2018: Most Notable Moments in the Business of Music

Posted by admin on Feb 2, 2019 in Uncategorized |

With each passing year, it seems the events in the music sector become more and more notable. 2018 was a year with several significant events in the music industry. It’s been out with the old and in with the new, with changes in archaic music licensing schemas to music streaming taking center stage in several arenas. From these events, it seems like 2018 has set 2019 up for what could be, yet again, another exciting year in the industry. Let me elaborate a little…

Spotify’s Direct Listing

Probably the most significant event this year in music was Spotify’s direct listing. Overall, the effect of this listing was unbelievably positive for the music industry.  Most would agree that liquidity is always good for an industry. Through their direct listing, Spotify offered a means for shareholders to sell their shares on the open market without the usual restrictions in lock-up agreements and investment banking underwriting fees. While direct listings are by no means a new concept, it was the first time in history that an offering of its size was done using this “bankerless” approach. Moreover, liquidity events, particular in sectors as beleaguered as music, often remind investors that they can achieve financial returns. As VCs see exits, their FOMO gets stimulated and more investment capital pours into the sector. More capital means that more entrepreneurs have a chance to innovate, which eventually and ideally drive opportunities for content creators.  Finally, the innovative direct listing provides a market price for an acquisition currency should Spotify choose to add new tech to its product portfolio. 

Music Modernization Act

Also known as the MMA, the Act rectified an archaic set of regulations regarding music licensing.  While many of the new laws embodied in the act are specific to industry practices for the PROs (Performance Rights Organizations), there will be an attempt to standardize royalty agreements and processes.  Most interestingly, the MMA will establish a Mechanical Licensing Collective which will try to solve the complex issue of matching songwriters to sound recordings via a publicly available database. This database will specifically help companies who stream interactive content or allow downloads. Music producers and engineers who played a role in recordings will also now be paid whenever their song is played via satellite radio services and online. Additionally, royalties will be given to artists whose songs were recorded before 1972. Prior to the MMA, there was no federal copyright protection for songs recorded before February 15,1972.

Music Acquisitions

Some of the biggest events of 2018 were in M&A. Apple acquired Shazam for approximately $400 million­– one of Apple’s biggest acquisitions. Anyone with an Apple or Android device can use Shazam to identify music, television, and other media within that person’s radius at the click of a button. Apple has made some adjustments to Shazam, making it ad-free. The acquisition seems like a smart move on Apple’s part, considering they’ll have access to data from Shazam’s 120 million users.

Another big move was ByteDance’s $800 million acquisition of Musical.ly. The app boasts 100 million active users monthly in the US and 300 million monthly in China. In August, ByteDance announced it would change Musical.ly’s name to TikTok. Through the app, users are able to create up to fifteen-second clips of themselves lip-syncing to songs or sound bites. Users can collaborate with other users and create joint videos on a split-screen.

Finally, Pandora acquired AdsWizz, a digital advertising platform, for $145 million. “We built the AdsWizz platform using innovative technology in service of a simple idea: provide value to all stakeholders in the digital audio ecosystem – including brands, listeners and publishers – with relevant, engaged and highly targeted advertising experiences,” said Alexis van de Wyer, CEO of AdsWizz, in their press release.  While approximately 20% of Spotify’s revenues come from advertising, 80% of Pandora’s revenues come from advertising so the acquisition clearly underscores the company’s focus on bolstering it’s ad-infrastructure. With the recent acquisition of Pandora by Sirius XM we will keep an eye on how Pandora’s model evolves now that it is part of the satellite radio behemoth.

Fitness and Music

When you think about moments when people listen to music, enjoying tunes to fire you up for a workout immediately comes to mind. Fitness app usage has increased by 330% over the last three years and there are now approximately 38k fitness apps in the Apple and Android stores. Most importantly, we’ve found that when users workout to music while using these apps, they are 2.2x more likely to return next month, thus less likely to cancel their app subscription. That’s good for fitness apps who watch their user LTV like hawks. Moreover, music listeners are 2.8x more likely to return in a quarter. Check out a white paper we put together that goes into more detail about the profound effect of music on fitness.

Strength in Streaming

According to an article in Business Insider, 75% of music listening in 2018 was using streaming services. This number has climbed from its original 50% of music listening in 2016. This 75% is equal to $3.4 billion dollars in revenue in September of 2018, according to an article in The Verge. In 2018, digital download sales were down by 27%, as were the sales of physical music purchases at 41%. Streaming’s growth rate is the largest of any listening category, leading at 1 million new subscribers a month. Furthermore, out of the 159 million monthly active listeners in music streaming, 71 million of them are premium subscribers. According to Nielsen, there were more than 70,000 albums released in the music streaming world by the midpoint of the year. Seems to me like the music streaming trend is definitely the industry’s friend and I think it absolutely suggests that growth is full steam ahead.

