Time to move beyond the song economy

The UK parliament is currently running an inquiry into the streaming music economy, having called for evidence from across the music business. Earlier this week were the first verbal submissions, from a number of UK artists including Tom Gray (Gomez), Guy Garvey (Elbow), Ed O’Brien (Radiohead) and Nadine Shah.MPs heard impassioned but balanced submissions that shone a light on the reality of what it means to be an artist in the streaming era. Mercury Prize-nominated Shah explained that she makes so little money from streaming that she is struggling to pay her rent. Clearly, the demise of live during the pandemic has created a uniquely difficult period for artists, but it has spotlighted that streaming on its own is not working for artists. The fact that policy makers are hearing this viewpoint (albeit later rather than sooner) suggests that change will be coming. But, while the focus is understandably on how to ‘fix’ streaming, it might be that efforts would be better placed building a complementary alternative.

Direct action

In Steve McQueen’s new film Mangrove, there is a intense scene in which Darcus Howe implores café owner and community leader Frank Crichlow that after Frank’s fruitless attempts to fix the problem via the system that direct action is the only way to change things: “self-movement – external forces acting on the organism”.

The equivalent of direct action in the commercial world is innovation – it comes from the ground up. In 2008 Spotify came up with an innovation that made the problem of the time –piracy – effectively redundant. What’s required now are new innovations that make the current streaming model look like an alternative, not the only choice – to enjoy music. 

Now is the time

Now is the right time to be assessing the long-term impact of streaming. It is a mature business model and is the largest revenue driver in most of the world’s leading music markets. Whatever streaming is now, is pretty much how it is going to be. The future of what streaming can be is already here, today. Assessments must be on what the model delivers now, not some future potential. 

Streaming’s current performance can be assessed as follows:

  • Record labels and publishers have experienced strong revenue growth and improving margins. Their businesses have been improved
  • Artists and songwriters have more people listening to their music than ever before and more creators are able to earn income than ever before 

However, beyond the superstars, most do not earn a sustainable income from streaming alone and cannot see a pathway to this ever changing. This is Guy Garvey’s reference to the lack of any new (financially viable) music artists in the future. 

A model for rights holders more than creators

Streaming benefits rights holders more than it does creators. It is far easier to enjoy the benefits of scale if you have scale. Here is a simple illustration: if a label has 100,000 tracks played 10 times each in a month (i.e., a million streams) it will earn around £/$5,000. But a self-released artist with just 100 tracks with 10 plays each (i.e., 1,000 streams) will only earn £/$5. Though this is the product of simple arithmetic, the first amount is the foundation of a small business, the other buys you a cup of coffee.

Record labels and publishers with large catalogues benefit from scale in a way that artists and songwriters do not, unless they have a megahit – and although streaming is great for megahits, they are few and far between. Changes to licensing (and there are many ways to do that) may make things better – but they will not change the underlying dynamic; it is simply how the model is.

We have a model that works for rights holders that is fuelled by artists and songwriters. Now we need an additional, parallel, model that works for artists.

Streaming music services are incentivised to drive consumption. What we need are additional models, incentivised to drive fandom. Streaming is a song economy, and we now need a parallel fan economy

Music used to be all about fandom. It was the way in which people identified and expressed themselves – a badge of honour and a symbol of personality. Streaming has industrialised music, turning it into a convenient utility that acts as a soundtrack to our everyday life. That may be fine, but it has simultaneously supressed those ways to express fandom. It’s not easy to express your fandom on a streaming platform, while on a social platform money must change hands. 

Music fandom hasn’t died, but it just has fewer places to live. 

The fan economy

So, what is a fan economy? A fan economy is one in which the value resides in the artist-fan relationship. Currently this model is pursued actively in Asia (e.g., Tencent Music in China, K-Pop in Korea) but far less so in the West. The fan economy will be defined by diversity but what its constituents will have in common is being built around micro-communities of fans.

Micro-communities that are built around an artist’s 1,000 true fans (or even fewer) allow the artist’s most loyal and dedicated fans to drive revenue that is small to the industry but large to the artist. For example, an artist with 1,000 subscribers paying $5 a month would generate the same $5,000 a month that a million streams would deliver a record label.

There are a number of platforms that are making a start, but now is the time for this to become a central music industry focus. Music rightsholders have a model that works well for them, so now they need to ensure that their artists and songwriters have models that work for them too. There is thus an onus on rights holders helping drive the fan economy, but to drive creator income rather than simply be another rights holder income.

