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 momentumFor 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 19th 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.

spotify subscribers by quarter 2019

Independent Artists: The Age of Empowerment

MIDiA - Amuse Independent Artist ReportMIDiA 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.

Independent Artist Data MIDiA Research

  • 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.

Download the report for free now!

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.

midia music market shares 2018

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.

Just Who Would Buy Universal Music?

Vivendi continues to look for a buyer for a portion of Universal Music. Though the process has been running officially since May 2018, the transaction (or transactions) may not close until 2020. In many instances, dragging out a sale could reflect badly, suggesting that the seller is struggling to find suitable buyers. But in the case of UMG it probably helps the case. A seller will always seek to maximise the sale price of a company, which means selling as close to the peak as possible. It is a delicate balance, sell too early and you reduce your potential earnings, sell too late and the price can go down as most buyers want a booming business, not a slowing business. In the case of UMG, with institutional investors looking for a way into the booming recorded music business, UMG is pretty much the only game in town for large scale, global institutional investors.

In this sellers’ market, banks have been falling over themselves to say just how valuable UMG could be, with valuations ranging from $22 billion to $33 billionand Vivendi even suggesting $40 billion. Meanwhile, recorded music revenues continue to grow — up 9.0% in 2017, and up 8.2% in 2018 according to MIDiA’s estimates. 2019 will likely be up a further 6%, all driven by streaming. With UMG’s market share (on a distribution base) relatively stable, the market growth thus increases UMG’s valuation. This in turn increases Vivendi’s perceived value, and that is the crux of the matter.

The role of Bolloré Group

Vivendi board member and major shareholder Vincent Bolloré was Vivendi chairman until April 2018, when he handed power to his son Yannick, one month before he was reportedly taken into police custody for questioning as part of an investigation into allegations of corrupt business practices in Africa. Bolloré senior remains the chairman and CEO of Bolloré Group, which retains major shareholdings in Vivendi. Bolloré Group’s Vivendi holdings will inherently be devalued by a sale of prize asset UMG, which is a key reason why only a portion of the music group is up for sale. But, even selling a portion of UMG will have a negative impact on Vivendi’s valuation and thus also on Bolloré Group’s holdings. So, the sale price needs to be high enough to ensure that Bolloré Group makes enough money from the sale to offset any fall in valuation. Hence, dragging out the sale while the streaming market continues to boom. All this also means the sale is of key benefit to Bolloré Group and other Vivendi investors. It is perhaps as welcome as a hole in the head to UMG. Little wonder that some are suggesting UMG is markedly less enthusiastic about this deal than Vivendi is.

vivendi umg potential buyers

All of which brings us onto which company could buy a share of UMG. These can be grouped into the four key segments shown in the chart above. Normally, higher risk buyers (i.e. those that could negatively impact UMG’s business by damaging relationships with partners etc.) would not be serious contenders but as this is a Vivendi / Bolloré Group driven process rather than a UMG driven one, the appetite for risk will be higher. This is because the primary focus is on near-term revenue generation rather than long-term strategic vision. Both are part of the mix, but the former trumps the latter. Nonetheless, the higher-risk strategic buyers are unlikely to be serious contenders. Allowing a tech major to own a share of UMG would create seismic ripples across the music business, as would a sale to Spotify.

Financial investors

So that leaves us with the lower-risk strategic buyers, and both categories of financial buyers. Let’s look at the financial buyers first. Private equity (PE) is one of the more likely segments. We only need to look back at WMG, which was bought by a group of investors including THL and Providence Equity before selling to Len Blavatnik’s Access Industries in 2011 for $3.3 billion. Private equity companies take many different forms these days, with a wider range of investment theses than was the case a decade ago. But the underlying principle remains selling for multiples of what was paid. Put crudely, buy and then flip. The WMG investors put in around half a billion into the company, but a six-fold increase is less likely for UMG, as the transaction is taking place in a bull market while WMG was bought by Providence and co in a bear market. Where the risk comes in for UMG is to whom the PE company/companies would sell to in the future. At that stage, one of the current high-risk strategic companies could become a potential buyer, which would be a future challenge for UMG. The other complication regarding PE companies is that many would want a controlling stake for an investment that could number in the tens of billions.

Institutional investors such as pension funds are the safest option, as they would be looking for long-term stakes in low-risk, high-yield companies to add to their long-term investment portfolios. This would also enable Vivendi to divide and rule, distributing share ownership across a mix of funds, thus not ceding as much block voting power as it would with PE companies.

Strategic investors

The last group of potential buyers is also the most interesting: lower risk strategic. These are mainly holding companies that are building portfolios of related companies. Liberty Media is one of the key options, with holdings in Live Nation, Saavn, SiriusXM, Pandora, Formula 1 Racing and MLB team Atlanta Braves. Not only would UMG fill a gap in that portfolio, Liberty has gone on record stating it would be interested in buying into UMG.

