“The headline figures are hugely encouraging. It’s the first time I can recall where the industry is no longer just focusing on replacing lost physical sales with digital revenues. It’s now got a very clear path to growth, and arguably it’s sustainable growth.”
Pete Downton, deputy CEO of 7digital, is heartened by the figures released by the BPI and ERA this week covering music consumption and sales in the UK last year. But he adds that the B2B digital-music firm saw those growth trends reflected in its global business in 2016.
“We went from 2015 when we had low millions of users accessing our client services to ending 2016 with significantly more than 10 million consumers accessing the platform through those services every month,” Downton told Music Ally.
However, he also delivered a warning, noting that some of 7digital’s clients – notably social music app Musical.ly – sit outside the systems being used by industry bodies to measure music consumption.
Not that Musical.ly is alone: even YouTube isn’t included in the BPI or ERA figures, despite being the biggest ‘music-streaming’ service in the world.
“By not including Musical.ly and YouTube usage in an account of how 2016 played out in the UK, we only have part of the picture in those trade statistics,” said Downton, although he also praised the industry bodies for having moved to include audio streaming in their calculations.
“Anything that pushes the industry more towards using consumer-led data as opposed to the historic focus on just trade shipments has got to be a good thing. It’s important that the industry remains relevant, and including streaming has been a good first step,” he said.
“The industry has come a long way in the last couple of years with these measurements, but it needs to continue to ensure that the way it measures ‘success’ is relevant. Especially if it wants to broaden the distribution base beyond what is arguably a dominant position of technology-led businesses who use music to promote their core products.”
7digital started working with Musical.ly in 2016, in a year when the app grew to more than 40 million daily active users, and also a year in which it signed its first major-label licensing deal, with Warner Music Group.
Downton sees that deal – but also the fact that other rightsholders have not rushed to rattle their sabres at Musical.ly demanding royalties – as a sign of progress within the industry.
“It is a sign that the industry is far more willing to create a space for these new experiences to evolve and emerge. Of course, there is also a need for there to be a licensing framework around them. Ultimately people have to get paid,” he said.
“When businesses recognise and acknowledge that their businesses are based on music, and that without music they wouldn’t have businesses, there’s a greater willingness to create a space for them to figure out what a fair share of the revenues or the value being created is. 10 years ago there wasn’t that willingness.”
However, Downton said that the acknowledgement part of that process is vital for the startups. “There still has to be that engagement with the industry. It’s still a difficult place to do business if you try to undermine the businesses that are creating the opportunity you’re trying to benefit from. You’ve got to walk in through the front door and be very transparent.”
Downton also sees Musical.ly as the latest example of a business that blurs the lines between what’s promotion and what’s retail or commercial use of music.
“I’ve spoken to a number of managers whose artists have featured prominently on it. One UK artist had two million fans create videos that led to over 100m streams in a two-week period,” he said. “It’s an amazingly exciting way for a certain audience to connect with music.”
Downton’s career has included eight years at Warner Music Group – rising to VP of business development and strategic relationships – as well as four and a half years running the cloud services group for Imagination Technologies.
He’s a sharp observer of industry trends, and that includes a more nuanced take on one of the headlines from the end-of-2016 industry figures: the continued surge in sales of vinyl.
“Vinyl is a reminder that digital music is still a work in progress: its resilience in the last 12 months should be as much as anything an indication that digital music is not finished yet, rather than a reason to celebrate the growth of vinyl as anything more than a niche market,” he says.
Why? “A lot of the reasons people buy vinyl are to fulfil things they’re not getting from the digital experience, like the connection with an artist, and that ritual of playing the record,” says Downton. “Can we learn something from that as we move into the next phase of streaming?”
One of the answers may come from higher-resolution music, which is an area 7digital has been working in for some time, including its partnership with the new MQA hi-res format.
This week’s CES conference in Las Vegas includes a stand devoted to hi-res music, backed by all three major labels and various hardware manufacturers. Downton thinks that hi-res is set for a new lease of life in 2017, with the addition of visuals potentially bringing some of those vinyl-like features to digital listening.
Not that it’s all about streaming. “Downloads is the one area of our business that differs significantly from the industry trends in 2016,” said Downton. “Our downloads business was just about flat compared to 2015, and it was our investment in high-resolution that drove that. The decline in MP3 sales was compensated for by the growth in HD files.”
Downton admits that over the last decade, hi-res music has been hamstrung by a “chicken and egg situation” where you need a decent install base of HD-capable audio devices in order to deliver services; but where investment in those devices has been stymied by concerns about whether there’d be enough content available for them.
“And not just classic catalogue content. It’s incredibly important, if high-resolution is to become a really mainstream experience, that there are new releases being made available to the same standard and quality as the classic catalogues,” said Downton.
“But we’re at the end of a 2-3 year development and investment cycle from the hardware companies: the devices are in the market, there’s a great install base, and the industry is quite rightly demonstrating that it wants to support this by making its repertoire available. We always knew this was going to be a long-term thing.”
