Why Rishi Sunak is both wrong and right

Earlier this week the UK Chancellor of the Exchequer Rishi Sunak suggested that creatives such as musicians who had seen income dry up during COVID-19 should consider retraining for the new ‘opportunities’ the lockdown economy is generating. 

The principle makes sense from an economic perspective, but it is just that – an economist’s solution to a cultural problem. A guitarist becoming an Amazon van driver or a Just Eat courier will certainly have the desired economic output (i.e. more economic productivity), but the cultural damage is potentially irreparable. Perhaps more importantly, however, it is throwing in the towel after the first round of the fight. 

A quick lesson from history

Culture is one of the most important outputs of society and the more developed a society is, the more it normally invests in that culture. A brief overview of history illustrates the point. The Roman Empire, one of the first great civilisations, was focused on warfare and expansion. It spawned some famous philosophers and orators, as well as great art (sculpture and mosaics especially). Yet warfare was the defining trait of the empire, and so the majority of the great figures we remember are the military generals and emperors. Fast forward to the Middle Ages in the same Italian peninsula and we had the Renaissance, ironically rediscovering the lost art techniques of the ancients. Although Italy in this period was dominated by warfare, and although there are no shortage of generals and petty princes to fill the history books, it is the art and culture that the period is best known for. Artists like Leonardo da Vinci, Michelangelo and Raphael are the great names of this era. There was no structured art marketplace, however; instead, rich benefactors (bankers, princes, generals) patronised them, subsidising their art. They did so often in the hope of immortalising their own names, but instead immortalised the artists. Art does not always pay for itself. Sometimes it needs a helping hand.

Small venues create national economic output; virtual ones may not

Now to be clear, I am not advocating that music should become state subsidised. Nor am I comparing the musical output of a bedroom musician with that of a renaissance master (though Kanye does think that he is ‘unquestionably’ an even better artist than even those Italian greats). The lesson to learn from history here is that in tough times, society benefits from supporting culture. If small music venues continue to fall like flies,smaller and emerging artists will be bereft of real-world places to perform and to build audiences. The music market will stagnate with new talent having one more hurdle to success put in its way. Live streaming will pick up some of the slack and may even become a valuable alternative for many artists. For the UK government, however, that will mean swapping the economic output of UK venues for that of predominately American technology platforms. That economic output will leave the UK economy – and at a time of trade uncertainty leading up to Brexit, to lose music, arguably the UK’s most culturally renowned global export over the last century, would be a weighty hit.

Artists need to experiment and innovate now more than ever before

This is bigger than national economic protectionism, and it is certainly bigger than the UK. To use that horrible management consultant phrase: change is difficult. We are cursed and blessed to live in interesting times. Technology has changed the recorded music business beyond recognition; now, because of the pandemic, technology is going to accelerate change in the live business as well. This process may be difficult, and it may be long, but it will result in a differently shaped music business in the mid-term future. Artists have an opportunity, even a responsibility, to innovate and experiment. Before COVID-19, live, merch, recording and publishing were – in varying degrees – the majority of the revenue mix for most artists. Live is unlikely to return to anything resembling normality until 2022. From this moment on, then, artists need to experiment with new models, new ways to engage with audiences and to generate income – whether that be writing for other artists on Soundbetter, making sound packs on Splice or Landr or selling digital collectibles via Fanaply. Artist income is more varied and sophisticated now than it was 10 years ago. The reality is that this trend is going to accentuate both in the lockdown economy and post-pandemic. 

However, new models take time to become viable. In this interim stage, if there is a role for state support, it is to provide artists and songwriters with the financial support and technical and business training to enable them to be winners in this new creative paradigm. Rishi Sunak was wrong to suggest that artists should retrain out of music. But he was right that they should retrain. They should retrain from being artists of the 2010s to artists of the 2020s, and that is where he should be providing support.

Independent artist creativity and innovation in the age of COVID

The COVID-19 pandemic has turned the music industry upside down in many ways but among the direct artists community there have also been signs of resilience and creativity in the face of adversity. For these ‘unsigned’ artists, 2020 is both the best of times and the worst of times. 

