Audio Collaborative 2018: Music Market Outlook - Changes and Opportunities

December 20 2018, 14:35
This article wraps up the summaries I have been writing following the Audio Collaborative 2018 conference. The event dedicated to the latest audio trends was successfully promoted in London, UK, for the fifth consecutive year by market research firm Futuresource Consulting.
Combining inspiring presentations, discussion panels, and great summaries of Futuresource's market data and forecasts in front of an audience predominantly consisting of industry professionals, I think this excellent content deserves to be shared. As in my previous write-ups that are now available here  and here, I'll try to summarize some key content and add some context and perspective, this time focusing on the panels on trends and opportunities in the music market and the gaming sector.
"Music Market Outlook – Who Dares Wins" panel. Music streaming is one of the greatest stories for the industry in 2018 - and it's closely connected with voice...
And I start with the panel "Music Market Outlook – Who Dares Wins," where Futuresource's analyst David Sidebottom shared the stage with Pete Downton, Deputy CEO of digital music and radio services B2B platform and direct-to-consumer music download store 7digital; Christian Harris, Head of Digital Entertainment at Three, one of the most dynamic network operators in the UK; and Paul Firth, Head of Amazon Music streaming service. A timely topic, given that music streaming is one of the greatest stories for the industry in 2018 – and it's closely connected with voice...
For this panel, Sidebottom proposed looking at the music market transition to streaming and what will happen next. To provide some context, he mentioned how in the United Kingdom, already one in every five people pay for a music streaming service. "Even though that can be considered mass market level, the question is what will take this market to the next level?"
To provide the necessary background as to where the music industry currently stands globally, Downton, offered a short presentation combining Futuresource's own data with the perspective of a key provider of content such as 7digital. And he started by presenting a slide that provides an overview of the recorded music industry and its evolution over time.
The story of the recorded music industry... so far. Note the impressive growth of streaming music subscriptions just in the last three years.
This graphic is certainly impressive in the way it shows how big the music industry was in the good old days of CD and physical media, compared to what it became with digital downloads. It also serves to show how streaming is catching up impressively fast. "Downloads where never a thing," this shows. "They really are a tiny blip in the history of recorded music," as Downton puts it. "Still we are not even nowhere near to where the music industry has been in terms of business volume in the CD era," he added, noting that in the CD era the global market represented about 500 million consumers buying records.
"Since then, we now have another 3 billion people connected with mobile devices, most of them middle class active users. That shows how large the upside can still be for the industry." As Futuresource's data shows, in 2019 we will be reaching around 200 million paying music streaming subscribers worldwide, combining all the available services.
So, how will things evolve? As Downton described, 3G technology was the key enabler for the mobile transition, which paved the way for the transition to digital downloads, but volumes only happened after 2007, after Apple launched the iPhone. Spotify arrived after the iPhone was already in the market and took off with 4G networks and broadband connections in the homes. "Many companies in the digital music space arrived too early, and the technology pieces were just not there," Downton added.
He concluded the presentation by illustrating how technology was effectively the enabler for this transition to streaming services. Since in 2016 Amazon introduced Alexa, smart speakers have been a clear incentive for new users to subscribe to those music services and the numbers have quickly increased. But looking ahead, Downton pointed out the arrival of 5G networks, the promise of thousands of new types of connected devices, and the evolution of voice interfaces, as the enabler of "the perfect storm" for the music industry. "Because its music and audio that's driving the usage of these devices," he highlighted citing the fact that connectivity in 5G will make the whole experience better, with easier access to music.

Interestingly, the 7digital executive also mentioned how his service already provides a catalog of 65 million songs, while 7digital is ingesting another million to its platform, almost every month. "There's an abundance of music in the world and we have access to it in real time." But how do we make music more accessible in people's lives? That's where Downton believes the role of machine learning will be critical.

