Is the Western music industry suffering from sclerosis?
If 2015 was the year recorded music hit the bottom of a 15 years crisis, 2016 is likely to be - according to several banking analysts from Macquarie and Crédit Suisse – the inflexion point in the recorded music revenues downfall and mark the beginning of a new era of growth and prosperity. However, I cannot help but notice that the streaming ecosystem driving this growth is still fragile and that the music industry remains scattered. (Chart by Crédit Suisse / Business Insider UK)
The music industry as we currently know it is organised in different blocks: recorded music, live music, tech.... Although we are witnessing a surge in strategic partnerships (Shazam and Spotify with Songkick, Deezer with Twitter…) the above-mentioned blocks are still relatively impermeable and horizontal integration remains marginal. In that regard, it is interesting to have a look to what’s happening in China. Even though China was only the 14th biggest music market in 2015, this market is, in many regards, more vibrant and innovative than the Western ones. QQ Music (Tencent’s streaming platform) became, for instance, the first profitable streaming service despite counting only 10 million paying subscribers out of its 400 million users (before the acquisition of CMC). The reasons behind this success? Its bargaining power with music companies and a well-thought user experience enabling subscribers to directly purchase tracks, merchandising and concert tickets of the artist they are listening to. The other Chinese powerhouse, Alibaba, has released this year its Planet app (pictured) which provides its users with the ability to stream music, live concerts and music videos, purchase merchandising and connect singers to composers. These companies have evolved fast with a lot of flexibility to harness the potential of the tough Chinese market.
Back to our Western markets, the battle between the music industry and Youtube has kept us busy for the last six months. When I read Music Business Worldwide’s exhaustive article about Vevo (Can Vevo Find A Model That Works – And Make The Music Business Rich?) stating that the company is considering launching a subscription tier in the near future to increase its revenues, I was a bit puzzled. I am not convinced that multiplying subscriptions tiers across several platforms is serving the music industry and I have trouble believing that the customer who already has a subscription to Spotify and Netflix will be willing to pay one more subscription to another platform just to watch music videos. Consumers’ budgets are not expandable especially in times of economic struggle. The contrasted performance of Youtube Red is a vivid example of the lack of relevance I am pointing out.
In my opinion, the value gap stems from the irrational separation of music and video. Since the music video is the visual representation of the primary audio source, I don’t see how splitting the two of them on different platforms is beneficial. This separation had a sense when TV was a powerful channel but now that the media industry and its technologic development are leaning towards more concentration in the digital sphere, I believe it is time to bring the two of them together.
As I see it, the answer to the value gap between the product and the revenues lies in the integration of videos in music streaming services. One solution would be that the online video platforms such as Vevo provide music streaming services with video content. With a seamless integration of the latter within the music apps, the user would have the opportunity to watch the video corresponding to the song he is listening to. Consequently, this would also enable streaming platforms to offer another tier (between 9.99€ and 14.99€/month?) and diversify their offer. It would create a win-win situation: on the one hand the user has all his eggs in the same basket by accessing all music-related products (audio, video, tickets, merch…) on one place without having to open several accounts; on the other hand, music services can increase their conversion rate and attract users from the ad-supported platforms while the video services get a percentage of the revenues generated on the music platform they are integrated in.
Of course, if such an integration was to happen, only a small percentage of users would subscribe to a music service leaving the issue partially unresolved. That’s why, I think that while video services are being integrated into music platforms, they should improve and refine their advertising model. Once again, we could draw from the East and especially from the Korean messaging and streaming platform Line which enables its users to choose which brands they want to receive promotional messages from by following them. This is a smart way to create a sustainable advertising model involving the user instead of polluting him with an unwanted content and to bypass the ad rejection epitomised by the soaring use of ad-blockers.
If an advanced integration of video into music streaming platforms would be likely to reduce the value gap and accelerate the consumption of music, it would, however, also bolster the strong position of streaming platforms at the expense of record companies and by extension right-holders.
To conclude, I would say that the Western music industry has a large margin for improvement. Some companies relying on a strong horizontal integration like Amazon and Alibaba are already showing the way. However, we shall remain cautious in terms of competition as it could lead to an oligopoly and a weakening of right-holders’ bargaining power...
As there is not one single truth (especially in the music industry), you are more than welcome to share your views by refuting, completing or supporting this article!