Downton said that 7digital is working on “a number of launches” of high-res streaming services in 2017 for clients, and that these services will go beyond pure audio quality.
“We’ve invested in high-resolution and audio quality, but we have also been working quietly and diligently on bringing better metadata, which enables you to get much closer to that experience you had with vinyl records,” he said.
“It’s inexplicable that we’ve still got a streaming world that’s pretty one dimensional, when there are so many screens and so many touchscreens in the hands of consumers. We’re excited around the innovation in products and experiences we’re going to see in 2017.”
Downton is also tracking innovation elsewhere, including the ‘smart speaker’ category pioneered by Amazon’s Echo and its Alexa voice assistant. Like millions of other people, he got an Echo at the end of 2016, and has been thinking about what it means for the music industry.
“Once you start looking at voice-driven operating systems and user interfaces, the world opens up in a lot of different ways, especially if you start thinking about the convergence of traditional radio and music-streaming services,” he said.
Downton went on to admit that his radio listening is getting “pushed out of the living room” by his young daughter “running in and asking Alexa to play Little Mix” – but he thinks there’s something powerful in the wider area of voice interfaces and assistants.
“Houndify in the US are going much further than we’ve seen with Echo so far in terms of navigating the music catalogue. It lends itself really well to things like classical, where the digital experience has always been pretty poor,” he said. “It’s a complex thing to do on a spreadsheet, but the potential of voice interfaces is super-exciting.”
Downton admitted that this all brings challenges to the traditional radio business, which 7digital is also heavily involved in through its production arm, which makes shows for the BBC among other broadcasters.
“I think it’s inexplicable other than the way music has been licensed that there hasn’t been more innovation bringing the best of both worlds together,” said Downton, adding that (when his daughter allows) BBC 6Music still plays an important role in his daily listening diet.
“It’s really because of the people who present the shows as much as it is their musical choices. One without the other is somewhat broken,” he said.
“But there is tremendous scope for taking the best of radio: that kind of personal element and the curation that comes from someone who’s had a career in music and can teach you and push the boundaries of the kinds of things you listen to. That’s not going to go away: it’s going to become a significant part of digital music.”
Downton said that the ability to ask Alexa for news reports and weather is just the early manifestation of making traditional radio elements available around your musical playlists. He also thinks that increasingly, the owners of Echo-style devices will expect to be getting radio and on-demand streams blended together.
“Last year’s announcement that iHeartRadio in the US was launching a streaming service was probably the most significant event of 2016 for me. The first time a major broadcaster had taken the plunge to move on and compete directly with services like Spotify and Apple Music,” he said.
“For the industry that creates a whole new wave of opportunity that hasn’t been there historically, and we see that reflected with the kind of clients we’re working with around the world.”
“Consumers are not going to differentiate between a broadcast device, and an internet-connected device. If you’re a media business with tremendous assets like news and sports that you can wrap around the music, you’re in a really strong position.”
These kinds of companies are key targets for 7digital’s B2B business, of course, so Downton’s enthusiasm about their prospects is no surprise. Despite the collapse of rival B2B firm Omnifone in 2016, he sees plenty of opportunities for new clients to enter the music-streaming world in 2017.
“We’re seeing a growing number of corporate players, real businesses as opposed to entrepreneur-led startups, entering the music market. They’ve been watching the extent to which music-streaming is now being adopted, and thinking now is the right time for them to get involved,” he said.
Retailers are part of that: Downton suggested that 7digital’s most interesting launch of 2016 was Cstream for French e-tailer Cdiscount, which blended music, videos, e-books and digital magazines in a single €9.99-a-month subscription.
“There’s space for that now,” he said. “The trajectory of the industry is such that it’s actually much easier to make a business case for a music service in 2017 than at any point since I entered the industry.”
That sounds like a bold claim, but there’s nuance to it. 2016 seemed a pretty terrifying time to launch a new pureplay music-streaming service, with the pre-launch collapse of US service Cür Media the most prominent example. But Downton is talking about services launched by the kind of big media and retail firms that 7digital is angling for as clients.
“The behaviour of the rights owners has matured over the last couple of years. We see from major labels and independent labels certainly, and increasingly from the publishers too, a desire to broaden the music distribution base, the retail base,” he said.
“We’re finding it much much easier for our clients to have very straightforward conversations about what’s necessary economically to enter the market. The days when it was just about whether you could raise enough capital to pay the minimum guarantees are going away. It’s less about asking new entrants to demonstrate they’re going to be around in a few years. It’s more about can the model work?”
Hence Downton’s optimism, despite having watched the recorded-music industry shrink from “five major labels and 40,000 people working for them” in the mid-90s to three majors and “around 10,000 people” now.
“There’s a lot less people in the industry, but that means it’s a lot easier to organise a discussion. There is also a renewed level of confidence in where music’s headed, and a real sense of necessity and urgency around helping make the market more diverse,” he said.
“It feels like we’re almost back to where we were in the late 90s, with people trying to support new market entrants.”