Taylor Swift, Label Services and What Comes Next

Taylor Swift has done it again, striking a deal with UMG that includes a commitment from the world’s largest label group to share proceeds from Spotify stock sales with artists, even if they are not recouped (ie haven’t generated enough revenue to have paid off the balance on their advance so not yet eligible to earn royalty income). This follows Swift’s 2015 move to persuade Apple to pay artists for Apple Music trials. That Swift has influence is clear, though whether she has that much influence is a different question. Let’s just say it served both Apple and Universal well to be seen to be listening to the voice of artists. But it is what appears to be a label services part of the deal that has the most profound long-term implications, with Swift stating that she is retaining ownership of her master recordings.

The rise of label services

The traditional label model of building large banks of copyrights and exploiting them is slowly being replaced, or at the very least complemented, by the rise of label services deals. In the former model the label retains ownership of the master recordings for the life time of the artist plus a period eg 70 years. In label services deals the label has an exclusive period for exploiting the rights, after which they revert to full ownership of the artist. Artist normally cede something in return, such as sharing costs. Companies like Kobalt’s AWAL and BMG Music Rights have led the charge of the label services movement. However, Cooking Vinyl can lay claim to being the ‘ice breaker’ with its pioneering 1993 label services deal with Billy Bragg, negotiated between his manager Pete Jenner and Cooking Vinyl boss Martin Goldschmidt. It may have taken a couple of decades, but the recording industry has finally caught up.

Major labels in on the act

The major labels remain the powerhouses of the recorded music business in part because they have learned to embrace and then supercharge innovation that comes out of the independent sector. Label services is no exception. Each of the major labels has their own label services division, including buying up independent ones. Label services are proving to be a crucial asset for major labels. The likes of AWAL and BMG have been mopping up established artists in the latter stages of their careers, with enough learned knowledge to want more control over their careers. By adding label services divisions the majors now have another set of options to present to artists. This enables them to not only hold onto more artists but also to win new ones – which if of course technically what UMG did with Swift, even though it had previously been Swift’s distributor. As with all new movements, examples are often few and far between but they are there. The UK’s Stormzy is a case in point, signing a label services deal with WMG before upgrading it to a JV deal between WMG’s Atlantic Records and his label #MERKY. For an interesting, if lengthy, take on why Stormzy and WMG took this approach – including the concept of secret ‘Mindie Deals’ that allow more underground artists maintain some major label distance for appearances’ sake, see this piece.

The early follower strategy 

In August 2018UMG’s Sir Lucian Grainge called out the success of UMG’s label services and distribution division Caroline, noting it had doubled its US market share over the previous year. UMG was already not only on the label services deal path but had identified it as a key growth area and wanted the world – including investors – to know. UMG has stayed ahead of the pack by pursuing an early follow strategy of identifying new trends, testing them out and then throwing its weight behind them. Before you think of that as damning with faint praise, the early follower strategy is the one pursued by the world’s most successful companies. Google wasn’t the first search engine, Apple wasn’t the first smartphone maker, Facebook wasn’t the first social network, Amazon wasn’t the first online retailer.

What comes next

The label services component of the UMG deal was actually announced by Taylor Swift herself rather than UMG, writing:

“It’s also incredibly exciting to know that I own all of my master recordings that I make from now on. It’s really important to me to see eye to eye with a label regarding the future of our industry.”

While this might betray which party feels most positive about this component of the deal, the inescapable fact is that other major artists at the peak of their powers will now want similar deals. Label services success stories to date had been older artists such as Rick Astley, Janet Jacksonand Nick Cave as well as upcoming artists like Stormzy. Now we will start to see them becoming far more commonplace in the mainstream.

But perhaps now is the time. Catalogue revenues are going to undergo big change in the coming years, as MIDiA identified in our June 2018 report The Outlook for Music Catalogue: Streaming Changes Everything. Deep catalogue is not where the action is anymore. For example, 1960s tracks accounted for just 6.4% of all UK catalogue streams in the UK in 2017, while catalogue from the 2000s accounted for 60.4%, according to the BPI’s invaluable All About the Music report. So, by striking a long-term label services type deal, UMG secures Swift’s signature and can still benefit from the main catalogue opportunity for the first few releases without actually owning the catalogue.

