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.

The Future of Live

The almost total cessation of live music has sent shockwaves throughout the wider music industry. Though live companies are clearly at the epicentre, labels and streaming services are the in the blast radius too as the gaping hole left in most artists’ income is causing them to question their other income sources, streaming especially – with both labels and DSPs in the sights.

Finding both near- and mid-term fixes for live are therefore crucial for the wider music industry and artist community. There is a big opportunity here that goes far beyond lockdown era. This is more than the future of games and music, it is in fact an alternative future for live music. It is the ultimate lockdown legacy.

future live events midia researchMIDiA’s latest subscriber report ‘Recovery Economics: Music, Games, Live Streams and the Future of Concerts’ has just been published and subscribers can read it here. In this blog post I am going to highlight some of the key themes.

Live streaming’s teething pains

From a value chain perspective, Lockdown came too early for live streaming; it is under-developed, under-monetised, under-licensed, under-professionalised. Unfortunately, the live-streaming surge is showing all the signs of a goldrush with a lack of clear structure and the first signs of artist backlash, with some artists feeling that some platforms are relying on them to build their audiences while performing for free.

Furthermore, quality is patchy and artists are becoming concerned with the impact on their brand image. Saturation is another Achilles heel: with traditional performances saturation is negated by artists moving from one city to another. Live streaming has no geographical constraints so the effect of multiple performances is analogous to playing repeated concerts in the same small town.

Virtual concerts, not live-streamed concerts

Arguably the biggest single mistake the music industry made with music streaming was to think of it as a format rather than a paradigm. As a consequence, the (western) streaming services lack differentiation and true feature innovation. We must think of the live opportunity as something that goes beyond live streams. Live streams are just one part of the mix. The true opportunity is virtual experiences, that can range from 100 attendee super-premium intimate sessions, through mass scale ad-supported YouTube streams, to avatars performing in games.

If we start this journey thinking narrowly, the scale of opportunity will be constrained. And right now, the industry needs to get as many virtual event innovations going as it can, because it will have to continue to carry the baton for live for some time yet.

In a best case scenario COVID-19 recedes later this year and we have a small number of limited capacity concerts happening before year end. Alternatively, we may see recurring waves of COVID-19 denting consumer confidence with fewer people wanting to go to concerts even if they could. Either way, artists are not going to get most of their live revenue this year.

future of live midia

It is this post-lockdown opportunity that virtual events need to meet. But there is a lot of work yet to be done. The biggest problem to fix is monetisation.

Fans pay around 80 times more per minute for a real-world live performance than they do for listening to music on paid streaming services. The value exists in the shared moment. The problem with live streaming in its current manifestation is that it is abundant and is delivered in a ubiquitous format that is implicitly low value. If this sector is to become a serious income stream for artists then we have to stop giving it all away for free. What is needed is a sophisticated freemium monetisation model that can cater both to large free audiences and better monetise fans.

A set of principles for virtual events

There is also a lot more that can be fixed. Here are some meta principles that virtual events should adhere to:

  • Scarcity (fewer gigs, geo-restricted – Laura Marlin has just announced geo-restricted live streams – let’s make that the trailblazer not an isolated initiative)
  • Better production qualities
  • More sophisticated monetisation (freemium, pay-to-stay, super premium / VIP etc)
  • More sophisticated segmentation of types of shows (not all live streams are the same, but we currently only have a one-size-fits all product
  • Better platform segmentation (e.g. big tech platforms can play the role of stadiums and arenas while off-portal destinations like artist apps can host smaller, scarcer, super-premium events)
  • Better discovery (the equivalent of the TV EPG needs creating for virtual concerts, Bandsintown has made a decent start but much more needs to be done)
  • Better alignment between what artists want and what the platforms want

The birth of a new industry

COVID-19 will likely be a mid- to long-term part of life, so the traditional live sector will face a ‘cost of confidence’ as portions of artists and fans alike will initially stay away. Virtual concerts (live streaming and generative virtual performances) can become an important component of the live music sector as it builds out of lockdown. But it will not get there without concerted efforts to fix the problems that currently define this nascent sector.

A new virtual concert value chain is starting to emerge that traditional live companies are not – yet – well embedded in. The future market will be one defined by both incumbents and insurgents. The big live companies will bet big on virtual but we’ll also see new types of companies like virtual booking agents and avatar agencies. The whole concepts of what a concert is and what a venue is, can be turned on their heads. Fortnite’s Party Royale island is now hosting regular live streamed concerts. With 350 million users, Fortnite can lay claim to being arguably the biggest capacity venue on the planet. This may be the birth of an entire new ecosystem.

