analysis
Page: 8
In the last 25 years, the music industry has evolved in huge leaps: the arrival of Napster in 1999, the launch of the iTunes music store in 2003 and YouTube’s debut in 2005 are notable, epoch-defining events. But progress often comes in a series of small steps forward.
One such small step is Spotify’s Loud & Clear, an annual report that provides some transparency into the amounts of royalties the company pays each year. The third Loud & Clear report was released March 8 to coincide with Stream On, Spotify’s live-streamed media event where a parade of executives introduced new product features and discussed the future of the world’s largest music subscription service.
Loud & Clear is helpful because it puts artist royalties in context. Any artist knows how much they earned on a streaming platform. But Loud & Clear will tell an artist how they stack up to others. It’s one thing to make $100,000 in annual royalties but another thing to know how many other artists are also making at least $100,000.
“I think it’s very important for ecosystems to have an understanding of the shape and size of how results are going for different participants so that people can understand where they are, where they stand and how the ecosystem is evolving,” says Charlie Hellman, Spotify vp, global head of music product.
And how well is the ecosystem evolving? Spotify wants to give “a million creators the opportunity” to making a living from their art — which could include both musicians and podcasters. That goal goes back to a statement by CEO Daniel Ek at its 2017 Investor Day. At the time, Spotify counted 22,000 artists as “top-tier” earners (it didn’t specify exactly how much they earned, however). Today, thanks to Loud & Clear, we can see a million creators are probably not making a living from their art. But as Spotify, and streaming in general, has grown in popularity, the number of artists making a sustainable amount — define that as you may — is slowly increasing.
There are 27,000 established artists defined as being in Spotify’s top 50,000 artists three straight years but outside of the top 500. In 2022, they earned an average of $224,000 from Spotify and averaged 1.45 million monthly listeners in 2022. So, they’re not superstars but they’re far from hobbyists. They’re also likely signed to record labels and receive only a fraction of those royalties.
In 2022, there were nearly 3,000 “catalog-heavy” artists that earned more than $100,000 on Spotify. Those artists earned over 80% of their streams from tracks five years old or older. Given that Spotify estimates other streaming sources account for 75% of an artists’ revenue, those artists probably earn around $400,000 a year in streaming royalties.
If streaming is going to provide a living for many musicians, the economics need to work for the independent musicians that make up a large portion of the working class. In 2022, a quarter of the 57,000 artists who earned $10,000 or more in royalties from Spotify in 2022 are self-distributed through the likes of DistroKid, TuneCore and CD Baby. That works out to nearly 15,000 artists, a 200% increase since 2017. That’s a far cry from one million. But as streaming platforms continue to grow, the number of self-distributed artists earning that amount will grow, too.
Increasingly, streaming platforms will facilitate other parts of artists’ careers, such as ticket sales and merchandise sales. Spotify lists some merchandise sales through third-party providers such as Shoptify and Merchbar. And although it hasn’t included merch sales in Loud & Clear, Hellman says, “I can imagine in future years doing more data share about that in particular. We didn’t do that this year, but it is a big strategic focus for us.”
HYBE founder and chairman Bang Si-hyuk said his company is only getting started in its bid to grow into a global music powerhouse that can rival the three major labels.
The South Korean company’s two U.S. acquisitions — Scooter Braun’s Ithaca Holdings and QC Media Holdings, parent company of hip-hop label Quality Control Music — are “just the beginning,” Bang said Wednesday at Gwanhun Forum in Seoul. The executive behind supergroup BTS insisted HYBE must have a “sense of urgency” and look outside of Korea to continue to grow.
“We are living in an era where everything we do in the content industry resonates beyond geographical boundaries,” Bang said. “At the same time, K-pop has become a global industry that can only continue to grow by targeting both domestic and international markets.”
At home, Bang said HYBE and its Korean rivals can’t do it alone. In his speech, he called on the South Korean government to support the K-pop companies in their bid to take on the global majors – Universal Music Group, Sony Music Entertainment and Warner Music Group — by helping them become national champions in the way that electronics companies Samsung and LG have become global powerhouses with government support.
While K-pop built HYBE into a powerhouse, the company might have only a brief window to capitalize on its global success. “K-pop is in crisis,” the HYBE chief said, asserting that by most measures the genre is in decline in Southeast Asia, other than growth in China and spending per consumer. In the United States, 53% fewer K-pop tracks charted on the Billboard Hot 100 in 2022 than the previous year, according to Bang. He attributed the K-pop slowdown to BTS’ hiatus as a group in 2022 and said he doesn’t believe the group’s eventual comeback will bring back the lost revenue.
When Bang talks about exporting K-pop around the world, he isn’t referring to just a genre of music. To him, K-pop is “a culture that encompasses music-oriented systems such as music and content production, distribution, marketing, communication with fans, and other systems of music.” In HYBE’s “multi-label” structure, he added, the Korean headquarters provides guidance to its labels and disperses the risk so its subsidiaries can operate “in a healthy competition that drives each other to improve.”