Label services have come a long way since Billy Bragg’s 1993 deal and Taylor Swift has just announced that they are ready for prime time.

Penny for the thoughts of Bill Bragg having paved the way for the queen of pop’s latest deal….

The Problem With Streaming Exclusives

Jay-Z’s ambitions for TIDAL has triggered a lot of discussion about how streaming models can evolve.  One focus has been exclusives with a number of references to TIDAL ‘doing a Netflix’ by commissioning exclusives.  Netflix can attribute much of its growth over the last couple of years to its flagship ‘Netflix Originals’ such as ‘House Of Cards’ and ‘Orange Is the New Black’.  It is an appealing model but the Netflix Originals approach cannot so easily be transferred to music.

There are three main types of exclusives:

1.    Service Window: album is released exclusively to a single music service for a fixed period of time e.g. only on TIDAL for 1 month

2.    Tier Window: album is released across one type of music service tier before others e.g. only on paid subscription tiers for 3 months

3.    Service Exclusive: music service acquires exclusive rights to an album so that it will never appear anywhere else unless the service decides to let it

The first two will become increasingly common components of the streaming landscape over the next couple of years.  Daniel Ek and Spotify fought a brave rear guard action against Taylor Swift and Big Machine to ensure the Tier Window model did not carve out a beachhead with ‘1989’ but it is an inevitability.  If free tiers are to have a long term role alongside paid tiers they have to be more clearly differentiated.

TIDAL and Apple look set to become the heavyweight players in the Service Window, duking it out for the biggest releases.  TIDAL will argue it pays out more to rights holders (75% compared to 70%) while Apple will argue that it can directly drive download sales (which is where everyone still makes their real sales revenue).  Apple will have to play that card carefully though as it stands just as much chance of accelerating download cannibalization as it does driving new sales.

When Is A Label A Label?

The really interesting, and potentially most disruptive, exclusive is the Service Exclusive.  This model would start blurring the distinction between what constitutes a music service and what defines a record label.  If, for example, TIDAL was to buy out the rights of the next Beyonce album or sign a deal for the next two Calvin Harris albums TIDAL would effectively become the record label for those releases.

The irony is that this ‘ownership of the masters model’ by streaming services is emerging just as the next generation labels are distancing themselves from it.  A new breed of ‘labels’ such as Kobalt’s AWAL and Cooking Vinyl’s Essential Music are focussing on providing label services without taking ownership of the masters and in turn putting the label and artist relationship on a more equitable agency / client basis.  But there are far more impactful challenges to the Service Exclusive model for music than simply being out of step with where the label model is heading:

• Scarcity: ‘House Of Cards’ is only available on Netflix (and some download to own stores such as iTunes). It is a scarce asset, which is not something that can be said about any piece of recorded music.  As TIDAL found with the near instantaneous Beyonce YouTube leak, music scarcity is ephemeral in the YouTube age.  As long as YouTube is allowed to hide behind its perverse interpretation of ‘Fair Use’ and ‘Safe Harbour’ there will be no music scarcity.  (Of course true scarcity is gone for good, but if that can be made to only mean P2P then the problem is manageable, as it is for TV content).

• Consumer expectations: Consumers have learned to expect their video experiences to be fragmented across different platforms and services, to not find everything in one place.  For music consumers however the understanding is that catalogues are either near-complete or useless.  So if all music services suddenly started having high profile gaps then subscribers would be more likely to unsubscribe entirely than they would be to take up multiple subscriptions.  Ironically the net result could be a return to download sales at the expense of subscriptions.  Talk about going full circle….

• Industry relationships: Netflix started out as a pure licensee, paying TV companies for their shows.  Now it competes with them directly when commissioning new shows.  It has become a frenemy for TV companies and is finding many of its relationships less favourable than before.  And this is in an industry that is built up the frenemy hybrid licensee-licensor model.  The music industry does not behave this way, so any service that took up the Service Exclusive model could reasonably expect itself to find itself developing tense relations with labels.  Which could manifest in those labels giving competitor services preferential treatment for their own exclusives.  Labels have long feared the disintermediation threat posed by the web.  It is unlikely to materialize any time soon but they are not exactly going to encourage retail partners to kick-start the process.

