Advertising
TikTok creates viral hits. YouTube is unparalleled in its ubiquity. But music subscription services pay the bills.
More than three out of every five dollars earned by U.S. record labels in the first half of 2024 — 60.2% to be exact — came from premium subscription services, according to the RIAA’s mid-year report. That marks the first time subscriptions exceeded a 60% share of total revenue, topping the 59.5% share in the first half of 2023 and the 59.3% mark for full-year 2023.
Ad-supported on-demand streaming, on the other hand, has lost momentum, growing just 2.5%, half the rate of paid subscriptions. The slowdown has been dramatic: Three years ago, advertising revenue rebounded from a pandemic slowdown by surging 54.1% in the first half of 2021 and another 17.7% in the first half of 2022. Its share of total industry revenue — 10.4% — has slipped, too, from 10.5.%, 11.3% and 10.5% in the three preceding first-half periods.
Other ad-supported segments also lag paid subscriptions’ growth rate. SoundExchange distributions, which include some ad-supported streaming as well as royalties paid by satellite radio subscribers, rose just 3.8% to $517 million. Other ad-supported streaming, which covers services not operating under statutory licenses, fell 1.5% to $155 million.
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The situation around advertising is worse than the numbers might suggest. Ad-supported, on-demand streaming isn’t confined to services such as Spotify’s free tier and YouTube. A new generation of platforms, such as TikTok and Instagram, are grouped into this category, too. Without these emerging platforms, ad-supported streaming would look even worse off.
For an industry that must constantly seek growth, advertising is too small to play the role. In the most recent quarter, Spotify got 12% of its revenue from advertising — both music and podcasts — compared to 88% from subscriptions. Even if advertising becomes a bigger part of the business, CEO Daniel Ek said during the company’s April 23 earnings call, it won’t be a major factor in helping the company reach 20% revenue growth. “Anything we can do on our subscription side will obviously materially outperform any improvement on the ad side,” said Ek.
Free music has played an important role in building today’s music ecosystem, though. In 2009, author Chris Anderson followed The Long Tail with a lesser-known book titled Free that promoted the notion that not charging for digital goods can be a wise strategy. While The Long Tail was a smash success, Free never rose to the same level of renown. But Anderson’s idea proved to have merit. The same year Free was published, Spotify launched a “freemium” music streaming service in the United Kingdom—the world’s third-largest music market—that utilized a free, ad-supported tier intended to drive listeners to the paid version. Ad-supported royalties were miniscule, but it worked as planned. Free listening turned out to be an effective tool to attract customers that would, at some point in the future, become some of Spotify’s 246 million subscribers.
The growth potential for the subscription business lays outside the U.S. Globally, subscription streaming accounted for 48.9% of recorded music revenue in 2023, according to the IFPI, more than 11 percentage points below the share in the U.S. (The RIAA reports retail value in the U.S. while the IFPI reports wholesale values for each market.) Worldwide subscription penetration is only 15%, Warner Music Group CFO Bryan Castellani noted during an Aug. 7 earnings call, “and there’s a lot of headroom to go from 800 million subscriptions today to well over a billion over the next five years.”
The future may be a combination of free and subscription. In May, Sony Music Entertainment CEO Rob Stringer called for streaming platforms to charge users of ad-supported tiers a “modest fee” to make free streaming “more than a marketing funnel” to attract customers. Stringer also called on short-form video platforms like TikTok, Instagram Reels and YouTube Shorts to step up their payments to rights owners. “More and more, these are primary consumption sources, and they need to be valued accordingly,” he said.
With subscriptions now exceeding 60% of U.S. revenue and advertising losing share, free platforms will likely come under more pressure to deliver more royalties. Until that happens, though, expect the industry to increasingly put its hopes for revenue growth in subscriptions.
In the mid 1990s, Jason Paige, then a struggling singer trying to break with his rock band, could make a solid living by writing Mountain Dew, Taco Bell and Pepto Bismol earworms for jingle houses that dominated the music-in-advertising industry for decades. But during an interview a few weeks ago, Paige — who ultimately became most famous as the voice of the Pokemon theme song “Gotta Catch ‘Em All” — fires up an artificial-intelligence program. Within minutes, he emails eight studio-quality, terrifyingly catchy punk, hip-hop, EDM and klezmer MP3s centered on the reporter’s name, the word Billboard and the phrase “the jingle industry and how it’s changed so much over the years.”
