UMG and Deezer’s artist-centric royalty proposal got the amount of attention both parties probably wanted, if not necessarily the type of attention they were after. However, the intent was to kick start an industry debate, and that objective was clearly achieved. Yet, while the discussion has understandably focused on royalties (as, after all, it is a royalty system), these are more symptom than cause. Streaming royalties are not adding up because streaming is not adding up. Fixing royalties is only part of the solution.

In the early days of streaming, DSPs provided platforms for listening to music. Over time they have become places for consuming audio. As streaming mainstreamed, its role as successor to retail became subsumed by its role as music radio’s replacement. Passive playlists, lean-back listening, functional music and ‘noise’ are a series of inevitable second-order consequences, as streaming chases the needs of consumers, following the behavioural data. All in stark contrast to when radio programmers and digital store managers chose what consumers got. In those days, it was a case of the public wants what the public gets, now the public gets what the public wants. The problem is that what the public wants creates a system that neither creators nor rightsholders want. Consumers have, at least in part, chosen this path.

Perhaps, as Steve Jobs was fond of saying, “it’s not the customer’s job to know what they want” or as Henry Ford (may or may not have) said “if I had asked my customers what they wanted they would have said a faster horse”. But whether you believe consumer choice should shape product strategy or not, consumer-led innovation is the defining characteristic of today’s digital world. This means that any innovation that looks to push against prevailing behaviour risks can alienate the very customer base that the system depends upon. So how do we square the proverbial circle?

Solutions must understand the audience’s needs

Many years ago, my former employer, Forrester Research, devised the fantastic POST framework for defining product strategy:

People: First, understand your customers and their needs

Objectives: Next, identify what you want to achieve

Strategy: Then, shape your strategy

Technology: Finally, decide what technology fits the bill

Too often, this framework is done in reverse. Just think of the endless succession of ‘new tech’ start-ups that try to superimpose ill-fitting use cases onto their products. Technology desperately searching for a use case is one of the main reasons new tech, like the metaverse, VR and NFTs, follow the boom-bust-rebuild arc of the hype cycle. The risk with trying to superimpose new royalty structures on today’s streaming world (whether that be user centric, fan centric, artist centric, or whatever else) is that they look to solve supply-side needs (i.e., those of creators and rightsholders) first and demand-side (i.e., consumer) issues either last or not at all. Art may fuel the streaming machine, but consumers drive it (even if that means they benefit from self-driving much of the time).

At its heart, the streaming economy is shaped by diverse and often competing needs. Any successful system with diverse stakeholder needs operates by striking a pragmatic balance of meeting those needs. But a truly good compromise means that neither party is truly happy. This is the challenge that streaming faces today.

A brutal assessment of streaming would be that no one is happy. Every stakeholder, except perhaps, the consumer, has beef with how streaming operates. All of which means that any fixes (at least those that will succeed) will need to deliver some form of benefit to all stakeholders, big and small. And that means tackling the underlying behavioural dynamics of streaming, from which today’s royalty issues come.

Streaming has two main problems

A common refrain is that there is simply too much music. But the issue is dealing with quantity, rather than quantity itself being the problem. No one complains that there are too many search results on Google. The reasons quantity is seen as streaming’s problem are twofold:

1. With so many releases, it is hard to cut through
2. In a zero sum royalty system, more (content) means less (royalties) per stakeholder

Factors like ‘noise’, functional music, and generative AI are not problems in themselves, they are problems because they accentuate both of these issues.

Introducing the algorithm multiplier

Adopting a two-tier royalty system will not solve either problem in itself. The long tail will still be there. Listening will still be fragmented. Royalties are a supply-side issue, not a demand-side one. And it is the demand side that is causing the ‘problem’ by spending time listening to an ever more diverse volume of music. If you want to change behaviour, you need to pull the behaviour levers, not the remuneration levers. One way this could be done is by implementing an algorithm multiplier that applies a higher weight to successful artists. Thus ensuring success breeds success. But (and this part is crucial), this algorithm multiplier should be geared for all tiers of success. So, just as a superstar artist’s hit would get amplified, so would a <1,000-stream artist’s song that is doing exceptionally well when measured against other <1,000-stream artists. How does Google deal with a vast volume of search results? It prioritises the good ones. The algorithm multiplier would surface the best of every tier of artist. Quantity stops being a problem, because quality will be pushed to the surface, regardless of scale. 