For HYBE to make inroads in the United States, the world’s largest music market, it needs “a strong network and infrastructure … to minimize the cost of trial and error” involved in exploring an unfamiliar landscape, Bang added. In the U.S., Braun leads HYBE America, the umbrella organization for SB Projects’ management clients, Big Machine Music Group and Quality Control. HYBE also has a joint venture in the U.S. with Universal’s Geffen Records to develop a girl pop group for the domestic market.
While Bang didn’t say which companies HYBE is targeting for further acquisitions, in a press conference after his speech he noted HYBE’s interest in Latin labels. The company certainly has the resources to buy additional record labels, artist management firms or tech platforms to further fuel its expansion: HYBE had cash and cash equivalents of 903 billion won ($689 million) as of Sept. 30, 2022, the latest date for which data is available. The goal, said Bang, is to achieve scale “that can’t be ignored.”
Even though HYBE dominates K-pop and generated revenue of $1.4 billion in 2022, Bang described his company in biblical terms: He is David, the three major labels are Goliath. Major K-pop companies account for less than 2% of the global music market, he said, while the majors own 67.4%.
Looking around the world, Bang sees “alarming trends,” including K-pop commanding fewer chart positions in 2022 than in the previous year. “In this context, the existence of global K-pop artists without a dominant global entertainment company inevitably leads to concerns about the industry’s ability to be on the lookout for future uncertainties,” he said.
What will it take for HYBE to turn from David into a sustainable Goliath? Bang wants more scale and stronger distribution partners to give K-pop additional bargaining power to negotiate more favorable distribution rates. In that way, he said, HYBE can improve its financial performance “and enable the company and our artists to grow.”
Further entering the U.S. market will require building “a strong network and infrastructure,” Bang said. “Through this, we need to minimize the cost of trial and error caused by situations that are difficult for us to change, or due to our unfamiliarity with the local conditions, and secure an equal level of presence and influence in the mainstream market equivalent to local companies.”
Breaking artists isn’t a matter of “luck or sheer intuition,” the HYBE founder added. Rather, success is the result of a management process that can be systemized and replicated in other markets. HYBE’s multi-label structure demonstrates this approach, Bang said: “It is a system that has been meticulously established based on experience, trial and error, and contemplation to enable the company’s success.”
Additional reporting by Jeyup S. Kwaak
Welcome to The Contenders, a midweek column that looks at artists aiming for the top of the Billboard charts, and the strategies behind their efforts. This week (for the upcoming charts dated March 25), a longtime stateside household name and a growing global force will compete against Morgan Wallen’s blockbuster in its second week.
Miley Cyrus, Endless Summer Vacation (Columbia): You might expect Miley Cyrus’ new album to debut at No. 1 on the Billboard 200. Cyrus has been a household name for a decade and a half, and she’s coming off her biggest Billboard Hot 100 hit with the six-week No. 1 “Flowers” — and her new album has largely been met with critical acclaim and positive fan response since its Friday release.
Despite her continued stardom, however, Cyrus has not scored a No. 1 album since 2013’s Bangerz, with her most recent effort (2021’s Plastic Hearts) debuting at No. 2 with 60,000 equivalent album units. A number anywhere near that range would probably not be enough to dethrone Morgan Wallen’s One Thing at a Time, which debuted at No. 1 with 501,000 units on last week’s Billboard 200 (dated March 18). Even if One Thing posts only 40% of that in its second week, that would still be over three times Plastic Hearts’ first-week tally.
Vacation is expected to do better than Hearts, though – helped not only by the continued success of “Flowers” (which holds at No. 2 on the Hot 100 this week) and strong early returns for follow-up single “River,” but also by a variety of physical releases. That includes four vinyl variants (including one exclusive to Target, and two exclusive to her web store) and two deluxe box sets exclusive to her web store — one with a puzzle and a CD, the other with a beach towel and a CD.
TWICE, Ready to Be (JYP/Republic): Though they might not have name recognition as wide as Miley Cyrus in the United States, Korean girl group TWICE might be just as big a threat to Wallen’s place at the top of the Billboard 200 this week. TWICE have reached the chart’s No. 3 spot, well, twice: with 2021 LP Formula of Love: O+T=
The U.S. recorded music business posted its seventh consecutive year of growth in 2022 as the industry continues to benefit from streaming services such as Spotify, Apple Music and YouTube. After spending most of the last two decades in a painful freefall — piracy devastated CD sales and the download-driven unbundling of the album didn’t make up for it — the recorded music business has enjoyed a great run. Last year, paid subscription revenues surpassed $10 billion for the first time, according to the RIAA, and overall revenues reached $15.9 billion.
Here’s the bad news: Last year’s growth, in terms of both dollar and percentage increases, was the lowest since 2016, when the recorded music business started to recover from a 15-year downturn. Happy days may be here again, but they’re not getting happier like they were.
