MIDIA RESEARCH
From Taylor Swift T-shirts to Fleetwood Mac Rumours vinyl LPs, the global music merchandise business will grow to a retail value of $16.3 billion by 2030, according to a new report by MIDiA Research.
Merch become a priority for many artists in 2020 when the COVID-19 pandemic shut down the concert business. And as touring resumed and fans opened their wallets, the global merch business rose to $13.4 billion in 2023. But merch sales are expected to cool considerably, as MIDiA forecasts merch sales will grow at a compound annual growth rate (CAGR) of just 2.8% through the end of the decade. There’s still plenty of opportunity, though — if artists and merch companies don’t treat merch like a cash grab.
“As the market has become more sophisticated, fan expectations for quality have risen,” MIDiA’s Tatiana Cirisano said in a statement. “But record labels focusing on monetising fandom risk ‘overharvesting’ — exploiting this resource to the point of diminishing returns.”
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Music companies, Cirisano added, “must nurture deep, long-lasting fandom to sustain this growth.”
Physical music, which MIDiA considers to be merch because many consumers treat vinyl LPs and CDs as collectible items, is forecasted to peak in 2025 and decrease through 2030. Physical merchandise such as artist-branded apparel and digital merchandise such as virtual goods and NFTs are expected to make up for physical music’s decline and lift total merch revenues.
Merch isn’t the most financially appealing part of the music business. That would be digital music, which enjoys both higher margins and higher growth rates. In the first half of 2024, Universal Music Group’s recorded music business had earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 25.4%, nearly five times its merch division’s 5.3% EBITDA margin. And while MIDiA expects merch to grow at a 2.8% CAGR through 2030, Goldman Sachs forecasts the global music streaming market will grow at a 9.9% CAGR over that time frame.
But merch has always been an important part of the music business because of music fans’ unending desire for T-shirts and keepsakes of their favorite artists. Consolidation in the merch business began about six years ago as major labels and some indies invested in merchandising companies to diversify their revenues and expand the services they offer to artist clients.
Warner Music Group, for example, acquired German merch specialist EMP in 2018. Universal Music Group acquired boutique merch company Epic Rights in 2019. Sony Music Entertainment made a strategic investment in merchandise company Ceremony of Roses in 2022, and its Thread Shop merch agency purchased the merch division of The Araca Group in 2019. Also in 2019, Indie company EMPIRE took a majority stake in merch/ecommerce company Top Drawer Merch / Electric Family.
Connecting to listeners, not making money or signing to a major label, is the most important aspect of success for a musician, according to a new report titled “Sustainability from Chaos” by MIDiA Research and Amuse, a distribution and artist services company. Even if they reach only a small number of people, 89% of all creators surveyed and 94% of full-time professionals believe that success is defined by moving people with music.
Money matters, too, but relatively few artists say they strive to be superstars. Just 17% of creators and 21% of full-time musicians said being famous is critical to success, while 21% of both groups said signing to a record label is a sign of success. Still, 83% of full-time musicians — and 63% of all creators — defined success as making a career out of music.
The report is based on a survey of 450 artists conducted in April 2024 for MIDiA Research’s Creator Survey.
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It’s an important time to consider how artists define success. Artists have a wealth of options for releasing and financing their music. And there are far more independent artists than artists who have signed traditional record deals. MIDiA estimates that 95% of artists are “artist direct,” meaning they work with a distributor or artist services platform. Only 1% of artists are signed to a major label; the remainder are signed to indie labels.
The vastness of the independent artist market, and their desire for control over their careers, explains why companies are investing heavily in distribution and artist services. Universal Music Group has Virgin Music Group. Sony Music Entertainment has AWAL. Warner Music Group was interested in — but did not acquire — Believe, owner of TuneCore. Distributors such as STEM, UnitedMasters, Ditto and Symphonic have collectively raised hundreds of millions of dollars in funding in recent years.
For these service providers to succeed, they must provide artists with deeper, more meaningful connections with fans. According to MIDiA Research, the old definitions of success are being replaced by newer metrics of success such as community membership (such as Discord and WhatApp groups), sold-out shows and merchandise sales. According to the report, this approach “emphasizes building long-lasting relationships over merely accumulating views and followers.”
In the past, mainstream success was measured by chart position, radio play, awards and cover stories. Those achievements would give an artist a good chance at a sustainable career in music. But in the streaming era, those signals of mainstream success have been replaced by what the report called “misleading” metrics such as listens and follows. Chart position and radio play aren’t seen as meaningful indicators, according to the report, although they have marketing value.
Most full-time, professional artists want to work with a distributor with label services or a self-serve platform with tools that support artists to release their albums and tracks. In fact, these artists would rather work with a distributor (31%) than sign to an indie label (20%) and are nearly as interested in taking a do-it-yourself route (17%) or using a self-serve, online platform with artist tools (16%). Only 10% prefer using a management company to run their businesses, and only 6% prefer to sign with a major label.
