Over the past 12 months, the music industry has been hit hard by coronavirus with live performance revenue the biggest casualty, with the loss of all concerts and festivals, what does the LIVE sector have in store over the next 12 months!
- A six/twelve-month shutdown is believed to cost the music industry more than $10bn in sponsorships, with even longer delays expected being for the live sector.
- But, the industry as ever is fighting back with new ways to monetize music consumption for example:
(Fortnite hosted a live rap concert that attracted 30 million live viewers-that is impressive!).
- The crisis is likely to accelerate underlying trends in the music industry, based on the importance of streaming, which has grown from 9% to 47% of total industry revenues in only the last few years.
The business model of music
The global music industry is worth over $50 billion, with two major income streams. The first is live music, which makes up over 50% of total revenues and is derived mostly from ticket sales from live shows.
The second, recorded music, combines revenue from streaming, digital downloads, physical sales, and synchronization revenues (licensing of music for movies, games, TV, and advertising).
Recorded music today is close to the industry’s pre-piracy, this is a testament to the growing adoption of streaming services by both music labels and consumers.
Streaming revenue makes up almost half (50%) of recorded music revenue GLOBALLY.
What have the effects been of coronavirus on the music industry?
In the wake of the global pandemic, physical music sales, which represent a quarter of recorded music revenues, are down by about one-third — given the closure of many retail stores — while digital sales have fallen around 11%.
This does align with discretionary spending.
The evidence shows that the way people listen to music is changing in light of coronavirus. In China, Tencent Music Entertainment (TME) reported changes to listen to behavior during the pandemic, with more consumers using home applications on TVs and smart devices.
“While there was some impact on our social entertainment services, we have started to see a moderate recovery recently. In the first quarter of 2020, online music subscription revenues increased by 70% year-over-year.
The number of online music-paying users reached 42.7 million, a year-over-year increase of 50.4%.” Tsai Chun Pan, Group Vice President, TME Content Cooperation Department.
In terms of the amount of music consumed, initial data showed a reduction in the streaming of 7–9% in some markets — though this appears to have recovered.
At the same time, on-demand music video streams have increased.
The reasons are linked to a change in behaviors: the pandemic has focused peoples’ thinking on news media (especially TV), while fewer commuting journeys and with gym closures have shifted listening to different parts of the day to consume; music, film, and tv shows!
New ways to engage with fans
In the initial wake of bans on mass gatherings for concerts and festivals, some venues offered live streaming of performances for the consumers!
Even these formats have been suspended as those sites have closed.
Now, artists are going direct to fans from their own homes, using services like Twitch, Instagram TV, etc.
This is not new, but the pandemic has expanded the audience available, and record labels are facilitating it by providing live streaming equipment to performers.
Streaming platforms have also enabled new monetization methods, including memberships to artist channels that allow early or exclusive access to content, as well as virtual gatherings.
Tencent Music Entertainment released data about the impact of these measures.
Tsai Chun Pan says that through its program Tencent Musicians,
“More than 80% of the musicians receiving exclusive income incentives saw their income increase by over 50%, while more than 40% of the artists reported their income increased by 100% or more.”
These new ways for musicians, labels, and venue providers to engage with followers might be a strategy for stronger long-term connections with their audiences.
The music industry is supporting such efforts:
Vivendi, for example, has developed a platform for artists to perform, engage with fans and share content — it makes no money from the platform itself, but does benefit from royalties and sponsorships.
What are the long-term gains?
Looking to the long-term, the main core value chain of the music industry is likely to remain largely unchanged.
Professional artists release music via one of the big three record labels — UMG, Sony Music, or Warner Music — or alternatively through an independent publisher or label.
This operating model represents 97% of recorded music by market share and may see fluctuations.
In addition, the integration of songwriters, composers and post-production engineers in the development of music is not expected to change, though more work may take place remotely.
Artists and labels will retain close links to streaming platforms, venue operators, and event promoters to distribute music.
Record labels have increased their valuations in recent years, attributed largely to the growth in consumers using paid streaming services, and several are now preparing to go public.
As consumption has grown, spending habits have changed.
While some consumers take on more subscription services at home, others have opted out of subscriptions under financial pressure.
Services with a dual business model are able to retain their customer relationship through the crisis, churning into a free-to-consumer, ad-funded model until the economy recovers.
As consumption patterns have shifted to in-home during the crisis, device- and platform-agnostic services have been able to follow listeners.
Maintaining adaptable monetization strategies may open new avenues for the industry.
For example, gaming and TV integrate songs, compositions, and musical scores into their content — but these synchronization revenues currently account for only 2% of recorded music revenue.
The business frameworks for synchronization deals are currently underdeveloped, so there is an opportunity for growth — even if it is a long way from reaching a comparable share of revenue to streaming.
By Pete Moore