Total recorded music revenues grew 6.1%, but that’s about a quarter of 2021’s 23.2% gain. Paid streaming revenues improved 7.2% in 2022, a third of the 22.2% growth in 2021. It was the first time that this segment’s growth rate fell into the single digits since 2010. That year paid streaming revenues rose just 2.9% to $212 million. Over the next decade, as annual paid streaming grew to 57.8% of total recorded music revenue in 2022, the segment’s annual growth often exceeded 50% and fell below 20% only twice.
Ad-supported streaming’s revenue growth rate also fell into the single digits, also for the first time in more than a decade. Slowed by an advertising malaise that has also affected companies ranging from Alphabet to iHeartMedia, streaming services’ advertising royalties to record labels grew 5.6% compared to 44.4% in 2021 and 16.8% in 2020. In dollar terms, last year’s revenue growth was the lowest since 2015.
The slowdown shouldn’t catch anybody by surprise given the industry’s reliance on streaming, subscription services’ unwillingness — until recently — to raise prices and a finite number of potential customers. The problem comes down to basic math: Fees from subscription services accounted for 57.9% of recorded music revenues in 2022. At just 2.4% of total revenues, a high-growth segment like synchronization barely moves the needle despite rising 24.8% in 2022. Vinyl sales were strong once again — up 17.2% — but accounted for just 7.7% of total recorded music revenues.
Up-and-coming revenue streams such as TikTok, Facebook and Instagram are just that — not yet ready to deliver meaningful royalties despite their popularity. Their revenues are included in the ad-supported streaming bucket that increased just 5.5% in 2022. TikTok faces high expectations but large uncertainty, too, as it faces pressure from politicians at the state and federal level that could reduce its importance. In addition, the company has installed parental controls that are likely to reduce engagement and further reduce its potential value to artists and labels.
A positive trend is subscription services’ decisions to raise prices on individual and family plan tiers. In 2022, Apple Music, Amazon Music and Deezer raised prices in the U.S. Spotify has not yet announced a price hike for standard subscription plans but has hinted it will follow suit in 2023. Labels are eagerly awaiting Spotify’s move. “We are the lowest (cost) form of entertainment,” Warner Music Group CEO Robert Kyncl said Thursday. “We have the highest …engagement, highest form of affinity and lowest per-hour price. That doesn’t seem right.”
Globally, the situation looks better. The industry in China, the world’s most populous country, is flourishing thanks to streaming companies such as Tencent Music Entertainment and Cloud Music. In Japan, the world’s second-largest recorded music market, streaming revenues increased 125% in 2022, according to the RIAJ. At Spotify, which operates in 184 markets, revenue increased 21.3% in 2022 to 11.7 billion euros ($12.4 billion), with about equal growth rates from paid and ad-supported streaming. Annual revenues of two smaller streaming companies, Europe-focused Deezer and MENA-focused Anghami, grew 13% and 36%, respectively.
In the U.S., a maturing streaming business alone cannot maintain the breakneck pace of the last seven years. Labels will need more than the status quo to return to double-digit growth.
Welcome to The Contenders, a midweek column that looks at artists aiming for the top of the Billboard charts, and the strategies behind their efforts. This week (for the upcoming charts dated March 11), a number of new releases challenge SZA’s ongoing Billboard 200 supremacy — led by the latest from a Latin pop star looking to accomplish the unprecedented.
Karol G, Mañana Será Bonito (Universal Latino): Karol G might not be a household name among mainstream U.S. audiences, but that could change with the debut of her fourth album. The Latin pop star reached a higher peak on the Billboard 200 with each of her first three albums — 2017’s Unstoppable (No. 192), 2019’s Ocean (No. 54) and 2021’s KG0516 (No. 20) — and last year scored her first two top 25 hits on the Billboard Hot 100, with “Provenza” and her Becky G collaboration “Mamiii.” Now, with last Friday’s (Feb. 24) Mañana Será Bonito, she should be in the mix for the chart’s top spot.
Mañana is currently available on CD and as a digital album — it topped the iTunes albums chart on its day of release — and is helped by the inclusion of streaming smash “Provenza,” as well as Hot 100 hits “Gatúbela’ (with Maldy) and “X Si Volvemos” (with Romeo Santos). But the album’s biggest hit might be brand new: the much-hyped Shakira collaboration “TDQ,” which has been in the top 10 of the daily charts on Spotify, Apple Music, YouTube and iTunes since its release.
If the album does debut at No. 1, it would make history as the first all-Spanish-language album by a female artist to reach the top spot — joining only Bad Bunny (who’s done it twice, with 2020’s El Último Tour del Mundo and 2022’s Un Verano Sin Ti) among all artists. She’d also be only the third woman with a mostly non-English language No. 1 album, following Selena (Dreaming of You, 1995) and The Singing Nun (The Singing Nun, 1963). Dreaming of You blended Spanish and English, while The Singing Nun was recorded entirely in French.
