The coming long-tail cull

When governments plan to introduce controversial new policies, they prepare the ground in advance (dropping hints in speeches, privately briefing journalists, etc.), so that by the time the new policy finally arrives, it does not feel quite so controversial. A similar process is currently playing out in the music business. The biggest major label executives are starting to seed a narrative into the marketplace about the potentially corrosive effect that the rapidly-growing long-tail of music and creators is having on consumers’ music-streaming experiences. Of course, it also happens to dent major label market share too, but the issue is not quite as clear cut as it might first appear.

There are three main industry constituents that are at risk from the fattening of the long tail:

1. Major labels and their artists
2. Consumers
3. Long-tail creators

Let’s look at each of those in turn:

1 – Major labels

The first on the list is the most obvious, and also the easiest, to demonstrate. Over the course of the five years from 2016 to 2021, the majors grew recorded music revenue by 71%, which is impressive enough, except that artists direct (i.e., artists who distribute without record labels) grew revenues by 318% over the same period. Consequently, artists direct increased global market share from 2.3% to 5.3% while majors went from 68.8% to 65.5%. Meanwhile, the top 10 and top 100 tracks continue to represent an ever smaller share of all streaming. The very least that can be said is that majors and their artists have collectively grown more slowly than long-tail creators, and at the most, the case could be made that long-tail creators have eaten into major’s growth.

2 – Consumers

This one is far harder to make a definitive case either for or against. Consumers tend not to categorise music anywhere near as precisely as the music business. For example, only a third of consumers say they mainly listen to older music, despite industry stats showing that catalogue consumption dominates. Most consumers do not consider music to be ‘old’ as soon as the music business does. So, imagine how difficult it would be for consumers to delineate ‘what is long tail?’ They may say in surveys ‘music isn’t as good as it used to be’, but they could equally be referring to majors’ music as the long tail. So we are in the realms of measuring second-order effects (are consumers disengaging from streaming? Not yet, but they might) and of making logical assumptions. If consumers consistently hear poorer quality music, then it is reasonable to assume that their satisfaction would decline. However, DSP algorithms push music that matches users’ tastes, and there is so much high quality in the long tail that there is no particular reason to assume that more long-tail consumption should inherently equate to an increase in consumption of poorer-quality music. And do not forget, consumers have demonstrated plenty of tolerance for ‘average’ music in mood and activity playlists.

3 – Long-tail creators

It may sound oxymoronic to suggest that long-tail creators could be hurt by the rise of the long tail. But, as Will Page put it, the rise of the long tail means that “there are more mouths to feed”. The fractionalised nature of streaming royalties means that the more long-tail creators there are, the lower per-stream counts there are and, even more important, the harder it is to cut through. The irony is that it is easier to make the case that the long tail is eating itself than it is to establish causality between its rise and majors’ loss of share.

Divide and conquer

Of course, the missing constituency is the DSPs themselves, but they do not warrant a place here, because they are the ones with the power to scale up or down long-tail consumption via their algorithms. It serves DSPs to have listening fragment to a degree as it lessens the share and, therefore, the power of any individual label. But if DSPs ever thought they were pushing too far, then they would rein in the algorithms.

Where next?

So where does all this leave us? In the ‘do nothing’ scenario, listening continues to splinter, majors lose more share, long-tail creators find it harder to cut through and earn while consumers may (or may not) see any meaningful change to their listening experiences. In short, the head loses out, as does the long tail, while the market further consolidates around the ‘body’ of streaming catalogue (which, by the way, the majors are already key players in and could easily ramp up their focus – as WMG is already doing). 

The ‘do something’ options fall into two key groups:

1. Gate / limit consumer access to catalogue
2. Gate / limit creator access to royalties

There are many ways to achieve the first (preventing long-tail music getting onto DSP catalogues; lowering long-tail priority in algorithms; creating a separate tier of catalogue; deprioritising / blocking it from search and discovery, etc.). All of this risks looking very much like the establishment trying to prevent the next generation of creator and industry breaking through. That is without even considering the moral dilemmas of choosing who is ‘in’ and who is ‘out’.

