Global recorded music revenues grew by 9.8% in 2023

Growth is back! After a slower 2022, global recorded music revenues grew by 9.8% in 2023 to reach $35.1 billion, compared to 7.1% in 2022, which means that the market is now more than double (124.5%) the size it was in 2015. 2023 was the year in which the industry settled back into a positive growth trajectory after the volatility of the pandemic and post-pandemic years. But the numbers also point to a market that is embarking on a major period of change.

The recorded music market is becoming more diversified, and although streaming is still the centre piece, its role is lessening. Streaming revenues hit $21.9 billion in 2023, up a relatively modest 9.6% on 2022. For the first time ever, streaming grew slower than the total market, to the extent that its share of total revenues actually fell (to 62.5%). Interestingly, over the same period, the five publicly traded DSPs grew revenue by 15.9%, and Warner and Sony collectively grew music publishing streaming revenue by 18.4%. Value is beginning to shift across the streaming value chain.

In other years, the recorded music streaming slowdown would have been cause for concern, but not in 2023. This is because other formats picked up the slack. Physical, after a decline in 2022, was up again (4.6%) in 2023, as was ‘other’. Interestingly, physical is emerging as the industry kingmaker: so far in this decade, over each of the two years that physical revenues grew, industry revenue growth was strong, and in the two years physical fell, industry growth was slow. Physical is the difference between good and great.

The growth in physical revenues, however, is more than just a revenue story, it reflects an industry strategic shift. Anticipating the streaming slowdown, labels and artists alike have been looking for diversification and new growth drivers, with superfans emerging as the central target. The strong growth of physical and ‘other’ revenues in 2023 are the first fruits of the new superfan focus.

The most compelling evidence for the superfan shift, is expanded rights. A subcategory of ‘other’, expanded rights reflect labels’ revenue from sources such as merchandise and branding. In short: superfan formats. Traditionally, expanded rights are not tracked as part of recorded music industry revenues, but last year, because of the industry’s growing fandom focus, we decided we had to include them, even if other entities still do not. 2023 underscored the importance of that decision. Expanded rights revenue grew by 15.5% to hit $3.5 billion – 10% of all global revenues. Expanded rights are one of the main building blocks of tomorrow’s music business.

Change was not constrained to formats. Market shares took some interesting turns, too. Non-major labels had a great year (and we’re calling them that, rather than independents, because a lot of the bigger ‘independents’, such as HYBE, have little in common with what people think of as traditional indies). Non-majors grew revenues by 13.0% in 2023, compared to 9% for the major labels. This meant that non-major label market share was up for the fourth consecutive year, reaching 31.5%. (Though, note this is measured on a distribution basis, not an ownership basis. Therefore, independent revenue that is distributed via a major record label or a wholly owned major label distributor will appear in the revenue of the respective major record label. So ‘actual’ non-major share is higher).

Non-major labels had a great year in expanded rights, outgrowing the market, in large part thanks to Korean labels, which accounted for nearly 70% of non-major label expanded rights revenue.

In stark contrast, 2023 was a tough year for artists direct (i.e., self-releasing artists), with various streaming market developments seeing them grow streaming revenue and their number of streams much more slowly than in previous years. 2023 was the first year artists direct lost market share. Streaming revenue grew just 3.9% in 2023, compared to 17.9% in 2022 and 35.5% in 2021. The result was a 0.4 point decline in streaming market share. Despite a difficult 2023, artists direct revenue in 2023 was 57.7% higher than in 2020, though the impending streaming royalty changes will likely see growth slow further.

On the majors’ side of the equation, Universal remained the largest label group, with its $10.0 billion representing 28.3% market share, but for the first time since 2020, Sony was the fastest growing major, increasing revenues by 11.6%, growing market share 0.3 points to 20.3%

Concluding thoughts

2023 was a very positive year, and it may prove to be the one we look back upon as ‘when things started to change’. Streaming growth slowed, on the recordings side of the equation, at least; monetising fandom became a serious part of the industry; non-majors locked into long-term market share growth; and self-releasing artists started to see a clear divergence between what they streamed and what they earned. 

The industry is beginning to bifurcate between the traditional, streaming-focused business, and a new one in which fandom and creation will take centre stage. Welcome to the first year of tomorrow’s music business.

MIDiA clients read the full report here

Major label revenue surged in 2021, but what does that mean?