Gorillaz, Cracker Island (Parlaphone/Warner): Gorillaz fans have been waiting to take the trip to Cracker Island since the album’s title track came out last June — followed by a steady stream of singles, including the top 20 Hot Rock & Alternative Songs hit “New Gold,” featuring Tame Impala and Bootie Brown. Now, the full 10-track album is finally out, available for sale in over a dozen vinyl variants, box sets, as well as four cassette options. Speaking of Bad Bunny: He graces the album’s “Tormenta,” which should provide a nice boon to the album’s streaming numbers.
Yeat, AfterLyfë (Geffen/Field Trip/Twizzy Rich): One of the most-hyped rappers of the last few years, enigmatic hip-hop sensation Yeat released his third album in three years last week with AfterLyfë. Yeat’s streaming prowess sent 2022’s 2 Alive to No. 6 on the Billboard 200, and the 21-track AfterLyfë seems likely to join it in the chart’s top 10. The album’s lone high-profile guest is the YoungBoy Never Broke Again guest spot on “Shmunk,” however, and it has no physical release currently available for sale.
IN THE MIX
Don Toliver, Love Sick (Cactus Jack/Atlantic): Rapper-singer Don Toliver has been a ubiquitous supporting actor in hip-hop over the past year, showing up on Hot 100 hits from Billboard 200-topping albums by Pusha T (“Scrape It Off” from It’s Almost Dry), Metro Boomin (“Too Many Nights” from Heroes and Villains) and SZA (“Used” from SOS). Now he gets his own shot with Love Sick, which follows 2021’s No. 2-peaking Life of a Don and boasts guest appearances from Justin Bieber, Future, Lil Durk, Brent Faiyaz and other big names.
Godsmack, Lighting Up the Sky (BMG): It’s been two decades since the Massachusetts hard rock band was at its commercial peak, but Godsmack remains a reliable performer on the Billboard 200, sending each of its past six albums to the chart’s top 10. Lighting Up the Sky is the group’s first release since 2018’s No. 8-peaking When Legends Rise – the longest gap between albums in Godsmack’s career — and contains their 12th No. 1 on Billboard’s Mainstream Rock Airplay chart with lead single “I Surrender.”
Gracie Abrams, Good Riddance (Interscope): Gracie Abrams has long cultivated a reputation as your favorite singer-songwriter’s favorite singer-songwriter, and this February she finally put out her debut album, Good Riddance. The album does not yet have any major chart hits to its credit, but it comes with chart-topping pedigree in its primary artistic partner, writer-producer Aaron Dessner – whose frequent collaborator Taylor Swift is taking Abrams out on her impossibly anticipated The Eras Tour this spring.
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Sign up here to receive the newsletter.
Ticket fees have been called everything from “exorbitant” (Sens. Richard Blumenthal and Amy Klobuchar) to “completely bats—” (Last Week Tonight with John Oliver). And they can increase the price of a concert ticket by an average of 27-31%, according to a 2017 study by the U.S. Government Accountability Office.
Unfortunately for ticket buyers, those fees aren’t going anywhere quickly. They may change or disappear completely, but consumers won’t reap any savings in the end, Live Nation CEO Michael Rapino explained during Live Nation’s fourth quarter 2022 earnings call on Thursday.
Say, for example, a venue is prohibited from charging fees on top of a ticket’s face value. “Well, then the venue would say, ‘Okay, artists, the rent isn’t $50,000 anymore. It’s $100,000,’” Rapino said.
The ticket fee is a surcharge that helps cover a venue’s costs. Rapino’s point is that the venue needs to cover its costs, so it’s going to collect money to cover them, no matter what. In a normal scenario, the consumer helps cover those costs by paying a surcharge directly to the venue.
If fees were eliminated, artists — who are the final authority on primary ticket prices — would be forced to raise them to cover the additional cost. The surcharge may have disappeared, but that cost would still exist in the form of a higher face value. Regardless of the approach, the consumer’s expense and the venue’s revenues would be unchanged.
“The true cost of going to a show and making the show happen is the full price all-in,” said Rapino. The concept is apparent to anybody who has pondered how airlines set prices. If airlines charged an all-in fee that encompassed all its costs, ticket prices would be dramatically higher. Legislation that banned fees for checked baggage could result in higher prices for everything from flight themselves to in-flight beverages. Airlines that previously allowed free carry-on bags might start imposing fees on those. They could also charge more to change your travel plans (which used to cost the consumer nothing).
Rapino acknowledged that Live Nation, which owns and operates venues, would do the same. “If tomorrow someone said, ‘You know, you can’t charge 20% service fees on your amphitheater, you have to [charge] 10%.’ Well, then the $75,000 house rent that we charge artists would be $100,000,” he said as an example. Live Nation couldn’t simply absorb the cost, he explained. Since the company requires money to pay staff and operate the venue, it would find a way to recoup the lost fees.
While what consumers pay won’t change, they may get more transparency. In the wake of Ticketmaster’s disastrous Taylor Swift Eras Tour pre-sale, President Joe Biden unveiled an initiative to limit, among other types of fees, mandatory, back-end fees that “often hide the full price” of a good or service. The White House pointed to research that found hiding the full price encourages consumers to spend more than they would have otherwise.
