Unlike most new technology hype cycles, the impact of AI on the world is already surpassing expectations. The current hype around AI far exceeds that of more recent tech, such as VR, NFTs, and 3D printing. This is in part because AI represents a crucial part of the architecture of tomorrow’s internet, along with various web 3.0 technologies, rather than being just another new tech product. AI continues to shape the music industry’s contemporary narrative. News sites regularly reference new statements from industry execs and announcements from new companies, while AI dominates discussions both on and off stage at industry events. Of course, AI is a catch-all term that refers to a massive variety of applications even within music. Even with this caveat, it is clear that it is going to reshape the future of music, culture, business and, ultimately, society. However, as impactful as this change might be, it will help turn back the clock for music to how music was before the recorded music business came to the fore.

Prior to the establishment of the recorded music business, music was a participatory experience. Whether that be a 19^th century family gathering around a piano on a Sunday, mediaeval peasants singing along with a travelling bard, or the majority of 16^th–18^th century European populations singing hymns in church. Recorded music used quality to build walls between listeners and performers. The vast majority of people could never expect to sound as good as a piece of recorded music. However, the trend started to reverse with the introduction of music production software and sample culture, re-democratising the means of production, while streaming and social media combined to democratise the means of digital distribution.

In the 2020s, these technologies have accelerated scale and capability, supported by the proliferation of online learning (e.g., Masterclass) and skills sharing platforms (e.g., Fiverr), making it easier than ever for aspiring music creators to release good quality music. In 2022, the number of artists direct (i.e., self-releasing artists) reached 6.4 million, a 16.8% increase from 2021. While the music creator economy continues to grow; the even more transformative potential lies in the consumerisation of these technologies – much like Teflon making its way from NASA spaceships to kitchen pans.

Assistive AI is already well established in music creation (e.g., iZotope’s Neutron 4, Splice’s CoSo). It is a relatively small step to further simplify user interfaces, making them ready for consumer primetime. When combined with generative AI, anyone with a smartphone has the ability to create convincing-sounding music as easily as they would take a photo – a process that was far more difficult to do to a high standard before the consumerisation of digital photography by smartphones and Instagram.

The crossover between music creation and social media is still in its early days, largely confined to TikTok duets and Snapchat’s Sounds lens, but it is approaching a tipping point and AI is about to push it over the edge.

In 2011, I wrote a report entitled Agile Music in which I suggested that music’s creative full stop was going to be erased, with songs evolving beyond the static full stop. Endel’s UMG deal shows us that this future is coming to pass. The report laid out the ‘3 Cs’ framework:

• Customise
• Create 
• Contribute

AI is the technology that will unlock this new paradigm. Music will not only become better adapted to our behaviour, but it will also make music participative again. While record labels are focused on the copyright and volume / stream dilution threats AI poses (and they are very real threats), the truly exciting potential is making music something that all consumers can use as an expressive medium, rather than simply consuming. Is that the same as ‘real’ music? No, but just as TikTok is not the same as Netflix, the marketplace will inevitably delineate between places to create versus consume. Then, maybe, just maybe, the whole volume risk will become moot.

If you liked the themes in this blog post, check our latest report: AI and the future of music – The future is already here

Last week I was the International Music Summit in Ibiza, the annual music industry business event. This year MIDiA compiled the annual IMS Music Business Report and I presented the findings at the opening of the event. The full report is available here for download and you can view a video of the presentation here. Here are some of the key findings of the report.

The dance music industry has long been among the first music genres to be shaped by emerging technologies, not least because technology plays such an integral role in the production and performance of dance music. This has helped ensure that dance music has ridden the waves of music industry change. But it has also always been a genre built around performance, DJing especially. So when the pandemic came, dance music felt the impact particularly keenly, with festivals, clubs and bars all being hard hit. 2020 and 2021 were thus fallow years for dance music revenues, years in which DJs struggled to perform and the global industry looked much more towards its other revenue streams. With the global opening up of 2022, the dance music industry not only grew, but ended up bigger than pre-pandemic, pointing to the growing cultural reach and impact that dance music has in today’s global music business.

All of the key elements of the dance music business were up in 2022:

• Recorded music up 11% to $1.5 billion
• Publishing up 22% to $0.4 billion
• Music hardware, software, sounds and services up 4% to $2.8 billion
• Live up 78% to $4.5 billion

The result was that the total revenue of the global dance music industry rose 34% in 2022 to hit $10.2 billion. 

Hardware and software

Music hardware, software, sounds and services represents one of dance music’s super powers. Dance music producers have always relied on these tools, but now they are becoming the mainstay of the wider music creator economy. With music software used more across all genres, dance music sounds and techniques will influence all genres

Skills sharing and learning grew fastest, and it was worth $108 million in 2022. Plus, demand will increase still, due to fast evolving production techniques and new software

This will be a long-term growth area for dance music, with producers constantly seeking to upskill to the fast changing world of music production tech and techniques

Live

In live, Ibiza club ticketing revenue reached €124 million in 2022, up 55% from the €80 million registered in 2019. This was underpinned by increases in the number of events per venue, average ticket prices, and the total number of tickets sold going from 2 million in 2019 to 2.5 million in 2022

Globally, the top 100 DJs saw their 2022 bookings grow by around threefold on the pandemic hit 2021, though male DJs grew bookings more than half faster than their female counterparts. Female DJs represented 15% of all top 100 DJ bookings in 2022. Building popularity and getting bookings is a virtuous circle, but if female DJs are losing share of bookings to male counterparts, then the virtuous circle becomes a vicious circle.

A bright, diversified future

Finally, the dance music industry has shaken off the effects of the pandemic, coming out the other side, bigger, better, stronger and more relevant than ever. The pandemic shone a harsh light on the industry’s heavy-reliance on live. Now, that reliance is even higher because of live’s huge growth. There are two key differences from 2019: 1) a resurgent creator tools sector; and 2) a music publishing business that is finally beginning to find its share. The future is bright, with the rise of creator culture, bringing ever more people into dance music, both as fans and creators, with the creator-fan set to be at the centre of tomorrow’s dance music world.

Every new technology goes through a period of being overhyped before the dust settles, and that technology either fades or builds steadily thereafter. Think 3D printing, VR, NFTs. In my 20+ years as a media and tech analyst, only three technologies have had a level of hype that felt like it was going to live up to expectations: 1) the internet (which was already in full swing by the time I started out – I’m not that old); 2) smartphones / apps; and 3) AI. Those technologies have one big thing in common: what they could become is ungovernable by its originators. But while it was human-power that unlocked that potential of the first two, it is the technology itself that is the accelerant for AI. Of course, people will amplify it as well, but AI itself is already creating many of the new pathways. The business, societal and even humanity implications are so vast that the implications for music are small in comparison. This, however, does not mean that they will not be equally transformational and disruptive within the confines of the music business. Which brings us nicely onto ‘heart on my sleeve’.

For those of you that have been on Mars for the last few days, this AI-generated track mimics the musical style and voices of Drake and The Weeknd. As Trapital’s Dan Runcie observed “[It] isn’t that good, but it’s an improvement from 2020’s TravisBott and other generative music attempts in recent years”. UMG’s response was to encourage DSPs not to host generative-AI tracks, and Drake himself was not happy with the last time a ‘fake Drake’ track did the rounds. Drake will probably be even less happy with this latest AI addition to the Fake Drake roster, which raises the question: will Fake Drake Break Drake?! While there are valid concerns from both parties, there is a real risk of this becoming an old world versus new world conflict, and in such scenarios, the new most often comes out on top.

