Executives from Spotify and Universal Music kicked off the NY:LON Connect conference we organised with the Music Business Association in London this morning by giving their views on how the music-streaming market is shaping up in 2017.
The morning started with an introduction by Music Ally’s head of research and insight Karim Fanous, who reflected on what he called the “early mature” streaming economy”.
Fanous talked about the milestone services so far in streaming. “We often don’t remember how far back streaming does go,” he noted. MelOn launched in South Korea as a subscription service in South Korea in 2004, for example. “It changed the culture, and on the basis of that a very healthy market has been built, and continues to grow,” he said.
Rhapsody launched in 2001, meantime, with its original subscription service, taking 12 years to reach two million users, and since growing to three million. Fanous also called out Pandora and Danish telco-launched all-you-can-eat subscription service TDC Play as key milestones for the market.
Fanous looked back at the peak of the recorded-music market in 1999, with $26.6bn of global revenues, and its sharp decline in the years since, before a recent streaming-led rebound. “Streaming is the dominant revenue stream for all the major labels and many of the indies, and streaming is taking its place at the centre of the industry,” he said. “But the key question: are we hitting an early ceiling?”
He noted that 32 digital music services have shut down in the last five years: 53% wound down, 22% have been acquired, and 13% went bankrupt as part of that. Fanous wondered whether this is a concern, or simply healthy market dynamics, with more consolidation to come.
What else is coming next? Fanous pointed to innovation from Amazon with its Echo speakers and Music Unlimited service; continued competition between Apple Music and Spotify; and more diversification of music industry revenues – synchronisation, brands and publishing income included.
Plus artificial recommendations, bots, voice interfaces and other technology developments that could change the way people listen to music; and the potential of emerging markets like China.
Then, Universal Music Group’s SVP of digital strategy and business development Jonathan Dworkin gave a keynote speech on how the label sees the current digital business, based on his 20 years in the industry.
“In 1997 I couldn’t wait to join the limitless growth of the music business!” he joked. “I had no idea I’d be a matriculating member of the four horsemen of the apocalypse… We were caught in some tectonic trends that were not just changing the music business, they were changing the world.”
He talked about being “pounded by the waves of innovation” around the original Napster and the internet more generally. “Now it seems that we’ve moved from being pummelled by the waves of technology to capturing the energy of those waves to power our business,” he said.
Dworkin talked about the current state of streaming, where his playlists and music move seamlessly between his devices and daily contexts. “We somehow managed not to create a world of pirates… Consumers are choosing at increasing velocity high-quality portable services with the full complement of the world’s music… There are always going to be freeriders… but the industry’s offerings are now superior to piracy, and consumers are reacting.”
Dworkin also hailed the potential impact of devices like Amazon Echo and Google Home, in the way they are powering new ways to access music. “Speakers and music go together like guns and drugs… It’s yet another swell that will help connect artists with fans, and drive consumers to migrate to legal services.”
He also talked about China being transformed into “one of the world’s leading music markets” thanks to local streaming services, and perhaps global players. “In the next ten years, China may well become the world’s largest recorded-music market,” he said, talking of the potential for a cultural knock-on effect that “rivals the 1960s in the west”.
Dworkin warned that “two of the industry’s top five accounts are operating with negative margins funded by other people’s money... we ned to find ways to ensure we have a balanced ecosystem of partners: platforms and pureplays… At Universal we are very mindful of the digital ecosystem’s fragility.”
He reiterated Universal’s support for both free and paid models in the streaming world. “The truth is, as these swells continue to propagate, we don’t know how far paid streaming will go,” he said, while arguing that it must offer features over and above free rivals to create value.
“Consumers are demonstrating with accelerating force that they’re willing to pay for high-quality, premium content… Consumers are voting that great content is worth paying for,” he said, citing Netflix as an example, before turning his attention back to free services.
“We at Universal continue to support our partners in the ad-funded content world… but we need to enlist the help of these services in securing our content in their ecosystems, so we can choose what content is made available to consumers, and at what rates,” said Dworkin.
“The democratisation of content creation and distribution is an important, incredible, exciting development in our digital age,” he added, talking about the need for more and better curation technologies to make sense of this glut of audio and video. “The explosion of streaming has created a new kind of risk… we must be an industry of people dedicated to making great music, not just music that’s less likely to be skipped,” he said. “I also worry that we will fall into a trap of relying too heavily on data to tell us what is great art.”
Dworkin said that labels must continue to evolve their businesses and the content they put out, from high-resolution streaming to the new wave of music documentaries, to avoid the risk of “getting pummelled by change again” as more technological disruptions come along.