Self-releasing artists are not bound by industry promotional cycles, and in many cases, today’s artists must not just create their music but ‘sell it’ as well. If you have the drive to create music there is very little stopping you from writing, recording, producing and indeed releasing that music. All the tools and platforms are available. 

It’s been a boom year for music making – from record Fender guitar sales to yet another peak in streaming demand. Yet there’s never been a tougher time competitively—with 40,000 tracks released daily, cutting through the clutter is a very real challenge. The age of ‘create it and they will come’ never really existed, but today’s music market started to obliterate the notion completely and COVID-19 has acted as a catalyst for the changes that were already taking place.

For MIDiA’s latest independent artist survey report in partnership with artists services and distribution company Amuse, we interviewed 346 artists around the world during the heart of lockdown to get a unique view of how the crisis is affecting artists. What we found was anxiety mixed with aspiration and creativity. The full report is available for free here but we’ve pulled out here five key themes for artist success:

1 – A sector with real scale: Artists direct (i.e. those without record labels) generated $873 million in 2019, up 32% from 2018. These independent artists represent the fastest-growing segment of the global recorded music business, a segment of global scale with real impact and influence. They are also more streaming native than label artists.

2 – Lockdown was a unique creative window: Nearly 70% of independent artists took the opportunity in lockdown to spend more time writing or making music, and a further 57% created more content for social media. Artists took full advantage of being away from the spotlight and the treadmill of promotion, to dive back into their creative spaces and make new music. In terms of releasing music, artists were split – with 46% releasing more music, but 40% putting projects on hold.

3 – Collaboration: 36% of independent artists reported working more on collaborations during lockdown than before. Music is becoming more of a collaborative undertaking than ever before and a whole ecosystem of digital tools and services is emerging to meet growing artist demand, providing more structured and networked process than many labels ever can. An unintended consequence of lockdown is that it has compelled more artists to explore ways of doing remote collaboration and many of these new learned behaviours will persist beyond the pandemic. A new way of making music is being born.

4 – Independent artists need side hustles like never before: Artists need to work multiple revenue streams to build career momentumFor independent artists, streaming is their primary source of income at 28%. Live revenue is second at 18% (which means they are less exposed to lockdown’s impact than established label artists). But the key for today’s artists is to make revenues from multiple sources including publishing, teaching, session work, sponsorship and merchandise. Artists’ need to work multiple revenue streams to build career momentum. The number of artists offering online tuition has grown hugely during the pandemic, as has artists selling their old kit. Additionally, artist skill platforms will only grow as the number of aspiring creators grows, and, as with live streaming and making sound packs, is yet another revenue stream for artists. Artists are small entrepreneur businesses. They need four or five income streams to get off the ground.

5 – Marketing IQ is becoming key: Half of all direct artists do their own marketing, with one third managing their own marketing budget, but less than one in five are working with a distributor or label on marketing activities and 40% spend nothing at all on marketing. Artists are self-reliant but still inexperienced with marketing and most are not making the most of the tools available. While almost two-thirds of artists are using Spotify For Artists, few of them are using any other marketing related tools. The independent artist must know that marketing is about research, experimentation and persistence and is even more important for independent artists that do not have labels to do this work for them.

Making and marketing music is both getting easier and harder at the same time. Easier because artists can be in control: releasing music when you want to, growing and using social media, seeking out like-minded artist collaborators and sponsors, not having to rely on paymasters or gatekeepers. Easier also because artists can go global right from the beginning. 

On the other hand, the road to a career is longer and possibly never ending. The gap between artist and fan, creator and consumer is narrowing. Equipment makers are having a boom year, and one of the many things people have done with more time on their hands is fulfil their passions. So, for aspiring independent artists, a whole new wave of competition has arrived in the form of talented amateurs, armed with the tools and the time to make their own entertainment. 

The independent artist sector had another boom year in 2019 and the early signs are that it has not only weathered the COVID-19 storm but has made the best of a bad situation, seeing lockdown as an opportunity to create, experiment and innovate. Which should not surprise us, as after all these are some of the defining characteristics of one of the most important and exciting elements on the modern music business. Pathfinding through the pandemic requires innovation and patience and it looks like the direct artists sector has plenty of both. 

Where did Disney and Live Nation’s missing $10 billion go?