The consumer wins (better music), the DSPs win (better user satisfaction), creators and rightsholders win (quality cuts through the clutter and gets a larger share of royalties).

The algorithm multiplier would fix much of today’s problems, but it would not be enough on its own. More needs to be put into the system to give all stakeholders more income and consumers more chances to be fans. MIDiA believes that $2 artist subscription streaming bolt-ons is one such way of achieving this, putting more value (both monetary and experience) into the system. Segmenting artist development and marketing across the platform landscape is another.

Streaming royalties clearly need an overhaul, but they must be done in concert with a reboot of the underlying behavioural architecture. Unless this happens, the artist and fan economies may end up decoupling from the streaming economy. Perhaps that will be a good thing. Perhaps not. But what it will not be is a predictable, low-risk future.

Deezer and UMG announced a major (in both senses of the word) shake up of streaming music royalties. This is arguably the biggest streaming market development in years, as it will set the tone for market-wide change. There is no doubt that streaming royalties require a revamp. The system built for the music business of 20 years ago was always going to struggle to be fit for purpose in today’s business. There are some really positive elements to this proposal, but it can be even better. Indeed there is a risk that as it stands it will break as much as it fixes.

The problems with today’s streaming market are well known, but for the record, a few of the key ones are:

1. Music listening is becoming commodified
2. The volume and velocity of music released is excessive
3. Cynical entities are able to game the royalty system
4. Most artists do not earn enough
5. Artists are building audiences rather than fanbases
6. Artists struggle to cut through the clutter

The full list, of course, is far longer, but the selection shows how pervasive and structural the challenges are. Royalties are an important part of the fix, but nonetheless, just one part. The UMG / Deezer initiative addresses the top three in the list, but not the bottom three. And crucially, it rewards success at the expense of emerging artists.

Among a raft of elements, the UMG / Deezer initiative:

1. Halves the royalty ‘weight’ of artists with less than 1,000 monthly streams and 500 unique monthly listeners, while doubling that of the rest
2. Further ‘double boosts’ music that has been actively searched for by a user

The second item is a very welcome and long overdue move. Streaming has thrown together two old business models (retail and radio) and thrown them into one pot, pretending lean-back and lean-forward consumption are the same. They are not. This move will go a long way to disincentivising the commodification of consumption by rewarding active listening. If you get your listeners to pay attention, to look for you, then you are rewarded with higher royalties. So, top marks for this move.

The first item, though, is an entirely different issue and far less welcome. Why? Because it does a reverse-Robin Hood. It is redistribution of wealth in reverse, taking income from struggling, emerging artists and sharing it among those who have already found success. 

Between 2000 and 2022, artists direct (i.e., artists without record labels) grew streaming revenue by 60% while the majors grew streaming revenue by just 35%. As of 2022, artists direct represented 8% of global streaming revenue. This fastest-growing part of the streaming market accounts for the majority of the long tail of artists with less than 1,000 streams. Crucially, the number of artists in this group grows at the same rate as their revenue, so most are unlikely to ever break the 1,000 streams threshold. 

Which means that the fastest-growing and most dynamic part of the music business could become a permanent funding mechanism for the biggest labels and stars. The way funding programmes usually work in the wider world is that the better advantaged fund the less well advantaged, not the other way round. The idea of a teenage, aspiring bedroom producer having half their royalties taken to pay the likes of Taylor Swift feels like an odd reward for effort and creativity.

The 1,000-stream threshold is not actually a bad idea in itself. In fact, it could actually be used in a dramatically different way that would truly help rebalance the streaming economy.

Artists with less than 1,000 streams represent roughly 80% of all artists. Most generate less than $100 a year of streaming royalties. So, taking away the income from these emerging and long-tail artists may be morally questionable, but it is not going to exactly affect their ability to pay the rent. 

Roughly speaking, the total income from these artists accounts for about 1% of all streaming royalties. Which means that the impact on big artists is going to be pretty small. 