“We’re going to need to develop a deeper culture of trust between artists and labels and managers and publishers and digital services and entrepreneurs,” said Dworkin. “That’s not to say we will shirk our responsibility to defend the value of music… but we need to encourage and elicit a new culture of trust, so we can share the risk and reward of riding these waves.”
Dworkin’s speech was followed by a one-on-one session featuring Spotify’s director of economics Will Page and Reed Smith’s partner and co-chair of its global entertainment and industry group Gregor Pryor, in which they talked about the global economic climate, and what it means for streaming services.
Page talked about “post-Brexit, post-Trump” trends in the UK, with business investment in recent years having held up, while the sterling currency has fallen sharply post-Brexit.
“We’ve got business investment holding up, then a big devaluation of the currency… that’s broadly speaking good,” said Page. “Contrary to what the doom and gloomers out there say on Brexit… it’s a good-news story. I can’t find bad news in the UK economy thus far.”
And Trump? There’s a similar story on business investment, which has remained robust since the credit crunch of 2008, while consumer expenditure has also remained strong. “For all the doom and gloom that’s said in the press post-Brexit and post-Trump, I can’t really find the doom and gloom in the evidence,” he reiterated.
Pryor asked what this means for music and other entertainment firms offering ad-funded and subscription services. “Spotify and many other services were born in 2008, and over the next five years we’ve shown amazing scale in a tough economic climate,” said Page. “How far can we now go given the economy is now in full swing?”
He also talked about cross-service usage, saying of the TV/video space that there is “growing evidence that people are subscribing to Amazon Prime plus HBO, and possibly paying the BBC licence fee and paying for Virgin Media’s package of content… In music services, I don’t think cross-usage is so high. If I subscribe to Apple Music, there’s very little chance I’m going to subscribe to Amazon music or Spotify.”
If there isn’t a multiple-subscription environment for music-streaming, how big could the market be ultimately? Page talked about the importance of global expansion – “new pieces of the jigsaw” – noting that when the industry was at its peak, the number of markets within that industry was actually quite small.
Page talked about some limitations that the industry needs to work on to reach new audiences for streaming and subscriptions. He said that there’s a solid discussion to be had about payment models in countries where credit-card penetration is low, as a starting point.
He also noted some research showing that there are now 8.3 million music subscribers in the UK, compared to the 7.4 million total UK iTunes customers in 2012 – the former figure from Midia Research and the latter from Kantar WorldPanel. Page caveated this comparison by noting that iTunes wasn’t the only music downloads service at the time.
“At worst it’s neck and neck. At best it’s a tipping point where we have more people paying for access than have ever paid for ownership in this country,” said Page, before moving on to displacement effects. “For every dollar you’re losing from downloads in the current market, how many new dollars are you gaining from streaming? In the UK, for every pound we lose from downloads, we’re getting £2.20 from streaming. In the US, for every dollar you’re getting $2.18 from streaming.”
Page also talked about the challenges for music rightsholders of dealing with the billion lines of data coming out of streaming services.
He hailed Spotify’s launch of city-level data. “If we can tell a band from Glasgow that they’re big in Portland, Oregon, you don’t have to be an economist to realise they can play a bigger theatre with less risk attached,” he said. “People are making good use of city-level data, which I think is great. And at Spotify, for bragging rights, we break New York into boroughs. We should do the same for Glasgow…”
Page also talked about playlists on Spotify, and the opportunity for the industry to dig deeper into the analytics around them. For example, if one playlist has a million followers but 900,000 of them have already heard a certain band, and another playlist has half a million followers but most of them haven’t heard that band, then the latter might be the best one to pitch for.
“Rather than bigger is best, go for the smaller one and find yourself 400,000 new fans. I can see that kind of dynamic entering music industry dynamics now,” said Page, before fielding a question about how he sees Spotify’s competition.
“I see competition as a good thing, period. I don’t see from recent history that having all your eggs in one basket is a good thing, in digital music. Having a competitive marketplace is a good thing… It crates threats, presents opportunities and keeps you on your toes.
Page also said the music industry must not just think of competition through the lens of Spotify vs Apple Music. “If I’m bingeing on Netflix, I’m listening to music less… the first thing we’re competing for is attention, and we’re competing against other forms of media.”
Page also talked about exclusives and original content. “I put myself in the mind of a consumer: if you commit to a contract that is an access model, then you expect to find those songs. Having them on one service and not another, for me it’s a risk… If you can get a consumer to commit £120 a year to music services, I wouldn’t want to risk that commitment by playing a game of exclusives. That’s my personal opinion.”
The NY:LON Connect conference was co-organised by Music Ally and the Music Business Association, in association with Armonia.