Nov 16, 2017 Allen Bargfrede
“Alexa, play some Tom Waits.”
That’s how my children will grow up interacting with music. Streaming has changed the game, forever, and in a good way.
In my earlier post for Slush, I discussed the return to growth for the music industry, attributed primarily to the significant increase in streaming revenue. According to IFPI’s Global Music Report, streaming now makes up the majority (roughly 60%) of digital revenue and for the first time, digital revenues make up 50% of the share of total recorded music industry revenues.
Rough estimates show that if 10% of the global population eventually subscribes to a music streaming service, the music industry’s worldwide recorded music revenues will far exceed its best year ever in 1999. In fact, a recent Goldman Sachs report predicted that streaming will hit $34bn in revenue in 2030, as part of a healthy $41bn industry.
Now, with voice interactive control and robust data analytics, streaming services are showing they are not sitting idly by in a continuously evolving technological world. Sonos recently released their own platform for voice-activated music. Streaming services are making a major effort to provide data and analytics to artists to help them make decisions about how to market and promote their careers. Some are going even further: Spotify recently launched its RISE program, which will provide “on-platform, out-of-home, digital and social promotion” for developing artists.
Beyond programs like RISE, as the market evolves, we may see Spotify and Apple take a Netflix approach and start pushing out exclusive in-house content on their streaming services. There is both fear, and hope, they’ll become their own record labels, investing in acclaimed creative content – the next step beyond some of the recent “exclusives” on each service.
In fact, this is a key challenge for services to sustain themselves – they must find a way to differentiate.
Beyond exclusive content, curation engines and desktop and phone interfaces are key places where users can see large differences between the offerings. Audio quality could become a factor in tiered premiums as technology develops and the amount of audiophiles grows. (TIDAL already offers a hi-fi version, at double the monthly cost and to which I subscribe, but many dispute whether listeners even care about audio quality in today’s market.) We’ve also already seen a big push to include streaming music in home cable/internet packages, or programs like Amazon Prime. With Apple and Spotify at the front of the game, these are all options for any service that wants to grow into a major brand, or merely develop a niche.
Finally, no discussion about creating a sustainable streaming economy would be complete without a mention of the many disputes about payments. Concerns continue to exist about how artists can be paid from streaming service. Some artists are making a fortune from Spotify streams (Drake is said to have made an estimated $33,840,000), but Pharrell Williams is unhappy making very little off from “Happy” on Pandora ($2,700).
Average streaming royalties paid currently range from $0.005 to $0.009 USD per interactive stream, depending upon the tier. Non-interactive pays much less, at as low as $0.0017 per stream. Services without a free tier (Napster and TIDAL) have the highest average payouts, since their numbers are not brought down by advertising-based revenue. One thing is true: transparency between streaming services and labels and publishers and then onward to artists and writers must increase, and the industry seems to be acknowledging this.
Blockchain may be a catalyst to solve some of the rights and payment transparency issues and a fair sensible payment/information distribution method. Further, converting more users from free to premium tiers will increase the total amount of revenue to be divided.
With music industry total revenue growing for its second consecutive year within the last 20, I am hopeful (and confident) that this growth will continue, and exponentially. YouTube will likely become the penultimate freemium service with by far the most users, reaching users in countries that do not yet offer subscription services or where uptake has not yet occurred. Regardless, streaming is what excites me most about the potential for tomorrow’s music industry. The market has finally reached a critical mass, and will continue to grow at a healthy pace over the next 5-10 years, and that means very good times ahead for the recorded music industry.
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