Thanks to strong growth for Spotify and Apple Music in 2016, the music industry ended last year with more than 100 million paying for streaming subscriptions.
Does that mean a corner has truly been turned? A panel of experts discussed the current state of streaming at the NY:LON Connect conference we organised with the Music Business Association in London this week.
The panel comprised Scott Cohen, founder and VP of international at The Orchard; Jonathan Dworkin, SVP of digital strategy and business development at Universal Music Group; Dorothy Hui, VP of digital at Sony Music Entertainment UK; Elizabeth Moody, VP of global content licensing at Pandora; and Simon Wheeler, director of digital at Beggars Group.
The moderator was Music Ally CEO Paul Brindley, who kicked things off with a question about whether a corner really has been turned.
“I’ve been saying for 10 years that the industry is just about to go on the upturn. I’m working on the theory that if I say it often enough, it’ll finally turn out to be true!” joked Wheeler, while noting that the last couple of years have seen the fastest changes in the business. “Potential for growth? It’s huge. We haven’t touched the sides in a number of countries… Is it all going to be very easy? I doubt it very much.”
Wheeler added that 100 million subscribers is just the launchpad: the real growth may come from “somewhere north of maybe 150 million, and then it starts getting a bit rosier”.
Cohen pointed to the issue of calling this streaming. “I look at it as subscription businesses and ad-funded businesses, and how well they’re growing. Certainly subscription is going amazing and there’s tremendous headroom,” he said. But Cohen also said that there are plenty of markets where advertising and pay-as-you-go models could play an important role.
Hui said that “the corner has been turned, but it’s a long road ahead of us”, noting that more work needs to be done on developing the models for investment in artists and the marketing of their music.
“It’s building audiences and engaging audiences. Those are the kinds of things we’re thinking about from a digital marketing perspective… There’s also the factor of how many people are subscribing, but each person only has 24 hours in the day… so how are we competing for those hours in the day?”
Pandora’s Moody talked about the challenges of making streaming sustainable. “We think there’s a huge untapped market in subscription. We can’t as an industry just focus on subscription. There’s a number of different models in different markets that are going to work,” she said.
“In a lot of markets we are maybe reaching a ceiling, but in other markets including the US we’re facing a large part of the population that don’t even understand what on-demand music is yet… Even YouTube, the demographic is predominantly 18-30 year-old males. A lot of folks know they want more interactivity, but they don’t know necessarily what that means. They want it to work when they get on the plane… Even Spotify, it tends to be a younger demographic and heavily male-focused.”
Dworkin said that he is curious to see what happens with Amazon’s mid-tier product. “I really think it might end up being one of the best funnels to fully on-demand,” he said, suggesting that the mid-tier subscribers may become frustrated with not having access to the entire catalogue, or being able to listen in their car or at work.
“We all tend to focus on the big recorded-music markets, but solving things like payments and getting the offers right for markets like China, India, Indonesia… enormous growth is going to come out of those markets. And that’s very different for the music business, which has been focused on increasing penetration in the markets we know really well… I think there’s a world where we get to two, three, four hundred million subs. It’s possible.”
Cohen talked about changes in the way people find music, in contrast to the days of going into a record shop and browsing the genre-organised shelves. “If I go into Spotify or Apple Music or Pandora, I don’t go rock, alphabetical order. Taxonomy has completely changed. And I don’t even search by genre any more. Music comes to me and I find it… And how will finding music change in a voice-activated environment… when you won’t have that same interaction you get when you look at a screen. Now it’s just nothing in front of you. ‘I wanna hear music’. How are we going to push that forwards?”
Hui agreed, saying that it puts more responsibility on the listener to navigate through the system (Echo’s Alexa for example) to get to the music they want, and she wondered what new apps and technologies will emerge to help labels and artists find their audiences in this world.
“Marketing is going to have to be much more specific and much more persistent in terms of making the linkages to artist activity or music placement, or even just stumbling into a bar or restaurant. How am I going to carry that music home with me?” she said.
