Bifurcation theory | How today’s music business will become two

One of things we pride ourselves on at MIDiA is helping the marketplace peer over the horizon with disruptive, forward-looking ideas and vision. We have a long track record of doing this (you can find a list of report links at the bottom of this post). While many of these ideas were difficult to swallow, or a little ‘out there’ at the time of writing, they became (or are still becoming) a good reflection of where markets ended up heading. Well, it is now time for another of those big market shaping ideas: bifurcation theory.

Today, MIDiA publishes its major new report: ‘Bifurcation theory | How today’s music business will become two’. The full report is available to MIDiA clients here and a free synopsis of the report for non-clients is on our bifurcation theory page here. So, check those out to find more, but in the meantime, here is an overview of just what bifurcation theory is, and why it is going to affect everyone in the music business, whatever role you play in it. 

The old maxim that change is the only constant feels tailor-made for the 21st century music business. Piracy, downloads, streaming, and social all triggered music industry paradigm shifts. Now, all the indicators on the disruption dashboard are flashing red once more. AI is, of course, standing centre stage, but it is not the cause of the coming change. It is simply a change enabler.The causal factors this time round are all direct byproducts of today’s music business, unintended consequences of a streaming market that has cantered along its natural path of least resistance. Everyone across the music industry’s value chain has played their role, often unwittingly. Whether that be shortening

songs, increasing social efforts, changing royalty systems or following viral trends, each of these micro actions has contributed to a macro effect.

The fracture points of today’s music business are simultaneously the catalysts for tomorrow’s. For example, the commodification of consumption is resulting in a raft of apps and industry initiatives that try to serve superfans; the rise of the creator economy’s long tail is resulting in both traditional rightsholders raising the streaming drawbridge (long tail royalty thresholds) and a fast-growing body of creators opting to invest less time in streaming.

Streaming was once the future but now it is the establishment, the cornerstone of the traditional music business. It has rocketed from a lean forward, niche proposition for superfans into a lean back, mass market product for the mainstream. Music consumers have always fallen into two buckets:

1.    Fans

2.    Consumers

The former used to buy music, the latter used to listen to radio. Streaming put them both into the same place, pulling up the average spend but pulling down fandom into consumption. Streaming is the modern day music business’ radio, just much better monetised than the analogue predecessor. Now though, everyone across the music industry’s complex mesh of interconnected value chains is realising there needs to be something more, built alongside, not instead of, streaming. This is the dynamic behind bifurcation theory. This report explores how today’s music business challenges are becoming the causal factors of a new business defined by two parallel consumer worlds.

The music business is bifurcating – splitting into two – with streaming emerging as the place for mainstream music and lean back consumption, and social as the spiritual home of fandom and the creator economy. We identify these two segments as:

1.    LISTEN (user-led): streaming services, monetising consumption at scale

2.    PLAY (creator-led): highly social destinations where fans lean in to create, connect and express identity

Of course, this process has already started, but social is still largely seen as a driver for streaming. Many artists who try to get their fans to participate on social do so primarily in the hope of driving streams rather than for the inherent value of fans participating in their creativity. However, many next-generation creators are realising they will simply never reach the scale needed to earn meaningful income from streaming.They are therefore shifting focus to building fan relationships on social media and monetising them elsewhere, be it via merchandise or brand sponsorships. Meanwhile, a new generation of fans are creating as a form of consumption, whether that means using songs in their TikTok videos or modifying the audio of their favourite song. While copyright legislation and remuneration have lagged behind these developments, they will be an important part of the future of PLAY. Over time, PLAY will evolve as a self-contained set of ecosystems, built around the artist-fan relationship. It will not be an easy transition. Mainstream streaming will become even more lean back, and social and new apps will exert what will increasingly look like a stranglehold on fandom and the creator economy.

Social apps are plagued with challenges (royalty payments not the least of them) but they will emerge as a parallel alternative to streaming, rather than simply a feeder for it. To this end, the full bifurcation theory report not only describes the lay of the future land, but also presents bold visions of how we think both sides of the music business equation should evolve. We present detailed frameworks for what PLAY services will look like and how LISTEN services can evolve, focusing on core competences to continue to appeal to the mainstream but also deepen appeal to – and better monetise – superfans.

AI will play a key role in the future of both sides of the bifurcated music business, but rather than being tomorrow’s business, it will act as an accelerant for the underlying dynamics of bifurcation theory.

Bifurcation is such a big concept with so many layers and nuances, we have only been able to skim through some of the highest level trends here. We encourage you to check out the full report and report synopsis to learn more.

We’ve spent a long time gestating this concept, so we’d love to hear your thoughts. We’re not expecting bifurcation theory to be to everyone’s taste, but if nothing else, hopefully it will spark some creative thinking and debate.

Don’t forget to check out our bifurcation page for a video discussion of bifurcation theory and a free pdf report synopsis.

As mentioned above, here are some of MIDiA’s most impactful future vision reports, in (roughly) chronological order:

Agile Music (Free report)

Music Format Bill of Rights (Free report)

Rising Power of UGC (Free report)

Independent Artists (Free report)

Music Rights Disruption

Insurgents and Incumbents

Creator Culture

Rebalancing the Song Economy (Free report)

New Top of Funnel

Slicing the Funnel

Music’s Instagram Moment

Scenes – a New Lens for Music Marketing

Attention Recession

Creator Rights (Free report)

Creator Hubs

Music Product Strategy

Fan Powered Royalties (Free report)

Addressable Creator Markets

Misaligned Incentives

Artist Subscriptions

Field of All Levels

Kill the Campaign

Rise of a Counterculture Industry

The Music Industry’s Next Five Growth Drivers

The risk with trying to imagine what the future might look like is to simply think it is going to be a brighter, shinier version of today. At this precise moment in time, this has perhaps never been truer.

