Despacito Is About To Hit 4 Billion YouTube Views

­­In January Despacito became the second fastest music video in YouTube history to hit one billion views, taking just 97 days to do so. Now it is on track to hit four billion. In January Despacito was part of a succession of new music video consumption records that YouTube and Vevo are setting. YouTube music video views are on the rise, dramatically so, driven both by more users (YouTube announced 1.5 billion signed in active users) and deeper engagement. This is YouTube’s music renaissance and the record labels (their marketing divisions at least) are loving the increased exposure their artists are receiving. At first glance this might not appear to make much sense, given that: a) video streaming growth is outpaced by audio streaming in key markets such as the US and UK, and b) that the whole value gap-grab debate is as far from a resolution as it has ever been. Then, along comes Despacito to drive yet another bulldozer through everything, breaking all the rules again.

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The days of one billion streams being considered exceptional are fast disappearing. Despacito added one billion streams in July alone. Just as Spotify spent 2015 and 2016 continually rewriting the rules each quarter, now YouTube is doing the same in 2017. Spotify, of course, is also having a spectacular year but it has established a steadier pace of change, especially in developed markets. Spotify is the new normal (until it’s not again). YouTube had its ‘normal’ but now the acceleration of usage, particularly from Latin America, is making the previously accepted reference points irrelevant.

Moreover, Latin American driven streams might actually intensify the value gap-grab debate. In 2016 YouTube delivered a monthly average revenue per user (ARPU) of $0.07 to the labels. In contrast, Spotify delivered a monthly ad supported user ARPU of $0.34. On paper YouTube has a lot of ground to make up, but things are a little more complex than that. YouTube pays out a share of ad revenue to rights holders. So, if revenues go down the amount it pays goes down by the same rate. Spotify (at risk of simplifying excessively) pays out on a per stream basis. So, if revenues go down, Spotify still pays a certain amount.

This is where Latin America comes in. The local video advertising markets throughout Latin America are much less developed than in the US and, additionally, there is much less advertiser demand. Compared to the US, there are fewer advertisers with less money to spend on consumers, who also spend less money. This means that advertiser demand massively outstrips supply, which suggests that ad prices are lower. So, as Latin American YouTube music consumption grows, effective per stream rates will decline. In our MIDiA’s 2017 Predictions Report, 2016, we predicted that this would happen.

“In 2017, audience behaviour will continue to grow faster than advertiser budgets, meaning that CPMs (and in the case of YouTube, effective per stream rates for music) will fall.”

YouTube and the music industry are unlikely to truly see eye to eye, but value gap or no value gap, we are now at a decision point. The accelerating role of Latin America and other emerging markets in YouTube consumption will see more and more records broken, with bigger and bigger hits made, but the gap between consumption and revenue will widen. So the music industry needs to decide what it really wants YouTube to be for the next few years: promotion or revenue. Trying to make it do both well will most likely result in YouTube doing neither of them properly.

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YouTube And Latin America Are Taking Over The World

Unless you have been on Mars for the last couple of days you will have seen the news that Luis Fonsi’s ‘Despacito’ has become the most streamed track in history with 4.6 billion streams. The figure includes a couple of versions of the track (ie the one include a certain Justin Bieber) but is an impressive tally nonetheless. The landmark raises 2 key trends:

  1. The role of the Latin American market
  2. The role of streaming

Latin Takeover

On the first point, Latin America is becoming a streaming powerhouse. This is a trend we have long anticipated at MIDiA and it is why we have a Latin American analyst (Leo Morel in Brazil) and have been fielding consumer surveys in the region since we launched the company. ‘Despacito’ is not an isolated event. For example, Shakira’s ‘Chantaje’ became the first Latin American Spanish language track to reach 1 billion views earlier this year. But Latin America’s contribution to streaming is uneven. It accounts for 17% of all subscribers globally but 27% of all streaming video users. Indeed, Brazil and Mexico are Vevo’s 2nd and 3rd largest markets globally, after only the US. The socio-economic realities of Latin America mean that it will always over index towards free streaming compared to European and North American markets. But the streaming appetite is clear. With such large streaming appetite, expect Latin American audiences to increasingly shape future hits. Once enough Latin American fans get behind a track the snowball effect kicks in: once in Spotify’s global streaming chart it then finds its way into curated playlists and then volumes grow even faster. A similar effect is felt as the momentum kicks YouTube’s and Vevo’s algorithms into gear. But because the region skews towards YouTube and Vevo the regional revenue impact under indexes. Thus we have an emerging dynamic where Latin American audiences create the hits and European and North American audiences pay for them. This is the new normal.

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Just as important as the rise of Latin America, is the continued rise of YouTube. Value Gap or no Value Gap, YouTube’s role in breaking and making hits is clear. More so, it is becoming more pronounced. YouTube streaming growth might be slowing in the US but the same does not necessarily apply globally. Indeed, taking the time it takes for YouTube / Vevo music videos to reach 1 billion views we can see that the 2017 hits ‘Despacito’ and ‘Shape Of You’ got there 40% faster than the average for tracks from 2016, 2015 and 2012. Only Adele’s 2015 hit ‘Hello’ got there faster, and that was a highly anticipated event that is a unique case.

