Music platforms are planning a supply-side revolution in content | video poker games, mandiri casino

There is no shortage of stories in the music industry. This has been the norm for a long time in the past when upstream manufacturers sit back and maintain their monopoly, while midstream platforms compete for copyright and fall into a prisoner's dilemma.

But in recent years, as hardware products and consumption scenarios have begun to become more generalized, the hearing needs of users in the era of big entertainment have also skyrocketed.

Amidst the undercurrent, music platforms are planningasupply-side revolution in content.

The cyclical ups and downs of the music industry

It hasn’t been long since music truly became a sexy global business. From the emergence of the vinyl record player in 1948 to the release of the Walkman by Sony in 1979, the music market has undergone several major changes due to changes in the communication media.

In general, the scale of this industry has gone through several iterations such as vinyl records, tapes, CDs, and digital music (streaming media). Guess what, benefiting from technological iterations, how has the scale of the music market itself changed?

The picture below shows the changes in the scale of the American music industry in the past 50 years. Overall,the cake seems to be getting smaller and smaller.

Changes in communication media and changes in the American music industry

The reason is not difficult to understand. In terms of cost, music is getting rid of traditional physical media and becoming "online" and "virtualized", and its production costs are constantly decreasing. In addition, in order to pursue users, streaming music channels are willing to provide services for free. While consumers receive a better experience, the revenue that the entire industry can capture does not rise but falls.

But if you look carefully at the picture above, there is actually a small trend hidden in it: With the changes in communication media, the market size of the music industry actually changes cyclically.

Every round of industrial upgrading is an all-round crushing of old media by new media in terms of storage density, sound quality level, user experience and other dimensions. Soon after the upgrade is completed, the entire industry will usher in a new round of recovery.

Global music industry revenue from 1999 to 2017 (USD 100 million)

It just so happens that the current node is the beginning of a new round of recovery. As shown in the figure above, according to the calculations of the 2018 Global Music Report, starting from 2015, the global music industry revenue ended a 15-year downward trend. By 2017, the music industry revenue had grown for three consecutive years.

The main reason behind this is the rapid growth of music streaming media. For example, U.S. music streaming revenue was $6.6 billion in 2017, ranking first among all music categories.

This is a signal sent by the music industry. The next question becomes, since this industry is in the recovery stage, where does the most money go? Who has the strongest say in the industry chain?

The overlord of the industry chain is the upstream record manufacturer, and the channel side has almost no initiative

At the end of March 2018, NetEase Cloud Music announced the complete removal of all Jay Chou's songs. For a time, Yuncun users took a strong turn.

Actually, there were hints of this a few years ago:

On February 27, 2017, NetEase Cloud Music reached an exclusive strategic cooperation with avex, Japan’s largest entertainment group, and obtained its full authorization in mainland China.

On May 16 of the same year, Tencent Music reached a strategic cooperation with Universal Music, one of the world's three largest music manufacturers, and became the latter's exclusive partner for distribution business in mainland China.

Next, NetEase and Tencent had a dispute over music copyright issues:

On August 8, NetEase Cloud Music was sued by Tencent for providing online playback of Wu Yifan's latest album "6" without permission.

On August 17, NetEase Cloud Music-related operating entities were sued by Tencent for providing more than 200 best-selling Chinese songs without permission.

On August 24, in Hangzhou, NetEase Cloud Music countersued Kuwo Music, a subsidiary of Tencent Music, for infringement.

Shortly after the copyright dispute between the two companies, on September 15, the National Copyright Administration interviewed more than 20 domestic and foreign music companies, the International Association of the Phonographic Industry and other principals on the issue of online music copyright, demanding fair licensing and avoiding exclusive copyrights.

Because of "window guidance", Tencent Music, NetEase Cloud Music, and Alibaba Music have successively reached mutual licensing agreements. At present, the music works sublicensed by the three third-party platforms account for more than 99% of their respective copyrights.

But the key lies in the remaining 1%.

Although 99% of copyrighted content has been shared with each other, each music platform still retains about 1% of differentiated and exclusive content. Because the copyrighted content on the platform has exceeded tens of millions, a conservative estimate is that 1% of the exclusive songs are more than 100,000. The ownership of these music industry KOL works will directly determine which platform users choose to join.