The point is self-evident. “Yeah,” Paige says, about the industry that once sustained him. “It is dark.”
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Today, the jingle business has evolved an assembly line of composers and performers competing to make the next “plop plop fizz fizz” into a more multifaceted relationship between artists and companies, involving brand relationships (like Taylor Swift’s long-standing Target deal); Super Bowl synchs worth hundreds of thousands of dollars; production-house music allowing brands to pick from hundreds of thousands of pre-recorded tracks; and “sonic branding,” in which the Intel bong or Netflix’s tudum are used in a variety of marketing contexts. Performers and songwriters make plenty of revenue on this kind of commercial music, and they’re far more open to doing so than they were in the corporation-skeptical ‘90s. But AI, which allows machines to make all these sounds far more cheaply and quickly for brands than human musicians could ever do, remains a looming threat.
“It definitely has the potential to be disruptive,” says Zeno Harris, a creative and licensing manager for West One Music Group, an LA company that licenses its 85,000-song catalog of original music to brands. “If we could use it as a tool, instead of replacing [musicians], that’s where I see it heading. But money dictates where the industry goes, so we’ll have to wait and see.”
This vision of an AI-dominated future in a crucial revenue-producing business is as disturbing for singers and songwriters as it is for Hollywood screenwriters, radio DJs and voiceover actors. “I just took a life-insurance-brand deal to pay for making my record,” says Grace Bowers, 17, a Nashville blues guitarist. “I’m definitely not the only one who’s doing that. Artists are turning to anyone they can to [make] money, because touring and putting out music isn’t the biggest money-maker. If Arby’s came to me and said, ‘Can you write me a jingle?,’ I’d say, Hell, yeah!’”
End of an Era
From the late 1920s, when a barbershop quartet sang “Have You Tried Wheaties?” on the air for a Minneapolis radio station, through the late ’90s, jingles dominated the music-in-advertising business. Jingle houses like Jam, JSM and Rave competed ferociously to procure contracts with major brands and advertising agencies. In the process, they created lucrative side gigs for rising talents for decades, like Luther Vandross, Patti Austin and Richard Marx, who, as jingle veteran Michael Bolton wrote in his biography, “all shook the jingle-house tree.”
“If you wrote a jingle that was going to be a national campaign, and you sang on it, you could make $50,000, and you could do three of those a year,” recalls John Loeffler, a singer-songwriter who worked on 2,500 jingle campaigns as the head of the Rave Music jingle house, before serving as a BMG executive for years.
John Stamos and Dave Coulier played jingle writers on ABC’s Full House. In this scene from “Jingle Hell,” Mary Kate or Ashley Olsen gives “Uncle Jesse” a high five.
ABC Photo Archives/Disney General Entertainment Content via Getty Images
The jingle era ended, for the most part, by the late 1990s, as TV splintered from four must-see broadcast networks to dozens of cable channels, followed by video streaming networks such as Netflix. (Steve Karmen, the ad-agency vet who wrote “Nationwide … is on your side,” authored what many consider the post-mortem for the era with his 2005 book, Who Killed the Jingle?) “I wish the young artists these days could have the opportunities I had,” Loeffler says. “It’s very different.”
Today, artists are far more likely to have broad branding relationships with corporations such as Target — Swift has appeared in commercials and the retailer has sold exclusive versions of her albums for years, and Billie Eilish, Olivia Rodrigo and others have made similar deals — than they are to write catchy ditties for TV and radio. “I personally haven’t heard the word ‘jingle’ in the lifespan of Citizen,” says Theo de Gunzburg, managing partner of Citizen, a five-year-old music house that employs studio artists to create original music for advertisers. “The clients we deal with want to be taken more seriously. The audience is more discerning.”
