Who will own the virtual concert space?

2020 will go down as a rough year for many artists, largely because of the income they lost when live ground to a halt. Unfortunately, the live music sector is still going to be disrupted in 2021 and it may take even longer for the sector to return to ‘normal’. In fact, we could see the bottom of the live sector thinned out as the smaller venues, agencies and promoters do not have the access to bridging finance that the bigger players have. So, smaller artists may find the face of live permanently changed for them in a way that larger artists do not. Whatever the outcome, one thing is clear: live music is not going to be the same again, and the innovations in virtual and streamed events are not simply a band-aid to get us through tough times. Instead, they are the foundations for permanent additions to the live music mix. The big unanswered question is, who is going own the live-streamed and virtual concert sector?

Bringing it all together

One of the most important things digital tech does is to bring things together. The smartphone is a perfect example. 20 years ago people switched between phones, calendars, diaries, computers, maps, phones, music players, DVD players etc. Now these are all in one device. Streaming did the same to music, taking radio, retail, music collections and music players and putting them together into one unified experience. Until now, live music was not subject to streaming’s great assimilation process. But COVID-19 changed all that. Live used to be separate because it required logistical assets like buildings, ticketing operations, relationships etc. The last few months have shown us that the virtual live sector can operate entirely independent of the traditional sector’s frameworks – which is one of the reasons so much innovation and experimentation has happened. Sure, lots of the early stuff was scrappy and of patchy quality, but is through mistakes that we learn the right way forward. Thus, we have new companies like Driift emerging to bring a more structured and professional approach to a fast-growing but nascent sector.

Disruption is coming

The big traditional live companies right now may be most concerned about whether the still-dormant venues are looking at the new ticketing models being deployed with the likes of Dice and wondering whether they can rethink their entire way of doing business when they reopen. While that may trigger what could prove to be the biggest-ever shift in the live business, the virtual part of the business is where the money is flowing right now: Melody VR bought pioneering but struggling streaming service Napster, Scooter Braun invested in virtual concert company Wave and Tidal bought seven million dollars’ worth of access into virtual concert ‘space’ Sensorium. Virtual reality (VR) spent much of the last couple of years in the trough of disillusionment but now COVID-19’s catalysing impact may see it starting to crawl onwards and upwards. Prior to COVID-19 VR was a technology searching for a purpose. COVID-19 has created one. This is not to say that all of VR’s prior failings no longer matter – they do – but it at least has a set of music use cases to build on. VR can now realistically aspire to be a meaningful component of the wider virtual event sector.

Streaming+

It is no coincidence that streaming is playing a key role. Nor is it just the smaller streaming services at play – Spotify has built the tech infrastructure for live events, while Apple is introducing artificial reality (AR) into Apple TV+, so it is not too big a leap to assume Apple Music AR experiences will follow. Live was the last major component of the music business that streaming could not reach, and that is all about to change. The value proposition for music fans is clear: why go to multiple different places for all your favourite music experiences when they can all be in one place? Think of it as Streaming+. Whatever the future of live is going to be, we can be certain about one thing: it will never be the same again.

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.

The Future of Live

The almost total cessation of live music has sent shockwaves throughout the wider music industry. Though live companies are clearly at the epicentre, labels and streaming services are the in the blast radius too as the gaping hole left in most artists’ income is causing them to question their other income sources, streaming especially – with both labels and DSPs in the sights.

Finding both near- and mid-term fixes for live are therefore crucial for the wider music industry and artist community. There is a big opportunity here that goes far beyond lockdown era. This is more than the future of games and music, it is in fact an alternative future for live music. It is the ultimate lockdown legacy.

future live events midia researchMIDiA’s latest subscriber report ‘Recovery Economics: Music, Games, Live Streams and the Future of Concerts’ has just been published and subscribers can read it here. In this blog post I am going to highlight some of the key themes.

