Welcome to Strictly Business, the podcast in which we speak with some of the brightest minds working in the media business today. I'm Andrew Wallenstein, chief Media Analysts that Illuminate Intelligence, the subscription market research service formerly known as Variety Intelligence Platform.
We just announced our rebrand in tandem with the release of our latest special report all about the state of the music industry, and I am fortunate to have the reports author Rob Steiner to give us a download on streaming, publishing, the concert business, and of course AI. So Rob, thanks for joining us.
Hi, thank you for having me.
All right. So, you know, I think there was a sense for a long time that the explosion of audio streaming had the music industry in a growth mode for a while now, but it seems like a more complicated picture is emerging crossed the various revenue streams you are tracking this report, so tell us about that.
Yeah, So overall, it is certainly interesting because the music industry, at least when we're talking about the top level, like the major labels, the big companies, the major artists, it's in a really good spot, a record breaking spot. In fact, it basically ever since the pandemic, that sort of supercharged the growth that was happening with the rise of streaming, you know, that started taking off around the mid twenty tens, and then the pandemic hit and that just launched that
revenue stream into the stratosphere. Same thing with live music. All of a sudden, this post pandemic concert demand just sent a spike in ticket sales and revenues, and that was all great, But now twenty twenty four is basically
across the board signaling a slowdown. We are seeing single digit percentage growth between twenty twenty three and twenty twenty four for revenue growth and streaming in particular, and that's in due part in part due to the fact that it is sort of reaching critical mass and paid usership in develop markets like the US. Live music is also seeing a slow down in attendance, and there are it is increasingly relying more on increased ticket prices more than
anything else to keep revenue growing. And then by extension too, as streaming slows down, slisoda is publishing. And then that's also not to mention the threat that AI poses to
publishing in particular. So with all of this said, basically I saw the industry at an inflection point where if they continue on their current path, it won't be bad necessarily, but it probably means that it will be of, you know, the next few years of flatlining in terms of growth, which obviously a lot of these companies don't want they want to continue growing.
So there's a lot there. Let's go kind of one piece at a time, starting with streaming, which seems to be sort of at the center of all of this. It sounds like from what you're saying that this is a case of market saturation mature development markets. Perhaps they've taken up all the Spotify and Apple Music and YouTube that they're going to get. So what do we do now?
Is it just a matter of all, right, well, there's plenty of emerging market runway to go, or do we need to get more creative in these mature markets.
Yeah, it's a little bit of both, where on one hand, the market or the industry powers that be are now looking towards emerging markets for streaming, especially in Latin America and Asia and the Middle East in particular, those are now pretty much responsible for like the major sources of growth in the streaming industry because you know, the likes of Spotify, Apple Music. They're still breaking into a lot of these markets. So we are going to see the streamers,
the labels, et cetera, pushing hard into that. The Big three of all established a presence throughout Latin America, Middle East and so on, and then back home here there is sort of a debate going on where basically the Big three are really advocating for price increases for the DSPs. They believe that ten ninety nine a month is simply to loaf a price for all the music in the world,
and to a degree they are right. When Spotify was created, it did in a sense solve the industry's biggest issue around digital piracy, whereas, how do we get people to pay for access to all the music in the world online. Spotify found a really you know, streamlined solution where they kind of simplified the experience of act accessing this music
online and put it behind a pay wall. People are willing to pay for it, and they still are, but now it seems like as usership is sort of reaching critical mass, there's now a sense that like basically the Big Three sort of leading this charge, this idea that music had lost a lot of value in the Internet age.
You know, post Napster, post the Internet, and frankly, as the report gets into the argument can be made that music never really recovered the value it lost, you know, the golden age of the nineties and the CD boom, that when you adjust for inflation, at least in the US, revenue hasn't reached those levels. The peak was nineteen ninety nine when Napster was founded.