Considering all creators — including both professional and part-time artists — a self-serve online platform is the preferred way to release albums and tracks (28%), followed by an indie label (25%), a distributor with label services (20%) and the do-it-yourself route (13%). A major label is preferred by just 7% of all creators. Management companies were the least preferred partner (6%).
Artists surveyed feel that breaking through the noise (54%) is the biggest challenge they face. Not having enough time to create (40%) and not having financial resources (35%) were the second- and third-biggest challenges cited by artists. That “noise” refers to the massive amount of music released every day online. In 2023, there was an average of 103,500 tracks uploaded daily to digital platforms, up 10.8% from 93,400 per day in 2022, according to Luminate’s Year-End Report 2023. Major labels accounted for just 3.9% of those tracks — as measured by new ISRC numbers — compared to 96.1% for the rest of the industry.
Building a sustainable career is made more difficult by the challenges of touring. Skyrocketing costs mean that live music is no longer the best way for artists to make money — but it’s still a goal for many artists and a path to financial comfort. In the report, MIDiA Research recommends that artist services companies provide stipends or salaries for new signings as well as tour support typically offered by record labels: “All artist services companies,” it writes, “need to take a longer-term view on artist relationships.”
In a presentation at the Music Biz conference in Nashville on Wednesday (May 17), MIDiA Research’s Tatiana Cirisano revealed the company’s predictions about the future of music streaming. Namely, the firm suspects that music streaming revenue growth, which has been in the double digits for years, will slow to the single digits, eventually cooling off from about 10% growth in 2024 to 3% growth in 2029.
“We’re in a crazy time for competing for consumer attention,” said Cirisano during the presentation, titled Where Does Streaming Go From Here? She noted that after the pandemic subsided, content providers of all kinds — from music to gaming to video — have had to accept that more traditional, in-person activities are absorbing large amounts of time for consumers once again. “The era of build it and they will come is starting to come to a close,” she continued. “You need to give people reasons to spend time on your platform.”
As part of the return to in-person experiences, MIDiA Research has found that background consumption of entertainment is on the rise, with 18.1 hours of background consumption in the first quarter of 2021 having escalated to 20.6 hours in the second quarter of 2022.
Traditional streaming services — Spotify, Apple Music, Amazon Music and other competitors — also face competition for users’ attention from “non-[digital service provider] streaming,” or platforms where music is part of the experience but not its sole focus, such as Peloton and TikTok. “We are starting to learn that non-DSP streaming is not just additive, it might actually also diminish the cultural capital of [traditional] streaming,” said Cirisano.
While the cultural capital of streaming reached a fever pitch as Spotify editorial playlists, like Rap Caviar and New Music Friday, became many listener’s go-to source for music suggestions, MIDiA’s data suggests that that “soft power” is starting to wane, giving way to sites like TikTok which promote what Cirisano called “lean-through” music consumption.
This can be a positive thing, she explained. While “lean back,” or background, consumption — such as pre-programmed playlists and radio play — is on the rise, young people are also more likely than ever to not just “lean forward” (meaning they program what music they listen to themselves) but to “lean through,” which Cirisano defined as creating social content, curating content and re-creating content with music. MIDiA has found that the average 16 to 19-year-old spends 3.7 hours per week creating content as of the fourth quarter of 2022. More than ever, young people want to be actively playful and interactive with their music, not just listen to static playlists on streaming — though that form of listening will still surely persist.
To Mark Mulligan, MIDiA’s founder, this is a repeat of history, said Cirisano. Prior to recorded music, live bands’ music would be impacted by the audience in front of them. Now, this has taken on a new form in the age of social media, AI and at-home recording technology, signaling a return to interactivity present throughout the long history of music — and marking a change in appetite from the “isolating” and “hyper-personalized” nature of today’s popular music streaming services. “This new generation wants to be more actively involved in music… I think you’re going to have an advantage if you’re an artist that is comfortable engaging with your fans,” said Cirisano.
MIDiA Research has also found that with the emergence of hyper-personalized algorithms on streaming and social platforms, listenership fragments significantly. This leads to superstars having less of an impact, making it harder for that class of artists to earn a fruitful living from just streaming alone. In tandem with creating content and forging brand partnerships, however, these bigger names can capitalize on their fandom. This atomization of the mainstream is also pushing DSPs to differentiate themselves by, for example, focusing on genre, like Apple Music Classical, or targeting audiophile listeners, like Tidal.
In the future, MIDiA’s data suggests that next-generation platforms will create three-sided marketplaces that operate as self-contained virtuous circles. Audiences will consume music, some fans in the audience will also create using the music, and that consumption and participation will signal the algorithm and distribute the music to new fans.
UPDATE: This story was updated May 17 at 7:59 p.m. ET to note that music streaming revenue growth — not music streaming subscription growth, as incorrectly stated in a previous version of the story — is expected to fall to 3% by 2029. It was also updated to note that background consumption of all entertainment, not just music, is on the rise.
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