Citizen employs 10 full-time staff members, including five composers, to create original music for ad campaigns, and, like West One and many other music houses, maintains a library of licensable tracks. The company’s commercial work includes Adidas’ “Runner 321,” which juxtaposes Michael Jordan and Babe Ruth with clips of athletes who have Down’s Syndrome, all set to its own sports percussion tracks. Major music publishers also maintain in-house services for this kind of production music. Warner Chappell Music’s extensive online library includes a hip-hop-style track called “Ready to Fight,” described as “driving trap drums, electric guitar, bold brass, cerebral synths and go-getter male vocals.” WCM represents “specialized songwriters who like to write in short form” and “are also great at writing pop hits,” says Dan Gross, the publisher’s creative sync director, who previously was a music supervisor at top ad agency McCann.
Ba Da Ba Ba Ba
The prevailing catchphrase for music in advertising today is “sonic branding” — designing a brief musical calling card, like the Intel bong, which reflects the feel of a product and can be used in ads, promotions, app tones, TikTok and Instagram videos and even virtual-reality games. “The message of flexibility is really the key thing,” says Simon Kringel, sonic director for Unmute, a Copenhagen agency that has worked with brands such as magazine publisher Aller Media to develop catchy musical snippets that serve as what he calls “watermarks.” “The only chance we have is to make sure every time we interact with our audience, there is something that triggers this brand recall.”
Kringel avoids using the term “jingle” — “that whole approach kind of faded out,” he says — but the most memorable old-school jingles have taken on a classic-rock quality in recent years. McDonald’s 20-year-old “ba da ba ba ba,” “Nationwide … is on your side” and many others are repeated endlessly in TV-streaming commercial breaks. State Farm’s “like a good neighbor … “ remains the emperor of earworms, and the company deploys the Barry Manilow-penned jingle in strategic ways. Around 2020, says State Farm head of marketing Alyson Griffin, the insurance giant conducted a study about its own marketing assets. “They found 80% of people recognized the notes, 95% recognized the slogan — and when they put the two together, there was nearly 100% recognition,” she says. “We recently tripled down on the jingle.”
Similarly, Chili’s recently went retro, hiring Boyz II Men to update its ’90s “baby back ribs” jingle with a new advertisement. “Jingles don’t feel as modern as maybe brands want to be,” says George Felix, chief marketing officer for Chili’s Grill and Bar. “But there’s certainly still runway for jingles if you do it right.”
For now, brands are still spending copiously on advertising music of all kinds — and every once in a while, an actual jingle emerges. Temu, a new e-commerce company owned by a Chinese retail giant, will reportedly spend $3 billion on advertising this year, emphasizing its insanely catchy “ooh, ooh, Temu” jingle that aired during the Super Bowl.
Keeping an Eye on AI
Yet some in the commercial-music industry worry about what Paige’s punk-EDM-hip-hop-klezmer AI-jingle exercise portends. “Do I think the [AI] fears are overblown? No. Am I concerned? Yes,” adds Sally House, CEO of The Hit House, a 19-year-old Los Angeles company that hires composers, engineers, sound designers and performers for music in Progressive, Marvel, HBO and Amazon Prime Video spots. “We’re all waiting for copyright to save us and the government to do something about it.”
But Warner Chappell’s Shaw says his team receives requests for “custom compositions” because brands want to work with the publisher’s stable of A-list songwriters. “AI doesn’t really factor in for us in this instance,” he says.
At Mastercard, which underwent a two-year process to unveil a piece of mellow, new-age-y instrumental music as part of its sonic brand in 2019, AI may be useful for future ad campaigns. But not for creating music. Mastercard employed its own creative people, plus composers, musicologists, sound engineers and even neuroscientists, to work on its distinctive tone. “If I tell the AI engine who is the audience, what am I trying to create, what is the context, and ask it to compose something based on the Mastercard melody, it will do a very fine job,” says Raja Rajamannar, a classically trained musician who is the company’s chief marketing and communications officer. “But if I had to create the Mastercard sonic architecture, I cannot delegate it to AI. The original creation, at this stage, clearly has to come from human beings.”
Paige agrees. Even if AI ultimately takes a cut out of the space — and certainly out of the potential profits for writers — it won’t completely gut the need for real musicians making advertorial music. Classic jingles endure, he says, because they contain humanity and spirit — and because people “know there’s a human being behind the Folger’s theme song.”
