Ed Sheeran’s Ticketing Fiasco Shines A Harsh Light On A Broken Industry  

Ed Sheeran has hit the news, bemoaning the inflated prices that tickets for his forthcoming tour are being sold at on ticket reseller websites. Some tickets have sold for as much as £999, compared to the original face value of £77. As the chart below shows, even the standard resold tickets are selling for up 5 times the original price.

ed-sheeran-ticket-prices

Sheeran is in the fortunate position of being one of the most in demand artists of the moment, but the broken nature of the ticketing market is locking his core fans out of his gigs. It is just the latest example of an industry in dire need of change:

  • Ticketing companies are playing double agent: Over the course of the last decade the live music market has grown almost dollar-for-dollar at the same rate the recorded business has declined. In 2000 live was around 30% of the global music business, now it is around 2 thirds. The live boom has long been seen as the good news for the music business, held up as evidence of value simply shifting from one part of the business to another, and the new way in which artists can build vibrant careers. The problem is that a) much of that growth has come in ticket price inflation, and b) most of the money does not make it back to artists. In fact, on average, artists only earn 14% of ticket sales revenue. Ticket resellers are a major contributory factor. Hiking up the prices and only distributing a small fraction back to artists, often in many cases (eg ticket marketplaces) nothing at all. The big ticketing companies are not merely passive observers, they are actively driving the reseller market, essentially acting as double agents and often cross promoting  reseller destinations they own. For example, Ticketmaster is also the parent company of Seatwave and GetMeIn. Though Ticketmaster’s reseller destinations do not bulk buy tickets, some independent resellers have teams of people that do exactly that.
  • Resold tickets put gigs out of reach of core fans: Resellers argue that there is a market for high priced tickets. There is, but it is a different market than that of core fans. Many sports leagues have seen a ‘gentrification’ of crowds, with older, more affluent fans being the only ones that can afford inflated ticket prices. The result is more subdued crowds and less vibrant atmospheres. The same thing is happening to live music, with young fans being forced out in favour of older audiences. It might be good for the ticket resellers and venues and booking agents, but it is bad news for bands and fans. The presence of ticket reselling marketplaces actively encourages nefarious behaviour, with a whole segment of professional resellers that use technology such as bots to bulk buy tickets before real fans get their hands on the tickets. There is an opportunity, nay a moral obligation, for more connected action to be taken to eradicate this sort of behaviour.
  • It is a problem that can be fixed, but it requires coordinated effort: Ed Sheeran’s camp has told fans not to buy from resellers at inflated prices. But Sheeran’s camp have to shoulder some of the blame.  The solution is as simple as it is complex. The simplicity is not to allow tickets to go to resell and to only admit fans whose names are on the tickets (which cuts out the ticketing marketplaces like Seatwave). But the complexity is that vested interests apply pressure to ensure this doesn’t happen. Nonetheless, action can be taken. Adele and her manager Jonathan Dickins took a bold stance last year, only allowing named ticket holders to attend some of her gigs. They even went as far as cancelling some resold tickets for other gigs. Mumford and Sons went one step further and booked Wembley directly, cutting out all the middle men.

But isolated action is not enough. Unless artists, managers and labels act together, to take a bold stance, change will not happen. And the losers then will be the fans.

Streaming Report Card 2014

2014 was the year streaming broke through to mainstream consciousness, not because of the marketing prowess of Spotify but because Taylor Swift decided to withdraw her content from the Swedish streaming heavyweight and other freemium services. It was a mixed year of momentous achievement and intensifying controversy, which makes it an opportune moment for an end of term report card.

Growth – 8/10

No complaints here. Impressive growth for both paid and free streaming with a likely combined annual growth of about 50% and total subscribers getting to about 35 million. Although there are some signs of slowdown this is to be expected as much of the addressable audience for the 9.99 price point is reached. In fact the growth slowdown was less pronounced than expected in some markets. If it hadn’t been for the fact that download sales for the year will be down about 10% this would have been a 9/10.

Transparency – 2/10

Two years ago I asked the CEOs of 10 leading streaming companies what the coming years would hold. Unfortunately for 5 of them it meant looking for a new job. One thing most were in agreement on however was the need to introduce far greater transparency for artists. Two years on and the issue is every bit as problematic. For the most part the discontent has been voiced by smaller artists or those later in their careers, but not by frontline artists in their prime. Until last week that is, when Ed Sheeran told the BBC that it is ‘fact’ that labels are holding money back from artists. Some time soon, some time very soon, labels are going to have to get on top of this if they want the model to work.

Platform – 5/10

I had high hopes for Spotify’s app platform, it looked like it was heralding the dawn of the ‘music platform’ that the digital market has needed, well, forever. Unfortunately label wrangling ensured that Spotify was not able to get the deals to allow app developers to monetize their apps so the venture was effectively still born, save for the highly credible efforts of some traditional media brands, such as the BBC, Now! And Deutsche Grammophon who didn’t have to worry about making money from the apps. Luckily the streaming companies haven’t given up on the ‘streaming as a platform’ vision and a host of integrations with the likes of Bandpage and PledgeMusic have the potential to help artists transform streaming cents into digital dollars.