Sidenote: it is difficult to see how >1,000-stream artists will get an over ‘double weight’ without more money being put in the royalty pot or being taken from somewhere else. The “500 monthly listeners” might actually ensure the pool of the <1,000-streams cohort is actually much bigger. Many smaller artists have very engaged fanbases, who may listen to their latest release many times over. In this model, 300 fans listening to a new artist’s song five times per month (thus generating 1,500 streams) would still not get paid the double weight. But an artist who gets a song in random playlist and has 1,000 people listen just once each, would get the double weight. Hopefully this is an unintended flaw rather than design.

Back to reconfiguring the model. If we take 100% (rather than half) of the royalties of <1,000-stream artists and apply it to ONLY the next tier up of artists (those who earn between $100 and $1,000) then the impact is truly significant, representing an increase of almost a third to these artists, rather than the 1% across all >1,000-stream artists. These are artists who are making the step up, beginning to get real traction, and need all the support they can get to kick on to the next level. The extra income would make a big difference to them. Supporting the next generation of artists is something that can truly be called ‘artist centric’.

Record labels are in the business of finding, nurturing, and investing in new talent. It is the single most important role the music business plays. A streaming royalty mechanism that takes from 80% of artists to redistribute to 20% does not feel very “artist centric”. But shift the equation slightly, and push all of the royalties of the <1,000-streams cohort to the next tier up, and then we have a truly artist-centric solution. One that invests in tomorrow’s stars. Who in the music business wouldn’t what to invest in tomorrow’s artists?

The music industry is approaching a tipping point, with the building blocks of what will be the post-streaming era beginning to fall into place. The streaming era will make way for something new. Innovation, disruption, and change will define the coming years, with AI, fandom, and the creator economy centre stage. Consumer behaviour will enter a new phase too, having gone from the listening era of the CD, through the consumption era of streaming. What comes next will likely be a polarisation of those two extremes, with participation carving out a path down the middle.

Humans like to think about the history of the world in chapters or eras. The music business is no different. We have had the CD era, the piracy era, and the streaming era. While it is easy to look back and see those changes, it was not as if someone (with the possible exception of Daniel Ek) looked at their calendar on the 7^thof October 2008 and said “oh, we are now in the streaming era”. We need to look for early warning signs to try to understand when change is coming. The music industry is full of them right now and the change to come will likely be so fast that music licensing will need a new playbook. Rights normally play catch up to new tech, but this next wave of change threatens to run far faster than rights can.

Technology’s exceptionalism

A recurring theme in the history of rights is rightsholders translating and transposing traditional frameworks into digital contexts, while trying to grapple with how things change when technology does something instead of a human. For example, when someone sings a song on a livestream to an audience of 20 people, that is considered in an entirely different context to someone singing to 20 people in their local bar. Similarly, if someone was to spend weeks learning every chord progression and melody of an artist to write a song in their style, there would be no rights permutations unless the resulting work actually replicated the music of the artist, as opposed to the style. But get a machine to do the learning and suddenly there is a (contentious) rights conversation to be had.

This is because technology can do the input stage once but the output an infinite number of times. The 20 people on the livestream could suddenly become 200,000. The music learning could be used by millions of people, not one. This approach has enabled music rights to be both protected and remunerated, but it has also led to incongruous work arounds. This is happening even in streaming, where there is both a mechanical right and a public performance right, because a stream is simultaneously considered a copy and a performance. In practice, it is just a stream. 

The music world has changed and so will music rights

The reason music rightsholders were able, to put it bluntly, to shape the streaming market in their image is because the majors had a de-facto monopoly over supply of content (Amazon was the only global streaming service that was able to launch without all three majors on board). Streaming services had to curb their enthusiasm and make their propositions fit rightsholders requirements (both in terms of rights and cold hard cash).

What comes next will not play out that way because:

• Major labels’ market share has lessened 
• Cultural fragmentation means mainstream is less important (you do not necessarily need the hits anymore)
• Future music experiences will be less focused on traditional recordings

So, if music rightsholders were to lock themselves in another long-term debate about whether something is a copy or a performance or both, the market will likely work out a way to progress without them. What is more, many of the rights that will be implicated or created in this new era — such as the right to an artist’s voice (not the recording of it) — belong to the artist, not the label (or at least not yet, as labels should and probably will try to write these rights into future contracts).