Option two, however, could be more altruistic than it looks. For an enthusiast hobbyist with a few hundred streams, royalties are going to be little more than a novelty. But for a hard-working, self-releasing singer / songwriter with tens of thousands of streams, the hundreds of dollars are already important. Let’s consider that there was a pay-out threshold, where 1,000 annual streams are the point at which royalties are paid, with all the royalties associated with the sub-1,000 stream artists being distributed between all other artists. Suddenly, those slightly more established long-tail artists can earn more income. 

None of these options are without challenges and moral dilemmas. But the direction of travel appears to be towards something being ‘done’ about the long tail. If that really does end up having to happen, then let us at least try to ensure that the changes benefit long-tail artists too, not just the superstars.

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

How Bandcamp could really fix the music business

“A thought: has streaming become the place to address consumers and the likes of Bandcamp the places to engage fans? i.e., fans and fandom inherently matter less on streaming because it/they are a minority.” 

I recently posted this tweet questioning whether streaming has become the place for finding fans, while Bandcamp is the place where fans really are. Some of the resulting conversation got me thinking that there are several related but disconnected industry dynamics which define today’s music business but are second-order effects of streaming’s rise rather than how anyone planned for things to pan out. If someone could join the dots between them then we might just have the makings of a solution to many of the problems artists face in the streaming song economy. And perhaps that someone could be Bandcamp…

When being empowered does not feel as empowering as it should

One of the great ironies of this era of empowered artists is that the empowerment only extends so far. Sure, they can choose whether to work with a label, whether to retain their rights, which distributor to use etc., but the vast majority are beholden to streaming. Streaming is where they build and find their audiences; streaming metrics are the success currency that drives or helps shape most of everything else that happens in their careers. Yet the economics for most middle class and independent artists do not add up. Even the ability to get bigger live audiences thanks to streaming does not help pay the bills for most emerging artists as they are still in the stage of their careers where they lose money touring. This is of course why Bandcamp has resonated so strongly in recent years: it is the place where artists bring the audiences they are building on streaming to a place where they can earn meaningful income. 

Streams or fans?

This discover on Spotify / monetise on Bandcamp flow works well enough, but it is like bottom-trawling fishing: most of what you catch you discard. But there is more to it than that. If labels and artists are investing their marketing efforts in driving streams as the way to find audiences and build fan bases but few listeners actually convert, this means that the streaming platforms are benefiting much more from that marketing spend than they are. Add to that the fact artists cannot build direct relationships on most streaming services (excepting, as always, Soundcloud and YouTube), then the question becomes: what are artists building on streaming apart from streams? Of course, there is always the unicorns and rainbows hope that they might blow up on streaming – but artist careers cannot be built around the hope of winning the lottery. What is pointedly not being built is, you guessed it, fandom. Audiences may fall in love with the music on streaming and they may follow the artist etc., but they build their fandom elsewhere, going to Google, Wikipedia, Instagram, forums, articles and the like to really get to know the artist.

Bringing it all together

Make no mistake, streaming does an amazing job of helping people hear new music and it does a pretty good job of helping people discover new music (there is of course a massive difference between hearing a new song once and really discovering new music). But the missing bit is nurturing fandom; feeding curiosity, enabling connections with others, facilitating self-expression, getting beneath the skin of an artist. A certain scale of audience is needed to turn Bandcamp into truly meaningful income for artists and right now too much of that responsibility lies with streaming. This is where Bandcamp has a ‘go big or go home’ opportunity.

What if discovery, consumption and fan building could all happen on Bandcamp, not just e-commerce? Apart from a little editorial, right now Bandcamp is not designed as a destination but instead as the place people go to buy stuff. Imagine if Bandcamp was also a place to listen to music, discover cool new artists (based on users’ stated preferences and behaviour to deliver personalised recommendations) and learn about those artists. A place for bands and alternative singer-songwriters. A place to reclaim the essence of ‘independent’ from major label-owned ‘independent’ artist platforms.

Of course, there is a tension: if Bandcamp suddenly starts doing streaming, then it puts sales at risk – the very essence of its market proposition. But Bandcamp doesn’t need to play by the streaming rule book. It doesn’t need to license the majors (or even the big indies); instead, it can build a completely new model with smaller labels who are open to creating something new. 

For example, a listener might be able to stream the songs from an album twice before then having the option to pay to unlock the album for unlimited streams using pre-purchased credits. Effectively creating a full streaming catalogue that can be unlocked one album / EP / artist at a time, rather than ‘simply stream before you buy’. This would combine the best of both worlds: streaming consumption and sales income for the artist. Once you start thinking about things in this way, the possibilities light up the horizon.

