Adele’s success will be measured in cultural impact – not sales

Adele is something of an anomaly in the modern music business, a throwback to how things used to be. These days even the biggest artists struggle to get mainstream attention for their new releases in a flooded market that is defined by more releases than ever before, and the ‘always on’ artist who is continually releasing new music and talking to their audience. Adele, though, follows the old model of landmark releases every half a decade and, up to now, she has managed to make it work by creating a cultural zeitgeist that the world opts into at scale. But the world has moved on a lot since her 2015 release, 25, and the nagging question is whether she can do it again with 30 in the much-changed music world.

Adele’s album releases act as chapter markers for the evolution of the recorded music market. Back in 2008, when 19 was released, it was still a sales (physical and downloads) and album dominated world. 90% of global revenues were from sales, while streaming was just 2%. With each half-decade release, the music world had moved on. Indeed, it could be argued that the biggest risk was with 25 in 2015, when streaming was already more than a fifth of revenues, and physical sales had fallen by 44% from 2008. Yet the album still managed to rack up 22 million sales and, in turn, became one of the biggest selling albums of the millennium. Adele bucked the prevailing industry trends.

Streaming does not favour albums

Fast forward to 2021 and the world has shifted even further, with 65% of revenues coming from streaming, and sales accounting for just a quarter. This is a dramatically different music world from the one in which 25 was released. Streaming will be the main way in which success is measured. Yet, just 15% of people listen to full albums on streaming services, so either Adele pulls an Ed Sheeran and has her entire album dominate the most streamed song charts (a possibility, but not a probability), or she has a few really big songs that rack up big streaming numbers. And to do that, she has to perform like a streaming-era artist.

Competing with streaming-era artists

Right now, Adele has two songs on Spotify with a billion streams. Compare this with Travis Scott who has three songs, two of which are more than 1.5 billion. Or Ed Sheeran, who has five songs, one of which is about to hit three billion (Shape of You). Heck, even Marshmello has three one billion stream tracks, of which one has 1.5 billion. No offence to Marshmello, but Adele will be expecting to have bigger cultural impact than him. It should be achievable (assuming that the music is strong enough), if for no other reason than the fact that there are three quarters of a billion more people streaming than in 2015.

Cultural impact will be the truest measure of success

But even if she does catch up on streaming figures, that probably is not how we should measure Adele’s success. In today’s world of fragmented fandom, fandom is defined by cultural movements rather than cultural moments. This is a dynamic that is intensified by the fact that media is also far more fragmented. Audiences are spread more thinly across a much wider range of platforms, shows and apps. It is simply much harder to create cultural moments. But that is exactly what Adele’s team will be planning to do. And given the current media buzz, she looks on track to do so once again, supported, as ever, by a simple but clever marketing campaign.

Recently, Adele has become much more visible, using Instagram and Facebook Live, pushing herself back into the public consciousness and even playing into meme culture. Beyond the music itself, it will be the continued use of social media, coupled with meeting the eager demand of traditional media that will determine whether 30 can become the sort of cultural phenomenon that 21 and 25 were. The fact that she still sings from the heart and is so relatable gives her an authenticity that is so often thin on the ground with today’s pop stars.

Creating a cultural moment

So, the success of 30 will probably be best measured in terms of whether there is a genuine cultural moment. In short, how long will Adele’s music and her team be able to maintain global interest and relevance? Success may be more about whether, two months down the line, we still have memes flooding TikTok and James Corden doing skits. This will say as much about how the world is responding to her music than how many streams she clocks up. And, of course, I have not even mentioned sales – not by accident. These metrics are just not going to be the way to gauge her success anymore (even considering the industry’s obsession with artificially boosted ‘sales’ figures with ‘sales equivalent streams’).

Adele has always been something of an anomaly, finding success through the power of her music rather than by playing whatever the latest marketing game is. Of course, expect every contemporary marketing card to be played (especially TikTok). But it will be through cultural impact, not streams, that we will truly understand how loudly her music still speaks.

Did July 1st 2019 mark the end of Spotify’s music creator dream?

