The Future Of Music (The Industry Today & In the Next Decade)

This is the second in a series of articles focused on the future of media and entertainment (M&E). The first covered The Future Of Television, Movies & Mobile Video. Here, hot on the heels of Spotify's Q4 2019 earnings last week, I’ll cover the music industry - its current state, and where it’s going.

ACT I - SETTING THE STAGE

Change, disruption, transformation – all of it accelerating. That’s the story of our tech-transformed world of M&E. The music industry is no exception. Look at TikTok - one of the industry’s biggest stories last year. TikTok officially launched only a couple years back after swallowing up Musical.ly in 2017. Most in the U.S. M&E world dismissed TikTok as 2019 began. So did most U.S. consumers in TikTok’s target Gen Z demographic. But look at it now, only 12 months later as we begin 2020. TikTok is a major new social media force – and not just for music anymore. That’s how fast it happens. TikTok is Gen Z’s latest obsession.

Tech titan and new media mogul Meg Whitman – soon to launch mobile-first video service Quibi (about which I recently wrote) - underscored that point to me in my recent interview of her for Forbes. “You have nanoseconds to adapt now,” she cautions M&E execs. And to think that right now only about 50% of the world is connected to the Internet. Imagine five years from now when many expect virtually the entire world of 8 billion to be connected thanks to 5G. That inevitably leads to significantly more content demand and overall content consumption. That bodes well for all creators, including musicians.

ACT II - TODAY’S MUSIC WORLD & WHERE IT’S GOING

As we begin 2020, the music industry’s days of doom and gloom are officially over. Happy days are here again, as the overall global recorded music ecosystem continues to win big. Although final 2019 numbers aren’t in yet, 2019 is expected to represent five straight years of double-digit (or near double-digit) growth after decades of eviscerating losses. That doesn’t mean that all participants are happy, of course. Many artists and virtually all labels continue to bemoan streaming’s increasing dominance, even as that phenomenon drives revenues ever upward. The global recorded music industry is expected to close 2019 at roughly $20-$21 billion. Goldman Sachs glowingly forecasts today’s numbers will more than double to $45 billion by 2030 (a number that does not include the separate global live music market that Pricewaterhouse Coopers forecasts to reach $31 billion by 2022 - just two years from now).

The State Of Music Today

Streaming is recorded music’s dominant force, the power of which grows each year. I guess Apple’s Steve Jobs was wrong when he notoriously (and somewhat arrogantly) proclaimed, “The subscription model of buying music is bankrupt” and can’t be saved even by “the Second Coming.” Well, in the words of a Grinch-refuting Dr. Seuss (a very different kind of genius) “it came just the same.” Streaming now accounts for 80% of U.S. recorded music revenues. Consumers figured out that the difference between Steve Jobs’ version of music “ownership” (downloads) and “rental” (streaming) doesn’t really matter in a world in which we can now access 60 million songs ad-free for less than $10 per month. Let’s do the math. That privilege would cost you $60 million in Jobs’ download only world.

Spotify is very much like the Netflix of music. Spotify dominates the global streaming scene. The streaming giant just reported 271 million monthly active users as of the beginning of 2020 - a whopping 124 million of whom actually pay for the privilege. That number represents an envy-inducing 46% free to paid conversion rate (most consumer services’ mouths water when conversion rates reach 5%). But Spotify, like Netflix, is challenged by its streaming-only business model. Both companies continue to be significantly cash flow negative (Spotify is perhaps even more challenged due to its variable cost structure where it pays out a majority of each incremental dollar as royalties).

Apple entered the streaming game late, of course, due to Jobs’ lingering shadow. But Apple is now a major streaming force as well with more than half Spotify’s paid subscriber count in a fraction of the time. That’s the beauty of Apple’s massive and multi-tentacled marketing machine. Music and other content (movies, television) serve as marketing. So long as Apple scores big overall, content serves its purpose. Remember U2’s classic iPod/iTunes commercials? That’s Cupertino’s strategy. And that recipe is certainly working. Apple just reported record quarterly revenues of nearly $92 billion.