A fan accelerator

So now we have Bandcamp driving discovery, consumption and commerce. But it could do more still: it can become a fan accelerator. By combining all these assets and ensuring artists can always talk directly to their fans and know exactly who they are (opt-in emails, names, DOB, interests etc.) artists would be able to build fan bases like nowhere else. But rather than simply provide the tools to artists, Bandcamp could help them with guidance, support and fan roadmaps. Not all artists are one million follower artists; some might only ever be 100 follower artists. Using its data and expertise, Bandcamp could help artists understand what the right path is for them. For some, it would be providing the tools to get to 10,000 followers; for others, it might be how to truly engage 100. 

This might sound like common sense, but too much of the music business is shaped by over-inflating artists’ expectations, trading on unrealistic dreams. The first chapter of the independent artist economy was about establishing them as a serious force in the music business and getting platforms to scale. The next chapter should be shaped by independent artist tools and platforms shouldering a duty of care to their customer bases, to help them plot the right paths for them. There are as many different models for success as there are artists. Success needs redefining for those artists that will never hit it big, nor may ever even be able to give up the day job. Finding those ‘100 true fans’ can still be success; it just needs measuring differently.

There are plenty of other directions this could go in, and there are plenty of other entities that could go in this direction. What matters is that the siloes the industry finds itself with are broken down and that fandom and creator remuneration do not fall between the cracks. With new foundations, we could truly see the emergence of the empowered artist.

The paradox of small

When the history books are written about our current times, the rise of creator culture will likely go down as one of the most impactful paradigm shifts. It is a dynamic that extends far beyond music, but it is impacting the music industry more directly than it is other entertainment industries – in large part because the music business is not yet set up for the economies of micro audiences. Until it is, artist royalty woes will remain a festering wound that risks infecting the entire business. The solutions will require a combination of a new approach to monetisation and a realistic understanding of what streaming can truly deliver to an artist community that is continuing to grow faster than streaming revenues.

More mouths to feed

Despite the challenges of the pandemic, streaming revenues grew by 20% in 2020, with subscriber numbers growing even faster. Over the same period, the number of releasing artists grew by more than a third. The arithmetic is brutally simple: more new artists than more new music revenue meant lower average income per artist. As economist Will Page puts it, there are more mouths to feed. Even within the fast-growing artists direct segment, where revenues grew dramatically faster than the overall market (34%), the average income per artist grew by just 2% to $234 a year – that’s right, just $234 a year, across all recorded music formats. And of course, that figure is heavily skewed up by a few thousand ‘superstar’ independent artists, with the vast majority earning far, far less.

Big numbers, small income

With artists direct numbering five million in 2020, never have there been so many people releasing their music to the global public. This creator revolution is unprecedented and represents five million dreams being chased. But with just $234 of annual income up for grabs, the reality is that nearly all of those dreams will be unfulfilled. It has always been thus with music, but the difference now is that expectations have been raised, with matters compounded by the fact that streaming numbers can appear big but deliver only small revenues. For example, a self-releasing artist that racks up 100,000 streams might only take home $500, which could easily feel like a very modest return to an artist that does not have a comprehensive grasp of how streaming royalties work.

The 0.05%

This is the paradox of small: more artists can reach global audiences and drive sizeable streaming metrics but have little or no realistic prospect of meaningful income. Much of the streaming income debate has revolved around the plight of the middle class artist but the bigger dynamic at play is the creation of the amateur enthusiast class. In the old music business, these artists lived in a different world from professional artists. They played in local bars and sold a handful of CDs there that they recorded in a local studio. Now they use the same creator tools as the pros and have their music on the same platforms. This can give the impression of playing in the same league as the pros, but they’re not. If they are good enough, do the right things and get the breaks then they can get into that league, but that will only happen for 0.05% of them.

Dreams just out of reach

Having dreams appear to be within touching distance but somehow never quite within grasp is fertile ground for breeding discontent and resentment. The parts of the music business that trade on this segment (artist platforms, digital distributors, streaming services, creator tools) have a duty of care that must move beyond its current remit of trading on artists’ dreams.