To be clear, this is 100% not an advocation of avoiding rights – quite the opposite in fact. If the compositional rights side of streaming had just been a new streaming right, there is no inherent reason why songwriters would have got paid a penny less. The simpler and more streamlined music rights can be for future formats, the more likely that more of the resulting revenue will result in royalty payments.

When they were licensing streaming, rightsholders could threaten to throw up a roadblock. In this new world, they will only be able to throw up speed bumps.

AI will accelerate change 

The path to a vibrant and licensed music future will require a more agile and future-facing approach to music rights. The technology we have in place today is already throwing up rights questions that are not easily answered. The rate of change is going to accelerate due to the role of AI, less in terms of the apps created and more because of how AI itself will accelerate learning and development. Look no further than the AI programme that generated 40,000 new bioweapons in just six hours. AI is going to power a new industrial revolution process that will likely leave today’s tech landscape looking like the agrarian economy that the first industrial revolution rendered obsolete.

So, how do we plot a path forward? For that, I am going to turn to Donald Rumsfeld’s ‘known unknowns framework’, or the ‘Rumsfeld Matrix’ as some like to call it. For those of you too young to remember it, this is what I am talking about. Basically, it is a framework for splitting the world into what you know (known knowns), what you know you do not know (known unknowns), and what you do not know you do not know (unknown unknowns). It translates really well to music rights.

The known unknown rights are those we either already know we need or that there is the start of a conversation around (e.g., live streaming is hardly new, yet we still lack a global licensing solution). The unknown unknown rights are all the new possibilities merging technologies may throw up. Here are two key examples:

1. Temporary rights: Much of the social world is defined by content that only exists for a limited time (e.g., Instagram Stories lasting for just 24 hours). It is reasonable to assume that much of the music content consumers will create in the future will also only be temporary, but revenue will still likely be generated against them. So, unless a rights framework exists, the creators (consumers in this context) would not be renumerated for their creation.
   
2. Generative rights: Most of the rights conversation around generative AI has focused on the works that AI learns from being protected and remunerated. But that is only the input. There is also the output. Just like De La Soul, that spent years clearing samples to get onto streaming, still own the rights to their songs, the creators (and consumer creators) that use AI to generate music will have created a work that should have a right of its own. Years spent clearing source rights will not work. So, the generative AI right will likely need to incorporate some form of derivative rights to ensure money flows to the rightsholders. AI start-up Boomy somewhat cynically claims the rights to all works created by users on its platform but has, perhaps inadvertently, established the precedent for a generative creation right.

None of this will be easy. But little will be easy about what comes next. If you thought change was fast this last decade, wait for the next one. 

As William Gibson’s quote goes: “The future is already here – It’s just not evenly distributed.”

There has been a lot of talk recently of music superfans and how they may be the shining light of the industry’s future. Little surprise, given how record labels are trying to establish superfans as the next growth driver for an investor community that is growing increasingly concerned about slowing streaming growth and looming threats, such as AI. There is no doubt that superfans are crucial – they always have been. The problem is that they may not be as valuable in the future as they once were. And the reasons for that lie in the very same streaming economy that the industry is trying to build beyond.

A brief history of superfans

In the early days of the modern music business, music fans were the superfans. The means of demonstrating that fandom was buying the records and, if you were really lucky, seeing the band. A small portion were also members of (usually fan-run) fan clubs. Throughout the ’70s, ’80s and ’90s, the music business further professionalised and productised. The live business emerged as a revenue generator in its own right (rather than the loss-leader for selling albums that it had largely been). Merchandise became widely deployed. Fanclubs became more serious. 

Yet, music sales were still the main fandom game in town. The CD era catalysed music buying at scale and the heyday of the album era. Superfans would buy multiple albums every month (leading to the rise of the ‘50 quid bloke’). Superfans were album fans. Superfans were album buyers. And there was no ceiling on how much they could spend.