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YouTube added 500 million users between 2012 and 2017. That is no mean feat but nor is it stellar growth. Over the same period Facebook added more than 1 billion users and WhatsApp came from next to zero to 1.2 billion. YouTube is a mature platform and so growth is not just measured in terms of users but also in terms of engagement, especially streams per user. And this is where YouTube really seems to be delivering. A way of relating the growth of 1 billion view music videos to the total user base is dividing the average number of monthly views each video had en route to 1 billion and dividing that by the total number of YouTube users. In 2012 this figure was 0.19, by 2017 it had fallen to 0.17. Thus, for the 1 billion club, more YouTube users are streaming these songs more times. Growth is coming both from audience and activity.

 

There are other mitigating factors. For example it is conceivable that YouTube and Vevo are simply becoming better at creating mega hits, concentrating the audience around big hits. Thus making YouTube/Vevo more of a superstar economy. Vevo’s recommendation algorithms and YouTube’s autoplay feature play a role too, contributing to more streams. The autoplay was negotiated, along with full albums, from the labels as part of YouTube’s Music Key service. A service that never even made it out of beta, but YouTube of course held onto the good parts of that deal. Spotify, that is how you do digital deals!

 

The fact that streaming records are now being broken with such regularity shows that we have arrived at a tipping point. Streaming is transitioning from fast growing digital revenue stream, to the centre of an entirely new business. As impressive as ‘Despacito’s numbers are, get used to these sorts of records being made and broken on a regular basis. And get used to Latin America and YouTube playing an ever bigger role.

 

Change Is Afoot In Music Video

Music video’s two power players are both in the news for strategic resets. On the one hand YouTube has announced that it is merging its YouTube Music and Google Play Music teams while on the other hand Vevo has announced it is postponing the launch of its subscription service in favour of prioritising global expansion. These are both important developments in their own rights but together form part of a changing narrative for music video.

Music video is streaming music’s killer app. According to MIDiA’s latest consumer survey, 45% of consumers watch music videos on YouTube or Vevo every month, while 25% of consumers use YouTube for music every week (more than any of the streaming audio services). So what YouTube and Vevo do has real impact.

YouTube Is Where Google Is Placing Its Music Bets

YouTube’s merging of teams is not a huge surprise. It always appeared overkill having 2 separate teams, especially considering that Play was performing so poorly in the market (its weekly active users are measured in single digit percentages) and that Google’s music priority has always been, and will always be, YouTube. Although nothing will change immediately in terms of user proposition, the strategic direction of travel is clear: YouTube is where Google will place its music bets. Which places even greater importance on rights holders and Google coming to an understanding around royalty payments. YouTube moving to minimum guaranteed per stream rates is untenable (for Google) as is the Value Gap/Grab (for rights holders). Something has to give.

My long-term bet is still on Google creating a parallel music industry around YouTube, one that is entirely opted out of the traditional music industry’s rights frameworks. But a more immediate concern for Google is contingency planning in the event of Vevo upping sticks and becoming the centre piece of a revamped Facebook video play. A combination of no Vevo and disgruntled rights holders would be a recipe for disaster for YouTube’s music strategy.

Facebook And Vevo May Be Courting 

Vevo jumping ship to Facebook is not as far-fetched as it might have seemed when it was first mooted a few years ago. Facebook is now the world’s 2nd biggest online video property and has finally admitted that it is a media company. Slowing ad revenues in 2017 will see Facebook double down on ancillary revenue streams and content will be a key plank of that strategy. Games is the biggest addressable market and it has already made moves in that direction. Growing video is another. While streaming music is a relatively small market opportunity for Facebook, it has wide appeal. Launching an AYCE streaming service would be an ill-advised (and highly unlikely) option for Facebook, but partnering with Vevo would be a higher margin, lower risk way of getting into music. It would also be the perfect vehicle with which to showcase Facebook’s next generation of video UI, which will include features such as curation, channels, recommendations etc. In short, a lot less like Facebook video and lot more like YouTube.

The Rise Of Music Inspired Video

Interestingly, Vevo’s CEO Erik Huggers has announced that Vevo will be increasing its focus on short form, non-music video, such as artist interviews, mini-documentaries, and animated shorts. This snackable, highly shareable content bears closer resemblance to the sort of video that works well in Facebook’s more social-centric video platform than YouTube’s more viewer-centric environment. Vevo’s non-music video approach is smart. As we explained in our report ‘From Music Video To Music Inspired Video’, if rights holders want their share of overall video time to grow, or at least hold their own, then they need to start exploring creating music related video rather than just music videos.

The core consumption format will still be the music video, but the additional content expands reach and time spent. In a Facebook environment (especially if Instagram was incorporated) this sort of content would spread like wildfire. Add into the mix that Huggers also referenced Vevo’s prioritization of building its direct audience via its own apps (ie not via YouTube) and we might just be starting to see the emerging shape of a planning-for-life-after-YouTube strategy. Even if Vevo decided to stick with YouTube (which remains the most likely outcome), it could use all of these moves as leverage for getting a better deal.

Change is afoot in the music video space and we may just be beginning to see the two key players beginning to put competitive space between each other. But perhaps most tellingly, as both companies up their game, they are also both, in different ways distancing themselves from their subscription plays. Music video is the killer streaming app for many reasons. The fact that it is free is reason number one, and Vevo and YouTube both know it.

The Socially Integrated Web and Facebook’s Content Strategy

Click on the video below to view my latest Music Industry Blog podcast.  This episode addresses the Socially Integrated Web, the term I use to describe Facebook’s content strategy.

Topics covered in this episode include:

  • Joining users’ digital dots
  • The four types of digital content ecosystems
  • How Facebook will extend its ecosystem reach
  • The universal content dashboard
  • What will happen to content companies that integrate with Facebook