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.

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 3^rd 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.

 

Global Recorded Market Music Market Shares 2016

MIDiA and Music Business Worldwide have been tracking record label and publisher financial releases throughout 2016. In addition MIDIA has conducted market sizing work on the publishing sector and research for the Worldwide Independent Network’s (WIN) indie label market share project. Pulling all of these inputs together, along with reports from country trade bodies and PROs, MIDiA has created a recorded music market share model to provide a unique view of where the revenue flows in the global business. To ensure as representative a picture as possible all local currency data has been converted into US dollars at the currency conversion rates for the respective quarters. This removes the distortion effect that occurs when data historical data is retrospectively converted at today’s conversion rates.

(MIDiA Research subscription clients can access the full 15 page excel spreadsheet with all of the underpinning data right now by clicking here.)

The Recorded Music Market In 2016

2016 was a big year for the global recorded music business, with record labels and publishers reporting growth almost across the board. Unsurprisingly, streaming was the driver of growth, increasing its share of label revenue from 23% in 2015 to 34% in 2016. However, the experience was far from uniform across the various corporate groups:

• Universal: Universal is the world’s leading music group and that status remains firmly the case for 2016. Universal Music’s global record label revenue share was 28.9%, far ahead of the nearest rival Sony Music which had a 22.4% share. However, despite registering a 2.4% growth in USD terms (1.8% in euros), UMG’s share feel slightly from 30.2% in 2015. As with all labels, UMG had a big streaming year, seeing revenue increase by 56%, though this was just below the total market growth of 57%.  Universal Music Publishing’s market share was largely flat at 16.7% for 2016. Note: Although the Universal market share number reported here is smaller than numbers previously reported elsewhere it is grounded in widely accepted industry numbers. The IFPI reported global revenues of $14.95 billion for 2015 while Vivendi reported UMG recorded music revenues of €4.11 billion, which translated to $4.54 billion, which is a 30.2% market share for 2015. Also please note that a previous post had incorrectly reported a 32% decline in physical revenue for UMG in Q4 2016. 
• Warner: Warner Music had the best major label performance in local currency terms, growing its revenue by 11% and its market share from 16.8% to 17.4%. On the streaming side Warner actually lost a little ground, seeing its market share fall from 19.3% in 2015 to 18.4% despite registering an impressive 51% annual growth in streaming revenue. What helped Warner’s total market share was the smallest local currency fall in physical revenue (just -1%) and the strongest local market currency growth in ‘other’ revenue, up 7%. Warner Chappell had a good year, growing revenue by 9% year-on-year and increasing its market share from 9.6% in 2015 to 10% in 2016.
• Sony: Sony registered a US dollar growth of 13% in 2016, the highest of all the majors, increasing its market share from 21.3% in 2015 to 22.4% in 2016. However, Sony was helped markedly by the growing strength of the Yen against the dollar. In Yen terms SME’s revenue grew by just 0.9% in 2016. Streaming revenue was up 41.8% in Yen terms and 57% in dollar terms. SME’s streaming market share was flat year-on-year. Sony Music Publishing (including ATV) revenue fell by 1% resulting in market share falling from 24.3% in 2015 to 23% in 2016.
• Independents: Independent labels saw revenue increase by 6% but that was not enough to prevent market share fall slightly from 31.6% in 2015 to 31.3% in 2016. However, these numbers reflect share according to distribution rather than ownership of copyright. Because so much independent label catalogue is distributed either directly via major labels or via distributors wholly owned by the majors, the actual market share is significantly higher. Watch out for WIN’s forthcoming 2017 indie market share report for a clearer picture of the indie sector’s contribution. On the publishing side independents had a strong year, seeing revenue grow by 6%, and market share grow from 49.4% in 2015 to 50.1% in 2016. Note that the independent numbers include revenue from leading labels in Japan (the world’s 2^nd biggest music market globally) and South Korea (another top 10 market) where the western major labels are minor players.

(MIDiA Research subscription clients can access the full 15 page excel spreadsheet with all of the underpinning data right now by clicking here.)