Providing a glimpse of what a company like 7digital is doing and where it sees the market progressing, Downton also stated that new companies will be expanding music streaming offerings and that many of those companies will be those that already have a strong connection with consumers. Like Amazon is doing with its commerce platform, Downton believes many other retailers can play a huge role in the growth of music in the next period. "Retail is a 22 trillion-dollar industry. 80% of which still happens in physical stores with cash. The disruption is only just begun in retail on a global basis," he stated.
To illustrate with some real examples, Downton explained how large companies like MediaMarkt/Saturn (the largest electronics retailer from Germany, which is both a client and shareholder of 7digital) are adding music services to its expanding online commerce platform. Its new JUKE music entertainment service is already considered one of the best in Germany, and combines radio stations with music streaming, appealing to a vast demographic. As Downton highlighted, MediaMarkt/Saturn's turnover is over 28 billion USD - "which is more than the whole music market in its peak years." And the group is now investing to expand its digital retail operations to more countries, and they are looking at music in their platform, to replicate what they used to have in their physical stores.
There's room for more competition and different price points in music streaming services. Pictured is JUKE, a music streaming service from German retail giant MediaMarkt/Saturn.

And finally, "5G will connect all our cars," Downton stated, mentioning 7digital's ongoing cooperation with Houndify the music discovery, natural language processing, and AI open platform that enables any OEM manufacturer to implement voice interfaces. Houndify, a former rival to Shazam, the British company that was recently acquired by Apple, has already announced deals with automotive brands such as Daimler (Mercedes), Peugeot, Honda, Hyundai, and is working with the Chinese company Lenovo. All companies that want to leverage connectivity to offer voice experiences to their customers. "The car industry is going to be the core of what happens in the next five years in music," says Downton. "Music and audio do really well in that context."
Before the other members of the panel added their perspectives, Downton also mentioned a potential disruption coming from musicians themselves, using other forms of transactions, based on blockchain technology, a technology he believes will "help the industry scale, much more than it has ever done historically."
From Harris' perspective, the rise of the algorithm and discoverability was the big thing for the music industry in 2018, "Offering incredible ways to discover new content, and profile the user." And from his perspective as a head of services for a big mobile network operator, Voice will have a massive impact in the music world, allowing even more users to discover content.
Firth, head of Amazon Music, also highlighted the importance of voice in what is changing the industry, bringing the music streaming experience to more users. In his opinion, the pure simplicity of accessing the service and discovering music simply using voice will enable further growth. "People that would never be in the market for music streaming will start engaging with one," he stated, explaining how getting a music streaming service is the next most natural thing to do after getting an Amazon Echo speaker. And of course, he also added how Amazon Prime is helping to get more people involved with the streaming experience. 
Firth described the first contact with a smart speaker to play music as a transition to a more natural way to discover music, and how Amazon is trying to make that easier and more rewarding. And he gave the example of a user asking Alexa to "Play Happy 80's Pop," instead of asking for a track or an artist. For the request, Alexa will connect a playlist based on those three keywords. The metadata needs to be accurate and know what songs were released actually in the 1980s. The algorithm needs to select those tracks among millions in the database and finally the playlist is personalized based on what the user has listened before. "A complicated process becomes really simple for the user. The best technology does that. Helping to make those services mainstream," he added. And later we would state also that, "Amazon wants to make Alexa a real assistant for the services. A best friend that recommends things before the user even asks."
The next reference to the panel was rather interesting. Sidebottom mentioned the fact that, until 2017, music services were helping to sell wireless speakers, such as Sonos, while now smart speakers are actually driving music streaming subscriptions. According to Firth, it doesn't really matter because both will help each other. From buying entry-level speakers, users will eventually buy a better and much more expensive speaker because of the time they spend listening to music. The problem, from his perspective, is that while around 30% of Amazon's clients spend money on music every month, the others are not willing to spend $120 a year for a music streaming service.
The panel also commented on how the consumer's relationship with music services will evolve. Downton added that the sales of Amazon Echo speakers actually lead to a disproportionate number of Amazon Music subscriptions. Because people don't necessarily think about asking "Alexa play that song on Spotify." And he went on to mention how users also value curation. "The biggest challenge for users that are not music enthusiasts is not what to play first. Is what to play next. No one has time to think what they want to hear during the next 50 minutes."
Pete Downton, Deputy CEO of 7digital points out how music streaming services can achieve further growth and reach a larger percentage of the population.
The next topic for this panel was "How will these services look like five years from now?" All panelists agreed that it all depends on content and metadata and making experiences easier. Things like reconnecting music enthusiasts with lyrics, which people haven't discovered yet but are part of the music experience, offering higher quality experiences, and in general, applying all the rules in the book that the music industry knows for a long time to be true. Also, getting those services available in the car is the next big thing on the list, and offering other types of content, of which podcasting comes up high on the list.
Firth agrees that storytelling will always have an audience and it's particularly fit for smart speakers. In his opinion services just need to make podcasting simpler, allowing users time to find a podcast through voice and decent metadata. "Deep learning will make it easier and easier," he stated. Harris also added another interesting perspective, where telco and network operators will add value in the process and can build a profitable business. Not simply by offering aggregation of the multiple services, as they do today, but offer the infrastructure to improve the user experience by selling big data to institutions and service providers. Harris also stated that there is "space for more competition and price points."
With the growth of revenue from streaming music, and because things are converging in the right direction in a promising way, it also gets easier for companies to invest in new technologies and services to offer the consumer, giving them more freedom to experiment, without being too tied by the potential ROI. Harris specifically mentioned working directly with artists, record companies, and the fan bases in an active way, helping to drive sales. "Collaboration is what makes the music industry amazing," he stated.
Opportunities in the Games Sector
The next panel brought the perspective of the "new" thing that was missing in the Music panel discussion, and that's why I reversed the order from the actual event.
"The Opportunities for the Music and Hardware Industry in the Games Sector" panel. 

