Fake artists are what happens when fandom dies

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

Streaming is racing to be radio, not retail

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

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

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

Streaming’s torrent of ubiquity

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

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

Fandom has moved up the value chain

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

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

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

Did independents really do three times worse than the majors in 2021?

Today, the IFPI released its estimates for the global recorded music market, with reported revenues of $25.9 billion. Last year, the IFPI estimated global revenues to be $21.6 billion (note that the IFPI retrospectively changes its historical figures every year, but you can see its actual 2020 figure here), which implies a growth rate of 20% (18.5% against the IFPI’s rebased 2020 figure of $16.9 billion). The IFPI estimate is significantly below MIDiA’s figure of $28.8 billion – but before getting into the reasons for the differences*, it is worth diving into just what the IFPI’s $25.9 billion figure implies for the size and performance of independent sector.

The major labels’ combined revenue in 2020 was $15.2 billion, and in 2021 it was $18.7bn, representing 25% annual growth. If you simply deduct those figures from the IFPI figures you end up with an implied independent figure of $6.5bn for 2020 and $7.0 billion for 2021. Here is where things start to get interesting. The implied indie growth rate is therefore just 9%, i.e., indies (according to the IFPI) grew three times more slowly than the majors, with implied market share dropping from 30% to 27%. Everything that MIDiA has been hearing from the market suggests that 2021 was actually a strong year for the non-majors. Indeed, Believe just reported a 31% growth, while the ‘label’ portions of HYBE’s revenues increased by 29% (though, not all of that growth was organic). If we remove the revenues of those two labels from the IFPI’s implied indies figure, the remainder of independents would have grown by just 4% in 2021.

To take this line of thought a step further, if we additionally remove the artists direct (i.e., self-releasing artists, which grew by 30%) revenue from the IFPI’s implied indie segment, the growth drops to minus three percent. Even accounting for bigger, older independent labels that did not fare so well in 2021, a -3% growth does not feel like a reflection of an otherwise vibrant sector.

One key reason for the growth and values looking smaller in the IFPI’s figures is that they may not include non-DSP revenue (TikTok, Meta etc), which MIDiA pegged at $1.5 billion in 2021. The IFPI reported all streaming revenues as $16.9 billion which is in line with MIDiA’s $17.0 billion for DSP-only streaming. It is worth noting that majors have around 65% market share on DSP streaming. If the IFPI’s streaming figures do include non-DSP, the implied market share for majors would be 74% (total major label streaming revenue was $12.6 billion in 2021).

Numbers are important, as they are what enable people to understand how markets are performing and what decisions to make. MIDiA’s overriding objective is always to provide the most comprehensive and authoritative data as possible, in an entirely agenda-free way. We have no intention nor objective to make the market look any bigger than we think it actually is. In fact, MIDiA has a well-earned reputation for being on the bearish side of market sizing and forecasts. Nonetheless, this year, our work has led us to the viewpoint that 2021 was a great year right across the recorded music market, with majors and indies alike finding success in a rejuvenated marketplace. And long may that continue.

*The main distinctions between MIDiA’s revenue figures and the IFPI’s are the following:

  • MIDiA includes all reported major label revenue
  • MIDiA includes the masters side of music production music libraries (including royalty free)
  • MIDiA includes a portion of D2C independent artist and label revenue that does not get tracked via traditional tracking methods
  • MIDiA includes some independent label revenue that does not get tracked via traditional tracking methods

NOTE: a previous version of this post had incorrectly stated non-majors have around 65% share on DSP streaming. It now reads ‘majors’

Recorded music market shares 2021 – Red letter year

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

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

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

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

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

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

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

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

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

Why Dolly Parton may want to wait before selling her catalogue

In a recent interview with the BBC, Dolly Parton said that she is considering selling her publishing catalogue, stating that she would simply launch a new publishing company and start all over again. On the one hand, this is not the first time she has publicly pondered the move (the first time was in December 2020), and is thus probably aimed at pushing up buyer demand and creating a bidding war. But on the other, it is an interesting illustration of the mindset of older artists who look to sell – they feel confident enough in their careers to simply be able to look at like an author who is selling the rights of their latest novel and moving onto the next one. But even more importantly, while cashing in might seem like a safe bet, there is risk for both sides, not just risk of whether valuations are too high, but also that they may not be high enough.