Live Nation has also come out publicly — and forcefully — against hidden fees. On Thursday, Rapino called numerous times for the industry to adopt all-in pricing that show the ticket buyer a single price at the beginning of the transaction. Also on Thursday, Live Nation issued a press release that encouraged lawmakers to introduce legislation that includes, among other things, mandatory all-in pricing.
The uproar against Live Nation and Ticketmaster over ticket fees is just one of many criticisms to gain momentum in recent months. Some members of Congress have called Live Nation a monopoly that limits competition in the touring business and harms consumers by charging high prices and leaving some unable to purchase tickets for in-demand concerts like Swift’s Eras tour. Many inside and outside of Washington have called for the Department of Justice to break up the company’s concert promotion and ticketing operations. On Thursday, Sens. Klobuchar and Mike Lee sent evidence of the Jan. 24 Senate hearing on the ticketing market to the Department of Justice and encouraged its antitrust division “to take action if it finds that Ticketmaster has walled itself off from competitive pressure at the expense of the industry and fans.” Others have suggested Ticketmaster improve its security practices to deal with the bot attacks that derailed Swift’s pre-sale.
Ticketmaster may be most reviled for its fees, though. And as Rapino pointed out, those aren’t going away anytime soon.
When Bonnie Raitt‘s touching ballad “Just Like That” won the Grammy for song of the year, the singer-songwriter seemed just as shocked as the crowd. “I am just totally humbled,” she said while accepting the award.
Though she is a decorated and critically acclaimed musician, with 11 Grammys and five top 40 hits on the Hot 100 to her name, Raitt’s “Just Like That” was the least commercially successful song up for the category this year by a long shot. Despite not cracking the Hot 100 chart, “Just Like That” managed to beat out the nine other nominated songs, each of which ranked in the top 20 of the Hot 100 this year, including two No. 1 tracks (“As it Was” by Harry Styles and “About Damn Time” by Lizzo). Many see Raitt’s win as proof that the top Grammy awards do not necessarily always go to those with the most commercial or widespread success.
This particular award win is surprising for Raitt in more ways than one. Song of the year is one of four top awards given out each year by the Recording Academy, along with record of the year, album of the year and best new artist, and it is the only one of the big four that honors the craft of songwriting specifically. Raitt, as she admitted in her acceptance speech, “[doesn’t] write a lot of songs,” but she did write “Just Like That” singlehandedly.
So how much did “Just Like That” earn in publishing royalties for Raitt as its only songwriter, and how much did the Grammy win help the song commercially?
Billboard estimates that before the Grammys, “Just Like That” had earned Raitt over $6,000 in publishing royalties from its release date (April 22, 2022) to the week of the Grammys, which aired on Feb. 5, 2023, for her work as a songwriter from U.S. streaming, sales and airplay combined. In the two weeks following the show, those formats earned her another nearly $6,000. In other words, Raitt earned almost as much from the song in just two weeks as she did in the more than nine months prior to the broadcast.
Raitt owns her publishing, and she houses her songwriting catalog under two entities, Kokomo Music and Open Secret Music. In 2018, she entered an arrangement with indie publishing house Bluewater Music to administer her publishing catalog worldwide. Because she owns her publishing and wrote “Just Like That” by herself, the vast majority of the money she earns from the song will end up in Raitt’s pocket, with deductions likely only made to pay Bluewater Music administration fees and whatever cut her manager makes.
Overall, since the release of “Just Like That,” Billboard estimates that Raitt has earned a total of about $12,000 in publishing royalties from streams and sales of the song. The majority of that came from both physical sales of the album on which the song appears — also called Just Like That — and U.S. on-demand audio streams, according to Luminate. In the two-week period after the Grammys, song downloads and streaming were the biggest source of royalties by far.
In terms of streaming alone, Raitt earned only about $975 worth of publishing royalties from U.S. on-demand audio streams in the almost 10 months that elapsed between the song’s release and the week of the Grammys. But in just the two weeks since her song of the year win, she has earned a little over $2,000 in publishing royalties for U.S. on-demand audio streams.
The week before the Grammys, dated Jan. 27-Feb. 2, “Just Like That” was racked up 44,000 on-demand audio streams in the U.S. The week after the Grammys, dated Feb. 3-9, on-demand U.S. audio streams increased by 3,028% to 1.377 million, according to Luminate. The massive spike, however, did not hold steady in the following week, dated Feb. 10-16, when the number of U.S. on-demand audio streams fell to just over 410,000.
On the physical sales side, Raitt earned over $4,000 in publishing royalties from selling copies of her albums through to the night of the Grammys. In the two weeks after the awards show, Raitt earned about $700.