A multi-pronged approach

This is the three-pronged approach we propose:

  • Governments, support new, innovative companies building fan economy models and ensure that they provide equitable remuneration for creators
  • Record labels, build teams geared at helping their artists find fan economy income streams (and take a service fee or revenue share)
  • Streaming services, allow artists more real estate to showcase where fans can find other content and experiences

None of this is to say that efforts to make streaming more equitable should not be pursued; they absolutely should. However, it should be done with a clear understanding of the ‘art of the possible’. Even if rates were doubled, the self-released artist with 1,000 streams would still only earn £/$10. For an artist with a million streams a month on a big label it would change monthly income from £/$1,250 a month to £/$2,000, i.e., £/$24,000 a year. Not a sustainable annual income. 

Our case is that streaming should indeed be made more equitable, but alongside proactive investment in a new generation of innovative fan economy apps. This is an opportunity to make UK Plc the innovation driver for the global music business. A unique opportunity that is there for the taking with the right strategy and support, from all vested interests.

The opportunity for the UK streaming inquiry

With the streaming inquiry, the UK government has an unprecedented opportunity to set a global standard for building a vibrant and viable future for music creators, but it is an opportunity that needs seizing now. In partnership with music creators and rightsholders, it can create a structure that supports the innovation and change the industry needs. Now that streaming has come of age, we can see both its strengths and weaknesses. Let’s use the weaknesses as a foundation for building something new, exciting and equitable. It is time to bring ways to allow music fans to express themselves and their support to artists more directly. That will keep music the uniquely valuable product it is, and not just the grease in the wheels. 

Mark Mulligan and Keith Jopling, MIDiA Research 

Are rights holders missing the point with Twitch?

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

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

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

A lack of sync in sync

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

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

Going beyond the stream

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

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

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

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

Micro-communities

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

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

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

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

Why Rishi Sunak is both wrong and right

Earlier this week the UK Chancellor of the Exchequer Rishi Sunak suggested that creatives such as musicians who had seen income dry up during COVID-19 should consider retraining for the new ‘opportunities’ the lockdown economy is generating. 

The principle makes sense from an economic perspective, but it is just that – an economist’s solution to a cultural problem. A guitarist becoming an Amazon van driver or a Just Eat courier will certainly have the desired economic output (i.e. more economic productivity), but the cultural damage is potentially irreparable. Perhaps more importantly, however, it is throwing in the towel after the first round of the fight. 

A quick lesson from history

Culture is one of the most important outputs of society and the more developed a society is, the more it normally invests in that culture. A brief overview of history illustrates the point. The Roman Empire, one of the first great civilisations, was focused on warfare and expansion. It spawned some famous philosophers and orators, as well as great art (sculpture and mosaics especially). Yet warfare was the defining trait of the empire, and so the majority of the great figures we remember are the military generals and emperors. Fast forward to the Middle Ages in the same Italian peninsula and we had the Renaissance, ironically rediscovering the lost art techniques of the ancients. Although Italy in this period was dominated by warfare, and although there are no shortage of generals and petty princes to fill the history books, it is the art and culture that the period is best known for. Artists like Leonardo da Vinci, Michelangelo and Raphael are the great names of this era. There was no structured art marketplace, however; instead, rich benefactors (bankers, princes, generals) patronised them, subsidising their art. They did so often in the hope of immortalising their own names, but instead immortalised the artists. Art does not always pay for itself. Sometimes it needs a helping hand.

Small venues create national economic output; virtual ones may not

Now to be clear, I am not advocating that music should become state subsidised. Nor am I comparing the musical output of a bedroom musician with that of a renaissance master (though Kanye does think that he is ‘unquestionably’ an even better artist than even those Italian greats). The lesson to learn from history here is that in tough times, society benefits from supporting culture. If small music venues continue to fall like flies,smaller and emerging artists will be bereft of real-world places to perform and to build audiences. The music market will stagnate with new talent having one more hurdle to success put in its way. Live streaming will pick up some of the slack and may even become a valuable alternative for many artists. For the UK government, however, that will mean swapping the economic output of UK venues for that of predominately American technology platforms. That economic output will leave the UK economy – and at a time of trade uncertainty leading up to Brexit, to lose music, arguably the UK’s most culturally renowned global export over the last century, would be a weighty hit.

