This guest article by RAIN guest contributor Mark Mulligan, founder of Midia Research, was originally published on his Music Industry Blog.
I spent a couple of days last week in Barcelona for the annual Future Music Forum, which is developing into an important date on the music conference circuit. Later this week I will post some of the highlights of my opening address but first I am going to spend some time developing some of the white-hot issues surrounding streaming that were raised at the conference.
In a really strong field, two speakers in particular stood out: Beggars head of strategy Simon Wheeler and PledgeMusic founder Benji Rogers. Their presentations and the conference as a whole were infused with a sense that streaming is changing everything, and more quickly than most people expected. This change is manifesting itself in three big issues:
- Deciding what streaming’s main role is
- What happens to the middling majority of artists
- How to monetize the relationship between artists and fans
- Time To Decide Whether Streaming Is Marketing Or Sales
It is clear that most labels are conflicted about streaming. They are waking up to the fact that its promise as a retail channel will take time to realize and even then it may not be a like-for-like replacement for lost album sales. Which is prompting labels to increasingly view streaming as a marketing channel too. But if streaming is both the discovery journey and the consumption destination, then what, as a label, are you trying to actually sell with streaming? Across the bigger labels in particular the digital business teams and the marketing teams need to agree on a common view on what the streaming end game is, else risk accelerating album sales decline without adequately driving streaming revenue growth.
If the question is complex for subscription services for free streaming the picture is much clearer, especially for YouTube. As Simon Wheeler said in his presentation: “YouTube is not driving sales. People are going there to consume music. The end.” If that isn’t a case for windowing YouTube and free tiers of freemium services then I don’t know what is.
- What Case For The Middling Majority?
Wheeler also made a vital observation that the streaming success stories tend to be split between mega hits on the one hand (such as Calvin Harris’ 1 billion Spotify streams and Avicii’s 250 million ‘Wake Me Up’ Spotify streams) and slow burn success stories on the other. He cited the example of the XX’s eponymous album that is still in the Spotify indie top 100 five years after release.
This streaming dualism makes it look like label A&R strategy may have to choose between massive hits or long-term success. And if so, what happens to the rest in the middle? You effectively end up with three key types of streaming artist (see figure):
- Middling Majority
- Hit Machines
Could it be that streaming will end up being the natural selection process for the challenge of catalogue bloat? There is simply too much music being released at the moment, creating the Tyranny of Choice, where listeners are paralysed by excessive choice. For an artist trying to break through, the background noise can be deafening and also kill any chance of making meaningful cut through. And if you do manage to do so then the endless torrent of new releases pushes you straight back to the margins.
If the streaming natural selection process plays out then unless you have created either an album that people will want to listen to again and again or instead a monster hit, then you will simply drift into oblivion. In the old model you might have sold a couple of tens of thousands of albums and managed to sustain some sort of career. 20,000 album sales would be $180,000 gross revenue but 5 million streams (roughly an equivalence in popularity) would be $50,000 gross revenue. Perhaps streaming’s Dystopian Darwinism will kill off the ability to forge a career built on mediocrity. That may be no bad thing.
- Monetizing the Relationship
If streaming is eating into sales then the obvious next step is to drive other spending from streaming music consumers. Hence commerce integrations from the likes of TopSpin, Bandpage and PledgeMusic. Unfortunately it isn’t that straight forward as Pledge’s Benji Rogers pointed out. Rogers rightly found himself turned to at the Future Music Forum as the fan relationship guru and he made a crucially important observation: simply because some one is listening to a song does not mean they are necessarily going to want to buy anything from that artist. Instead streaming services need to think more subtly, looking at how to nurture an artist-fan relationship rather than simply trying to sell someone a t-shirt because they happen to be streaming a track.
Artists and fans are closer than ever but this journey is only getting going. And now that artists are building deeper relationships with their fans while sales revenues decline, they need to get smarter about how to monetize them. The key question though is whether this can be enough to offset the impact of declining music sales revenue. To help answer that I created a ‘Streaming Ancillary Revenues Model’.
A new MIDiA Research consumer survey shows that 11% of streaming consumers are VERY likely to buy merchandise and tickets from their favourite artists in streaming services. I used this conversion rate against the following artist straw man for a hypothetical Year 1 versus Year 2:
- 100,000 albums sold decline to 60,000
- Streams increase from 30 million to 45 million streams
- Total recorded music revenue (streaming and sales) consequently declines by 17%
- 11% of fans buy $30 of merch, special editions or tickets each year
- Ancillary revenues grow to represent 33% of total revenues
- Revenue decline across all income streams is just 3%
So ancillary revenues can significantly soften the impact revenue decline.
(The additional factor of the longer revenue cycle for albums on streaming services should also push the total revenue up further in the longer-term but is not included in these calculations.)
There are many obvious caveats and assumptions here (not least of which is the varying margins across different revenue streams) but these are broadly the right mix of drivers and levers. You can download the model here: Music Industry Blog Streaming Ancillary Revenues Model 9 14 I invite you to play around with it and test your own theories. If you are an artist you might want to plug some of your actual numbers into Year 1 and your projections into Year 2.
Change Is Difficult But It Is Also A State Of Mind
The streaming picture is changing at an absolutely staggering rate and everyone across the value chain needs to get their heads around all the potential permutations else get left behind.
These are both exciting and daunting times. As the bland management consultancy phrase goes ‘change is difficult’. But it is. However, the way that you view and prepare for change both have as much impact on how it affects you as the change itself. Streaming is changing everything. Those who learn how to reinvent themselves for the realities of this brave new world will be those best placed to survive and perhaps even thrive.