Along with increased consumption in the sales and streaming categories, “Just Like That” has also sparked interest at radio. The week before the Grammys, it was played just a handful of times, but in the two weeks after her win, she received a total of 144 radio spins, according to Luminate. While still not significant enough to push her to the top of any charts, airplay could contribute solidly toward her future publishing earnings if it continues to gain traction.
So far, the big Grammy win for “Just Like That” doesn’t appear to be boosting sales and streaming activity for Raitt’s overall catalog in the U.S. While weekly catalog album consumption activity jumped to over 9,000 copies on average in each of the two weeks after the show — up from the weekly average of over 3,000 copies before the show — all of that gain is coming from the Just Like That album.
What’s TikTok without music? That’s the central question at the heart of debates between major rights holders and the Bytedance-owned social media platform negotiating rates for their content, and a group of Australian users have been pulled into the middle to try to find out.
Earlier this month, it was revealed that that TikTok is running tests in Australia that limits the amount of licensed music some users can encounter on the platform. The test impacts fewer than half of Australia-based accounts, and it doesn’t affect everyone in the same way, according to a person familiar with the situation. The test puts people into multiple cohorts and provides them with different libraries of sounds to use in video creation. So, not everybody in the test will have the same catalog to choose from. Likewise, users in the test cohorts have different encounters with audio. Some people in test cohorts will encounter muted music on other users’ videos. This allows TikTok to compare and measure the different ways people interact with the app.
The results may inform TikTok’s licensing strategy, but evidence that some Australians are unhappy members of the test cohort can be seen on Twitter. “Tiktok really ruining its own app with all this ‘sound removed’ garbage,” one Australian user tweeted last week. Another echoed the sentiment: “wtf is up with tiktok removing like half the sounds??? like i swear ive seen SO many tiktoks where the sound has been removed.”
The risk of upsetting users and creators isn’t lost on TikTok. “We appreciate it’s disappointing if a certain track is unavailable or if a sound is muted on a previous video,” the company said in a statement. “This change will not be in place for long and not all music is affected.” The test will run from a month to a month and a half, according to a source familiar with the situation, meaning it should conclude by mid-March.
Why would TikTok degrade its user experience even in a relatively small market like Australia? A source familiar with the company’s thinking said TikTok is using the experiment to study what is trending, how users are accessing the platform through different entry points and how they are enjoying it. It is not a negotiating tactic, the person said. Nonetheless, the company is gathering the data during a year when most, if not all, of TikTok’s agreements with music rights owners come up for renewal. The source said it is predictable that TikTok would gather this information ahead of high-stakes negotiations, like those ongoing with major labels and other stakeholders.
Around the music industry, there are different interpretations for TikTok’s actions. One explanation is that TikTok is doing what tech companies do all the time: run tests, collect data and analyze the results. That narrative fits with what’s known. Australia, an important yet small and isolated English-speaking market, is a popular place for tech companies — Spotify, Facebook, Google, Tinder and others — to test new products. Much like these other companies, TikTok is an engineering-led company with engineers who want to take data-driven approaches to making decisions on how much time and resources should be invested in projects, building systems and, yes, even licensing rights. Sometimes, as history has shown with most of those other companies, too, a different mindset puts them at odds with creative industries.
“I don’t think they truly understand music at these tech companies,” says a record label executive. “It just doesn’t resonate with them.”
Negotiating tool?
TikTok, of course, has numerous people from the music world on staff: Ole Obermann, global head of music, and Tracy Gardner, head of licensing and partnerships, are former Warner Music Group executives. Jordan Lowy, head of music publishing licensing and partnerships, previously worked at Universal Music Group and Disney Music Group, and dozens if not hundreds of other music industry alums work at TikTok in editorial and artist partnerships. But the company looks and acts like a social media company, not a music company.
A less benign view of the test is that TikTok is looking for a rationale to argue music is not important to the platform – or not as important as labels believe. Annabelle Herd, the CEO of ARIA, the trade body for the Australian record industry, said TikTok “seeks to rationalize cutting artists’ compensation” and “downplay the significance of music on its platform.” Another industry executive believes the test is meant to lower expectations going into discussions with rights holders. “They’re looking to anchor their negotiating position near zero,” says a music industry source.
TikTok has spent years playing up music’s importance to creators, users and artists. “Music is at the heart of the TikTok experience,” Obermann stated in the opening words of the TikTok 2021 Music Report. That year, around 430 songs surpassed 1 billion views, up 200% from the previous year, and over 175 songs that trended that year charted on the Hot 100. In the company’s 2022 year-end report, Obermann reiterated TikTok’s value to artists, saying the platform “continues to unlock real-world opportunities for artists and labels, helping talent to secure record deals, brand collaborations, chart success, or be re-discovered decades later.”
And while the platform has certainly evolved beyond lip-syncing videos – book reviews and finance advice abound, for example – much of the recent news coming out of the company still involves music: StemDrop, an interactive, collaborative songwriting platform led by Max Martin, Syco Entertainment, Universal Music Group and Samsung; a Calvin Harris virtual reality concert; and welcomes to The Rolling Stones and Dolly Parton for joining the platform.