And so I wonder, and I think about I make the comparison to the video business, where you know, clearly we see the netflixes of the world have built themselves is a tremendous business. The other players in the market, they'll they'll be okay, they're actually starting to turn profit after a rough period. But I think there's also an acknowledgment that the peak era pre streaming of cable television
just much better margins and much better business. And so is the music business diluting themselves, that they could sort of put the monetization toothpaste back in the tube here.
It's hard to say. I mean, it does seem like that the at least the Big three. Their argument is that people will be willing to pay for you know, higher streaming subscription prices. On one hand, because we you know, the s VODs of the world and netflixes of the world, they've increased their prices several times over in just the past few years, and Spotify and the DSPs have but only like only recently, only within the past two years.
They've shown they've shown much more patients. And so I just wonder whether it's going to be a mistake that they're making to push up the prices with the same sort of aggressiveness as the netflixes of the world, unless they're putting more value into these DSPs, which you know, I think of my own Spotisfy subscription and it's not just about music for me, it's podcast it's audio books. Yeah, and so maybe they're not crazy to push these prices.
Yeah. No, especially with Spotify in particular, they have really in just the past couple of years have started pushing essentially transferring to platform to being a lot more than a music streamer. They wanted to be a multimedia location. You know, they have audio books, which has created you know, a whole whole litany of issues in terms of music royalty payments that we could get into. They have pushed hard into video podcasting, but then on the music side
they are also pushed for. Basically, like the hot button concept that has really dominated the industry is leading into super fans for a lot of the for a lot of the Big three, and a lot of these major companies.
Explain fans, Yeah, yeah.
It's basically it is the best way to describe it, or at least the official way that Illuminate describes it based on a survey data. Are people that engage in I believe at least five or more music related activities, so going to a concert, buying merch list in music, buying music, et cetera on a pretty regular basis. And this group is small, I believe it's about twenty percent of the US music listeners according to Illuminate, but their buying power is substantial. There is again with our data,
we have found evidence of that. We've also seen it in practice give great results for particularly companies based in Asia. Hype Corporation is probably the biggest success story. They essentially launched a super fan app Weavers basically think like a social media platform but for like paid private fan clubs for like BTS and a lot of the K pop artists. But now it's expanded to like Ariana Grande and du Alipa. They have been able to generate a substantial amount of
revenue and usership. They have gone up consistently pretty much every quarter for the past couple of years. Same thing
with ten Cent in China. Their fan club revenue again based from like, you know, a super fan subscription streaming tier, you know, where for an extra couple bunts a month, a couple bucks a month over the standard streaming subscription, you get exclusive content or access to you know, early access to concert tickets or merch you know, just some sort of perk to incentivize the most dedicated who basic like.
The idea is that like these people are so passionate about the artists they like that if given the opportunity to support these artists, they will more likely than not take it. And the industry is really banking on this particular group because they think they haven't been fully utilized yet.
And I guess we'll see in time how effectively they use that super fan segment to the best of the business. And so I want to turn though to how the slow down that you've described at the top relates to the increasing headlines we're seeing around the label business. The big three, particularly with regard to how the majors and the indies are having some friction.
Yeah, yeah, it's this particular. This month in particular has seen a lot of friction on the label front currently, probably the biggest, the biggest headline right now is the back and forth around the UMG Downtown Music acquisition. Basically, for context, UMG is I believe the biggest of the
Big three. They are looking to acquire Downtown Music Holdings, which is home to a lot of vital services for the indie music sector, both from like the individual DIY artist label level too, you know, larger but still independent labels and publishers and stuff. That's sort of really been
emblematic of the growing tension between those two worlds. And granted there's always been animosity between the indies and the majors, but it does seem like it is sort of being aggravated recently due to the streaming slowing down, you know, that core issue has basically led to the majors and the leading companies in the in the music industry to look for other ways to essentially dive versufy their income.