A British advertising standards authority has partially reversed a controversial decision banning a Calvin Klein advertisement featuring singer/dancer FKA Twigs. According to the BBC, after the performer criticized the Advertising Standards Authority for “double standards” in claiming the image of the partially nude artist presented her as a “stereotypical sexual object,” the agency announced that […]
BTS‘ Suga is at his high-fashion finest in a series of new images from Italian fashion house Valentino’s “Narratives” campaign. The K-pop superstar who was announced as a Valentino brand ambassador in 2023 looks sharp strutting his stuff to the sound of camera shutter clips in a video announcing the campaign on Friday morning (Jan. […]
The modern music industry may run on subscriptions — streaming, satellite radio, Peloton, et al. — but it still depends greatly on the advertising business. Indeed, non-subscription-based streaming, along with social media and broadcast radio, continues to produce important royalties and licensing income for record labels and music publishers.
Unfortunately, 2023 was a lackluster year for advertising-based businesses, as brands held back due to economic pressures. The slowdown extended into the fourth quarter: Trade Desk, a digital advertising platform, warned in November that expectations for revenue growth in 2024 “may be premature.”
So, can people expect improvements in 2024? According to a new report by Mediaocean, the outlook is mixed: While some advertising-based businesses can expect more demand this year, others may not witness a rebound.
In November, Mediaocean surveyed nearly 1,100 marketers, ad agencies, media companies and tech platforms, among other companies, about how they expect to spend on various types of advertising in the coming year. The survey revealed that advertising dollars will continue to flee from legacy media — namely print and television — in favor of social media, digital display and video and connected TVs.
Social platforms such as TikTok top the list of predicted ad spending in 2024: 69% of respondents said they expect to increase their spend in 2024 on social media, while only 28% said they will maintain social media spending and just 3% plan to decrease spending. Social media has taken the biggest jump in the last two years. When surveyed at the end of 2021, 56% of respondents — 13 percentage points less than the latest survey — said they expected to spend more on social platforms, while the percentage of people who planned to maintain spending in 2022 was 10 percentage points higher at 38%.
Digital display and video advertising showed a similar breakdown to social media: 65% of respondents expect to increase, 30% plan to maintain and 5% expect to decrease their spending. Most respondents also expect to increase their spending for connected TV and search. These categories were little changed from the prior year.
Radio and audio advertising will fare about the same as last year: 24% of respondents expect to increase spending on radio and audio in 2024, down from 25% in 2023, while 54% of respondents plan to maintain their spending levels and 22% expect to decrease their spending. Going into 2023, 51% of respondents expected to maintain radio and audio spending and 24% planned to spend less. However, those numbers mark a distinct downward trend from 2022, when 61% of respondents said they expected to maintain radio ad spending while just 15% expected a reduction.
Given that data, radio companies that have both digital and broadcast businesses should fare better than those without a digital component – and they may already be seeing a recovery. Speaking at the Wells Fargo TMT Summit on November 29, iHeartMedia chairman and CEO Bob Pittman said the company’s digital advertising “seems to have already recovered” and that radio advertising will recover when brands see an economic recovery on the horizon. “Advertising tends to be a leading indicator,” he added. The same trend can be seen, albeit in a more negative direction, at Audacy, which faces a possible bankruptcy caused in part by lagging broadcast revenue: In the third quarter of 2023, spot and network advertising was down 8.9% year over year while digital revenue rose 3.4%.
TV advertising has taken the biggest fall over the last two years. Going into 2022, only 15% of respondents expected to spend less on local TV and 13% planned to spend less on national TV. Two years later, 33% expect to spend less on local TV and 27% expect to reduce spending on national TV.
Although audio streaming has eaten into the time people spend listening to radio, about 90% of Americans still listen to the radio each week. The same can’t be said for video, however, as video streaming has sharply reduced the audience for cable television. In the third quarter, the penetration rate of traditional pay TV — cable, telco and satellite — fell to 54.8% after those companies lost nearly 2 million subscribers, according to MoffettNathanson. That marks the lowest penetration rate since 1989.