• Appetite for risk: Buying up the rights to the latest release of an established superstar is the easy part, and we already have some precedents though neither were exactly run away successes (Jay-Z’s ‘Magna Carta Holy Grail’ with Samsung and U2’s ‘Songs Of Innocence’ with Apple).  But being a label, at least a good one, isn’t simply about signing proven quantities, it is about taking risks on new emerging talent.  And that doesn’t simply mean having a DIY platform on a streaming service – though that can act as a great talent identification tool.  If streaming services want to start playing at the label game they need to also start nurturing and marketing talent.

• Limited horizons: Stream is still only a small fraction of recorded music revenue.  There are few non-Nordic artists that rely on streaming for the majority of their sales income.  That will change but not for a few years yet.  So a release that only exists on streaming, let along a single streaming service, is only going to deliver on a fraction of its potential.  TIDAL and Apple especially could easily choose to loss-lead and pay over the odds for Service Exclusives to ensure artists aren’t left out of pocket.  But that only fixes part of the problem.  An artist locked into one single streaming service will see his or her brand diminish.  ‘House Of Cards’ may be one of Kevin Spacey’s most assured performances yet only a few tens of millions of people globally have ever seen it.  If it had been on network TV the audience would have been hundreds of millions.  With touring becoming the main way many artists make money the album is the marketing vehicle and if that album is locked behind the pay wall of one single music service the marketing potential is neutered.

Streaming music services will find themselves locked in total war over the coming years and while Apple’s cash reserves will likely make that warfare appear asymmetrical at times, exclusives of some kind or another will be utilised by most of the services.  Just don’t expect them to deliver them Netflix-like success because that’s not going to happen.

Five Long Term Music Industry Predictions (And How Disney Will Rule The World)

The new year is typically a time for predictions for the year. But at the midway point of the decade, rather than do some short term predictions I think this is a good time to take a look at the longer term outlook for the music industry. Here are five long term music industry predictions:

1 – Disney will become the world’s biggest music company

Consumers are buying less music and there are more ways to easily get free music than ever before, both of which make selling music harder than ever. Major labels have addressed this by doubling down on pop acts (Rihanna, Katy Perry, Rita Ora, Ariana Grande etc.) which have a more predictable route to market. Video (YouTube) and very young audiences (also YouTube) underpin the success of these artists. While the majors have been pivoting around this very specific slice of mainstream, Disney has quietly been building an entire entertainment empire for this generation of pop focused youth. Unlike the majors, Disney has TV shows and channels targeted at each key kids and youth age group and uses them to bring artists through. They start them out kids TV shows such as The Wizards of Waverly Place (Selena Gomez), Hannah Montana (Miley Cyrus) and Sonny With A Chance (Demi Lovato). Disney then very carefully matures these fledgling stars as their audiences age so that by the time they and their audiences are fully fledged teens, they are fully-fledged pop stars. At which point they have shaken off most of their bubble gum imagery and have conveniently acquired a little edge, a specific positioning and a personality. It is a highly effective process. Each of those three Disney stars are only in their early 20’s but already have multiple albums under their belt. Disney will not only continue to excel at this model, they will most likely become the biggest pop label on the planet. Which given where music sales are heading (pop accounted for 44% of the top 10 US album sales in 2014) could well mean Disney even overtakes Universal to become the biggest music company of all.

2 – The western pop music industry will increasingly resemble Bollywood

2014 was the first year film soundtracks accounted for 2 of the top 10 selling US albums (‘Frozen’ and ‘Guardians Of The Galaxy’), generating 4.4 million sales and 30% of the top 10 overall. And both albums were Disney. In India music plays a supporting role to film in revenue terms but is culturally centre stage, the beating heart of Bollywood film. The music and film require depend on each other for context and relevance. We are set for this model to become increasingly pervasive in western markets. Just as video underpins the success of pop stars, it creates an audience bond to music in film and TV, turning the music into the soundtrack of memorable, fun and moving moments. Triggering the same emotional chemistry music does in real life. With music sales still tumbling but movie sales holding up, expect movie soundtracks to become an ever bigger part of music sales, and for the dividing line between film star and pop star to blur entirely. Expect Disney to, again, be the key force.

