Today, we continue our look back at the last year in the music industry, with five more of the key stories and events of 2022.
Here we review the continued importance of premium streaming services, the music industry’s ever evolving relationship with user-generated content platforms, the campaign against merch commissions in live music, the ongoing debate about the future of the BBC, and all things Web3, metaverse and AI.
You can go back and read the first part of our review of the year here, which covers the ongoing economics of streaming debate, the resurgence (or not) of the live music industry, the continued increase in song-theft lawsuits, the growing trend of interpolation in pop, and the licensing of music on social media platforms.
Read on to see today’s round-up of the music business in 2022. Tomorrow’s Daily will be the final one of the year, in which we’ll pull together all of our favourite music released in the last twelve months.
06: PREMIUM STREAMING
Premium streaming - so digital music services where users pay a monthly fee to access 100 million tracks on-demand - continues to generate by far the most income for the record industry, accounting for 47.3% of global recorded music revenues in 2021, according to the annual ‘Global Music Report’ published by the International Federation Of The Phonographic Industry earlier this year.
These services also continue to power a lot of the ongoing growth in both the recorded music market and in music rights more generally, with digital now a key revenue stream on the songs side of the business as well.
In terms of the performance of specific premium streaming services, Spotify is still the market leader by quite some margin, although its lead continues to slowly decline each year. According to consultancy MIDiA, Spotify accounted for around 30.5% of premium subscribers in quarter two of this year, with Apple Music in second place accounting for 13.7% of those paying to stream.
The premium streaming services of Amazon and YouTube are slowly increasing their respective market shares, though it’s the Chinese services that are seeing the most impressive growth according to MIDiA’s figures.
China is a massive market in terms of potential users, of course, although until recently the vast majority of those using digital music services in the country were on the free tiers. However, the streaming services operated by both Tencent and NetEase are now doing a good job of converting free tier users into paying users, which is having a noticeable affect on their global rankings, even though those services only operate in China.
Because premium streaming is by far the most lucrative digital music revenue stream, a key priority of the music industry for several years now has been to sign up as many people as possible to a paid-for service, even if that is achieved through discounting with things like bundling, student discounts and family plans.
That process continues in order to further grow the market, and in many countries there are still consumers to sign-up to a music streaming service for the first time, and plenty more to convert from free streaming to premium streaming. Although in some countries we are arguably approaching market saturation, where everyone who will pay to stream music already is.
Where that’s the case, where will the next phase of growth come from? One option is to simply increase the price. The primary price point for subscription streaming has been 9.99 dollars, euros or pounds ever since Spotify launched in the late 2000s, which means - when inflation is taken into account - the cost of a subscription has been declining each year. It’s clearly time to put the primary price point up.
However, music services have generally been nervous about price increases, partly because - unlike with video streaming, where subscription prices have gone up - every service has more or less the same catalogue of content. So while it’s a hassle for a consumer to move from one service to another - in order to save a little money if one service increases its price - once they have moved, the consumer would still have access to all the same music.
There have been some price increases in music streaming in recent years, but mainly in relation to the discounted packages. However, this year Apple Music announced it was increasing its primary price point from 9.99 to 10.99. Spotify seems likely to follow, and once the primary price point has been increased once, chances are subsequent price increases will be easier to achieve.
Although arguably those price increases are mainly about keeping up with inflation. How might a streaming service generate extra revenue from existing subscribers in real terms? Especially since Apple, Amazon and others decided last year that higher quality audio should be part of the standard package and not something that is only accessible if a user pays a higher subscription fee.
It may well be that the way to get extra revenue from existing subscribers is by offering pay-as-you-go add-ons within a streaming platform’s app, including access to exclusive music or performances and other direct-to-fan experiences.
To date, for companies like Spotify, a challenge in this domain is that in-app payments can only be taken via Apple or Google’s transactions platforms, which means 30% of any income immediately goes to one of the tech giants.
Spotify and others have been lobbying hard to force a change to Apple and Google’s rules around in-app payments, and that work is likely to pay off in the next few years, especially in the European Union.
And at that point, pay-as-you-go in-app add-ons may start to take off, helping the services and the music industry generate extra income from at least some premium subscribers.
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07: UGC PLATFORMS
Beyond getting more revenue out of each premium subscriber, the music industry is also looking to grow complementary digital revenue streams, so income from those digital platforms that utilise music but which don’t directly compete with services like Spotify, Apple Music and so on.
