At present, there are three distinct music industries: radio, on-demand music, and concert ticketing. However, we are starting to enter a new phase, where these industries will converge and produce one integrated experience for artists and fans. I’ve taken to calling this full stack music, because at heart it speaks to a holistic experience that integrates these industries through data.
The integration of these three, previously distinct industries will produce a richer experience for artists and fans, unlock a ton of additional subscription, ticketing and advertising revenue for artists and create a better experience for fans. It will resolve the central tension between fans, artists and technology companies that so much ink has been spilled about.
Three Distinct Music Industries
There are three main businesses of music:
Radio. Radio is where music discovery happens, and where the majority of casual music fans engage with music. Ninety-two percent of the U.S. population listens to music at least once per week; on average, they listen for 15 hours. It is critical to artists because a radio station decides which track a fan listens to next, and so radio has an incredible ability to drive new artist discovery. Radio is primarily monetized via advertising, generating $45 billion/year. It also is the primary channel for marketing concerts.
On-Demand Music. This is when the listener decides exactly which song comes next (unlike radio). It started with vinyl, migrated to CDs, migrated to iTunes and finally has migrated to on-demand streaming services like Apple Music, SoundCloud, Spotify and YouTube. Monetization used to be in the form of direct spend (buying a CD); it is now a mix of advertising and subscription.
Concert Ticketing. Paying to see your favorite artist live. This used to be a side business for the music industry. However, over the past 10 years this has expanded to become the main event, growing from $10 billion in 1999 to $30 billion in 2015 in gross ticket sales. It is where artists make the majority of their income — typically 70-80 percent. Most of the growth has come from increasing ticket prices — 50 percent of concert tickets go unsold and attendance has not increased anything like as fast as prices.
These industries have been loosely coupled in the past. Going back to 1999, the record company would use radio as a way to get fans to discover a new act, then monetize that investment, primarily via selling “on-demand” access in the form of CDs and, finally, drive additional discovery by subsidizing touring (known as “tour support;” a label would underwrite some of the cost of touring to help build an audience to whom to sell CDs). Touring represented a small percentage of artist income.
It’s not impossible to imagine a time when you could possibly buy tickets directly from your favorite artist right inside your streaming service.
The industries were also coupled at a corporate level at one point, with ClearChannel. Over the course of many years, a massive roll-up of local U.S. radio stations resulted in ClearChannel. That rolled-up business exists today as iHeartRadio, with 850 local stations and 245 million monthly unique listeners. In parallel, a roll-up of local concert promoters produced a new touring behemoth, SFX Entertainment, and the two businesses — radio and concert promotion — were merged in 2000 to form a new conglomerate. The goal was to combine the No. 1 channel for concert discovery (radio) with the No. 1 promoter of concerts (SFX).
Eventually, these businesses were separated into Clear Channel Communications (iHeartRadio) and Clear Channel Entertainment (LiveNation). Subsequent to that, LiveNation embarked on a huge project of vertical and horizontal integration and, at this point, is the world’s largest artist manager (Maverick/ArtistNation), the world’s largest primary ticketing company (TicketMaster), the world’s second-largest secondary ticketing company (TicketMaster+) and the world’s largest festival owner, venue owner and concert promoter.
Internet Music: Radio And On-Demand Converge
We have seen a massive transformation of the recorded music landscape — with the growth of iTunes/Apple Music, Deezer, Pandora, SoundCloud, Spotify and YouTube — to the point where more than 1 TRILLION tracks are now streamed online across these services each year. The line between radio and on-demand is rapidly blurring across each of these services:
- SoundCloud and YouTube both autoselect another track to play when the one you searched on-demand finishes — that is, a radio experience.
- Pandora, historically a pure radio service, has started to enable whole album streams on-demand.
- Spotify has shifted from a pure on-demand model to offer a radio experience very similar to Pandora, where you can select an artist and listen to a radio mix based on that cue. Every Monday now, Spotify will provide you with a personalized radio stream of songs you might enjoy, based on your listening history.
- Finally, Apple Music has taken this integrated approach the furthest, with a live on-air radio experience seamlessly integrated with a library based on demand experience.
At the same time, discovery of local concerts has started to transform — rather than generic emails about all the tickets on sale in Los Angeles, new services like Bandsintown and Songkick (which I co-founded) will send you personalized alerts whenever the artists you listen to on these music streaming services announce a local show. These concert discovery apps now reach more than 20 million fans each month, and are more personalized and convenient way to find out about concerts.