“You are staring at a blank screen, literally, and having to come up with something in your head,” said Wheeler. “It’s only just started. Really we’re looking at the playlists world on a screen, and that’s relatively young – only a couple of years into its development and it’s moving really fast. But already we’re onto the next development!”
Cohen said that it was playlists that drove the big engagement for streaming services, moving them beyond the blank search box and a catalogue of tens of millions of tracks. “Having those lean-back experiences in an on-demand service is great, but the next challenge is that before that’s even taken hold and grown, it’s going to morph again into something different.”
Dworkin warned of the risk of “ending up in an echo chamber” where listeners are truly surprised by new music, rather than having songs that a system knows they’ll like fed to them. “That’s a challenge we haven’t really gotten past with digital music services yet,” he said. Serendipity is tough to recreate in this world, in other words.
Hui talked about the risks of having too much new music served to listeners in this new world. “26 new artists are discovered each month per user. How are you ever going to remember you even liked something? It has to be a very OCD person that has a system of filing and starring, which I sometimes employ, to even have that discovery process be meaningful to an artist,” she said.
Should the price of subscription streaming come down? Dworkin said that there is already more price differentiating happening, from mobile bundles to mid-tier subscriptions. “It’s very hard to have price attrition at the top end, and then in a future and more mature market, move back up,” he warned, of calls to lower the price of the standard £9.99 subscription.
“I don’t think we have to do this by slashing prices wholesale at the top end,” he said. Cohen agreed. “I don’t think we need to cut the top to bring in the bottom… We need to have a clearer division of ‘here you can consume all of it for free’, and it’s too blurry about what gets you to where it is paid… What has to be there that people go ‘Y’know what, I’m going to jump over that’.”
Moody pointed out that much of the industry’s focus has been on getting hardcore music fans to sign up to £9.99-a-month subscriptions thus far. “We really haven’t touched mainstream yet,” she said.
Wheeler said that the growth in the last year of paying subscriptions suggests £9.99 remains a viable price point. “It’s pretty hard for the songwriters, the performers, the labels, the services… it’s kinda hard for everyone to make this a business as it is. So taking off the top end when we have millions of people coming into the marketplace… I don’t say we don’t go there at some point, but that point is far ahead of us.”
Dworkin criticised the “obsession with per-play” rates on streaming service, which he suggested is the wrong question to ask. “The reality is, what you have to look at is ARPU and lifetime customer value… the conversation with artists is not about ‘why am I only getting fractions of a penny’, but that it is a good thing to take a $50 average annual spend on music consumer, and turn them into a $120 average annual spend on music consumer,” he said.
“The music industry was the leader in the fake news movement,” said Cohen. “There is so much bad information and inaccurate information that goes on to be what’s quoted!”
What else might drive the market? Dworkin enthused about high-resolution streaming music’s quality and room for growth. “We’re competing with audio-visual content every day… the amount of visual assets that labels create and put into the ether is staggering, and they are often not ever catalogued or available for reuse… so there’s a huge opportunity for us to do a much better job of engaging the audio-visual world,” he said. “We’re walking around with devices we’re staring at every day, so how can we not be in the video business?”
“A lot of services, as they’re focusing in on more audio-visual material, they’re not thinking of themselves as music services. They’re media businesses, that’s what they are… As a music industry we need to be a little bit careful that we’re seeing all this other extra context ‘stuff’ that people want to put onto their services,” said Wheeler. His point: should labels and artists be attaching more value to their audio-visual content when supplying it to streaming services, rather than simply seeing it as promotional.
“YouTube it’s bloody obvious because that’s what they are. But Apple are doing the media business, Spotify has ambitions in the media business, Tidal… That’s something for us as an industry to be careful about,” he said.
The NY:LON Connect conference was co-organised by Music Ally and the Music Business Association, in association with Armonia.