The COVID-19 lockdowns were a seismic shock to the economy, one which will take months, possibly years to recover from. Entertainment consumption patterns have been transformed, with some need states becoming void states in an instant, while new ones have filled their place.

Whether COVID-19 goes for good in the coming months or whether it is with us for years to come, some behaviour patterns have changed for good, creating new opportunities, many of which (e.g. virtual events) have yet to be properly monetised. So at a time when it seems that the whole world is creating music forecasts, it is now the time to think about what comes next rather than just predicting how big the long established revenue streams will get.

With streaming growth slowing and creators feeling short changed, it is time to think about what plan B is, for the sakes of both the industry and the creator community.

At MIDiA we are currently compiling our music industry forecasts with a lot of detailed work being put into estimating how COVID-19 and the coming recession will impact a revenue growth. We’re modelling everything from ARPU, churn, net adds, and disposable income patterns through to store closures. We’re confident that this new methodology will make our already reliable forecasts even better (for the record our 2019 subscription forecasts with within 4.5% of the actual figures).

We’re also going to push ourselves out of our comfort zone and over the course of the year forecast some new revenue streams for which a comprehensive set of historical data does not exist. This means our chances of making incorrect calls is higher, but we’re doing it because we think it is crucial to start trying to frame what the future landscape will look like.

Here are the five emerging revenue sectors that we think could collectively be the music industry’s next growth driver

1. Contextual experiences: Two big lockdown winners have been mindfulness / meditation apps and online fitness training. With it looking likely that consumers will be spending more time at home and away from public places for some time to come, the opportunity for these categories is twofold: 1) build audience now, 2) establish behaviour patterns that will outlive lockdown.

   Music is often a core part of these but it is not always licensed. The example of artists and rightsholders making music available to fitness trainer Joe Wicks illustrates the point. To date, streaming services have provided the soundtrack to such activities with contextual playlists (chill, study, workout). But it is of course far better for the context itself to deliver the music. We expect the next few years to see categories like online wellness and fitness to eat into the time that people were previously using streaming for the soundtrack. Instead of bring your own music, the trend will be the context will bring it. UMG’s Lego partnership is a case in point.

2. Creator tools: There is an increasingly diverse mix of tools for music creators, including production, collaboration, sounds, reporting, mastering and marketing. The vast majority of the millions of independent artists will spend much more on creator tools than they will ever earn from their music. The revenue opportunity is clear, but there is more to it than that.

   Artist distribution platforms built a role as top of funnel tools, helping labels find the next big hit. But the music creation itself, enabled through online SAAS tools is in the fact the real top of funnel. Anyone who can establish relationships there does so before they release music. Right now, Spotify looks better placed to capitalise on this opportunity than labels. But labels should be paying close heed. Just in the way that distribution platforms came out of nowhere to become an established part of the label toolkit, so will artist tools. Simply put, creator tools will become part of what it is to be a music company.

3. Virtual events: As we wrote about earlier this week, there is a huge opportunity to make virtual events (live streaming, listening sessions, avatar performances) a major income stream. The sector is in desperate need of commercial structure and product tiering, but it can happen. A freemium model with free, pay to stay, premium and super-premium tiers will enable this fast-growing sector to be more than a lockdown stop gap.
4. Fandom: Regular readers will know that MIDiA has long argued that phase one of streaming was monetising consumption and that phase two will be about monetising fandom. Tencent Music Entertainment already does a fantastic job of this with live streams, virtual gifts and virtual currencies. So do K-Pop artists and Japanese Idol artists. Now is the time for western social and streaming platforms to wake up to the opportunity. Virtual merch, artist badges, premium chat, artist avatars—there are so many opportunities here waiting to be tapped.
5. Social music: As an extension of fandom, the fact that the vast amount of music-centred social activity on Instagram, Facebook, Snapchat and TikTok has not yet been properly monetised is a gaping hole of opportunity. TikTok will be crucial. As my colleague Tim Mulligan wrote, TikTok is having its ‘Snapchat moment’, trying to identify what commercial route it will take. I’d go even further and frame it as a YouTube or Facebook moment. Both those platforms went on to massively expand their remit and build diversified business models.

   TikTok clearly has momentum that far exceeds that of previous similar apps. It can either choose to just carry on being good at one thing or instead become the next big social platform, growing as its audience ages. Just like Facebook did. TikTok now is where YouTube was back in the late 2000s. If rights holders can establish an entirely new monetisation framework then TikTok could become the biggest single driver of future revenue.

As with any future gazing, the odds are that not all of these opportunities will transpire, but what is clear is that the current dominant format is not enough on its own. Rights holders and creators alike need new future revenue streams to offset the impact of slowing revenue growth and royalty crises.

The last time the music industry had one dominant format and no successor was the CD and we all know what happened then. The music industry is not about to enter a decade of freefall this time, but it is at risk of stagnating, especially as its leading music service is now so eager to diversify away from music that it offers a podcaster more money in one deal than most artists will ever earn in their lifetime from it. Let’s make this next chapter of the industry’s growth about innovation, growth, new opportunities and fresh thinking.