Change in Tone: How Creatives and Consumers Benefit from Tomorrow’s Music Industry
By Ajay Pondicherry & Jovin Cronin-Wilesmith
Of all the elements of culture, music is arguably the most powerful because of how many of us form deep connections to it. Music is also unique because so many of us, at some point, have been both a consumer and creator — yes singing in the shower counts and no, air guitar does not — but music consumption and creation are both constantly evolving.
Over the last few decades, developments in technology have catalyzed this evolution. The 1980s kicked off the personal computerization of music creation, and then the late 90s revolutionized the consumption of music spurred by the internet. Technology and music have had a complicated relationship. As a result, the music industry has generally taken a defensive, protectionist view towards the cutting edge.
Today, the lines between technology, music, and industry are more blurred than ever. The business (based on annual revenue) is growing. 2017 marked a return to the previous peak of 2006 with the total music industry bringing in over 43 billion dollars in revenue.
The relationships between musicians, fans, and the music industry are being reshaped in fascinating ways. Artists and fans have more opportunities to engage via the capabilities brought by the smartphone. Members of the music ecosystem are connected in countless ways by both algorithmic and viral music discovery. Not to mention, this ecosystem is packed with new content, as any Creative with a PC can become a musician.
The economics of being a musician are changing too as financing, distribution, and monetization are more accessible than ever — resulting in a much flatter industry where more artists can make a living from their creativity. This article will lay out these transformations and the implications for the future.
What started in the 1980s with MIDI keyboards, samplers, and drum machines has evolved to now become the Digital Audio Workstation (DAW). Essentially, what used to be $15K in audio equipment has been put into a piece of software that only costs a few hundred dollars — less when artists ignore their software copyright conscience. Today, DAWs are used by elite and amateur musicians alike, leveling the playing field and resulting in a massive increase in the number of music and musicians. Roughly 10,000 and 30,000 songs per day are being added to Spotify — pretty much enough to fill a Tower Records store location (R.I.P.).
While music generation is growing so are the types of financial options to fuel this creation. We are seeing new companies pop up that are aimed at investing, collecting royalties, and helping artists finance their creative output.
At a grassroots level, artists are funding their content creation through all types of platforms like Indiegogo, Kickstarter, Patreon, and angel investors. As of 2017, 25,000 music projects have been successfully funded on Kickstarter. These projects equate to roughly 175 million dollars directly placed into the ecosystem by fans. With increased access to data, more traditional loan options are popping up as well. For example, Artist Growth will underwrite loans for artists based off of the confirmed guarantee for each show on their tours.
Additionally, we are seeing investors view artist royalties as an asset class (a grouping of similar types of investments.) From angel investors coming into kickstart unknown artists careers for a percentage of future royalties, to the continued growth of Royalty Exchange, a platform that allows individuals to invest in artist’s royalties. The artist is finally receiving enough data to illustrate that royalties are a true recurring revenue stream. This is will lead to artists having more access to favorable financial capital compared to the near-predatory lending (traditional label deals) that occurred in the past.
Streaming is allowing consumers to engage with music like never before. Music lovers no longer have to be selective with their purchasing decisions. A user of any Music Streaming Services (Digital Service Providers, or DSPs) now has access to tens of millions of songs at the tips of their fingers. This new increase in user experience has resulted in continuous revenue growth as adoption increases in the space. According to DiMA’s 2018 Streaming Forward Report, U.S. digital revenue grew 15 percent in 2017 to $6.5 billion from $5.65 billion. This growth was powered by a 63 percent increase in subscription streaming revenue to $4 billion from 2016’s total of $2.5 billion.
Growing Consumer Options: The adoption of paid services is fueled by a vast amount of consumers’ options in the streaming market. In the last five years, most of the major players in technology have rolled out some form of monthly subscription streaming platform. The increased selection of products in the market has also allowed for new pricing options for consumers.
A Change in Listening Behavior: Everything is changing including the way fans are listening to music. Playlists are the new listening experience. Through the use of robust recommendation engines, streaming platforms have been able to expose new artists to consumers at an unprecedented rate. This new type of discovery has led to new consumption patterns that have driven utility to independent artists and fans alike.
For example, a listener is no longer pegged to an album to get a particular emotional response. Instead, one can search their favorite fine artist such as Mark Rothko and get a playlist of songs that relate to the experience that artist was attempting to portray.
Additionally, many of the major players that have rolled out streaming platforms have also begun massive investment in smart speakers and other devices. This is an extension of their current product line to extend their platform reach. According to Canalys, the predicted number of smart speakers in use will come close to 100 million by the end of 2018. This number is up 50 million from 2017. While this investment may seem orthogonal to some, of the 39 million US adults that own a smart speaker, 71% say they are listening to more audio content as a result.
This increase in devices will have a direct effect of the music streaming market. While Amazon (12%) & Google (3%) may be minority players in the streaming service market, they are significant players in the smart speaker space. As of May 2018, Google (26.9%) and Amazon (69.1%) own over 87% of the smart speaker market.