Then along came Napster, turning the world upside down. Music sales started to plummet and the album began its long, steady demise, as consumers dissected albums, first on Napster, then iTunes, and then YouTube and Spotify. 

When everyone is super….

When Spotify came to market, the recorded music industry was in crisis, with revenues in freefall. People just were not buying albums anymore. 50 quid bloke had become an endangered species. Recorded music’s loss was live’s gain. As music sales fell, live revenues grew, almost in mirror opposite curves. Live became the place superfans began to shift their spend, with merch sales growing in live’s wake. 

So, when Spotify came along with the promise of getting people back into the habit of spending on recorded music again, it was eagerly welcomed. Perhaps not immediately, as much of the label community needed convincing, but that speed bump was cleared when labels started to see consumers commit, at scale, to monthly spend. With more people spending more frequently, revenue growth returned. The problem was that those people who used to buy multiple albums every month, now only spent the cost of less than one album to get all the music they could ever want. 

Streaming placed a cap on superfan spend. As the years passed, newer, younger music fans came into the market who had never spent large chunks of their disposable income on buying albums. The average, semi-casual fan was now spending the same as superfans. And to quote Syndrome from the Incredibles “When everyone’s super, no one’s super”.

Nurture fandom, don’t just harvest it

Over recent years, the industry has started to nudge people towards becoming superfans again, or at least spending like them. Whether that be indie fans on Bandcamp, or Swifties being convinced to ‘help Taylor’ by buying yet another re-recorded album. The problem is that this behaviour is at the fringes of consumer behaviour. We have had 15 years (i.e., almost a generation’s worth of time) of educating consumers that music does not need to cost more than $9.99….ok….$10.99. Superfans have been un-supered. 

None of this is to say that there is not a massive superfan opportunity to be had, but it will take work. Much of the latent superfan spend has dissipated due to fading habits and the wallet share shift to live. Consumers will need re-educating, re-familiarising. But there is more to it than that. When consumers spend money on a live concert, they get a unique, in the moment experience. When they used to buy five albums a month, they got hours of new music that they would not have had otherwise. Buying a special edition of an album is simply another version of something that fans already have on streaming. 

So, to Make Fans Super Again, there has to be a genuine value exchange. Fans need new things to persuade them to spend, new things that actually build and deepen their fandom rather than simply a new opportunity to fleece them for another dollar.

MIDiA has been building global music forecasts for nearly a decade now, and I personally have been building them for nearly two decades. Throughout those years there have been many calls for the numbers to be bigger and bolder. Experience, though, has shown that realism most often trumps optimism. 

The simple truth is that there are no facts about the future. Instead, forecasts are, at least in MIDiA’s worldview, a structured, numerical representation of analyst thinking. We do not aspire to be cheerleaders for any market, however much we may believe in it. Instead, we strive to be trusted partners, aspiring to provide a view of where things are most likely heading. 

With those health warnings out of the way, I am proud to announce the ninth edition of MIDiA’s global recorded music forecasts (If you are a MIDiA client, you can find the report and the 38 sheet Excel data set here).

How we did

To start, I think it is worth a quick look back at how we have done over the years. In our first edition (2015), we forecasted global music revenues (in label trade terms) to reach $20.1 billion by 2020. The actual figure proved to $22.5 billion. So that translates into a 10% variance for a five-year forecast, which isn’t too shabby. Over the course of the previous five years, our forecasts for 2022 had an average variance of -2.5%. Again, a decent track record. 

That’s the good news. 2022, though, was an anomalous year, and 2023 is shaping up to be similarly volatile. Shaped as it is, by a cost-of-living crisis, soaring interest rates, economic slowdown, a softening ad market, global food and energy shortages, and a war in Europe. When we built the 2022 edition, we knew these factors might disrupt the music industry’s trajectory, so we built both a base case and bear case forecast. Our base case proved to be too optimistic ($30.7 billion) while our bear case ($28.3 billion) proved to be depressingly precise (just 0.8% above the actual figure of $28.1 billion).