Live streaming’s teething pains

From a value chain perspective, Lockdown came too early for live streaming; it is under-developed, under-monetised, under-licensed, under-professionalised. Unfortunately, the live-streaming surge is showing all the signs of a goldrush with a lack of clear structure and the first signs of artist backlash, with some artists feeling that some platforms are relying on them to build their audiences while performing for free.

Furthermore, quality is patchy and artists are becoming concerned with the impact on their brand image. Saturation is another Achilles heel: with traditional performances saturation is negated by artists moving from one city to another. Live streaming has no geographical constraints so the effect of multiple performances is analogous to playing repeated concerts in the same small town.

Virtual concerts, not live-streamed concerts

Arguably the biggest single mistake the music industry made with music streaming was to think of it as a format rather than a paradigm. As a consequence, the (western) streaming services lack differentiation and true feature innovation. We must think of the live opportunity as something that goes beyond live streams. Live streams are just one part of the mix. The true opportunity is virtual experiences, that can range from 100 attendee super-premium intimate sessions, through mass scale ad-supported YouTube streams, to avatars performing in games.

If we start this journey thinking narrowly, the scale of opportunity will be constrained. And right now, the industry needs to get as many virtual event innovations going as it can, because it will have to continue to carry the baton for live for some time yet.

In a best case scenario COVID-19 recedes later this year and we have a small number of limited capacity concerts happening before year end. Alternatively, we may see recurring waves of COVID-19 denting consumer confidence with fewer people wanting to go to concerts even if they could. Either way, artists are not going to get most of their live revenue this year.

future of live midia

It is this post-lockdown opportunity that virtual events need to meet. But there is a lot of work yet to be done. The biggest problem to fix is monetisation.

Fans pay around 80 times more per minute for a real-world live performance than they do for listening to music on paid streaming services. The value exists in the shared moment. The problem with live streaming in its current manifestation is that it is abundant and is delivered in a ubiquitous format that is implicitly low value. If this sector is to become a serious income stream for artists then we have to stop giving it all away for free. What is needed is a sophisticated freemium monetisation model that can cater both to large free audiences and better monetise fans.

A set of principles for virtual events

There is also a lot more that can be fixed. Here are some meta principles that virtual events should adhere to:

  • Scarcity (fewer gigs, geo-restricted – Laura Marlin has just announced geo-restricted live streams – let’s make that the trailblazer not an isolated initiative)
  • Better production qualities
  • More sophisticated monetisation (freemium, pay-to-stay, super premium / VIP etc)
  • More sophisticated segmentation of types of shows (not all live streams are the same, but we currently only have a one-size-fits all product
  • Better platform segmentation (e.g. big tech platforms can play the role of stadiums and arenas while off-portal destinations like artist apps can host smaller, scarcer, super-premium events)
  • Better discovery (the equivalent of the TV EPG needs creating for virtual concerts, Bandsintown has made a decent start but much more needs to be done)
  • Better alignment between what artists want and what the platforms want

The birth of a new industry

COVID-19 will likely be a mid- to long-term part of life, so the traditional live sector will face a ‘cost of confidence’ as portions of artists and fans alike will initially stay away. Virtual concerts (live streaming and generative virtual performances) can become an important component of the live music sector as it builds out of lockdown. But it will not get there without concerted efforts to fix the problems that currently define this nascent sector.

A new virtual concert value chain is starting to emerge that traditional live companies are not – yet – well embedded in. The future market will be one defined by both incumbents and insurgents. The big live companies will bet big on virtual but we’ll also see new types of companies like virtual booking agents and avatar agencies. The whole concepts of what a concert is and what a venue is, can be turned on their heads. Fortnite’s Party Royale island is now hosting regular live streamed concerts. With 350 million users, Fortnite can lay claim to being arguably the biggest capacity venue on the planet. This may be the birth of an entire new ecosystem.

Recovery economics

The lockdown lag will create a whole new set of economics across all industries. Driving a recovery during this transition period will require innovation and a willingness to downplay old ways of doing things. For music it will be about exploring new income streams to recast a new music business. The first step is for live streaming to have a product refit that delivers a genuine value exchange for fans if it is to ever get out of its free / charity / tip cul-de-sac and become a genuine income stream of scale.

