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Tim Ingham is the founder and editor of Music from all over the world which provides information, analysis and jobs to the global industry since 2015. This is the first in a series of weekly columns for "Rolling Stone".
They say if you want the truth, follow the money. So if you want the truth behind In truth, you should probably follow the richest people in the world.
according to Forbes, Len Blavatnik is the 27th richest individual in the United States, with net worth of $ 17.9 billion.
In July 2011, Blavatnik, via its Access Industries website, paid $ 3.3 billion for the acquisition of Warner Music Group – the third major player in the global music market and owner of well-known labels such as Atlantic, Warner Bros. and Asylum.
It was a bet that paid off. If you look enough in Warner Music Group's tax documents, you'll notice that Access has removed $ 925 million cash dividends of the company in the first eight months of 2018 – including a colossal sum Lump sum of $ 500 million in August.
This was possible because, thanks to streaming, Warner's annual revenues have increased by 29% since 2012. In addition, the company recently sold its 2% stake in Spotify, cashing $ 504 million. (Subsequently, 25% of Spotify's outstanding profits went to artists, leaving Warner with $ 378 million.)
The truth behind the truth, then: The music industry, which many described as dead duck, once again enriches extremely rich people. Ask the guy who has a value of $ 17.9 billion and he will tell you: We are officially back in business.
This pink story, however, is built on tense foundations. Spotify is largely responsible for the downsizing of the music business. Since its creation in 2008, the Swedish streaming company has paid more than $ 10 billion to music rights holders (labels, artists, songwriters, etc.) in the form of royalties. And he is putting them back $ 288 million a month.
Spotify's business model remains fragile. Last year, the company recorded a net loss of 1.24 billion euros (1.4 billion dollars); this year, another billion dollars of deficit is expected – after loss of 563 million euros (681 million dollars) in the first six months of 2018 only.
The main problem of Spotify? He is contractually obliged to pay record companies most of his income. As I recently confided a very high-ranking leader of big brands: "No company can survive these losses again and again. Spotify finally has two options: Sell or try to make a Netflix. "
"Making a Netflix" is industry jargon regarding Spotify's idea of "signing" the artists themselves – eliminating the middleman. This is a process that has already begun: Last month, Spotify announced that independent artists could now download directly on its service, bypassing a central function of record companies.
This strategy is not without risk, however. If major record labels (Blavatnik's Universal Music, Sony Music, and Warner) become furious enough, they could theoretically walk while pulling their content from Spotify.
Spotify: Last year, the music distributed by the major labels (and their independent equivalent, Merlin) accounted for no less than 87% of the streams broadcast on the platform.
Ideally, Spotify should find a way to materially improve its gross margin without trampling the sacred territory of major record companies.
And that explains why he is falling in love with podcasts.
Last month, Spotify quietly introduced Spotify for podcasters – a tool that offers valuable analytical information, while facilitating the distribution of your stakeholders. At the same time, The Spotify Premium app has been redesigned to make it easier to find podcasts.
This announcement comes after a series of ads related to podcasts on Spotify in 2018, including an agreement with comedian Amy Schumer, who would have cost more than a million dollars, to welcome him. 3 girls, 1 Keith podcast and a exclusive timed agreement for the new series of The popular hip-hop podcast by Joe Budden.
In addition, recent Spotify podcast partnerships have been concluded with groups such as VICE and genius, plus NPR host Guy Raz – not to mention the entire podcast library of the BBC made available on the service.
Vulnerable finances aside, there are many reasons why Spotify is taking a stake in the booming podcast market. About $ 14 billion is spent annually on advertising for US terrestrial radio. according to BIA / Kelsey. While digital newcomers continue to undermine FM's popularity, these dollars are only one way.
Advertising revenues for podcasts are minimal compared to those of the radio, but they are booming. According to the IAB and PwC, the US podcast market almost doubled in 2017, up 86% to generate $ 314 million.
In addition, Spotify's advertising revenues remain disappointing, catching up less than 10 percent total income of the company. Podcasting could solve this problem in two ways: (1) by increasing Spotify's "monthly active user content hours" (which was 25 in the fourth quarter of 2017), making it a more appealing proposition for advertisers; (2) Generate new funds through audio brand partnerships – as evidenced by the recent Spotify announcement Podcast ebb and flow, which is supported by New Amsterdam Vodka.
In addition, Spotify is beset by ad blockers; the company admitted earlier this year that 2 million of its users deployed them. Podcasts, with their "in-show" audio referrals, offer an elegant way to get around this problem.
In the end, however, podcasts attract Spotify investors for an important reason: you do not have to pay royalties to record companies when you play them.
Spotify is surprisingly open about it. In August, the firm's chief financial officer, Barry McCarthy, told Music Business Worldwide that "the higher the percentage of [podcast content in our] mix, the bigger the margin. "
Translated: We are much more likely to make a profit when listening to podcasts instead of Pink.
Spotify's podcast strategy will reveal the irritation of the big labels over the next six months, when the current license agreement of the streamer with the biggest label, Universal Music Group, will expire. UMG could, and probably will, impose strict limitations on the presence of podcasts in the Spotify audio mix.
However, labels may want to think about the consequences of Spotify being too harshly punished for its podcasting ambitions – and the market opportunities it could create elsewhere.
The richest person in America today, according to Forbes – 26 places and $ 142 billion more than Len Blavatnik – is Jeff Bezos. Amazon is already causing trouble in the Spotify main field, claiming 12 percent of global streaming music subscribers in the first half of this year. If podcasting offers a multi-billion dollar opportunity, you can bet that Bezos and Amazon – alongside Apple, Pandora, SiriusXM and others – are seriously thinking about how to capture it.
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