Catalogue investment is booming

The rate of music catalogue M+A acquisitions is accelerating, with announced transactions exceeding 12 billion in 2021, more than doubling since 2020*. Though those figures are boosted by some big institutional plays, such as UMG divesting some of its business ahead of its IPO, there is a rapid acceleration in the number of artists and songwriters who are selling. The market looks set to continue to be buoyant. On the buy side, there is a growing number of new investment vehicles and institutions entering the space, and thus driving up demand in a market of finite supply. On the sell side, though many big names have already sold, these are a minority of the big names of recorded music. This misalignment of supply and demand is helping push prices up, consequently accelerating the market even further.

Old, white, English-speaking males dominate

An interesting characteristic of today’s music catalogue M+A market is its bias towards old, white, male, Anglo repertoire. This reflects the investment thesis of many acquirers, which are building investment cases on valuation methodologies that revolve around historical cash flows. Put crudely, this means investments are being shaped on yesterday’s performance as an indication of tomorrow’s success. In most asset class markets, this is a very sensible approach, and in music it is a crucial component – but it is not enough alone. This is because streaming (e.g., Spotify) and social video (e.g., TikTok) are transforming how music is being consumed. Fandom is fragmenting and listening is splintering, meaning that the big hits of yesteryear are unlikely to perform the same way on streaming tomorrow as they do on radio today. At the very least, this introduces a significant degree of volatility into any outlook an investor may have. It should be of little surprise that this is where MIDiA spends a lot of its time in the consulting and advisory work we do for music investment funds.

The next music business is building 

This is where the artist and songwriter’s appetite for risk comes in. For an older songwriter or artist, selling up represents an opportunity to bank previous success, to capitalise on the unprecedentedly buoyant music market. But the market has a lot of growth left in it yet. In fact, the best days are likely still ahead of us. 2021 was the biggest growth in the recorded music market in modern times (watch out for MIDiA’s official figures, which are coming very soon)! Even if the digital service provider (DSP) streaming market, epitomised by Spotify, may be maturing, non-DSP streaming (TikTok, Meta, Twitch, etc.) is only just getting going and contributed significantly to 2021 growth. On top of this, new horizons are being set in the shape of the Metaverse, NFTs, Blockchain, and decentralized autonomous organisations (DAOs). Web 3.0 is riddled with risk and inflated expectations, but, as with all cases of looking at future tech, it is easy to overestimate the near-term impact and underestimate the long-term effect. Meanwhile, there are moves across the globe to increase the amount of streaming money that flows to the creators themselves. Add in the growth of emerging markets; growing rights transparency; and the booming music creator and creator tools economies and you have the foundations of an entirely new chapter for the music business. 

Which brings us back to Dolly Parton. In many ways, she is like the gambler sat at the poker table with a pile of chips in front of her. If she walks away now, she banks a fortune, but what of she plays for just a little longer. Except that, in the case of the music business, the odds are not even. Unless Russia dives the global economy into a disastrous drop – which, of course, is no small possibility – things are only going to get better for the music business. But, just like on the poker table, an artists or songwriter does not need to go all in. A growing number of investors are becoming more sophisticated with how they work with creators. For example, allowing them to retain certain rights, or a portion of overall rights. This means that the creator gets to benefit from the future upside while also benefiting from the up-front cash. It also means that the creator remains vested, with an incentive to help keep those old songs alive (and, as a result, increasing their value for all parties) rather than simply moving onto the next chapter. 

There is no doubt that the music catalogue sector has boomed, and there is also an argument that prices are inflated, at least in comparison to yesterday and today’s business. But for creators and investors who are prepared to take a long-term view, things might only just be starting.

