Where is the growth going to come from?

Geoff Taylor is the now-ex CEO of the British Phonographic Industry (BPI), the trade body representing the interests of the major record companies in the UK (as well as some indies).

Taylor (pictured) ran the BPI for 15 years, and was also CEO of the org behind the BRIT Awards, before stepping down from both roles at the end of 2022.

Now that he’s somewhat unencumbered by the political binds associated with an organization representing the ‘Big Three’, MBW asked Taylor to pen an op/ed on the issue that’s most occupying his mind as a free agent.

His views are of global import; but, unsurprisingly, they begin in the UK – the world’s third-largest recorded music market.

For the first time in a long time, I have the luxury – perhaps briefly – of sitting at my kitchen table, pondering the future. And the big question I return to as I think about the music business is: how will we grow in key markets as they mature?

Let’s take my home turf in the UK as an example. Looked at – as it should be – as a global business, British recorded music continues to do well. Combined domestic and export revenues climbed to GBP £1.85 billion in 2021, up 13% YoY. And despite annual growth in domestic consumption slowing to +4% in 2022, UK label revenues should exceed £2 billion in 2022 or 2023.

Yet when you glance further up the mountain, there are two ice walls to surmount if we are going to reach still higher:

  • The UK market is already one of the most mature streaming markets in the world, so attracting new subscribers takes greater effort; and
  • The increase in global competition means that breaking British music overseas is a steeper challenge than ever before. Export revenues may continue to rise as emerging markets transition to paid streaming, but the UK’s share of the overall pie has been slipping as US, Latin and domestic repertoires strengthen.

So what can the music business do as the air gets thinner in key markets like the UK and, of course, the United States?

The most obvious step is to increase consumer prices for streaming, which have barely budged since streaming launched 15 years ago. Yet while Apple Music has now added £1 to its monthly streaming ticket, music streaming services overall are not showing the same appetite as video services to capitalise on an era of price inflation.

Second, we can grow the size of the business by licensing new services. Labels have been busy striking deals with short-form video, NFT and fitness platforms but the unanswered question is how much these new revenue streams will actually grow the overall pie.

In the short term, there’s the challenge of persuading TikTok, Triller and others to move to transactional licensing at a fair value. But in the longer term, short-form video is changing the way music is consumed.

Fans are spending time scrolling through TikTok feeds instead of listening to Spotify, with music only one part of their experience. Plus, the dominant role of the algorithm in short-form video is changing music discovery and influencing the music that is listened to across all platforms.

Tiktok + indie uploads = A challenge

The fast-changing nature of music creation and consumption also throws a spanner into the works of the third stratagem for labels seeking to boost growth: capturing greater market share on paid streaming platforms.

Of course labels fight to do that every day for their artists, but from the perspective of the business as a whole it’s a zero-sum game. And the big challenge for larger labels is that the explosion in the amount of music available, and the growing role of the algorithm, means mean that indie share, including the creator economy, has been rising steadily since 2017.

Short-form video has poured accelerant onto the democratisation of the music business: it’s so simple to become a creator that the pace of creation is accelerating, and the music that labels release is gradually being diluted by growth in the creator economy.

It’s noteworthy that we are still not ‘officially’ counting this explosion in growth in short-form video consumption towards the size of the UK music business, nor are we counting that consumption in the charts.

There are valid questions to be resolved over whether certain forms of short-form video should be regarded as music consumption – or under what ratio. But history tells us it’s dangerous to ignore how young people experience music.

For many teenagers, creating their own Short based on a track, or watching the latest TikTok, is now the main way they engage with music.

The ‘artist-centric’ model

The challenges attached to the three solutions above (increasing streaming prices + licensing new services + capturing more market share) perhaps explain why a fourth potential option to boost growth has now come into sharp focus: increasing the share of the pool of revenues that labels and their artists enjoy from streaming.

Senior executives have begun to highlight one of the least discussed but most profound changes wrought by the digital revolution: the commoditisation of music, with each track being valued the same.

Let’s not forget that in the CD business, recordings compete not just on popularity but also on price. The latest Dua Lipa album would retail at GBP £15 while Pat Boone records might fetch £2.99 in the budget bucket.

Is it now time to reintroduce this factor of competition to the streaming world?

A key driver behind the move to a new ‘artist-centric’ model is the increasing popularity on streaming platforms of ‘low value’ audio content: white noise, organic sounds, sleep and relaxation playlists, or production music bought out cheaply by streaming services and then strategically placed into playlists so as to garner substantial lean-back listening numbers.

There is a reasonable argument that such utilitarian content does not deserve to be valued equally with music that has taken creativity, time effort and significant production costs to produce, and alongside artists whose reputations and catalogues attract users to platforms in the first place.

But the job losses recently announced by Spotify and Amazon indicate that the push for an artist-centric model that pays a greater share to labels will run directly counter to the priority for streaming services in 2023: reducing their costs, including costs of content.

Moreover, there may be those in the independent music community who will be concerned about the implications of any departure from the idea that tracks should be compensated on a pro-rata basis, regardless of the identity of the artist concerned.

Merlin and distributors play an important role levelling the playing field for indies, but it’s notable that data in the CMA’s final streaming report shows that majors already achieve better returns per stream for their artists.

The question is getting louder

There’s a new reason for urgency in addressing these questions: beyond the wider moral and ethical threat posed by deep-fakes, Artificial Intelligence poses the risk of a tsunami of cheap, artificially produced “production music” uploaded onto streaming platforms.

As recently reported, the quality of music generated by AI is increasing rapidly, so this concern is becoming more real by the day.

Don’t misunderstand this to mean that the industry is anti-AI: labels and artists will eagerly embrace the opportunities afforded by machine learning to enhance the process of creativity and the business of marketing music.

But we must get the copyright rules right for music in the AI age, if the new tech is to improve the experience of music for both fans and artists in the long term.

“We must get the copyright rules right for music in the AI age, if the new tech is to improve the experience of music for both fans and artists in the long term.”

Rightly, the music industry is insisting that use of recorded music to train AI’s requires a licence – which is why the industry has been working hard to convince the UK Government to abandon its flawed proposal for a broad copyright exception for text and data mining, for any purpose.

The bigger question however is whether the output of AI-produced music should attract the same copyright protection as music created by humans.

If it does, that will not help the case that AI-generated music should be paid out by streaming services at lower rates than human creations, and in the long term it risks diluting artist earnings and weakening the incentives for future human creativity.

Currently in the UK, computer-generated musical works and recordings are likely to be protected by copyright, so to address this issue would require a change in the law.

Yet as the economist Will Page said when we appeared before the DCMS Streaming Select Committee in December: “In a mature market herbivores turn carnivore.”

In the face of intensifying competition between streaming services to attract users and new licensing deals, will differential pricing of content within streaming services, or even artist exclusives, have a role to play?

The fight for growth in the developed markets is just beginning to heat up.Music Business Worldwide

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