On July 1st 2019, Spotify announced that it was closing its system that allowed artists to upload their music directly to Spotify. The move came in the wake of fierce opposition from record labels who had let Spotify know, in no uncertain terms, that they were not going to let it compete directly against them. They were not about to let their partner disintermediate them. When Spotify launched its artists direct tool, moves had been made on the heels of its 2017 Cloud DAW and collaboration tool, Soundtrap, and formed part of a clear strategy of becoming a music creator powerhouse. Even after the label enforced volte-face, Spotify additionally acquired music skills marketplace, SoundBetter, in September 2019. But now, with news emerging that Spotify has just sold SoundBetter back to its founders, it is beginning to look like the strategy was already dead in the water before the original deal.

The future of what music companies will be

Spotify’s music creator strategy was both bold and sound. It was making a bet that the music companies of the future would not simply be on the business of recording and releasing signed artists, but would instead participate in the creation of music further up the chain – just like they currently participate in distribution further up the chain. The assumption remains valid and, indeed, there is much to see in the market today to point to a future where the distinctions are blurring between what is a label, distribution platform, creator tool or streaming service. BandLab is most of those things (with 30 million people signed up to its platform), while AVID (maker of ProTools) launched distribution last year, as did Canadian creator tools company LANDR. The value chain shifts are happening. But not only that, 2020 started the unprecedented process of large institutional investment into creator tools companies, such as Native Instruments, Splice, Output and iZoptope. The creator tools space is white hot. So why is Spotify backing away?

Podcasts get the attention

The answer probably lies in focus. When the labels pushed back against Spotify’s artist ambitions, Spotify had to find a new big bet, which was – of course – podcasts. Since that point, Spotify has focused its investments, with a raft of acquisitions of both companies and talent. It even rebranded its creator strategy to encompass podcasters. The sale of SoundBetter is a clear implication that podcasters are now the centre piece of Spotify’s creator strategy.

A return could still be on the cards

Spotify can still be, and may yet be, a powerhouse for music creators. But, for now, podcasts are where the energies are focused. Besides, the sheer volume of creator tools M+A activity is such that Spotify may well feel that it would not be able to get good value for money if it was to go on an acquisition spree. Perhaps Spotify will return to the space 3-7 years from now. That will be when the current private equity owners have finished building up their acquisitions and start looking to sell them, enhanced and transformed for the new market dynamics. It will also be when Spotify may feel powerful enough to take on the labels again.

Whatever the longer-term future may hold, right now SoundBetter returns to the market as the sort of tool that encapsulates what the next wave of creation is all about, and it may feel that it can now finally deliver on its initial promise.

Live streaming’s second growth phase

Live streaming erupted in 2020 in the wake of the pandemic. As the year progressed, the market transformed rapidly from a bunch of bands playing guitar in their bedrooms to highly produced, ticketed shows with tens of thousands of viewers. New companies flashed into existence while older ones dusted of their websites and rode the new wave of demand and enthusiasm. Everything was going great – and then along came real life. COVID restrictions began to ease, vaccination rates rose and real life concerts were back. It almost did not matter that they were not yet back in full effect, because even a gradual return had caught the imagination of artists and their managers. Suddenly, the prospect of looking their fans in the eyes made sulking in front of a camera in an empty venue seem a whole lot less appealing. With the sting taken out if its tail, it would be easy to imagine the live stream sector going back into its pre-COVID shell. But it has not. Instead, the sector is laying foundations for longer term growth, as shown this week by Deezer’s investment in Driift, and Dice’s acquisition of Boiler Room.

Competition from IRL

Revenue from ticketed live stream concerts surpassed $600 million in 2020, and the market trajectory in Q4 20, combined with the pandemic outlook, suggested that the market was going to push on past $2 billion in 2021. But with IRL concerts and festivals making their comeback, the number of ticketed live stream concerts slowed in Q1 21 and only started meaningfully picking up again mid-way through Q2 21. Also, average ticket prices started to come down, likely in response to softening demand among audiences who were eagerly anticipating real concerts once more. Live streamed concert audience penetration stopped growing in Q2 21, but retains a solid base (as the data in a forthcoming MIDiA report shows). But IRL was always more likely rather than less likely to come back, so live streamed concerts were always going to have to plan for a hybrid future (by which I mean both hybrid concerts and co-existing alongside IRL concerts). If there was a surprise, it was just how quickly artists were willing to jump the live stream ship. 

The hype cycle

If 2020 was the Peak of Inflated Expectations in the hype cycle and the start of 2021 was the Trough of Disillusionment, then we are now in the period of slow, steady consolidation, where the real market is built out of the rubble of over-zealous hype. With so many investments made in 2020, there was always going to be a consolidation opportunity for those players with a sound, longer-term view. Mandolin, widely acclaimed during 2020, recently acquired indie focused platform NoonChorus. Then, this week, the next-gen ticketing platform, Dice, acquired long running dance music live platform Boiler Room.