2021 was an anomalous year for the recorded music market. Two of the majors did an IPO, the pandemic continued to disrupt the marketplace, and major label revenues grew at unprecedented rates. If the fourth quarter majors’ earnings follow similar seasonality patterns to previous years, collective major label recorded music revenue will be up by 29% in 2021, reaching $19.6 billion (a more bearish estimate is $19.3 billion). By way of comparison, 2020 growth was 6%, and 2019 was 10%. To put it another way, major label revenue increased by $787 million in 2020, and in 2021 it was up by $4.4 billion. 2021 was a red-letter year for the major labels, but was it a one-off or an industry pivot point?

To get to the answer, we first need to contextualise major label revenue growth within the wider market. 

Streaming 

Predictably, streaming was the core driver of major label revenue growth in 2021, accounting for 67% of the revenue, and up by 31% to reach $12.8 billion. That level of annual streaming growth has not been seen since 2016. 2020 streaming growth was 18%. But streaming’s leading player, Spotify, did see that kind of growth. Spotify’s full year 2021 revenues look set to hit €9.6 billion (which would be up by 22% from 2020), and if we only consider premium growth (i.e., the part that is not boosted by podcast revenue), then growth was just 19%. And it is not as if Spotify is losing much ground in the global streaming market – its subscriber growth was largely in line with the global market average (excluding China). So, the majors grew streaming faster, somewhere beyond Spotify.

The total market

The major labels’ total revenue growth also follows a different trajectory to other parts of the market, The year-to-date performance of just one of the top four recorded music markets matches the majors’ trend (bear in mind that these four markets were 62% of global label revenues in 2020, so they shape global growth trends):

• US: 27.1% growth (H1) – RIAA
• Japan: -1.0% (Jan-Nov) – RIAJ 
• UK: 8.7% (FY) – ERA
• Germany: 12.4% (H1) – BVMI

(It will be interesting to see how the IFPI allocates the revenue. There may well be quite a gap between their global total and the sum total of all the individual countries if this is indeed largely attributable to one off payments rather than reflecting organic, country level revenue.)

All of this means that the additional major label growth is likely reflective of factors such as:

• Large, one-off payments from the likes of ByteDance, Twitch and Facebook
• Licensing income from the same parties
• Increased contribution from other markets
• Market share increase from catalogue acquisitions 
• Revenue growth from major-distributed independents
• Organic market share growth

While all of these factors will be at play, it is the first two factors that are likely the most consequential. MIDiA estimates that these new non-DSP streaming income sources accounted for between $0.8 and $1.2 billion in 2021. Even at the lower end of the estimates, that revenue alone would have driven the same amount of growth in 2021 as all major label revenue growth combined in 2020. 

There is a clear narrative that post-digital service provider (DSP) revenue is now becoming a central growth driver for the recorded music business. Clearly a very beneficial narrative to have had during an IPO year, especially if the trend was accentuated by one-off payments and settlements – which would help explain the divergence between major label growth and local market growth. 

There are two key potential scenarios:

1. Upfront payments for post-DSP streaming partners exceed organic mid-term revenue, resulting in slower growth rates in 2022 and 2023
2. Post-DSP streaming partners meet / exceed expectations, making 2021 and 2022 look much like the late 2000s and early 2010s did for DSP streaming, with minimum guarantees being more often than not 

So, by 2023 we should be able to tell whether 2021 was a spike or a pivot point. If I was a betting man, I would probably put money on the outlook being closer to 2 than to 1.

Music market shares: independent labels and artists are even bigger than you thought

It has been a long time since the music industry has been in such good shape. So long, in fact, that there are not too many executives left who worked through the pre-crash days. 2021 was the year in which the major label groups capitalised on the momentum, with Universal and Warner going public, and Sony going on a spending spree. This was off the back of a strong 2020, in which the majors collectively generated $15.1 billion, giving them a market share of 66.1%. So far, so normal, but all is not quite as it seems. This market share may be how the world sees the majors’ success, but it significantly underplays the revenue contribution of independents. MIDiA decided to fix that.

At the start of this year MIDiA fielded a large-scale, global survey of independent labels, collecting billions of dollars’ worth of revenue figures. We think that it is the most comprehensive survey of the independent sector done yet. In the survey, we asked labels about a range of factors, which enabled us to paint a complete picture of the state of the independent sector in today’s music business. Crucially, we collected detailed data on distributors, and this is where the under reporting of independents comes into play.

