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Gaming Consoles: A Path Forward for Music

Gaming platforms are not just for gaming anymore. More and more people are using platforms like Xbox and Playstation to access music. Increased competition for the top-selling game has pushed game developers to really focus on creating a great sound track. Game developers are licensing more music than ever before and now fans can even purchase the tracks from the game without ever leaving the console. In addition, game consoles are incorporating online streaming and other music services, allowing fans to listen to their music from the central point of most homes – the TV.

This article was originally published on Billboard by Alex Pham. Here’s a short excerpt explaining how gaming consoles stand to benefit the music industry and musicians.

This [surge in game console popularity and competition] matters to the music industry for three reasons, and all of them are good. The first is that these new devices represent absolute growth in the number of paths for digital music services to enter the living room.

“For content owners, this can be an opportunity,” Robert W. Baird & Co. analyst Colin Sebastian says. “These are exciting new platforms for music and other digitally delivered content.”

Companies like Vevo, Rhapsody, BandPage, Slacker and TuneIn have actively pursued distribution deals with over-the-top distribution services with the belief that to succeed, they need to go where the audience is.

Accessing music through a TV is no longer considered odd, especially since many living room TVs are often hooked up to the best audio system in the house. About 30% of Americans have listened this year to music through TVs that were connected to the Internet, either by game consoles or other means, according to a report by Edison Research.

Music services say consoles represent an opportunity to expand their footprint in the living room.

SoundCloud chief executive Alex Ljung points out that consoles have become one of the main routes to “smart” TVs, building a bridge for Internet services to the living room. “In some ways, game consoles were the first and still by far the largest user base for smart TVs. It’s a way to take a screen and connect it to the Web,” he says. “In that sense, the console enables us to get to the TV.”

The second reason why consoles matter lies in the calculation of royalties. Music delivered through ­Internet-based services has historically generated higher absolute royalties in aggregate than music delivered by cable and satellite TV companies. While per-stream rates established by the Copyright Royalty Board for cable, satellite and Internet conduits aren’t directly comparable to one another, it’s well-known that Pandora, an Internet-based service, is the largest single contributor to SoundExchange, which collects music royalties under statutory licensing. Should listening to Internet music on TVs in a home environment become as popular as mobile, rights holders stand to gain.

The third opportunity for music, albeit a smaller one than during the heyday of “Rock Band” and “Guitar Hero,” games themselves represent a vehicle for licensing and distribution. This year and next, a handful of titles will incorporate music as a central feature in their experiences, including Ubisoft Entertainment’s “Just Dance 2014” and “Rocksmith 2” and Harmonix’s “Fantasia.” As with movies, games require increasingly sophisticated scores and soundtracks, particularly for console titles that heavily emphasize cinematic environments and character development.

Perhaps the best source of licensing revenue this year will come from “Grand Theft Auto V,” which licensed 240 tracks and commissioned original songs from A$AP Rocky, Flying Lotus, Twin Shadow, Neon Indian, Yeasayer, OFF! and Tyler, the Creator, among others. The game, which has so far generated more than $1.3 billion in retail revenue since its release on Sept. 17, also features 15 in-game radio stations hosted by well-known DJs, including Bootsy Collins.

Inspired by the “GTA” radio feature, some streaming music providers including Rhapsody have explored the possibility of integrating their services into gaming worlds. Gamers spend about four hours per week on average playing, according to a 2012 survey by PricewaterhouseCoopers. Some even turn off the game’s sound to pipe in their own musical selections.

To read the full article, visit Billboard.com.

Do you think gaming platforms are a good path forward for the music industry? Share your thoughts in the comment section below!

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Rdio and Cumulus: Is Partnering the Way Forward for Streaming?

Streaming service Rdio and Cumulus Media announced a partnership on Monday. This marks the second great partnership opportunity this summer for Rdio; the first being with Live Nation back in July. Being the second largest radio operator in the US with 525 station, Cumulus can offer Rdio much-needed awareness to compete with more established services like Spotify and Pandora. In exchange, Cumulus claimed a significant equity stake in Rdio’s parent company Pulser Media.

Most significantly, this deal will bring Rdio into the world of free, ad-supported streaming – a feature that has been absent from the Rdio service since its start in 2010. Currently, Rdio costs $5 per month for desktop streaming and $10 per month for phone and tablet access. While Rdio does offer a free trial, it cannot compare to the free versions of Spotify and Pandora. Cumulus boasts 1,500 sales agents around the country and will use this power to sell commercials for the new, free Rdio streaming service. The two companies will share in the advertising revenue. Rdio’s free version is expected to launch at the end of 2013 though the details of the service are still not clear.

