As the name suggests, the Business Breakdowns podcast dives deep into the operations of select businesses. In this episode, we hear about the paradigm shift that streaming is causing (and will continue to cause) the music industry. Like many industries, after years of what could be described as stagnation, technology has fundamentally changed everything from both the perspectives of artists and music companies, such as Universal Music Group.
Traditionally the music industry has been close to an oligopoly for which Universal Music Group is very much the main player. With the advent of the current day streaming platforms such as Spotify, this oligopoly has been somewhat broken.
With no barriers to entry, the resultant volume of music produced (and uploaded) to streaming platforms has exploded to approximately 22 million p.a., vs a normal ‘pre streaming’ of 1.5 million p.a. when it was largely controlled by the oligopoly of major record labels such as Universal Music Group.
" The restrictions and cost to create music have been removed – nowadays all you need to create music is free software and a laptop. "
"The current state in which we all consume music is not going anywhere, so how does a marginal song produce a ‘cut through’ in such a fragmented market?"
The role of the music labels such as Universal Music Group has changed. They have the ability to get ‘cut through’ for their artists amongst the mass of existing music through their size & influence. It is very difficult for artists to get this ‘cut through’ on their own, especially when you consider streaming as a top-of-funnel marketing technique for artists to drive the more substantial revenue opportunities through touring. In the new environment, you could argue that recording labels like Universal Music Group are more important than ever.
In addition to this, the unit economics of streaming for an artist has changed the revenue profile of songs, from being mostly generated in the shorter term (approximately 90% within 24 months) to more annuity in style over the longer term, as older songs are easier to access now. This is being recognised in the value of the back catalogues of music, where Universal Music Group dominates & continues to allocate capital (e.g. Bob Dylan and Sting sold their catalogues to Universal Music Group for approximately US$400m and US$300m respectively).
Universal Music Group has adapted to the world of streaming and as a result, strengthened its business model, but the next paradigm shift is blockchain and NFTs. It will be interesting to watch this develop over time.