Don’t forget about Amazon (never forget Amazon!) and Amazon Music Unlimited. Or Pandora, SiriusXM and good old fashioned terrestrial. A shockingly high 93% of all U.S. adults still listen to AM and FM as they drive. And to all you M&E nationalists, remember that streaming is a global phenomenon that plays out in our brave new borderless Internet-driven world. Tencent Music joins TikTok as being another massive player out of China that has its sights on crossing borders and entering domestic consciousness’s. It raised $1.1 billion in its U.S. IPO a little over one year ago to fuel its ambitions.

Amidst all of this, however, YouTube remains the biggest global music force by a long shot. That’s where most kids get their audio fix. More than half of on demand music streaming flows through YouTube. And, unlike the other guys (including Spotify and Apple), YouTube only pays royalties on the ad revenues it collects. So it always wins.

The State Of Music Tomorrow

As Goldman Sachs underscores, music’s new “good old days” will accelerate in the years ahead - more than doubling overall recorded music revenues in the next 10 years. Revenue drivers include not only increasing streaming and globalization, but also new technologies and form factors. Our new AI-driven home assistants – friends like Alexa and Siri – make our enjoyment easier and easier. We can sit on our couches and simply call out for the music we want. Another quietly massive new force – wearables – accelerates things further. Earbuds alone already drive billions upon billions of dollars. Apple just reported revenues of $10.1 billion from its wearables unit, with AirPod sales leading the way. Bose Audio Sunglasses are another new form factor that point the way.

In terms of fast-evolving new forms of music engagement and monetization, the music industry is now smartly stealing a page from the playbook of other M&E sectors. Anticipate more gamification – with its “free to play” business model – to enter your music experiences. Yes, consumers can engage for “free” (supported by ads). But a healthy segment will pay, impulsively, as they engage. Tencent Music is an early mover here from which others can learn. Virtual tip jars scatter its audio world. And live streaming of music festivals, concerts, and artists with fans promises to deepen engagement and significantly extend consumer experiences. That means deeper monetization, of course. BulldogDM is the leading live streaming company and already delivers impressive results to many of the leading brands and media companies in the world, including AT&T, Apple, Netflix and Coke. 5G will only accelerate this live streaming opportunity.

We have only just begun to scratch the surface of the Internet’s long-promised music Utopia – a world that facilitates meaningful real-time direct artist-to-fan and fan-to-fan engagement. More music experiences will focus on music’s inherently social and tribal elements in the years ahead - on audiences who share similar artist and song tastes and passion. After all, passionate fans will happily pay almost anything to get closer to the artists they love. A new survey by Thinkwell concludes that nearly half of U.S. adults ages 18-64 are willing to pay $1,000 for that kind of experience. Fans also aim to meet other fans. In this vein, think of Tinder, but for music lovers. Use your phones to geolocate like-minded fans near you. Then, swipe left or right. One Los Angeles-based company, still in stealth mode, is taking that path.  

Separately, who can forget last year’s innovative Fortnite experiment with Marshmello where more than 10 million “watched” the DJ’s virtual performance live. Meanwhile, Wave XR already enables artists like Lindsey Stirling to hold live virtual concerts for thousands of fans who appear as avatars on screen and can directly message the artist (who can respond in real time). Over 400,000 “attended” Stirling’s virtual performance last year. Social music experience platform Redpill VR takes things even further by leveraging the power of virtual reality (VR) to enable you to dance with your friends right next to Diplo - all of whom may be thousands of miles away. Watch this company as it pulls back the curtain on exciting and transformational new experiences later this year. I am a believer.

The music industry’s overall growth is not all about technology though. Thankfully, there’s a human factor. We don't just live on facedown digital days after all. We increasingly understand – especially digital native Gen X & Y’ers – that live experiences increasingly matter. Real music-induced rubbing of shoulders (need to keep this PG-13 rated after all) are inherently more lasting than virtual experiences (and there’s still time to take a FOMO-producing “selfie”!). That’s why the world of live music grows so rapidly too. Pricewaterhouse Coopers predicts live music to reach $31 billion worldwide in just two years. Technology can further enhance and expand - and need not overwhelm - live experiences of course. Check out Cages in Los Angeles’s downtown arts district if you want your mind blown by the most compelling live musical experience today (watch the video here to get a taste of it).  

So put down your VR headgear, smart augmented reality glasses, and best friend mobile phone - and get out into the real (yes, the actual tangible offline world) world of music, in whatever flavor you like. Hey, you can still wear your AirPods.