Artists need to experiment and innovate now more than ever before

This is bigger than national economic protectionism, and it is certainly bigger than the UK. To use that horrible management consultant phrase: change is difficult. We are cursed and blessed to live in interesting times. Technology has changed the recorded music business beyond recognition; now, because of the pandemic, technology is going to accelerate change in the live business as well. This process may be difficult, and it may be long, but it will result in a differently shaped music business in the mid-term future. Artists have an opportunity, even a responsibility, to innovate and experiment. Before COVID-19, live, merch, recording and publishing were – in varying degrees – the majority of the revenue mix for most artists. Live is unlikely to return to anything resembling normality until 2022. From this moment on, then, artists need to experiment with new models, new ways to engage with audiences and to generate income – whether that be writing for other artists on Soundbetter, making sound packs on Splice or Landr or selling digital collectibles via Fanaply. Artist income is more varied and sophisticated now than it was 10 years ago. The reality is that this trend is going to accentuate both in the lockdown economy and post-pandemic. 

However, new models take time to become viable. In this interim stage, if there is a role for state support, it is to provide artists and songwriters with the financial support and technical and business training to enable them to be winners in this new creative paradigm. Rishi Sunak was wrong to suggest that artists should retrain out of music. But he was right that they should retrain. They should retrain from being artists of the 2010s to artists of the 2020s, and that is where he should be providing support.

What AWAL’s $100k artists mean for the streaming economy

Kobalt’s AWAL division announced that ‘hundreds of its artists have reached [the] annual streaming revenue threshold [of $100,000]’. Make no mistake, this is major milestone for a record label that has around 1% global market share. It is compelling evidence for how a label built for today’s streaming economy can make that economy work for its artists. So, how does this tally up with all of the growing artist concern in the #brokenrecord debate?

It’s complicated. The short version is that we have a superstar economy in streaming quite unlike the old music business, one in which artists on smaller independent labels have just as much chance of breaking into that exclusive club as those on bigger record labels. Given that AWAL states its cohort of $100k+ artists grew by 40% (assuming they mean annually) while global label streaming revenues grew by 23%, the implication is that AWAL is getting better at doing this than the wider market. And it is the implied growth of the rest of the market where things get really interesting.

(A model with more than 50 lines of calculations was required to build this analysis so I am going to walk through some of the key steps so you can see how we get there. Bear with me, it will be worth it I promise you!)

Finding the third data point

To do this analysis I am going to share one of MIDiA’s secrets with you: finding the third data point. Companies, understandably, like to share the numbers that make them look good and hold back those that do not help their story. Often though, you can get at what that third number is by triangulating the numbers they do report. A really simple example is if a company reports its revenues and subscribers but not its average revenue per user (ARPU), you can get to an idea of what the ARPU is by dividing revenue by subscribers (and if you have a churn number to work with, even better).

In this instance, Spotify gives us the ‘second’ dataset to go with AWAL’s ‘first’ dataset. In early August, Spotify reported that 43,000 artists generated 90% of its streams, up 43% from one year earlier – you’ll note how similar that 43% growth is to AWAL’s 40% growth. Combining Spotify’s data with AWAL’s, we now have what we need to create the picture of the global artist market.

Superstars within superstars

Spotify generated 73 billion hours of streams in 2019, which equates to around 1.3 trillion streams. Interestingly, taking its roughly $7.6 billion of revenue, this implies that its global per-stream royalty rate (masters and publishing, across free and paid) stood at $0.00425 – which is a long way from a penny per stream. This highlights how promotions, multi-user plans, free tiers and emerging markets are driving royalty deflation. But that’s a discussion for another day…

For the purposes of this work let’s assume that the average artist royalty rate (across standard major, indie and distribution deals) is 35%. Spotify’s 90% of streaming label royalties in 2019 was $3.9 billion, which translates to an average artist royalty income of $29,221 for each of those 43,000 artists. That is obviously south of AWAL’s $100k cohort, which illustrates that those AWAL artists are not just superstars but an upper tier of superstars.

$66,796 is good, as long as you don’t have to split it

But how does this look outside of Spotify? Firstly, the top 90% of global streaming label revenues was $10.8 billion in 2019. We then scale up Spotify’s 43,000 top-tier artists to the global market and deduplicate overlaps across services and we end up with a global base of around 56,000 top-tier artists earning an average of $66,796 per year from streaming (audio and video).

$66,796 is a decent amount of annual income but it looks a lot better if you are a solo artist than, say, a four-piece band splitting that revenue into $16,699 slices. Interestingly, AWAL seems to skew towards solo artists (94% of AWAL’s featured artists are solo acts) so the $66,796 goes a lot further for them than an average indie label rock band.

