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Next for music subscriptions: new markets, diversity and rethinking value


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The music industry made around $7.1bn from streaming subscriptions in 2018, according to industry body the IFPI. That was 32.9% year-on-year growth, with subscriptions generating 37% of global recorded-music revenues.

How can the music industry (and the streaming services) build on that growth in the coming years? What will drive the next spikes in paid music subscriptions? A panel at the Midem conference today kicked around some ideas.

Speakers included Nielsen Music’s VP of client solutions Helena Kosinski; Tracy Gardner, SVP of global business development and strategy at Warner Music Group; Colleen Theis, COO of The Orchard; Denis Ladegaillerie, group CEO of Believe Digital; and Bill Patrizio, CEO of Rhapsody/Napster. The moderator was Midia Research MD Mark Mulligan, but Kosinski kicked off with a presentation.

“Streaming is now a huge part – the biggest part – of the global recorded-music revenue,” she said, pointing to the IFPI’s figures. She noted that in North America, Latin America and Europe the key global services are strong: YouTube, Apple, Amazon and Spotify. “There are still new entrants, there are still new business models being played with, but essentially it’s a stable market. And it’s still a growing market,” she said.

However, Kosinski noted that local services have more power in the Middle East and Africa, and China. Anghami, Boomplay, Songa, MyNyimbo, TuneLet and MusicTime were the services she cited for the first of those regions, with Tencent Music (which has three services) and NetEase Cloud Music the key players in China, with TikTok parent company Bytedance preparing to launch its own international music-streaming service later this year.

Kosinski moved on to South Korea and Japan. South Korea has four strong local services: Melon, Bugs, Mnet and Genie, while Japan has Spotify and Apple Music alongside local services Line Music and AWA. The difference: South Korea has a very strong streaming market, while Japan continues to be very physically-led still.

And then she talked about India, with its 100 million monthly audio-streaming users split between local services like Gaana, JioSaavn and Wynk Music, and 225 million monthly active users of YouTube.

In the first quarter of 2019, there were 1.11 trillion streams globally: 64% video (712.85bn streams) and 36% audio (397.62bn). Ten songs had more than 1bn global streams in the first quarter of this year:

Kosinski also broke this down by genres: Western Pop, Western R&B / Rap / Hip-Hop and Latin Pop / Reggaeton being the three most popular by share of those streams, with Western Rock down in eighth place, behind K-Pop and Latin Hip-Hop. 72% of the Q1 streams were current songs (defined by Nielsen as those released between 2017 and 2019) while 22% were catalogue.

She moved on to the new opportunities around streaming subscriptions, to prep the panel discussion. Nielsen’s consumer research suggests that music listeners now use 4.4 devices each week for music, on average – up from 3.4 devices in 2017. For millennials that’s grown from 3.8 to 5.2 devices, and for Hispanic people it’s grown from 4.2 to 5.3 devices:

The growth in smart-speaker owners is a positive trend for the music industry, she suggested. “Those consumers are more engaged with music and they’re more willing to spend money on music.” Meanwhile, 32% of the US general population currently pay for a streaming subscription, while 18% say they are likely to start paying – millennials, Hispanic people and teens being the most likely in terms of demographic groups.

On to the panel. “It’s now become such a truly global music market,” said Gardner, who said this is encouraging labels to put even more focus on markets (like Latin America) where they can help local artists create global hits. “It’s making us focus on the importance of local repertoire and having a local presence in territories where perhaps we haven’t in the past.”

Is language a barrier to songs crossing borders? “It cuts across geographies very quickly. Music used to break via radio years ago, and radio is inherently [geographically] constrained.” But with the internet, and streaming, those barriers fall down.

Theis agreed with the point about the importance of local repertoire, with The Orchard’s experience of K-Pop stars BTS a case in point. “The new generation of music consumers, and people specifically on streaming: it’s about the feeling, and less specifically about the language… It’s about feeling a connection with an artist regardless of where they are from… and also to a certain point collaborations, and smart things they can do to cross into different territories. Which is a trick that’s been around since the dawn of the industry!”

Ladegaillerie agreed with this. “The market is first being driven by local artists. The record industry as it has existed, which is all about storytelling and artists and creating context, still exists… And at the same time, as was illustrated with BTS or Petit Biscuit last year, we see local artists that go global much faster, because their music is available everywhere,” he said. “It’s about building artists locally, and being ready and set up to work with artists on a global basis, when you’re being helped by the DSPs with all of the ways they’re promoting content globally.”

Some artists can post numbers that seem global, from listening that is still quite local: Bollywood hits on YouTube, for example, are still doing most of their views in India, noted Kosinski.

What would the panel like to see from audio-streaming services to build more and deeper discovery of artists and music?

“Definitely more diversity. A lot of the algorithm is based on popularity of tracks and how they’re performing globally or on a local territory basis,” said Gardner, citing the charts on the big streaming services. “You’re going to see the same [songs] no matter what territory it is. It’s great to pull people in with something they know, but then perhaps tweaking the algorithm to play something else that’s new… We would like to see a bit more diversity.”

Patrizio said Napster is working hard on tuning its algorithms for exactly this: to boost the “local diversity” of its recommendations. Meanwhile, Theis said that artists, distributors and labels can’t just depend on DSP discovery to do the job for them: they have to have good ‘off-platform’ strategies too.

Gardner agreed: noting that while Warner Music runs its own playlists:  “You will look pretty far down below the fold [in a streaming service] to find something that’s not a Spotify playlist or not a Deezer playlist. So it’s about getting people to follow content, but you’re going to have to do it off the platform,” she said.