AI is going to change the future of music. That genie is well and truly out of its bottle. Should more have been done by the traditional music industry to work with music AI companies earlier on? Of course, but we are where we are. So the focus now should be on trying to work out how to influence and shape what the future might be, through collaboration as much as (perhaps more than) enforcement:

We have been here before: The music industry was vehemently against P2P piracy (and I am old enough to remember that). After more than a decade of trying to fight it, the music business finally built an entirely new business around piracy’s successor technology – streaming. P2P infringed copyright, it took control out of the hands of the traditional business, and it created previously impossible use cases. AI is doing the same. What is different now is that the very ecosystem that streaming created (along with social platforms) puts AI into the hands (and ears) of billions of people, whereas P2P reached just tens of millions. Consumers will experience AI at scale before the industry can shape it. And in the digital world, consumers tend to get what they want.

Guitar or tape machine?: These two old technologies both reshaped music. One was about creating, and one was about copying. AI is a mix of both, which is what makes the response so difficult. Assistive and generative AI is already a mainstay of music creation, such as iZotope’s Neutron 4 and Splice’s CoSo. AI music is a continuum, from tweaking mixes through to composition, with virtually everything else in between. There is not one single, simple answer for ‘what to do with AI?’

Enforcement will be difficult: With the best will in the world, copyright law was not designed for AI. Music rightsholders will do their best to apply existing law, but they will face challenges in doing so. Meanwhile, there will simply be too much output to effectively pursue plagiarism cases, which take time and ultimately depend on the personal interpretation of non-expert judges and juries. If you think 100,000 tracks being uploaded per day to streaming now is a problem, when generative AI goes mainstream among consumers (which it most likely will), the number of new ‘songs’ created daily could easily be a hundred times that – perhaps even a thousand. 

Focus on the input not the output: So, the most scalable solution for music rightsholders will be to fix the problem at the top, by ensuring that generative AI tools only learn from what they have permission to learn from. ‘heart on my sleeve’ can only sound like Drake and The Weeknd because the tech learned from theirmusic. A number of generative-AI companies already only learn from selective, pre-authorised datasets. If this becomes the norm then an entire new licensing opportunity emerges for music rightsholders. Artists and songwriters will likely need to consent first, similar to how sync works. The alternative (trying to license and / or collect royalties on the millions, billions or trillions of songs that will be created) would be a fool’s errand.

The reason why AI feels so frightening to much of the music business is not just because of what it is, but also because it is a catalyst for pre-existing market shifts. The last half decade was characterised by the rise of non-traditional music, in the shape of ‘fake artists’, mood music, and independent artists. All of which have eaten into the market share of traditional music companies and creators. 

Streaming’s finite royalty pot makes revenue a zero sum game. Whatever may be done to try to ‘formalise’ AI music, it is almost certainly going to accelerate the fragmentation paradigm shift, by putting music creation in the hands of consumers. Radiohead once sang that “anyone can play guitar”. In practice, most people cannot, and do not. But literally anyone can ‘play’ AI.

There is growing concern among investors that this will mean market share erosion for the majors (and it probably will), but there is still a play for traditional labels and publishers, by licensing AI at the top. In doing so, they can benefit from the shift, just in the same way that major labels benefit from the rise of independent labels and artists through owning distribution platforms. That opportunity, though, requires the right approach and for it to be taken fast. The time is now.

I will leave the final words to President Biden, whose comments on AI as a whole apply just as neatly to AI in music:

“Look what’s happening with artificial intelligence right now. It poses enormous promise and enormous concern. Our world stands at an inflection point. The choices we make today are literally going to determine the future of this world.”

Music fandom is approaching a crisis point. The good news is that because of streaming, more people are listening to more music than ever and more artists are releasing music than at any time in the past. But, while doing so, streaming has turned music into a ubiquitous commodity – a passive soundtrack to our daily routines. The biggest price paid for convenience has been the steady erosion of fandom. With music transformed into a raging torrent of new songs that live for a few minutes in a user’s playlist before giving way to the ‘up next’, music has become a song economy. In this song economy, the artist is a second-class citizen, forever feeding the streaming algorithm with new music in an effort not to be swept away.

Music fandom is fragmenting. Super fans are still present, but there are fewer of them. Most have become passive music consumers, acclimatised through a decade of streaming to background listening and desensitized to the deprioritising of fandom. Even half of music aficionados (those who spend the most time and money on music) are now listening to music in the background while doing other things. It is an inevitable trajectory for a model that offers so few ways for listeners to lean in and connect with an artist’s story. To some extent, this gaping hole in music fandom has been filled by TikTok, allowing the rise of new internet-centric scenes and a place for music fandom to thrive again.

However, with TikTok being used by less than a third of the UK population (and two thirds of those being under 35 years old), most consumers still face a fandom blackhole. It was not always this way. There used to be many more places where even the most casual of music fans could learn about new artists and connect with their story. Traditional platforms such as radio and TV used to play a crucial role in this, but radio listening continues to fall and music showcases have become few and far between. Yet, TV (and video streaming) may represent the missing piece in the fandom puzzle.

The promise of streaming was to democratise listening and do away with the human gatekeepers in favour of the algorithm. As streaming nears its peak, the veneer is beginning to wear off. This is so much so that 54% of consumers want music chosen by humans, not algorithms, while 38% of music streamers say they struggle to find music they like on streaming services. If they are struggling to find new music they like,  they are also struggling to find and connect with new artists. When the half-life of a song is the swipe of a finger, the distance between an artist and their potential fans is greater than it ever was. Artists and their labels are finding it harder than ever to even start an artist’s career, let alone sustain it. Instead, artists are stuck in a perpetual struggle to keep their head (just) above water long enough to breath, playing an energy sapping game in the hope that a few streams happen. Consumption is abundant, fandom is not.

The endless hustle of the song economy has forced labels into pursuing short-term marketing tactics aimed at creating hits, pulling them away from their true heartland: long-term artist brand building. Artist branding requires expertise in the first principles of marketing – creativity and integrated marketing communications – joined-up campaigns that build an artist’s ‘brand equity’ and set them up for longevity. Instead, everybody finds themselves stuck in the hamster wheel of chasing the latest trend. It is no surprise so many artists have expressed relief that they arrived on the music scene before the dominance of social media.

The heart of problem Is that streaming is about consumption, not artist-fan engagement. While Spotify’s recent vertical feed launch is a step in the right direction, it is just one (as of yet unproven) move by one music streaming service. Artist storytelling must happen elsewhere. TikTok may be the industry’s go-to, but its role is far from perfect. 64% of TikTok users rarely know what the music is in a video they are watching and just 19% go elsewhere to listen to music they discover on the app.

The problem is not even TikTok. It is the fact that TikTok’s young audience skew means that it is not even part of the equation for most consumers. While the 16% of TikTok users that discover music from viral trends (equating just to 6% of all consumers) is small, 37% of consumers say they discover new music through TV shows (which includes streaming TV shows). It is not all about scale, it is about reaching different parts of the population: twice as many over 35s discover music through TV shows than discover music on TikTok.

Sync has become a massively important part of the modern music business and the power connection that music can deliver in a TV show is loud and clear. Imagine how much more impactful TV could be if there were more showcases where audiences could meaningfully engage in artists’ stories, not just at the breakneck 15 seconds of fame pace of social media.

TV / video is one of the few places genuine cultural moments can still occur. Why does everyone talk about The Last of Us? Because TV and video streaming are some of the few media assets left that can create watercooler moments – times when people can come together and be part of something bigger. TV and video formats enable people to see beyond the song, to share in the story of the artist, and build a depth of fandom so rare in the streaming era. They can help develop artists into more than playlist-fodder. Artists that have a voice, a story to tell, and a fanbase, that are greater than three minutes of a streaming consumer’s day or 15 seconds of a social media user’s day.

If TV sync can have such an impact on music discovery, think about the impact of TV showcases. There is power in seeing artists perform their songs while conveying their musical skills, talent as performers, and having their personality and passion shown on their sleeve. With showcases becoming fewer and further between, audiences are craving what they have been missing. It is no coincidence that Eurovision is enjoying a renaissance. Consider the 2021 winners Maneskin. The rock bands’ success follows a long list of TV showcases and award shows supercharging artist careers, from The Beatles on the Ed Sullivan Show, through Adele at the 2015 Brits, to X Factor launching the career of One Direction (without whom of course we would not have Grammy award winning Harry Styles).

