MIDiA Senior Analyst Mark Mulligan looks at the next steps in the music and music industry.
Through Mark Mulligan of MIDiA and the Music Industry Blog
The year 2020 defined by the pandemic has been an aberrant year for digital entertainment, with the 12% more time consumers spend on entertainment to stimulate everything, including music. One of the effects was that streaming grew more than it would have otherwise been, delaying the inevitable slowdown in streaming revenue growth. This artificial boost for 2020 has meant that the impact of the slowdown was felt even more strongly when it arrived in the first quarter of 2021.
Major labels saw their streaming revenues increase by just 0.8% between Q4 2020 and Q1 2021, while Spotify saw their revenues decline by 1%. Seasonality plays a major role here (a similar trend was seen last year) and year-over-year income has increased by around a quarter. Nonetheless, it reflects a maturing market.
In 2019, Spotify’s revenue grew 15.7% between Q4 2018 and Q1 2019, while the majors’ streaming revenue grew 3% between Q4 2017 and Q1 2018. In in short, when the market was growing faster, the seasonality did not lead to stagnation / negative growth. Streaming is still in good shape and will remain at the core of recorded music revenue for the foreseeable future, and Spotify’s price hikes will bring in some extra revenue in 2021, but it’s clearly time to start thinking about what’s to come.
“New business models and user experiences may evolve alongside streaming, to diversify the revenue mix of the music industry.”
There’s an argument that in today’s post-format world, we shouldn’t even be thinking about the next thing. So it is best to think about new business models and user experiences that may develop alongside streaming, in order to diversify the revenue mix of the music industry.
Music companies, labels in particular, are exploring where future growth will come from. The most pessimistic argue that it’s largely as good as it gets, that there won’t be a ânext releaseâ. It might be fair in terms of a single source of income, but the first signs are that there is enough potential in a range of sources to collectively drive growth. Here are some of the potential growth drivers for the music industry:
- Games: Since the Marshmello Fortnite event, games have acquired a new level of importance for the music industry. WMG participation in Roblox highlights the extent to which labels are seizing this opportunity. With global gaming revenue reaching $ 120 billion in 2020 (roughly $ 100 billion more than the recorded music market) and more than a third of that revenue coming from cosmetic spending (i.e. unrelated to gameplay), there are plenty of opportunities. But to succeed, Music companies will need to think of creative ways to enhance the gaming experience rather than just viewing it as just another licensed game.
- Social: Revenues for TikTok and Facebook finally became significant in 2020, accounting for roughly three-quarters of the growth in advertising medium. We’re still scratching the surface of what social can do for music, but building tools that allow users to create their own music and audio will be key. Facebook’s Sound Studio could prove to be a decisive first step towards setting up the consumer version of the social studio.
- Creator’s tools: As regular readers know, MIDiA considers the current revolution in the creative tools space to be one of the most significant changes in the entire music industry in recent years. Not only does it transform the culture of musical creation, it represents a new set of opportunities for deepening artist-fan relationships and a set of new facets for the future of music companies.
- New generation synchronization: Although traditional music sync revenues fell in 2020, music production libraries (including royalty free) have increased. We are on the cusp of a new wave of opportunities in sync, with social content, platform, and creators representing a scale of demand that far exceeds that of the traditional sync market. And it’s the slow nature of this traditional industry that means the likely winners in the social sync market will be the new generation of companies that offer solutions that are agile and fast enough to meet the scale of micro demand. -synchronization.
- Live broadcast: The pandemic virtually created the live streaming market, causing a tidal wave of new start-ups rushing to fill the void left by live. Although the results have been mixed, there has been enough high-quality success to suggest this is an industry with a longevity that will survive lockdown. The services that will thrive when IRI returns are those that offer truly differentiated experiences that complement rather than trying to replace live IRL.
- Aptitude: Another side effect of the pandemic has been a surge in consumer spending on home fitness equipment, including Peleton. Right now there is significant music licensing revenue around the space, but BeyoncÃ©’s Peleton Partnership shows that the opportunity goes far beyond just playing music in workouts. Basically, the BeyoncÃ© partnership creates an audience that focuses all of its attention on the artist, which is rarely the case when people listen to music on audio streaming services.
- Fandom: Fandom is the next frontier for music monetization. Western streaming services monetize consumption, while Tencent Music Entertainment monetize fandom, with two-thirds of its turnover comes from non-musical activities. We start to see a wave of activity in artist subscriptions and saywhile Patreon goes from strength to strength. Check it out Free MIDiA report to learn more about how to harness the fandom opportunity.
As a reminder, streaming is, and will remain for many years, the beating heart of recorded music revenue. In fact, more than that, most of these new opportunities exist on such a scale. because streaming. Until now, streaming has allowed full-fledged revenue growth, now it will allow growth in new adjacent markets.