Ladegaillerie noted that the big streaming services all now have big artist and label relations teams, where the interaction is less about pitching in tracks, and more about pitching in the artist and their long-term plans. “You have a dialogue with the services that’s much deeper than… what we were able to do a couple of years ago. And absolutely you have to do the work on the creative marketing side: how do we tell the story of the artist?” he said.

Is there a concern that with so much of a focus on tracks in the modern streaming world, it’s more difficult to build an artist brand? “The big thing that’s changed is that people are not focused on music today, or focused on the artist… The algorithm does not answer the question ‘is that piece of music good or not?’. The algorithm answers the question ‘do I have an artist that is engaged in a dialogue with an audience?” he said. In other words: are they releasing tracks regularly and getting lots of engagement from their fans?

“The focus has changed from being a music focus to being an artist focus, which is why working on the strategic positioning of your artist is more important than ever before, rather than just the track pitching,” suggested Ladegaillerie.

Gardner weighed in on the economics of a label amid the move in consumption from albums towards tracks, and from 100% music to other kinds of audio content on streaming services.

“Warner still is very much a label where there is a focus on developing the artist and finding great content. My hope is that we’re not changing the way that we create songs to address the economics, but that we’re making smarter strategic decisions when negotiating with our partners, and finding ways to protect against dilution of our market share on the services by putting in protections,” she said. “And recognising that there are things competing for listeners’ attention, like podcasts… So finding out ways to protect ourselves in the structures of those deals.”

Patrizio addressed the topic. “At the peak, the recorded music industry was about $30bn, in 1998 / 1999… Streaming saved the recorded-music industry… now it’s back up to about $20bn,” he said. “There are clearly opportunities for improvement among all the DSPs, but make no mistake: consumers love the platforms. They love streaming… Consumers now have choice, and the technology has enabled that choice, and it’s created growth back into the music industry. So the growth now is going to require more innovation.”

And those other forms of audio? “Our view at Napster and our friends at Spotify and Apple, they think consumer first, artist first. Consumers are listening to a lot of podcasts. It’s a tiny industry, I think it’s $500m in [US advertising] revenue. But there is a clear trend in the US: about 20% of the population listens to podcasts about once a week, and the average consumption is four hours a week. That time spent listening to podcasts… is coming from listening to something else. The question is what is it coming from?… But the fact is that consumers love it, and there is going to be more consumption of different audio experiences on streaming platforms going forward.”

Mulligan brought the conversation back to the future of streaming. What will be the most important thing to drive the next wave of growth? “There’s going to be growth in different territories around the world,” said Kosinski. “We’re also seeing more niche services to different types of consumers.” Like classical-music streaming services, or hi-res music services.

“At the moment streaming services are pretty similar across the board and they’re all trying to reach the same people, so perhaps more diversification,” she added.

Ladegaillerie: “I think growth is probably here for at least the next five to ten years… I think short-term, the key question that will need to be addressed is the question of value. The question from an artist standpoint: we’re starting to see the limits of the current model, with a lot of legitimate questions around switching to a user-centric [royalties] model, changing the way the value is spread.”

“One premium stream on Apple Music equals three premium streams on Spotify. How do you address that as an artist: do you need to send all your fans to Apple Music to better monetise them?” he added. He sees these questions about value as crucial debates over the next year.

Gardner said new audiences are still being brought in to streaming: for example through voice and smart speakers. “Separately it’s also just looking at new places where music hadn’t perhaps necessarily lived,” she said, citing the fitness world, and startups like Peloton. “There’s esports, how’s music going to play a role in that?” she added.

Patrizio talked penetration. “The penetration of paid streaming is still low single-digit as a percentage of the number of people on the planet who are connected. So there’s still a lot of upside,” he said.

“In the emerging markets, the rising middle-class and the access to connectivity is an important driver to growth… We see the growth as consistent. Spotify launched in 2008, Apple Music launched in 2015. In the first ten years of streaming, we got to 265 million global subscribers… so in the next 10 years, the expectation is that it’s going to get to six, seven hundred million… We don’t see a slowdown. We do anticipate changes, and for us, we see a number of new partners wanting to come in to the space to take advantage of this growth.”

Theis said she’s excited about territories like Latin America, and the global spread of Latin music. “To be able to see artists have global success, and also really big success in their own territories as independent artists and labels, because they’re able to monetise in a way they weren’t able to before,” she said.

The final question: if the panel could change one thing in the streaming market, what would it be?

Mulligan: “Music within streaming services is leaning a bit too much towards being a utility… so something needs to happen… that deepens that connection between fans and music.”

Kosinski cited measurement. “It’s a challenge… If there was one thing that I would change, it would be to have more open data-sharing between the industry, so that we could at least measure the size of it as accurately as possible. I think that helps everyone.”

Ladegaillerie: “Rethinking the way that value is being split, because I do think that the current system essentially sends most of the value to consumers in the 15-24 year-old demographics.”

Gardner: “Obviously the value of music in ad-supported services. But also regaining the customer relationship that we have as a label, that an artist has with the fans… With the streaming services, they now have the direct relationship with the fan, and I would like for us to take that back.”

Patrizio talked about the roots of music as a social experience. “From zero to 80 million users on the original peer-to-peer Napster… there was an ability to leverage the technology to create a social capability for people to share and to relate to their artists. And I see the artist community wanting desperately to create this fandom and this intimacy with fans… So if the DSPs could find a way to be more social, and foster those connections.”

Theis agreed. “Having more social aspects so you could share and collaborate more across platforms. I would also say paying more attention to pricing in terms of the family plans and all that stuff, to make sure we can protect some ARPU and have some sustainable business.”

Stuart Dredge

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