Spotify and music listening 10 years from now

July marks ten years since Spotify’s US launch. Although the tendency among some is to consider this ‘year zero’ for streaming (thus ignoring everything that had happened in prior years both within and outside of the US) it does present a useful opportunity to reflect on what the next decade might hold for Spotify. 

Rather than focus on the business outlook, I am going to explore how Spotify and other streaming services, could change the way in which music is consumed ten years from now. But first, three quick future business scenarios for Spotify:

  1. It continues to be the global leader but with reduced market share due to the rise of regional competitors in emerging markets
  2. It loses market momentum, stock price tumbles and is acquired by another entity 
  3. It morphs into a true multi-sided entertainment and creation platform, doing for entertainment what Amazon now does for retail but with more tools and services

So, on to the future of music consumption.

To map the future, you need to know the past. These are (some of) the key ways streaming has transformed how we engage with music:

  • We listen to a larger number of artists but spend less time with individual artists
  • We listen to tracks and playlists more, and albums less
  • Music is programmed (by ourselves and by streaming services) to act as a soundtrack for our daily lives and routines
  • Genre divisions are becoming less meaningful
  • Artist brands are becoming less visible
  • Music fandom is becoming less pronounced

Music is more like the soundtrack to daytime TV than blockbuster movies

In 2015 Spotify’s Daniel Ek said that he wanted Spotify to ‘be the soundtrack of your life’. Undoubtedly, Spotify and other streaming services are achieving that but the utopian vision is more prosaic in practice. Less ‘that was the best day of the summer’ and more ‘put on some tunes while I cook’. It is a soundtrack, but less the soundtrack to a blockbuster movie and instead more like the soundtrack to daytime TV. Music has become sonic wallpaper that is a constant backdrop to our daily mundanity. (Though the pandemic, the climate crisis and stagnant labour markets can make even the mundane look aspirational for many).

Like it or loathe it, this sound tracking dynamic is likely to play a key role in what the future of music consumption looks like. But it is not all sonic dystopias; personalisation, algorithms, user data and programming also have the potential to reinvigorate music passion. Here are two key ways in which Spotify and other streaming services could transform music listening ten years from now:

  • Dynamic and biometric personalisation: The current recommendation arms race works from a comparatively small dataset, focused on users’ music preferences and behaviour. The next battle front will be the listener’s entire life. Any individual user can appear to be a dramatically different music listener depending on the context of their listening. Even the same time of day can have very different permutations; for example, looking for chilled sounds at 7pm after a manic Monday but banging beats at the same time on a Friday. If streaming services could harvest data from personal devices and the social graph, elements such as heart rate, location, activity, facial expression and sentiment could all be used to create a music feed that dynamically responds to the individual. Instead of having to actively seek out a workout or study playlist, the music feed would automatically tweak the music to the listener’s behaviour and habits. The faster the run, the more up-tempo the music; the later in the evening, the more chilled (unless it’s 9pm and you’re getting ready for a big night out). Selecting mood and activity-based playlists will look incredibly mechanical in this world. Think of it like the change from manual gear change to automatic in cars.

  • Music catalogue reimagined: Just as activity and mood-based listening will become more push and less pull, so can music catalogue. Traditionally catalogue consumption is driven by a combination of user behaviour (‘I haven’t listened to that band in a while’) and marketing pushes by labels, publishers and now music funds’ ‘song management’. But it needn’t be that way anymore. Over the years, streaming services have collected a wealth of user data. Just as Facebook introduced memories for users’ posts, so streaming services could deliver music memories, showing users what they were listening to on this day ten years ago, or what the soundtrack to your summer was way back in 2021. Clearly Spotify is already making steps in this direction with Wrapped but this would be much bigger step, routinely delivering nostalgia nuggets throughout a day, week, month, year. In many respects the result would be a democratisation of catalogue consumption. It wouldn’t simply be the rights holders with the biggest marketing budgets and smartest campaigns on TikTok (or whatever has replaced TikTok ten years from now) that get the biggest catalogue bumps. Instead, catalogue consumption across the board would boom. This could make the current 66% of all listening look like small fry in comparison. What that means for frontline releases finding space is another question entirely.

These are of course just two well-educated guesses, and their weaknesses are that they are based on what has happened so far rather than what currently unforeseen consumption shifts may happen in the future. Indeed, streaming itself may have been surpassed ten years from now. But tomorrow’s technology often looks more like today than it does tomorrow. Henry Ford’s model T Ford looked more like a horse and trap than it did the swept wing aerodynamics of 1950s cars. Change takes time. But ten years is a long time in the world of technology, so even if neither of the above come to pass, you can be sure that music listening is going to look a whole lot different than it does now.