And also with the rise of streaming, in part due to the rise of streaming, the indie market has actually been really able to flourish as streaming is established in these developing markets. Basically, it creates a more access to music, which then in turn creates a larger ecosystem for these independent publishers, distributors, labels to then operate on a global level.
In terms of this streaming slow down to some degree, I'm surprised given the headlines I'm seeing about the flood of AI generated music hitting consumers ears these days, how big is the potential for this to compound the challenges the industry is already facing.
Well, Yeah, to put it bluntly, it's a pretty significant one. And it's not just from the headlines we've been seeing from you know, like these fake bands or artists getting thousands of listeners on Spotify and thousands of monthly, monthly followers. That is certainly an issue, but it's also from like the lesser known corners of the industry, where you know, I have several friends who are full time freelance producers. Their day job is creating background music for TV shows.
You know, the young and the restless needs an ambient track for a coffee shop, they can whip up a song, send it over. You know, they work with the music supervisor. Now with AI, that music supervisor can say go to Suno and just request give me a soft acoustic song for a coffee shop and then there you go. So
basically it is coming from multiple corners. It can affect the front facing artists that are having careers as artist, but then it also will greatly impact working musicians as well, like those who create background music or are songwriters or just session musicians. All of that is at risk here. In fact, one of the reports that I cite in the special report basically found that the industry is set to lose about four billion dollars from AI over the next several years. So it is significant.
And do consumers who are facing this flood of music, how are they taking to this? Are they making the distinction with human artists? Are they just fine with it?
Yeah, it does seem like it is kind of a mixed bag. I think early on there was sort of a novelty to it for a while AI music. I think, in at least the AI music that people were interacting with in like a positive way, where like songs where they took a major artist's voice and had them sing another major artist song, or there was that fake song by the Weekend in Drake a year or two ago
that gained a lot of traction. Now I think it's I think just as the general public is more skeptical of AI overall, that is also I think applied to
their view on AI music to a certain extent. I mean, I can tell you again, based on like survey data, I found that actually, like specifically asked musicians and industry people and songwriters who work in the industry, like what they thought is overwhelmingly skeptical negative for obvious reasons, And it does seem like that skepticism is also applying to these artists too, where you know, a lot of there's been a lot of pushback to these to the news
of AR artists dominating dominating Spotify that in now people are like worried that that is a thing they have to potentially worry about of these DSPs putting this AI generated music onto their you know, discovery playlist without them knowing. And then there's sort of a skepticism that arises around that, like, you know, am I listening to an AI song? How can I tell? Should the DSP disclose this, so it does you know, as with everything around AI, it raises a lot of questions and answers.
Yeah, it sounds like we're in the very early stages of something that's going to be a pretty sticky wicket for the industry. So let's turn to a bright spot. The publishing side of the business seems to be booming. What's what's going on to explain the increase in royalties.
Yeah, so publishing has always sort of been an anchor of the music industry. You know, what we're talking about here is essentially like licensing for TV shows, for radio, for streaming especially, and that you know, unsurprisingly has been the biggest point of growth is amongst digital royalties. And the simple answer is that with the rise of streaming,
publishing really flourish as a result. But you know, there are some pretty some pretty important caveats to make there where One part of it is also just like as music has become easier than ever for the average person to just upload to streaming services, that obviously has also
contributed to it. But at the same time, it is disproportionately the majority of the royalties being generated are really only going to like the top of the heap, you know, like the Superstars, the Taylor Swifts of the world, as
well as like the major labels. So in reality, you look at these numbers and you might think, oh, it's better than ever to be a working musician, but the you know, it's a lot more comp located to that, unfortunately, in part because the royalties generated by these streaming services
are literally fraction of a fraction of pennies. And then add to the threat of AI as I was talking about before, and also add to the fact that certain DSPs like Spotify and Amazon as a result of adding you know, extra features that we were talking about earlier, namely audiobooks that basically allowed them to utilize a legally loophole where basically, now that they can classify their subscriptions as bundles, they essentially get to pay a lower payout
rate to music artists and songwriters. So there are threats for sure at the door here, but at least for now, like this is probably the one of the few corners of the industry that is still growing more than just single digit percentages.