Indeed, X Factor is a key illustration of how TV showcase formats can build fame and fandom while encouraging audiences to become invested in artists’ success by making them part of the story. It is a model that social platforms since tried to adopt for audiences to feel that they understand the artist and their journey, rather than swiping past a vacuous post about what someone happens to be doing that particular day. Showcase formats show artists at both their most creative and most vulnerable. It is that vulnerability that allows audiences in, building the foundations for a relationship where fans feel like they are part of the story. Something that is near impossible to build at scale anywhere else.

Streaming is an amazing consumer proposition, and it will continue to evolve and get better at doing what it does, but its reason for existence is consumption. TikTok and Instagram do a good job of driving virality, but they exist for engagement. Streaming builds audiences and social builds followings. Sustainability has never been a bigger issue for artists and their labels. There is no single-shot cure for the mass of inter-connected challenges, but creating more places where artists can tell their stories at their pace is a central part of what must come next. Until social and streaming get better at it, TV and video streaming are the fandom opportunity waiting to be tapped.

Following a spectacular year of growth in 2021, global recorded music revenue growth slowed significantly in 2022 due to the combined impact of global economic headwinds and growth slowdown in mature streaming markets. Context, though, is everything – not many industries can deliver solid growth while the global economy is in turmoil, ad markets are falling and many emerging tech sectors are in crisis.

Global recorded music growth has oscillated in recent years, slowing in the pandemic, booming in 2021, and then returning to more modest growth in 2022.

2022 was a year of realignment for much of the global economy, and the music business had to contend not only with the wider trend of the cost-of-living-crisis, but also rising interest rates softening music catalogue M+A demand and the long expected streaming slowdown kicking in. It is testament to the solidity of the recorded music market that, despite these multiple headwinds, global revenues grew by 6.7% to reach $31.2 billion in 2022. While this was significantly down on the 24.8% registered in 2021, it illustrates the strong role music plays in consumers’ lives, especially in uncertain times when escapism and identity are more important than ever. The persistent value of music was even more strongly illustrated by music publishing, which grew by 16.6% in 2022.

Streaming was again the main driver of industry growth, with revenues up by $1.5 billion in 2022 (8.3% growth), though this was less than half the $4.2 billion added in 2021.  The slowdown was underpinned by a) slowing subscriptions growth in mature markets; b) a slowdown in ad-supported revenues, reflecting wider advertising market dynamics. Music subscriber growth was markedly stronger, up by 13.7% to 652 million, however, the more mature North America and Europe regions accounted for just a third of the growth. Emerging markets will become a progressively larger part of global streaming growth, but due to lower ARPU and low shares of Anglo repertoire, the divergence between growth revenue and subscriber growth rates seen in 2022 will become a long-term market characteristic.

Independent labels and artists direct both strongly out-performed the wider streaming market, growing streaming revenues by 13.9% and 17.9% respectively. In terms of total recorded music revenues, 

UMG added more recorded music revenue in 2022 than the other two majors, adding $0.5 billion to reach $9.2 billion, giving it a 29.5% share of the global recorded music market. UMG’s percentage growth (6.2%), though, was slower than SMG’s (8.7%), with SMG gaining 0.4 points of market share.

Artists direct (i.e., artists who release without labels, directly via a distributor) were the big success story once again, growing by 16.6% in 2022 to generate $1.7 billion of recorded music revenue, giving it a 5.7% market share, up from 5.2% in 2021. 

Independent labels also outgrew the wider market (up by 7.1%), and the combined market share of artists direct and independent labels reached 34.6% in 2022, up from 34.0% in 2021. Though it is worth noting that this does not include the additional revenue from independent labels distributed by major labels.

Combined, independent labels and artists direct, were the largest single market segment with $10.8 billion.

Though overall market growth was down in 2022 compared to 2021, 2021 was in many respects a year of artificially accentuated, post-Covid growth, while 2022 was at the opposite end of the scale, with a host of economic headwinds. In this context, 6.7% growth for 2022 could be considered even more of an achievement than the 24.8% achieved in 2021.

The full report and dataset (with quarterly revenue by segment and format going back to Q1 2015) will be shortly available to MIDiA clients. If you are not a MIDiA client and would like to learn how to get access to our research, data and analysis, email stephen@midiaresearch.com

MIDiA is currently fielding two separate surveys that will help us create the definitive view of the contribution from music creators and independent labels to the global music market. We are exploring what it means to be a label and a creator in today’s fast-changing and challenge-strewn music business. We are listening to what challenges they face and how they feel about the coming year.

We have already got some great responses, but we want more! Not only will these surveys give you the chance to have your voice heard, we will share a summary of the results with all respondents. This means you will be able to benchmark yourself against your peers to get a better sense of how you are doing and assess whether your concerns and aspirations are shared by others.

Crucially, we do not share ANY respondent-level data. What this means is that your responses only ever go into the total average responses. Nothing is ever attributable to you and we have a comprehensive privacy and data protection policy that you can read when you take the survey.

The two surveys are:

• Music creator survey: if you are an artist, songwriter, producer / engineer, performer, sound designer, and / or composer then this survey is the one for you. Click here to take the survey
  
• Independent label survey: if you are a record label or distributor of any size that is not a division of a major record label, then this is the survey for you. Click here to take the survey. (Note – the extra reason for independent labels and distributors to take this survey is that we use the data to help create the global market shares data, to create the most accurate reflection of the contribution of independents possible)

If you have any questions then please email info@midiaresearch.com

Back when Disney+ started its meteoric rise, there was a lot of thinking around what lessons the music streaming market could learn. Three years on from the launch of the subscription video on demand platform, the shine has come off it a little, registering its first ever subscriber loss, but not before becoming a major market player and changing the way in which the industry thinks about developing streaming shows. Disney+ was part of the ‘big bang moment’ of transformative change in the video streaming market. Meanwhile, the music streaming market basically stayed the same. This may have been tolerable during its time of plenty, but now, with global music streaming revenue growth looking set to have dropped to 7% for 2022, the lack of change leaves music streaming vulnerable in a time of scarcity. Never has there been more need for change and innovation. Disney+ might still just point us to the path forward.

There are many weaknesses in the Western music streaming market that are well known and that do not need to be relisted in their entirety here, but there are three that stand out above all others (and to be clear, we are talking about the services side of the market, not the remuneration side, which we previously covered here):

Unlimited, ungated access to everything, everywhere

Minimal differentiation (catalogue, pricing, value proposition, etc.)

A fandom void

Meanwhile, video streaming has long provided a ‘sliding doors’ view of what music streaming could have been if licensing had been done differently at the start:

Catalogue segmented across different services

Wide variety of price points and value propositions

Ability to target niches

Strong ARPU growth due to users having multiple subscriptions

But, just as music has been hit by economic scarcity, video has even more so. Expecting consumers to have multiple subscriptions (nearly three quarters have two or more) might fly in a time of plenty, but as household budgets tighten, the business case suddenly looks vulnerable. Cancelling one video subscription is a relatively pain-free decision. It reduces choice, but it does not mean losing everything. By contrast, the vast majority of music subscribers have just one account, giving them access to everything. Music streaming’s exceptional value for money is becoming a recession-busting asset that the TV industry may be looking at with envy at this stage.

It is all about growth

So, with all this said, why could there still be lessons to learn from Disney+? The simple answer is: growth. With subscriber penetration topping out in mature Western markets, music rightsholders and streaming services only have price increases as a realistic growth driver in these markets. But, if a new, additional service was to launch, then a very real chance of ARPU and revenue growth arises. To be clear, now would not be the time to launch it (for the very same reasons that Disney+ just lost subscribers). But now is the perfect time to plan and build, with a view to launch once the global economy returns to full health and consumer purse springs loosen. The challenge, of course, is how to build something that can deliver genuine additive value when all the other DSPs already have all the music. Here is a vision for how that particular circle can be squared.

