Labels are going to become more like VCs than they probably want to be

When you are in the midst of change it can be hard to actually see it. Right now, the music business is undergoing a consumption paradigm shift that is changing the culture and business of music. Streaming may be well established and maturing in many markets but the market impact will continue to accelerate as behaviours continue to evolve and bed in. Whether it is the rise of catalogue or the decline of megahits, everywhere you look, the music landscape is changing. So it is only natural that the role of record labels is going to change too. They have already of course, but shifts like label services deals and JVs are not the destination, instead they are preliminary steps on what is going to be a truly transformational journey for labels. 

Record labels often like to compare themselves to venture capital (VC), taking risks, investing in talent and sharing in the upside of success. While that comparison is flawed, its relevance is going to increase, but not in the way many labels will like. 

Firstly, where the comparison breaks down: VCs invest money early in a company’s life and then earn back if / when a company has a liquidity event (e.g., it sells, it IPOs, a new investor buys out earlier investors). But record labels invest and then take money immediately. As soon as the artist is generating royalties, the label is earning a return, it does not have to wait until some distant time in the future. What is more, even after the label no longer has an active relationship with the artist, it continues to earn. So a record label basically has a perpetual liquidity event. Which means its risk exposure is lower than a VC. Even if the artist flops, it will have recouped at least some of its outlay. VCs can be left with nothing if a start- up fails.

But where the label / VC analogy works best, is when looking at how the role of labels will evolve. VCs are typically earlier-stage investments so start-ups use VCs as launchpads for future success, a means to an end. Labels will likely have to start getting used to the same dynamic. Ever more artists are going their own way, launching their own apps, labels, using D2C sites. But the reason why record labels are around (despite artists being able to create their own virtual label from a vast choice of services – see chart) is that artists still need someone to build their audience (at least in most instances). The investment and A&R support help too, though those services can also be tapped into ad hoc from standalone companies.

This value chain dependency is what has helped labels to stay relevant despite dramatic industry shifts. But the next stage of this evolution will see a cohort of artists viewing labels as accelerators rather than long-term partners. They will use labels to establish their fan bases and then engage with them on their own terms, sometimes with labels, sometimes not. This is of course already beginning to happen, but it will become an established and increasingly standard career path.

Major labels like to think of themselves in the business of creating superstars. But as the very nature of what a superstar is dilutes, more artists will simply see labels as a launch pad. Start-up Platoon positioned itself as an artist accelerator and was bought by Apple. In many respects it was ahead of its time, pioneering a model that labels will increasingly find themselves filling, even if it is not their preferred role. 

Labels as artist accelerators

The repercussions will be massive. Labels, especially majors, will often over invest early to establish an artist. The business model depends on recouping the investment on future earnings. But with ever more artists looking to retain their rights, the labels only have a finite window in which they can monetise those rights, unless they negotiate term extensions. What this means is that labels are becoming a utility for many artists, a stepping stone while their brands are built for them. Like it or loathe it, savvy, empowered artists will increasingly see labels as the launchpad for future independence, and in this respect, labels are becoming more like VCs than ever.

As disruptive as this paradigm shift will be, record labels will find a way to adapt, just as they have to streaming, TikTok, label services, distribution etc. The difference here though is that this may represent a complete recalibration of the role that record labels play in the music industry value chain. This will mean a riskier, more limited role for labels, which in turn will make them more like VCs than they may be comfortable with. Turns out that modelling yourself on VCs can be a risky business in itself.

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.


Global music subscriber market shares Q1 2021

The music industry’s growing obsession with declining ARPU will continue to colour the outlook for the global streaming market in revenue terms, but the positive driver of this equation is the rapid growth of music subscribers. There were 100 million new music subscribers in 2020, taking the total to 467 million. (In 2019 there were just 83 million net new subscribers). A further 19.5 million new subscribers in Q1 2021 pushed the number up to 487 million. While the failure of subscription revenues to keep up with the pace resulted in ARPU falling by 9% in 2020, this lens detracts from the huge momentum in paid user adoption. Subscription revenue might not be increasing as fast as some would like, but the global music subscriber base is not just growing – it is growing faster than ever.

Spotify continues its global dominance, adding 27 million net subscribers between Q1 2020 and Q1 2021, more than any other single service. However, it lost two points of market share over the period because its percentage growth rate trailed that of its leading competitors. Google was the fastest-growing music streaming service in 2020, growing by 60%, with Tencent second on 40%. Amazon continued its steady trajectory, up 27%, while Apple grew by just 12%.

Google’s YouTube Music has been the standout story of the music subscriber market for the last couple of years, resonating both in many emerging markets and with younger audiences across the globe. The early signs are that YouTube Music is becoming to Gen Z what Spotify was to Millennials half a decade ago.

Emerging markets are now central to the music subscriber market, with Latin America, Asia Pacific and Rest of World accounting for 60% of all 2020 subscriber growth. This is of course, also a key reason why global ARPU declined. Nonetheless, a number of emerging markets services now boast large subscriber bases. Beyond Tencent’s 61 million, China’s NetEase hit 18 million subscribers in Q1 2020 and Russia’s Yandex hit 8 million. (For more on streaming in emerging markets check out MIDiA’s latest free report: Local Sounds, Global Cultures.)

