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Major changes to come for the music industry - WR #173
Weekly Roundups
August 4, 2023

Major changes to come for the music industry - WR #173

I know what you’re thinking; isn’t that the statement we hear every week? At this rate, the music industry will be completely remodeled on a daily basis. Well these last years, innovation has taken such a place in the field that it feels that there are many ways we could see our jobs fundamentally changed. 

#1. Another major change for the music industry to come

According to Goldman Sachs Research, our industry is once again on the verge of significant structural change, especially regarding the streaming services. Despite the increasing number of songs being released on streaming platforms, the revenue generated per song has seen a decline of 20% since 2017. Global revenue for recorded music is now expected to grow by 7.5% in 2023, and streaming is projected to maintain a healthy growth rate with a Compound Annual Growth Rate (CAGR) of 11%. All these numbers are lower than the level of 1998 (but again, the music industry is not the same anymore).

So now, music streaming platforms are exploring new pricing strategies. Some of them have successfully introduced price increases (as we talked about last week). Another potential revenue boost comes from "superfan segmentation," which would allow platforms to offer differentiated pricing and content to cater to dedicated fans, potentially adding $2 billion of incremental revenue by 2027 and $4 billion by 2030 (find all the details in Goldman Sachs’ report).

There’s a clear need to reevaluate the economic model for payments between streaming services and music labels. New payment models, such as a user-centric or artist-centric approach, are being considered to better distribute payouts based on user listening habits or the value an artist brings to the platform.

#2. Would you invest in your favorite tracks?

Keeping up with the new models in streaming services, here’s a potential new model to expand on. MasterExchange has successfully raised $2.74 million in a funding round from investors including Vectr Fintech, Claes-Henrik Julander, and Rob Small. The Swedish platform allows anyone to invest in specific songs, entitling them to receive quarterly shares of the music royalty payments.

So why looking a bit closer at MasterExchange? By purchasing shares of song royalties, investors gain a stake in the income generated from the song's use, including revenues from streaming services and sync placements. Jason Best, Managing Partner at Vectr Fintech, believes that MasterExchange's user-friendly experience and fiat currency-based model make it a promising platform to unlock substantial music investment value in the industry.

#3. AWAL is making waves

AWAL has been experiencing its best-ever chart success in the UK. Indeed, they achieved a UK Top 20 single with the TikTok-driven viral track "Golden Hour" by JVKE and a major hit with Lizzy McAlpine's "Ceilings" which reached No. 6 on the Official UK Singles chart. This success comes after a period when AWAL faced scrutiny from the Competition and Markets Authority (CMA) during its acquisition by Sony Music. Thankfully for AWAL, the CMA eventually approved the $430 million deal in May 2022.

AWAL demonstrates a shift in the music industry, driven by the democratization of streaming, which allows tracks from "middle-class" artists to reach the top of the charts. AWAL has distinguished itself from major label peers through its flexible agreements with artists, allowing them more control and higher revenue shares. As part of Sony Music, AWAL plans to empower creative entrepreneurs and individual artists while expanding its global reach and non-Anglo music presence.

#4. Looking beyond the Monthly Active Users

Is there a problem with the notion of Monthly Active Users (MAU)? It is today the sole metric to describe growth and engagement for digital platforms, including DSPs. For Eamonn Forde, MAU hides the actual regularity of use and that other engagement statistics could provide more valuable insights.

Forde suggests that while DSPs might have similar MAU levels, their audience quality and engagement could be vastly different. Among other topics, he encourages the financial community to support the production and analysis of these statistics to gain a better grasp of the industry's dynamics and user behaviors. Maybe there’s something there to look out for… 

#5. What can AI set up for the music economic markets?

The newsletter Music x didn’t disappoint this week, as they reflected on the excitement surrounding AI in music and the potential for new economic markets. From ideas for creating creator-driven markets to emphasizing institutional support, and experimenting with monetization and revenue models, there are clear goals to create a resilient and inclusive music market. Engaging artists, creators, and fans in shaping this vision is crucial for its success.

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