Introducing music+

Let us call this concept ‘music+’ for now. Music+ would have to be something that is different from, and complementary to, the mainstream DSPs, in terms of both content and value proposition. It would need two key ingredients:

Community and identity: As MIDiA identified last year, scenes are the new growth opportunity for music and fandom. Fandom itself is simply a symptom of identity. Music has long played a crucial role in communicating and shaping identity. But Western streaming services are audio utilities that sacrificed fandom in favour of convenience. There is no meaningful way of communicating identity. This is why TikTok is the place that music fandom happens in the West, driven by gen Z, who sought something more meaningful than the convenience that was so valued by millennials. So, music+ would have community and identity at its core. User profile pages would be the core asset. A place where users can say who they are, what music they like, where they can connect and communicate with other users, curate radio shows, post playlists, etc. They would also display listening badges (e.g., “I am in the top 5% of fans of…”) and virtual artist merchandise, such as badges, limited-run digital artwork, etc. NFTs may yet prove to be the future of artist merch, but right now it lacks the crucial ingredient – context. Buying merch is about communicating identity. User profile pages would be the trophy cabinet for virtual merch and collectibles.

Content for fans not consumers: Streaming has commodified listening, even for music aficionados (half of whom stream passively). Music+ would be a place for aficionados (20% of all consumers), where fans go to deep dive on their favourite artists and connect with likeminded fans. Artists would provide content, such as sessions, cover versions, sneak previews, limited-availability live streamed concerts, Q+A sessions, photos, etc. That would provide much of the content, but even more would come from fans themselves. Aficionados are four times more likely than average consumers to lean forward and create content. Leaning through to create is the ultimate expression of fandom, and TikTok has proven the use case. So – and this is where things get controversial – music+ would need to operate under a user-generated content (UGC) license. The vast majority of music’s current UGC platforms (YouTube, SoundCloud, TikTok) followed the ‘do first, ask for forgiveness later’ approach. Music rightsholders would need to embrace, rather than tolerate, UGC in order to power the creation of an entirely new music catalogue. Their incentive would be to drive rather than respond, by seeding the platform with content, such as artist sound packs and stems.

Music+ would not be a mainstream proposition, but that is entirely the point. It would be an additive proposition for fans. If priced at a modest cost (say $4.99) and got enough support and input from artists and rightsholders, then it would have a good shot at developing a content library that would deliver real value to fans, and in doing so, plug the fandom hole that Western streaming has never seemed to be able to fill. 

Measuring the actual contribution of the independent sector to the global recorded music market is an important but difficult task. The traditional way of thinking about independent market share is to take the total market and remove the majors’ revenues from that. But this ‘distribution’ basis of market share under-represents independents because the majors also distribute independent labels and artists. The truest measure of the independents’ contribution is on a copyright ownership basis. This is a task MIDiA has conducted for many years now and a crucial input into this is our global independent label and distributor survey.

This survey is now live and we encourage independent labels and distributors of all sizes and geographies to complete it. The more completes submitted, the more accurate the final dataset will be. 

We use this survey to take the pulse of what the independent sector is thinking, what challenges and opportunities it is facing, and as a measure of its commercial performance. Thus, confidentiality is absolutely crucial. All responses to this survey are treated as strictly confidential, and no company-level data, nor company-level market share is shared with any party or presented anywhere. This commitment has earnt the trust of independent labels and distributors to collect their data and build market-level datasets that they can benefit from.

All survey respondents will receive a summary of the themes component of the survey (e.g., market sentiment, market opportunities, marketing challenges, etc.) and a complete summary of the global market shares dataset. In short, MIDiA Research wants to ensure that all participants benefit from this market intel and can benchmark themselves against the market.

Take the survey here: https://www.surveymonkey.co.uk/r/TYVBLJL

Please feel free to share this link with anyone you think would be interested in taking the survey.

Apple’s Q4 2022 revenue fall was further illustration that the global economic environment is affecting everyone. During such times, companies look for ways to avoid the worst of the impacts, partially through ‘efficiencies’ but also through growth, by exploring new income streams and improving deal terms. The music industry is no exception. With global streaming revenues slowing – despite a strong performance from Spotify– there is growing pressure on music rightsholders to identify new growth drivers. This is especially the case for major labels, who have new institutional investors who have become acclimatised to rapid growth. All of which leads to streaming royalties taking centre stage. But the problem is that everyone in the streaming ecosystem has problems with the model. So, can any fix make everyone happy? [TL;DR, no]

To heavily oversimplify, streaming has three main constituents:

• Creators (songwriters, artists, etc.)
• Rightsholders (labels, publishers, distributors, CMOs, etc.)
• Streaming services 

At the start of 2023, all three have issues with streaming:

1. Songwriters continue to push for higher royalties while long and mid-tail artists cannot make streaming economics add up
2. Publishers continue to lobby for higher rates while UMG is now advocating for a new royalty system
3. Spotify just reported a net loss of nearly half a billion dollars for 2022

Then add in all the perennials: too much music being released; no artist longevity; the commodification of music; listening fragmentation; the decline of superstars etc.

We have a streaming market in which none of the stakeholder groups feel entirely content with the current market and all would like a larger share of the revenues to flow to them. Because they all extract value from the same revenue pot, the arithmetic is simple: one stakeholder’s gain is another’s loss.

None of this is an argument for, or against, the relative merits of the case of any of the three main interest groups. But it does mean that any change to the system will leave someone unhappy. This is the impossible equation that must be balanced.

What further complicates matters is that market benefits to different stakeholders can be perceived as negatives to others. For example:

• Streaming helped democratise the means of production and distribution. Long-tail and mid-tail artists benefit, and superstars lose their share
• Streaming helped make music the soundtrack of daily routines. Suppliers of mood music benefit, traditional artists, and labels lose listening share
• Streaming helped level the playing field, making it easier for smaller labels to compete. Larger labels faced stronger competition

The debate around new royalty regimes has been around for some time, but momentum is picking up. When the CEO of the world’s biggest record label weighs in, then you know that change is going to come. But as the above illustrates, what might make a major label happy, has the potential be detrimental to other stakeholders. There is no ‘make everyone happy’ fix.

Here are two pragmatic alternatives:

Lean forward premium 

One of the cleanest fixes would be to create a two-tier royalty system based on the nature of the plays:

1. Lean forward plays (higher royalty): when a consumer plays from their own collection or seeks out a song to play it
2. Lean back plays (lower royalty): when a consumer listens to music in an algorithmic ‘radio’ channel or listens to curated playlists

As with all streaming ‘fixes’, the approach would not be without problems. Mood-based music would certainly find itself generally collecting a smaller share of royalties, but also, many of streaming’s hits (including those from majors) rely on driving larger numbers of streams in curated playlists and ‘stations’ – which in turn help fire up the algorithms and power songs to further success.

Penny per stream

Another approach would be a fixed stream rate, which would effectively mean metered streaming. For example, if every stream generated $0.01, a subscriber would be able to listen until their subscription fee was used up, with the ability to top up to listen further or upgrade to a higher capacity tier. This would certainly help drive increased ARPU (something all parties want) but could deter some subscribers as it would mean an end to the all-you-can-eat (AYCE) proposition. But maybe it is time for that. Music is not a scalable resource in the way that, say, mobile data is. Everyone’s song is someone’s creation. Also, there would need to be a solution for free streams.

Don’t forget the listener, ever

Of course, there is a massive missing detail in all of this, the missing stakeholder in the streaming economy: the listener. Crucially though, for all the problems creators and rightsholders face, consumers are not complaining en masse. They are content with a proposition that not only represents exceptional value for money but that also evolves to meet their tastes and behaviours. 

Streaming’s problems are supply side issues, not demand-side. All industry stakeholders should be careful about pushing solutions that could favour the supply side without proper consideration of the demand side. The history of business is littered with the corpses of companies that did not properly consider the needs of their customers.

