Four key digital challenges for the music industry in 2016
Last year in the music industry was a very eventful one. The major debates centred on royalties, the freemium model and the place of YouTube in the industry. This piece takes a look at the main digital challenges for the industry over the course of 2016.
Processing the finances
The majority of music companies out there are still working hard to evolve their data systems. This is most especially the case when it comes to how they report usage and royalties to other companies, artists and songwriters. Even where appropriate systems exist, there is still work to be done on making sure that artists and songwriters can easily navigate the data.
Artists and songwriters can’t truly audit information provided by business partners like their labels, publishers and the streaming service providers due to the lack of transparency running through the fundamentals of the deals.
A central database of music rights ownership information that shows who controls and benefits from each song and recording will go a long way in addressing these concerns. While all players in the industry agree on the need for the database, decision on details such as how the database should be created, who should pay for it and sources of data has remained a challenge coming into 2016.
Solving the revenue sharing dispute
As a music lover, you simply plug in their headset anytime you need music. That is basically for the bulk of the day as most music lovers work, eat and even play games on bingo sites likecheersbingo.com while enjoying their favourite tunes. Have you ever stopped mid game to wonder how artists get money from Spotify, Apple Music and all other streaming services you use? The revenue sharing dispute has been around for a while.
It is basically a disagreement on how streaming income is split between the streaming providers and other parties like record labels, music publishers, recording artists and songwriters. Most streaming deals are revenue sharing arrangements even though rights owners are assured a certain per-stream payment. Since streaming services can’t sustain loss making ventures indefinitely, DSPs have to work towards a situation where revenue sharing arrangements will always outperform minimum guarantees. Failing to do this, DSPs will simply continue subsidising the music industry to their own detriment.
Developing more unique services
The bulk of digital services in the industry are operating 3 main models, which are the Spotify model, the Pandora Model and the iTunes model. Most of the services have the same catalogue and pricing is very similar. The marketing catch is often interface and music discovery tools. With the rise of freemium platforms, a big challenge today is providing unique services that will be embraced by customers. We could see services that will bundle music with other forms of entertainment in future, but finding a way to achieve this will remain a major challenge in 2016.
Ensuring sustainable listening
Marketing for music is taken care of by music labels, but most of the campaigns are targeted towards a favourable album release. A favourable album release is one where the maximum sales are achieved within a month of release. After this period, marketing for the particular album generally ends, or at least drops off significantly, as the label focuses attention elsewhere.
This is a challenge today as the music industry moves towards the streaming model. Successful album sales in the first weeks will only be of immense benefit to the label. Other stakeholders will need to focus on driving sustained listening if they are to bring enough money. This means instead of “purchase marketing campaigns”, “Playlist marketing campaigns” will take centre stage.
The Labels Still Don’t Get YouTube And It’s Costing Them
2015 was the year that streaming came of age across global markets (it had already got there in the Nordics and South Korea of course). In the UK and the US stream volumes grew by 85% and 93% respectively in 2015. These markets matter because they are the 1st and 4th largest recorded music markets and between them account for 40% of global revenue. But as strong as a validation of the music streaming model as those numbers might be, the real success story here isn’t Spotify, Deezer or Apple Music…it’s YouTube. In both the US and UK YouTube outgrew audio streaming services. With YouTube delivering so much less back per stream to rights holders than freemium audio services and the whole issue of safe harbour and un-monetized tracks (however good Content ID has gotten) it is little wonder that the record labels are having an identity crisis over YouTube. Indeed, as I wrote last year, the YouTube discovery journey has become the consumption destination. The advert has become the product. But there’s even more to it than this. Not only is YouTube outperforming the audio pure plays, music is being outperformed on YouTube by its growing body of native creators, the new generation of YouTubers.
YouTube started out as a place simply to watch (and upload) videos but has evolved into a sophisticated entertainment platform that supports a multitude of diverse use cases, both in terms of content and audience. Nowhere is this more pronounced than in channel subscriptions. In many respects ‘channel’ isn’t the most appropriate term as they are in effect talent feeds rather than channels in a traditional video / TV sense. Nonetheless, or perhaps because of this, they have become the lifeblood of native YouTube creators as diverse as Michelle Phan, PewDiePie, Zoella, SMOSH, stampylongnose and IISuperwomanII.
These are creators who often do everything from writing, filming, production through to front-of-camera. DIY superstars if you like. And they are fast becoming the lifeblood of YouTube. Of the 330 million subscriptions in the top 50 YouTube channels, YouTubers account for 34%. Compare and contrast with the measly 15% music artist and label channels have. And despite all the excitement around the increased subscribers Adele and Justin Bieber have racked up these last few months – they gained 8 million subscribers between them, making them the two fastest gainers across all of YouTube – music artists as a whole lost ground, accounting for just 31% of the top 50 gains during the last 90 days compared to 53% for YouTubers.
Music Is Losing Ground To Native YouTubers
Music does fare better in terms of views with 36% of the 41 billion top 50 views in the last 90 days. However it still plays second fiddle to YouTubers who account for 45%. But it is the direction of travel that reveals the most telling trend. Over the last 90 days 42% of the 50 top 50 growing channel views compared to 39% for music. In itself that may sound like a modest difference, but this is just the latest 90 day chapter in a much longer story. Music used to be the clear focal point of YouTube but that is changing. In terms of all time views music actually outpaces YouTubers with 42% compared to 41%. But at current rates that lead will be wiped out in the next 90 days. And here’s the paradox: music’s hold on YouTube is slipping even though YouTube is outperforming music services.
Part of driving force is out of the hands of the labels: video is eating the world, with more than 5 trillion short form views in 2015 alone. Music is always the first mover in digital content consumption, the trailblazer for other media. Once distribution, bandwidth and consumer sophistication all improve, video moves in.
Time To Stop Using YouTube Like School Kids Use Instragram
But record labels and artists can seize some control of their destiny, by taking a more sophisticated view of YouTube and exploring how to build strategies that work for YouTube in 2016 not for YouTube in 2010. Right now record labels are using YouTube like school kids use Instagram, obsessing with vanity metrics such as views rather than thinking more deeply about how to build lasting relationships with YouTube audiences. A new generation of music artists is emerging that have created and nurtured audiences on YuoTube, often with little or no help from labels. Artist like Dave Days, Tyler Ward, Boyce Avenue and Hannah Trigwell have built their fanbases on YouTube, often starting with covers but also crucially often non-music content such as parodies and vlogs. Raised in YouTube these artists are entirely native to the platform. They understand what audiences want because that’s where they come from.
If the big traditional artists and labels want to start making up some ground on the YouTuber revolution they could do worse than take a few hints from this new breed of YouTube artist.
The Streaming Ware Continue
As consumers shift towards streaming, there is a battle in getting consumers to pay for, and stick with, a specific streaming service. In 2016, battles between Pandora, Deezer, Apple, Google, Spotify and Tidal (amongst others) will intensify as each platform looks to differentiate itself in some way. Tidal with their concert exclusives at Barclay’s Center, Apple with their artist exclusives, and Spotify with customizable playlists to users; each platform is looking to create a unique value proposition to the user in terms of the experience of listening to music. There is no question that the streaming wars will only get more intensified as 2016 rolls on with YouTube Red and Soundcloud streaming services looking to enter and scale users in this tight streaming market. Whomever can dominate the streaming market in 2016 will be able to influence the future of how music will be consumed, distributed, and shared. The streaming service that ends up coming out on top in 2016 will need to clearly convey their value proposition to not only the engaged music fan, but more so to the casual listener and create individualized products with a higher diversity than the 9.99 per month price tag, that will fit a range of music listeners needs.