*Look out for much more market analysis and data in a forthcoming MIDiA report on music catalogue acquisition by my colleagues Tatiana Cirisano and Kriss Thakrar

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

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

Fandom machines

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

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

What Epic could do with Bandcamp

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

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

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

It is all about the consumer

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

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

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

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

Music creators – we want your insight!

Beyond our role in analysing, reporting, predicting, and consulting within music and media, MIDiA is a team of people – many of us creators too – who are committed to making a fairer, more sustainable and creator-friendly music industry. To this end, we are currently fielding a survey for music creators (who are based in US and Canada) in order to learn about how they are making money and what they consider to be definitions of success. The survey is open to artists, producers and songwriters, as well as managers and business managers.

If you are an artist, songwriter, producer or manager, please help us by filling in this short, 10-minute survey.

The results will be used to develop monetisation tools for artists – This survey is your chance to make a contribution to the music industry, and to help companies build the most efficient finance tool for artists – so please help!

Note, we are looking for around 200 responses and five lucky participants will win $1000 in Amazon gift vouchers from our prize draw!! 

Click here to complete the survey.

Artists Survey 2022 – MIDiA asks music creators: how will you grow your audiences, earnings and career?

As the music industry continues to debate the many pros and cons of ‘the streaming era’  (while enjoying the unprecedented industry growth that it has brought), the spotlight can sometimes move away from those artists and songwriters who make a living from music but are not the big stars or household names that we know and read about in the news. 

At the same time, the ‘creator economy’ continues to boom, something MIDiA has been following, researching, and supporting for the past few years. As part of our work with music creators, we have spent the past 12-months speaking to artists, songwriters, producers and their managers about their priorities, concerns, challenges and hopes for the future as they make music, release it and, just maybe, establish a career in doing so.

We have learned a lot from these conversations. There is great insight from in-depth interviews with artists and songwriters, many of whom will (and should) capture the attention of all of today’s industry players, from streaming services to labels and creator tools companies.

For example, we have learned that the most proactive, ambitious artists see themselves as small businesses / startups, with a key goal to ‘bootstrap’ their own careers, thus creating a self-sustaining business with existing resources, rather than borrowing money or hurtling headlong into a ‘record deal’. In the streaming era, for many up and coming artists, success is more about making a sustainable living from music than it is about fame and riches.

Another great insight we have found is that artists are focused very much on core, loyal fans rather than large audiences that may come and then go. While most artists would love to ‘have a hit record’, even more of them appreciate not needing or relying on that rare event happening. Artists are focused on building 100-1,000 core fans rather than marketing to the masses, hence they are looking for tools that will help them directly reach fans, as well as helping them collect all the actionable data about their fans, which will ultimately guide them into creating relevant and engaging content for them.

As for monetisation, many artists are, of course, concerned that streaming does not pay the bills. Many of the artists we have spoken with have the perception that streaming is passive listening, and while it is great for profile and promotion, it is the other revenue streams that they need to focus on (for example, live touring, live stream sessions, merch, sync, and even teaching and session work for other artists). Many have launched Patreon pages or are looking to commercialise their own fan channels, and when it comes to new technology, there is both excitement and trepidation surrounding NFTs.

As part of MIDiA’s mission to understand and support artists, and work towards a more sustainable future for creators, we have launched the first tranche of our 2022 artist survey, focusing, at this stage, on North America and Canada. We want to hear from up and coming artists who are just setting out on their musical journey, direct artists who are using creator tools and distribution services in particular, but also established artists who are a few albums into their careers. 


If you are an artist, songwriter, producer or manager, please help us by filling in the short, 10-minute survey here, and note, we are looking for 200 or so views and have five prize draws from this sample to provide $1000 in vouchers

Beyond our role in analysing, reporting, predicting and consulting within music and media, MIDiA is a team of people – many of us creators too – who are committed to make a fairer, more sustainable and creator-friendly music industry. This survey is your chance to make a contribution so please help!