The above picture is the exclusive copyright owned by Tencent, Alibaba and NetEase as of September 2018. It can be found that Tencent Music is in an absolutely dominant position.

In fact, Tencent Music’s copyright advantage stems from its management team, which includes almost all the veterans of online music

Tencent Music Co-President Xie Zhenyu and Vice President Chen Linlin are the founders of Kugou, one of the earliest online music platforms in China; Co-President Xie Guomin, formerly the general manager of Sina Music, founded the music copyright company Ocean Music in 2012; Hou Deyang joined Tencent in 2007 and later took charge of QQ Music-related affairs; Wu Weilin, the former head of music copyright-related affairs at Nokia, later joined Tencent Music to be responsible for copyright management.

With many years of experience in the industry, the management team has established long-term friendly relationships with major upstream record companies:

Xie Guomin, the founder of Ocean Music, has a legal background. He saw the importance of copyright when domestic music piracy was prevalent. When record company licensing fees were low and there was demand for funds, he signed long-term exclusive copyrights with leading domestic record companies such as Haidie Music and Tianhao Shengshi at a low price;

Wu Weilin, Tencent Music's vice president in charge of copyright management, was familiar with record giants such as Warner and Sony during his Nokia days, and played an important role in promoting Tencent Music's signing of the exclusive copyright rights of the three major records.

However, although Tencent Music has made a good start, the ownership of exclusive copyrights is not guaranteed once and for all. In order to compete for scarce resources in this industry, major leading platforms have repeatedly invested huge sums of money in recent years.

Take the well-known domestic Huayan International Copyright as an example. It owns artists including SHE, Feier Band, Lin Youjia, etc. In 2015, Xiami Music obtained the three-year exclusive agency rights of Huayan International for 20 million yuan. After the contract expired in 2018, NetEase Cloud immediately increased the copyright price 25 times to 500 million yuan.

(There is also a story behind this. On the evening of February 28, 2018, Huayan Music issued an announcement: "The music licensing contract signed between our company and the famous Chinese Internet company Alibaba Group is about to expire. Starting from March 1, the company will sign a separate strategic cooperation agreement in mainland China."

The implication is obvious that it does not plan to renew its contract with Alibaba.

As for why Alibaba failed to renew the contract, it was mainly due to differences in the interests of both parties and changes in Alibaba's internal personnel.

At the height of the copyright war in 2015, Alibaba Music seized the exclusive copyrights of many record companies including Huayan. But it is unwilling to sublicense copyright to outsiders. Only in 2017 did the countryOnly after pressure from the Copyright Office did they reach a copyright mutual license agreement with Tencent Music.

You must know that when record companies sell exclusive agency rights, they never just want to get a guaranteed income. They also hope to get a share through sub-licensing. Unfortunately, Huayan was used by Alibaba as a weapon against Tencent Music’s “copyright barriers” at the right time.

In addition, the reason why Xiami Music was able to obtain the exclusive copyright of Huayan in 2015 is also related to the fact that co-founder Zhu Pengfei went to Taiwan for negotiations. By mid-2017, Zhu Peng chose to cash out and resign after his equity expired. Alibaba will no longer have the leverage to continue negotiations. )

It is not enough to simply understand the copyright battles and investment costs of the leading platforms. Let’s use a specific example to estimate how much pressure copyright investment has brought to the leading music platforms:

Take Tencent Music as an example. In 2017, Tencent Music acquired the exclusive copyright of Universal Music for US$350 million + US$100 million in equity. Assuming that the copyright is valid for 3 years, based on the exchange rate of 1: 6.80, the average annual cost paid by Tencent Music for Universal reaches 1.02 billion.

But it doesn't just pay for Universal. Assuming that this cost accounts for 1/4 of its total copyright cost, Tencent Music’s average annual copyright cost exceeds 4 billion. Tencent Music’s financial report shows that its full-year online music service (subscription) revenue in 2017 was only 2.1 billion.