Access Industries is the one that really catches the eye though. Alongside WMG, the Access portfolio includes Perform, Deezer and First Access Entertainment. On the surface Access might appear to be a problematic buyer as it owns WMG. But compared to many other potential investors, it is clearly committed to music and media, and is likely to have a strategic vision that is more aligned with UMG’s than many other potential suitors.

There is of course the possibility of being blocked by regulators on anti-competitive grounds. However, at year end 2017 WMG had an 18% market share, while UMG had 29.7% (both on a distribution basis). If Access acquired 25% of UMG, respective market shares would change to 25.4% for WMG and UMG for 22.2% (still slightly ahead of Sony on 22.1%). It would mean that the market would actually be less consolidated as the market share of the leading label (WMG) would be smaller than UMG’s current market leading share. While the likes of IMPALA would have a lot to say about such a deal, there is nonetheless a glimmer of regulatory hope for Access. Especially when you consider the continued growth of independents and Artists Direct. All of which point to a market that is becoming less, not more, consolidated.

The time is now

Whatever the final outcome, Bolloré Group and Vivendi are currently in the driving seat, but they should not take too much time. 2019 will likely see a streaming growth slowdown in big developed streaming markets such as the US and UK, and it is not yet clear whether later stage major markets Germany and Japan will grow quick enough to offset that slowdown in 2019. So now is the time to act.

Artists Direct and Streaming the Big Winners in 2018

With less than two weeks of 2018 left, the die is largely cast for the year, but we’ll have to wait at least a couple more months for the major labels to announce their results (though WMG still hasn’t declared its calendar Q3 results), and then another month or so for the IFPI numbers. So, in the meantime, here are MIDiA’s forecasts for 2018 based on the first three quarters of the year and early indicators for Q4.

midia research 2018 music revenues and market shares

To create our end of year revenue estimate, we collected data from record labels, national trade associations and also confidential data from the leading Artist Direct / DIY platforms. We plugged this data into MIDiA’s Music Market Share model and benchmarked against quarterly and full year 2017 growth.

The headline results:

  • Recorded music revenue will hit $18.9 billion this year: This represents an increase of 8.2% on 2017 which is a slight lower growth rate than 2016–2017, which was up 9%. However, net new revenue ($1.4 billion) – is almost exactly the same amount as one year previously. The recorded music market appears to be settled into a steady, strong growth pattern.
  • Streaming revenue up to $9.6 billion: The 41% growth rate of 2017 may be gone, replaced by 29%, but the absolute amount of new revenue generated was, as with the recorded music total, the same as 2017 $2.2 billion. There was enough growth in the big mature streaming markets – the US especially – to ensure that streaming continued to plot a strong course in 2018. Though the fact that total revenues grew by $0.8 billion less than streaming revenue, indicates the pace at which legacy formats continue to decline.
  • Artists Direct the big winners: MIDiA was the first to quantify the global revenue contribution of the Artists Direct (i.e. Independent Artists, DIY etc.) last year when we published our annual market shares report. Now we can report that the spectacular growth registered by this segment continued in 2018. Total Artist Direct revenue was $643 million, up an impressive 35% on 2017, i.e. more than three times faster than the market. Unlike the rest of the market, Artists Direct revenue growth is accelerating in both percentage and absolute terms, with market share up from 2.7% in 2017 to 3.4% in 2018. (It’s worth noting that only a portion of Artists Direct revenue is measured by the IFPI. Categories such as at-gig CD sales aren’t captured by either the labels or measurement companies that national trade associations depend upon to measure the market. So, expect the IFPI’s global recorded music total to come in closer to $18.6 billion).

It was another great year for the recorded music business, with streaming consolidating its role as industry engine room. Here are the key takeaways for 2019:

  • Global recorded revenues will grow once again in 2019 – this rebound has a good number of years left in it. Even if label revenues hit $25 billion (where the market was at in 2000 before the decline) in real terms (i.e. factoring in inflation etc.), that would actually be around half the actual value. While it is not realistic to expect a $50 billion market, getting towards the inflation-reduced $25 billion is certainly a realistic target.
  • Streaming growth will slow in the big mature markets (US, UK), but impact will be offset by growth in markets such as Japan, Germany, Brazil, Mexico. Overall market growth, though still strong, will be slower.
  • 2019 will be a coming of age year for Artists Direct, label services companies, JVs and other alternative models that have been establishing themselves in recent years. It’s never been a better time to be an artist, as long as you and / or your management are clued up enough to know what to ask for.