Why Spotify cannot afford to make it three out of three with podcasts

It has been a couple of weeks that Spotify would be glad to forget – if it could. Although many of the arguments have been emotionally charged and the debate says as much about people’s political beliefs as it does business strategy, it is indisputable that there is a lot at stake for Spotify. Podcasters are its big bet on the future, music artists are the current bet that pays the bills. Both constituencies need to be kept happy, but can they both be kept happy enough and at the same time? Spotify’s big-future podcast vision has been sold to investors, divesting or censoring Joe Rogan would shake those investors’ confidence in Spotify’s ability to execute on podcasts. But it would be more than just that, it would be the third time that Spotify has had to backtrack on a big bet. Once may be careless, twice bad luck, but three times would most certainly not be a charm.

It is worth remembering why Spotify is betting big on podcasts. Strategically, it wants a slice of the $30 billion radio advertising business, and it wants to ensure it is competing in all lanes of audio. But that is more about the opportunity, the potential. There is also a more prosaic motivation: podcasts represent the ability to grow higher margin revenue and give Spotify more control over its own destiny. Rather than be beholden to music rightsholders and face continual calls for higher rates from artists and songwriters (which risks making margins even smaller), Spotify can plot a course to a future where it owns much of its own content. This means both more control and higher margins. Win-win.

Spotify as a label

The only problem is that as a music platform that has acquired its hundreds of millions of users through music, music rightsholders and creators do not take too kindly to feeling like they are yesterday’s game despite still driving the vast majority of the revenue. And yet, it need not have been this way. The origins of Spotify’s podcast bet lay in the failing of their second big bet: direct artists. In September 2018, Spotify opened up its platform to artists to release their music directly on the platform. The labels of course saw this as a massive threat of disintermediation, shook their fists in fury, and compelled Spotify to swiftly backtrack, dissipating the service in July 2019. The irony is that Spotify was trying to achieve the same objectives with direct artists as it is with podcasts: more control and higher margins. The labels managed to get the strategy killed off, but in doing so they pushed Spotify into pursuing what may be an even more disruptive strategy. Competing with Spotify as a label might have been daunting to the music business, but at least the world’s leading music subscription service was still going to be squarely focused on getting its users to listen to music…

Spotify as a video service

If direct artists was Spotify’s second failed big bet, then video was the first. Back in January 2016, Spotify announced that it was becoming a video service. Featuring original content commissioned from giants of TV, such as Viacom and the BBC, Spotify went big on video. Unfortunately for Spotify, its users did not and Spotify quietly backed away from what briefly looked like a major expansion of Spotify offering away from music. Recognise the trend?

Fortune favours the brave

Spotify’s bet-based strategy is both admirable and has underpinned its huge success to date. It is just unfortunate that the biggest, highest profile bets have not panned out. If Spotify were to fail with the podcast bet too, then the consequences could be catastrophic in terms of investor sentiment. But Spotify has to bet big. It is a tech growth stock, and thus its market value is defined more by what it can be tomorrow than by what it is today. Being the leading player in a commodified and slowing DSP streaming market is not the sort of growth story that underpins valuations like Spotify’s. So it needs big dreams to aim at. 

Yet the irony is, if podcasts do not pan out then Spotify will be back at where it started: as a music streaming company (just as it was after the first two failed bets). This would be an interesting contrast to Netflix, which (occasional foray into games excepted) has had a singular focus on being a video service and is still a video service, with no failed side bets along the way.

The House of Cards moment

The likelihood is that Spotify will make a big success of podcasts, and audio more generally –and the Joe Rogan phase will be looked back on like Netflix’s House of Cards phase: a hint of what will come, the genesis of something much bigger, much more culturally impactful, and far more pervasive. But Netflix did not get to where it is without antagonising (and losing) partners along the way. TV networks that had been licensing their content to Netflix suddenly realised it was now competing with them too. By making their shows available on Netflix they were actually helping a competitor compete against them. Disney and Fox took it so seriously that they pulled their catalogue.