“The biggest challenge we face is really awareness,” Mr. Larner said. The company has obviously been trying to address this concern with its partnership with Live Nation. Everyone is talking about streaming, but usually the only services that get a mention are Pandora, Spotify, and now the new iTunes Radio. With 525 stations across the US, Cumulus can promote Rdio to hundreds of thousands of music fans.

For Cumulus, the deal marks a significant step into the digital environment. In the past, they have supplied streams to Clear Channel’s iHeartRadio, but that deal was simply a “marriage of convenience,” according to Cumulus executive, Lewis Dickey. “We’re trying to be much more active in the audio ecosystem than just passively handing our streams over,” Mr. Dickey said. “That has severe limitations in terms of our ability to monetize.” Apparently, the deal with Rdio will allow Cumulus to do much more in the digital radio environment. Cumulus will certainly be creating specialized playlists for Rdio from its terrestrial radio stations.

With all the negative talk around streaming services like Spotify and Pandora this summer, it is refreshing to hear of a smaller service trying to move forward and adapt to the changing streaming environment. What are your thoughts on Rdio? Do you think partnerships are a good way forward for streaming services? Do you think streaming services be financially successful on their own?

Trends in Mobile Music

Mobile is becoming increasingly important for musicians and music fans. Consumers seem to be using their smart phones and other portable devices like the tablets for just about everything, and music is no exception. Fans today can listen to their favorite music through streaming services like Pandora from anywhere and discover new bands and musicians on the go. In addition to listening and discovery, there are also a wide range of music apps that allow fans to keep track of their favorite bands. The market for mobile in music will no doubt continue to grow, providing fans and musicians with new opportunities to connect.

To get a better picture of some of these trends check out this infographic from Hypebot:

Mobile_Music_Infographic

 

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Rdio and Live Nation: Partnering Improves Streaming

The music subscription service, Rdio, has recently partnered with concert promoter Live Nation. As a result, Rdio will provide audio streaming on LiveNation.com and act as a sponsor for Live Nation-promoted festivals including the Sasquatch! Festival and the Watershed Music Festival. The partnership started last weekend and is part of Rdio’s efforts to gain more subscribing customers.

Resulting from Rdio’s recent partnership efforts with terrestrial radios, other services like Shazam and SoundHound, and Live Nation, Rdio has managed to increase its subscriber base. This article from Billboard describes some recent subscriber trends and numbers for the music subscription service:

Embracing live music requires being both online and on-site, CEO Drew Larner tells Billboard. Live Nation’s presence in country music gives Rdio an opportunity to gain visibility in front of country music fans. “It’s a demographic we want to approach and we felt this was a great way to hit that demographic.”

The company doesn’t share specific figures on number of registered users and subscribers, but Larner gives a couple examples of its recent growth. In Brazil, registered users were up nine-fold from June 2012 through June 2013, and up six-fold from January through June. Registered users were up six-fold from June to June.

Larner also points to the ranking of Rdio’s iOS app at iTunes as an indication of the service’s upward trajectory. Rdio rose to #1 among free music apps in June in the United States after steadily ranking between #10 and #20 for much of the year. It has also hit #1 in Australia, Canada, the United Kingdom and Mexico. “We’re killing it in Mexico,” says Larner.

What’s driving this growth? Larner says four factors are behind Rdio’s growth: partnerships, social media, marketing and the product.

Partnerships have been a growing trend for some online radio and music subscription services as they search for ways to add value to the listener experience. Most services already have the capabilities to allow users to buy music they listen to, but this connection with live music may act as a more effective link between the online and the offline experience. Many would argue that downloading music and streaming music are comparable, and many consumers do not find the need to own music if they can easily stream it online from any device in any location. The live experience, on the other hand, is irreplaceable. It cannot be duplicated online or through any music service.

As users browse the Live Nation site for concert tickets, they will also be able to listen to tracks via Rdio if they are subscribers, or listen to 30 second clips if they are not.  This direct connection between music discovery and the live music industry may act as a funnel, driving new, and current fans to purchase tickets to a band’s live show. If this driver proves effective, artists stand to benefit more than they would from a download as touring generally brings in more money. In an article by Bloomberg, Rdio Chief Executive Officer Drew Larner describes this beneficial cycle: “Marrying what we do with streaming and discovery, and promoting artists with live music, is a natural fit. A streaming service like Rdio and live concerts can be a virtuous circle.”