3 – Live music will lose ground to other live entertainment

Live has been the music industry’s ‘get out of jail free’ card, holding up total revenues while sales revenue declined. The balance of power has shifted with sales revenue now just a third of the total revenue mix, down from 60% at the start of the century. But cracks are already appearing with price increases underpinning much of the live revenue growth in recent years and the big revenue polarised between ageing rockers and pop divas of the moment. There are only weak signs of a next generation of stadium filling rock bands. The big live venues are already looking for alternative ways of getting bums on seats, with TV show spin offs in particular proving successful. Venues and promoters love TV show tie-ups because they bring big TV cross promotion which helps ensure commercial success.   TV comedy shows are now doing 10 to 12 night sell outs in 10,000 capacity venues. You don’t see many artists doing that. Shows like Disney On Ice (yes, Disney again) fill out the biggest venues with ease. And it is not just the top end that is moving away from music. Comedians like the UK’s John Bishop play tours that happily play a small club one night and an arena the next. Expect the live market to shift more towards a broader range of entertainment, especially TV tie ins, squeezing out many music acts in the process.

4 – Old world copyright establishments will lose relevance 

The fragmented nature of global music rights, especially on the publishing side, has long been a thorn in the side of digital music.   The system of multiple national rights bodies and commercial rights owners administering different parts of music rights across the globe hinders the ability of the digital music industry to be truly global. A handful of rights bodies are pushing the innovation needle, others are not. The distinctions between recording, performance, mechanical etc. served well in the analogue era when there was a clear distinction between a sale and a performance. But in the streaming dominated landscape they are less useful. Additionally the entire range of audio visual elements that an artist comprises in the digital era can be prohibitively difficult to put into a single product. This is because the rights are usually held by so many different stakeholders, each with different priorities and appetites for risk. Expect music companies, artists and their managers to increasingly collect as many rights as possible into one place so they can create multimedia experiences without having to navigate a licensing minefield. In doing so, more and more monetization will happen outside of the traditional licensing frameworks. Whether that be because all of the revenue occurs in a single platform (e.g. YouTube) or because new licensing /collection bodies are used such as Audiam or Global Rights Management administer the rights. Creative Commons might play a bigger role but the real focus is going to be on being able to license more easily AND monetize more effectively.

5– Labels will become agencies

Finally we have agencies or what you might call labels, but I’m going to call them agencies, because that is what they need to become. The label model is already going under dramatic transformation with the advent of label services companies like Cooking Vinyl’s Essential and Kobalt’s AWAL, and of fan funding platforms like Pledge and Kick Starter. All of these are parts of the story of the 21^st century label, where the relationship between label and artist is progressively transformed from contracted employee to that of an agency-client model.   Labels that follow this model will be the success stories. And these labels will also have to stop thinking within the old world constraints of what constitutes the work of a label versus a publisher versus a creative agency versus a dev company. In the multimedia digital era a 21^st century labels needs to do all of this and be able to work in partnership with the creator to exploit all those rights by having them together under one roof.

Streaming is changing the music world right here, right now, and there is an understandable amount of focus on it. But it is just one part of a rapidly changing music industry. This decade has already wrought more fundamental change than any previous one and the rate of change is going to continue to accelerate for the next five years. All of the rules are being rewritten, all of the reference points redefined. This is nothing short of the birth of a new music industry. The blessing of a generation is to be born into interesting times, and these times are most certainly that.