Streaming was built for yesterday’s music business

The saying goes that in a good compromise, no one is truly happy. So, there is an argument that streaming is already the balance of compromise. Against this though, streaming was built for an industry that is very different than today, so it is only logical that the model needs honing to catch up, and many of streaming’s second-order consequences cannot be undone. On the demand side, music consumption has become commodified, transformed from a largely artist-centric fan experience (radio excepted) into an audio soundtrack to everyday life. On the supply side, there are simply more people than seats at the table.

Any significant ‘fix’ is going to come at one, or more, stakeholder’s expense. And even then, increased royalties will only go so far. For example, an independent label artist might expect to earn around $2,000 from a million streams (after distribution and label deductions). Members of a four-piece band would thus take home $250 each. Even doubling the standard royalty rate (which could not happen without breaking the entire model) would still only mean $500 each, which is not going to turn streaming into a living wage for most mid-tail artists, let alone the long-tail. So, ‘fixes’ will only go so far. Perhaps it is time to double down on building new things on top of and around streaming, and nurture those that already exist (Bandcamp, etc.). 

Absolutely continue to focus on improving streaming economics but do so alongside building a new industry infrastructure that is built to meet the needs of today’s creators and business rather than those of the noughties. In short, grow the pie rather than simply look at how to re-slice it.

It’s that time of year again: MIDiA is fielding its annual global survey of music creators. If you are a music creator (artist, songwriter, producer, whatever!), whether you are independent, signed to a label or publisher, or not even releasing music at all, we want to hear from you.

The survey explores issues such as income sources, marketing, industry challenges, music production and spend. In short, it will create a full view of what it means to be a music creator in 2023. What’s the reason for taking part? Well, every creator that completes the survey will get an Excel and slide deck summarising the results of the full survey, so that you can benchmark your career against your peers and learn how they are approaching building their careers.

As with all MIDiA surveys, the results will be treated as strictly confidential, so none of your responses will ever be seen by anyone else as we only ever report the total responses for the whole survey. 

You can take the survey here; it should take you less than ten minutes. And, of course, feel free to share with any other creators you think would be interested in taking it and seeing the results.

ERA, The UK trade association for entertainment retailers released its annual estimates for the UK entertainment market, showing strong growth for video but less impressive increases for music and games. The streaming slowdown has been on the cards for some time now and there is an argument that the strong growth recorded in 2021 was boosted by the combination of the global economy’s catch-up process that year, following the pandemic-depressed 2020 and the extra impetus delivered by upfront payments for non-DSP streaming. By Q3 2022, global label streaming revenues were up by 7%, compared to 31% for the same period one year earlier. Now ERA estimates* that UK retail streaming revenues were up by just 5%. Meanwhile, the BPI – whose numbers are based on actual market data – reported total audio streams were up by 8% in the UK. A clear streaming market trend is beginning to emerge.

There are no two ways about it, 2023 is going to be a challenging year. The sheer volume of disruptive trends is unprecedented in modern times, and this comes at the exact same time that the Western music streaming market is beginning to slow. A perfect storm. But slowdown does not need to mean decline, at least not for subscriptions. MIDiA’s data shows that consumers are going to cut down on going out and on real live events before cancelling subscriptions, and because they will be going out less, they will need more to keep them occupied at home. So, streaming subscriptions (music, video, and games) may prove to be the affordable luxuries that keep consumers entertained throughout the coming year. Holding onto subscribers should, therefore, be an achievable goal – adding large numbers of new subscribers, though, may be a step too far, particularly in markets most impacted by the economic headwinds. Emerging markets might be a different story.

Ad supported though, is a different story. If overall consumer spending softens, then so too will ad spend. With ad revenues representing 27% of all streaming revenues, a significant drop in ad revenue in 2023 (e.g., -8%) could, in a bear-case scenario, be enough to slow overall global streaming revenue growth almost to a halt. Non-DSP was a major driver of industry growth in 2020 and 2021, but as most of it is ad supported, this segment is far more vulnerable to economic pressures than subscriptions. Non-DSP is a segment for periods of plenty, perhaps less so for times of scarcity.

If the global streaming market finishes 2022 with the 7% growth that it is currently tracking to be, it will be entirely in line with the bear-case scenario that MIDiA published last year. We would much rather have had it tracked to our growth-case rate of 27% but, unfortunately, this looks like it may be one of those situations where MIDiA’s glass-half-empty view proved to be on the money.

The next few months will provide a much clearer picture, with the big labels, publishers and DSPs reporting their full year figures. Until then, consider this the first note of caution.

For more insight on what 2023 may hold, join the MIDiA analyst team for our free-to-attend 2023 predictions webinar on Wednesday 11^th January.

* ERA did a major restatement of its 2021 figures – upscaling them by a fifth from the £1.3 billion that it reported in 2021 to £1.6 billion, having changed the underlying assumptions for its estimates.

So, 2023 is upon us. The last couple of years were notable for being dramatic, unlike those of the previous couple of decades. 2023 is likely to be even more stirring, with a looming recession, racing inflation, and geo-political upheaval. What this means for entertainment companies is that the coming year will be anything other than business as usual. While the uncertainty might be unnerving, disruption and change can also mean opportunity. What is more, there is a strong case to be made that home entertainment as a whole may be far better placed to weather the coming storm than other sectors of the economy.

To help plot a path through the coming year and beyond, MIDiA recently published the 2023 edition of its annual predictions report: ‘2023 MIDiA predictions: Pivot point’, which clients can read here. On Wednesday the 11^th of January, we will be hosting a free to webinar in which analysts from the MIDiA team will walk through some of the key themes and predictions from this report, across music, games, video, audio, creator economy, social, culture and more. 

Join us to get the inside track on the dynamics and market trends that will shape digital entertainment in 2023. And if you need any extra incentive to join, we have got a pretty good track record with our predictions: we had an 88% success rate for our 2022 predictions.

You can register for free here. Hurry as places are limited and we have already had a sizeable number of signups!

We look forward to speaking to you next week.

With a 2023 set to be a challenging year for the global economy, it is a good time to look at how the music industry has performed in the year to date. That is exactly what we have done in our forthcoming report: ‘Music industry earnings Q3 2022: Pre-recession growth’. We have tracked the performance of leading labels, publishers, DSPs, and live companies across the globe to create a holistic view of how the music business is performing across rights, distribution and live. Here are a few highlights that provide useful pointers as to how 2023 might shape up.

These are the key trends for revenue growth for Q1-Q3 2022 compared to Q1-Q3 2021:

• Record labels were up 14.3%, which is above the 11.8% that MIDiA forecasted at the start of the year, but with Q4 looking to be the quarter most heavily hit by the economic downturn, the full-year figure may well end up closer to 12% than 14%. Nonetheless, double-digit growth is commendable performance in such a tough economic environment, and bodes well for 2023.
  
• Publishers were up 21.1%, outperforming labels, reflecting factors such as the effect of historical digital royalty settlements, improved shares of streaming revenue (especially non-DSP), and the rebound of traditional performance income. Publishers have worked hard over recent years to ensure that they get a large share of income flowing to their songwriters, and 2022 reflects a job well done, though, of course, with further room for improvement.
  
• DSPs saw revenue growth of a more modest 6.2%, though this was pulled down by a dramatic slowdown in the Chinese market with Tencent Music Entertainment’s revenues flat. Spotify performed more strongly (7.7%), which was almost exactly in line with the major label’s streaming revenue growth of 7.3%. Subscriber growth across all companies was more than ten points stronger, thus indicating that consumer demand for streaming is strong going into 2023.
  
• Live continued its post-Covid rebound, with dramatic growth, benefiting from the still strong latent demand both from consumers and artists, eager to get touring again. However, with going out and going to concerts being the main things that consumers state they will cut back on during the recession, live may find the coming year more difficult than music rightsholders and DSPs.

Recessions have a habit of being self-fulfilling prophesies, with companies slowing down spend in anticipation of a coming slowdown, thus slowing down revenue growth for their suppliers, who then pass on the same cut backs to their suppliers and so forth. Despite all this, music rights and streaming may be well placed in the recession.