No official date has been set as of yet for the integration of Rdio’s services into the Live Nation site.

What do you think about this partnership? Do you think Rdio could effectively drive listeners through its service to a live show?

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The Sad Truth about the Music Business

Music_Evolution_lowres1

Music is a much smaller and less significant part of many people’s lives than 10-20 years ago.  There is more competition for our attention and the value of music has declined precipitously. This graphic shows the rise of digital against physical music, and the overall impact of piracy, widespread distribution and digital media on the music industry. The sad story is that overall the music business is shrinking. That is a fact that we all have to face.  The silver lining in all of this may be on the horizon, but it cannot come soon enough for me. We have to do something to reverse the trend.

Courtesy Daily Infographic.

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Modern Merch: Beyond the Tour T-Shirt – CMJ Panel

Ale Delgado wrote this great recap of our CMJ panel on merchandise last week.  Thanks Ale!  Here is most of it.  Visit her site for more:

Considering that I’m always looking for the next big thing, I knew I had to go to CMJ’s “Modern Merch: Beyond the Tour T-Shirt” panel. See, merch is a $2.2 billion business and one of the biggest ways an artist can make money. But while most merch is sold at shows, most people at shows don’t buy merch. Tricky, huh?

The basic premise of the panel was that opportunity comes when you marry a point of passion (e.g., a song stream or live show) with a call to action (e.g., a merch sale)– and yes, they had some tips to help you take advantage of any opportunities that come your way.

Moderator: Dave Kusek, co-founder of MerchLuv and co-author of The Future of Music.

Panelists: Zach Bair, founder of RockHouse Live Media Productions and the original CEO of DiscLive Network, which records, masters, and burns concert CDs to be made available to fans right after the show;  Mary Sparr of screen-printed gig poster pros Print Mafia and culture blog Young Mary’s Record; and Alexandra Starlight, funky and spunky indie starlette whose Kickstarter campaign resulted in 205% funding and a rainbow glitter 7″ EP.

 

1.Think of merch as an extension of your brand

As always, the first thing to do is consider your brand as an artist. Once you develop a consistent aesthetic, you can open the door to more innovative merch because fans will recognize it as one of your pieces. For example, Starlight created a one-of-a-kind rainbow glitter vinyl record for her self-titled EP. A record like that had never been pressed before and each one was hand-glittered, so each fan received a unique copy. If you’ve ever peeked at Starlight’s website (or rainbow-dyed hair), you know that a rainbow glitter album fits perfectly with her brand– and it’s damn memorable.

Furthermore, if you think of merch as your brand being integrated into someone’s lifestyle, it opens up even more creative possibilities. For instance, The Hold Steady created branded foam fingers. Y’know, the ones you wave around like crazy when you’re cheering on your favorite team. What do foam fingers have to do with music? Not much, but they’re fun, different, and priced for the college-aged fan. And judging by the fact that they’re sold out, they’re a big hit with fans.

2. Cater to your spectrum of fans

Take another look at The Hold Steady’s foam finger. It’s $10 reduced to $5. Easy sale for a teenager or college student who might have a lot of spending money but is willing to pay for something cool to show off to their friends. Making sure that you have different tiers of merch for different fans is key to building sales. You should have something at your merch table for the fan who just wants to snatch a free download card and for the fan who wants to buy everything. That also means bundling items together (CD, t-shirt, button combo) for a quick sale.

3. Be show-specific

If possible, create show-specific merch. It can be as simple as individual gig posters for each city in which you tour or something a little more involved. Sparr brought up the tickets that Mumford & Sons created for their Gentlemen of the Road Stopover Tour. Each ticket was a commemorative passport that contained a download code for a compilation of songs recorded at each Stopover. Then it got better. Fans could get their passports stamped at the merch tables at each Stopover, personalizing their passports to their experience. Then it got even better. People were wandering around each Stopover with unique stamps, essentially turning the passports into a Pokemon game. (Gotta stamp ‘em all!) Talk about fan engagement.

Next, update your Facebook and Twitter on the day of the show and let your fans know what merch you’re going to be offering, especially if you have something that will only be available at that show. The more people can prepare (or at least consider the possibility of picking up your record), the more likely they’re going to buy something.

 

4. Work your merch like a pop-up shop

Think about every grumpy salesperson you’ve had to deal with. They don’t greet you, they don’t look you in the eye, they don’t care if their store is a mess, they don’t want to help you find anything, or (even worse) they’re way too pushy… Okay, now be exactly the opposite.