Fixing streaming royalties will not change things. Even if you doubled royalty rates, 100,000 streams would still only generate $1,000 for an independent artist. Meanwhile, it would result in streaming services losing 40 cents on every dollar earned, and that’s just to cover the royalty rates, i.e., not even considering things like having a product, staff, offices, marketing or operations.

Looking elsewhere for income

Streaming royalties are never going to add up for most independent artists, in the same way radio would never do so. And this is not just a self-released artist problem: most artists will never get paid ‘enough’ money from streaming, and trying to make streaming royalty mechanisms do so is tilting at windmills. As I have previously written about, the music business needs to build out its ancillary revenue streams for music creators. There are already lots of options, such as:

• Selling song writing services on Soundbetter
• Selling beats on Splice
• Selling merch on Bandcamp
• Selling subscriptions on Twitch
• Selling royalty free music on Artlist
• Sell live stream concert tickets with Driift
• Selling artist subscriptions on Fan Circles
• Selling digital collectibles on Fanaply

Record labels, management, distributors, streaming services, and creator tools companies all need to invest in helping their artists build their fan bases and income on such platforms. This investment in their creators’ incomes will ensure that they are better able to continue to make the music that fuels the business models that all those other entities have learned to make work in a way most individual creators have not and cannot.

Streaming services must fix the problem… or someone else will

Nevertheless, the market also needs something more – a platform glue that binds together creation, audience and consumption. Contrast a music artist with a games streamer. A games streamer creates, streams, finds and monetises their audience all within one platform (e.g., YouTube or Twitch). A music artist, however, creates music in one platform, takes it to another for distribution which then feeds it into streaming platforms where the artist has no direct relationship with their audience. There are exceptions to the rule (Bandlab, Soundcloud and YouTube especially) but they are just that: exceptions, not the rule.

Either streaming services need to start backing up their creator-first language with creator-first tools, or instead watch from the side lines as someone else does it for them. Whoever leads the charge, the paradox of small will finally become slightly less of a paradox.

Independent artist creativity and innovation in the age of COVID

The COVID-19 pandemic has turned the music industry upside down in many ways but among the direct artists community there have also been signs of resilience and creativity in the face of adversity. For these ‘unsigned’ artists, 2020 is both the best of times and the worst of times. 

Self-releasing artists are not bound by industry promotional cycles, and in many cases, today’s artists must not just create their music but ‘sell it’ as well. If you have the drive to create music there is very little stopping you from writing, recording, producing and indeed releasing that music. All the tools and platforms are available. 

It’s been a boom year for music making – from record Fender guitar sales to yet another peak in streaming demand. Yet there’s never been a tougher time competitively—with 40,000 tracks released daily, cutting through the clutter is a very real challenge. The age of ‘create it and they will come’ never really existed, but today’s music market started to obliterate the notion completely and COVID-19 has acted as a catalyst for the changes that were already taking place.

For MIDiA’s latest independent artist survey report in partnership with artists services and distribution company Amuse, we interviewed 346 artists around the world during the heart of lockdown to get a unique view of how the crisis is affecting artists. What we found was anxiety mixed with aspiration and creativity. The full report is available for free here but we’ve pulled out here five key themes for artist success:

1 – A sector with real scale: Artists direct (i.e. those without record labels) generated $873 million in 2019, up 32% from 2018. These independent artists represent the fastest-growing segment of the global recorded music business, a segment of global scale with real impact and influence. They are also more streaming native than label artists.

2 – Lockdown was a unique creative window: Nearly 70% of independent artists took the opportunity in lockdown to spend more time writing or making music, and a further 57% created more content for social media. Artists took full advantage of being away from the spotlight and the treadmill of promotion, to dive back into their creative spaces and make new music. In terms of releasing music, artists were split – with 46% releasing more music, but 40% putting projects on hold.

3 – Collaboration: 36% of independent artists reported working more on collaborations during lockdown than before. Music is becoming more of a collaborative undertaking than ever before and a whole ecosystem of digital tools and services is emerging to meet growing artist demand, providing more structured and networked process than many labels ever can. An unintended consequence of lockdown is that it has compelled more artists to explore ways of doing remote collaboration and many of these new learned behaviours will persist beyond the pandemic. A new way of making music is being born.