So and what in your report does it say about the state of the catalog market in twenty twenty five which had been just cruising along at a pretty feverish clip for the past few years.
Yeah. Yeah, the catalog business is interesting because I do feel like if we were having this conversation six years ago, the vast majority of people wouldn't know what the music catalog business even is. But like around twenty twenty two, we started seeing all of a sudden explosion of headline grabbing deals, you know, both for the artists involved and
also the price tags they were fetching. You know, like Bob Dylan, Bruce Springsteen, Justin Bieber even, they were all fetching you know, one hundred million plus for their catalogs. So I would say that that sort of gold rush is definitely dissipated. But it's not like the market has
come down to earth either. We are still seeing some like pretty massive deals come out of this space, chief among them being the first billion dollar deal for a single artist catalog, which was between Sony and Queen last year. So that one is interesting because again, as a result of these companies looking for ways to diversify their income, this is sort of like it's all catalogs have always
been a surefire way, especially for legendary artists. Because oftentimes one of the key ingredients you get with them are name, image likeness rights. So if you have that plus publishing, plus masters, even if you only have one or two of the of that combination, you can utilize that to basically create a brand. You know, think of like how Bob Dylan sold his catalog a few years ago and we just got an Oscar nominated Bob Dylan biopic. You know, that adds value to the Bob Dylan catalog at the
end of the day. And they were able to do that because you know, I forget who owns his name image likeness, but the fact that they was sold off meant that they could pretty much build the brand for themselves. And that's what we're seeing a lot with these sort of legendary artists and sort of like proven hit makers.
Speaking of proven hit makers, let's talk about the live music business, which in your report I was surprised to learn given the heights that this hit last year. And this is a subject that Illuminate Intelligence in the past has dug into the phenomenon around this market, but it does seem to be cooling off, which is hard for me to understand when it's like the level of you know, you got Bruce Springsteen just finished a massive tour, Lady
Gaga launches another one. It's just such a wealth of a listers on that market.
Yeah, I mean, live music is certainly interesting where that industry has proven to be pretty resilient to pretty much anything. You know, there is the long held belief that music, particularly live music, is quote unquote saying proof, with the reasoning for that being that people love music so much that they are less willing to give that up if it comes to saving money versus like going to the movies, for instance, And so we're sort of seeing that with
live music. And then also at the same time as ticket prices are basically increasing higher than ever year after year, that is also in part inflating what we're you know, the the year end tallies that we're seeing, and up until now they've sort of been able to get away with it. That might be too strong of a word, but like, at least as ticket prices increased, people were still turning out, especially after the pandemic. People were willing to pay big prices to go see the favorite artists.
They were willing to travel and with that incur those expenses and we are still seeing that. Again, It's not like it's you know, we're seeing a nose dive or anything in live music, but we are seeing it flatline a little bit. You know, where the past couple of years was double digit growth and now we're seeing single digit growth. And not only are we seeing that for revenue, we are seeing that for attendance as well, which is sort of the real sticking point.
And Live Nation, of course is synonymous with that market. So how has it impacted them?
Yeah, I mean Live Nation is interesting because when you talk about them, you are basically talking about the live music business. And you know they have at least in their Q one report they started the year actually with the revenue down from the previous Q one, but they basically framed it where they focused on essentially the rest of the year, where they were like, future or sales for or future concerts is higher than ever, We're set
to have a record breaking year. That certainly might be true,
but that is at the end of the day. They are kind of seeing what is happening in the larger in the larger live music industry, where yes, revenue is still high, but it is slowing down in same thing with attendance and ticket sales, and then you know, when you couple what is happening with them versus like the larger changes happening like from what like Polestar was tracking, where you know, for the top one hundred worldwide tours, everything was actually like down by a couple percentages average
gross tickets sold, average tickets sold, but the two things that increased was average ticket price and gross. So to me, that signals that you know, this the gross that is being created is more more and more so happening from ticket price, and we were definitely seeing that happened within Live Nation as well.