The Millennial Population has Baby Boomers Beat

The day has come: Millennials are now the largest age group in the US at 83.1 million, according to a census from 2015, defeating the Baby Boomers’ population of 75.4 million. According to data shared with Digital Music News, Millennials listen to 75.1% more music daily than Baby Boomers. Within Spotify specifically, 72% of the app’s listeners are Millennials. I think it’s safe to say that Millennials are really the ones driving the music industry.

Streaming services, such as Spotify and Apple Music, give users the opportunity to share their music on social media. In the month of August 2017, 73% of Millennials used Facebook, 32% used Instagram, 28% used Snapchat, and 14% used Twitter. With the combination of Millennials’ use of social media and music streaming, the music industry is really reaping the benefits Millennials are having on the industry.

#MeToo

This year at the Grammy Awards, Kesha stood with an army of singers, including Cyndi Lauper, Andra Day, and Camilla Cabello, performing her song “Praying” in tribute to the #MeToo movement. Janelle Monáe introduced Kesha by saying, “It’s not just going on in Hollywood, it’s not just going on in Washington [D.C.], it’s right here in our industry as well.”

However, the music industry hasn’t seemed to experience the #MeToo movement that Hollywood has gone through.“Experts say this could be due to several factors. Among them: the music industry’s history of sordid behavior characterized by the slogan ‘sex, drugs   and rock ‘n’ roll’; the sexualization of females entering the industry; the competitive nature of pop music; and a lack of females in leadership/mentoring positions,” says an article in USA Today.

But there is strength in numbers. Singers have banded together, like Kesha and Lady Gaga.As of recent, Gaga defended Kesha in court with Kesha’s sexual assault lawsuit against music producer, Dr. Luke.  Entertainment as a whole seems to be showing that there’s zero tolerance for bad behavior for executives. Let’s hope it continues.

What’s Next for 2019

Here are a quick predictions on what to expect in 2019:

Fitness will continue to be a major driver for music streaming and potentially music revenue. With Peloton’s looming IPO, fitness will continue to be a major distribution point for music.

Wearable devices, like Bose’s new AR Audio Sunglasses, are on the rise, as it was estimated that portable fitness tech generated $6.4 billion in sales this past year, increasing profit by 10% each year, according to an article written by Cherie Hu in Forbes.

Podcasting ain’t dead. It will continue to be an important player within audio entertainment.

Music streaming will continue to grow as a percentage of overall music industry revenues, but artists still cannot rely upon music streaming as a way to make money. Top artists will make over 75% percent of their income from live concerts alone. It’s important for artists to get on the road and do those live shows, which is why you should get out and support your artist at your favorite local venue.

Labels and Publishers will continue to evolve. We will see shifts in the way rightsholders allow innovative companies to use their content to provide new services and music experiences. The shift of the old guard to more forward-thinking digital savvy executives is already paving the way for this shift in mindset.

I’m excited about the possibilities for 2019. The music industry continues to change for the better. The big players aren’t going away, but things will just look a lot different.

Resources:

https://www.lw.com/mediaCoverage/spotify-case-study-structuring-and-executing-a-direct-listing-harvard

https://www.nytimes.com/2018/04/03/business/media/spotifys-wall-street-debut-is-a-success.html 

https://www.billboard.com/articles/business/8216857/music-modernization-act-what-is-it-why-does-it-matter-jordan-bromley

https://blog.songtrust.com/what-is-the-music-modernization-act

https://www.digitalmusicnews.com/2018/05/06/music-modernization-act-mma-mechanical-licensing-collective-mlc/ 

https://www.nytimes.com/2018/06/28/business/media/music-copyright-digital-services.html

https://copyrightalliance.org/ca_post/6-things-to-know-about-the-music-modernization-act-s2823/http://www.copyright.com/blog/music-modernization-act-introduced-house-senate/ 

https://techcrunch.com/2018/09/24/apple-closes-its-shazam-acquisition-and-says-the-music-recognition-app-will-soon-become-ad-free/ 

https://www.techradar.com/news/why-did-apple-buy-shazam-here-are-five-potential-and-particularly-good-reasons

https://www.theverge.com/2018/8/2/17644260/musically-rebrand-tiktok-bytedance-douyin

https://techcrunch.com/2018/05/29/pandoras-acquisition-of-audio-adtech-company-adswizz-is-complete/

https://www.businesswire.com/news/home/20180529005470/en/Pandora-Completes-Acquisition-AdsWizz

https://www.census.gov/newsroom/press-releases/2015/cb15-113.html 

https://www.forbes.com/sites/sarahlandrum/2017/05/12/millennials-are-relying-on-music-more-for-a-better-workday/#600fb46d736e 

https://www.digitalmusicnews.com/2016/06/02/millennials-listen-more-music-baby-boomers/

https://www.businessinsider.com/music-streaming-accounts-75-percent-consumption-album-sales-charts-2018-7 

https://www.billboard.com/articles/business/8096452/digital-revenue-streaming-music-2017-dima-midia-report

https://www.statista.com/outlook/209/100/music-streaming/worldwide#market-revenue

https://www.theverge.com/2018/9/20/17883584/streaming-record-sales-music-industry-

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