Your merch table is your pop-up shop. Have your items propped up nicely so that fans who are moving past your table can see what you have to offer. Greet them as they walk up to your table; don’t badger them, but put on a friendly face like you would if they were customers coming into your brick-and-mortar store. Also make sure that you’re being as meticulous as you would be if you were running a store: keep track of your inventory and double-check any email addresses written down on your mailing list. Remember that the experience doesn’t end when your show does; fans will remember what you were like behind the table.

5. Extend the experience

Well, actually, the experience doesn’t have to stop when your fans walk out of your venue either. There are a lot of ways you can extend your show experience, from the simple to the elaborate. Here are a few ideas from the Panelists:

  • Make sure there’s someone taking pictures of your show, including grabbing a few shots of the crowd. Then post it on Facebook and encourage your fans to tag themselves.
  • Have your fans post pictures of your show to Instagram with a hashtag of your choosing, and then sending them aPostagram thanking them for coming to the show or giving them a discount for your store.
  • Use DiscLive to record, mix, and master a live recording of your show. By the time you’re ready to sell some merch, they’ll have CDs ready to go. DiscLive also allows for preorders, meaning that a) you can bundle tickets and CDs and b) you’ll have an estimate of what you’ll sell at your show.
  • Use MerchLuv to bundle streaming songs with merch items to cater to those new fans who hadn’t heard of you before your show, but want to check you out afterwards. Remember, opportunity lies where passion meets action.

Read more here including a Happy Halloween Bonus Tip!

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Modernizing the Merch Madness

For artists struggling to make a living in the digital age, a strong merch strategy can be the difference between living life as a starving artist and making a comfortable living.

Yet compared to the recording, publishing and ticketing businesses—which have felt the full effect of technology and the Internet— the merch business today is mostly stuck in the analog 70s. If we are looking to make money in the music industry of the future, why focus our energies on debating the intricacies of Spotify payments or whether licensing terms stifle innovation. Instead let’s examine an area ripe for disruption and revenue expansion.

A Highly Fragmented Environment

Indeed merch seems to be a highly fragmented business ripe for consolidation and transformation. To illustrate, let’s look at some research conducted by a company I work with— Merchluv. We looked at the August 2012 Big Champagne charts and came up with a list of  100 top artists and analyzed their merch availability:

– The 100 artists on the list used 44 different merch vendors (how’s THAT for fragmentation?).

– 75% of artists sold merchandise on their website, Facebook page or through an official supplier.  A surprising 25% of the top selling artists in August did not sell any merch AT ALL.

– 18 artists were “self” merchandisers, meaning they used Topspin, Paypal, Amazon, or a 3rd party services or ran their own commerce site/shopping cart.

– The remaining 57 artists were served by 26 different merch suppliers.

That means to sell merch for the top 100 artists in August you need to make nearly 44 deals with merch suppliers. Clearly a consolidation of merch vendors could help to rationalize the market. Where is the Amazon of music merchandising?

Merch is an Insulated Service

The merch business is largely disconnected from the real heat in the music market today, namely the explosion in digital music services. For example: 45 BILLION songs are streamed or viewed every month, yet there is NO MERCH being sold against this engagement. And that number is just going to BLOW UP to hundreds of billions of streams per month in the next few years.

Imagine if streaming services allowed fans to browse and buy an artist’s merchandise from the same page where they  are streaming their album or buying their tickets? There is a complete disconnect between where most music is discovered today, and the $2.2 billion in annual merch revenue.  The vast majority of merch is sold at the venerable merch table at any given concert. Why not make the effort to expand that experience into the digital realm? An alignment of merch distribution with the direction that the overall music market is headed would serve artists and merch companies extremely well, and potentially unlock a flood of new revenue.

Merch is Analog

Most artists sell 85% or more of their merch directly at live shows at the merch table. As effective as they are, merch tables can stand to be improved on in the digital age.  For example:

– Fans have to know where the merch booth is.

– Why stand in line when you can order from your seat?

– What if the merch guys don’t have your size or color preference at the table?

– When you buy merch at a show you have to hold it and take it home. Do you want it delivered instead?

– What if you want a bundle of something physical and something digital.  Is this easy to buy?

– How about something personalized for you, or something bigger than you can carry home?