That can be chalked up to the swift rise of video streaming platforms. In the third quarter, YouTube TV surpassed satellite company Dish Network to become the fourth-largest multi-channel video programming distributor. MoffetNathanson believes YouTube TV could surpass satellite company DirecTV for third place in less than a year.
The slowdown in corporate diversity, equity and inclusion (DEI) initiatives inspired the theme at this year’s ADCOLOR Conference: “Double Down & Double Up,” representing a call to expand DEI efforts in the advertising industry. And the speakers, nominees, and honorees at this year’s event — held Nov. 9–11, 2023, in L.A. — provided numerous examples of how different experiences, viewpoints and backgrounds expand the reach to audiences.
Since Tiffany R. Warren founded the conference in 2005, ADCOLOR has brought LatinX, Black, Asian, LGTBQ+ and disabled creatives to the forefront of a conversation that had long excluded them. The upbeat and informative event celebrated how far the industry has come, yet reminded attendees of the importance of sharing knowledge and opportunities to ensure that progress continues.
This year’s event was the first since the United States Supreme Court further weakened affirmative action policies in a decision handed down in June. A video highlighting the decision was displayed on video screens as attendees participated in panels and workshops, serving as a constant reminder of what was at stake.
In a panel titled “Men of Color in the C Suite,” Epic Records president Zeke Lewis, Mediahub executive vp/executive director Alejandro Claiborne and Billboard president Mike Van shared insight on what it means to be part of a rare club and the unique responsibility of being a trailblazer in the top job.
“Race and gender manifest differently,” Claiborne noted in response to a question about making space for women on their team. “My job is to advocate, to create a safe space…psychological, socially, physical. When in mixed company, I try to make sure her voice is heard so others know I have her back.” Van also shared that the Billboard executive team is majority women: “The sooner I can work with women on a team, the likelihood of success is very high.”y
As Van noted, the journey to the C-suite will include failures along with successes. “Figure out and understand what you stand for,” he said. “Don’t expect success to be linear.”
ADCOLOR Nominees and Winners
The ADCOLOR 17th annual awards ceremony was held on the final night of the conference, with the black-tie event celebrating creators of inclusive advertising. Below, the winners of Ad of the Year and Most Valuable Partnership honors shared their thoughts on their respective wins.
Ad of the year
Campaign: “The Black Elevation Map”
Client: Black & Abroad
Agency: Performance Art
Honorees: Eric Martin (co-founder/chief creative officer, Black & Abroad) and Kent Johnson (co-founder/chief strategy officer, Black & Abroad)
The Black Elevation Map is a digital app that was created for Black and Abroad, a travel and lifestyle company that focuses on unique experiences for Black travelers. Inspired by the Green Book, a guide for black roadtrippers that highlighted businesses that would welcome them, the app “takes cultural data, including Black population data, historical markers, Black-owned businesses and social media activity, and visualizes it as points of interest on a dynamic, searchable elevation map of the United States.”
How does it feel to win Ad of the Year on your first try?
Eric Martin: It’s exhilarating. Mainly because when we started the work, we had no idea of where we were heading as a business. This was in the prime of the pandemic. There was literally no signals of when this thing would be over. …We just worked with what we had. We spent almost a year putting this together. When we launched it [during] Black History Month 2022, we had no idea where it would go, we just knew we were doing what we could. We were keeping it authentic, and we had an amazing pool of talent that we were able to tap into. An amazing run of businesses that were willing to participate and enlist themselves. And then we had the support of our community.
Why was the message of the ad important to you?
Ken Johnson: I think the Black community was looking for a way to share that information. There had been a consolidated moment. We were sharing lists of our favorite restaurants, etc., but it didn’t seem like it made it accessible if I’m out and about and I want to pull up a map around me that I could patronize immediately. We didn’t see that platform out there, so that was our driving force. We were tapping into the legacy of Victor Green, creator of the Green Book. How do we tap into what he’s done and bring it to our time and make it accessible and familiar for everyone? We all know how to pull up a map on our phones, but if we are able to pull up a map that already has our interests in mind, what would that do for the businesses being impacted?
How was it inspired by the Green Book?