Netflix cause ill feeling among some TV networks and became an outright enemy. That is something Spotify cannot do with music rightsholders and creators. Spotify is currently causing ill feeling among the music community by going to great lengths to accommodate its podcast creator community, which is in stark contrast to the numerous missteps it has made with the music creator ecosystem over the years. It can do so, because it has leverage over music creators (few feel bold enough to remove themselves from Spotify), but Spotify (despite being the leading podcast platform) is still a long way from having that sort of hold over podcast creators.

‘Too big to fail’ is not enough

Netflix survived its backlash, not because it was ‘too big to fail’, but because the video streaming market is fragmented, so it could survive without the networks it antagonised (and two of those networks could go it alone via Disney+). The music streaming market is very different – losing labels and artists would simply reduce Spotify’s value proposition compared to its competitors. Spotify cannot afford its podcast ‘House of Cards moment’ to be followed by a ‘Disney moment’ for music. Matters just got further complicated by a major investor now raising concerns about Spotify’s podcast editorial policy – which means that this is no longer even a clean case of managing investors-vs-the music business. Spotify has an intensely delicate path through which it must find its way.

If it does, then third time really will be a charm for Spotify. 

From binging to burnout: the creator economy’s fault line

The streaming revolution has been built upon audience choice and control, replacing linear with on-demand and in turn opening whole new consumption paradigms. No user behaviour better encapsulates this shift than binge watching, which is done by 60% of video subscribers. But there is an inherent tension with giving the audience so much control: content is consumed much more quickly. If you are a video service, an entire season can be watched in one or two evenings, whereas in the old world, those millions spent on making the show would deliver a return over a period of months, not two nights. Little wonder Disney+ has gone for weekly episodes of its shows. 

As big as the problem is for media companies, however, it is the creator economy that is most exposed. In order to keep up with insatiable audience demand, music, podcast and video creators (and more) are often pushing themselves to their creative limits. Creators are risking burnout in order to meet their audiences’ demand for binging.

When Daniel Ek suggested that artists should be releasing music monthly, he was simply reflecting the realities of streaming-era music consumption. With just 16% of consumers listening to full albums, music audiences are beginning to replicate wider digital audiences: they expect a steady stream of (mostly) new content. The creator economy first met this audience shift with the rise of YouTubers, signing up millions of followers and delivering ‘content’ every day or so. YouTube subscriptions acted as talent feeds, setting the blueprint for content consumption that now dominates social, from TikTok to Instagram. In this world, the creator is locked in a constant battle for attention with every other content provider, big or small. Creators thus end up in a perpetual cycle of content creation to ensure they can remain present in their audiences’ content feeds.

The harsh reality of this environment is that it creates a vicious circle of influence. The more that creators create in order to try to cut through, the more content there is, which means it is even harder to cut through. This is the exact same challenge that record labels and artists currently face on streaming, forced into the volume and velocity game of releasing more music and doing so more frequently. Creators are forced to focus on volume of output rather than quality, and most often feel that however much they create, it is never enough. The net result is a growing number of creators dealing with burnout and mental health issues.

Audiences and platforms both win in the binge economy, while creators become collateral damage. With content commodified, audiences en masse do not notice as individual creators fall by the wayside, because the platforms’ algorithms will seamlessly slot in another creator who is so close the one that went, that the change will be all but unnoticeable. Platforms may have created the environments in which content is commodified, but by playing the game, the creators themselves have played a central role in commodifying content to the degree that it is content, not the creator, that matters most.

Yet, whatever the role of platforms and creators might be, it is perhaps us, the audience, that is most to blame. It is our ravenous appetite for more that creates the market. Just like Western consumers’ demand for fast fashion underpins Asian sweat shops, binging is creating a digital supply chain which favours production-line output. Some creators are beginning to create work arounds by staggering projects, dropping teasers, or even engaging fans in the creation process and having fan input points become the content they crave. But even these tactics most often require significant creator effort and maintaining a constant dialogue with the audience. 

Despite the best efforts of the creator community, the dominant direction of travel is that there is little room for careful craft. Spend three months making a song or a video, and the algorithms will already consider you history.