There hasn’t been much innovation at the merch table at all, except for perhaps using Square readers to process credit cards. I wonder if the major merch vendors of today are going to be blindsided by technology and the changing habits of music consumers in much the same way that the record labels were hit.  Merch is extremely difficult to digitize.  But the sales of merch are not.

Tons of artists have web stores attached to their web sites and Facebook pages.  Companies like Reverbnation and Bandcamp can help independent artists manage their merch on their web stores and spread the merch offer out via social media to numerous outlets.  There are many businesses such as Bandmerch and Cinderblock, JSR and Bubbleup addressing this niche, providing fulfillment, webstores, warehousing and shipping services.

But the problem with this approach is that fans need to navigate to an artist’s web site and find the merch for sale and be ready to buy.  Today only 15% of merch is sold online.  New companies like Merchluv, which I am an investor in are about to blaze new trails in digital merchandising. The reason to do this? Grow overall revenue.

The large merchandising companies are very aware of the opportunities of snaring a hot band and bringing their merch to market effectively.  The holy grail of this is the long-term sales possible from mega-popular bands over time.  Anyone want to guess how many Dark Side of the Moon T-shirts have been sold?  Companies like Old Glory have been licensing artist merchandise for decades.

Now we can argue whether there will ever be another blockbuster band like Pink Floyd or the Rolling Stones or Metallica – but if there is going to be significant revenue in the music market of the future, merchandise is going to be a huge contributor.  Merchandise might possibly become the single largest revenue generator for artists of the future. You have to think big here and broader to see what I am talking about.

When artists today are being pulled in various directions to run their businesses, create, act, teach, write and express themselves and interact with their audience, what could be better for supporting a career than a good merch strategy?  Think about the merchandising empires built by Jimmy Buffett, Jay-Z, Puffy, 50 Cent, the Grateful Dead.  The merch is the tail wagging the dog and it has made these artists a fortune.

For musicians in the digital age, revenue needs to come from something than other the recording itself.  To some extent this has always been true, but never more so than today.

Creative Explosion

My friend Todd Siegel and partner in Merchluv tells me that these days creating innovative merch and finding things that resonate with your audience is easier than ever, and many clever artists are using fan sourcing and crowd sourcing options like Talent House and Creative Allies to design merch with their fans.  Once you have a design, you can use sites like Zazzle to test ideas for new products without investing in inventory up front.
Bands like Insane Clown Possee (ICP) have created a cult-like brand through the use of iconic imagery and building a strong following by involving their fans.  The Misfits have sold more merch than music because of that iconic skull that people buy because the merch itself is cool and fashonable.

And talk about branding, take a look at what Deadmau5 is doing with the goofy mouse head. This guy has merch everywhere and may just overtake Mickey Mouse in brand awareness across teenagers.  Even if you have never heard him perform, you know who he is.

Beats by Dr. Dre is another example of merch that has gone over the top and transcended the music entirely to become a lifestyle product that in some respects is becoming a big part of the music industry.  This in only a matter of a few years.

The brainchild of artist/producer Dr. Dre and Interscope Chairman Jimmy Iovine, Beats is bringing high-quality audio to fans through their headphones, sound systems, and now the recently acquired MOG digital music service. Dre has taken a brand established as a recording artist and is in the process of turning it into the music industry of the future, through a grand merchandising strategy.

Conclusion

In the face of declining recorded music sales, many of us are looking hard at the opportunities for generating money in music today. Most of the investment from VCs, Angel investors or Private Equity in music has been in streaming music, discovery, ticketing, crowd funding and artist services. Businesses like Pandora, Spotify, Beats, Ticketfly, Soundcloud, Songkick and Indiegogo all have received significant investments in recent years.

There are two ways that bands have always made money. One is by performing and the other is by selling merchandise. Both are tried and true methods, difficult to download or duplicate, and solid and reliable opportunities.

Why have hundreds of millions of dollars in venture capital been poured into online music services in the face of severely declining recorded revenue, when one of the most profitable parts of the music business—namely merch—been largely ignored by investors? Wouldn’t it make more sense try to increase sales of an already healthy and expanding market segment, ripe for disruption?

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Digital Music Stats

This video from James West and Len Henriksen shows that the consumption of music has come along way since the days of vinyl records. But now with all the digital variants of music available to anyone with an internet connection, what has become of the stability of the industry and the ability of artists’ to make money?

To sum it up, while digital consumption has absolutely exploded – the revenue per download, or spin, or play has collapsed. Data is from 2010.

