Access Industries’ full stack music company has, ahem, company: Liberty Media. With a combined market market cap of $37 billion John Malone’s Liberty group of companies is by anyone’s standards is a serious player. In the world of media and telecoms it is one of the biggest. Liberty grabbed the headlines this week with its $2.7 billion acquisition of a 15% stake in Formula One, with an option to acquire the entire company, possibly by year’s end. It is a typically bold move for a company that makes a habit of acquiring companies and consolidating markets. Over the past 11 years Liberty Media and Liberty Global have spent around $50 billion on acquiring companies such as UK TV operator Virgin Media, Dutch cable company Ziggo and (indirectly via a holding company) major league baseball team Atlanta Braves. So far so good, but where’s the music angle I hear you ask. Well, just a few weeks ago Liberty made a bid for a certain Pandora Media to add to its already extensive collection of music assets.
The artist-and-labels-versus-YouTube crisis is going to run and run, even if some form of settlement is actually reached…the divisions and ill feeling run too deep to be fixed solely by a commercial deal. What’s more, a deal with better rates won’t even fix the underlying commercial problems. Music videos under perform on YouTube because they don’t fit YouTube in 2016 in the way they did YouTube in 2010. The 4 minute pop video was a product of the MTV broadcast era and still worked well enough when online video was all about short clips. But the world has moved on, as has short form video (in its new homes Snapchat, Musical.ly and Vine). Short videos are no longer the beating heart of YouTube viewing and quite simply they don’t make the money anymore. This is why music videos represent 30% of YouTube plays but just 12% of YouTube time. If record labels, publishers, performers and songwriters want to make YouTube pay, they need to learn how to play by the new rules. And to do that they need work out what to do with ‘15’.
There Is A Lot More To YouTube Revenue Than Some Would Have You Think
The recorded music industry gets radio, and it is beginning to get streaming. Both are all about plays. Each play has, or should have, an intrinsic value. They are models with some degree of predictability. But YouTube does not work that way, which is why the whole per stream comparison thing just does not add up. In MIDiA’s latest report ‘The State Of The YouTube Music Economy’ we revealed that YouTube’s effective per stream rates (that is rights holder revenue divided by streams) halved from $0.0020 in 2014 to $0.0010 in 2015.
Sounds terrible right? And make no mistake, there is no way to spin it into a good news story. However, it didn’t fall because of some nefarious Google ploy. It fell because of many complex reasons (all of which we explore in the report) but the 2 biggest macro causes were:
- YouTube pays out as a share of ad revenue (55%) not on a per stream basis. So when the value of its ad inventory goes down (due to factors such as more views coming from emerging markets with weaker ad markets) the revenue per stream goes down too. This is something the labels can do little about, though an increased revenue share will soften the blow as YouTube globalizes.
- YouTube serves its in-stream video ads (the most value ad format) on a time-spent basis, not on a per-video basis. Our research found that the average number of video ads per hour of viewing comes out at about 4. That means if you have 15 minute videos (like many YouTubers do) you will get a video ad every play. But if you have 3 or 4 minute pop videos you may only get 1 video ad for every 4 or 5 plays. Which means 4 or 5 times less video ad revenue. In fact, our research revealed that just 26% of music video views have video ads. This is the underlying issue the industry needs to address, and unlike global ad market dynamics, this is something it can indeed fix.
The 15 Scale
This is where the magic number 15 comes in. Right now music video sits in the same 3-4 minute slot it has done so ever since MTV said it wanted videos that length. Yet video consumption is now polarized between the 15 second clip on lip synch apps like Musical.ly and Dubsmash and 15 minute YouTuber clips. Falling in between these two ends is revenue no-mans land. As I have written about before, labels and publishers need to figure out how to harness the 15 second clip as an entirely new creative construct and shake off any old world concepts that this is actually anything about marketing and discovery. It is consumption, plain and simple…it just happens to look unlike anything we’ve seen before.
At the opposite end of the 15 scale labels and artists need to start thinking about what 15 minute formats they can make. Think of this as a blank canvas – the possibilities are limitless. For example:
- 3 track ‘EP’ videos interspersed with artist narrative and reportage coverage
- Live sessions (recorded by, and uploaded by labels so they get revenue as well as publishers)
- Mini-documentaries such as ‘the making of’s
- On-the-road features
15 Minutes Does Not Have To Break The Bank
And before you cry out ‘but this stuff will cost so much more to make’, it doesn’t have to if more is made out of current assets and processes. For example, ensure that one of the support crew has a handheld camera to film some shoulder footage for reportage. The whole thing about YouTube is that it doesn’t have to be super high production quality, in fact the stuff that does best patently isn’t. YouTube videos that work best are those that are an antidote to the old world of inaccessible glamour. If you really want to do things on the cheap, simply splice three music videos together into a single long form video (e.g. tag 2 older tracks onto the new single). Doing so will nearly treble the video ad income.
