This week’s Trapital memo is brought to you by trac.
Give fans exclusive access before anyone else
In my previous newsletter, I touched on windowing – how it can be a smart tactic for artists and help build the relationship they have with their fans. What if you could market your music leveraging both Web 2.0 and Web 3.0?
trac is the solution to make this happen.
trac hosts a streamlined form of music distribution (across all DSPs), on-demand merch capabilities, monetizable artist pages, and diverse payouts. This summer, it’s launching NFT features that allow artists to release their music to die-hard fans as NFTs (free to fans) before distributing their music more broadly to streaming services. NFTs don’t have to be for commercial gain.
trac bridges Web 2.0 and 3.0 with ease and has made it their mission to help artists understand and execute in both worlds. Want to learn more about how trac can help you and your artists serve their fans? Learn more about trac here.
“be more like gaming”
For years, people have pushed the music industry to “be more like gaming” for obvious reasons. In 2022, gaming generated $184.4 billion in revenue, which is more than quadruple the annual music copyright revenue of $39.6 billion.
Gaming is the most interactive sector of entertainment by far. That interactivity keeps people engaged, especially in an era where it’s harder to maintain attention, content is fragmented, and in-game features can be quite lucrative.
But “be more like gaming” is also simplistic. Some of the biggest gaming experiences in recent years have involved music. Plus, there are plenty of nuances to both how music and games are monetized. The difference is less about a particular business model and more about the viability of multiple models.
the goal is to add, not replace
The caveat of the music-gaming analogy is that many gaming companies still succeed at selling content. Activision doesn’t give away Call of Duty: Modern Warfare II for free. In November 2022, the game made $1 billion in its first 10 days by selling copies for $70 each, if not more. Console game revenue alone generates over $51 billion annually (28% of the industry). The “free-to-play, pay-for-features” model of Fortnite and Roblox doesn’t replace games sold for PlayStation and Xbox. They are additive to the industry.
In gaming, multiple business models succeed at the highest levels. Meanwhile, recorded music has historically shifted from one dominant medium to the next.
Here’s a chart comparing the two from media analyst, Matthew Ball.
From 8-track to vinyl, to cassettes to CDs, from digital downloads to streaming. But even as the industry shifted from one medium to the next, music’s dominant business model is still the same: sell the content. And despite a few slight differences, the major record labels all have similar business models and revenue mixes.
We’ve seen more varied approaches at the individual artist level. For instance, NBA YoungBoy and Chris Stapleton may each gross tens of millions annually but in different ways. The hip-hop artist is a streaming machine while the country singer is a nonstop touring machine. They meet their respective audiences where they’re at.
The closest thing artists have to gaming’s free-to-play, monetize-the-superfans approach is ticket sales. A small subset of an artist’s streaming listeners will buy concert tickets, which often account for a majority of the artist’s revenue.
An even smaller percentage of fans will buy that artist’s company’s products. That’s how Jay-Z and Rihanna became billionaires. But those two are outliers, even among fellow superstar artists who have tried to launch consumer brands and haven’t reached those same levels. For most artists, product sales are an ancillary revenue stream.
But again, those experiences are artist-by-artist. The overall industry’s goal should be additive models that can work across the board.
more interactivity (and monetizing it the right way)
The benefit that Fortnite and Roblox have is that their paid add-ons exist in the same platform where the underlying content is consumed. There’s no platform switching required to enable the freemium, e-commerce transactions. If users had to switch platforms, it would drop the conversion rate.
Music’s version would likely require platform switching since most music is consumed on streaming services. And to put it lightly, digital streaming providers aren’t exactly in the business of finding more ways to help their major record labels further monetize their back catalog.
Despite those challenges, here are a few ways this can succeed:
– Doubling down on user-generated content (UGC): Short-form video platforms already make it easy for fans to put a spin on their favorite music. The next move is to make it easier for fans to remix their own versions of songs, separate the stems, upload their versions to the streaming or short-form video platform of their choice, and ensure that the original artists get paid for the underlying work.
It’s essentially do-it-yourself music sampling. There are plenty of hurdles to jump through, but it’s not impossible. Ye did a physical version of this with his Stem player, but there is bigger potential in a digital version that has access to popular back catalogs.
Monetization would come from users a) paying a monthly subscription fee for the service, b) paying for each song created, and c) the revenue each song creates on its own.
The popularity of user-generated remixes is nothing new. In the 90s, DJ Screw made millions off of his chopped and screwed mixtapes by selling them out of his house, his car trunk, and at car shows. This digital version would ensure that everyone gets compensated fairly.
– A.I. as a Service. Here’s what I wrote in December’s Trapital mailbag:
“But I can also see software like ChatGPT packaged up as a $10.99 monthly subscription service for songwriters and musicians. Think about companies like Splice and Epidemic Sound. Users pay a monthly fee to access their royalty-free music for commercial use. The same can be done with the lyrics for those songs if GPT-3 can use it as its reference point to help artists with any step of the process. Since those songs aren’t owned by the major record label and publishers, they aren’t subject to the impending issues of referencing the music that they own.”
This could work for a major record label and publishing-owned music too, but the pricing may be difficult to nail down. $10.99 per month may be too low for the “power users” this is geared toward, but if it’s priced too high it may push people away. Like the UGC example above, it’s likely a combination of subscriptions, pay-per-add-ons, and additional revenue generated from any songs created.
– In-app purchases in digital environments. According to a Deloitte study on music and gaming, 23% of Gen Z gamers (and 16% of all gamers) wish they could purchase music they hear in a game or be able to add it to a playlist. Music culture has been a huge part of Fortnite and Roblox with huge events, but as discussed in Trapital’s trends that didn’t outlive the pandemic, those expensive experiences are hard to replicate.
But that doesn’t mean other cheaper add-ons can’t be done. Tyler, the Creator’s IGOR character was a skin in Minecraft, but it seems like a user-generated skin. In certain games, they could create an “official” version where revenue still goes back to the rights holders who own the IP that inspired that skin, and Tyler himself.
the focus on self-expression
The commonality of these add-on features is that consumer behavior is rarely rational. It’s more about self-expression, which is intangible.
In the heydays of ringtones, a 30-second ringtone could cost four times the price of the full downloadable song on iTunes, but the ringtones sold more in many cases. Today, music lovers will buy vinyl even though most of them don’t have vinyl players, and many of them still have paid subscriptions to DSPs where they will actually listen to the artist’s music that they bought.
Music is one of the most valuable forms of self-expression out there. When people talk about how the industry is under monetized, that’s what they’re really talking about. That’s what drives revenue for all of these free-to-play digital environments. The more that the music industry can tap into that, the more that it can tap into all the consumer surplus that it creates.