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India Provides a Glimpse into The Future

All markets are not the same.  Most people in India have not had access to high-speed Internet or a PC. The wired broadband penetration of India stands at about 13 million subscriptions and there are only 50 million PCs in the country. Very few Indians have broadband or a PC of their own.

3G expands consumer audience by 100 million listeners

Despite the lack of broadband and PC penetration, there are currently 121 million Internet users in India. Guess where they are? Mobile. With the rollout of 3G in India, access to high-speed Internet has become cheaper and more widely available. People don’t need to own a desktop computer to get online or, most importantly, to participate in e-commerce — all they need is a mobile phone.

The mobile model — and by extension, the mobile music model — scales. It took broadband 7 years to reach 11.5 million wired subscribers. In less than half that time, 3G subscriptions in India topped 13 million, and that number is rapidly growing. There are 884 million mobile users in India, and as smartphones flood the market, more of them will be making the switch, becoming not just first-time smartphone users, but first-time Internet users as well.

Already, 59 percent of mobile web users access the Internet via mobile only. A study by the Boston Consulting Group predicts that the total number of mobile Internet users will balloon to 237 million by 2015. It is connectivity, now more than ever.

Advertisers, rather than end users, are footing the bill.

Brands are embarking on the biggest consumer grab of the century as China’s and India’s multi-billion audiences rise in economic status. Thousands of brands are competing to become the future soda, life insurance and auto brands of this part of the planet. That’s a major influx of ad dollars looking for a scalable way to engage consumers.

Asking consumers to shell out 15 to 25 rupees for a song online was unrealistic when pirated options were widely available for free. But as legal sites gain popularity and engagement numbers soar, major brands are ready to spend their advertising dollars on digital music Web sites and apps, so music services like Saavn, Smashhits and Ragga provide large catalogs of ad-supported music for free.

The benefits are abundant for the brand advertisers, end users and record labels; the end user gets something customizable and valuable for free, while major brands can finally capture the attention of one of the world’s largest emerging markets.

So what made advertisers change their minds? Piracy.  Piracy is being addressed in India via the ISPs — in February, the High Court of Calcutta handed down the decision to ban the pirate site songs.pk on major ISPs. This is a move that many have hoped to see in other territories, and India is stepping up to address the issue directly via the ISPs.

While pirated music is still an issue in India, legitimate and fully legal music streaming Web sites and apps are restoring the faith of advertisers, meaning a huge new audience for advertisers, profits for the music labels from brands with deep pockets and top-notch quality for users.

Digital means data

Labels are excited that they can finally reach audiences who are passionate about their niche content, thanks to the kind of targeting that digital platforms make possible from user data. It’s especially great for indie labels, who now have fast entry to market and an opportunity to get in front of the right audience, despite not having the major-label marketing moolah.

Thanks to the wealth of data digital music supplies, the Indian music industry can get the right music to the right people at the right time. No need to make assumptions based on demographic information or guess what people will like. Data provides the ultimate customization tool for an industry in which customization and understanding the preferences and tastes of the end user is key.

This is the moment the music industry in India has been waiting for; it can finally focus on its core business — producing music — while advertisers happily foot the bill. And users get to sit back and enjoy, share and discover for free.

Read the original article as published on All Things D.

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Slow Growth for Digital Music.

A new survey from the Gartner group shows digital music revenues forecast to grow less than 5% per year.  This is close to flatlined if you factor in inflation.  Not good news for most of the world.

■ Online music revenue from end users will grow more than 31% by the end of the forecast period: from $5.9 billion in 2010 to $7.7 billion in 2015. By comparison, consumer spending on physical music (CDs and LPs) is expected to slide from around $15 billion in 2010 to around $10 billion in 2015.

■ Online music subscription services, such as Spotify, will be the main growth sector in this market, showing fivefold growth from 2010 to 2015. A la carte sales will drive the bulk of overall revenue.

■ The highest growth rates will be in regions such as Latin America and the Middle East and Africa, which have not historically been strong in paying for tracks or albums from online services or stores (although perhaps stronger in paid-for ringtones from their service providers).

digital music sales chart

Read more from Gartner here.

Musician Economics 101

musicians&money

From Hypebot.  It’s no secret that the amount of money artists are earning from recorded music is declining.  But by how much? And as digital sales replace physical and streaming music gains traction do the numbers shift in the artist’s favor?  Infographic created by David McCandless of Information Is Beautiful from a spreadsheet of data.

Future of music tag cloud

Another Wordle rendering.

This is how Wordle sees my blog

This is how Wordle sees my blog

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Online Music Royalties

Many people have asked me to explain the current status of royalty payments for online music.