If you are not yet a MIDiA client and would like to learn how to get access to this report then email stephen@midiaresearch.com

If you are a client and would like to talk to us about the themes covered in the report then schedule an enquiry via enquiries@midiaresearch.com

Why Stormzy as a Glastonbury Headliner Makes Sense Post-Streaming

This is a guest post from MIDiA music analyst Zach Fuller.

glastonbury2-1On the eve of Stormzy becoming the first Grime artist to headline Glastonbury, it is worth considering what this represents in terms of the link between the new streaming economy and live music.

The South Londoner’s slot is notable less for the now-obligatory controversy that greets any Worthy Farm headliner that isn’t an established rock band (as per Jay-Z and Kanye West’s turns at the festival), but rather should be viewed as a pivot in what the wider live audience ought to expect from the next wave of headliners. Those complaining that Stormzy is not headline material (although a number one album and single could easily suggest otherwise) seem to be missing the point in the transformation being undergone by the live industry – the headliners of yesteryear arrived in a completely different paradigm to the music industry of the present. Additionally, if people expect the live industry as it exists now to reflect modern music consumption, then they are sorely mistaken:

  • Streaming and live genres are inverted: 20% of the top 25 Spotify artists (February 2019) are hip hop artists, compared to 12% of the top global touring acts. Meanwhile, rock represents just 12% of the top 25 Spotify artists but 28% of the top live artists. This disconnect between what people are streaming and what they are paying to see live is a potential fault line between two sides of the global music business. Live has always been a lagging indicator of taste, with artists’ live careers peaking later than their recorded careers. It is small surprise that the average age of the top 25 Spotify artists is 34, while for live it is 55.
  • The festival boom points to the future: Listeners are less likely to invest in individual artists for an extended period of time, a trend caused by the increased choice among consumers that both downloads and streaming have facilitated. While festivals serve this audience better than individual shows, it could be argued that in the coming years, extended sets by a particular artist make less sense to someone who only streams a few songs by an individual act. The festival-goer’s desire for shorter sets may conflict with the artist’s desire for a longer show given the fee they are being paid. The current live show format of long performance sets looks divorced from consumers’ listening habits. Live venues are already preparing for this post-concert future, which bears greater resemblance to the variety act format so popular in Britain up until the early 60’s when the advent of rock gave rise to the traditional concert format.

The takeaway is that the live industry effectively must play catch-up with streaming if it is to have these types of headliners at all in the future. Even if Stormzy’s streaming numbers do not yet match those in the existing headline bracket, festivals NEED new artists to come through at that level if they are to keep the format together. Either festivals will break apart into niches (a trend already in process when reflecting on the British summertime festival calendar), or streaming acts will see themselves pushed into the big leagues early than anticipated

Do Not Assume We Have Arrived At Our Destination

Forbes has released its annual Celebrity 100, its list of the top earning media stars. The healthy share of music artists hints at the continued ability to build highly successful music careers. The presence of younger, streaming era artists like Drake and the Weeknd goes further, hinting at how streaming can now be the foundation for superstar commercial success. However, although the superstars are clearly making very good money from streaming in its own right, the dominant school of thought is that streaming is a conduit for success, helping drive artists’ other income streams, live in particular. The ‘don’t worry about sales, make your money from touring’ argument is an old one, but it is as riddled with risk now as when it first surfaced, perhaps more so.

