Breaking Down the Citibank Music Industry Report (3/3)

Breaking Down the Citibank Music Industry Report (3/3)

August 26, 2018

We’ve already talked about how the 12% headline is misleading and how the future for artists looks better than Citi leads on. For this last post, let’s take a look at Citi’s predictions for the future of the music industry. Some of their predictions are already happening, but are those futures good for artists?

Vertical and Horizontal integrations are already happening.

Citi has 3 suggested futures for the music industry — vertical integration, like concert promoters merging with streaming platforms; horizontal integration, like streaming platforms consolidating with each other; and organic vertical integration, like distributors and/or streaming platforms morphing into music labels. Let’s look at the music industry in the last few years. In the heyday of exclusives, Apple and Tidal arguably acted like labels for some of these large releases, sometimes with large payments and significant marketing efforts. These days, rumors around Spotify working more closely with artists (including rumored advances) are supposedly making some labels nervous. Apple bought Shazam and Beats. There are even examples of this future having already failed — Pandora bought Ticketfly for $450M back in 2015, but couldn’t figure out how to fully integrate the 2 products and sold it to Eventbrite for $200M.

Industry consolidation is not necessarily good for artists.

Citi is of the opinion that consolidating major players in the music industry will cut out many of the middlemen cutting into artists’ revenues. One of the primary authors of the paper Jason Bazinet told Billboard “If you have a stake across the entire value chain — making money at the artist management, concert promotion and music distribution level — you have the potential to create more economic value, which affords you the greater luxury to share more of that value with the artist.” To us, consolidation reduces artists’ leverage with these companies as they will have to comply with a singular, solidified business practice instead of being able to look for alternatives. Less competition could also stifle innovation, and incentives for innovation. Like we’ve already discussed, not every artist has the same mix of revenue sources. Similarly, business practices that work for many artists may not work for others. This is similar to the “averages” issue the entire report runs into — you can’t truly work around averages when considering the health of the entire music industry. There’s an incredible amount of variation and disparity.

There’s no mention of new revenue sources or business models.

One major discussion that seemed to be lacking in the Citi report was new revenue sources for artists, or business models for the industry as a whole. Tipping and other consumer-to-creator payment methods are becoming more and more prevalent online, exemplified by Patreon and Twitch’s tipping, donation and direct subscription options. And what happens when we make streaming apps that are less like utility apps, and more fun, engaging and social? Or when we monetize more like a game, and share value with all the participants — from fans, to tastemakers, to artists — vs relying solely on ads or flat fee subscriptions?

There’s still much more to go learn and do together. When we’re looking at something that evokes as much passion and energy as music, how can any of us lose?