Why currency matters

That $28.1 billion represented just 3.2% growth on 2021 – the slowest growth since the global market return to growth in 2015. On the surface, this might look like serious cause for concern, evidence of the long anticipated streaming slowdown. But, while a streaming slowdown is indeed happening, it is only a minor contributor to the bigger picture. Not only is 3.2% respectable growth in the midst of economic and geo-political chaos, currency volatility has, to put it bluntly, played havoc with the global picture.

MIDiA always builds its market models with US dollar values and, crucially, in current currency terms. Simply put, that means the values we present for any historical year represent what the market was actually worth in that year. In a year of global currency volatility, this means that some markets that reported strong growth in local currency terms saw much weaker, sometimes even negative, growth in US dollar terms. It is an analytical inconvenience but, in our view, a necessary one to present a meaningful and accurate view of global value.

Other entities try to mask the inconvenience by restating their entire historical dataset based on the currency conversion rates for the most recent year, i.e., constant currency conversion. Hence, the IFPI reported 9.0% growth in 2022, yet if you compare their 2022 figure to their previously reported 2021 figure, you end up with just 0.9% growth (i.e., a growth rate that is ten times slower). MIDiA’s base case forecast would have looked a lot more optimistic if we had used constant currency conversion rates!

All of these complexities make the job of forecasting particularly challenging. Which is why we focused on more stable metrics, such as local currency values and subscribers, to help us estimate future growth. Subscription revenue grew by just 4% in 2022, but subscribers grew by 16%, illustrating strong, underlying market demand and momentum. However, as is so often the case with market sizing, the picture is more nuanced and complex. Emerging markets grew subscribers far faster in 2022 than North American and European markets, but because they have lower ARPU, the contribution to revenue growth was far smaller. 

A decoupling of global growth

What we are seeing is a regional decoupling of global growth, to the extent that the global picture can be misleading. For example, by 2030, there will be 1.1 billion subscribers, up from 663 million in 2022, but Asia Pacific, Latin America and Rest of World will account for four fifths of that growth. Crucially, most Western rightsholders have relatively low repertoire share in much of these regions, so they will not benefit from this next wave of subscriber growth in the same way they did in the first, largely Western, wave. 

Yet Europe and North America will account for more than half of the global subscriptions revenue growth, due to higher ARPU and average subscriber months (a result of slower growth). Which means that Western rightsholders will accrue most revenue upside, despite losing out on audience growth.

Growth that is both impressive and eminently achievable 

Despite all of today’s market headwinds, MIDiA’s underlying assumptions about long-term growth remain largely unchanged. While we are forecasting slower growth over the next two years, we expect the global market to return to full momentum between mid-2024 and early 2025. This will result in global revenues growing by 51.0% to reach $32.4 billion in trade terms by 2030, and a slightly faster growth in retail terms (due to growing DSP share) to reach $87.1 billion.

As much as we would have liked to report that the market will double in value by 2030, we consider 51.0% growth to be both an impressive performance and eminently achievable. We would have liked to have forecasted a doubling of growth back in 2015 as well, but if we had, we would not have ended up being within 10% of the actual market, half a decade down the line. 

The thing about forecasts is they are always updated, so it can be easy to forget anything other than how the latest edition racks up compared to the previous one. Which makes it depressingly easy to build overly-bullish forecasts that have the benefit of aiding ulterior business objectives. MIDiA, of course, has many of the exact same companies as paying clients as the other entities do, but our clients pay to subscribe because they rely on us to provide an objective and useful view of the market. To tell them what they need to hear, even if that is not always what they want to hear.

Streaming is buckling under its own weight. The economics and structure that served it well in its first decade are not the ones that will get it through the next ten years. You might say that streaming is going through its ‘start up to scale up’ phase. AI is the disruption lightning rod of the moment, but transformational as it may prove to be, it is simply catalysing pre-existing disruptions. ‘Fixing’ the problems thrown up by AI would be dealing with symptoms rather than causes. The music industry is at a tipping point. There is still time for the creators and businesses within it to help shape what comes next, but that window of opportunity is both small, and closing.

Is anyone earning what they want from streaming?