Of course, it must be noted that pure subscription revenue is only a small part of Tencent Music, and its social entertainment services and other (such as live broadcast) revenue contribute more profits. For example, in 2017, this revenue was close to 5.3 billion.

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The above facts are to illustrate that since streaming music has been widely accepted, platforms have taken great pains to attract and retain users on copyright. It's this that puts them in a prisoner's dilemma over copyright. As the beneficiaries,record manufacturers firmly occupy the core of the industry chain.

This is not only true at home, but also abroad. The entire history of the American music industry in the 20th century is a history of monopoly by record company giants. And as time goes by, this phenomenon is getting worse.

In 2011, EMI, the world's fourth largest record company at the time, was spun off and sold, with its record business sold to Universal and its copyright business handed over to Sony. As a result, Universal acquired the jazz label Blue Note, as well as its direct descendant Capitol and the famous Virgin record company, while Sony received the songwriting rights to 1.3 million songs.

At this point, the three pillars have stood together, and the upstream concentration of the music market has been further enhanced.

According to Music & Copyright's annual survey, in the overall music product market (based on physical and digital music revenue) in 2017, Universal ranked first with a market share of 29.7%, followed by Sony Music and Warner Music, with market shares of 21.9% and 16.2% respectively. The three major music companies have a combined market share of nearly 70%.

Market share of the three major record companies in 2017

Since foreign upstream manufacturers are more concentrated than domestic ones, what kind of pressure do foreign music platforms such as Spotify and Pandora face? Regarding this, Ben Thompson said in the article "Lessons From Spotify" in early 2018,He does not think Spotify is a business that can bring much value.

First of all, the so-called businesses that can bring huge returns must be those companies with low enough marginal costs. Because in the later stage, their users and income will grow much faster than their cost growth, so that they can obtain meaningful enough returns. As shown below:

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The chip business is one example. Sand itself is very cheap, but to make chips, a lot of money needs to be spent on product development in the early stage (such as R&D expensesexpenses for use, purchase of manufacturing equipment, etc.). Once the product is accepted by the market, it can continue to make profits at a relatively low marginal cost in the later period.

So why are music platforms like Spotify not a good business?

To give a brief introduction, Spotify is currently the number one player in the world's genuine streaming music platform. As of the end of 2017, it has operated in 61 countries and regions including Canada, Denmark, France, Norway, Singapore, Japan, the United States, Hong Kong, Poland, the Netherlands, Spain, and Belgium.

In the early days, Spotify acquired Seed Scientific, a music data analysis company, and provided users with a good music experience through the Discover function of the system, which recommends accurate music for each user and superimposes the company's radio function.

In 2016, Spotify launched another algorithmic product feature, Release Radar. The algorithm-driven playlist is released every Friday, providing users with new songs recently released by artists they follow or often listen to, driving user engagement and customer satisfaction, thereby maintaining the rapid growth of paying users.

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As of Q4 2017, Spotify's monthly active users have reached 159 million, of which 71 million are paid users (payment rate 44.65%); the annual paid penetration rate increased from 26.5% at the beginning of 2015 to 44.7% at the end of 2017.

With the help of high-quality algorithms, Spotify has not only achieved great results in customer acquisition, but also in terms of user stickiness and churn rate.

As shown below, Spotify's listener churn rate fell from 6.9% in 2016Q1 to 5.1% in 2017Q4, and content consumption time increased from 6.7 billion hours in 2016Q1 to 11.4 billion hours in 2017Q4.

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But there are also hidden dangers under the prosperity:

First, in order to gain customers, Spotify has successively launched family and student discount plans in recent years, causing the average revenue per user (ARPU) to continue to decline. Its average revenue per user in 2017Q4 fell to 5.24 euros, a year-on-year decrease of 13%.

In other words, the improvement of user engagement and the reduction of churn rate are achieved to a certain extent by sacrificing short-term ARPU.

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Secondly, not only is the current situation worrying, everyone estimates that Spotify may not be able to effectively reduce marginal costs in the future. Because the upstream bargaining power is too strong, it is likely to always have the problem of excessively high marginal costs.