The most important complementary digital revenue stream today is the income paid into the music industry by user-generated content and social media platforms, which need licences to cover the music inserted by their users into the videos they upload and share.
The music industry has long had an interesting relationship with these platforms, of course. Key UGC and social platforms like YouTube, Instagram and TikTok are all licensed, all pay money into the music industry, and have all contributed to the wider growth of the digital music market.
But, despite the positives, many in the industry feel that these platforms do not pay enough, given the importance of music on their platforms.
A recent IFPI study estimated that UGC and social platforms together account for about 32% of total music consumption, which is more or less the same as the music streaming services. And yet the free tiers of those streaming services and all the UGC/social platforms combined generate just 17.7% of recorded music revenues.
The industry used to complain that UGC and social platforms exploited the copyright safe harbour in licensing negotiations, in doing so securing much more favourable rates than music streaming services like Spotify and Apple Music.
If the music companies didn’t do a deal - the argument went - those platforms’ users would still upload videos containing their songs and recordings, and the music firms would be faced with the cost and hassle of requesting that all those videos be removed. Assuming - as the platforms argued - the option of suing the digital firms for copyright infringement wasn’t available because of the safe harbour.
Safe harbour reforms in the EU have specifically increased the obligations of safe harbour dwelling user-upload platforms in an attempt to address that specific issue. Though, perhaps more importantly, most UGC and social platforms now want to include an audio clips library within their apps, and if a platform had such a library without any licences that would be clear copyright infringement - the safe harbour would not apply.
Yet, the UGC and social platforms have other tactics for negotiating the rates they pay to the music industry down, not least the fact these platforms are such important marketing channels for artists and their business partners.
So, who needs who more? Could these platforms really operate without music? Could the music industry really operate without these platforms?
We have an interesting test case of sorts in this domain at the moment with one of the smaller players in the user-generated video-sharing domain, Triller.
It is currently letting its music licences lapse based on the argument that its data suggests its users don’t need access to commercially released music for their videos. It will be interesting to see if Triller can really compete without a library of licensed music clips. Although, given that Triller is a smaller player in the market, you could argue that it’s not really reflective of its bigger rivals, whichever way that experiment goes.
Perhaps a more interesting case study is YouTube, previously the UGC platform that was most criticised by the music industry, but not anymore.
That’s because YouTube now generates income for the music industry in an assortment of different ways, including via its standalone music service, which is also bundled into the bigger YouTube Premium product.
Across its various different products, YouTube is now paying $6 billion a year into the music industry, with the company’s music chief - Lyor Cohen - recently making bold statements about the Google-owned platform becoming the biggest revenue generator for the music industry by 2025.
It may be that other UGC platforms - TikTok in particular - also placate their music industry business partners by having more products which, together, bring in more cash for the music community.
And for TikTok, that will likely include a premium subscription service too, its owner Bytedance already operating such a service in a small number of markets under its Resso brand. A roll out of that service - more closely integrated into TikTok - is very much anticipated.
Talking of other revenues coming in via the UGC platforms, in the music industry we tend to focus on the monies paid by these platforms via their licensing deals with record labels, music distributors, music publishers and collecting societies.
However, these platforms also provide other monetisation tools for creators, in particular digital gifting and channel memberships.
These were not created with music-makers in mind, but are used by some artists to generate additional income by offering added value content and experiences to the core fanbase. These tools really fit into the direct-to-fan side of the music industry, which continues to grow and, for some artists, is now a key revenue stream.
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08: MERCH COMMISSIONS
Another important revenue stream that is absolutely key for some artists is merchandise - sold both online and at gigs. While the kind of merch that works and the profits it can generate varies greatly depending on the fanbase, for some artists, merch is now the most lucrative side of their individual artist businesses.
Although technically an intellectual property revenue stream - in that an artist’s brand and visuals are being exploited - merch is also closely linked to the live side of the business. First, because shows provide a great platform for selling merch. And second, because merch sales can be vital for ensuring an artist’s live activity is profitable.
With the costs of touring surging, the economics of the live side of the music industry are increasingly in the spotlight. While shows can be a big revenue generator for artists performing at a certain level, in the mid-tier and at the grassroots, the profit margins on shows can be very tight. Which is why the increased costs of touring this year mean many mid-tier artists are finding it hard to make touring economically viable.