And then there’s the remaining 99% of artists…

But of course, this is how things look for the most successful artists. What about the remainder that have to share the remaining 10% of streaming revenue? That remaining label revenue is $1.2 billion of which $0.7 billion (i.e. 57%) is Artists Direct. That means the entire global base of label-signed artists that are not in the top tier have to share 4% of global streaming revenues. This translates to an average annual streaming income of $425. Artists Direct meanwhile earn an average of $176 (only 59% less than those non-superstar label artists).

The 90/1 rule

The key takeaway then is that streaming is levelling the playing field for success. Consistently breaking into the top bracket is now achievable for artists on major and indie labels alike and, if anything, independents are enjoying progressively more success. But this is a very different thing from all artists doing well. Music has always been a hits business. Streaming is widening the distribution but with less than 1% of artists generating 90% of income, the spoils are far from evenly shared. Music streaming has taken Pareto’s 80/20 principle and turned it into a 90/1 rule.

Streaming’s remuneration model cannot be ‘fixed’

The #brokenrecord debate continues to build momentum and new models such as user-centric are getting increased attention, including at governmental level in the UK. But as Mat Dryhurst correctly observes, there is a risk of the market falling into streaming fatalism; that the obsession with trying to fix a model that might not be fixable distracts us from focusing on trying to build alternative futures.

I have previously explored what those new growth drivers might be, but now I want to explain the unfixable problems with the current streaming system for creators and smaller labels. Streaming’s remuneration model cannot be ‘fixed’, but that is mainly because of its inherent structure. Tweaking the model will bring improvements but not the change artist and songwriters need. Instead of exploring sustaining innovations for streaming, it is time to explore new disruptive market innovations

Product remuneration versus project remuneration

Smaller independent artists and labels are outgrowing the majors and bigger indies on streaming, so why are we having the #brokenrecord debate? Why isn’t it adding up? The answer lies in how artists and songwriters are remunerated. In all other media industries other than music and books, creators are primarily remunerated on a project basis. An actor will be paid an appearance fee for a film or TV show; a games developer will be paid for their time on a project; a sports star paid a salary; a journalist paid for a story. In many of those cases the creator will sometimes have the opportunity to negotiate a share of profit too, an ability to benefit in the upside of success. But, crucially, the media company has assumed all of the risk. Also, of course, the media company owns the copyright.

Artists and songwriters might get an advance, but that is a loan against future earnings, not a project fee. Artists and songwriters, like authors, are remunerated via product performance. They shoulder the risk, and most of the time they do not even own the copyright. Actors and sports stars do not have to worry about slicing up a royalty pot; they have been paid for their creativity whatever the outcome of the project. Any royalty splits are an upside, an ability to benefit from success rather than a dependency for income.

The consumption hierarchy has become compressed

Music used to be split into a neat hierarchy, with radio and social being about passive enjoyment and generating usually small royalties, while albums were about active fandom that generated large income. Streaming fused those two together into one place and created a royalty structure that, in artist income terms, resembles radio more than it does album sales. The problem does not lie with how much streaming services pay (c.70% of income is a hefty share to pay out), but instead:

  1. how those royalties are divided up
  2. the way they monetise consumption
  3. the fact royalty rates are determined by how much streaming services charge

Streaming rates are going down because users are listening to more music and streaming services are charging less per user due to promotions, trials, multiple-user plans, telco bundles, student plans etc. Even before you start thinking about how the royalty pie is sliced, it is getting ever smaller in relation to consumption – and there is no onus on streaming services to protect against rates deflation because they pay as a share of income rather than a fixed per-stream rate (for subscriptions).

Monetising fandom

Music fans care about artists and songwriters, and given the opportunity and the right context many fans will support them. But that context is often artificial and happens outside of the normal consumption experience; for example, a music fan listening to a band on Spotify then going to Bandcamp to buy an album. It requires a conscious decision for the fan to say ‘I want to support this artist’. No such decision is necessary for a sports fan or movie fan because the remuneration system already ensures the talent has been adequately remunerated. On top of this, most music consumers are not passionate fans of most artists, so most will not make that step.

There are two natural paths that follow:

  1. Build fandom monetisation into the streaming platforms, e.g. virtual artist fan packs, virtual gifting, premium performances, creator support etc. I have written at length about how Chinese streaming services do well at monetising fandom, but there it is the platform that benefits most, not the artists. Western streaming services have an opportunity to monetise fandom for the creators, not for the platforms.
  2. Create new models where consumers pay for artist-centric experiences. These will always be more niche and have the challenge of building new audiences rather than tapping into existing streaming audiences, but the decision does not need to be ‘either/or’.