The lipstick effect

The case for music lies in lipstick, of all places. During previous recessions, lipstick sales boomed, representing an affordable luxury for consumers who could no longer afford the big-ticket items that they had been saving for or were used to buying. Music subscriptions may play an affordable luxury role, the soundtrack to evenings spent at home, when going out is a cost too far.

The early 2020s saw an influx of capital into the music business, with the promise of music rights being an asset class that was uncorrelated with the wider economy. The irony is that, as music catalogue investments slowed (due to rising costs of capital), the first nine months of 2022 saw the music business deliver a performance that suggests the industry is indeed setting a path that is not being pulled down by recessionary conditions as much as many other industries. There were areas of concern, of course, but the overall picture so far is a positive one.

MIDiA has just released its annual ‘Music subscriber market shares’ report and dataset, with data for 23 DSPs across 33 different markets (clients can access it here). Here are some of the key global trends:

Music subscriptions may be recession-resilient, as China leads the way

As the world edges towards a recession, the music streaming market continues to stand strong. Despite indications of slowdown in some markets, the global music subscriber market remains buoyant. Growth, though, is uneven, with a number of leading streaming services outpacing the rest, especially the Chinese ones, which are now setting the global pace. 

Home entertainment tends to perform well during recessions, not least because people are inclined to cut down on leisure spend (eating out, bars, clubs, etc.), and thus spend more time at home. In previous recessions, lipstick sales boomed, reflecting their role as an affordable luxury that consumers turn to when they can no longer afford the more expensive luxuries. Music subscriptions have a good chance of playing a similar role in the coming recession.

The early signs are positive (subscriber growth was stronger in the full year of 2021 than 2020), and though the first half (H1) of 2022 growth was down from H1 2021, this reflects the mature state of the streaming market in many markets, as much as it does global economic headwinds.

The evolution of the global music subscriber market is beginning to fork between the leading Western digital service providers (DSPs) and those in Asia – China especially so. Nearly all the leading DSPs continue to experience strong subscriber growth, but none more so than Chinese DSPs Tencent Music Entertainment (TME) and NetEase Cloud Music. 

These were the key trends in 2021 and the first half of 2022:

• Subscribers: There were 616.2 million subscribers by the mid-point of 2022, up by 7.1% from the end of 2021. Total net subscriber additions for the first six months of 2022 (42.1 million) were down on the 53.8 million that were added one year earlier, hinting at the slowing global economy. However, more subscribers were added in 2021 than 2020
  
• Revenue: The $12.9 billion of subscription label trade revenue generated in 2021 was up by 23.1% on 2020, and it was the first year since 2017 that revenue growth exceeded subscriber growth, resulting in a 1.0% increase in global annual ARPU, reaching $22.42
  
• Spotify: With 187.8 million subscribers in Q2 2022, Spotify remained by far the largest DSP. However, its market share has steadily eroded since Q4 2020, and its Q2 2022 share of 30.5% was down from a high of 33.2% in Q2 2018
  
• Tencent Music Entertainment and NetEase Cloud Music: Spotify’s declining market share has much to do with the growth of the Chinese market (where Spotify does not operate). In Q4 2021, TME overtook Amazon Music to become the third largest DSP globally, and in Q2 2022 it had 82.7 million subscribers (13.4% market share). China has long been the world’s second largest subscriber market and is on track to soon surpass the US as the world’s largest
  
• Apple, Amazon, and YouTube: Amazon Music was the fourth largest DSP, with 82.2 million subscribers, and YouTube Music was fifth, with 55.1 million. Both gained share between Q2 2021 and Q2 2022, growing faster than the total market. While YouTube and Amazon both gained share in 2022, albeit it at a declining rate, second-placed Apple Music continued its long-term trend of underperforming the market, with its 84.7 million subscribers recording a 13.8% market share, down 1.2% from Q2 2021. 

The global music subscriber market is approaching a pivot point, with the slowdown in mature, Western markets contrasting with more dynamic growth in other regions. It is realistic to assume that the global recession and the organic maturation of the global subscriber market will result in some slowdown of growth in 2023, even if the sector remains otherwise resilient.

The slowing growth should be the catalyst for what needs to come next, especially in developed markets: unlocking growth pockets through differentiation. Western DSPs have managed to grow with largely undifferentiated product propositions. Music rightsholders should explore creative ways in which they can empower their DSP partners with differentiated content assets, enabling them to super-serve specific consumer segments and thus unlock extra growth within them.

If you are not yet a MIDiA client and would like to find out how to get access to this report and data then email stephen@midiaresearch.com

Music start up Utopia just announced a round of layoffs, fitting into a much bigger dynamic that may reshape the entertainment landscape. There are many reasons why the coming global recession will be unique, but the one that is most relevant to the digital entertainment sector is that it is going to be the first one since modern consumer tech has been truly mainstream. This matters, not just because of the unchartered territory this reflects, but also because tech companies (even the biggest) operate differently than traditional companies, placing much bigger bets on future growth. A strategy that works well in times of plenty, but that is undergoing rapid re-evaluation in the face of an onrushing recession. Big tech firms are reducing headcount, especially in the bets that plan to make profit in the future, but not yet. Most forms of digital entertainment fall in this bracket. Streaming music and video have long been loss leaders for the tech majors, but can that continue in a recession? 

2007 was the year the last recession started and the consumer tech world looked very, very different to today. The first iPhone was not sold until June 2007; Facebook started the year with 14 million users; Netflix launched its streaming service; but Spotify was still a year away from launch; Instagram would not be launched for another three years; and Snapchat for another five. So, when the next recession most likely hits in 2023, it will be the first one in which consumer tech has been mainstream.

All of those companies, and most of the rest that drove the consumer tech revolution, grew fast because they aggressively invested in future potential, rather than wait to fund it organically. It is a mindset that has its origins in the VC world view of: build product and customer base first, worry about profit later. Without that approach, it is probable that the consumer tech sector would not be anywhere near as big and developed as it is now. But the strategy requires the basic premise of next year bringing more growth, otherwise the model falls down. Which is why we are now seeing retractions across big tech. Meta laid off 11,000 employees, many from its VR Labs division; Stripe cut 1,000 jobs because it overexpanded during its lockdown-boom; Apple froze hiring outside of R+D; and 10,00 layoffs look on the cards for Amazon. 

Out of all this redundancy mayhem, one particularly interesting figure emerged: Amazon is on track to lose $10 billion a year from its ‘Worldwide Digital’ team, which includes Alexa, Echo, and its streaming businesses. Amazon makes its money from Cloud services and commerce, devices and content are growth categories that it is investing in, both for future growth and because they help its core business. Very similar arguments can be made for Apple’s streaming businesses (video and music) and, at the very least, for YouTube Music and YouTube Premium.

Which raises the question, if the tech majors start reigning in their non-core expenditure, where does this leave streaming? Practically speaking, it is highly unlikely that the tech majors are going to face such difficulties that they will have to think about shuttering their streaming services, but they may well have to trim spending. And if that happens, it is video that is far more exposed than music, because streaming video requires large investments in original content, whereas music rights costs are fixed. All that said, any music rights deals that are up for negotiation with tech majors from this point on will almost certainly see the licensees pushing for reductions anywhere they can find them.

With 2022 coming to a close, and Spotify’s Wrapped just around the corner, artists are beginning to look back across the year at how they performed and what they have achieved, and whether it lines up with their hopes for the coming year. If you are one of these artists, we would love to hear from you. MIDiA has launched a new artist survey, designed to take the pulse of artists and their careers. You can complete the survey by following this link.

In the survey, you will be asked about topics such as:

• How streaming is working out for you
• What sort of career you are pursuing
• What tools you use, such as distributor platforms
• How you feel about navigating today’s streaming-centred music business

All respondents to the survey will get a free copy of our report, Music creator survey, Redefining success, which presents the findings of our most recent major global survey of artists. This will give you a benchmark to monitor how your career is shaping up against other artists, and allow you to compare your aspirations and approaches with theirs.