4 – Independent artists need side hustles like never before: Artists need to work multiple revenue streams to build career momentum. For independent artists, streaming is their primary source of income at 28%. Live revenue is second at 18% (which means they are less exposed to lockdown’s impact than established label artists). But the key for today’s artists is to make revenues from multiple sources including publishing, teaching, session work, sponsorship and merchandise. Artists’ need to work multiple revenue streams to build career momentum. The number of artists offering online tuition has grown hugely during the pandemic, as has artists selling their old kit. Additionally, artist skill platforms will only grow as the number of aspiring creators grows, and, as with live streaming and making sound packs, is yet another revenue stream for artists. Artists are small entrepreneur businesses. They need four or five income streams to get off the ground.

5 – Marketing IQ is becoming key: Half of all direct artists do their own marketing, with one third managing their own marketing budget, but less than one in five are working with a distributor or label on marketing activities and 40% spend nothing at all on marketing. Artists are self-reliant but still inexperienced with marketing and most are not making the most of the tools available. While almost two-thirds of artists are using Spotify For Artists, few of them are using any other marketing related tools. The independent artist must know that marketing is about research, experimentation and persistence and is even more important for independent artists that do not have labels to do this work for them.

Making and marketing music is both getting easier and harder at the same time. Easier because artists can be in control: releasing music when you want to, growing and using social media, seeking out like-minded artist collaborators and sponsors, not having to rely on paymasters or gatekeepers. Easier also because artists can go global right from the beginning. 

On the other hand, the road to a career is longer and possibly never ending. The gap between artist and fan, creator and consumer is narrowing. Equipment makers are having a boom year, and one of the many things people have done with more time on their hands is fulfil their passions. So, for aspiring independent artists, a whole new wave of competition has arrived in the form of talented amateurs, armed with the tools and the time to make their own entertainment. 

The independent artist sector had another boom year in 2019 and the early signs are that it has not only weathered the COVID-19 storm but has made the best of a bad situation, seeing lockdown as an opportunity to create, experiment and innovate. Which should not surprise us, as after all these are some of the defining characteristics of one of the most important and exciting elements on the modern music business. Pathfinding through the pandemic requires innovation and patience and it looks like the direct artists sector has plenty of both. 

Spotify Q4 2019: First Signs of the New Spotify

Spotify’s Q4 2019 results reflect another strong quarter and a good year for Spotify. Look a bit deeper, however, and there are the first signs of the new company that Spotify is building – and they point to a very different and much bolder future.

First, here are the headline metrics:

• 124 million subscribers (exactly in line with MIDiA’s forecast built earlier in the year. In fact, we’ve been pretty good with our quarterly subscriber forecasts throughout the year – see the chart at the bottom of this post).
• Six million inactive subscribers (flat from Q3 2019).
• 271 million monthly average users (MAUs) and 153 million ad-supported MAUs, which is a paid conversion rate of 45.8%, down a little from Q3 2019 and Q4 2018 with Rest of World the fastest-growing ad-supported region. This fits with early-stage growth for Spotify in new markets. Unlike markets in Europe and the Americas, Spotify will likely see ad supported remaining a much larger share of the user base long term in markets like India, with less ability to monetise via ad revenue. Spotify needs some big telco deals, especially in India.
• Subscriber churn was down to 4.8% from 5.2% one year earlier. This is slow but steady progress that helps stabilise Spotify’s business and helps net adds grow faster.
• Subscriber average revenue per user (ARPU) was €4.65, down 5% on Q4 2018. Spotify stated that much of this decline was down to “the extension of the free trial period across our entire product suite in the quarter”.
• Total revenue was €6.8 billion, up 29% from 2018 with ad supported just 10% of that.

So much for the old, now in with the new…

Spotify’s uphill journey towards profitability is well documented (net margin fell into negative territory again in Q4 2019, to -€77 million). The circa-70% rights costs base is the core issue here, and rights holders have little (no) desire to go any lower – in fact, publishers want increases. Spotify has had to explore where else it can grow its business with cost bases that are less than 70%. Podcasts, marketing and creator tools are the three publicly stated places where Spotify has placed its bets, and the Q4 results show small and early – but nonetheless crucially important – movements in each:

• Podcasts: As MIDiA reported last month, Spotify has been growing its audience very quickly and is now the second-most widely used podcast platform. 44.8 million Spotify users now listen to Spotify podcasts, with total usage up 200% year-on-year (YoY). Though podcast revenue is still only around 1% of Spotify’s total revenues, this reflects Spotify’s overall relative underperformance in ad revenue. This needs to be fixed – at least in a few of the bigger digital ad markets – but podcasts have the additional benefit for Spotify of diluting the royalty pot and thus improving gross margin. Current license agreements have a strict cap on how much the pot can be diluted (and labels have no intention of increasing that cap). But by MIDiA’s estimates, even within the current deals, Spotify could potentially shave off up to seven points of music royalty payments. Little wonder, then, that Spotify said this in its earnings report: “Any decision to accelerate our investment in podcast and technology spend should be viewed as an indication of our belief that our strategy is having tangible results. We have gained even more confidence in the data, particularly around the benefits from podcasts, and as a result, 2020 will be an investment year.”

• Marketing: Spotify launched its paid ad tools for labels and artists in beta in Q4 2019. Early results are positive: +30% click-through and listener conversion rates, and on the sponsored recommendations side, Caroline Music’s Trippie Redd’s fourth album was helped to #1 with sponsored recommendations. Though there has been some pushback from labels feeling that they shouldn’t have to pay to reach their own audiences, Spotify is not doing anything particularly unusual here. The strategy is directly comparable to what Facebook and YouTube do. In fact, record labels spend about a third of what they earn from YouTube on YouTube advertising. The impact of that sort of revenue exchange on Spotify’s commercial model cannot be understated.
• Creators: 2020 is going to be a massive year for creators. Our early estimates are that artists direct generated around $820 million in 2019, growing more than twice as fast as the overall market. 2019 was another big year for the top of the funnel, but we think the even more interesting space is one step earlier: creator tools. Creator tools are the new top of the funnel, before music even makes it onto streaming services. In fact, we think this might be the music industry’s next big growth area – and Spotify is already betting big, with acquisitions like online collaboration tool Soundtrap and artist marketplace SoundBetter. The music industry was, understandably, preoccupied with Spotify competing with it by signing artists and ‘becoming a label’. Spotify backed off from this strategy, but by focusing its efforts on the creator end of the spectrum it is building the foundations for what a record label of the future will look like. Spotify may just be competing with the labels’ future business before they have even realised it. Spotify’s quote says it all (at least to those who are listening for it): “We will continue to grow and expand the marketplace strategy, including with services such as Soundtrap and Soundbetter.As an example, while still early days, Soundtrap doubled its paying subscriber base in Q4. Expect more innovation of products over the coming years.”

 The margin impact of these three business areas is already being felt: “The largest driver of outperformance stemmed from slight improvement in the non-royalty component of Gross Margin, including payment fees, streaming delivery costs, and other miscellaneous variances.” 

Picks and Shovels

These are the three pillars of the new Spotify – one that will continue to be powered by music, but with profit coming from ancillary services. In the California Gold Rush in the 19^th century, the first person to make a million dollars was a man called Samuel Brannan. But he wasn’t a miner; he sold mining equipment. If there is a gold rush, you want to be selling picks and shovels. Spotify has found its picks and shovels.

Independent Artists: The Age of Empowerment

MIDiA is proud to announce an exclusive new report in conjunction with Amuse – Independent Artists: The Age of Empowerment. The report is based on a global survey of independent artists that we conducted earlier this year, with respondents from all of the world’s continents. The full report is immediately available for free download here. Here are some of the key themes and findings of the report:

The science fiction author William Gibson once said, “The future is already here, it just isn’t evenly distributed.” He wasn’t writing about the rise of independent artists, but he could have been. We are seeing the beginning of what may be the biggest paradigm shift in the music business in decades, but as with all big changes, we won’t appreciate the true magnitude of it until further down the road when more of the pieces have fallen into place.

In the old music business, artists had a limited number of choices when planning their careers. They could sign with a record label and hope they were the one in ten that made it, or they could treat music as a hobby, contenting themselves with playing the local bars and clubs. Then a UK rock band did something in 2001 that little known to them would act as the genesis for an entire new way of being a recording artist. After having split with record label EMI, Marillion decided to ask their fans to pre-order an album they hadn’t made yet. More than twelve and half thousand fans did so and with the resulting hundreds of thousands of dollars they recorded Anoraknophobia. Music crowdfunding was born. Marillion had just shown the artist community that there was a new way to be a successful recording artist.