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The above chart shows Spotify's revenue and cost changes over the past few years. The green line represents revenue, and the red line represents revenue costs. Both lines are sharp upward trends, reflecting the naked reality:Spotify is trapped in copyright issues, and its profits are (almost) completely restricted by upstream record companies.

Why does the music industry (and the listening circuit more broadly) deserve a lot of attention right now?

Mary Meeker, the highly regarded former KPCB partner and Internet queen, publishes an Internet trend report every year. Although the insights in it have become less and less in recent years, there are still some treasures worth digging into.

The following picture comes from the 2005 Internet Trends Report that was well-known in Silicon Valley (MS was quite turbulent within that year):

Mary Meeker believes thataround 2005, the time and attention consumers spent on the Internet far exceeded the actual advertising costs they paid for it. In other words, the Internet advertising market at that time had great potential to be tapped.

She made calculations on paper advertising, TV advertising, radio advertising, and Internet advertising respectively, and found that the potential carrying capacity of Internet advertising should be much higher than the first three, and if we only look at the youth market, the advantages of Internet advertising are even more obvious.

Please note that this is not an idea, but a scientific prediction using actual numbers: Internet advertising has huge potential waiting to be unleashed.

Five years later (2010), Mary Meeker's research on the same problem continues. This time she analyzed the user time occupied by the above four advertisements and their own market size.

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As a result, she found that paper advertising, which accounted for only 12% of user time, actually occupied 26% of the advertising market, while Internet advertising, which accounted for 28% of user time, had a market size of just half of the former.

You know, at this stage, Google has already established a large footprint in the field of Internet advertising with AdSense. But Mary Meeker insists:The attention attracted and focused on the Internet is still an underappreciated bonanza. There is still a US$50 billion gap in the global market that needs to be filled.

In 2018, the numbers got even more interesting.

Why do you say that? With the explosion of mobile Internet, Mary Meeker has already split the Internet advertising market into desktop and mobile. She found that the latter not only surpassed the former, but also that until now, mobile advertising is still a relatively blue ocean market.

The above is an observation from Mary Meeker. What I really want to say is that in the two pictures of 2010 and 2018, there is another blank space, Radio - radio advertising.

Taking into account the length of user usage and the size of the advertising market, the desktop side of paper advertising, TV advertising, and Internet advertising has all been "overloaded." Perhaps there is still growth potential to be tapped in the mobile market in radio advertising and Internet advertising.

So, do midstream platforms realize that the music market, which also belongs to the audio format, may absorb some of the same kind of advertising? In other words, canthe music market recreate a fun headline?

In addition to advertisers, new changes have actually taken place on the content audience side.

According to statistics, 44 million Americans used smart speakers in 2017. Research firm eMarketer’s forecast is even bolder: by 2020, there will be 77 million smart speaker users in the United States.

As for China, with the entry of Alibaba (Tmall Elf), JD.com (Dingdong), and Xiaomi (Xiaomi), smart speakers are becoming a new access point for home entertainment. In this way, how many scenes will they expand and how much audio content will they carry? Even more, how much room for innovation and imagination does it bring to music (a gameplay similar to Yinyu)?

The above content is to illustrate that audio ads may be migrated. In the current era of great entertainment, scenes and technologies are iterating, and people's demand for what they want to hear is skyrocketing, but the supply of content (seems) cannot keep up.

The emerging supply-side reform in the music industry

Stock Angle: Douban FM’s “Toutiao” Dream

Not long ago, Douban FM received a new round of investment. According to them, in the future, they hope to deeply mine users’ music preference data in different dimensions and use more intelligent algorithms to recommend music.

How to understand this? As we said before, for a long time, record manufacturers, the upstream of the music industry chain, have had a great deal of initiative. Even giant platforms are forced to become "wage earners" due to content copyright restrictions.

Therefore, reluctant music platforms naturally look for opportunities to enhance their voice.

With the rise of streaming music, leading music platforms as high-quality channels have gradually found that they have gathered a large number of users with similar needs.

At this time, the head music platform is not only doing its job (providing users with professional and high-quality services), but is also trying in two directions:

1) Extend the business to upstream music distribution and musician training, in order to counter the large record manufacturers.