The undoubted benefit of the streaming era is that it presents artists and labels of all sizes with the ability to reach global audiences. But most independent record labels do not have sufficient scale nor resources to license and distribute directly to streaming services, and thus turn to the ever-expanding marketplace of digital distributors. Never shy to an opportunity, the major record labels have established themselves as key players in this space, distributing independent labels either directly or via their distribution arms. The value that they deliver to independents is clear, but the revenue goes via the majors’ accounts, and so major label revenues are boosted by independent revenue, thus inflating the market share of the majors. With the data we tracked in our independent label survey, we were able to unpack this ‘embedded’ distributed independent label revenue from the majors’ total to arrive at the ‘actual’ market share of independents, based on who holds the copyright, not simply on who distributes it.

Measuring market share on this ‘ownership’ basis, independent market share (which includes artists direct) goes from 33.9% (the ‘distribution’ basis) to 43.1%, i.e., an additional 9.2% of share. Or, put another way, an addition of $2.1 billion. The independent share was up from 41.3% in 2018, and in 2020, independent revenue (on an ‘ownership’ basis) grew by 12% compared to a total recorded music market growth of 12%. All of which means that independents (labels and artists) are a) bigger than standard industry measures suggest, and b) growing faster than the total market and are thus increasing market share. Which makes the majors’ strategy even smarter. If they were not so active distributors of independents, they would simply be ceding all of the revenue, instead of, as they are, capturing some it and being able to report the market share as their own.

These findings and much more (including regional market data and data on label operations (e.g., A+R, marketing, catalogue size, years in operation)), are available to MIDiA clients in this full report.

All independent labels that took part in the survey have already received a copy of the report. If you want a copy of next year’s edition, be sure to take part in the next survey when we announce it!

Why Kanye West is the modern-day Prince

Not ‘prince’ in the Machiavellian sense of the term – though there is an argument for that too – but as in the artist formerly known as. Back in 1992, Prince fought his label Warner Bros to get ownership of his rights and more creative control, struggling to get out of a deal he signed when he was 19 and had since decided was unfair and overly restrictive. He famously started appearing with the word ‘slave’ on his face. The bitter conflict resulted in Prince changing his name to ‘symbol’ and self-releasing via an artist subscription service long before subscriptions were even a thing. He then came back to a label deal on his own terms, later returning to Warner Bros and winning ownership of his masters, and finally signed with Tidal (read this for a succinct history of Prince’s label deals).

Now we have Kanye posting pages of his UMG deal on Twitter and saying it represents slavery. Why, nearly 30 years later, is history repeating itself?

Many artists start naïve and become educated 

Many artist careers follow a similar path: 

1. Sign a deal as a young, commercially naïve artist 
2. Become successful
3. Learn how the business works
4. Realise that the deal you signed was heavily stacked in favour of the label

In recent years, this path has started to change, with most artists initially spending a few years as independent artists, learning how the business works, before getting a deal. When that deal comes, more of them go into it with eyes (relatively) wide open and negotiate terms that are more equitable for them. Companies like Cooking Vinyl, BMG and Kobalt’s AWAL helped change the market dynamic, pushing a new paradigm in artist deals and, in turn, driving the wider industry in the same direction. Label services, distribution deals and joint ownership deals are now commonplace even among major record labels.

A two-tier system

This dynamic has created a two-tier system. Many of the new generation of younger artists who own their masters have favourable royalty splits and high degrees of creative control. The older, established artists – including many of today’s superstars – are meanwhile still locked into the old way of doing things. These artists are starting to question why, as the artists with most sway, they seem to have less negotiating power than smaller, newer artists, and they don’t like it. Enter stage left, Kanye.

