Once upon a time, when consumers bought cd’s, there was almost no way to find out who that fan was. There was no way to understand what songs they skipped over or which ones they replayed for hours on end.
Now that music is streamed online, it is possible to get to know a fan like never before. This information is becoming increasingly valuable for enhancing all aspects of an artist’s career from marketing to discovery. However, for the independent sector, getting access to the fan data that the independent’s need is a challenge, for two reasons. First, the vast majority of artists, labels and managers do not own their consumer information because they don’t own the platform on which it was streamed. Second, in order to access this information, they need bargaining power which, unfortunately they lack. Bargaining clout is determined by a label’s overall market share of recorded industry revenue, which depends upon distribution. For these reasons, the independents have little bargaining power in a time when consumer data is becoming a fundamental tool of survival.
Ownership & Access
In order to address the first challenge, let us look at a cross-industry example — Netflix. Netflix is known for using its own consumer data to steer successful decisions from marketing to licensing original content like Narcos, House of Cards, and Orange is the New Black. It is producing hits and has grown to have over 70 million paying subscribers. Its success is partly the result of its market landscape.
Pretend for a second that Netflix is a region, controlled by one ruler, separated into four states: Content, Distribution, Measurement, and Consumption. Any activity that occurs in that region is owned and accessible by the ruler. This consumer data is so vital to the ruler’s success, that it is considered as valuable as gold.
If you break Netflix into four separate regions, you get the world of online music.
This article tells the story of the independents’ battle in this world as a parable of four characters: the Royal family, known as The Majors, The Streams, The Independents, and, of course, Robin Hood.
(The image above, is a snapshot of the market and is not exclusive to the companies listed above.)
When separated, the ability to freely access consumer data or gold disappears. Who controls the gold is dictated by the region in which consumption occurs, this gold-controlling group is known as The Streams. The three most powerful states in Content; Warner, Universal and Sony are referred to as The Majors. The Streams have signed trade agreements withThe Majors, granting them access to the gold. In the world of online music, your share of land dictates your bargaining power. Since The Majors own the vast majority of content and distribution, they not only have access to data, but are granted shares of land from certain streaming states. According to MIDiA and WIN (a representative trade association), the independents control 37.6% of content, however their bargaining power sits at 20% as some Independents have struck distribution deals with the Major Labels. Independents own no land in the Region of Distribution, and rely on alliances with third party countries like CD Baby, The Orchard, Ingrooves and TuneCore.
Gold & Independents
While the focus of the independent sector has been on transparency of royalties payments and the low pay-outs, for most, the sales yield from streaming is minute compared to other revenue streams. From routing a tour, to encouraging radio placement, to movie placement or even closing a brand deal, consumer insights can identify and solidify those opportunities.
The Paradigm Shift
Recognizing that consumer data is as valuable as gold, the states governing Content and Consumption have begun acquiring parts of Measurement, in an attempt to become the superpower of their Region. Each Region is driven by different motivations, so they look to Measurement for different outcomes.
Between 2014 and 2015, The Streams took over the The Measurement states that were known for music analytics and consumer insight. Pandora acquired Next Big Sound, Apple Music acquired Musicmetric and Spotify acquired the Echo Nest and Seed Scientific. These take overs have helped to fuel music recommendation and discovery engines, which drive subscriber retention and growth.
Due to trade agreements, the Majors receive gold from the Streams, resulting in statewide restructuring and a series of takeovers in the land of Measurement. Sony, Universal and Warner developed internal departments and platforms to filter consumer data and distributed the findings within each state.
For a while, it has been known that The Stream’s playlists are powerful tools for broadcasting music, similar to traditional radio. The biggest difference, is the increased ability of Content owners to measure and target who is listening. This drives streams and increases market share and has motivated the following take-overs: Universal’s acquisition of Digster, Sony’s acquisition of Filtr and Warner’s Acquisition of Playlist.me and Topsify.
The Trading Posts
Meanwhile, The Streams have created trading posts that provide fan information to Independents as well as The Majors. From Apple Music’sConnect to Spotify’s Fan Insights to Pandora’s Amp Cast, these platforms evolve around the notion of connecting artists with fans. Most of these platforms are still in beta, so in the short term, it is still unclear as to the impact they will have.
It appears that the Independents have got the short end of the stick, but their lack of access has created an opportunity for Robin Hood-like characters to provide silver instead of gold. Silver represents consumer data from social media. These characters include but are not exclusive to: Crowdmix, Bkstg, Audience, and Hive. In reality, they represent direct-to-fan platforms, which provide consumer data from social media, as well as an online community on which to apply this information, and connect with fans. In 2015, Crowdmix and Bkstg raised over $41 million in seed funding prior to launching, and Crowdmix hired Universal’s former head of digital, Rob Wells, as their CEO. These events further validate the need in the market for this type of service.
It is important to mention that a neighboring island, not shown on the map, called Buzz Angle, provides independents and majors with analytics from sales, streaming and airplay activity. Distributor and label specific dashboards can also show their percentage of market share.
Uneven distribution of bargaining power is no new concept in the land of music; it has been a long-standing tradition. While The Streams control access to the gold, The Majors sit knighted at the round table with The Streams because they own a significant portion of content and distribution.The Independents own a small portion of content, leaving them with limited access to the gold, creating the need for a Robin Hood of today. This situation does beg the question: why isn’t there a representative of theIndependents sitting at the round table with The Streams and The Majors?
As Netflix demonstrates, the more content, distribution, consumption and measurement can be controlled by one ruler, the greater the bargaining power and the more effectively consumer data can be integrated by that ruler.
When it comes to the importance of consumer data, the writing is on the wall. The best thing to do at this point, would be to read it.
Illustrations by Courtney Menard & designed by Kristin Westcott Grant.
This article is the first of a content series called, Orange. The series includes articles, videos, and podcasts highlighting changes in the music and technology space. The first podcast, coming soon, discusses, “The Evolution of Discovering a Hit From Traditional A&R to Predictive Modeling.” Interviews include: Spotify, Billboard, Next Big Sound, The New Yorker Magazine, and Republic Records.