Recovery economics

The lockdown lag will create a whole new set of economics across all industries. Driving a recovery during this transition period will require innovation and a willingness to downplay old ways of doing things. For music it will be about exploring new income streams to recast a new music business. The first step is for live streaming to have a product refit that delivers a genuine value exchange for fans if it is to ever get out of its free / charity / tip cul-de-sac and become a genuine income stream of scale.

If you are not yet a MIDiA client and would like to learn how to get access to this report then email [email protected]

If you are a client and would like to talk to us about the themes covered in the report then schedule an enquiry via [email protected]

Travis Scott has Only Scratched the Surface of Music Games Tie Ups

travis-scott-fortnite-concert-1280x720In February 2019 Marshmello caused ripples of almost tidal proportions across the music business when 10.7 million Fortnite fans watched him perform a ‘concert’ in the game. Then in April 2020 Travis Scott followed in his shoes with his own Fortnite concert, pulling in 12 million players. Given that this was in the COVID-19 lockdown the 1.3 million increase was a relatively modest increase. However, Fortnite publisher Epic Games had learned its lessons from the Marshmello event and rather than limit audience demand to one event, turned it into a residency with a further 15 million players watching over four subsequent replays of the event. This took the total to 27 million, though there will be a substantial number that attended multiple performances.

What is clear is that a format has been established and that Epic Games is honing its promoter skillset. Fortnite events are labour intensive efforts to put on and currently do not scale well (hence only two events in 14 months). But there is a much bigger opportunity here for artists and one that gains new significance in the lockdown era.

The impact of COVID-19 recurring

With the cessation of live music in lockdown, artists have seen a dramatic fall in income. Established artists can expect to earn between 50% and 70% of their total income from live—that just disappeared. However fast lockdown measures are eased, live entertainment is going to take a long time to return to normal. Indeed, it may never do so.

Virologists point to the Spanish Flu outbreak after the First World War as the relevant precedent for understanding how the COVID-19 pandemic may play out. That was a far deadlier outbreak, infecting a third of the world’s population and killing up to 50 million. But crucially, it was not a single event. It had four major outbreaks over two years. It is likely that COVID-19 will not simply go away but instead will return, either in waves or as a continual background oscillation of infection.

As of May 1st 2020 less than half a percent of the world’s population has been infected with COVID-19. Even allowing for that being just a tenth of the actual cases, that means that 95% of the population has not had COVID-19. Consequently, the majority of consumers are going to be concerned about returning to potentially infectious environments.

The combination of easing lockdown measures and weak consumer confidence means that live is not going to return to normal anytime soon. Social distancing measures will likely see rows of empty seats in larger venues and smaller, standing-only venues may struggle to operate at all. Reduced, spaced-out crowds will both harm the live experience and prevent many live events from being commercially viable to operate. Consumer concern may even make it hard for reduced capacities to be met. So, artists are not going to be able to reasonably expect a strong return of traditional live income in the mid-term future.

Lockdown lag

Live’s lockdown lag may have the knock-on effect of making artists take a more critical view of their streaming income. When live dominated their income mix, streaming’s context was a meaningful revenue stream that built audiences to drive other forms of income. It was effectively marketing artists got paid for. Now that artists are becoming more dependent on streaming income, the old concerns about whether they are getting paid enough will likely come back to the fore. It is in the interests of both labels and streaming services, that labels use this as an opportunity to revisit their streaming splits with artists. Labels cannot afford to have artists united against the labels’ primary income stream.

Live streaming is not yet ready for prime time

Live streaming of concerts is gaining traction but lockdown came a little too early for the sector. It is under developed, under monetised, under licensed, under professionalised and lacks the discovery layer crucial to make it ready for prime time (perhaps an opportunity for streaming services). On top of this, it does not create the same scarcity of experience that live music does and the rise of virtual festivals with artists playing just a few songs makes live more like a playlist experience, which favours the platforms over the artists. Enter stage left games.

top ranked games for artist fanbases

Travis Scott fans are 2.3 times more likely to play Fortnite than overall consumers, but there are 80 other artist fanbases that are more likely to play Fornite than Scott’s. How do we know this?