Pricing – 3/10

I’ve been banging the pricing drum for so long the stick has broken. Unfortunately there was pitifully little progress in 2014, with label fears of cannibalising 9.99 dominating thoughts. On the plus side there is a huge amount of negotiating activity taking place right now and that should bear fruit in 2015. Expect Apple to try to get to market with the same 7.99 that YouTube’s Music Key is currently in market with (and expect that short term promotion for YouTube to eventually become permanent). And if 7.99 is the new 9.99 then prices will have to cascade. 4.99 will be the new 3.99, 3.99 will become 2.99 and so forth. And there remains the super urgent need for PAYG pricing leveraging in app payments. I predicted pricing innovation in 2012 and 2013 and it didn’t happen. Here’s to third time lucky.

Global expansion – 6/10

Deezer had already set a great precedent for rolling out into a vast number of global territories and Spotify played an admirable game of catch up in 2013 which continued with another five new countries in 2014. Rdio’s acquisition of Indian streaming service Dhingana was another interesting move.  Meaningful revenue is yet to follow in these Rest of World markets though – the US and Europe accounted for more than four fifths of global streaming revenue in 2014.  But the foundations have been laid and that in itself is an important step worthy of credit.

Sustainability – 4/10

The ripple effects of Taylor Swift’s windowing antics will be felt throughout 2015 with countless other big artists and their managers already making it very clear to labels that they want to do the same. The sooner Spotify can agree to having the free tier treated as a distinct window the sooner the streaming space can start rebuilding.   The whole ‘changing download dollars into streaming cents’ issue continues to haunt streaming though. And with streaming services struggling to see a route to operational profitability the perennial issue of sustainability remains a festering wound. The emerging generation of artists such as Avicii and Ed Sheeran who have never known a life of platinum album sales will learn how to prosper in the streaming era. The rest will have to learn to reinvent themselves, fast, really fast.

Overall Streaming gets a 6/10 for a year that saw huge progress but also the persistence of perennial problems that must be fixed for the sector to succeed.

What the Numbers Tell Us About Streaming in 2014

By the end of 2014 streaming revenues will account for $3.3 billion, up 37% from 2013. However headline market value numbers only ever tell part of the story. Just as important are the numbers on the ground that give us some sense of where the money is flowing and of the sustainability of the business models. During the last two weeks we have been fortunate to have four different sets of data that go a long way to filling in those gaps:

Each is interesting enough in isolation but it is the way that they interact and interdepend that gets really interesting:

  • Sustainability: A lot is rightly made of whether the subscription business model is sustainable. Spotify has showed us that, at least in a local subsidiary, an operational profit can be turned. However that profit rate was just 2.5%, does not account for previously acquired losses and also does not account for the broader company’s cost base where many of Spotify’s other costs lie. 2.5% is a wafer thin margin that leaves little margin for error and would be wiped out in an instant with the sort of the advertising Spotify has been using in the US. Meanwhile Soundcloud have demonstrated that it is also entirely possible to post a heavy loss even without rights costs. Soundcloud is going to need every ounce of its investor money and new revenue streams when it adds a 73.2% rights cost to its bottom line (though Soundcloud is doing all it can to ensure it doesn’t have to play by those rules and instead hopes to operate under YouTube’s far more preferable rates).
  • Transition: Nielsen’s US numbers should finally remove any lingering doubt about whether streaming is eating directly into download revenue. As MIDiA Research revealed last month, 23% of streamers used to buy more than an album a month but no longer do so. Streaming is converting the most valuable downloaders into subscribers and in doing so is reducing their monthly spending from $20 or $30 to $9.99. The combined effect of the perpetual decline of the CD and now of the download make it hard for streaming to turn the total market around. That won’t happen globally until 2018, though in many individual markets streaming driven growth is already here. Spotify pointed to bundles with the Times of London newspaper and mobile carrier Vodafone as key sources of growth in the UK. This sort of deal points to how subscriptions can break out of the early adopter beachhead and drive incremental ‘found’ revenue.
  • The Ubiquity of Free: YouTube, Pandora, Soundcloud and Spofity free are among the largest contributors to streaming’s scale. Some business models are more proven than others – Pandora looks better placed than ever to be a central part of the long term future of radio. YouTube’s role remains controversial though. Its proudly announced $1bn payout milestone is less impressive when one considers Content ID was launched in 2007 and that this is all rights holders, not just music. So let’s say 60% was to music rights holders, over the course of seven years that averages out at $0.07 per year for each of YouTube’s current one billion monthly users. That’s a pretty small return for the globe’s biggest music service.

We are clearly still some distance away from a definitive set of evidence that can tell us exactly what streaming’s impact will be. But in many ways it is wrong to wait for that. There will never be a truly definitive argument. Instead the world will continue to change in ways that will better fit the streaming market. It is a case of streaming and the industry meeting half way. This is exactly what happened with downloads. Early fears that downloads would accelerate the demise of the CD and instigate the decline of the album were both confirmed but the music industry learned how to build a new set of businesses around these new digital realities. The same process will take place with streaming.

We are already seeing some remarkable resilience and appetite for change from artists, from DIY success stories like Zoe Keating, through veteran rockers like Iggy Pop, right up to corporate megastars like Ed Sheeran. These are as diverse a collection of artists as you could wish for but they are united in an understanding that the music industry is changing, again, and that simply bemoaning the decline in sales revenue will not achieve anything. Of course it sucks that sales revenue is falling and of course its infinitesimally easier for me to write these words than to live them. But that sort willingness to evolve to the realities of today’s rapidly changing market will set up an artist with the best chance of surviving the cull. The old adage rings truer than ever: adapt or die.