The reasons why artists did, and still do, sign traditional deals are simple: 

1. They are often what is first offered to them by many labels
2. They reduce the artist’s exposure to risk by putting more of the risk on the label
3. They give them the best chance of getting the full marketing heft of the label to make them into superstars
4. They get a big advance

Kanye signed the deal he signed

Kanye’s Twitter posts indicate that he was given millions of dollars in advance payments. Now, however, with his ‘nemesis’ Taylor Swift enjoying the benefits of a new(ish) deal that gives her ownership of her rights, Kanye wants the same treatment. (Kanye’s advisor couldn’t avoid having a little dig suggesting that Kanye’s masters are worth more than Swifts’). I am not a music lawyer so I am not going to get into the details of whether Kanye’s deal is fair or legally watertight, but it is nonetheless the deal that he signed. And it was long after Prince’s campaign to get ownership of his masters. Kanye, knowingly or otherwise, signed the deal that he signed despite other deal types being available. It is a deal that may now look outmoded and out of pace with today’s marketplace, but he remains tied to its terms – for now at least.

From indentured labour to agency-client

Kanye and Prince’s use of the word ‘slavery’ is emotive and has extra connotations for black artists – and there is some logic to the argument. In a worst-case scenario, traditional label deals can resemble indentured labour, with the artist permanently in debt to the label, having no ownership of their work and unable to take their labour elsewhere. Modern day label deals are able to reframe the relationship to one of an agency-client model.

When Prince took on the music industry, he was a lone voice trying to bring a new way of doing things (though others such as the Beatles had previously fought the battle for their masters too). Prince’s actions helped pave the foundation for today’s better-balanced music business, and many superstars have taken advantage of his pioneering efforts, with Rihanna and Jay-Z just a couple of those that now own their masters. Nor is this the first time Kanye has been angling for ownership of his masters.

So, to answer the opening question, why is history repeating itself? Simply put, many young artists new to the profession will take the big cheque and the promise of being made into a superstar over getting a better deal. Many of the newer generation of music companies will note that it is no longer a binary choice if an artist signs a deal with them; nevertheless, the case of Kanye West shows us that for many artists it still is. 

What has changed is that a new artist today has more opportunity to educate and empower themselves – to get a deal that will enable them to build an equitable, sustainable career. For that, they owe a debt of gratitude to Prince.

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

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

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

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

Finding the third data point

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

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

Superstars within superstars

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

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

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

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

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

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

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

The 90/1 rule

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

Independents Grew Fastest on Spotify in 2019, But There’s a Twist

Tomorrow (Wednesday 29^th April) Spotify announces its Q1 2020 results, at which point we will find out whether it had a COVID-bounce like Netflix did (adding 15.8 million subscribers in Q1) or whether growth slowed. But before that, there is one little detail from Spotify’s 2019 Annual Report which warrants a closer look. Hidden away in the commentary there is this innocuous looking line:

“For the year ended December 31, 2019 [Universal Music Group, Sony Music Entertainment, Warner Music Group, and Merlin] accounted for approximately 82% of music streams.”

The same line is in Spotify’s 2018 Annual Report with the figure at 85%. So, the majors and Merlin indies saw their share of Spotify streams decline by three percentage points in 2019. That in itself is interesting and builds on the narrative of the streaming tail getting longer and fatter, with the superstars losing share. But with a little creative thinking we can do a lot more with this three percentage points shift.

Using MIDiA’s label market shares data for FY 2019 we can do a full breakdown of Spotify’s streaming revenue. Applying shares for streaming volumes to streaming revenue, and shares for the total streaming market to Spotify is not methodologically pure and has margins of error, but it is a broadly sound approach and lets us do the following:

• First we apply the percentage share to Spotify’s annual revenue
• Next, we take the majors’ share of streaming revenues for 2019 and apply them to Spotify’s streaming revenue
• We can then deduct the majors from the majors + Merlin total to leave us with Merlin’s revenue
• Then we apply the independent artists streaming share to the Spotify revenue which leaves us with one remaining segment: ‘other independent labels’

What emerges is a hierarchy of dramatically different growth rates, ranging from just 11% for Merlin labels through to a dramatic 48% for independent artists and an even more impressive 58% for ‘other independent labels’. This provides further evidence of the way in which (much of) the independent sector continues to thrive during streaming’s continuing ascendancy.

Most intriguing is the 58% growth for ‘other independent labels’. I am using the quote marks because this is essentially an ‘all others’ bucket and so captures music entities that don’t fit the traditional classification of ‘label’. This includes AI generative music and of course library music companies like Epidemic Sound.

It is of course important to consider that growth rates are not absolute growth – the majors still added much more new Spotify revenue in 2019 (€1 billion) than all of the rest put together. Nonetheless, the difference in growth rates is stark and only Spotify will be able to answer questions about how much of this is organic versus how much of this is driven by the way that it engineers its recommendations and programming.