The third way

There is additionally a less obvious third path, that would reframe the entire basis of artist/label/publisher/songwriter/streaming service relationships: direct licensing for creators. No streaming service is going to want to do this (they already prefer to negotiate with aggregators rather than small labels) and labels and publishers are unlikely to want to cede such power. But a pragmatic compromise could be a new generation of artist and songwriter contracts that provide for the creators to set stipulations for royalty floors to ensure that they do not pay for streaming services cutting their prices via promotions and multi-user plans. This would also require rightsholders to ensure that streaming services set a royalty floor which in turn would compel streaming services to start pushing up the average revenue per user and perhaps even introduce metered access for users.

Options 1 and 3 are not exactly easy to do and they would require seismic industry change with wide-reaching impact. But if the industry wants a significant change in creator remuneration, then it needs to embrace truly disruptive innovation rather than spend its time tweaking a model that simply cannot change in the way many want it to.

Time to stop playing the velocity game

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

Streaming’s ‘upstream’ fault lines

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

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

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

Volume and velocity

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

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

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

The demotion of the artist

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

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

Royalties

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

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

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

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

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

Breaking the habit

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

Artists are Learning How it Feels to be a Songwriter

The ‘broken record’ streaming debate that continues to rage on is a natural consequence of the instantaneous collapse of live music revenue following lockdown. As soon as it was clear that live was going to be gone for some time, MIDiA predicted that the artist backlash against streaming royalties would be a natural, unintended consequence.

With many artists used to live comprising more than half of their income and streaming by contrast a sizeable minority, it was easy for them focus less on whether streaming paid enough and more on how many extra fans it was bringing to their concerts.

In the absence of live, all eyes are on streaming. As I’ve written previously, there isn’t a silver bullet solution to what is a complex, multi-layered problem. But there is a really important issue that artists’ lockdown plight shines a light on: the long-term plight of songwriters. Here’s why.

Streaming did not grow in a vacuum

The streaming economy did not grow in a vacuum. It rose in the context of a thriving wider music industry where artists were earning good money from live, merch and (for some) sponsorship. Nor did streaming ever consider its relationship to live as being neutral. Spotify in fact is vocal in its belief that it  ‘supports and extends the value of live’.

This matters because it encourages artists to think about streaming delivering a wider set of concrete income benefits than the royalty cheque alone. The streaming case is that without it, artists would be playing to smaller crowds and selling less merch. A high tide raises all boats.

Without the halo effect benefits though, artists would have found it much more difficult to adjust to the shift of paradigms from a series of large one-off income events (i.e. selling albums) to a longer-term, more modest monthly income, namely trading up front payments for an annuity. Artists would have found it as difficult as…well…as they are now. This is how it feels not to have live music and merch paying the bills. This is how it feels to be a songwriter.

Songwriters only have the song

Professional songwriters (i.e. not those that are also performing artists) may have many income streams (performance, sync, mechanicals, streaming) but they all depend on the song. The songwriter lives in a song economy. The artist lives in a performance/ recordings/ clothing/ collectibles/ brands economy. Songwriters do not tour or sell t-shirts. As a consequence, they have been paying closer attention to streaming royalties over recent years than artists have. Now that artists are also unable to tour or sell shirts (at least in the same volumes) streaming royalties suddenly gained a new importance to them also.

The good news for artists is that live will recover (though it will take until late 2021 to be fully back in the saddle). The bad news for songwriters is that there is no easy or quick fix and things will get worse before they get better. One of the key imbalances is in streaming. Music publisher revenue is around 2.8 times smaller than label revenues but streaming royalties are four times smaller. As streaming becomes a progressively larger part of the wider music economy, if the current royalty mix remains, songwriters will earn a progressively smaller share of the total.

A generation of whom much is asked

Artists are fighting an important fight now, but when live picks up post-lockdown, songwriters will still be fighting their fight. This is not to in any way diminish the importance of artists getting a fairer share from streaming services and record labels, but it is to say that much of their pain will ease when their other income streams come back online.

Be in no doubt. Songwriters have a long and windy road ahead of them.

Songwriter’s streaming era plight reminds me of Franklin D. Roosevelt’s 1933 quote:

“To some generations much is given. Of other generations much is expected.”

