTube creators have it in spades. That is the currency of the YouTube generation.