Asa Mathat for Re/code
Mary Meeker’s 2017 Internet Trends: What Do They Mean For Music? – Forbes
Mary Meekerâs Internet Trends 2017 report reads like a hybrid between a bible and an annual check-up for Silicon Valley. A Partner with Kleiner Perkins Caufield & Byers (KPCB), Meeker painstakingly outlined key macro and micro trends across industries from gaming and media to advertising and healthcare, filling a whopping 355 pages with data points and case studies validating the use of cutting-edge technologies in mainstream settings.
One intriguing, unspoken pattern emerges from the report: all of the top six companies by global market capitalization in 2017âApple, Google, Amazon, Facebook, Tencent and Alibaba, a combined market value of over US$3 trillionâare making aggressive investments in music. Apple, Google and Amazon are a handful of the players sparring for market share in the streaming wars, alongside more music-centric competitors Spotify, Pandora, SoundCloud, Tidal and Deezer. Facebook is looking to secure music licensing deals with major labels amidst its growing interest in video, and recently hired former YouTube exec Tamara Hrivnak to lead its global music strategy and business development.
Across the Pacific, Tencent Music Entertainment Group just signed a landmark licensing deal with Universal Music Group, atop its existing deals with Sony and Warner; its music streaming and download service QQ Music has over 400 million monthly active users, over three times as many as those on Spotify. Alibaba Music extended its licensing deal with BMG, and launched an artist-management venture with video site Youku; its parent, Alibaba Digital Media and Entertainment Group, plans to invest over 50 billion yuan (US$7.4 billion) in new projects over the next three years.
These developments arrive against the backdrop of the music industry’s financial inflection point, which Meeker painted in broad strokes. Overall recorded music revenue grew by 11% in 2016, after 16 years of an average annual decline of 4%; aggregate streaming revenues finally offset the decline in physical sales, and Spotify alone now accounts for 20% of recorded music revenues worldwide. Video-on-demand is seeing similar growth, with Netflix usage up 669% over the last five years and now accounting for 30% of all home entertainment revenue in the U.S.
As more and more tech behemoths try on music for size, how should the music industry itself react? What follows are four higher-level themes in Meeker’s report that show not only already-existing transformations in the music business, but also a blueprint for new ideas.
1. Streaming curation is not as social as you might think.
On page 176 of her report, Meeker presented an abridged history lesson on the evolution of marketing in media. The network era of the 1950s to 1980s catered to the “Market of Millions”âprioritizing high viewership without personalization. In contrast, argued Meeker, today’s media serves the “Market of One x Millionsââallowing sub-genres, individual tastes and à-la-carte consumption behavior to flourish. In other words, given that Spotify has 126 million monthly active users, the company must learn, track and adapt to 126 million different homepage layouts and user experiences.
This implies that curation drives user engagement on streaming services in an individualized, rather than social, manner. In her report, Meeker cited statistics from a 2015 survey conducted by Goldman Sachs and BPI, which revealed that building and sharing playlists rank dead last on a list of nine possible factors for choosing a streaming service, while the three most important factors for respondents were catalog size (“very” or “fairly” important for 75% of users), new music discovery (70%) and multi-device listening capabilities (70%). Numerous academic papers from the past decade have arrived at similar conclusionsânamely that social, community-driven features on streaming services are relatively unimportant, compared to factors such as price and music quality.
This is not to discount the importance of playlists, which are crucial for user acquisition and retention by way of high-quality music discovery. In fact, Spotify users listen to an average of 41 artists per week, up 40% from three years agoâlikely due to the clever interplay of algorithmic and handpicked playlists on the service. On the artist side, Spotifyâs playlists have proven their ability to propel emerging musicians into the mainstream like never before, while providing invaluable listener data for refining tour and album campaigns.
Yet, this growing breadth of music discovery is arguably driven more by the platform itself surfacing up new content than by the activity of an individualâs bounded social network. Put another way, effective recommendations on playlists like Discover Weekly and Release Radar require crowds, but not groups.
The verdict is still out on whether this presents a lucrative opportunity for Spotify and peripheral services to provide a superior social music curation experience. Spotify recently launched its QR-like Spotify Codes, but only after rolling back its native inbox and messaging features. Perhaps the better vector to consider is vertical, rather than horizontalâusing playlists as social media tools for artist-to-fan interactions, rather than fan-to-fan ones.
2. There’s still a lot of mobile money left on the table.
Meekerâs report makes it clear that media companies should tailor their content and distribution strategies to mobile. While the smartphone market seems to be approaching saturationâgrowing by just 3% in 2016, versus 10% in 2015 and 28% in 2014âdaily engagement on mobile devices has increased twofold since 2014, from two to four hours. China is a particularly prominent case of this trend, as widening entertainment options from the likes of Tencent (including the companyâs Universal deal) have played a key role in the countryâs mobile internet usage outpacing user growth.
At least in the U.S., however, advertising budgets are still somewhat backwards: print accounts for only 4% of daily media consumption for adults but a stubborn 12% of ad spend, whereas mobile accounts for 28% of daily media consumption but only 21% of ad spend. According to Meeker, that leaves $16 billion of potential mobile ad revenue on the table.
The music industry in particular has several reasons to invest more in mobile advertising. Paid streaming subscribers, the segment driving the industryâs growth, prefer to consume music on smartphones over desktop, according to the IFPI. In fact, many entrepreneurs have already gotten the mobile memo, and are bringing the industry onboard. Startups like Tribe and Markerly are helping labels and promoters connect with micro-influencers online, while others like Pacemaker, 8Stem and MetaPop are painting a mobile-first future for remix culture. Producers such as 18-year-old Steve Lacy are weaving iPhone music production into hit albums by Kendrick Lamar, J. Cole and other hip-hop establishments.
One important challenge that remains, particularly in the live and retail sectors of music, is driving more sales on mobile devices, beyond subscription streaming. Mobile accounts for 70% of concert browsing and discovery activity, but only 30% of actual transactionsâsignaling the need for better mobile e-commerce experiences with higher conversion rates.