Whatever the causes, the effect is clear: streaming benefits everyone but it benefits some more than others.

Recorded Music Revenues Hit $21.5 Billion in 2019

With IPOs from Warner Music and Universal Music pending and continued institutional investment into music catalogues, the music business is firmly in the sights of big money. The performance of the recorded music business in 2019 is going to heat up interest even further. The global recorded music industry continued its resurgence in 2019 with a fifth successive year of growth. Global revenues grew by 11.4% in 2019 to reach $21.5 billion, an increase of $2.2 billion on 2018. That growth was bigger than 2018 in both absolute and relative terms. Whichever way you look at it, growth accelerated, and – crucially – this growth was achieved even though streaming revenue growth slowed.

These are the key trends that underpinned growth:

• Independence is on the rise: The major record labels retained the lion’s share of the overall market in 2019, accounting for 67.5% of the total – down half a point from 68.0% in 2018. The remaining 32.5% accounted for by independent labels and artists combined was up 0.5 points from 2017 and 4.6 points from 2015. Artists direct – i.e. artists without record labels – was again the fastest-growing segment of the market, growing by 32.1% in 2019 to reach $873 million, representing 4.1% of the total market, up from 1.7% in 2015.
• Big year for Universal: Universal Music Group was the big winner among the majors, growing both faster than the other two majors and the total market to reach 30% market share. Universal also added more revenue in 2019 ($729 million) than Warner Music and Sony Music combined ($650 million).
• Race for 2^nd heats up: In 2015 Warner Music’s recorded music revenue was just 67% of Sony Music’s, and at the end of 2019 that share had increased to 93%. Just $279 million separated Warner and Sony at the end of 2019. Based on 2019 growth rates, Warner would be level with Sony by the end of 2022.
• Still stream powered: Streaming was again the key source of growth, up 24% year-on-year to reach $11.9 billion, representing 56% of all label revenues. But growth is slowing; streaming revenue grew by $2.3 billion, which was $64 million less than in 2018. The reason that the total market was able to grow as fast as it did in spite of this is because downloads and physical fell by $0.4 billion less than in 2018. So, ironically, it was the improved performance of legacy formats that enabled streaming’s performance to be good enough to drive 11.4% growth. 

Despite the inevitable slowdown in streaming revenue growth, the recorded music market managed to not only consolidate on its strong 2018 performance but improve upon it in 2019. The continued boom in recorded music revenues is accompanied by a growing complexity to the underlying business, with increased diversification of business models and artist/label relationships. Over the next few years continued revenue growth will be both accompanied and driven by business model innovation and disruption.

Welcome to the Age of the Artist

As it enters the third decade of the millennium, the recorded music business is in rude health. Revenues are about to enter the second half of a decade of annual growth, streaming is booming and investment is pouring in. Simultaneously, the fundamentals of the business are changing – from artist and songwriter careers, through music company business models to audience behaviour. The coming decade will underpin a story of old versus new, of insurgents and incumbents. There will be winners and losers on both sides. We are entering the music business’ next era, one that will be defined by factors such as artist empowerment, fandom, global culture, independence, amplification, creation, fragmentation and agility. One of the driving forces in this period will be the continued rise of the independent artist. In fact, we expect the role of the artist to be so impactful that we are calling this next era The Age of the Artist.

Each of the previous music business eras have been defined by and named after the dominant formats of the time. Industry business models were transformed by these technology shifts and the resulting changes in consumer behaviour. Nevertheless, the underlying relationship between artists and labels remained relatively unchanged, with the label very clearly the senior partner. Now that is beginning to shift. Artists are more empowered and informed than ever because of:

• Access to audiences: The combination of streaming, social media and artist distributors mean that artists can find global audiences without the need for a label. Of course, a label, or some other entity providing label-like services such as a distributor, can usually amplify this many times over – but artists can now either make a start for themselves or even never rely on a label’s marketing muscle at all.
• Alternative models: Signing rights away in perpetuity with a traditional record label deal is no longer the only option on the table. In fact, just 8% of independent artists interviewed by MIDiA said that they want to sign a traditional label deal, with more than half wanting to sign a label services deal instead. Of course, many artists might change their minds when a nice fat advance is waved under their noses – but the intent is there. This new generation of artists have a strong sense of independence and they and their managers are helping forge a reshaped industry built upon new, more-equitably balanced contracts and deal structures.
• Labels as a service: Because streaming is essentially the only consumer music proposition in town, early stage investors have to put their money in B2B services if they want a part of the music business action. As a consequence, we now have a vibrant marketplace of artist tools and services. So much so that an artist could build their own virtual label if they wanted to. Of course, these tools can lack the personal touch of a label, but the potential is there nonetheless.