Music Industry Predictions and Aspirations for 2014

2013 was a year of digital music milestones: 15 years since the arrival of Napster, 10 years since the launch of the iTunes Store and 5 years since the birth of Spotify.  Which begs the question, what will we looking back at in 5 years as the success stories of the ‘class of 2013’?   There have been some interesting arrivals with promise, such as WholeWorldBand, Soundwave, O2 Tracks, Bloom.fm, Google Play Music All Access (ahem)…. As is the nature of start ups many of the dozens that started in 2013 simply won’t go the distance.  Indeed many of Spotify’s ‘class of ‘08’ have fallen by the wayside: MXP4, MusiqueMax, Beyond Oblivion, Songbird etc.   If the ‘class of ‘13’ want to emulate collective success then it is the ‘class of ‘07’ they should look at: a bumper crop of success stories that included Songkick, Topspin, Deezer, Songza and Soundcloud (though Spiral Frog and Comes With Music were notable flops).

So what can the ‘class of ‘13’ and the rest of the music industry expect in 2014?  Well here are a few of my predictions and aspirations:

• Label services will grow and grow (prediction): following the lead of the likes of Cooking Vinyl and Kobalt every label and his dog appears to be getting in on the act.  Which is no bad thing.  The choice used to be binary: DIY or label.  Now labels are borrowing some of the clothes of DIY and in turn transforming the artist relationship from one of employee to client.  Expect many established frontline artists coming to the end of their label deals in 2014 being persuaded to opt for a label services deal with their label rather than jumping ship.
• Downloads will be flat globally (prediction): the download is still the dominant digital product globally but in the markets where streaming has got a strong foothold it is eating into downloads.  A key reason is that the majority of paid subscribers are also download buyers and their behavior is transitioning.  But in most of the big markets, and in most of the non-Northern European markets, downloads are the mainstay of digital and will grow further in 2014, cancelling out declines in the US and elsewhere.
• Latin America and Africa will both grow in importance (prediction): these are two regions with hugely diverse national economies but both also contain a number of markets that are ripe for digital lift off, particularly in Latin America.  However the standard solutions for the western markets will only have limited success.  Expect innovative newcomers to do well here.
• The streaming debate will NOT resolve (prediction): expect strong continued growth in streaming.  Spotify should hit 10 million paying subscribers soon – the free mobile offering may even push it to 100 million users.  Deezer should clock up another milestone soon too.  And Beats Music could get really serious scale if it does indeed bundle with headphone sales.  But the nature of the debate means the bigger streaming gets the more artists will perceive they are being short changed, because individual artists will feel the impact of scale more slowly than the market.  Expect things to really hot up if Spotify goes public, does well and the majors do not distribute meaningful portions of their earnings to artists.
• Spotify, Deezer and Beats Music have a good year (aspiration): to be clear, this isn’t me breaking with years of tradition and suddenly jettisoning impartiality and objectivity.  Instead the reason for the inclusion is that the future of investment in digital music will be shaped by how well this streaming trio fare.  Between them they accounted for 70% of the music invested in music services between 2011 and 2013.  These big bets may not be leaving a lot of oxygen for other start ups, but if they do not succeed expect digital music service funding to get a whole lot more difficult than it is now.
• Subscription pricing innovation accelerates (aspiration): regular readers will know that I have long advocated experimentation with pricing so that portable subscriptions can break out of the 9.99 niche.  In addition to more being done with cheaply priced subscriptions we need to see the introduction of Pay As You Go subscription pricing in 2014.  Pre-paid is what the mobile industry needed to kick start mobile subscriptions, now is the time for the music industry to follow suit.
• More innovation around multimedia music products (aspiration): one of the most exciting things about Beyonce’s album last week was the fact it put video at its heart.  Since I wrote the Music Product Manifesto in 2009 depressingly little has happened with music product strategy.  Of course not every artist can afford to make an album’s worth of flashy videos, but hey, they don’t need to all be flashy.   Here’s hoping that a few more labels follow Sony’s lead and start really pushing the envelope for what music products should look like in the digital era.  Here’s a clue: it is not a static audio file.

P.S. If you’re wondering why I am so harsh on Google Play Music All Access it is because they can and should do so much better.  The market needs innovation from Google, not a ‘me too’ strategy.  Come on Google, up your game in 2014.