But just as streaming does not exist in isolation, nor do songwriters. They are the foundations of the entire industry. There is a well-used saying that ‘everything starts with the song’. It doesn’t. Everything starts with the songwriter.

Quick reminder: if you are an artist and you haven’t yet taken our artists survey, then there is still time! We are keeping the survey live for a few more days. All individual responses are 100% confidential. All artists get a full copy of the summary survey data so you can benchmark yourself against your peers, including how they are dealing with the impact of COVID-19. The survey questionnaire is here.

Artists – Have Your Voice Heard

MIDiA Research Artist Survey Q2 2020MIDiA is fielding its third biannual Artist Survey. Our two surveys last year were very successful and got hundreds of artist responses. MIDiA’s artist surveys takes the pulse of the artist community and provides this information back to the artist community. We do this in two ways: a) we post a blog outlining the top level findings and b) we provide the complete results to all artists that take part.

It is a great way for artists to get heard and to benchmark how they are doing, as well as their hopes and concerns with the rest of the artist community. Or surveys are truly global – our last one had respondents from as far afield as Algeria, Australia, Chile, Madagascar, South Africa and the United Arab Emirates.

This year, in addition to tracking topics such as which online tools artists are using, where they are making their money and where they want their careers to go, we are also deep diving into how Coronavirus has affected artist careers and what they are doing in response.

As with all MIDiA surveys, the results are 100% confidential and we NEVER share any details of respondent-level responses. We only ever show the aggregate, survey-level data. Hopefully the success of or last two surveys stand as testament to our dedication to respondent confidentiality.

If you are an artist and would like to take part in our artist survey, simply follow this link.

As soon as the survey has finished fielding we will send you the complete results by email.

What is the value of exposure when exposure is all there is?

There is an existential debate going on at the moment, around whether streaming is paying artists enough. It may feel like a rerun of old debates but it is catalysed by COVID-19 decimating artist income. These are some of the key narratives: here, here and here.

In this piece I lay out the underlying economics of the argument. I also focus wholly on artist income as songwriter income is another topic entirely.

COVID-19 has reset the debate

The latest streaming royalty debate is not an isolated event. It is happening because COVID-19 has decimated live income, leaving many artists worrying about how to make ends meet. Last week, just before this whole debate kicked into gear I wrote:

“Live’s lockdown lag may have the knock-on effect of making artists take a more critical view of their streaming income. When live dominated their income mix, streaming’s context was a meaningful revenue stream that built audiences to drive other forms of income. It was effectively marketing artists got paid for. Now that artists are becoming more dependent on streaming income, the old concerns about whether they are getting paid enough will likely come back to the fore. It is in the interests of both labels and streaming services, that labels use this as an opportunity to revisit their streaming splits with artists. Labels cannot afford to have artists united against the labels’ primary income stream.”

None of this makes the debate any less important, but it explains why it is happening now, and with live revenue potentially set to take years to fully recover, it is a reality that streaming services and labels need to adjust to. It is in the interests of both labels and streaming services that artists feel like they are being treated fairly. But it is crucial that this debate is grounded in a firm understanding of streaming economics and that we do not return to the mudslinging of more than half a decade ago. A debate which, by the way, did not result in any fundamental change to how artist royalties are paid and was eventually followed by labels negotiating smaller revenue shares with Spotify and others.

Where streaming has got us to

Firstly, let’s lay some ground markers:

  • Streaming has driven half a decade of recorded music revenue growth, with the market now 42% bigger than it was in 2014
  • The wider streaming economy has globalised fandom and engagement
  • More people are listening to more music now than before

Streaming has been the change agent that turned around 15 years of decline. But it also completely reframed artist income from recorded music. In the old sales model artists would get a large sum of money in a relatively short period of time. Streaming income is more like an annuity, a longer-term return where the music keeps paying long after release. In the old model artists had smaller but high-spending audiences. With streaming they have larger but lower-value audiences.

For example, a recouped independent artist might expect to earn $4,500 for selling 1,500 copies of an album. That is roughly how much an artist would get from 5,000 people streaming the album 20 times each. The average revenue per user (ARPU) has gone from $3.00 to $0.90 for streaming. The artist has traded ARPU for reach.

This model worked fine when live and merch were booming because more than three times as many monetised fans meant three times more opportunity for selling tickets and t-shirts. This of course is the ‘exposure’ argument streaming services are fond of, which works until it does not. Now that live and merch have collapsed, as the trope goes ‘exposure does not pay the rent’. The previously interconnected, interdependent model has become decoupled.