Spotify chose audio over music, but bigger decisions lie ahead

The symbolism behind Spotify’s support of Neil Young removing his music from the platform, rather than Joe Rogan’s podcast being removed for peddling vaccine misinformation was inescapable. For many, this was a highly public test of whether Spotify put audio or music first, and audio won. For a company that still makes more than 95% of its revenue from music, that is a big call. But, of course, in this particular instance we are talking about a catalogue music artist versus a superstar frontline audio creator. Rogan is one of Spotify’s biggest audio bets, and audio is Spotify’s biggest strategic bet, so it would take a lot – a real lot – to see Spotify consider pulling the plug on the controversial podcaster. Yet, that is exactly the sort of decision Spotify is going to have to start considering before long, and if it does not, then the decision might be made for them.

Becoming a media company

Spotify’s audio problem actually has remarkably little to do with the music business, and everything to do with media company regulation. Back in the mid-2010s, Facebook started its transition from platform to media company, pushing away from a pure focus on users’ content and towards professional created media. In doing so, Facebook found itself beginning to face the same sort of regulatory scrutiny as traditional media companies. It cried foul, trying to make the argument that it was more platform than media company and, therefore, not subject to traditional media company regulation. Facebook won some battles along the way, but it also lost a lot too, catalysed by milestones, such as the Cambridge Analytica debacle and Facebook’s use by Russian covert powers to influence the US presidential election. Throughout this, Facebook, now Meta, has fought tooth and nail to try to build a case of exceptionalism and for the internet to regulate itself. But for many regulators and law makers, the arguments do not pass muster. So much so, in fact, that the case for a new, dedicated regulatory body is building, and supported by no other than a former FCC chair.

Spotify’s case is even more complicated in that it is paying for the content in question, making it much more difficult to build a platform argument. Added to that, regardless of how much money Spotify has invested in Rogan, outspoken podcasters around the world will be looking at this as a test case for whether their freedom of speech is safe on Spotify.

The growing regulatory momentum matters to Spotify because:

  1. It is going through the exact same platform-to-media company transition that Facebook went through
  2. Support for regulation is stronger now than it was in the mid-2010s. Spotify could find itself getting caught in the same regulatory drag net as social media companies and regulated in the same way at the same time, or close to

Fragmented fandom looks very different in audio than music

Spotify’s audio challenges are not, however, limited to regulation. Spotify is learning the hard way that it is far, far easier to serve the fragmented fandom of music than it is of audio. There are not too many people in the world who feel the strength of antipathy towards other music genres as socialists do against conservatives, and so forth. There is no such thing as mass-market political opinion. Opinions polarise, more so now than ever. The best you can hope to address is a majority of opinion, but even that is scarce, and will be equally disliked by the remainder. This is the nature of modern-day politics and culture. Of course, Spotify understood this going into audio – it is why it has both Joe Rogan and Michelle Obama on its audio roster. But whereas having a diverse music catalogue is a consumer benefit (i.e., more choice) for audio, diversity can be divisive, as Joe Rogan’s continued presence illustrates.

Dealing with Neil Young is one thing, but if there is a flurry of younger, frontline artists that voice concern, then Spotify may need to take action. It will be betting that most, newer frontline artists lean towards political neutrality for fear of upsetting portions of their fanbases. Many artists, and their labels, will be asking themselves whether Rogan is too popular within their fanbases to make a stand. The days of the politically active, protest singer are a thing of the past. Perhaps more realistic an option is for artists somewhere between new and old (eg Beyonce, Coldplay) to take a stand, artists that feel confident enough in their beliefs and their fanbases to make a stand while still being culturally relevant.

Time to choose? 

So, Spotify’s future as an audio company may not only be shaped by external regulation, but it may also have to regulate itself – culturally and politically. There is good reason that the global media landscape is defined by three key types of outlet: liberal / left; neutral; conservative / right. That reason is that it is really hard (perhaps impossible) to simultaneously appeal to both sides of the political divide. If you want to pursue the middle path, that means removing much of the sort of content that drives streams. There is no Joe Rogan in the middle path. Which means that Spotify is probably going to have to decide upon a political leaning, even before it feels the heavy hand of media regulation.