MIDiA will be publishing its country-level music subscriber numbers as part of the global music forecast report and dataset which will be available to clients Monday 12th July. If you are not yet a MIDiA client and would like to know how to get access to the data, email [email protected]

Emerging markets may be about to change the superstar business

The traditional recorded music business was all about selling units, which naturally meant that the most important markets were not the most populous but the wealthiest. Throughout the late 20th century this created a ‘global’ market that was dominated by North America, Europe and a few others. This is why (among other political reasons) Japan became the biggest Asian music market, rather than China. 

Today’s music business is different. Streaming (particularly via ad-supported and bundles) can monetise large-scale audiences in lower per-capita GDP markets. Suddenly population size matters, and emerging markets become the world’s largest addressable music audience. The emerging markets opportunity has the western music and investment sectors salivating, but there is another layer many have missed: this shift is going to change how western record labels operate, not least by challenging the very notion of the global superstars which they trade in.

Anglo repertoire’s traditional dominance

Prosperity drives prosperity. Where music sales did well, music businesses did well. The music business did best in the US, as well as to a lesser degree in the other big English-speaking markets. These countries also benefited from English being the most exportable language for music. By the start of the 2000s (and excluding the US), of the top 10 music markets, domestic repertoire represented more than half of sales in only Japan and France. Anglo repertoire dominated the global music market and was extending its reach. Most countries across the globe were seeing their domestic repertoire shares falling year-on-year as we entered the new millennium. This of course meant less money feeding back into the local scenes, which meant more opportunity for international superstars to dominate. It was a cultural vicious circle. And then piracy happened.

A decade of piratical wilderness hit domestic repertoire hardest in many countries. For example, in Spain, the best way to keep track of domestic artists was ‘la manta’ chart. Literally ‘the blanket’, referring to the guys who would unfold a blanket on the street corner full of counterfeit CDs. So many local music scenes in lower-income emerging markets essentially remained largely organic and local for a decade. Then came along streaming, and suddenly artists can find their audiences in ways previously unimaginable. In geographically large countries like India and Brazil, touring the country was not a realistic option for most artists, so streaming enabled them to reach across their countries, and beyond, in an instant. 

Streaming, cultural catalyst for local scenes

Streaming’s cultural impact on local scenes was actually first seen at scale in Europe, with German, Dutch and French rap scenes fast emerging that found massive domestic popularity but that rarely export. In the old model, the lack of ‘exportability’ meant no record deal which meant no local scene. Streaming changed that. Another early milestone was the rise of Latin American music, especially Reggaeton. Although some Latin American artists have broken through on the global stage, the most important impact has been the rise of both domestic and regional superstars. This is the future that we are entering.

To expect emerging markets to lap up Anglo repertoire just because they are now streaming not only smacks of cultural imperialism, it also misses the underlying fundamentals of how music scenes and consumption are changing. The steady rise of Anglo repertoire up to the early 2000s has been replaced by a rise in local and regional music. Globalism is becoming replaced by internationalism, homogeneity with diversity. All of which means that global Anglo superstars will feel the pinch. The superstar business was already facing the headwinds of fragmenting fandom, so emerging markets are an accelerant to a pre-existing trend, along with multipliers such as the growth in the number of artists, releases and personalised recommendations. 

Build from within, not from without

None of this, however, necessarily means western labels cannot prosper in emerging markets. After all, they have the resources and expertise that decades of global success bring. They will need to shift their mindset from looking for export markets to territories where they can build new, domestic talent-centred business. A smattering of joint ventures from the western majors in Asia and Africa suggest the first steps are being made, but to succeed these strategies will have to be seen as the central plank of repertoire strategy for emerging markets, not a supporting strand. 

However, the western majors should not assume they will be able to out-perform local and regional labels. In Japan and South Korea, the western majors are minority players, having been unable to unseat the dominant local ‘majors’. Interestingly, both countries are long-term exceptions to Anglo repertoire dominance. Both are high per-capita markets with large economies that can sustain thriving domestic music businesses. Also, Anglo repertoire does not import as well to these markets (despite endless western acts trying to ‘break’ Japan), with international repertoire stuck at around a quarter of sales in both markets at the turn of the millennium. Now in the third decade of the millennium, it is South Korea that is exporting music to the world, from ’Gangnam Style’ through to Black Pink and BTS. This shows that global superstars will still be a long term-feature of the music business – though fewer will be Anglo artists. 

The outlook will thus be defined by:

  • Fewer Anglo global superstars
  • A rise in non-Anglo superstars
  • The rise of regional superstars
  • The rise of local scenes and domestic artists

It is an exciting time for music culture across the globe and we are most likely entering what will be the most culturally diverse era the global recorded music business has ever known.

If you are interested in emerging markets themes, then keep an eye out for a free report MIDiA will be publishing next week. Watch this space!

