Music For The Masses

Music streaming has brought a lot of personalization to the experience of listening to music. Faced with the challenge of differentiating their service from competitors featuring substantially the same catalog of music, at a de facto standard price point, streaming services have focused on developing ever-more precise tools for personalizing the listening experience in the hope of keeping users engaged. So, Spotify has its playlists, Apple has its curators, Pandora has its music DNA project.

His_Master's_VoiceMusic rights owners too, in their approach to the streaming business, have also encouraged personalization. Burned badly by free music “sharing” sites, the record labels have been more than happy to reinforce the streaming services’ efforts to turn listening into a personal — and solitary — experience, such as by curating their own Spotify and Apple playlists.

Digital technology itself has also contributed to the bias toward personalization. Use of streaming services is heavily weighted toward mobile devices, particularly phones, which by design are personal, and in general highly personalized devices. Digital distribution also generates the sort of highly granular usage data on which personalization tools rely.

All that personalization has come at a price, however. With everyone cocooned inside their own playlists and cut off from the outside world by earbuds, the communal experience of listening to recorded music with friends or family has become a rarity.

“In the digital era, [group listening is] one of the things that’s been lost,” Amazon’s VP of music Steve Boom, told the Wall Street Journal this week. In designing its new, three-tiered Music Unlimited service, Boom said, Amazon set out to try to restore some semblance of the experience of listening to vinyl albums in a group and reading liner notes.

The new service is tightly tied to Amazon’s voice-activated Echo speakers, which are powered by its digital assistant, Alexa. Users can ask Alexa to play a commentary by an artists as a playlist of that artist’s songs is being streamed, while lyrics scroll across the screens of other devices.

Music Unlimited’s music discovery process also relies heavily on crowd-sourcing, as well as personal usage data. Users will be able to ask Alexa to “play the new Green Day song” without knowing the title and have it start playing instantly. But Alexa is also smart enough to know what the user means even if the user doesn’t.

“If you say, ‘play Adele’s new single,’ it’s now the third single off the album,” Boom explained. “All the songs have the exact same release date, so we had to train Alexa to get smarter about looking at songs that are rising the charts and are the newest songs being played on the radio.”

The reliance on voice activation is also meant to coax music off the phone.

“There’s a reason we’re focused on the voice experience — we believe music streaming is entering a new phase,” Boom told Billboard. “Historically, it’s been driven mostly by smartphones, but we believe quite strongly that there’s a new phase of growth coming for the music industry, and that’s connected smart devices. We wanted to really double down on our investment in voice and extend Amazon’s lead in the home.”

Amazon’s strategy for Music Unlimited isn’t driven only by its desired to make listening to recorded music more social, of course. The Echo speaker is fundamentally an in-home access device intended to eliminate friction from the process of ordering more stuff from Amazon. So in that sense, the new streaming service is something of a Trojan horse, designed to get more Echos into homes. But there’s other evidence that consumers are yearning for a more socially immersive experience around music than they can get from their smartphones.

In a provocative report released last week by Needham Insights, analyst Laura Martin argues that the real impact of streaming has not been in the market for recorded music, where industry revenue in the U.S. has been essentially flat since 2010, at roughly $6.8 billion. Instead, increased streaming is driving overall demand for music, most of which is being captured by live performance revenue, which has grown by 11 percent over that same period, to $9.3 billion.

recorded-vs-live-music

Ticket revenue has grown 10 percent over the past five years, to $7.2 billion, while sponsorship fees have accounted for a steady 22 percent of total revenue from live events, reaching $2.1 billion in 2015.

“As ever greater amounts of music are made readily accessible through on-demand streaming and downloads, consumers are presented with more and more opportunities to listen to their favorite artists, as well as discover new ones with unprecedented ease,” Martin writes. “Together, this sampling creates a higher level of connection between consumers and artists. This, in turn, creates a stronger desire among consumers for a more immersive music experience, which is satisfied via seeing their favorite artists perform in person, we believe.”

From industry macro perspective, moreover, Martin argues, live events are the better end of the business to be in at this point than recorded music. Not only is the recording side of the business not growing, as streaming accounts for an ever-greater share of recorded-music revenue the industry is becoming more dependent on the health of companies like Spotify, Pandora and Tidal that are yet to prove they can make a profit from streaming music.

“By 2015, 19% of global recorded music revenue came from streaming (up 45% year over year), of which Pandora and Spotify represented 76%,” she writes. “Because both of these companies lose money as businesses, until their financial futures are secure, a meaningful proportion of music industry revenue is dependent on public and private investors’ willingness to continue to fund their losses. In addition, any “Black Swan” event (like 9/11) that closes capital market access could disrupt the entire music industry virtually overnight.”

The live performance business, in contrast, is not only growing but promises significant near-term upside as technologies like RFID and cashless payments become more common.

“RFID technology should facilitate cashless payments for purchases made at festivals and live events. This should be embraced by both festival fans and managers because lines will be quicker and easier for fans,” Martin says. “Shorter lines could generate 20% more revenue than using cash or other physical payments, we estimate. As the overall experience of festivals and live events improves, this improvement should bolster live event revenue even further.”

Amazon isn’t in the live event business, or course, and its new streaming service faces considerable competitive challenges. But the trends Martin highlights suggest that a strategy that emphasizes the social and communal aspects of listening to music could uncover value that a personal playlists misses.

 

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