Consolidation

While Mandolin’s move was straightforward consolidation, Dice’s is more disruptive. 2020 catalysed growth for Dice, with a neat positioning as an alternative to the big traditional ticketing companies that empowers venues with more control, as well as being the ticketing company of choice for many live stream concert providers. But with the acquisition of Boiler Room, Dice has just taken a leaf out of the playbook of the big, traditional ticketing companies – expanding across the value chain. However, as much as Dice will try to position the move as otherwise, it is now competing directly with many of its clients. Other next-gen ticketing companies focused on live streaming could be forgiven for seeing this as a great opportunity to differentiate and compete.

Investment

‘Value chain creep’ was already a defining feature of the live streaming vendor space in 2020, with many companies attempting to do multiple parts of the process rather than specialising. This looks great in investor presentation, but for artists and managers, it simply replaces the old boss with a new boss who looks just like the old boss. A number of companies forged a different path, focusing instead on producing high quality shows for artists. One such company was Driift, which this week received a strategic investment from Deezer, that had already previously invested in DREAMSTAGE. Deezer’s moves reflect an understanding that audio streaming and live streaming represent a strong overlap opportunity. Indeed, Deezer WAUs are more likely to watch live streamed concerts than other music service WAUs.

Long term, steady growth

2021 will go down as the year of adjustment for live streaming, following a year of exceptional circumstances in 2020. COVID catalysed secular growth but boosted figures higher than the natural level of the market at this early stage. The coming years will be characterised by steady continued growth, with hybrid and ‘pandemic proof’ solutions for venues, such as Live Nation fitting 60+ venues with Veeps capabilities. The live music sector did not experience the dramatic transformation wrought by streaming. Instead, the sector had to wait for the pandemic’s impact and the resultant COVID bounce for live streaming. Expect more investments and more consolidation as this market begins to set itself up for long-term, organic growth. 

Creator TAMs: a new way to assess the creator economy

The music creator tools space is undergoing a change that is simultaneously renaissance and transformation. The creator culture boom has driven an unprecedented degree of investment and investor interest. However, because the music creator tools space is a collection of diverse products and services, an underlying challenge has been how to identify exactly what the total addressable market (TAM) is. In this report, MIDiA presents the multiple TAMs, SAMs (Serviceable Addressable Market) and SOMs (Serviceable Obtainable Market) for music creator tools. MIDiA has created an industry first: we have created a series of creator tools TAM models that enable investors to precisely measure the market opportunity for the growth of different types of creator tools companies.

We spent a lot of months compiling data from industry sources, company financials, executive interviews and proprietary MIDiA survey data to build the model and accompanying report. The full report and dataset is available here. Here are some key themes explored in the report.

This surge in new musicians that started learning or playing during the pandemic represents the genesis of the second wave of opportunity for music creator tools, with the first wave being formed by the 7% of consumers that bought an instrument in the prior 12 months and the 5% that make music with software.

The rapid growth of new music creators comes alongside an unprecedented period of transformation in the creator tools space which complicates the task of assessing the market opportunity. Things are complicated further by the fact that this evolution represents the birth of a whole series of sub-markets which currently fall under the broad category of ‘creator tools’. This is why we define the market opportunity through three related total addressable markets (TAMs) rather than a single one (which the above graphic illustrates conceptually):

Core TAM: The core TAM is the number of people that play instruments, encompassing a wide variety of musicians, ranging from enthusiast guitar players through to members of classical ensembles. 

Meta TAM: This is the core TAM plus those consumers that intend to start learning instruments. The combination of the catalysing effect the pandemic had on musicianship and the surge of online learning tools – especially YouTube tutorials and tools like guitar tab apps – is increasing the number of people becoming musicians. 

Produce or record music: These people record or produce their own music through a combination of analogue and digital tools, though with a very strong shift towards digital. The cultural significance is that by using tools such digital audio workstations (DAWs), their creative workflows are being shaped by sound engineering rather than purely musicianship. 