A thorough discussion of this past year’s agreement on mechanical royalties was produced by my friends at the Future of Music Coalition.

There is also a good summary on the meeting of the Copyright Royalty Board this past fall here.

The royalties that songwriters receive from CD sales and digital downloads will remain the same, the same for both media and the same as the current rate: 9.1 cents per song. The rate for ringtones will increase to 24 cents a song, above even the 15 cents songwriters and publishers lobbied for.

However there is still great unease with the direction that things are headed on the part of online webcasting and streaming music services as they look into the reality of making payments at these levels. Pandora, NPR and others seeking a new structure want rates to be set as a percentage of total revenue, similar to how royalties are assessed for satellite radio or subscription music services. At the very least, they want a system that will favor webcasters big and small.

Webcasters are required to pay an escalating fee to copyright owners every time they play a song for a listener. This year, for instance, Web radio stations are supposed to pay 14 hundredths of a penny ($.0014) per song streamed, per listener; site operators figure that will cost them about 2.1 cents per user, per hour. That is a figure that most webcasters simply cannot afford to pay, since most sites are advertising supported and do not generate enough revenue to pay the license fees and operate their businesses. Read more from All things Digital here.

We will see what happens in the next month or so as things come to a head.

Music Ally’s predictions for digital music in 2009

Artists will kick off about digital rights

Several artists have already clashed with their labels over digital royalties – for example the Allman Brothers Band suing UMG – but expect more rumbles in 2009. Not least because artists are potentially getting stiffed when it comes to the raft of new deals being signed by labels for unlimited, subscription-based or ad-supported music services. Expect managers to be pressing for fairer remuneration from these deals, with new bodies like the UK based Featured Artists Coalition to the fore as well.

More unlimited music services

Comes with Music (UK) and TDC Play (DK) were just the start. There’ll be many more examples of unlimited music being bundled with other products or services around the world in 2009. The unique aspect of these new models is that consumers appear to get the music for free; and ISPs, handset companies and brands are all taking an interest. We also expect to see DRM-free files becoming a selling point for these services if they can persuade the major labels that they won’t spur piracy.

ISPs under more pressure

One of the reasons ISPs are so keen to launch branded legal music services is the pressure they’re facing from the music industry to do more to combat file-sharing. And by that, we mean more than send out ‘educational’ letters scolding persistent file-sharers for their naughtiness. We predict more filtering at ISP level, if they can find filtering technologies that actually work. Meanwhile, we wonder if the recent Danish lawsuit in which an ISP was ordered to block access to The Pirate Bay will set a precedent for other markets.

The industry will wake up to web-based piracy

We wrote about the growth of Rapidshare and other online locker services last issue (27th Nov 2008), as well as the ecosystem of blogs showing people where to find copyrighted music on them. Web-based piracy – including browser plug-ins as well as these locker sites – will be much more on the music industry’s radar in 2009, even though industry bodies may prefer to keep focusing on P2P and BitTorrent in their public utterances on The Fight Against Piracy. There could be more GEMA-style legal action against the Rapidshares of the world, though.

The Torrent tipping point

BitTorrent is still a bit geeky, even though plenty of consumers are using the technology to download free music, films and TV shows. But in 2009, there’s something of a perfect storm building, with more users sitting on super-fast broadband connections, and more inventive ways of helping them find copyrighted content. If you think BitTorrenting is about downloading individual tracks or albums, think again: nowadays, people are downloading artists’ entire discographies at the click of a button.

Streaming and downloading to converge

You’ll hear a lot of blather in 2009 about The Cloud – the idea of accessing stuff stored online from any device you like. The impact on music next year will be to accelerate the blurring of the boundaries between streaming and downloading music. For example, iTunes might evolve into a cloud-based service, allowing people to stream their iTunes library to whatever device they’re using at the time, over whatever network it’s connected to. Third-party software already allows this, of course. The point is that consumers increasingly don’t care whether their music is stored locally or remotely, as long as they can listen to it right now.

Comes With Music to grow slowly

Nokia’s unlimited music scheme won’t definitively succeed or fail in 2009, but we will get a good sense of just how sustainable it is as a business model. It’s no secret that Comes With Music will roll out on more sophisticated handsets than the launch 5310 XpressMusic, and likely with at least one large mobile operator. However, we sense that Nokia may push the scheme more in emerging markets than in, say, the US. Watch for developments in Latin America in particular. We also have a mischievous thought that Nokia may ‘sign’ its first band in 2009, becoming a pseudo-label.