Put simply, artist streaming economics do not work without live.

midia streaming royalty payments

The question is: what levers can actually be pulled and what effect can they have? In the above chart I have used Spotify’s 2019 premium revenues to illustrate how changes in royalty shares can impact what artists earn. I have used a total per stream rate of $0.06 as the base case, which could look on the high side for some artists, but the purpose is to show the relative change. Whatever amount the base rate is, it will increase by the same percentages.

The tl;dr of the chart is the most radical of the options (label rate returns to 55%, podcast dilution is removed from the royalty pot, a 25% increase in retail price and therefore royalties) results in a very meaningful uplift of 42% in royalties for artists from today’s current state. But, the three problems here are:

  1. Such measures could damage the commercial sustainability of streaming
  2. It does not change the underlying annuity model shift that streaming represents
  3. We are about to enter a recession. Music subscriptions are at risk, increasing the prices right now could accelerate subscriber churn. Meaning a bigger slice of a smaller cake for artists.

Let’s take the first two points in turn.

1) Spotify lost $184 million in 2019. With this royalty model it would have lost more than $1 billion. Spotify would have to reduce its operating costs by a fifth just to get back to losing $184 million. Critics would argue this represents trimming the fat. It might, but it would also likely lead to Spotify:

  1. Cutting back on product development
  2. Cutting back on growing its subscriber base
  3. Finding new ways to charge labels and artists for additional services

None of these are reasons not to pursue the strategy but they are prices that labels and artists have to be willing to take. Spotify revenue growth will slow. Furthermore, it will skew the market towards Apple, Amazon and Google who can afford to make music loss leading. In the mid term this may benefit artists, but in the longer term (i.e. when Spotify is sufficiently squeezed) these tech majors are likely to follow their MO of ‘reducing inefficiencies in the supply chain’. So be careful what you wish for.

2) Taking an artist straw person, with 20% of her total income coming from streaming, if live and merch only gets to 25% of its previous level, the 41% increase in streaming income would still see her total annual income fall by 40%.

No streaming lever can be pulled hard enough to offset the decline in live revenue.

So, let’s pull together all the pieces:

  1. Streaming royalties can be increased meaningfully if prices are increased and rates revisited but it may slow the streaming market
  2. Now is probably not the best time to be increasing streaming prices for consumers
  3. Even a big increase is not going to offset the fall in live income

There is not a simple, single answer to fixing the current crisis in artist income. A blended, pragmatic solution would be:

  1. Increase royalties at a middle option rate (do not increase prices until after the recession)
  2. Artists push their fans to buy their music at destinations like Bandcamp
  3. Professionalise and commercialise the livestreaming sector, with a strong focus on charging for events in order to create some live income
  4. Innovate virtual fandom products to drive new, additional income streams

It is not going to be easy for artists for some time yet. The hard truth is that income levels will not return to full strength until live does, and that is a way off yet. Streaming is more important now than ever so any solution must balance maintaining its momentum and scale with sustaining artist careers.

Travis Scott has Only Scratched the Surface of Music Games Tie Ups

travis-scott-fortnite-concert-1280x720In February 2019 Marshmello caused ripples of almost tidal proportions across the music business when 10.7 million Fortnite fans watched him perform a ‘concert’ in the game. Then in April 2020 Travis Scott followed in his shoes with his own Fortnite concert, pulling in 12 million players. Given that this was in the COVID-19 lockdown the 1.3 million increase was a relatively modest increase. However, Fortnite publisher Epic Games had learned its lessons from the Marshmello event and rather than limit audience demand to one event, turned it into a residency with a further 15 million players watching over four subsequent replays of the event. This took the total to 27 million, though there will be a substantial number that attended multiple performances.

What is clear is that a format has been established and that Epic Games is honing its promoter skillset. Fortnite events are labour intensive efforts to put on and currently do not scale well (hence only two events in 14 months). But there is a much bigger opportunity here for artists and one that gains new significance in the lockdown era.

The impact of COVID-19 recurring

With the cessation of live music in lockdown, artists have seen a dramatic fall in income. Established artists can expect to earn between 50% and 70% of their total income from live—that just disappeared. However fast lockdown measures are eased, live entertainment is going to take a long time to return to normal. Indeed, it may never do so.

Virologists point to the Spanish Flu outbreak after the First World War as the relevant precedent for understanding how the COVID-19 pandemic may play out. That was a far deadlier outbreak, infecting a third of the world’s population and killing up to 50 million. But crucially, it was not a single event. It had four major outbreaks over two years. It is likely that COVID-19 will not simply go away but instead will return, either in waves or as a continual background oscillation of infection.