When governments plan to introduce controversial new policies, they prepare the ground in advance (dropping hints in speeches, privately briefing journalists, etc.), so that by the time the new policy finally arrives, it does not feel quite so controversial. A similar process is currently playing out in the music business. The biggest major label executives are starting to seed a narrative into the marketplace about the potentially corrosive effect that the rapidly-growing long-tail of music and creators is having on consumers’ music-streaming experiences. Of course, it also happens to dent major label market share too, but the issue is not quite as clear cut as it might first appear.

There are three main industry constituents that are at risk from the fattening of the long tail:

1. Major labels and their artists
2. Consumers
3. Long-tail creators

Let’s look at each of those in turn:

1 – Major labels

The first on the list is the most obvious, and also the easiest, to demonstrate. Over the course of the five years from 2016 to 2021, the majors grew recorded music revenue by 71%, which is impressive enough, except that artists direct (i.e., artists who distribute without record labels) grew revenues by 318% over the same period. Consequently, artists direct increased global market share from 2.3% to 5.3% while majors went from 68.8% to 65.5%. Meanwhile, the top 10 and top 100 tracks continue to represent an ever smaller share of all streaming. The very least that can be said is that majors and their artists have collectively grown more slowly than long-tail creators, and at the most, the case could be made that long-tail creators have eaten into major’s growth.

2 – Consumers

This one is far harder to make a definitive case either for or against. Consumers tend not to categorise music anywhere near as precisely as the music business. For example, only a third of consumers say they mainly listen to older music, despite industry stats showing that catalogue consumption dominates. Most consumers do not consider music to be ‘old’ as soon as the music business does. So, imagine how difficult it would be for consumers to delineate ‘what is long tail?’ They may say in surveys ‘music isn’t as good as it used to be’, but they could equally be referring to majors’ music as the long tail. So we are in the realms of measuring second-order effects (are consumers disengaging from streaming? Not yet, but they might) and of making logical assumptions. If consumers consistently hear poorer quality music, then it is reasonable to assume that their satisfaction would decline. However, DSP algorithms push music that matches users’ tastes, and there is so much high quality in the long tail that there is no particular reason to assume that more long-tail consumption should inherently equate to an increase in consumption of poorer-quality music. And do not forget, consumers have demonstrated plenty of tolerance for ‘average’ music in mood and activity playlists.

3 – Long-tail creators

It may sound oxymoronic to suggest that long-tail creators could be hurt by the rise of the long tail. But, as Will Page put it, the rise of the long tail means that “there are more mouths to feed”. The fractionalised nature of streaming royalties means that the more long-tail creators there are, the lower per-stream counts there are and, even more important, the harder it is to cut through. The irony is that it is easier to make the case that the long tail is eating itself than it is to establish causality between its rise and majors’ loss of share.

Divide and conquer

Of course, the missing constituency is the DSPs themselves, but they do not warrant a place here, because they are the ones with the power to scale up or down long-tail consumption via their algorithms. It serves DSPs to have listening fragment to a degree as it lessens the share and, therefore, the power of any individual label. But if DSPs ever thought they were pushing too far, then they would rein in the algorithms.

Where next?

So where does all this leave us? In the ‘do nothing’ scenario, listening continues to splinter, majors lose more share, long-tail creators find it harder to cut through and earn while consumers may (or may not) see any meaningful change to their listening experiences. In short, the head loses out, as does the long tail, while the market further consolidates around the ‘body’ of streaming catalogue (which, by the way, the majors are already key players in and could easily ramp up their focus – as WMG is already doing). 

The ‘do something’ options fall into two key groups:

1. Gate / limit consumer access to catalogue
2. Gate / limit creator access to royalties

There are many ways to achieve the first (preventing long-tail music getting onto DSP catalogues; lowering long-tail priority in algorithms; creating a separate tier of catalogue; deprioritising / blocking it from search and discovery, etc.). All of this risks looking very much like the establishment trying to prevent the next generation of creator and industry breaking through. That is without even considering the moral dilemmas of choosing who is ‘in’ and who is ‘out’.

Option two, however, could be more altruistic than it looks. For an enthusiast hobbyist with a few hundred streams, royalties are going to be little more than a novelty. But for a hard-working, self-releasing singer / songwriter with tens of thousands of streams, the hundreds of dollars are already important. Let’s consider that there was a pay-out threshold, where 1,000 annual streams are the point at which royalties are paid, with all the royalties associated with the sub-1,000 stream artists being distributed between all other artists. Suddenly, those slightly more established long-tail artists can earn more income. 

None of these options are without challenges and moral dilemmas. But the direction of travel appears to be towards something being ‘done’ about the long tail. If that really does end up having to happen, then let us at least try to ensure that the changes benefit long-tail artists too, not just the superstars.

Amazon Music today announced that it was extending the number of songs available on its Prime Music tier from two million to one hundred million. It is kind of a big deal, but not that big a deal when you consider the actual value of these additional 98 million tracks. With around 2.5 million new songs being uploaded to streaming services every single month, the simple truth is that most people will not listen to most of the catalogue. Prime Music already had a good chunk of the most valuable tracks, now it has all of them, alongside tens of millions of streaming detritus. And yet, the catalogue increase is actually really important, but because of what it represents rather than what it actually is.

A dark horse no longer

Back in the mid-2010s, MIDiA first identified Amazon as being the dark horse of streaming music, but these days there is no doubting Amazon Music’s thoroughbred pedigree. It has the third-largest subscriber count of any Western streaming service and will likely pass Apple Music in second place sometime within the next twelve months, quite possibly sooner. But what makes Amazon Music so important to the music industry is not just its size but its audience segmentation. Which is a good part of the reason it just unlocked those extra 98 million tracks for Prime Music users.

Prime Music has come a long way

When Amazon launched Prime Music, it was not exactly with exuberant support from music rightsholders. So much so that Universal Music did not license it until 15 months later (making Amazon the only global scale streaming service that was able to successfully launch without all three majors on board). At the time, Prime Music looked risky to rightsholders: just as subscriptions were beginning to get traction, along comes a service that gives consumers a music subscription experience, free at point of access. So, rightsholders insisted on a limited catalogue size to ensure that it did not risk cannibalising potential 9.99 subscriptions. Over the years, rightsholders unlocked extra slices of catalogue, but today’s announcement is the genuine step change. 

A segment-based approach

So what changed? The market did. Now, as subscriptions reach maturing in most of the world’s bigger music markets, rightsholders are shifting focus from full frontal growth to a more segmented approach that can unlock growth pockets in otherwise mature markets. This is no easy task when they provide broadly similar licenses and the same catalogue to all streaming partners. But Amazon has managed to make a silk purse out of sow’s ear, launching a stack of different streaming products and deploying them strategically across different markets. If you need convincing, take a look at its product availability list. While most streaming services have built their audiences around mobile-centric millennials, Amazon has managed to build an audience that looks very different. 34% Prime Music users listen to music on a smart speaker compared to 14% overall consumers, while 22% are aged 55+ compared to 9% Spotify users. 

Competing around everyone else

Rather than just competing with the other streaming services, Amazon Music has competed around them. In doing so, it has expanded the addressable market for streaming, helping mature markets still grow strongly (while YouTube Music has been having a similar effect at the opposite end of the age spectrum, converting younger subscribers at scale). It is in this later stage of streaming growth that the more segmented partners, like Amazon and YouTube, become so important to music rightsholders. Unlocking 98 million more tracks, reflects both this elevated importance and an understanding among rightsholders that enhancing Prime Music will grow the market around Spotify and co., not at the expense of them. 