And (yes another ‘and’) if you can’t get your head around the inescapable need for a completely new music video construct, just think about it this way: 15 minute videos will make you 5 times more video ad revenue. This really is a ‘no brainer’.
Back To The Future
As a final piece of evidence (not that it is needed), cast your mind all the way back to 1982, to Michael Jackson’s landmark video ‘Thriller’. A 13:42 video that is widely recognized as one of the all time music video greats that has also racked up 330 million views on Vevo. So you could say the case for 15 minute video was already made a quarter of a century ago (thanks to MIDiA’s Paid Content Analyst Zach Fuller for pointing that one out).
The 4 minute music video is dead, long live the 15 minute music video.
For more detail on our ‘State Of The YouTube Music Economy’ report check out our blog.
It is 15 months since the launch of Tidal (which was 2 months after Jay-Z’s Project Panther Bidco bought Aspiro) and it is 12 months since the launch of Apple Music (which was a year after Apple bought Beats Music). The streaming world has changed a lot in that time and both those companies have had a disproportionately large amount on influence on the market’s direction of travel. Their arrivals defined Spotify’s role as incumbent while simultaneously casting Apple and Beats as challengers. They have performed their roles of disruptive entrants well, reshaping the competitive marketplace with a strong focus on brand and artist exclusives. Now reports emerge that Apple is in talks to buy Tidal. First victory in the exclusives war or overspending for market share?
When Is An Exclusive And Exclusive?
In the streaming video world an exclusive means exactly that. If you want to watch ‘House Of Cards’ you need Netflix, if you want to watch ‘Man In The High Castle’ you need Amazon Prime. But in music the rules are far more flexible.
Looking at the flagpole exclusives across Apple Music, Tidal and Spotify, most of these are available on other platforms as downloads, while many are available to stream. For example, Beyoncé’s ‘Lemonade’ is only available to stream via Tidal but was available to download on iTunes within 24 hours of release. Understandably, the exclusive albums of each company’s respective godfather are genuinely exclusive. But Rihanna’s ‘Anti’ was given away by Samsung while Spotify’s rock legends exclusives are streaming only.
Apple is beginning to push the envelope though, pitching creative solutions to labels and artists, resulting in output like videos for The Weekend and Drake. At the same time it is beginning to look suspiciously like a record label with the release of Chance The Rapper’s ‘Colouring Book’ mixtape. The net result of all this clamouring to be seen as the ‘home’ of an artist is resounding confusion and frustration for music fans. An avid TV fan may well accept the need to have both a Netflix and Amazon subscription because no video service claims to have all the TV shows and movies on the planet. However, the central proposition of streaming music services is exactly that…or at least it was until Tidal and Apple Music upset the the apple cart (ahem). The irony is that in scoring a quick win against Spotify, Tidal and Apple may have fundamentally undermined the long term positioning of the entire streaming music product.
Exclusives Cannot Recreate The 1990s
Apple Music’s head of original content Larry Jackson has said he wants to make Apple Music to emulate the success of MTV in the 80’s and the 90’s, creating the sense that artists ‘live there’. It is an admirable goal but the music world of the 2010’s is a dramatically different one. In those days there was scarcity (you had to buy music to listen on demand) and there was a finite amount of radio and TV. It was possible to control both the message and the audience. Now we are in the Era of Distributed Audiences where people are simultaneously in multiple digital places, with artists and labels racing after them in all those places. No amount of exclusive windowing is going to change that. The genie is well and truly out of the bottle.
The Economics Of Exclusives
Where the streaming video and streaming music markets match up is that content budgets are currently being used to drive user acquisition. While streaming services have a long way to go before they reach Netflix’s $6 billion annual content budget, both types of streaming service will overspend to get market share and will reel budgets back in later. So it should be no surprise that the amounts being spent on artists don’t really add up.
For example, Apple is reported to have spent $19 million on Drake and was rumoured to have bid up to $25 million for Harry Styles. If Styles had signed, even if he had racked up the same number of streams as Drake on Spotify in 2015 (1.8 billion, the highest number of any artist) he would still only have generated gross revenue of $18 million and net revenue of revenue of around $14 million, leaving something like an $8 million loss for Apple when Apple Music’s additional retailer margin is factored in. Apple would however have been able to make up the remainder on album sales, but Styles would have needed to have shifted a good number of albums. (Adele’s ‘25’, the biggest selling download album in the US in 2015 drove around $15 million in label revenue.) So for now, it takes selling albums to make the economics of streaming exclusives add up.
Jay-Z paid $56 million for Aspiro’s 512,000 subscribers, $110 per subscriber. Assuming he’d want a similar per subscriber price, that would put Tidal’s price tag at around $440 million. That’s no small amount of money for around 5% of the global subscriber market. Or to put it another way, Apple could another 23 Drake exclusives for that money which most likely would have a bigger impact on subscriber growth. Indeed, on all growth measures Apple Music has outperformed Tidal over the last 12 months, adding 12.5 million new subscribers to Tidal’s 3.1 million, growing by an average of 1.4 million subscribers a month compared to 0.3 million for Tidal. Apple even has the edge in % growth terms (352% compared to 328%).