Johnson: The Green Book was a tool for survival. The energy has shifted to how do we in the community make sure these businesses survive. We want to see these businesses around. We want entrepreneurs in our space to be able to make it past those first couple of years that are the hardest. Now we make sure that businesses are able to keep payroll up, reach new audiences. The spirit of survival is still there, [but] the direction is commerce.
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Most valuable partnership
WhatsApp and Translation
Honoree: Ghada Soufan, integrated marketing manager, WhatsApp; founder of MENA for ADCOLOR
WhatsApp teamed up with creative agency Translation for Naija Odyssey, a short film in which Greek-Nigerian Milwaukee Bucks star Giannis Antetokounmpo “tells his origin story of many origins as he reconciles his roots, birthplace and sense of belonging between cross-cultural worlds.” The film derived from an endorsement deal Antetokounmpo signed with WhatsApp last year.
What’s behind the growth of WhatsApp?
WhatsApp connects over 2 billion people around the world, which is really amazing. It has grown so much over the past two years. It really is the utility app that connects diasporas, communities, families, loved ones, friends, academic groups, elementary schools. So it’s been amazing to see the growth, but also the usage standpoint, the utility and the connections it’s provided for our users.
How do you handle that kind of rapid growth?
We handle the growth with excitement. We were excited about telling the story of WhatsApp as a brand. A lot of people use WhatsApp, [and] being able to really deliver [on] its purpose in connecting loved ones and representing marginalized communities, and really being for the people, and delivering features that can help anyone from teenager to a grandma to use it simply and reliably, has been really amazing.
A lot of people leave accessibility out of the DEI conversation.
That’s why we really refocused our audience with that partnership with Translation on people that are dual culture or multihyphenated. They work between the hyphen. For myself, it’s Arab-American, someone else it might be African-American, Nigerian-British. Wherever you are, we provide the closest thing to [a] face-to-face relationship, that intimate connection, through our app.
How does having a diverse team add to the success?
We have one of the most international teams. We truly have representation [and] truly a global diverse team. We have people from India, Brazil, Germany, U.K., U.S., Asia, Nigeria. We look for diversity not just in terms of a Western point of view, we’re a global diverse perspective. We aim to celebrate those people in our work and in how they use the app.
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YouTube’s ad revenue dropped down to $7.07 billion during the third quarter, marking a 1.9 percent decrease compared to the previous year, parent company Alphabet reported on Tuesday.
The $7.07 billion figure is also a decline compared to the second quarter, when the video platform reported $7.34 billion in advertising revenue during the second quarter, slightly missing analysts’ expectations but representing a 4 percent year-over-year increase.
YouTube’s ad revenue growth has slowed down considerably since the earlier years of the pandemic, when the company saw massive gains; in July 2021, the company had even outperformed its first quarter ad revenue earnings by $1 billion, representing a whopping 84 percent year-over-year increase.
But the video giant isn’t the only tech and social platform to be impacted by a declining digital ad market. Snap, which has previously warned of macroeconomic headwinds impacting its ad business, reported a net loss of $360 million during Q3 as the company has seen engagement in the U.S. decrease by 5 percent year over year.
As YouTube continues to fend off competition, the video platform is preparing to launch one of the biggest updates to its ad revenue sharing program with creators. Beginning next year, short-form creators posting to YouTube Shorts — the company’s TikTok competitor — will receive a 45 percent cut of ad revenue, which will be calculated based on the creator’s share of total Shorts views.
To come to this calculation, YouTube will count the total amount of ad revenue from all ads displayed on Shorts each month. Of that total, an undisclosed percentage will be allocated toward creators, while the remainder will be used to cover the costs of music licensing, Neal Mohan, YouTube’s chief product officer, said at an event on Sept. 20 announcing the program. Creators will then receive 45 percent of the funding allocated toward creators, though each individual will receive different amounts based on their contribution to the total number of Shorts views.
The decision to opt for a 45 percent cut, rather than the 55 percent share that long-form YouTube creators receive, could also signal the start of platforms beginning to reassert themselves as they contend with declining ad revenue.
This article was originally published by The Hollywood Reporter.
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