Another super power

On top of all this, Amazon Music has another super power at its disposal: emerging markets. These regions have long been identified as the driver of future growth, but they have also struggled to deliver in many cases. Markets like India and China number their free streaming users in the hundreds of millions, but paid users in the tens of millions (in China’s case) and single millions in India. Ad-supported revenue massively lags subscription revenue, even in Western markets, but in lower per capita GDP markets, ad spend is even smaller. Prime Music is proving to be a happy middle ground in markets like Brazil and India, striking the balance between scale and ARPU. With premium subscriptions needing time to find their audiences, Amazon looks set to become an ever more important partner in some of the key emerging and mid-tier markets.

When Amazon first launched Prime Music, the value proposition: pay for free shipping and get a music service for ‘free’, or as Amazon puts it, as a perk of membership. Now though, Prime is becoming much more than just free shipping, it is an ever-expanding household subscription in which entertainment now plays a central role (the recently announced Amazon Music Live / Thursday Night Football line-up is a case in point). As we enter a global recession, where consumers will likely cut back on buying things, a free shipping subscription could look like an unaffordable luxury. But a music and video service that has the benefit of free shipping suddenly looks like a value-for-money proposition. Prime may not be recession proof, but music and video certainly reduce its exposure to risk. The value equation in Prime Music is beginning to shift, as is Amazon’s role in the global music business. From dark horse to top-tier player in half a decade is no mean feat. 

Non-DSP streaming was one of – arguably the – differences between steady growth and stellar growth for the music business in 2021. With three billion dollars of retail revenues in 2021, non-DSP has quickly become a key source of revenue, but not without bringing its own set of challenges. Music rightsholders have been criticised in the past, including by MIDiA, for being too prescriptive in their licensing approaches, often curtailing the potential of new ventures. The homogenised nature of Western DSP streaming being a case in point. But with non-DSP partners, rightsholder recognised that it was still too early to define exactly what the dominant use cases would be and opted for blanket type deals instead, thus monetising new partners while leaving room for innovation. Now though, creators and rightsholders alike are coming to the point of view that the time is right for greater clarity and definition, with calls for ad revenue share as a starting point. But even if these changes were to come into play, there is a much more fundamental issue at hand: the music business does not have a format to license to non-DSP partners.

Value gaps

Much has been made of the comparison between YouTube and TikTok, and their perceived ‘value gaps’ (YouTube’s former value gap, and TikTok’s current one). YouTube’s road to music industry partnership was a rocky one, but now the relationship is positively rosy, as is YouTube’s contribution to music industry revenues. In 2021, YouTube delivered around $3.4 billion in revenues to record labels alone, with ad supported accounting for around two thirds of that. YouTube has gone from pariah to the second largest contributor of label streaming revenue. But, regardless of all the infighting, negotiating and lobbying that happened in the intervening years, it would not have been able to become the success it has were it not for the fact it was already using a well-established music industry format: music videos. This contrasts with non-DSP partners, like TikTok, Meta and Snap, that are, instead, licensing music to soundtrack their formats. In many respects, this is 21^st century sync, soundtracking the parts of digital entertainment where traditional sync does not reach. Indeed, the deals also tend to be classed as sync deals. 

Sync’s strengths and weaknesses 

Sync’s strength is being able to take music to places where music formats do not exist. Its problem, however, is that there has always been a massive value gap between its cultural impact (not least giving music exposure) versus its revenue contribution (less than 10% of 2021 retail revenues). But there is an even bigger challenge with this new ‘digital sync’: whereas traditional sync simply enhances traditional audio-visual formats (TV, games, ads, etc.), in many of digital sync’s use cases it is actually a central component of the experience. Duets, lip-syncs and other lean-through behaviour has music at its core. Without music, the behaviour does not exist. So a licensing structure that leans on monetising a soundtrack falls short of music’s defining role in many of these non-DSP experiences. On top of this, there is much that music creators do on non-DSP platforms (e.g., live chats, non-music posts) that delivers value to the platforms (by generating ad impressions) but do not generate income for those creators nor their rightsholders (if they have them).

A new format for non-DSP

So, how can this circle be squared? The solution is simple in concept but complex in practice: the music industry needs a new format for non-DSP environments, one that will ideally pave the way for metaverse monetisation also. Non-DSP music behaviours rarely revolve around the full-length song, nor full-length music videos. Instead, they revolve around components and snippets of songs, as well as the music creator’s non-music activity. The music industry needs a licensable format that reflects this new usage, not least because everything points to ‘lean through’ and the consumerisation of creation growing, not shrinking. A 15-30 second music format would be one solution, but that would likely be too static, as the more that creator culture grows, the more cultural value will reside in the music being modified by users – as illustrated by TikTok’s new partnership with Stemdrop – which could also form part of a new format structure. And, of course, it would miss the non-music activity. Last year, MIDiA published a report with Utopia (free to download here) that proposed a creator right that would ensure that value accrues to the creator for all their activity, not just musical. It may sound far-fetched, but it is not much different than an actor getting paid for appearing on a TV show.

The solution likely lies in a combination of short-form music formats and new licensable rights – which does not necessarily need to have legislation, there are other widely licensed ‘rights’ that do not legislative underpinnings. As I have already said, the concept is simple, the implementation is difficult. But things worth doing are often difficult to do. Over to you, music industry!

There has been talk for some time now of TikTok parent ByteDance launching a music streaming service in Western markets. It already has Resso in Indonesia, India, and Brazil, but has spiked interest recently with trademark registrations, new Twitter accounts, and reports that ‘more than a dozen’ new markets are being prepped. TikTok has become one of the central forces in the digital music market ecosystem, eroding the cultural capital of traditional streaming services. It is a logical leap to assume that if TikTok becomes a key force in music discovery, it could do the same for consumption. While this is certainly the case, ByteDance’s streaming opportunity is a whole lot bigger and more disruptive than Resso:

TikTok Music: Resso is a perfectly decent streaming service, but similarly to YouTube Music, it only scratches the surface of what it could be. Both TikTok and YouTube have unique content, behaviour, features, and culture that stand in stark contrast to standard streaming. It is difficult to translate much of this because of licensing constraints but doing so should be the priority for both TikTok and YouTube. This will drive differentiation and help the industry carve out genuine new growth pockets rather than just unearthing the remnants of the addressable base for standard streaming. Of even more relevance to the music business, unless rightsholders can empower ByteDance’s streaming offering with something truly different, is the risk that its growth will largely comprise of switching Spotify subscribers. The music business needs the maturing streaming market to be about growth, not substitution. Perhaps TikTok Music Twitter profiles point to something bigger and bolder than Resso.

Discovery is consumption: People used to discover music on the radio and then go and buy it. That model has been turned upside down. Now, people (younger audiences in particular) discover most of their new music on TikTok or YouTube before going to radio-like streaming services to consume it. What is more, much of the ‘discovery’ that happens on TikTok is consumption. It is not just consumption either, it is consumption that streaming cannot replicate. This is before even considering the importance of ‘lean through’ creative behaviour, such as doing a duet or a dance challenge to your favourite artist’s new track. Music is the soundtrack and often the catalyst to this ‘consumption’, but when that music is listened to on streaming, it is stripped of all that creative and cultural context – It is like only listening to the soundtrack of a movie. Movie soundtracks do well as formats, but they only exist because of the movies as that is where the real value lies. All of this is why a TikTok Music service could be so exciting as it could provide both the creative and cultural context, not just the stripped-down audio file.

Ecosystem: The single most important factor of all though is TikTok’s ecosystem play. In the traditional streaming value chain, you have creators, rights, distribution, promotion, and consumption. TikTok achieves these with its superpower: its audience. Creation comes from the audience, who then distribute and market the content (via the user-centric algorithm framework, user shares, recreation, and other means), and then, of course, the audience consumes. It is a self-contained, virtuous cycle – An ecosystem. Right now, artists are pumped into the system by label marketing teams, and independent artists can push out of the system into traditional streaming with SoundOn. Yet, over time, TikTok’s creation, distribution, and consumption will become ever more self-contained, making TikTok part of what MIDiA identified as the music industry counter-culture. TikTok Music could be a major step on that journey.