Well, we'd be remissing this conversation not to touch on the artists at themselves in terms of both the top of the food chain, the chart toppers that I would imagine, hey, the more best selling acts that you get, the better the health of the market. Then again, the music business is so catalog heavy that maybe it doesn't matter much, and then also just sort of lower down the food chain, what it's like for perhaps the musicians that aren't household names.
Yeah, yeah, I mean basically, like I mentioned before, for working artists. The concept of the working class musician is becoming much much less of a reality for the most part. And you know, as as much as this has been like a particularly you know, particularly strong topic for me personally, or one that I feel is strongly about, there unfortunately isn't a whole lot of data for it, at least
when it comes to the US. But what we do have shows that, at least like from anecdotally and stuff like you hear about musicians like needing to even successful ones or quote unquote successful ones within like the indie space, we'll still need to maintain day jobs or you know, find other more stable sources of income. Earlier this year we saw Chapel Roan on the Grammy stage while accepting an award advocate for greater access to healthcare services and
mental health services for artists. So like, we are seeing that happen. And the one, you know, one of the sources we do have for data, which I was very happy to find, was actually a music census, a musician census done in Nashville, which probably next to New York and LA maybe even more so, is has the highest
concentration of working musicians in the US. And you know, from there we were able to get at least a glimpse, like they offered a case study of what it could be of what you know, the musician experience is in the US, and for the most part, they averaged around fifty two K per year from music, most of which came from live shows rather than recordings. But you know, again, a lot of the main concerns was access to healthcare and rent, and you know that is also the same
in the UK. It's a very similar story.
Well, I don't want to forget the other half of the equation, which is the artist at the top of the charts, the Morgan Wallens of the world, the Kendrick Lamars of the world. Are they bigger than ever? And you mentioned Chapel Rome earlier. Is she an example of there's still a rising tide of new artists joining those top ranks.
Yeah, no, certainly, Like these artists are doing incredibly well. And it's it's sort of that it's like the ones that make it are still able to really make it. You know, Morgan Wallen, even though like his listenership is overwhelmingly in the US, like, he's still able to embark on highly successful global tours. What's interesting that with that too, though, is that sort of as a result of these developing markets adopting streaming and usership growing in you know, other
parts of the world. Along with like the big artists obviously being listened to there, we are also seeing what sort of become known as like localization, where it's like these markets will adopt streaming, but then they will continue to listen to their local artists and sort of like as a result of that, these artists then get access to the global stage, as it were, a lot more so than they were before, in part thanks to like
streaming algorithms picking them up and stuff. So that's sort of like why what we've seen, you know, the rise of K pop or the rise of Latin music, or even the rise of country music outside of the US, Like that's all part of it. But again, at the same time, just given the amount of people that now can upload music and you know, create build platforms online thanks to streaming, it's sort of a double edged sword.
Like the ones who can break through the noise are able to potentially find a lot of success, but then everyone else kind of has to fight a lot harder, especially as like you know, platforms like Spotify have now instituted policies where it's like unless basically artists that don't make x amount of streams per month they don't get paid, which you know, on one hand, you can make the argument that it's like that allows the royalties to be
better distributed for the artists that do have established careers, and that is certainly good. But at the same time, it does make people that are trying to you know, float to the surface more. It just makes it a lot harder than it already was.
Well, we're touching on some trends here that make clear the twenty twenty five, as you put it in this report, is clearly a pivotal year. There's a lot to monitor going forward, and so can't recommend enough people check out the report Rob just authored, available on the Illuminate Data dot com website on the state of the music industry. Rob, thanks for coming in and giving us a taste of what you wrote about.
Of course, thanks so much for having me.
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