Anecdotally, exactly how important records labels’ music is to TikTok is debatable. Its top three trending songs of 2022 were independent releases, and the No. 1 song, “Sunroof” by Nicky Youre & Dazy, was originally released independently through SoundOn, TikTok’s music distribution business that’s been known to add promotion to music uploaded through its service. In all, only five of the top 10 of 2022 were signed to major labels. Major label music is arguably more important to on-demand streaming platforms and radio stations. By contrast, all the top 10 tracks of Billboard’s year-end Hot 100 and Radio Songs charts were released through major labels.
But major label music is everywhere on TikTok. Lizzo’s “About Damn Time” was the No. 4 trending song of 2022. Pharrell Williams’ “Just a Cloud Away” was No. 5. Kate Bush’s “Running Up That Hill” was No. 10. And TikTok’s ability to give unknown artists a large audience increases its need to license music from labels. “Sunroof” was so successful that Youre signed with Colombia Records and reached No. 4 on the Hot 100.
What’s past is prologue
TikTok has ample motivation to reduce what it pays music rights holders. Licensing costs eat up more than 70% of a music subscription service’s revenue with little left over after paying operating expenses. Social networks, on the other hand, generate huge sums of free cash flow. Facebook, for example, had an operating margin of 25% in 2022 and 40% in 2021.
Services that once butted heads with music rights holders decided it was wiser to build partnerships that enriched both sides. Like TikTok, YouTube began as an ad-supported platform built on user-generated content and characterized by minuscule royalties. Over time, YouTube attracted better advertisers, built a strong on-demand premium service and became a major source of revenue for labels and publishers. In the 12-month period ended June 30, 2022, YouTube paid music rights holders $6 billion through YouTube advertisements and fees from the YouTube Music subscription service.
Now, YouTube has “a phenomenal partnership” with rights owners after it “decided that music is important to us forever,” Warner Music Group CEO Robert Kyncl, YouTube’s former chief business officer, said during WMG’s Feb. 9 earnings call. It invested in music “holistically” by building a copyright management platform, Copyright ID, launching the YouTube Music subscription service and taking on TikTok with its short-form video platform, YouTube Shorts.
TikTok appears to share YouTube’s ambitions to offer a multitude of services that segment the market into ad-supported and paying customers. Parent company Bytedance already has an on-demand music service, Resso, operating in Brazil, Indonesia and India, and a separate on-demand service, Qishui Yinyue, in China. But in major markets like the U.S., TikTok users that want to listen to an entire track and explore an artist’s catalog end up going – in large numbers – to on-demand services like Spotify and Apple Music. Pairing its short-form video platform with an on-demand service would give TikTok a “significant opportunity” to leverage data and manage customers across multiple platforms, says one of the music industry sources. “Why would they not want to capture that demand themselves?”
“TikTok needs to do that [also],” Kyncl said during Warner’s earnings call. “It’s the right decision for them to evaluate.”
Additional reporting by Liz Dilts Marshall
The Ledger is a weekly newsletter that covers the financial and economic side of the music business. An abridged version appears at Billboard Pro. Pro subscribers automatically receive The Ledger. Sign up here to receive the newsletter without a Pro subscription.
Keen observers noticed that last quarter Warner Music Group’s global streaming revenues were down 2.6% year over year, a rare sputter in the music industry’s main engine of growth. The company’s total revenue declined 7.8% as losses in recorded music’s physical and digital revenues couldn’t make up for publishing gains.
On its face, a year-over-year decline in streaming revenue – the driving force behind growth at labels as well as the rise in music catalog valuations – might seem alarming. Declines are routinely seen in download and physical sales. Streaming is typically the dependable bright spot of any earnings report.
The decline was more noticeable when compared to companies that released earnings for the same quarter. Sony Music Entertainment posted strong growth in the same period. SME’s streaming revenue improved 33.2% in its recorded music division and 59.8% in its publishing division. Reservoir Media didn’t show streaming softness last quarter, either. In its recorded music division, digital revenues were up 17% year-over-year. Digital revenues in its publishing division rose 29%.
So, what happened? Some of it is due to a quirk of WMG accounting, some of it is due to WMG, and some of it is due to factors that affect the entire music business.
One factor in WMG’s weak streaming revenue was a shorter quarter: WMG’s last quarter had one fewer week than the prior-year quarter, which gave the company a tough basis for comparison even before other factors could be considered. A 14-week quarter has 7.1% more days to generate income than a 13-week one and that’s a big gap to overcome. Adjusting for that, WMG streaming revenues would have been up 5% year-over-year.
The stronger dollar — WMG’s financial statements are reported in dollars, Sony reports in yen, Universal Music Group in euros — also played a part in the decline. In WMG’s recorded music division, streaming revenues declined 4% as reported but were flat on a constant currency basis (which assumes no change in foreign exchange rates). In its publishing division, streaming revenues grew 13.2% as reported and 16.8% at constant currency.