So why is Apple in the market for Tidal (albeit reportedly)? Probably more than anything it is about taking an irritatingly threatening competitor out of the market. Tidal has been stealing Beat’s core customer base from right under its nose. It’s no coincidence that Apple Music’s exclusives strategy has had a strong urban bias. Apple wants its Beats customers back, just like it wants its iTunes customers back from Spotify.
Even if Apple does buy Tidal, don’t expect the exclusives wars to go away. Indeed, Spotify just acquired its own exclusives supremo in the shape of Troy Carter, and Apple clearly has its mind set on continuing to spend heavily. So the next few years of streaming will be defined by streaming services getting closer to artists (with Connect becoming much more important for Apple) which in turn will see the distinctions between what constitutes a streaming service and a record label blur all the more.
As science fiction write William Gibson wrote: the future is already here, it’s just not evenly distributed yet…
The subscription pricing debate is gaining momentum with serious dialogue occurring at high levels across the industry. Every consideration though occurs against the backdrop of fear, fear of disrupting the solid start subscriptions have made so far. It is clear that although the 9.99 price point has significant additional market opportunity, that potential has a finite scope. Once the ceiling of adoption has been reached the market will stagnate unless new price points are introduced.
One option for reducing risk is to tailor services at discreet segments that are not prospects for 9.99 services. By building highly distinct, curated services that deliver users curated, lean back experiences rather than bewildering them with the Tyranny of Choice of 30 million tracks. Music Aficionados are the driving force of current digital music, are less than a fifth of all consumers yet are the core target of every 9.99 subscription service. By contrast Forgotten Fans – super engaged music fans who don’t yet spend much money on music – are hugely underserved. A handful of companies have been trying to unlock this segment, including Blinkbox Music, Mix Radio (formerly Nokia Mix Radio), Bloom.fm (RIP), Psonar (PAYG streams), MusicQubed (O2 Tracks, Vodafone Tracks), Zvook, as well as ‘Pandora One’, ‘Slacker Radio Plus’ and Rhapsody’s ‘unRadio’. Even Spotify is having a go. Now MusicQubed have upped the ante in the pursuit of the Forgotten Fan powering a new MTV music service: MTV Trax.
MTV: Digital Music’s Sleeping Giant
MTV is something of a sleeping giant in the digital music space. It is the sort of brand the marketplace has been waiting for. Spotify has done a fantastic job at creating a brand from scratch but outside of digital music circles it has minimal brand recognition. What MTV brings is immediate brand equity, the sort of instant familiarity that can help pull mainstream consumers into the digital fold.
Up to now, besides a couple of ill fated early efforts (remember MTV Urge anyone?) MTV has never seriously tried to convert its massive brand and reach. MTV has been biding its time. It is a mainstream brand for the masses so it has been waiting for the market to reach sufficient scale and for the right product for it to enter. MTV knows there is little point in trying to push its youthful, mass market audience towards Aficionado services that they are unlikely to be able to afford or have interest in.
MTV Needs To Put Mobile At The Heart Of Its Channel Strategy
There is an additional reason the time is now right for MTV, whether they realise it or not: their business model is stuck firmly in the confines of old, traditional media i.e. Pay TV. Though Pay TV is hardly in crisis, yet, the first cracks are beginning to appear with disruptive Over The Top (OTT) services like Netflix and Amazon Prime and cord cutting. Of most concern for MTV is the new generation of ‘cord never’ consumers that may never take a Pay TV subscription, instead relying solely on the likes of Netlix, Hulu and iPlayer for their video needs. MTV is a youth brand yet ironically its current business model is rooted in an older world – the average age of a network TV viewer is 59. MTV needs a new channel for engaging with the next generation of audiences, and that channel is mobile. MTV Trax looks like it may be the first plank of that strategy.
MTV Trax itself is a visually rich mobile only app that delivers 8 curated playlists, branded around genres, charts and MTV shows. An Aficionado would probably find the selection too narrow and mainstream, but that’s entirely point, this isn’t built for them, it’s built for the mainstream. The app is being launched with MTV’s European Music Awards. Now it’s time to sit back and wait to see whether MTV’s brand can unlock the Forgotten Fan and take digital music to the mainstream.
Compare and contrast:
Viacom and YouTube: $1 billion copyright infringement suit pending
The quote from MTV’s president of global digital media Mika Salmi says it all
“MySpace has always respected copyright and is more progressive about copyright in our mind. The way we’re pushing this out with Auditude and MySpace is different than with YouTube or our past associations there.”
So a) MTV learnt their lessons with YouTube and b) MySpace know how to leverage their audience to secure good ad and content deals. I wouldn’t be surprised if MySpace had double negotiated their position with MTV and ensured that they get a share of ad revenue on top of securing the content. Remember, they negotiated such a good deal with Google that the search giant blamed disappointing financial results on the terms of the deal.
Have audience, will travel…