The IFPI has reported that global recorded music revenues have hit $19.1 billion, which means that MIDiA’s own estimates published in March were within 1.6% of the actual results.
This revenue growth story is strong and sustained but the market itself
is undergoing dramatic change. Here are 10 trends that will reshape the
recorded music business over the coming years:
- Streaming is eating radio:Younger audiences are
abandoning radio for streaming. Just 39% of 16-19-year olds listen to
music radio, while 56% use YouTube instead for music. Gen Z is unlikely
to ever ‘grow into radio’; if you are trying to break an artist with a
young audience, it is no longer your best friend. To make matters worse,
podcasts are looking like a Netflix moment for radio and may start
stealing older audiences. This is essentially a demographic pincer
- Streaming deflation: Streaming music has allowed itself to be outpaced by inflation. A
$9.99 subscription from 2009 is actually $13.36 when inflation is
factored in. Contrast this with Netflix, for which theinflation-adjusted
price is $10.34 but the actual 2019 price is $12.99. Netflix has
stayed ahead of inflation; Spotify and co. have fallen behind. It is
easier for Netflix to increase prices as it has exclusive content, but
rights holders and streaming services need to figure out a way to bring
prices closer to inflation. A market-wide increase to $10.99 would be a
sound start, and the fact that so many Spotify subscribers are willing to pay $13 a month via iTunes shows there is pricing tolerance in the market.
- Catalogue pressure:
Deep catalogue has been the investment fund of labels for years. But
with most catalogue streams coming from music made in this century,
catalogue values are being turned upside down (in the streaming era, the
Spice Girls are worth more than the Beatles!). Labels can still extract
high revenue from legacy artists with super premium editions like UMG did with the Beatles in 2018,
but a new long-term approach is required for valuing catalogue. Matters
are complicated further by the fact that labels are now doing so many
label services deals, and therefore not building future catalogue value.
- Labels as a service (LAAS):Artists
can now create their own virtual label from a vast selection of
services such as 23 Capital, Amuse, Splice, Instrumental, and CDBaby. A
logical next step is for a 3rdparty to aggregate a selection
of these services into a single platform (an opening for Spotify?).
Labels need to get ahead of this trend by better communicating the soft
skills and assets they bring to the equation, e.g. dedicated personnel,
mentoring, and artist and repertoire (A+R) support.
- Value chain disruption:LAAS is just part of a wider trend of value chain disruption with multiple stakeholders trying to expand their roles, from streaming services signing artists to labels launching streaming services. Things are only going to get messier, with virtually everyone becoming a frenemy of the other.
- Tech major bundling:Amazon set the ball rolling with its Prime bundle, and Apple will likely follow suit with its own take on the tech major bundle.Music
is going to become just one part of content offerings from tech majors
and it will need to fight for supremacy, especially in the
ultra-competitive world of the attention economy.
- Global culture: Streaming – YouTube especially – propelled Latin music onto the global stage and soon we may see Spotify and T-Series combining to propel Indian music into a similar position.
The standard response by Western labels has been to slap their artists
onto collaborations with Latin artists. The bigger issue to understand,
however, is that something that looks like a global trend may not be a
global trend at all but is simply reflecting the size of a regional
fanbase. The old music business saw English-speaking artists as the
global superstars. The future will see global fandom fragmented with
much more regional diversity. The rise of indigenous rap scenes in
Germany, France and the Netherlands illustrates that streaming enables
local cultural movements to steal local mainstream success away from
global artist brands.
- Post-album creativity:Half
a decade ago most new artists still wanted to make albums. Now, new
streaming-era artists increasingly do not want to be constrained by the
album format, but instead want to release steady streams of tracks in
order to keep their fan bases engaged. The album is still important for
established artists but will diminish in importance for the next
generation of musicians.
- Post-album economics: Labels will have to accelerate their shift to post-album economics,
figuring out how to drive margin with more fragmented revenue despite
having to invest similar amounts of money into marketing and building
- The search for another format: In 1999 the recorded music business was booming, relying on a long established, successful format that did not have a successor. 20 years on, we are in a similar place with streaming. The days of true format shifts are gone due to the fact we don’t have dedicated format-specific music hardware anymore. However, the case for new commercial models and user experiences is clear. Outside of China, depressingly little has changed in terms of digital music experiences over the last decade. Even playlist innovation has stalled. One potential direction is social music. Streaming has monetized consumption; now we need to monetize fandom.