In both economic and pandemic terms, we are in a relatively quiet period compared to the first half of the year. COVID-19 is at much lower levels in most countries and there are multiple sectors, such as housing and auto, that are reporting booms. These positive indicators will likely be both a pre-recession bounce and the lull before COVID-19’s second peak. However, there is a crucial subtext here, which is that one sector’s loss is often another’s gain. COVID-19 saw winners and losers, as any post-recession recovery is defined by ‘scarring’ where some companies and formats build where others have failed. For entertainment companies that lost revenue during the first half of the year, the question is whether they will regain that revenue or whether their lockdown legacy will be a long-term contraction.

Live Nation and Disney (because of its theme parks) were two of COVID-19’s biggest and highest-profile entertainment company casualties. Live Nation’s revenues fell from $3.2 billion in Q2 2019 to $74 million in Q2 2020, a 98% decline. Disney’s fall was less in relative terms (-38%) due to having a diversified business but more than double Live Nation’s loss in actual terms. Between them, Disney and Live Nation lost nearly $10 billion of revenue which can be bluntly equated with $10 billion of consumer entertainment spend that went unspent in Q2 2020. The big question is whether that spend remains dormant, waiting to be tapped when doors open again, or has it gone elsewhere – and if so, can it be won back.

The lockdown winners were companies that could trade on consumers being cooped at home: games, video, home shopping, video messaging etc. Some of these were stop-gaps that consumers turned to in order to fill the void; others represent long-term behaviour shifts. Here are some of the places consumers shifted their spend, and how it might impact recovery for entertainment businesses:

Home improvements: One of the areas to see strong lockdown growth was home improvements – people stuck at home staring at the DIY jobs they had always meant to get around to doing and now had both the time and the money to do them. Home Depot saw its Q2 2020 revenues increase by $7.2 billion, nearly three quarters of that lost Disney and Live Nation revenue. Obviously, these are not like-for-like shifts as different geographies are involved, but the direction of travel is clear. The beauty of the home improvements business model is that there is always another room to do, another project to start. The risk for entertainment companies is that a portion of these new home improvers may have got the DIY bug and will have less spend to shift back to entertainment.

Home shopping: Amazon was a huge lockdown winner, growing quarterly revenues by 42% compared to 2019, representing an increase of $38.3 billion. Those revenues include, among other things, its cloud business, which rode the wave of many of lockdown’s other success stories. Additionally, the shift to home shopping has been pronounced. Amazon’s growth has extra implications for entertainment companies. Its subscriptions were up 29% which largely refer to Amazon Prime, which of course comes with music and video bundled in and will in turn compete directly with pure-play propositions like Spotify and Netflix. This will take on added significance during the recession: when cost-conscious consumers are forced to cut back on spending, an all-in-one entertainment bundle that includes home shipping looks a lot more cost effective than a handful of standalone subscriptions. Amazon Prime is not recession proof, but it is certainly recession resilient.

Changing of the guard: Some of most interesting shifts are actually within entertainment. For example, AMC cinemas saw quarterly revenues fall by a catastrophic 99%, representing a quarterly loss of $1.5 billion while over the same period Netflix gained $1.3 billion. Again, the geographies are not directly comparable but the direction of travel is clear: old video being replaced by new video. A similar changing of the guard is happening in digital advertising. Alphabet, the powerhouse, saw revenues fall by 2% while Amazon saw its ad revenues grow by 40%. Turns out that advertisers will pay a premium to reach customers that are one click away from a purchase. Who’d have thought it…

The list of examples of lockdown shifts goes on and on. In fact, so much so that MIDiA is currently working on a major new piece of research exploring these shifts and what the long-term implications are for entertainment businesses. We’re calling it ‘Post-Pandemic Programming’. There will be a series of in-depth reports for clients and also a webinar and podcast mini-series. So, watch this space!

But returning to the above findings, the key takeaway is that companies that lost entertainment spend during lockdown should not assume that this spending is waiting in consumer’s bank accounts, ready to be spent as soon doors open again. Pent-up demand will ensure much of it will but some of it is probably gone for good, allocated to new habits developed during lockdown but that will persist long after. This is not to say that those companies cannot return to previous heights, but to do so they will need to unlock new spending from new customers. Which may not be the easiest of tasks during a global recession.