Here are 2 key quotes from Forbes that encapsulate the way in which many artists are now viewing streaming:

“We live in a world where artists don’t really make the money off the music like we did in the Golden Age…It’s not really coming in until you hit the stage.” The Weeknd

“The reason the Weeknds of the world and the Drakes of the world are exploding is a combination of a global audience that’s consuming them freely at a young age [and that] they just keep dropping music…They’re delivering an ongoing, engaged dialogue with their fan base.” Live Nation CEO Michael Rapino

Both quotes imply that live is the place you’re going to make your money. They also argue that streaming can be used intelligently to engage fans because it is not constrained by old world limits such as shelf space and physical distribution considerations. In the old model, artists could go years between album releases, leaving fans hanging, while touring would often be a loss-leading effort to help sell the album. The roles are now reversed.

music industry total revenue midia

The rise of live music revenue in 2000s mirrored the decline of recorded music, replacing each lost dollar and adding another one on top. In 2000, recorded music represented 53% of the global music industry, that share is now just 38% while live went from 33% to 43%, though recorded music revenue is now growing again, winning back market share. On this basis, the ‘stream to gig’ argument makes a lot of sense. But things are never as simple as they first appear: 

  • Not all live music revenue is created equally: On average, around just 29% of live music revenue makes it back to the artist (after agents, costs etc are factored in) while many artists don’t make any money on live until they’ve reached a certain level of scale. And that’s before considering that the top 1% of live artists (many of whom are aging heritage acts) account for 68% of all live revenue.
  • Streaming has fewer middlemen: With streaming there can be relatively few middlemen (e.g. just TuneCore and the streaming service, though in practice many labels use 3rd party distributors etc). Meanwhile in live there is a multitude of middlemen, many of whom are highly protective of their roles. In streaming, artists have a wealth of data and insights such as Spotify’s artist dashboard and Pandora’s Artist Marketing Programme (AMP). All of which means that artists have to share revenue with more parties in live and they also have less transparency than they do with streaming.
  • Resselling is causing friction: All of this is without even considering the corrosive impact on live of ticket resellers such as ViaGoGo and GetMeIn. These business models are incredibly smart from a VC perspective, meeting huge market demand for a comparatively scarce product. But that doesn’t make them good for fans, the live business nor for artists. Most often, though not always, artists do not see a penny of resell revenue. It is money that is taken from music fans and sucked straight out of the industry. Artists lose out, fans lose out. Ticketing companies gain. All that hard work invested in building fan relationships goes out of the window.

The Tide Is Turning

More than all this though, the tide is turning. The 2016 results of Live Nation (parent company of Ticketmaster and one of the largest live companies) point to an industry that, while it is still growing, has cracks appearing. Revenue grew by 15% from $7.3bn to $8.6bn (more than the entire GDP of Haiti) but increased ticket prices drove much of the growth. Ticket prices were up 5% overall and by 10% in stadiums and other big venues. Revenue growth was also driven by in-venue merch spending (up 9%) and sponsorship and advertising (up 13%). Live Nation’s number of ‘fans’ was up 4% in the US but was flat internationally. To be clear, these are strong results for Live Nation but they also reflect a highly mature industry that is squeezing out every last drop of growth through price increases and additional revenue streams. And it is nothing new: Pollstar reports that average ticket prices increased by 22% between 2006 and 2015. Total live revenues grew by 37% over the same period which means that nearly half of all live revenue growth came from ticket price inflation.

Streaming Is Today, Not Tomorrow, Start Treating It That Way

All this comes with streaming revenue growing by $2.5m in 2016 (in retail terms) and overall recorded revenues growing by nearly a billion. The live music business has strong growth left in it, but that revenue is not evenly distributed, will likely slow in the near-ish future and has an underlying core spending trend that is largely flat. Streaming, on the other hand, is booming and will break the $10bn mark this year.

So why are superstar artists still looking to live to pay the bills. Firstly, it’s easier to make really good live money if you’re a superstar, and secondly, streaming still isn’t big enough yet for really strong streaming revenue. The Weekend’s 5.5bn cumulative streams (including YouTube) will have generated the artist around $4 million while if he’d instead sold 5 million copies of Starboy he’d have netted around $10 million.