Every quarter MIDiA fields a music brand tracker that – among many other things – tracks which games artists’ fans play. Looking across the 10 artist fanbases most likely to play three of the top games reveals a huge amount of untapped opportunity. The old model for games and music was sync. That is still a major opportunity but in the lockdown era the potential scope is so much wider.

Not every game is well suited to hosting virtual, gameplay concerts, but the console ecosystems can support so much more. Imagine if Flohio, Ben Howard, Koffee or Slowthai were to do put on exclusive performances live streamed to FIFA players via Xbox Live followed by a gaming session to which players would pay for a premium ticket to play against their favourite artists in an eSports type set up. Tickets would be limited, to create scarcity.

Lockdown economics

The lockdown lag will create a whole new set of economics across all industries. For music it will be about exploring new income streams to recast a new music business. Games will play a major part. No longer simply a place to sync music, games will become platforms for driving artist-fan engagement.

In the Attention Economy everything is connected. In lockdown economics those connections become productised and monetised, with benefits for all. Think of this like the K-Pop and Japanese Idol models, with superfans paying for extra access to their favourite artists. Instead of handshakes and meets and greets, we have gaming sessions and exclusive concerts. Artists benefit by connecting with fans and driving income; labels get to be participants in new revenue streams and help offset growing artist concern about streaming pay-outs; games companies get to add new revenue sources and products.

A dystopian virtual future

A final thought to leave you with. Tim Ingham’s recent piece suggested that Epic Games’ long view might be to create virtual artists, with the thinking being that the Marshmello and Travis Scott concerts were already in practice virtual artists. What if Epic Games is using these concerts to learn the ropes so that it could create its own roster of virtual artists. It could follow the Japanese and Korean music agency model of building rosters of employee artists, that operate under a work for hire basis. Epic Games would own 100% of all rights while the artists perform under stage names and as game avatars. Epic Games could make these virtual artists part of the Fortnite game itself to help build tribalism and fandom, and it of course already has a highly effective virtual merch store.

In doing so, Epic Games would create a games-centric music division that operates entirely outside of the confines of the traditional music industry. Dystopian perhaps, but also entirely feasible, which is why artists and labels should probably think less about becoming integrated into the games themselves and focus more on connecting their real selves with their gaming fans.

If you are a MIDiA client we will be publishing a report on this topic shortly with thousands of data points. If you are not yet a MIDiA client and would like to learn how to get access to this data email [email protected]

The COVID Bounce: Part II

In their early stages, COVID-19 self-isolation measures have quickly created new consumer behaviour patterns, oriented around four key axes:

  1. Communication
  2. Entertainment
  3. Information/news
  4. Education (for children at home)

COVID-19 top apps downloaded midia research

The demand for the first two of these behaviour groups is clearly illustrated by the mobile apps that consumers are downloading. Across the Apple App Store and Google Play Store, the top 10 most downloaded free apps are dominated by video communication apps and games. These types of companies have been some of the biggest winners in the early stages of COVID-19.

Meeting the demand for human connection

The top two apps are ones that have been around for a long time but have found their moment in the current crisis. Following years establishing itself as a tool for business, Zoom has become the go-to for work-from-home staff, consumers and a host of people and small businesses looking to continue classes with students such as music classes, fitness and yoga. Zoom has managed to achieve that most elusive of consumer market forces: to become synonymous with an entire product category, much like Spotify has for music, Netflix for games, Google for search and Amazon for e-commerce.

Multiple other video communication apps such as Google’s Hangouts have also grown strongly, but the biggest business-focused winner after Zoom is Microsoft Teams. Over the last half a decade, Microsoft – the original tech major – has been rebuilding its business, establishing itself once again as a global power player. With its strong focus on enterprise and utility capabilities, Microsoft could be better positioned than the consumer-facing tech majors (Alphabet, Amazon, Apple, Facebook) to weather the likely COVID-19-driven recession. Apple’s Facetime has also experienced strong usage during the COVID-19 dislocation, but because it is a native iOS app does not appear in the app store charts.

Houseparty has grown fast… perhaps too fast

Houseparty has achieved a similar role for the pure-consumer side of the equation. After years of modest success – it was launched in 2016 – it has rocketed up the app store charts, with its highly social, fun focus giving it particularly strong reach among younger age groups. The early signs though are that Houseparty’s developers Life on Air may not have been fully prepared for the surge in usage. While its original Gen Z and Millennial target user groups may have been tolerant of the wide social reach Houseparty delivers, there are widespread accounts in the media of older consumers reacting badly to features such as people unexpectedly joining parties who they are not close to but were automatically added when they synced their contacts to the app. Also, as with any rapid growth comes the risk of scams, as illustrated by frustrated users complaining that their payment details have been hacked via the app. These are all the sort of issues that Life on Air would have been able to manage more systematically if it had grown more steadily. It is now running to keep up and risks a consumer backlash if it cannot respond quickly and robustly enough.