Domestic music platforms compete for emerging original musicPeople, free from the constraints of record companies, are rushing to launch original musician projects: such as Tencent Music’s “Force Project”, NetEase Music’s “Stone Project”, Baidu Music’s “Companion Star Project”, and Xiami Music’s “Light Seeking Project”.

From a platform perspective, this will not only help them obtain more high-quality content upstream, but may also further expand into the offline concert and performance market downstream.

This may help them promote changes in the value chain of the music industry, thereby breaking the dominance of record companies.

2) Leverage the recommendation function and distribution advantages of the platform to weaken the head effect and increase the exposure of non-head songs.

For example, the figure below uses the Lorenze curve to show the efforts of foreign music platforms in the past few years.

The Lorenz Curve was proposed by the American statistician M.O. Lorenz in 1905 to study the distribution of national income among nationals. Used in the music industry, we can calculate the proportion of song sales in total sales:

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Source: BuzzAngle Music 2018 US Report Industry

Comparing the data of music platforms in the United States in 2017 and 2018, we can find that,

The sales ratio of the Top 50 songs in 2017 was 8.7%, which dropped to 6.3% a year later;

Top 500 songs accounted for 24.1% of sales in 2017, falling to 19.9% a year later.

In other words, because the music platform has control over the users, it can partly influence how songs are listened to based on their preferences and characteristics. So they are breaking up the demand that was originally concentrated on top songs and appropriately allocating it to long-tail songs (without affecting the user experience), thereby increasing the probability of emerging songs being discovered and listened to.

But it is conceivable that these operations of music platforms have also deepened the gap between them and record companies. Although major record companies can now safely receive huge copyright fees from the platform, they will not turn a blind eye to their ambition to seek content initiative.

As a result, the games between the two have continued one after another, with the established record manufacturers repeatedly making harsh remarks in an attempt to suppress the ambitions of the major music platforms.

Increment perspective: Expand content categories in order to gain bargaining power

If it was difficult to find a breakthrough point in the music market itself, Spotify thought, how about trying to broaden its content categories?

Not long ago, there were two acquisitions led by SpotifyThe case caused a slight shock in the overseas music industry. The two companies it is interested in are Gimlet, whose main business is podcast content production, and Anchor, which has a slightly broader business than the former and also provides monetization services.

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Unlike music, the upper reaches of the podcast market are relatively fragmented, and content producers cannot unite to resist the incorporation of platforms.

Furthermore, the audience in the podcast market is quite popular with advertisers. There are two reasons:

The first is that more than 60% of people in the United States have heard the word podcast in 2017, and 15% of Americans are weekly active listeners (based on this estimate, the number of weekly active listeners in the United States is 42 million).

Second, the podcast audience as a whole is relatively young (51% of users are younger than 34 years old), relatively wealthy (45% of people have an annual income of more than 75,000 US dollars), relatively educated (57% have a college degree or above), and like social sharing, and are more likely to share good podcast content with their peers.

What’s even more valuable is that the current level of monetization in the podcast market is quite low. With new tools and services, there is considerable potential to improve its monetization efficiency.

It is for these reasons that Daniel Ek, the head of Spotify, said in a recent financial report meeting that one of Spotify’s long-term goals is that in the future, 20% of the content will be of the podcast type. This is mainly achieved through the newly acquired podcast content company Gimlet.

Even if we all realize clearly, the podcast business cannot really pose a threat to the music market in the short term. But in the eyes of music platforms that have been suffering from copyright problems for a long time, this may be a ray of light.

An interesting change is that just recently, when Spotify's CEO and CFO were asked about podcast-related issues, they both frankly explained Netflix's operating logic to everyone. You know, in the past, in order to avoid hurting the hearts of upstream record companies, they had always emphasized the difference between Spotify and Netflix.

Behind Spotify’s pursuit of change, there is another detail that is thought-provoking. Its CEO said last year:

“In the eyes of many people, Netflix has strengthened its moat through the content in its hands. But this view is wrong. They can win because they run faster than others, and their innovative ideas and rhythm leave their opponents far behind.

If we can stand firm, it will be because of our own rhythmSo fast that no one can keep up. ”

[Source: Yourseeker Author: Zeng Xiang]