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.

How the DNA of a hit has changed over 20 years

Recorded music has always evolved to fit the dominant format of the era, from three-minute songs to fit on 7-inch vinyl, through eight-song albums to fit on LPs, through to 16+ song albums to fill CDs. Format-driven change is nothing new, but streaming’s impact on the making of music itself is arguably more revolutionary than that of previous formats because it is both the consumption and discovery format rolled into one.

In the heyday of the album, the focus would be both on what makes a great album and what tracks would work on radio, and later MTV. Now all the considerations are rolled into the song itself, the central currency of the streaming era.

20 years of dna of hits

To illustrate just how significant this change is, we have taken a snapshot of the Billboard Top 10, now and 20 years ago. The caveats here are that this is just that: a snapshot in time, rather than a comprehensive data analysis – and it is a view of just the very top of the pile, the megahits of the day. Nonetheless, it provides some clear illustration of how the DNA of a hit has changed over the course of 20 years:

  • Shorter, snappier songs: The average length of the top 10 hits has fallen by 16% to 221.5 seconds (three minutes and 42 seconds, down from four minutes and 22 seconds). Meanwhile, intros have fallen from 13.1 seconds to 7.4 seconds. In the streaming economy where release schedules are weaponised with increased volume and velocity of releases, there is often just one chance to catch the attention of the listener. With ever fewer younger music fans listening to radio, there is little opportunity for the listener to hear the track again if they skip it in their streaming playlist.
  • Hip Hop’s apogee: The July 2000 top 10 was evenly split between pop, rock and RnB, with the latter two having the edge. In today’s top 10 Hip Hop reigns supreme, accounting for six of the top 10 tracks. Starting with the rise of EDM and now continued with Hip Hop, the hits business has become more focused, doubling down on one leading genre and in turn making it even more dominant.
  • The industrialisation of songwriting: As the buy side of the song equation, record labels are reshaping songwriting by pulling together teams of songwriters to create genetically modified hits. The more top-class songwriters, so the logic goes, the greater the chance of a hit. The average number of songwriters increased from 2.4 per track in 2000 to 4 in 2020. The upside for songwriters is more work, the downside is having to share already small streaming royalties with a larger number of people. Interestingly, the average age of songwriters increased from just under 27 to just over 31. It points to longer careers for songwriters but it does beg the question whether this means songwriters’ life experiences are that little bit more distant from those of young music fans.
  • The rise of the featured artist: Adding super star collaborators onto tracks has become a go-to strategy for streaming-era hits. In the July 2000 top 10, none of the tracks had a featured artist, by July 2020 that share had jumped to 60%.

The dominant theme underpinning these changes in the DNA of hits is reducing risk. More songwriters, more collaborations, shorter songs, shorter intros, fewer genres all point to honing a formula, following a blueprint for success. This evolution will continue to gather pace until the next format shift rewrites the rules. Until then, record labels, songwriters and artists need to ask themselves whether they are striking the right balance between business and creativity. If they are not getting it right, then the inevitability is that (at the hit end of the market) pop will eat itself. And if it does, expect an audience shift away from the increasingly homogenised head, down to the more diverse tail.

Time to stop playing the velocity game

We all know that streaming has transformed consumption and business models alike, but this is not a ‘now-completed’ process. Instead it is one that continues to evolve at pace, and the dynamic of pace is the pivotal variable. Consumer adoption continues to accelerate in terms of both time spent and take up. The streaming services – which are entirely geared to driving and responding to this behaviour – rapidly hone their systems accordingly. Labels, artists, publishers and songwriters are stuck playing catch up, running after the streaming train before it disappears over the horizon. The marketing strategies and royalty systems that worked yesterday struggle to cope today. But this ‘upstream’ side of the music business is inadvertently making it harder for themselves to ever actually catch up. By trying to play by the new rules they are in fact feeding the machine, ceding further control of their own destinies. It is time for a reset.

Streaming’s ‘upstream’ fault lines

There are three major fault lines for the upstream music business:

  1. Volume and velocity: releasing more music than ever before to meet the accelerating turnover of content
  2. The demotion of the artist: once the centrepiece of music consumption the artist is becoming a production facility for playlists
  3. Royalties: royalty payments built for the much more monolithic streaming model of the late 2000s do not reflect the complexities and nuances of streaming consumption in the 2010s 

Each of these are inherent attributes of the current model and favour the ‘downstream’ end of the equation (i.e. streaming services) far more than they do the upstream. Each problem needs fixing.