Streaming simply needs more monetized users in the pot, especially paid subscribers. That will come but rather than just wait, more needs to be done now to help artists get more income from streaming, such as:

  • Better rates for artists (many only earn 15% of the label share, which is around 70% of the $0.008 blended rate for freemium services)
  • More ways for artists to monetize on streaming services (e.g. artist subscriptions, pay per view live streams and gigs)
  • More artist-centric experiences

Add together all the pieces and you start to create an environment in which artists can see a more immediate direct return from streaming. That is how we get to stop artists simply viewing streaming services as a way to market their wares. It is great that streaming can play that marketing role but sooner or later, labels and artists need to focus more on streaming being the destination not just the journey. With so much market momentum, it is tempting to think of streaming as ‘mission accomplished’. In reality we’re just getting going. To move streaming to that next stage, much more work needs to be done and the time to do that is now, not when the market starts to mature (which will happen some time in 2019). It is not in the interest of streaming services to simply be seen as a tool for getting more bums on seats. Nor is it in the interest of labels as they only participate in a small share of live revenue. Is streaming going to become a bigger revenue stream than live for big artists? No, but it can be a much bigger source than it is right now, but only if the model evolves. If streaming cannot break out from its beachhead of being the discovery journey then it will never reach its destination.

 

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.

The Music Industry’s 6:1 Ratio

One of the many things that the digital revolution has done to the music industry is to create and accentuate a number of imbalances. Imbalances that will either change, become the foundations of the next era of the music business, or both. In fact there are three key areas where, coincidentally, the lesser party is 6 times smaller than the other: 6 to 1

  • Digital music revenue share: A common refrain from songwriters and the bodies that represent them (music publishers, collection societies etc.) is that everything starts with the song. And of course it does. However it is the recorded version of the song that most people interact with most of the time, whether that be on the radio, on a CD, a download, a stream or a music video. This has helped ensure that record labels – usually the owners of the recorded work – hold the whip hand in licensing negotiations with digital music services. Labels have consequently ended up with an average of 68% of total on-demand streaming revenue and publishers / collection societies just 12%. The labels’ share is 6 times bigger. Publishers are now actively trying to rebalance the equation, often referred to as ‘seeking out a fair share’. For semi-interactive radio services like Pandora the ratio is roughly 10:1.
  • Artist income: While music sales declined over the last 10 yeas, live boomed. And although there are signs the live boom may be slowing, a successful artist can now typically expect to earn as little as 9% of their total income from recorded music, compared to 57% from live. Again, a factor of 6:1. There are many complexities to the revenue split, such as the respective deals an artist is on, fixed costs etc. but these splits tend to recur. Ironically just as everything starts with the song for digital music, everything starts with the recorded work (and the song) for the live artist. The majority of an artist’s fan base will spend most of their time interacting with the recorded work of the artist rather than live. The recorded work has become the advert for live. In fact the average concert ticket of a successful frontline artist costs on average 8 times more than buying their entire back catalogue. Thus for fans the ratio is even more pronounced at 8:1.
  • Free music users: The freemium wars are dominating the contemporary music industry debate. Spotify and other services that have on demand free tiers are under intense scrutiny over how these tiers may be cannibalising music sales. However YouTube’s regular free music user base is about 350 million compared to approximately 60 million free freemium service users across all freemium services. Again a ratio of 6:1. Whatever the impact freemium users may be having, it is 6 times less than YouTube.

The music industry has never been a meritocracy nor will it ever be one. So it would be fatuous to suggest equality is suddenly going to break out. However there will be something of a righting process in some areas, especially in the digital music revenue share equation. Most significantly though, these ratios are becoming the foundational dynamics of the new music industry. These are the reference points that artists, rights holders, and all other music industry stakeholders need in order to understand what their future will look like and how they can help shape it.

NOTE: This post was updated to reflect that the songwriter ratio is actually 10:1 for semi-interactive radio.  The 2:1 ratio applies to label revenue versus collection society revenue, which includes revenue for performers who are often but not always also the songwriter.

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 21st 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 21st 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.

The Three Things Streaming Needs To Fix Next

I spent a couple of days last week in Barcelona for the annual Future Music Forum, which is developing into an important date on the music conference circuit.   Later this week I will post some of the highlights of my opening address but first I am going to spend some time developing some of the white hot issues surrounding streaming that were raised at the conference.