For plenty of artists in the mid-tier it is merch sales that make a tour profitable. Though artists don’t necessarily get to keep all of the money generated by merch sales at shows, because some venues charge a commission on any merch sold on their premises.
This has long been a bugbear of many touring artists, even when venues provide facilities and staff to help with the selling of merch.
Mid-tier artists often argue that they would rather have their own people run their merch stall than pay up to 25% of revenue over to the venue. Indeed, some would add that their own team are better placed to maximise merch sales anyway, compared to a venue employee with no interest in or knowledge of the artist and their music.
Late last year, as touring got back underway when COVID restrictions lifted - but it was clear that the economics of touring post-pandemic were going to be very tricky indeed - Tim Burgess of The Charlatans went public with his grievances over merch commissions.
That then prompted the UK’s Featured Artists Coalition to launch its 100% Venues campaign in January this year, urging venues to publicly declare that they do not and will not charge commissions on artist merch sales.
It tends to be bigger venues that charge merch commissions anyway. So a plethora of grassroots venues were able to quickly make that pledge and list themselves in the directory of 100% Venues that the FAC had set up.
However, with spotlight now on merch commissions in a way it has never been before, some other venues have started to rethink their policies in this domain. And, on the back of that success, a similar 100% Venues campaign has now been launched in North America.
That said, there are some issues still to be addressed.
Some venues have outsourced merch operations in their buildings to third parties, which pay an upfront fee for the right to run those operations that they then make back from the commissions they charge to artists. Venues locked into those arrangements won’t be able to drop commission charges until current deals expire. And only then if they are willing to knock back any new upfront fee that those merch companies offer.
Plus, at the upper level, some venues and promoters will argue that - in the same way merch sales are key to economics of touring for artists - merch commissions are key to the economics of their businesses too. Which is to say, in an live sector where the majority of the box office goes to the artist, venues and promoters need to a share of as many other related revenues as possible to have a viable business.
Not all artists and managers would accept that argument - and even if they do, would likely say that support acts at bigger shows, on much lower fees, still shouldn’t have to pay merch commissions - but there are certainly some extra complexities at the upper level for those campaigning against merch commissions to navigate.
Nevertheless, what the FAC’s campaign has definitely done is bring a little more transparency into this part of the business, helping artists make more informed decisions when choosing venues to play, especially if and when it is merch sales that are going to ensure a tour doesn’t make a loss.
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FAC launches campaign against venue merch commissions, urges ‘100% Venues’ to sign up to new directory
09: FUTURE OF THE BBC
While it’s been hard to keep up with the specific policies and priorities of the UK government this year - with so many changes in personnel along the way - it seems certain that the BBC will remain under pressure to cut costs and find alternative sources of income while the slowly imploding Conservative Party is in power. And maybe even beyond.
British politicians from all sides routinely see bias in favour of their rivals in the BBC’s journalism, but it tends to be Conservative ministers who question the very concept of having a national broadcaster owned by the state and funded by a compulsory licence fee.
This means that BBC bosses are always prepared for a particularly tricky time if anything to do with the Royal Charter - which both governs the broadcaster and provides its funding - comes up for review when Conservative ministers are in charge.
It was confirmed by the government earlier this year that the licence fee paid by most UK households would be frozen for the next two years, meaning the BBC’s income would decline in real terms. Meanwhile, then culture minister Nadine Dorries suggested that the licence fee should be abolished entirely in 2027.
Whenever the BBC is forced to cut costs, there is usually outrage at whatever channels, programmes or services bosses decide to axe. And that includes within the music community, with the BBC such an important partner and supporter of British music and music-makers, especially through its radio stations and, in the classical domain, its orchestras.
The most recent cuts to be announced are in local radio. The BBC actually argues that that’s more about shifting budget from local radio stations to local content online, based on the argument that the latter is becoming more important.
Nevertheless, it’s proven controversial. And - in music - it has raised concerns about the future of the local BBC Introducing radio shows, which play a key part in one of the broadcaster’s most valuable music schemes.
Meanwhile, even if the BBC can allay at least some of those concerns, and even if a future Labour government provides more licence fee funding in both the short and longer term, the broadcaster will still need to instigate significant changes in the next decade. After all, BBC bosses don’t just need to contend with changes in the political environment. The way people consume content is changing too. And those changes are a much bigger deal.