As with all markets, the music creator tools space faces a combination of drivers and inhibitors. The key drivers are 1) a rapid growth in music creators, 2) streaming opening up global audiences, 3) computer production becoming more widespread across more genres. The key inhibitors are 1) complexity of learning skills, 2) artists struggling to cut through and earn income, 3) an increasingly competitive marketplace. With these tailwinds and headwinds considered, the outlook is strong for creator tools but its sub components will evolve at very different rates, largely defined by the scale of the addressable markets but also the degree to which players are willing to embrace new market shaping trends such as growing demand for ease of use, the rise of creator community platforms and the shift to subscriptions.

If you want to learn more about the report and the datasets included then please email [email protected]

UMG’s buoyant stock debut is a new chapter for the music business

Universal Music Group (UMG) had an extremely positive first day of trading as a standalone entity, with shares at one stage trading 35% up from their reference point and making the market cap leap to $55 billion, while former-parent, Vivendi, saw a drop of two thirds in its value. Prior to the first day of trading, there were questions over whether Vivendi had pushed the indicative value of UMG shares too high, due to, in part, a series of UMG equity sell offs – but day one suggests that pent-up demand was sufficiently high to negate those concerns. Meanwhile, Warner Music Group’s (WMG) stock also surged, showing that investors see this as a market dynamic rather than a pure company dynamic. So, what is going on? Why is there so much investor enthusiasm in the music industry? The answers lie in the two-tier narrative that is building around today’s music business.

If the UMG listing had happened as recently as two years ago, we probably would not be talking about such a stellar trading debut. The fact that we are doing so now is because the music market has moved on a lot since then – and I mean a lot. This is what the music market looked like in September 2019:

For those deep in the music business, it is sometimes hard to appreciate just how much change has happened in such a short period of time. As CS Lewis once wrote: Isn’t it funny how day by day nothing changes, but when you look back everything is different? Crucially for UMG’s listing, these changes have contributed to a major shift in the music industry’s metanarrative for investors:

  • 2019: The Spotify vs the labels narrative was in full swing. Investors viewed the market through the lens of ‘rights vs distribution’. They were backing Spotify against UMG, vice versa or simply backing both horses in the race as a sector hedge. Record labels looked vulnerable in a market which was dominated by digital service provider (DSP) growth, which, in turn, was dominated by Spotify. Streaming’s future was bright, but there was a risk that as streaming got bigger, the labels would get weaker.
  • 2020: Streaming revenues continue to grow strongly, up 18.3% in 2020 with 467 million subscribers, and up a further 25.9% in H1 21 in the US. But, crucially, the market is diversifying beyond DSPs. New growth drivers (social, short-form video, games, fitness, and mindfulness) are now making a truly meaningful contribution to label revenues (around $1.5bn in 2020). Music is becoming the soundtrack to the new digital entertainment universe. Vitally, unlike the traditional approach of sync (an ad hoc model that struggles to be agile and to scale), the labels are applying scalable licenses, born out of the DSP model, to ensure music rights can be agile enough to grow with the fast-changing digital entertainment marketplace. On top of this, a) the catalogue M+A boom has established music as an investor asset class, b) recorded music grew during the pandemic while live declined, thus demonstrating it to be the most resilient component of the wider music industry. The outlook for music is now a multi-layered narrative, with DSPs still centre stage but no longer the only game in town.

What this all means is that music rights are a compelling investment proposition for bigger institutional investors. However, the thing about bigger institutional investors is that they typically like to invest in big established companies. So, looking at the marketplace, unless an investor wants to build a catalogue investment fund (which is a highly specialised approach), there are not many big companies to invest in. WMG is the smallest major, Sony Music is just one smallish part of the Sony Corporation, and Believe is an indie label. So, while those are still interesting options for investors, the opportunity to invest into the world’s largest music company was previously the exclusive domain of a few large investors. Now, finally, everyone can have a part of UMG. 

So, what we have is the confluence of two factors:

  • Pent-up investor demand
  • A compelling and diversified industry narrative

The timing for UMG is perfect, but, of course, it has not been a neutral player simply watching the sands shift. It has actively driven this narrative, not just through what Sir Lucian Grainge and other executives have been telling the market, but also through its succession of equity transactions which helped build demand and value recognition. Part of the reason UMG is the world’s biggest music group is because it is the world’s biggest music group. It uses its scale and influence to help shape the market and its future trajectory. This is arguably one of UMG’s most valuable assets: it exercises control over its own destiny.Whether UMG’s share price falls or whether it grows in the coming weeks, the listing represents a high water mark for the music business as an asset class and may well be reflected upon as a useful bookend for one phase of the music business as another emerges.