It is all about technology.
With the current rise of streaming services (DSPs) the music industry reinvented itself after a disrupting decade of illegal downloads and free online music. It is obvious that the established major players in the industry invested heavily to keep their predominate position in the market. With massive IPOs of streaming-music giants Spotify and Tencent in 2018, the music industry has become a bullish place with high interest from investors.
Meanwhile, under the surface of this success, the backbone of the music industry keeps evolving from the inside out. Its content creators, solution-driven start-ups and smart businesses are investing heavily to become the next big thing.
With the rise of blockchain technology, smart contracts and the possibility to tokenise content and revenue, the music industry is firmly adapting towards today's technology, Simultaneous with the apparent financial success of the majors and the high-tech unicorns, part of the industry is demanding more decentralised systems, transparent royalty collection and equal distribution of revenue towards every part of the supply chain.
Keepin' it reel!
Let's be fair about this. The majority of the established major players are not interested in a completely decentralised and transparent market. The core of their business model is simply based on the fragmented, grey area of royalty collection, strategic partnerships and ownership of copyrights. It would be impossible to request a profit-driven company - and its shareholders - to give away their dominant market position to benefit "the people".
Nevertheless even the biggest player can not stop technical development, eventually. Also, investing in technical development is necessary to secure any future position in the market. If you do not do it, somebody else will. Therefore new opportunities arise and we consider the current success of the streaming unicorns - the showpiece of the music industry - as the start of a prosperous decade for the business of music.
What is actually happening in the music industry now and what will be the opportunities of tomorrow? To answer this question we identify three main topics as the most important fields of development for the next years.
1. Technical development and the online world
2. Decentralisation vs centralisation
3. Globalisation and emerging markets
In the next part of this article we will try to identify the opportunities and threats based upon above mentioned bullet points. Herewith we want to provide a better insight in the future chances and changes in the music business.
Technical development and the online world.
It is obvious that the development of the online world, especially down- & upload speed and storage capacity, has had a tremendous effect on the music industry.
First of all it brought us a new format, the MP3. As with the arrival of the CD, this new direction has had both negative and positive consequences. In the one hand music has a much wider reach nowadays, fulfilling the opportunities of globalisation. In the other hand it brought us illegal downloads and a massive decrease of turnover for the entire industry.
Today we celebrate the success of DSPs. New markets get within reach. Streaming services delivered us the first increase of turnover and other financial successes in about a decade. We need to celebrate that. But the MP3, the upgrade in storage capacity and the speed of the internet are almost in the past. Today there are new technical developments which must be on your radar.
Lately it was all about the rise of blockchain technology. As disruptive as it seemed for the financial markets, with the arrival of cryptocurrencies and especially bitcoin a few years ago, at this moment it is a bit silent from that corner. Everybody has an opinion on this matter. We intend to look at the opportunities and we noticed many start-ups using the ICO as a way to fund their new born business models. Blockchain technology is luckily much more than cryptos. It offers decentralisation, transparency and security. We have to be highly alert to ensure the wise use of this powerful technology.
Think about the way the price of a crypto coin is established during the ICO period? Is this really decentralised? Think about the massive changes in value? Is this really secure? Think about the benefits it offers for criminal organisations? Is this really transparent?
Although many claims are being made, we did not see any real changes, yet! We have to give blockchain more time to mature, as we believe this is just the beginning. What we encounter today is just growing up and the hard needed maturity process.
Decentralised vs centralised
Thinking about decentralisation we automatically think of blockchain. Blockchain and decentralisation go hand in hand. At one side we see the opportunities delivered by smart contracts. At the other side we question the credibility of major players in the crypto market.
The call for more power to the people and working class is not new. It has been around for ages. The same goes for the music industry. With the immense power of major records labels, publishers, PROs and now DSPs, the hard working content creator is still not in charge. When looking at a decentralised system we can question of this will ever really happen. We believe that at this moment, today, the technology is already available. We are still in an early stage.
We already discussed that the established players in the market have raised the bar and make it complex to create a decentralised system as a counter part of the current centralised industry. When discussing centralisation in the music industry, we must not forget that one major influence in centralisation is the pro rata model. This model is used by PROs as well as DSPs as a formula to calculate the royalty revenue towards the copyright owners. It favours the most popular artists. These artist are most of the time signed by the major labels. Which have a huge influence in the decision making at PROs and DSPs.
We can conclude that the current industry is heavily centralised and looking at the trend of decentralisation. We are just getting started. There is yet much work to do and we have to seriously consider that for some reason it will just stay this way. If we want to make a difference, we have to do the work to make it happen.
Globalisation and emerging markets
Globalisation of markets has been around for quite a while. The internet offers an amazing reach. For instance with services like Soundcloud and Bandcamp artists can get in touch with a worldwide audience. Well, mainly in the Western world. Also, with the rise of social media services such as Facebook, Instagram and Snapchat, it has become more easy to communicate with a worldwide audience. Especially the development of live streaming spreads a whole new light on how the music industry can extend the opportunities of live performances and music videos.
With the arrival of DSPs such as Spotify a new way to monetise music arrived. Through digital distributors such as Tunecore and Distrokid it is easy to get your songs online and start monetising. This is all good. We believe that there is more to come. What we miss in DSPs is a way to activate the audience and actually the distance between artist and fan has become bigger. Why? Because the music fan now pays a subscription to Spotify or agrees to listen to advertisements by a sponsor. This means that a music fan is not at all paying or investing in an artist but it is in the streaming service.
Also, we noticed that other markets emerge. With the interesting IPO of Chinese Tencent a first step has been made. This is amazing. Now Western artists have an opportunity to reach Chinese music fans. We can ask ourselves which market is next? Is it India or Africa? We do know that revenue out of streaming is at the beginning of its growth and there is yet more to come.
Conclusion! Why did we write this?
This article is meant to give a better insight in today's music industry. It provides a vision of new developments offering many opportunities and also some threats. Therefore we have to carefully craft the next steps.
Looking at DSPs, blockchain technology, emerging markets and decentralisation we can conclude that we are at the beginning of a new era. This results in an interesting opportunity to start investing in music. At the same time we see a quest for decentralisation and troubles when it comes to the direct connection between artists and fans, especially looking at fan activation.
We at AIP are a new arrival in the industry. We intend to create an additional revenue stream for any form of copyright owners, ranging for the creating artist to the releasing record label. Our intention is not to compete with any part of the supply chain. We want to add value to this chain by creating a new way of earning revenue.
With today's technology we are building a platform where you can invest and trade in the future earnings of music, songs and its creators. We believe, looking at above mentioned opportunities, that we are at the beginning of an exciting new era of the music business. Therefore it is now the time to start investing.
At AIP a part of the future earnings of a song is offered to the public. The public can now start sharing the musical content to playlists and just listen to the music on its preferred DSP. This will generate revenue for both the owners of the copyrights as well as the shareholders of the future earnings.
By doing so we build a direct connection between creators, or any other copyright owner, plus a shared interest in their business model, This leads us to a mutually beneficial approach and a connection between shareholders and copyright owners, We believe that this partnership delivers an impressive fan activation opportunity, while creating an additional revenue stream.
What do you think?