BBC Director General Tim Davie recently gave a very interesting speech in which he acknowledged the changes that will have to be made at the Corporation in the years ahead to stay relevant in a media market increasingly dominated by global digital platforms.
“Industry analysts predict that we have probably seen the last year in the UK when broadcasters make up the majority of video viewing”, Davie noted. “Five years ago broadcast TV reached nearly 80% of young adults a week. Today it’s around 50% and radical changes are happening across all ages. TikTok is now bigger than the BBC in video for 16-24s in the UK”.
“Imagine a world that is internet only”, he then mused, “where broadcast TV and radio are being switched off and choice is infinite. There’s still a lot of live linear viewing but it is all been delivered online … Could we harness the possibilities of this interactive digital landscape to increase public value and stimulate the UK media market? What would it actually take to deliver that?”
Obviously the BBC has an obligation to be relevant to and accessible by everyone, which means it can’t just switch overnight to formats designed exclusively for the TikTok generation. But Davie’s plans for the longer term are pretty radical - and it will be interesting to see how they play out.
And what about the BBC’s relationship with music? Will the BBC continue to be a champion of new music and niche genres? Will the BBC continue to have extensive and eclectic music programming? And will the BBC continue to pay similar sums of money over to the UK music industry via its licensing deals with collecting societies PRS and PPL?
Davie talked about a more joined up BBC navigated by genre and content type, rather than channel and station brand. That makes sense. But the music community gets very nervous whenever it’s proposed a music-centric channel or station be phased out. Plus, as everything becomes digital and app-centric, how does the BBC distinguish itself from Spotify et al? Once again, it will be interesting to see how all this develops.
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10: WEB3, METAVERSE AND MUSIC-MAKING AI
It was another year when new technologies - and especially NFT, blockchain and metaverse technologies - continued to grab plenty of headlines in the music business press.
There was a long line of start-ups announcing new platforms and products that were - we were told - “game-changing”, “pioneering” and “revolutionary”, and most of which - the official blurbs claimed - are going to “empower” artists to “break free” from industry norms and succeed on their own terms.
Alongside the start-ups, the major record companies all announced plenty of deals in this space, licensing their music to and investing in the start-ups, and experimenting with NFT drops and metaverse events with artists from across their rosters.
But, is this all tedious hype that will come to nothing? Or are these game-changing, pioneering and revolutionary new platforms and products an actual glimpse into the future of the business of music? Let’s be really honest here, it’s too soon to say.
There are definitely opportunities in all this for individual artists and the industry at large - in both the short and longer term - but quite which opportunities will work for which artists, and which will actually last the distance, is really hard to know.
It partly depends on the artist and the fanbase, as always, but also on how Web3 and the metaverse in general grow and evolve in the years ahead.
So, we are very much in the experimental phase. Artists and their business partners should definitely experiment wherever possible, but while also being very much aware of the limitations and the risks. And, as an industry, it’s right to also be giving consideration to things like security, privacy and piracy on all the new platforms that are being created, not to mention the legitimate environmental concerns.
As for artificial intelligence, well, it’s been interesting seeing another spike in debate about music-making AI in the final weeks of 2022.
Partly prompted by China’s Tencent Music Entertainment talking up its use of AI to make music using ‘synthetic voices’ - and partly because of the wider hype around the ChatGPT AI chatbot developed by OpenAI - there has been a lot more talk in recent weeks about the use of AI technologies to compose, produce and perform music, and the potential impact of those technologies on the music industry.
Such technologies have been discussed plenty of times before. However, as the tech gets better, conversations about how the music industry deals with music-making AI, and the music it makes, do seem somewhat more pressing. And law-makers around the world are now actively considering how copyright law should deal with all this - both in terms of how the AI technologies utilise and interact with existing copyright protected works, and what copyright protections - if any - the content the AI creates should enjoy.
Though, once again, it is still early days when it comes to these technologies, making it hard to predict quite how they will fit in long-term. Which means that, yes, when it comes to music-making AI, we are very much in the experimental phase. So whether you’re optimistic or pessimistic about the impact this technology will have on the music industry of the future, let’s brace ourselves for plenty more experimentation in 2023.
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