As part of the panel titled "The Opportunities for the Music and Hardware Industry in the Games Sector," Tristan Veale, analyst from Futuresource discussed this rather interesting topic with Rich Robinson, the Senior VP of Warner/Chappell Music responsible for licensing music for all platforms, including gaming; Daniel Jackson, CEO of CORD Worldwide, responsible for licensing original music for movies, games and brands in general; and Stephen Root, VP of Creative Services at Codemasters, and a composer for games who currently handles all the creative sides of game production.
As Veale highlighted, gaming spending reached $130 billion by the end of 2018, and is now approaching the size of the home video market, while the pay-TV market worldwide represents $230 billion. Gaming is a market segment that has seen growth across all areas, including consoles, growing at 6% per year, and represents a massive opportunity for the music that goes into it and also for the audio hardware manufacturers. While smartphones and tablets are a huge addressable base for gaming, they remain relatively small spend compared to PCs and consoles, while Esports and competitive gaming is the next big thing. And in all those platforms, music matters for games. Something on which the entire panel agrees.
Gaming hardware and software is getting better every year and gaming now offers an amazing quality experience, including some of the best immersive audio content. While in earlier days soundtracks were a second thought, these days triple-A games all feature original music, recorded and produced with larger budgets than many movie soundtracks. Virtual worlds are brought alive by music and sound. And even mobile gaming now offers a much-improved audio experience. Sound branding also becomes a part of the whole gaming experience.
Robinson confirmed that gaming is seeing a massive shift, where the platform on which the games are running affects the type of music used. Like record labels are seeing in the music streaming services, the platform users are listening from affects the type of music they listen to. "The massive rise in streaming has brought about the ability for different genres to thrive, and in gaming is a similar thing, where the different music it uses gives it a different angle. From a music producer's standpoint, it provides a direct route to the consumer."
There are also personalized experiences, where users can choose their own music while playing the game, in contrast with predefined playlists that are part of the experience of other games. Jackson agrees that there is a future for AI and machines to write music and there's already software for creating music on the fly. But he also confirmed that the industry is seeing interesting deals that are being done with streaming platforms such as Spotify to integrate with games. With gaming now part of the mainstream, that will be another important avenue for consumers.
From the perspective of a game creator, Root agrees that personalization is a good thing, but the audio and the music remains a very important part of the experience and the game design, creating a marriage between the audio and the narrative of the game and telling the story using all elements. Ultimately, consumers have the choice of turning sound off or choosing sound elements of the game, especially for a game that is available for a long time. But personalization, including providing an intelligent playlist for the gamer is inevitable, he believes. "Both sides are always going to be there."
Gaming already represents a $130 billion USD business in 2018, now approaching the size of the home video market.