COVID-19 hit major labels much harder than it did Spotify

COVID-19 was always going to have a significant impact on the music business, and with the Q2 results for all of the major music companies now in we can start to look at just how big that impact has been so far. Year-on-year (YoY), combined major label recorded music revenues fell by 7.8% on a current currency basis while major publisher revenue fell by 1.6% over the same period (though slow reporting for income such public performance means that the full impact on publishing is yet to be seen). The figures in themselves are disappointing for that has grown acclimatised to growth but the factors driving this are global economic and health policy ones. As we identified back at the start of June, income streams such as physical, public performance and ad supported are all vulnerable to lockdown impact. The only truly resilient revenue source so far is paid subscriptions. The dependency on streaming has never been higher but there are questions here too.

q2 2090 major label streaming music revenues

Major label streaming revenue fell by 0.6% in Q2 2020 compared to the previous quarter. Although it was up YoY by 6.3%, (and even allowing for seasonality), there was already a clear slowdown in growth before COVID-19 kicked it into reverse. When markets mature, the margins between growth and decline are small. So, factors such as the weakening digital ad market pushing down ad-supported revenues can be the difference between being in the red or in the black. The music business is going to have to get used to ad-supported under-performing because advertising is always an early victim of recessions.

Despite all of this gloom, the likelihood is that by the end of the year, there will have been sufficient return to growth in many sectors and regions, meaning global recorded music revenues will be higher in 2020 than 2019 – not by much, but up nonetheless.

However, the streaming slowdown emphasises just how important it is for the industry to establish a series of potential plan Bs to streaming’s plan A, and fast.

spotify revenues compared to major label revenues q2 2020

Q2 2020 wasn’t bad news for everyone in streaming. In fact, Spotify actually increased its revenues both quarter-on-quarter (2.2%) and annually by 13%, i.e. double the rate the majors grew their streaming revenue. The result is that by Q2 2020, Spotify’s total revenue was only 5% smaller than the entire major labels’ streaming revenue combined. All this was despite Spotify’s ad-supported revenue falling by 11%. Spotify’s revenues are slowly but surely becoming uncoupled from that of the majors. Although factors such as timing of revenue recognition and payments to rightsholders will play a role, the key inference is that independents grew faster than majors on Spotify in Q2, continuing the 2019 trend. Although, the term ‘independent’ is becoming progressively less useful as the market internationalizes; in addition to independent labels and artists we are seeing growing impact from regional, non-western ‘majors’ e.g. T-Series, India; Avex, Japan; YG Entertainment, South Korea.

The three key takeaways from all this are:

  1. Streaming revenue growth was already slowing. COVID-19 shows us just how important it is to push new growth drivers
  2. Spotify is already working on its new growth driver (i.e. podcasts) and though the slowdown in the digital ad market will dent momentum, podcasts will further decouple Spotify revenue from that of the majors
  3. The more likely scenario remains that streaming and label revenues will pick up before year end, but if the recession deepens and swathes of millennials lose their jobs, then subscription revenue could be hit, which brings us back to takeaway #1

New Webinar on What Comes After Lockdown

0Want to know what happens in the post-Lockdown era? Join us for our free-to-attend Recovery Economics webinar tomorrow (Wednesday 10th June) at 4pm BST / 11am EST / 8am PT for insight on music, radio, games, TV, sports and media.

We will be presenting an overview of MIDiA’s latest research thesis: Recovery Economics. This is our framework for identifying which changed need states that emerged during lockdown will form the basis for new behaviours post-lockdown and what you need to do in order to adapt to this new normal.

What is clear is that simply doing more of the same is not a strategy. The Covid-19 lockdown created severe dislocation across many entertainment sectors but also a host of new growth opportunities. As we emerge from lockdown and enter the early stages of a global economic recession, some of these ‘new-normal’ business models will grow further, presenting increased competition for the ‘old normal’. New and established players alike will have to play by different rules in this coming period, dealing with challenges such as permanent changes to lifestyles, weakening consumer spending and ever growing competition for attention.

In the webinar we will explain how this will look across the music, TV, film, games, radio, sports and media industries.

Register now!