The Next Phase: Streaming And Ticketing Converge
Leading artists have started to articulate the extent to which streaming music and ticketing are becoming joined at the hip. For example, Ed Sheeran:
“I’m playing three Wembley Stadium (shows) on album two. I’m playing sold-out arena gigs in South America, Korea, south-east Asia and Australia. I don’t think I’d be able to do that without Spotify or if people hadn’t streamed my music. My music has been streamed 860 million times, which means that it’s getting out to people. I get a percentage of my record sales, but it’s not a large percentage, (whereas) I get all my ticket sales, so I’d much rather tour. That’s why I got into the business — I love playing gigs. Recording albums, to me, is a means to an end. I put out records so I can tour. For me, Spotify is not even a necessary evil. It helps me do what I want to do.”
Over the next few years we will see this connection between streaming and ticket sales become completely explicit. Streaming services will increasingly make it seamless for fans using their services to see when the artist has a local show; Songkick’s existing API partnerships with Deezer, SoundCloud, Spotify and YouTube are hints at what this could look like. It’s not impossible to imagine a time when you could possibly buy tickets directly from your favorite artist right inside your streaming service.
When that happens, artists will finally be able to see a connected picture of how their music is distributed and monetized. An act who gets 100 million streams will see that 10 million of those were monetized via paying subscribers, 90 million by ads and another 5 million fans via ticket purchases. The outcome will be a more seamless experience that results in casual music fans attending more concerts.
This is a big deal — only 20 percent of Americans attended a concert in the last year, and the biggest reason for not going is that they didn’t know when shows for their favorite act were happening. This will finally create firm alignment between artists and music streaming services — to the point where all acts will see the explicit and causal relationship between an ad-supported online radio stream and a paid ticket purchase, as Ed Sheeran does.
This is just the start, though. Along with joined up analytics for artists, fans will be offered new propositions that tie together live and recorded music experiences. For example, imagine if all streaming music subscribers were offered lower booking fees on ticket purchases — creating another reason for fans to subscribe rather than use an ad-supported service, and driving faster growth in subscription income for artists.
After the show, the set list will immediately be available on your streaming service of choice, further helping to reinforce the connection you have built to that artist and increasing the likelihood of buying merchandise from the gig. Finally, tour routing will be impacted by the data from streaming services similar to Spotify’s recent experiment with Hunter Hayes:
“Hayes turned to Spotify to help him route the tour. The online music streamer crunched its numbers and determined the college markets where the country star is the strongest. Hayes’ biggest fans in the target markets will receive pre-sale access. His top 21 fans in each market will receive such prizes as early entry, meet-and-greets, signed memorabilia and other goodies. The fan who streams Hayes’ music the most in each market will be awarded a one-year sub to Spotify Premium.”
The key point across all of this is that the central, most valuable asset of streaming music services will be the listener data they generate. As we shift from offline radio to online streaming, artists will know how those 1 trillion tracks of music were streamed — which fan listened to them, where they were based, which concert tickets they purchased in the past — and be able to tailor personalized and richer experiences to their fans.
The integration of these three, previously distinct industries will produce a richer experience for artists and fans.
That is an incredible shift compared to the data-poor ecosystem of 1999. The trend will only continue, as more and more offline listening (in particular, terrestrial radio) migrates to online streaming. Once that is fully complete, we will hit 5-10 trillion streams, and these shifts will be even more critical. Zoe Keating, one of the most visionary artists I have the pleasure of knowing, has been saying this for a few years now:
“I want my data and in 2012 I see absolutely no reason why I shouldn’t own it. It seems like everyone has it, and exploits it…everyone but the creators providing the content that services are built on. I wish I could make this demand: stream my music, but in exchange give me my listener data. But the law doesn’t give me that power. The law only demands I be paid in money, which at this point in my career is not as valuable as information. I’d rather be paid in data….The new model says that in the future I’m not supposed to sell music: I’m supposed to sell concert tickets and t-shirts. Ok fine, so put me in touch with the people who will buy concert tickets and t-shirts.”
There are signs that this integration is coming — Pandora appointed the former CEO of AEG Live, the world’s second-largest promoter, to their board, and have started to experiment with concert marketing — for example, campaigns to promote tours for the Rolling Stones and Odesza. Global Radio, the largest terrestrial radio company in the U.K., has expanded into artist management and concert promotion, again hiring key execs from AEG Live. Apple Music is broadcasting on Beats 1 all the shows from their upcoming festival, and is encouraging the artists they book to share information about their performances on Connect.
We are in the early stages. Eventually we will know not just how many streams are generated per artist, but how many ticket sales resulted. If this deeper integration of streaming and ticketing results in one ticket sold per 5,000 streams, then we’d know that 1 trillion streams generated 200 million tickets — at an average face value of $50, this would be $10 billion in ticket gross — equivalent to the revenue from 100 million subscribers paying $8/month. It would also have the consequence of making Apple, SoundCloud, Spotify, Pandora or YouTube new power players in ticketing.
Artists will start to focus on promoting the service, which in aggregate generates the most ad, subscription and ticket revenue, which in turn will drive further growth in online listening. We’re about to watch the next big shift in online music play out as we move from three separate music industries to Full Stack Music.