Creator tools – the new top of funnel

It is the tools covered in that last bullet that look set to drive the music industry’s next growth curve. Artist tools – encapsulating everything from collaboration, through production to marketing, are growing fast and will grow even faster still. For a number of years now, larger record labels have been actively building their artist and label distribution capabilities. This ‘top of funnel’ strategy is well established, and enables them to fish upstream for talent early on as it appears. However, the real top of the funnel is one step earlier: the creation of music itself. The companies that establish relationships with artists and songwriters as they are creating music have the first connection, a platform for bigger, longer-term relationships. In fact, this may be the starting point for the label of the future. It might sound crazy, but so did the concept of major record labels distributing unsigned artists. And Spotify doesn’t think it sounds crazy – the likes of SoundBetter and Soundtrap in its two-sided marketplace look like bets on the future of artists and whatever labels look like five years from now.

But it doesn’t matter who ‘wins’ on the supply side (not that there will be any clear winner). The more entities competing for artists’ business, the more choices artists have. Welcome to the Age of the Artist.

The concepts in this blog are just a few of those explored in much more depth in the MIDiA report: Insurgents and Incumbents | How the 2020s Will Remake the Music Business. If you are not yet a client and would like to learn more about how to access MIDiA’s insight platform then please email stephen@midiaresearch.com

Creator Support: A New Take on User Centric Licensing

User-centric licensing (i.e. stream pay-outs based on sharing the royalty income of an individual user split across the music they listen to) has stimulated a lot of debate. I first explored the concept of user-centric licensing back in 2015and stirred up a hornet nest, with a lot of very mixed feedback. The big issue then, as now, was that it is a very complex concept to implement which may well only have modest impact on a macro level but may also have the unintended consequence of worsening income for smaller artists. Fans of smaller artists tend to be more engaged listeners who generate a larger number of streams spread across a larger number of artists. The net result could be lower average income for smaller indie artists, and higher income for mainstream pop acts who have listeners with lower average streams spread across a smaller number of artists. Since then, Deezer has actively explored the concept and it continues to generate industry discussion. It is unlikely there will ever be consensus on how user-centric licensing should work, but the underlying principle of helping artists earn from their fans remains a valid one. So, here is an alternative approach that is both pragmatic and far simpler to implement: creator support. A new way to solve an old problem.

Creator support is gaining traction across the digital content world

In the on-demand world, monthly streaming income for creators can be both modest and unpredictable. Amuse’s Fast Forward,YouTube’s channel memberships and Patreon are illustrations of how the market is developing solutions to give content creators (especially artists, podcast creators, YouTubers and Twitch streamers) an effective way to supplement income. But it is Epic Game’s ‘Support-A-Creator’ model that provides the best example of an alternative to user-centric licensing. Epic Games enables Fortnite players to choose a favourite creator to support (which typically means YouTube and Twitch Fortnite players). Epic Games then contributes the equivalent of around 5% of all in-app purchases that the gamer makes to that creator.

How creator support can work for music streaming

Using Spotify and a selection of artists as an illustration, here is how a creator support approach could work for streaming music:

• All Spotify subscribers get given the option to ‘support’ up to two of their favourite artists
• For each artist that a subscriber supports, 1% of the record label royalties derived from that subscriber’s subscription fee goes directly to the artist, regardless of how many streams that user generates
• The label of each artist then pays 100% of this ‘support’ income

To illustrate how creator support can work, we created a model using Spotify and a selection of diverse artists. We assumed that 75% of Spotify subscribers support an average of 1.5 artists. In the above chart we took five contemporary frontline artists across major labels and label services, and we assumed that 10% of their monthly Spotify listeners support them. Factoring the different types of deals and royalty rates these artists have, as well as the ratios between average monthly streams and monthly listeners, there is an intriguing range of revenue impact that creator support delivers. For Taylor Swift (on a major deal, but one in which she held the negotiating whip hand), Lauv and Rex Orange Country (both on Kobalt label services deals) the creator support income is between 18% and 22% of their existing streaming royalties from Spotify. For Billie Eilish and Circa Waves, both on their first major label deals, creator support income would represent a much larger 78% and 65% of streaming royalties. The rate is higher for Billie Eilish as she has a higher streams-to-listeners ratio.