Esports is the other new experience with a large impact on gaming. The playback of music is difficult in that environment, limited to introductions and transitions. But professional gaming players are now huge influencers and they are becoming stars, with millions of loyal followers and subscribers. Again, providing a great promotional platform for music.
That's why record companies are now creating specialized labels to license music for games, and labels are now creating music that targets gaming. As Robinson mentioned, among the new artists that are being signed today by his company, many are very conscious of the gaming market potential, and some have the specific goal of targeting gamers. "Younger artists are having a gaming conversation with record labels and want to push music in that direction." He even mentioned a VR gaming platform that recently launched its own pop band as an example of something that can also be a big market.
As Futuresource highlights, the investments in gaming are colossal and now even famous musicians are investing in Esports teams. As Robinson confirms, "I have no doubt that the two elements, the live element in-arena, is going to be a huge opportunity for selling tickets, which means you have to put on a show and you will need music. And there's music for the channel itself. The media rights for Esports are going to be really big. In some respects, the music opportunity for games is not the game itself, it's all about the people in the arena who want to party, and the people who are watching on YouTube."
Artists are creating music specifically for those audiences and gaming platforms. And record companies are looking at social influencers as the latest promotional avenue for music and artists. While in the past a new artist would be promoted on the radio and standard press channels, now YouTube influencers, and gamers are on par with the traditional media outlets and in some cases have overtaken them. "That's where the audiences are. They can reach millions of people multiple times a day, wherever they are, at the touch of a button."
The panel also discussed transposing the media impact of movie and TV content soundtracks replicated with games. Root agrees that game soundtracks can explore license tie-ins, like movies, including when there's a game inspired by a movie, or a movie inspired by the success of the game (which happened often in the last few years). Big soundtracks that are part of the games themselves, can become huge products. As Robinson mentioned, FIFA games can have a massive influence on artist’s careers given the sheer size of people in the game community. "If you have a track on the FIFA game, you probably will have over a million streams, even if you don't promote anywhere else. If that's part of a compilation, it could be pretty successful". FIFA games actually identify which music track the gamer is listening to, so it makes the process seamless.
Jackson specifically mentioned that his company started a soundtrack label for the gaming industry three years ago, and decided to start publishing vinyl to sell video game soundtracks. Special editions, retailing for $50 can reach thousands of sales. His company has already done about 20 vinyl releases of that kind, and all have sales from 5,000 to 20,000 units. "Not the songs that are included in games like FIFA, but the actual soundtrack, the background music. This can be popular enough that people spend $50 to $100 to listen to it. Music is another part of merchandising of the game, and if you properly license the music and if it's good quality music, it could have a life of its own, either after the game has been released or - if the music is available - used to tease the content and publicize the game." Something that is increasingly important because of the huge lead times currently needed to build a major game title. "Like movie culture was mainstream and you could have a massive hit, ahead of the movie, that's definitely available as well in the games industry," he adds. 
"Gaming can be the largest platform available for an artist to be heard. Having music featured in gaming is the largest market there is out there," adds Root. And there's also the fact that people play a game during a whole year, while even a big movie tends to come and go quite quickly. Other titles last for more than 10 years, with people playing consistently, he mentioned.
Gaming is by far the largest platform out there for a music artist to be heard. More music is going to be launched targeting gaming platforms. And Esports will demand more music and high-quality audio for the live experiences.

As the gaming industry represents $130 billion in revenue, while the music industry is in the $20 billion mark, maybe it’s time for the hardware manufacturers to start paying more attention to games. This was the next topic addressed by the panel and an important take-away message,
As Jackson asserted, audio hardware manufacturers should pay attention, because "gamers" are a larger audience now. "I grew up with people trying to sell me home cinema. I think the products for the new generation is more about Esports, home gaming, and how to raise the bar on the immersive listening experience. Where all involved are into putting music and audio into the games. What frustrates me is that often that's not heard on the best quality systems. I think from a hardware perspective I would love to see more people addressing the gamers and getting them to start investing in very high-quality audio, so they can hear the stuff we make in the same kind of fidelity that we make it."
The challenge is that gaming is very diverse in terms of the platforms, content, and audiences. The good thing is that there's a place for everything, and mobile devices are now being able to play content of extremely high quality. The whole panel agreed that, everyone should start targeting the games platforms. As Robison summarized, "The entertainment businesses will merge. A premium game actually is part film, part music, part gaming, and it will stretch because there's always going to be quick packages that are played on mobile, and immersive, six-month home experiences."
And there were so many more great insights and speakers... Hope this will trigger your appetite to attend the next Audio Collaborative event next year.

Read more summaries of Audio Collaborative 2018:
Audio Collaborative 2018 Key Takes
Voice Pervades the Smart Home
Live Sound, Pro Audio, Artists, and the Audio Industry​
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