Fast forward 18 years and artists now have more tools, services and choices than at any previous time in the history of recorded music. An entire industry has evolved to enable artists to plot their own unique paths through the fast-changing music industry. From finding a vocalist, through remote mastering, to funding, marketing and distribution, artists now have the tools at their disposal to create their own virtual record labels.

Forget digital service provider (DSP) disintermediation; artist disintermediation is the real threat

Record labels often worry about streaming services disintermediating them, but they should be more concerned about artists disintermediating them themselves. With all of the tools and services at their disposal, artists have the ability to create their own bespoke labels. In this ‘label as a service’ world, record labels have to define a new role for themselves, one in which artists will place ever greater focus on retaining creative and commercial independence. Signing a traditional record label deal is now just one option among many for artists.

• Culture first, cash second. Artists’ definition of success is very much culture first, then cash. They are looking for respect and recognition first and foremost. With this respect and recognition, they can become viable touring acts with the chance to earn loyal fan bases.
• Labels are not a prerequisite.Artists now view labels very much as one possible means to an end. Less than a third of label artists consider it important to get signed to a record label, while for independent artists (i.e. those without record labels) the rate rises to a little over a half.
• Earnings are the biggest obstacle. It is just as well that artists take a culture first, cash second attitude as most artists should not expect to earn a living from music without something close to divine intervention. Nearly three quarters of independent artists earn less than $10,000 a year from music, and average incomes are also low even for signed artists.
• Artists’ income streams vary widely. Streaming income, along with earnings from live performances, make up the majority of artist revenues today. For independent artists, streaming is now their primary source of income at 30%.
• Signing to a label is not enough for artists’ financial security. Being signed to a label often does little to ease an artist’s financial woes. Overwhelmingly, both independent and label artists do not feel that they earn enough from music to not worry about their financial situation.
• Don’t give up the day job: Most artists have plural careers. Whether signed to a label or not, over two thirds of artists feel they will have to keep up other work alongside making music in order to make ends meet.
• The age of artist empowerment has arrived. Despite the challenges of a music career, the vast majority of artists now feel they have more control over their careers than ever before. With their choices both increasing and improving, nearly two-thirds of artists have a positive outlook about their career paths.
• Artists want to listen. The modern day artist has flexibility and freedom to make choices – but how do they make the right choices? While the vast majority of artists do not want to lose creative control, most of them are open to influence and advice about their creative direction.

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Last Call for Our Artist Survey

This is your last chance to take part in our global artist survey – we are closing the survey this Friday (19th April).

In partnership with independent distribution company Amuse, MIDiA Research is undertaking a detailed study of the music artist landscape. We are fielding a survey to the artist community, exploring issues such as:

• What success looks like to you
• Career aspirations
• The importance of signing to a record label
• Financial wellbeing
• Maintaining creative control

If you are a singer, DJ, producer, performer, or in a band, then we’d love to hear your views. Just click the link to take the survey.

All of your responses will be treated as strictly confidential and will only ever be presented in aggregate as part of results for the entire survey – so never attributable to any individual. We will not use any of your responses to contact you again for any purpose, unless you specifically provide your email address to us in order to be interviewed in more detail for the research project.

We will also send you a summary of the findings so that you can see how you fit into the picture amongst your fellow performers, and benchmark yourself against their aggregate responses.

If you have any questions concerning the survey the please email us at info@midiaresearch.com

Calling all Artists!

In partnership with independent distribution company Amuse, MIDiA Research is undertaking a detailed study of the music artist landscape. We are fielding a survey to the artist community, exploring issues such as:

• What success looks like to you
• Career aspirations
• The importance of signing to a record label
• Financial wellbeing
• Maintaining creative control

If you are a singer, DJ, producer, performer, or in a band, then we’d love to hear your views. Just click the link to take the survey.

All of your responses will be treated as strictly confidential and will only ever be presented in aggregate as part of results for the entire survey – so never attributable to any individual. We will not use any of your responses to contact you again for any purpose, unless you specifically provide your email address to us in order to be interviewed in more detail for the research project.

We will also send you a summary of the findings so that you can see how you fit into the picture amongst your fellow performers, and benchmark yourself against their aggregate responses.

If you have any questions concerning the survey the please email us at info@midiaresearch.com

2018 Global Label Market Share: Stream Engine

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

2018 was shaped by three key factors:

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

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

More of the same, but change too

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

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