Artists get paid more with minimal impact on the wider royalty pot

Putting aside the irony that this approach would help put many major label artists more on par with what label services and independent artists earn from streaming, the clear takeaway is that creator support can be an effective way of fans ensuring that some of their streaming spending directly benefits their favourite artists. Because we have structured the model to be just 1% per artist (rather than Fortnite’s 5%) the net impact on the total label royalty pot is minimal. Applying the above assumptions to Spotify’s 2018 label payments, the royalty pot (and therefore per-stream rates) would reduce by just 1.13%, meaning that non-supported artists would feel negligible impact.

We think the creator-approach model enables labels and streaming services to deliver on the ambition of user-centric licensing without the complexities and unintended inequities. But perhaps most importantly, it helps put artists and fans closer together, bringing the pledging model to the mainstream.

Let us know what you think. Also, we’ve added the excel model to this post for you to download and test your own assumptions against it.

MIDiA Research Streaming Creator Support Model 4 – 19

2018 Global Label Market Share: Stream Engine

Recorded music revenues grew in 2018 for the fourth consecutive year, reaching $18.8 billion, up $2.2 billion from 2017. Streaming was the engine room of growth, up 30% year on year to reach $9.6 billion. For the first time streaming became the majority of label revenue (51%), and its growth continues to outpace the decline of legacy formats. Major label rankings remained unchanged in 2018, but the majors enjoyed varying fortunes and the continued meteoric rise of Artists Direct points to market transforming changes that are reshaping the entire business of record labels.

2018 was shaped by three key factors:

• Continued growth: Global recorded music revenues grew 7.9%. Though 2017 revenues grew by a higher 9.0%, the market grew the same in absolute terms in 2018, adding $1.4 billion of net new revenues as in 2017. Since 2015 the total market has increased by 26%, adding $3.9 billion of net new revenue.
• Stream powered: Though relative growth is slowing, streaming added the same amount of net new revenue – $2.2 billion – in 2018 as it did in 2017. Though 2019 will see mature streaming markets such as the US and UK slow, mid-tier markets such as Mexico and Brazil, coupled with Japan and Germany, will ensure that streaming revenues grow by another $2 billion in 2019.
• Artists Direct:The major record labels retained the lion’s share of revenues in 2018, accounting for 69.2% of the total. Changes in global market shares typically move at a relatively slow pace, particularly at a major vs independent level. However, Artists Direct – i.e. artists without record labels – are changing the shape of the market, growing nearly four times as fast as the total market to end 2018 with $0.6 billion of revenue.

There were mixed fortunes in terms of market shares. Universal Music and Warner Music both gained 0.6 points of market share in 2018, up to 30.3% and 18.3% respectively, with Sony Music losing 1.5 points of share in 2018. Though Sony’s 2018 revenues were constrained in part by the company implementing new revenue recognition practices in 2018, Universal’s market share lead over the second placed label is now an impressive 9.7 points.Artists Direct and Independents together accounted for 30.8%, though this figure is measured on a distribution basis (i.e. Major revenues include independent labels distributed by majors and major owned companies). The independent share based on an ownership share will therefore be higher.

More of the same, but change too

In many respects 2018 was a re-run of 2017: total revenues grew in high single digit percentage terms; streaming was the engine room of growth and added more revenue than the prior year; Warner Music gained most major market share; Universal Music added more revenue than any other label; Artists Direct gained most market share.  But it is this latter point that may say most about where the overall market is heading. The range of tools now available to an artist are more comprehensive than ever before, while deal types that labels are offering (e.g. label services, joint ventures) are changing too. Artists are effectively able to custom-build the right model for them. The market will always need labels, but what constitutes a label is becoming a fluid concept. And in so becoming, it may put us on the verge of the biggest shift in record label business models since, well, ever.

These findings are highlights of the MIDiA Research report: Recorded Music Market 2018: Stream Engine. If you are a MIDiA client you can access the full report, slides and datasets here. You can also purchase the report and all its assets here.