Smart devices have created a new form of music discovery through the use of conversational interfaces. For example, Amazon released a chart of 50 songs for the most requested lyrics by Alexa users. Since the interaction is becoming less visual, artists are beginning to give up visual recognition in favor of easier theme-based discovery. With the growth of these conversational interfaces, artists that title their music with keyword optimization in mind will likely benefit from increased discovery.
New Data Tools for Artists: All of this progress in streaming has led to increased clarity for artists. In the last year, the major platforms have responded to the sharp growth in consumer adoption of streaming with self-managed software the artists and their teams. Spotify, Apple, and Pandora have all rolled out robust applications for the creator. These tools can be used to manage the artist profile, provide touring information, market to fans, and track their performance.
Streaming is here to stay and will continue to eat its share of the recorded music industry. The technological advancements in this space will also continue to expand the market opportunity for artists, fans, and new businesses.
Musicians’ income has shifted from album sales to live performances. The tour used to be in promotion of the album. Now the album (or whatever’s left of it) is in the promotion of the tour.
While the internet-connected smartphone has transformed how music is consumed, discovered, and marketed (with creators and fans connected all over the digital world), the most substantial portion of a musician’s income is tied to the physical world. However, even with the time and space constraints of playing music live, there are a variety of developments on the concerts side of the music industry that are benefiting artists at every level.
New Tools for Touring Artists: With the rise of social media, artists have direct access to marketing tools that are proving much more effective than traditional mediums like radio, tv, and print media.
Also, streaming services (with Spotify leading the way) are leveraging massive user bases to create “direct to listener marketing.” Interestingly, Spotify is building tools backed by their listening data to help artists route their tour to determine where they will play. This type of insight would historically be only within the scope of the concert promoter.
A new partnership with LiveNation to create a tour out of Spotify’s popular Rap Caviar playlist could foreshadow Spotify’s intentions to invest more into the live side of the business. There is no doubt that Spotify’s shareholders would prefer the margins of concert promotion to music streaming.
Efficiency in Ticketing: We also see a changing tide on the ticketing and venue side. Traditionally, in the US, concert venues have had an exclusive ticketer. The notorious ticket fee that fans have to pay as part of every ticket purchase is the result of the arrangement between these two parties (the venue and ticketer). Unfortunately for the consumer, this fee has also become a tool for additional venues and promoter revenue (ever get facility fee’d?).
However, there is pressure on these traditional arrangements especially with ticketing becoming more open, following the standard for ticket sales in the UK, and much of Europe. Not to mention the standard followed by nearly every other consumer good in the world.
These developments may seem disconnected, but they are gradually opening up ticket distribution and blurring the lines between primary and reseller ticket sales. If these practices gain momentum in the next few years, we could be in a world where the tickets for an event are sold entirely at the artist’s discretion. This will allow artists to sell their tickets wherever their fans are most likely to buy them.
This targeted distribution of tickets paves the way for price optimization, which reduces the arbitrage opportunity for ticket scalpers. Scalping, by the way, is a multi-billion dollar business that’s not counted as part of the music industry.
A big step toward this pricing model was Taylor Swift’s Reputation Tour, which holds the record for the highest grossing US tour. It pulled in $266.1MM which was a 46.6% increase from her previous 1989 tour which actually had more dates.
There were two of the key differences:
Both of these strategies were criticized when the tour didn’t sell out immediately. Contrary to what many promoters consider to be gospel, selling out on day one would have left lots of money on the table thus increasing the opportunity for ticket scalping.
Smaller Format Events: Maximizing revenues from a stadium tour is a 1% problem for artists, but many artists are hustling just to book their next gig. Thanks to open source software, such as pretix, there are more opportunities for entrepreneurial artists to play live. Additionally, there are many low-cost “DIY” ticketing platforms, like Eventbrite (a multi-billion dollar public company), that are gaining momentum and recognition.
We also see growth in experiential live performances — most notably Airbnb’s Experiences making a push into more intimate concerts. Tens of thousands of their “guests” book these experiences every month and Airbnb expects to have shows in 50–100 cities by the end of 2018. Similarly, Sofar Sounds focuses on concert experiences that turn everyday spaces into venues. They operate in over 400 cities, and they recently partnered with Hyatt to produce concerts at their hotels.
With artists seeing an increasing share of live music revenue and a widening entry point to start playing live, the stage is set for the continued growth of live music content. Demand for live music is growing as consumption shifts from possessions to experiences. It’s a formula for continued growth in the live entertainment business. Sidenote: In a few decades, the hearing aid market will be going nuts. Consumer report coming soon.
The future is bright for music whether you’re a creator or a consumer. More tools than ever are being put in artists’ hands that allow them to take charge of their content creation, distribution, and monetization. Similar tools in consumer’s hands are making music easier to discover and enjoy. Technology is continuing to empower the two most important constituents of the music industry, the artist and the fan. However, this technology is being built by companies with their agendas; many of which exist with or without the music industry. So we leave you with Optimism with a hint of caution. Not a bad name for a playlist.
Change in Tone: How Creatives and Consumers Benefit from Tomorrow’s Music Industry
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