Volume and velocity

This is the most important and insidious factor, yet it is deceptively innocuous. Labels are releasing an unprecedented volume and velocity of music to try to keep up with streaming – especially the majors. But it is a Sisyphean task, no matter how many times you roll that boulder up the hill, the next one needs rolling up all over again and the hill gets steeper every time. Spotify is adding around 1.4 million tracks a month so, for example, if UMG wanted to release tracks on a market share basis it would have to release 420,000 every month.

Now that the data era has arrived in music, the risk of signing a new artists has been significantly reduced, but at the same time, an artist whose numbers are already trending does not come cheap to sign nor does she come with a guarantee of longevity. Many artists can do enough to have a successful song, but far fewer can make a habit of it. Labels have to decide how willing they are to bet on an artist one song at a time.

It feels impossibly hard not to play the game because everyone else is playing it and the system is geared that way. Feeding the velocity game habit is like feeding a crack cocaine habit. And yet, labels know better than most businesses that by breaking the rules, creative businesses can have more, not less, success.

The demotion of the artist

Western streaming services, unlike many Eastern ones, are built around tracks not artists and consequently consumption is too. Inadvertently, labels are feeding this dynamic because they are so focused on making tracks work that an artist is much less likely to be given the benefit of a long term strategy if her songs do not stream. The problem with chasing streams is that the process for one song might not apply to another. Failing at streams will often be a reason for pulling the plug on an artist, simply because ‘Plan B’ does not have a boiler plate. The more they push tracks the more they help the de-prioritisation of artists.

Fandom should come first, streaming second. A longer-term view is needed, one that puts building the artist’s fanbase first and streaming second. If an artist has a large, engaged fanbase then streams will usually follow. But if an artist gets a lot of streams on a playlist a fanbase does not necessarily follow. Marketing campaigns need to shift emphasis to a longer-term, audience-centric focus. It may be harder to measure the near-term ROI with this approach, but it will deliver better long-term returns.

Royalties

The #brokenrecord debate is not about to go away, especially as it will likely be 2020 before live music is operating at full capacity again and thus delivering artists the income they are currently missing. As I have previously discussed this is a complex problem for which there is no single solution but instead will require coordinated efforts from multiple stakeholders. A reassessment of the entire royalty streaming structure is needed from upstream to downstream.

Downstream, we need to stop thinking that every song is equal. They are not. Listening to 30 minutes of 35-second storm sound ‘songs’ in a mindfulness playlist should not be paying the same royalties as an album listened to its entirety. Also, some form of user-centred licensing solution is needed that rewards fandom, whether that is a user opt in model (‘support favourite artists’) or an actual re-work of the royalty mechanism, or a combination of the two.

Labels also need to work out how they can pay more to artists. Lowering their A&R risk exposure could free up some income. Of course, this is something that many have tried and failed at, but what if labels were to allocate 10% of their marketing budgets to top-of-funnel activity so that they can do even more work than they currently do around identifying talent early. This needs a commercial model that protects their funnel (e.g. first refusal terms for artists) and also needs to play in the creator tools space: the tools creators user to make music is the real ‘top of funnel’ – this is where the first relationships are established.

The holy grail for improving label profits would be for the label to improve the overall success rate for the artists in the portfolio. However, in the history of music, it is safe to say that no label has quite cracked it. Instead they live with it as a reality and a cost of doing business.

Labels do though, have some margin slack to play with. WMG improved its OIBDA from 11.9% in 2018 to 14.0% in 2019 while UMG improved its EBITDA from 16.7% in 2017 to 20.0% in 2019. Clearly, improved profitability is important in its own right and for investors, but the way to see this is a near-term expense to secure long-term profitability. A label without artists is not a label.

Breaking the habit

It takes a brave – some might say foolish – label to stop playing by streaming’s rules of engagement, to risk losing share in those crucial playlists. But label business models are not structured for the economics of single tracks – dance labels excepted. Their P&Ls are built around artists. When streaming behaviour started killing off the album, labels complained but then got used to building campaigns around tracks. However, this is not the destination, it is a stopover on the long-term journey towards a post-artist world. Playing streaming’s velocity game perpetuates an increasingly dysfunctional model. It feeds shortening attention spans, degrades the role of the artist and downgrades music to fodder for playlists. It is time to jump off the merry-go-round.