As of May 1st 2020 less than half a percent of the world’s population has been infected with COVID-19. Even allowing for that being just a tenth of the actual cases, that means that 95% of the population has not had COVID-19. Consequently, the majority of consumers are going to be concerned about returning to potentially infectious environments.

The combination of easing lockdown measures and weak consumer confidence means that live is not going to return to normal anytime soon. Social distancing measures will likely see rows of empty seats in larger venues and smaller, standing-only venues may struggle to operate at all. Reduced, spaced-out crowds will both harm the live experience and prevent many live events from being commercially viable to operate. Consumer concern may even make it hard for reduced capacities to be met. So, artists are not going to be able to reasonably expect a strong return of traditional live income in the mid-term future.

Lockdown lag

Live’s lockdown lag may have the knock-on effect of making artists take a more critical view of their streaming income. When live dominated their income mix, streaming’s context was a meaningful revenue stream that built audiences to drive other forms of income. It was effectively marketing artists got paid for. Now that artists are becoming more dependent on streaming income, the old concerns about whether they are getting paid enough will likely come back to the fore. It is in the interests of both labels and streaming services, that labels use this as an opportunity to revisit their streaming splits with artists. Labels cannot afford to have artists united against the labels’ primary income stream.

Live streaming is not yet ready for prime time

Live streaming of concerts is gaining traction but lockdown came a little too early for the sector. It is under developed, under monetised, under licensed, under professionalised and lacks the discovery layer crucial to make it ready for prime time (perhaps an opportunity for streaming services). On top of this, it does not create the same scarcity of experience that live music does and the rise of virtual festivals with artists playing just a few songs makes live more like a playlist experience, which favours the platforms over the artists. Enter stage left games.

top ranked games for artist fanbases

Travis Scott fans are 2.3 times more likely to play Fortnite than overall consumers, but there are 80 other artist fanbases that are more likely to play Fornite than Scott’s. How do we know this?

Every quarter MIDiA fields a music brand tracker that – among many other things – tracks which games artists’ fans play. Looking across the 10 artist fanbases most likely to play three of the top games reveals a huge amount of untapped opportunity. The old model for games and music was sync. That is still a major opportunity but in the lockdown era the potential scope is so much wider.

Not every game is well suited to hosting virtual, gameplay concerts, but the console ecosystems can support so much more. Imagine if Flohio, Ben Howard, Koffee or Slowthai were to do put on exclusive performances live streamed to FIFA players via Xbox Live followed by a gaming session to which players would pay for a premium ticket to play against their favourite artists in an eSports type set up. Tickets would be limited, to create scarcity.

Lockdown economics

The lockdown lag will create a whole new set of economics across all industries. For music it will be about exploring new income streams to recast a new music business. Games will play a major part. No longer simply a place to sync music, games will become platforms for driving artist-fan engagement.

In the Attention Economy everything is connected. In lockdown economics those connections become productised and monetised, with benefits for all. Think of this like the K-Pop and Japanese Idol models, with superfans paying for extra access to their favourite artists. Instead of handshakes and meets and greets, we have gaming sessions and exclusive concerts. Artists benefit by connecting with fans and driving income; labels get to be participants in new revenue streams and help offset growing artist concern about streaming pay-outs; games companies get to add new revenue sources and products.

A dystopian virtual future

A final thought to leave you with. Tim Ingham’s recent piece suggested that Epic Games’ long view might be to create virtual artists, with the thinking being that the Marshmello and Travis Scott concerts were already in practice virtual artists. What if Epic Games is using these concerts to learn the ropes so that it could create its own roster of virtual artists. It could follow the Japanese and Korean music agency model of building rosters of employee artists, that operate under a work for hire basis. Epic Games would own 100% of all rights while the artists perform under stage names and as game avatars. Epic Games could make these virtual artists part of the Fortnite game itself to help build tribalism and fandom, and it of course already has a highly effective virtual merch store.

In doing so, Epic Games would create a games-centric music division that operates entirely outside of the confines of the traditional music industry. Dystopian perhaps, but also entirely feasible, which is why artists and labels should probably think less about becoming integrated into the games themselves and focus more on connecting their real selves with their gaming fans.

If you are a MIDiA client we will be publishing a report on this topic shortly with thousands of data points. If you are not yet a MIDiA client and would like to learn how to get access to this data email Stephen@midiaresearch.com