WMG also blamed the soft streaming numbers on a new release line-up that CFO Eric Levin called “a softer, largely U.S.-based release schedule” that “could roll into our fiscal Q2. But given our release schedule as second half-oriented this year,” he added, “we do feel good about our performance of releases and strength in the second half of the year.”
Another factor was not specific to WMG: a slowing ad market. Levin called it “a dislocated ad market” and warned “the decline is getting more pronounced.” The decline in ad-supported streaming revenue isn’t a surprise. The Ledger wrote about the soft advertising market in August 2022. Spotify CFO Paul Vogel warned advertising growth in the third quarter would be “slower than we might have forecast earlier in the year.” French music company Believe said “ad-funded streaming activities should be affected by rising inflation and economic uncertainties.”
The streaming market has become bifurcated. Subscription services have fared well through the pandemic and high inflation. Advertising is more closely associated with the direction of the broader economy. Consumers are generally reluctant to cancel entertainment subscriptions, but it’s easier for brands to pull back on ad spending, hurting everything from YouTube to broadcast radio companies like iHeartMedia (and music publishers to a lesser extent). At WMG, “subscription streaming grew by high single digits” but was partially offset by a drop “in the mid-teens” in ad-supported revenue, Levin said. WMG also noticed the slowdown in brands’ spending has created “a somewhat softer market for synch.”
In the fourth quarter, Spotify’s advertising revenue rose 14% compared to an 18% improvement for subscription revenue. With the growth of Spotify’s podcasting business, not all the advertising growth could be attributed to music. Advertising growth lagged subscription growth in the third quarter by three percentage points.
Welcome to The Contenders, a midweek column that looks at artists aiming for the top of the Billboard charts, and the strategies behind their efforts. This week (for the upcoming charts dated Feb. 25), as SZA’s SOS starts to approach double-digit weeks atop the Billboard 200, it faces new challengers from a pair of veteran rock bands, as well as an artist whose comeback gig was just watched by over 100 million people.
Paramore, This Is Why (Atlantic): One of the year’s most-anticipated rock releases comes from longtime hitmakers Paramore, who are finishing out their Atlantic Records tenure with its sixth album, This Is Why. The band’s first full-length in six years is led by the hit title track, which recently became its first-ever Alternative Airplay No. 1, and comes on the heels of a media blitz that includes features in NPR and The New Yorker, as well as a Billboard digital cover story. (The group’s last album, 2017’s After Laughter, peaked at No. 6 on the Billboard 200, while their 2013 self-titled album topped the chart.)
This Is Why is expected to sell a significant number of physical copies, with six different vinyl variants available, as well as deluxe boxed sets that contain a T-shirt, along with either a CD or vinyl option. It will need robust sales to make up for the streaming gap between it and SZA’s SOS, which will otherwise score its ninth week atop the Billboard 200. That would break a tie to make it the longest-running No. 1 album from a female artist this decade.
Pierce the Veil, The Jaws of Life (Fearless): Pierce the Veil were one of the most commercially successful post-hardcore bands of the 2010s, and its 2016 set, Misadventures, reached No. 4 on the Billboard 200. The Jaws of Life arrives in the wake of the 2022 lead single “Pass the Nirvana” — which tied 2015’s “The Divine Sorry” as the group’s highest-ever entry on the Hot Rock Songs chart with its No. 21 peak. (It also follows a viral moment for their decade-old Kellin Quinn collaboration “King for a Day,” which took off on TikTok last August.) Jaws‘ sales should be helped by over a dozen vinyl variants available on the band’s webstore.
Rihanna, Anti (Westbury Road/Roc Nation) & Good Girl Gone Bad (Def Jam): As you may have heard, Rihanna recently broke a five-year drought of public performances with a small gig Sunday night. Her Super Bowl Halftime performance, which included over a dozen of her biggest hits was watched by 118 million viewers, many of whom unsurprisingly took to streaming services and music retailers to re-listen to several of the classics she played – and even some she didn’t, based on the way her songs are blanketing the Spotify, Apple Music and iTunes charts.
The impact of the bump for these songs will be felt on the Billboard 200, where five of her albums look set to appear this week – most, if not all, in the chart’s top half. They will likely be led by Rihanna’s two perennial biggest albums: The 2016 Anti (from which she played parts of “Work” and “Kiss It Better”) and 2007’s Good Girl Gone Bad (“Umbrella”). The two releases rank at No. 50 and No. 137 on the current Billboard 200, having spent 354 and 103 weeks on the chart, respectively.
IN THE MIX
Post Malone, Twelve Carat Toothache (Mercury/Republic): Posty’s 2022 album has remained on the Billboard 200 since its No. 2 debut in June , and it’s now at No. 99 in its 36th week on the chart. It should see big gains next week, thanks to its debut on vinyl, which is now available in multiple variants. (Post has also been all over ads for the NBA’s upcoming All-Star Weekend, held in his current home state of Utah, and the and his visibility there could help as well.)