In a really strong field, two speakers in particular stood out: Beggars head of strategy Simon Wheeler and PledgeMusic founder Benji Rogers.   Their presentations and the conference as a whole were infused with a sense that streaming is changing everything, and more quickly than most people expected. This change is manifesting itself in three big issues:

  1. Deciding what streaming’s main role is
  2. What happens to the middling majority of artists
  3. How to monetize the relationship between artists and fans
  1. Time To Decide Whether Streaming Is Marketing Or Sales

It is clear that most labels are conflicted about streaming. They are waking up to the fact that its promise as a retail channel will take time to realize and even then it may not be a like-for-like replacement for lost album sales. Which is prompting labels to increasingly view streaming as a marketing channel too. But if streaming is both the discovery journey and the consumption destination, then what, as a label, are you trying to actually sell with streaming? Across the bigger labels in particular the digital business teams and the marketing teams need to agree on a common view on what the streaming end game is, else risk accelerating album sales decline without adequately driving streaming revenue growth.

If the question is complex for subscription services for free streaming the picture is much clearer, especially for YouTube. As Simon Wheeler said in his presentation: “YouTube is not driving sales. People are going there to consume music. The end.”  If that isn’t a case for windowing YouTube and free tiers of freemium services then I don’t know what is.

  1. What Case For The Middling Majority?

Wheeler also made a vital observation that the streaming success stories tend to be split between mega hits on the one hand (such as Calvin Harris’ 1 billion Spotify streams and Avicii’s 250 million ‘Wake Me Up’ Spotify streams) and slow burn success stories on the other. He cited the example of the XX’s eponymous album that is still in the Spotify indie top 100 five years after release.

This streaming dualism makes it look like label A&R strategy may have to choose between massive hits or long-term success. And if so, what happens to the rest in the middle? You effectively end up with three key types of streaming artist (see figure):

  • Evergreens
  • Middling Majority
  • Hit Machines

streaming artist segments

Could it be that  streaming will end up being the natural selection process for the challenge of catalogue bloat? There is simply too much music being released at the moment, creating the Tyranny of Choice, where listeners are paralysed by excessive choice. For an artist trying to break through, the background noise can be deafening and also kill any chance of making meaningful cut through. And if you do manage to do so then the endless torrent of new releases pushes you straight back to the margins.

If the streaming natural selection process plays out then unless you have created either an album that people will want to listen to again and again or instead a monster hit, then you will simply drift into oblivion. In the old model you might have sold a couple of tens of thousands of albums and managed to sustain some sort of career. 20,000 album sales would be $180,000 gross revenue but 5 million streams (roughly an equivalence in popularity) would be $50,000 gross revenue. Perhaps streaming’s Dystopian Darwinism will kill off the ability to forge a career built on mediocrity. That may be no bad thing.

  1. Monetizing the Relationship

If streaming is eating into sales then the obvious next step is to drive other spending from streaming music consumers. Hence commerce integrations from the likes of TopSpin, Bandpage and PledgeMusic. Unfortunately it isn’t that straight forward as Pledge’s Benji Rogers pointed out. Rogers rightly found himself turned to at the Future Music Forum as the fan relationship guru and he made a crucially important observation: simply because some one is listening to a song does not mean they are necessarily going to want to buy anything from that artist. Instead streaming services need to think more subtly, looking at how to nurture an artist-fan relationship rather than simply trying to sell someone a t-shirt because they happen to be streaming a track.

Artists and fans are closer than ever but this journey is only getting going. And now that artists are building deeper relationships with their fans while sales revenues decline, they need to get smarter about how to monetize them.  The key question though is whether this can be enough to offset the impact of declining music sales revenue. To help answer that I created a ‘Streaming Ancillary Revenues Model’.