Filling the down time

The other big app gainers are games, with four placings in the top 10. While games as a wider sector has been a key beneficiary of the COVID-19 dislocation, mobile games tend to skew more towards casual gamers. Popular mobile games are often easy to play, giving them wider appeal. The four games in the top 10 – Save the Girl!, Perfect Cream, House Restoration and Park Master – are clear illustrations of bored consumers looking to fill the extra time they have on their hands. Mobile games were early winners in the attention economy but lost market share as other forms of media grew in competition. Now, with an average of 15% of new attention time being available for employed consumers – due to no commuting or going out for leisure – mobile games is enjoying a similar dynamic as in the early days of the app economy. With disruptions to TV, film and music production, this boom will likely extend – albeit at lower rates – beyond the social-distancing phase, until other media categories can produce enough new content to win back more consumption time.

Post-COVID new world order

When the COVID-19 dislocation finally ends, consumers and businesses alike will return to a state of greater equilibrium. The transition will be steady rather than instant, and newly-established behaviours will take time to change. However, the point from which they will change will be different from today as consumers and businesses are still only beginning to establish new forms of normality in these abnormal circumstances. However, what is clear is that consumers and businesses will take with them into the post-COVID world new perspectives on life and behaviour.

Video messaging was already on a strong upward curve but COVID-19 has accelerated that by rapidly expanding its business use and pushing it to older, more mainstream audiences more quickly than it would otherwise have done. When the COVID-19 dislocation subsides, video messaging is one of the activities that will have a higher usage watermark than before the crisis.

The COVID Bounce: How COVID-19 is Reshaping Entertainment Demand

The economic disruption and social dislocation caused by the COVID-19 pandemic is not evenly distributed. Some business face catastrophe, while others thrive. Across the entertainment industries the same is true, ranging from a temporary collapse of the live business through to a surge in gaming activity. As we explain in our free-to-download COVID-19 Impact report, the extra time people have as a result of self-isolation has boosted some forms of entertainment more than others – with games, video and news the biggest winners so far.

midia research - the covid bounceTo further illustrate these trends, MIDiA compiled selected Google search term data across the main entertainment categories. The chart below maps the change in popularity of these search terms between the start of January 2020 up to March 27th. Google Trends data does not show the absolute number of searches but instead an index of popularity. These are the key findings:

  • Video streaming: All leading video subscription services saw a strong COVID-19-driven spike, especially Disney+ which managed to coincide its UK launch with the first day of national home schooling.
  • Music streaming: Little more than a modest uptick for the leading music services, following a long steady fall – reflecting a mature market sector unlike video, which has been catalysed by major new service launches.
  • Video demand: With the mid- to long-term prospect of a lot more time on their hands, consumers have been strongly increasing searches for TV shows, movies and games to watch and play. The fact that ‘shows for kids to watch’ is following a later but steeper curve reflects the growing realisation by locked-down families that they have to stop the kids going stir crazy while they try to work from home.
  • Music demand: Demand for music has been much more mixed, including a pronounced downturn in streams in Italy. Part of the reason is that music is something people can already do at any time in any place. So, the initial instinct of consumers was to fill their newfound time with entertainment they couldn’t otherwise do at work/school. As the abnormal normalises music streaming will pick up, as the recent increase in searches for music and playlist terms suggests. Podcasts, however, look like they will take longer to get a COVID bounce.
  • Games: Games activity and revenues have already benefited strongly from the new behaviour patterns, as illustrated by the fast and strong increase in search terms. However, the recent slowdown in search growth suggests that the increase in gaming demand may slow.
  • News: The increased searches correlate strongly with the growth of the pandemic, but the clear dip at the end provides the first evidence of crisis-fatigue.
  • Sports: The closure of all major sports leagues and events has left a gaping hole in TV schedules and the lives of sports fans. The sudden drop in search terms shows that sports fans have quickly filled their lives with other entertainment and have little interest in keeping up with news of sports closures.
  • Leaders: Finally, Boris Johnson has seen his search popularity grow steadily with the pandemic, while Donald Trump’s has dipped.