When streaming first emerged, artists were worried it would not pay them enough; then the debate moved on to whether too much value lay with the biggest artists and labels; now with the superstar artist production line stuttering, the majors want a new royalty system to protect their income. Meanwhile, Spotify still struggles to generate a consistent profit. So the long tail, the majors, creators, and streaming services all think that streaming isn’t paying them enough. Which begs the question: just who or what is streaming paying enough?  Whatever the answer may be, the clear takeaway is that a royalty and remuneration system designed when albums, charts, downloads, and radio still ruled the roost, is failing to adapt to today’s much changed music world.

Remuneration pains are a symptom of consumption

A host of potential innovations are vying to be the solution to streaming’s remuneration woes (fan powered / user centric, two-tier licensing, etc.) but royalty challenges are the output, not the input. Streaming has shifted the majority of music behaviour from active listening to lean-back consumption, using algorithms to push consumers towards niches. The result is a consumption landscape shaped by fragmentation and passivity. There is a lot more consumption than before, with more consumers monetised, but the previous, finite artist economy has been replaced by an in-effect infinite song economy. Consumption needs ‘fixing’ before remuneration. 

While there are encouraging shifts towards monetising fandom, those tools will never have full effect if audiences are simply spending their time listening passively. There will, quite simply, be no fandom to monetise.

Machines on all sides

These are the two key sets of market dynamics that AI, and some other emerging technologies, will make worse, not better. Lean-back consumption is where AI will have the biggest, near-term impact. Context based playlists deliver music that is good enough. It is all about the overall soundscape rather than individual tracks, and even less about the artists. Production music libraries, like Epidemic Sound, have already shown that their music is plenty good enough for such playlists. Generative AI is waiting to pick up the baton, and may be able to do it even better if the music is specifically designed for the hyper-specific music that algorithms have taught consumers to expect. What is more, generative AI can get even more specific by evolving to the listener’s use case (i.e., like Endel). And if DSPs were to generate AI music themselves, then they could a) improve margins; b) stuff playlists; c) push users to the music. They who control the algorithm, control the listener.

And if that wasn’t bad enough for traditional labels and artists, a rising wave of virtual artists is hitting the market, such as K-pop acts Mave, Plave and Eternity, building on the foundations laid by the (now almost heritage) trailblazers like K/DA and Aespa. And even if these virtual artists have humans behind them, they are still a machine-centred challenge to wholly human artists (slightly crazy we even have to think in those terms these days!)

So, machines are opening a two-pronged attack on traditional labels and artists: 1) AI is competing for lean back, while 2) virtual artists compete for lean in (fandom).

Choose your poison

The industry’s strategy is to compel DSPs to take down problematic AI music and to keep the long tail in check with lower royalty rates. But that is unlikely to be enough. For example, why wouldn’t superstar virtual artists be eligible for the same royalty rate as superstar human artists? Regardless of whether the superstars are virtual or human, arguments that superstars deserve higher rates for pulling people to DSPs in the first place becomes less convincing every day, as consumption becomes ever more fragmented and ever less reliant on superstars.

But the scale of this problem is about to erupt like a volcano. Because the existential threat will come from AI in the hands of humans. AI will accelerate the consumerisation of creation trend that has been harnessed by artists and fans alike on TikTok, Snapchat, BandLab and a host of other places. Throw simpler-than-simple generative AI into social platforms and suddenly you have the potential for consumers creating ‘music’ at the same rate they create photos and videos. 

Millions of new ‘songs’ every day would break streaming royalties. So, labels would just get DSPs to keep those tracks off streaming, right? Not necessarily. These would be tracks made by people, so they would bring with them ready-made audiences of friends, family, colleagues and connections. Everyone becomes a fan of everyone else. It is the zenith of the network effect. And AI creations do not need to have millions of streams to disrupt streaming economics; millions of them only need to have at least one stream each.

And if friends can’t listen on DSPs, then they’ll listen on the social apps. Which means less time spent on streaming and further cultural dilution for DSPs. As one investment analyst put it to me: labels are faced with a ‘choose your poison’ choice, i.e., lower royalties now (due to dilution) or lower royalties later (due to smaller user bases).

Build a better train?

The entirely understandable temptation is to make what we have, work better. But sustaining innovation is unlikely to be enough. Just in the same way that it wasn’t enough for train companies to build better trains when Henry Ford’s new-fangled Model T car came to market. 