How Bandcamp could really fix the music business

“A thought: has streaming become the place to address consumers and the likes of Bandcamp the places to engage fans? i.e., fans and fandom inherently matter less on streaming because it/they are a minority.” 

I recently posted this tweet questioning whether streaming has become the place for finding fans, while Bandcamp is the place where fans really are. Some of the resulting conversation got me thinking that there are several related but disconnected industry dynamics which define today’s music business but are second-order effects of streaming’s rise rather than how anyone planned for things to pan out. If someone could join the dots between them then we might just have the makings of a solution to many of the problems artists face in the streaming song economy. And perhaps that someone could be Bandcamp…

When being empowered does not feel as empowering as it should

One of the great ironies of this era of empowered artists is that the empowerment only extends so far. Sure, they can choose whether to work with a label, whether to retain their rights, which distributor to use etc., but the vast majority are beholden to streaming. Streaming is where they build and find their audiences; streaming metrics are the success currency that drives or helps shape most of everything else that happens in their careers. Yet the economics for most middle class and independent artists do not add up. Even the ability to get bigger live audiences thanks to streaming does not help pay the bills for most emerging artists as they are still in the stage of their careers where they lose money touring. This is of course why Bandcamp has resonated so strongly in recent years: it is the place where artists bring the audiences they are building on streaming to a place where they can earn meaningful income. 

Streams or fans?

This discover on Spotify / monetise on Bandcamp flow works well enough, but it is like bottom-trawling fishing: most of what you catch you discard. But there is more to it than that. If labels and artists are investing their marketing efforts in driving streams as the way to find audiences and build fan bases but few listeners actually convert, this means that the streaming platforms are benefiting much more from that marketing spend than they are. Add to that the fact artists cannot build direct relationships on most streaming services (excepting, as always, Soundcloud and YouTube), then the question becomes: what are artists building on streaming apart from streams? Of course, there is always the unicorns and rainbows hope that they might blow up on streaming – but artist careers cannot be built around the hope of winning the lottery. What is pointedly not being built is, you guessed it, fandom. Audiences may fall in love with the music on streaming and they may follow the artist etc., but they build their fandom elsewhere, going to Google, Wikipedia, Instagram, forums, articles and the like to really get to know the artist.

Bringing it all together

Make no mistake, streaming does an amazing job of helping people hear new music and it does a pretty good job of helping people discover new music (there is of course a massive difference between hearing a new song once and really discovering new music). But the missing bit is nurturing fandom; feeding curiosity, enabling connections with others, facilitating self-expression, getting beneath the skin of an artist. A certain scale of audience is needed to turn Bandcamp into truly meaningful income for artists and right now too much of that responsibility lies with streaming. This is where Bandcamp has a ‘go big or go home’ opportunity.

What if discovery, consumption and fan building could all happen on Bandcamp, not just e-commerce? Apart from a little editorial, right now Bandcamp is not designed as a destination but instead as the place people go to buy stuff. Imagine if Bandcamp was also a place to listen to music, discover cool new artists (based on users’ stated preferences and behaviour to deliver personalised recommendations) and learn about those artists. A place for bands and alternative singer-songwriters. A place to reclaim the essence of ‘independent’ from major label-owned ‘independent’ artist platforms.

Of course, there is a tension: if Bandcamp suddenly starts doing streaming, then it puts sales at risk – the very essence of its market proposition. But Bandcamp doesn’t need to play by the streaming rule book. It doesn’t need to license the majors (or even the big indies); instead, it can build a completely new model with smaller labels who are open to creating something new. 

For example, a listener might be able to stream the songs from an album twice before then having the option to pay to unlock the album for unlimited streams. This would combine the best of both worlds: streaming consumption and sales income for the artist. Once you start thinking about things in this way, the possibilities light up the horizon.

A fan accelerator

So now we have Bandcamp driving discovery, consumption and commerce. But it could do more still: it can become a fan accelerator. By combining all these assets and ensuring artists can always talk directly to their fans and know exactly who they are (opt-in emails, names, DOB, interests etc.) artists would be able to build fan bases like nowhere else. But rather than simply provide the tools to artists, Bandcamp could help them with guidance, support and fan roadmaps. Not all artists are one million follower artists; some might only ever be 100 follower artists. Using its data and expertise, Bandcamp could help artists understand what the right path is for them. For some, it would be providing the tools to get to 10,000 followers; for others, it might be how to truly engage 100. 

This might sound like common sense, but too much of the music business is shaped by over-inflating artists’ expectations, trading on unrealistic dreams. The first chapter of the independent artist economy was about establishing them as a serious force in the music business and getting platforms to scale. The next chapter should be shaped by independent artist tools and platforms shouldering a duty of care to their customer bases, to help them plot the right paths for them. There are as many different models for success as there are artists. Success needs redefining for those artists that will never hit it big, nor may ever even be able to give up the day job. Finding those ‘100 true fans’ can still be success; it just needs measuring differently.

There are plenty of other directions this could go in, and there are plenty of other entities that could go in this direction. What matters is that the siloes the industry finds itself with are broken down and that fandom and creator remuneration do not fall between the cracks. With new foundations, we could truly see the emergence of the empowered artist.