Spotify's Triumph and the Zero-Sum Reality for Music Business
Edition 13
Hi folks
Happy Saturday! Welcome to The Industry Playlist 🎵
Had a bit of a tech snafu this week with my laptop screen deciding to give up on me. Hence the delayed weekly post. Thankfully Substack’s recommender algo works on social graphs (different from viral graphs that social media is based on) and so I have only myself to be accountable to.
This week I also had a bit of a fan moment. No, I didn’t run into my favorite band from high school. I nonchalantly asked one of my fav writers a question (Chris Dalla Riva undertakes data-driven analyses about the musical trends) if video games music are tastemakers - to which he responded in a feature on his Substack. 🎉
Finally, this week I really enjoyed listening to this french duo collab of an electronic producer (Gabriel Gosse) and a trumpetist (Béesau), creating some sublime sound. Sounds like this is what makes you miss orchestras, which sadly are on the decline. Check out Childhood Memories 🎵
This delayed week’s post, I deep dive into Spotify’s ascendancy replacing UMG as the biggest music company in the world, and how the same digital streaming economy created by Spotify is now become a zero-sum game where only a few folks benefit.
Let’s get to it.
🪁 SONIC SHIFTS
Spotify is officially the biggest music company in the world
It only took 18 years to surpass a 90 year old behemoth (UMG). Things are looking good for Spotify even though streaming growth, a major driver for the music industry in recent years, has noticeably slowed down. Sucks for major labels though, UMG shares slumped 20% after reporting only 6.5% growth in subscription streaming, significantly lower than Spotify’s 21% growth in premium revenues. With Spotify becoming more aggressive in their pursuit of profitability, major labels must feel sidelined given Spotify’s push has been big in AI music. The dependence of major labels on DSPs has reached a point where their future hinges more on the success of these platforms rather than their own efforts to discover and promote exciting new music.
That’s why all the major labels are considering and undergoing aggressive restructures. Universal Music UK has announced a major restructuring, creating two large label groups to streamline operations and achieve new economies of scale. HYBE, the company behind BTS, is also restructuring its global business as part of a new strategy called HYBE 2.0, and Warner Music Group is experiencing leadership changes.
It’s no surprise that Spotify, despite not being a traditional music company, has become the largest music entity by market cap, surpassing UMG. The major labels' over-reliance on Spotify's aggressive growth has backfired, putting them in a vulnerable position. As Spotify seeks to boost profitability, it seems likely that major labels will face increasing market pressure to innovate or die.
Misaligned incentives has made music business a zero-sum game
The music industry has become a zero-sum game, driven by tech interests that prioritize streaming volume over quality, harming music culture in the process. Platforms like Spotify focus on hits to drive engagement, sidelining niche genres and emerging artists who struggle to gain visibility in an algorithm-driven environment. This pro-rata streaming model benefits only the most popular tracks, leaving many talented artists undercompensated.
As a result, we've drifted into a passive listening culture and witnessed the decline of grassroots live music. Traditionally, artists built their careers on stage before transitioning to streaming. Now, they must excel in streaming to get stage time, undermining artist development. The rise of AI-generated music threatens to flatten culture further, producing endless streams without the costs of human artists and pushing traditional musicians aside. This tech dominance homogenizes the musical experience, reducing its richness and diversity
To reclaim music culture's vibrancy, the industry must realign financial incentives, prioritize fair compensation, and support emerging artists. Solidarity leadership in music can address these challenges, ensuring technological advancements benefit everyone in the ecosystem.
📚 CURATED INSIGHTS
🚨 Manifesto for Proactive Innovation in the Music Business - This is gold. Here is a way to think proactively how music business is evolving and building something new in such a dynamic space.
The Art and Science behind Spotify’s Summer Hit Predictions - TL;DR it is a blend of cultural expertise and data. Short interview with Spotify’s Global Head of Editorial Sulinna Ong.
The Rise of Concert Films - Lots of new concert movies in the last few years - Taylor Swift, MJ, BTS. Why so? Apart from driving fan engagement and monetize new demographics, movie distribution economics seem to be the biggest drive. It’s become more profitable than ever and hence we might be seeing a rise - it all started with the deal that Taylor Swift struck to distribute The Eras Tour, keeping 50% of ticket sales which is unprecedented in the industry. More folks are getting in on this arrangement now more than ever.
The million-dollar business behind elevator music - Bossa nova versions of great musical hits have invaded restaurants, offices, elevators and television programs. But where do they come from and who’s behind them?
Music and the AI Opportunity - Industry lowdown on where music startups and investors are putting their money in. Yes, its AI. No, its not all in music creation/generation.
🔥 KEEP TRACK OF
TikTok for small (physical) events - I’ve been saying this for a while, we need investment in more analog behaviors, particularly small intimate group events (music often times is central to the vibe). Future of social experiences is small and exclusive. POSH is essentially a ticketing company that just raised $22 million to try to make this a reality.
Conor McGregor launches Greenback Records - Who would’ve thought that UFC superstar would launch a music label. I think we’ll see a lot of celeb/influencer led labels in the future - we live in the world of influencerization of everything.
Web3 music gets its own trade association - W3M is working on a ‘Music Protocol’ which it says will help members to “transform music rights into dynamic assets that adapt to the evolving digital environment”. I wrote in Edition 05 how Web3 is not done with music yet.
❄️ INTERESTING STUFF
How to talk about your creative work at a party - The title should be sufficiently intriguing to open it.
Restaurant Critics Can Still Break the Algorithm - Music critics have a tough time being tastemakers in the age of algos, but restaurant critics might be our last frontier against AI.
That’s all for today. We’ll be back in your inbox next week.
Thanks for reading,
Rohit
Good pice. Would love to know more about why the incentives and challenges have developed the way they have.