More DIY social media campaigns from artists

We expect artists and their managers to take social media by the scruff of the neck and dream up some really good online viral campaigns in 2009, alongside the efforts of their labels. Artists will be using the web in innovative ways because they’ve grown up with it, not because they’re following some kind of Web 2.0 marketing template. Although there’ll be plenty of people following Web 2.0 marketing templates too, in an effort to copy the (inevitably) more successful grass-roots stuff.

More high-end physical product

People don’t want to buy $15 CDs, but they are happy to buy an $80 luxury box-set collectible… things. Radiohead and NIN showed that, while US country-pop singer Taylor Swift has recently been doing great business with her own $60 luxury box set (sold off her own widget, incidentally). Labels will spend 2009 trying to shore up their physical revenues with more imaginative collections, whether it’s five albums bundled together, or an entire artist’s discography in a Blu-ray box-set.

Microsoft will launch a ZunePhone

It may or may not have the Zune brand attached, but we’re confident that Microsoft will get into the mobile handset game early in the year, likely at CES (January) or Mobile World Congress (February). The rumours are pointing to a consumer-focused handset with an emphasis on music and messaging. We also predict hundreds of ill-advised claims that whatever comes out is an iPhone-killer.

More mini-albums and live EPs

The album isn’t quite dead yet – indeed, Amazon is actively promoting the idea of buying whole albums from its MP3 store. But we predict more mini-albums following in the footsteps of Coldplay’s Prospekt’s March, filling the gaps between major releases. Although whether that’s a positive trend or an example of fleecing fans for songs not good enough for the album is a matter of some debate. Meanwhile, intense competition among digital stores will see more exclusive live EPs and remix packages, thrown together to get homepage promotion.

Subscription services are dead

At least in the form we’ve understood up until now. The only way for services like Napster and Rhapsody to survive is by being bundled into the price of other products – home streaming systems, maybe, or mobile handsets, or computers. In short, they’ll shift to being unlimited music services akin to Comes With Music or TDC Play, as part of a bigger offering. The only company that can make subscription work in 2009, we predict, is Apple. If it chooses to.

Streaming startups thin out

Can you really turn a profit from ad-supported streaming music? If you can, why are so many of the popular sites up for sale? 2009 could be a harsh year for the iLikes and Imeems of the web, despite their millions of VC dollars, millions of users, and seemingly firm partnerships with major labels. We see many of these services selling up to larger companies who can afford the royalty payments, in the face of competition from CBS-backed Last.fm and Murdoch-backed MySpace Music.

The next Radiohead won’t be Radiohead

But at least one big-name artist will do something innovative in the digital space, probably after leaving a major label at the end of their contract. But it won’t be the same honesty-box offering as with Radiohead’s In Rainbows. We’ll be keeping an eye on firms like Topspin Media or Mubito and the artists they’re working with to try and figure out what the innovation will be.

The next Rick Astley won’t be Rick Astley

There’ll be another forgotten artist revitalized by The Power Of Viral Internet in 2009, following the rickrolling craze this year that led to Rick Astley being named best artist ever at the MTV Europe Awards. Who it’ll be is another question. Our suggestions include Tiffany, Jive Bunny, Ted Nugent and Menswear. Or all of the above.

Labels will intensify their Direct to Consumer efforts

The majors have been notably unsuccessful in selling digital music direct to consumers in the past, but EMI’s launch of a D2C website this month show that they haven’t given up on building direct relationships with fans in this way. However, the interesting aspect here isn’t huge all-encompassing portals selling a label’s entire catalogue, but more the slicing and dicing of this catalogue and monetizing it better.

The growth of emerging markets

We’ve already mentioned how Nokia may target emerging markets next year; but with the recession biting in the west in 2009 we expect to see stronger performance coming from Latin America; the BRIC countries (it’s an acronym you’ll need to know in 09) and Africa where mobile is seeing huge growth.

From Music Ally, a great digital music information service.

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The Rise of Free Music

These days there are hundreds of options for acquiring music from free legal download and streaming services. Many of these sites offer streaming and/or downloading options. Some are up there for the love of music, some are driven by advertising and some are building business models behind the scenes. They are alternatives to paid services like iTunes, Rhapsody and Napster.

There are an ever expanding number of these services that offer great music from both established and emerging artists. Free Geekery has compiled an interesting list of 100 of these sources for your music enjoyment. Happy listening.