Music streaming, a business which brings in more than half of the recorded music industry’s revenue, has grown by leaps and bounds in the last few years. This gigantic part of the music business has become extremely vital for the survival and boom of the industry. However, all isn’t hunky dory when it comes to the streaming business, it has been contemplated that the streaming economics are facing a potential crisis, the suspect is none other than playlists.
The problem does not lie in the market itself; as we know it, in Q1 2019 streaming revenue became more than half of the recorded music business and Spotify and other streaming services hit 100 million subscribers. Nor does it even lie in the perennial challenge of elusive operating margins. No, this particular looming crisis is both subtler and more insidious. Rather than being an inherent failing of the market, this crisis, if it transpires, will be the unintended consequence of short-sighted attempts to game the system. The root of it all is playlists.
Streaming makes casual listeners ‘more valuable’ than aficionados. Streaming has taken the most valuable music buyers and turned them into radio listeners. Now, as the market matures, it is taking more casual music consumers and also turning them into radio listeners. Although curated playlist penetration is still low (just 15% of streaming consumers listen regularly to curated playlists, fewer than listen to podcasts – as per the MIDiA report), the impact on listening over indexes.
While a lean-forward, engaged music listener may select an album or a handful of tracks to listen to and then move on, casual listeners might put on a 60-track peaceful piano playlist in the background while studying, doing housework, etc. The point being made here is that casual fans now have the potential to generate more streams than the actually engaged listeners.
“With casuals being the next wave of streaming adopters, their impact will increase. But despite being ‘more valuable’ they will also reduce royalties because more streams per user mean revenue gets shared between more tracks, which means lower per-stream rates. The music industry thus has an apparently oxymoronic challenge: it is not in its interest to significantly increase the amount of media consumption time it gets per user, but instead it will be better served by getting a larger number of people listening less!” the report opines.
Current market trajectory points to more streams per user, which – for subscriptions, where royalties are paid as a share of revenue – means lower per-stream rates.
Playing the game
Now, based on this growing background consumption trend, streaming services, labels, songwriters and artists are all making matters worse by gaming the system whether that be by structuring songs to work on streaming, creating Spotify friendly sounds or simply gaming playlists.
With playlists being so important for both marketing and revenue, it was inevitable that people would seek out ways to attain any possible advantage. Consequently, playlists are becoming gamed, whether that be major labels getting more than their fair share of access to the biggest playlists or ‘fake artists’ filling them out.
“Most recently, Humble Angel’s Kieron Donoghue identified a cynically constructed playlist called ‘Sleep & Mindfulness Thunderstorms’(all terms optimised for user searches) that contained 330 one-minute songs of “ambient noise of rain and a few thunder storms thrown in for good measure”. The one-minute track length ensures they are long enough to qualify for a royalty share, but short enough to ensure that a typical listening session will generate a vast quantity of streams, thus generating more royalties,” the report explains.
The twist to this story is that this playlist was created by Sony Music and the artist behind all these tracks appears to be a Sony Music artist. Crucially Sony isn’t the only one doing this, with UMG getting in on the act and Warner Music signing an algorithm.
Fixing the problem with playlists
The casual listening problem will not fix itself. In fact, despite labels worrying about declining ARPU the only way they can keep ahead of declining streaming rates is by increasing their share of streams. That means more of this sort of playlist gaming activity, which further accentuates the problem.
There is however a simple solution: reduce per-stream rates for lean-back playlist plays. This would ensure the songs people actively seek out get better payouts. The demarcations between the lean back and lean forward used to be elegantly simple (e.g. Pandora versus Spotify), but now curated playlists and other forms of streaming curation are supporting radio-like behaviour on the same platforms as on-demand. We can all agree that it is time for royalty models to catch up with this new reality.
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