To be clear, building a better train is a not a bad option. Today, nearly a century on from when the last Model T rolled off the production line, trains still play a pivotal role. But for music, everything points to making streaming work better AND building something new.

Streaming fixed the problems of piracy and tumbling music sales. In doing so, it had the unintended consequence of commodifying music consumption. Without a new fork in the road, generative AI will simply hasten the utter domination of convenience. Pop will eat itself. AI will bring huge amount of value right across the music business, but portions of it will also hasten a reductive race to the bottom for convenient consumption.

Which is why, the time is now to start building plan B. To elevate a music world centred around fandom, identity, creativity, and exceptionalism. These are the fundamentally human elements of music that can (at least for now) clearly demarcate what is inevitably going to become a two-track music world. 

Five years ago, it would have been crazy to be thinking about how machines will shape the near future of both the business of music and of music itself. Just imagine what we might be discussing five years in the future?…..

Apple’s long anticipated VR move finally saw daylight in the shape of Vision Pro. What is particularly interesting about the launch and its subsequent coverage is that the conversation is more about what Vision Pro enables rather than what it actually is. Apple has successfully engineered a hardware launch into a services and experiences narrative. All this, without too much at all in the way of actual new services. No mean feat. A sharp contrast with product launches for iPhone and Apple Watch, despite both devices operating within the same services ecosystem. Apple has been able to achieve this because it at least appears to have used Vision Pro to take today’s suite of services and experiences to a new level, much like iPod transformed music consumption and iPhone reinvented our wider digital lives. Claiming the legacy of those previous innovations, Vision Pro is staking its claim as a new way to experience today’s world, with the promise of facilitating an entirely new paradigm thereafter – again, just like those previous devices. 

On the surface, the Vision Pro narrative might feel simply like a riff on Meta’s VR strategy, but the differences are foundational. Meta’s VR move is bold and uncompromising. It is founded on the metaverse: a promise of an entirely new world, so transformational that the company even renamed itself after it. It is an exciting, North Star vision, but it is also a future that is distant and far from front-of-mind for mainstream consumers. Apple ensured it dropped plenty of hints that it too wants in on that brave new world (as illustrated by the VR experience in Disney’s sizzle reel), but the metaverse was limited to a supporting role in the Vision Pro show. The star was today, not tomorrow.

Apple presented how Vision Pro enables consumers to experience today’s digital world in a new environment, whether that be apps, browsing the web, watching movies or playing games. Of course, Apple emphasised how all of those are enhanced by being experienced in an immersive virtual environment, but it was crucially a representation of the familiar in new surroundings. Why? Because Apple has its eyes on the mainstream adoption of a new(ish) product category. Apple’s M.O. is that of an early follower, innovating rather than inventing. Its history is defined by making moves only when a new product category is deemed ready for primetime, letting others bleed out on the bleeding edge of new tech. 

XR (i.e., VR and AR) may not yet be at that primetime point. Currently only 4% of consumers own a VR headset, up just one percentage point from 3% in Q3 2021. But Apple has priced version one of Vision Pro so high ($3,449 – which reflects high component costs and no doubt will help recoup some of those vast R+D costs) that it will effectively constrain uptake to its early adopter elite. So, by the time the more affordable versions two and three come to market, primetime will have arrived. At least that is what Apple is likely planning on.

One element that may represent the linking piece between today and tomorrow was FaceTime. Although there was not a huge amount in terms new features (the slightly unsettling avatars aside), FaceTime has the potential to develop a new purpose and relevance in an XR environment, making the connections with other people more vital, more meaningful. This is, of course, the overlapping segment part of the Ven diagram of Apple’s and Meta’s VR strategies – and it is no coincidence that it is such a big bet for both companies. Communication and connection underpinned many of the modern world’s biggest technology shifts (the internet, smartphones, social media, video calls) and it will likely be the use case that ushers XR into the mainstream. If Apple manages to be at the centre of this, it may end up transforming FaceTime from a useful smartphone app into the foundational architecture of a metaverse-era social network. But it will get there by starting off with a newer version of today.

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.