MBW Views is a series of exclusive op/eds from eminent music industry people… with something to say. The following comes from Kim Bayley, Chief Executive of the UK-based Entertainment Retailers’ Association.
When the leader of the most powerful music company in the world speaks out, it makes sense to pay attention, and accounts of Sir Lucian Grainge’s recent address at Universal Music’s Capital Markets Day presentation made interesting reading for streaming services and retailers in particular.
Grainge’s comments provide a positive insight into the evolving relationship between record companies and their “go-to-market” partners, but point to at least one significant potential area of tension.
The key and opening soundbite of Grainge’s address to investors was clear: “Streaming has resulted in a quantum leap forward in music access and monetization and streaming will continue to propel many years of industry growth.”
As Sir Lucian acknowledged, the single most important driver of record industry revenues is now the success of streaming services in driving subscription income.
“no one takes out a streaming subscription just because a particular artist is releasing a new album.”
What was long the core competency of record labels, breaking new artists, has an ever-lessening bearing on the industry’s financial fortunes. New releases are vital to creating engagement on streaming platforms and generating physical sales, but financially, their significance is limited.
Put it another way: no one takes out a streaming subscription just because a particular artist is releasing a new album.
In value terms – factoring in the impact of the inclusion of higher-priced physical formats – the top four albums of 2023 combined accounted for barely 1% of UK recorded music revenues.
Catalogue is more important than ever before, high-profile chart hits generate less cash than ever before, and the core marker of success for recorded music is the volume and value of streaming subscriptions.
This is significant because it marks an inexorable change in the balance of power between record labels and the streaming companies, which now generate the bulk of their revenues.
Streaming companies are not mere “outlets” – they are market makers.
Historically, record companies long held the whiphand in their relationship with their retail partners, and they were not above using their power.
The more equal power relationship between labels and their retail partners that streaming has created is, I believe, fostering a much more cooperative music business in which each side sees a mutual benefit in helping each other grow and flourish.
We are equal partners with each side having its own core competency – record companies supplying music and streaming companies driving revenues.
A mutual recognition of these complementary strengths looks like a solid basis for a positive relationship.
Sir Lucian is on the money: we should not limit fans’ ability to express their passion for music to just £11.99 a month. Many want to spend more – to get more. The key question is how that demand is best-satisfied.”
Potentially more problematic is the other focus of Sir Lucian’s address: the opportunity to better service “superfans” of individual artists with more targeted and higher-priced goods and services.
ERA can claim some track record in this area. Back in 2018 we identified in a blog for MBW the need for the industry to nurture (even treasure) its superfans.
We followed this up in 2022 with a groundbreaking research study on fandom which gratifyingly pointed to many of opportunities highlighted in Universal’s investor day programme last week.
Sir Lucian is on the money: we should not limit fans’ ability to express their passion for music to just £11.99 a month. Many want to spend more – to get more.
The key question is how that demand is best-satisfied.
The obvious answer is retailers. Just as streaming services did the heavy lifting of returning the recorded music industry to financial health in the digital domain, so it was High Street retailers who first discovered the re-emerging demand for vinyl and helped set it on its path to become the revenue generator it is today.
The simmering D2C conversation…
History shows that record companies need entrepreneurial intermediaries to effectively reach the consumer. These can be established retailers or the new breed of direct-to-fan intermediaries.
There is an alternative view, however, and one alluded to by Universal CFO Boyd Muir in the same investor day presentation.
Muir revealed that Universal’s own D2C business is now generating €548m from 1,300 individual stores – around 5% of UMG’s total revenue.
From a margin perspective, cutting out your retail customers to sell direct clearly has significant advantages, but it is not necessarily a route to market growth.
“A mutual recognition of each other’s strengths will be key to really make the most of the superfan opportunity, just as it is in streaming.”
Just think back to 2012, the historic low-point for vinyl. At that stage record companies were busy furiously deleting as much vinyl as they could. It took the hive mind of third-party retailers – in this case indie stores – to discover an opportunity in adversity.
And so I believe it will prove with D2C and the pursuit of the superfan. Just as Sir Lucian now acknowledges, it is intermediaries – previously known as retailers – who are best-placed to drive revenue from consumers.
A mutual recognition of each other’s strengths will be key to really make the most of the superfan opportunity, just as it is in streaming.
When it comes to Superfans, no one knows how best to engage them than the expert retailer.Music Business Worldwide