A new MIDiA Research consumer survey shows that 11% of streaming consumers are VERY likely to buy merchandise and tickets from their favourite artists in streaming services. I used this conversion rate against the following artist straw man for a hypothetical Year 1 versus Year 2:

  • 100,000 albums sold decline to 60,000
  • Streams increase from 30 million to 45 million streams
  • Total recorded music revenue (streaming and sales) consequently declines by 17%
  • 11% of fans buy $30 of merch, special editions or tickets each year
  • Ancillary revenues grow to represent 33% of total revenues
  • Revenue decline across all income streams is just 3%

So ancillary revenues can significantly soften the impact revenue decline.

(The additional factor of the longer revenue cycle for albums on streaming services should also push the total revenue up further in the longer-term but is not included in these calculations.)

There are many obvious caveats and assumptions here (not least of which is the varying margins across different revenue streams) but these are broadly the right mix of drivers and levers. You can download the model here: Music Industry Blog Streaming Ancillary Revenues Model 9 14  I invite you to play around with it and test your own theories. If you are an artist you might want to plug some of your actual numbers into Year 1 and your projections into Year 2.

Change Is Difficult But It Is Also A State Of Mind

The streaming picture is changing at an absolutely staggering rate and everyone across the value chain needs to get their heads around all the potential permutations else get left behind.

These are both exciting and daunting times. As the bland management consultancy phrase goes ‘change is difficult’. But it is. However, the way that you view and prepare for change both have as much impact on how it affects you as the change itself. Streaming is changing everything. Those who learn how to reinvent themselves for the realities of this brave new world will be those best placed to survive and perhaps even thrive.

The Great Music Industry Power Shift

The long drawn out demise of recorded music revenue is well documented, as is the story of artists, labels and managers all trying to make sense of a world in which music sales can no longer be counted upon.  But the contraction of recorded revenue has occurred at the exact same time that the live music sector has undergone a renaissance.  The net effect, when coupled with publishing revenue holding its own and  the growth of albeit modest, merchandise revenue, is that the global music industry has largely held its own, contracting by just 3% between 2000 and 2013 (see figure).  Compare and contrast with the 41% decline in (retail) recorded music revenue over the same period.  Indeed it is the 60% growth in live revenue that has done most to offset the impact of declining music sales.

music industry revenuePerhaps most significantly of all, the contrasting fortunes of the music industry’s two main revenue streams is that the share of total revenues accounted for by recorded income has dropped from 60% in 2000 to just 36% in 2013.  The balance of power has firmly shifted away from labels to the live value chain.  Yet it is not as clear a picture as might first appear:

  • Recorded music is still the main way people interact with music:  Whether it be on the radio, YouTube, Spotify, an iTunes or a CD, the vast majority of consumers spend the vast majority of their music consumption time with the recorded product not the live product.  In fact just 15% of people regularly go to gigs.  And even for these consumers live is, in terms of total time spent, just a small fraction of their music consumption.  So labels are faced with paradox of making less money from artists yet those same artists still needing the recording in order to drive live and merch income.  This is why we ended up with 360 deals.
  • Much of the market growth didn’t make it down to artists: The live music value chain is an incredibly complex one with multiple stakeholders taking their share (ticketing, secondary ticketing, venues, booking agents, promoters, tax, expenses etc.).  The share of live revenue that artists make from live has declined every year since 2000.  The impact on the total market is that  total artist income (i.e. from all revenue sources) has declined every year too since 2009.

The Next Music Industry

It is probably fair to say that we are approximately half way through a huge period of transition for the music industry.  The realignment of revenue is merely a precursor to the new business models, products and career paths that will emerge to capitalize on the new world order.  It is in this next phase that the real ‘fun’ will start.  Expect every traditional element of the industry to be challenged to its core, expect dots to be joined and old models to be broken.  But be in no doubt that what we will end up with will be an industry set up for success in the digital era.

NOTE: the figures quoted in this post are taken from a forthcoming MIDiA report: The Superstar Artist Economy: Artist Income and the Top 1%.  The report is a follow up to the previous MIDiA report ‘The Death of the Long Tail’