The Best Way to Monetize Music

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by Dan Runcie

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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.

Music’s demand curve

“Music is under-monetized” is a true but nuanced statement. Is it under-monetized for record labels and publishing companies? Yes. The power dynamics have led to a pricing problem in music streaming. Rates could be much higher.

But is music under-monetized for artists and fans? Not as much. They have more opportunities to buy and sell products at every level of the demand curve.

An artist can release music on Spotify, promote their tour with AEG Presents, sell tickets on Ticketmaster, perform at Rolling Loud, sell an NFT on OpenSea, sell VIP access on Patreon, and host members-only live streams on Twitch. For most artists, each part of their demand curve is supported by a different company.

A lot of the discussion on music being under-monetized has focused on streaming rates, Spotify’s pricing, and equity stakes in streaming services. It’s all valid, but it’s one piece of the broader opportunity.

The opportunity for music and entertainment companies is to expand beyond their domain without selling products that fans don’t need, or treating music lovers like an ATM.

The generational shift

Much of the “under-monetized” discussion dates back to when casual music fans would spend $100+ annually at Strawberries on music, while diehard music lovers could spend $500+ annually. The demand curves for fans, record labels, and publishing companies were aligned.

Now, diehard music lovers spend less on music that funnels back to the rights holders, but fans still spend on music experiences that go back to the artists.

Concert ticket prices have gotten higher while music streaming prices have gotten cheaper (when both are adjusted for inflation). And since artists make less money on streaming, many are more likely to set higher prices on live entertainment to account for the difference. Millennials and Gen Z fans enjoy experiences over material goods, so this tracks with the generational shift.

Let’s look at a few recent stats for Taylor Swift:

–  80 million monthly Spotify listeners

–  Over 2 million “pure album sales” (vinyl, CDs, cassettes, digital downloads) in the U.S. alone from her latest album Midnights

  ~2.75 million tickets sold for The Eras Tour

Roughly 95% of Swifties are casual fans who will stream her music. The remaining 5% are hardcore Swifties who will attend her tour, buy physical albums, and get the latest merch. But they will drive nearly $600 million in expected revenue from the tour, more than double the revenue that Midnights generated in 2022. Taylor’s demand curve is working. If there’s money left on the table, it’s the millions more who tried to get tickets to The Eras Tour but couldn’t.

Live entertainment also extends to the growth of music festivals and private events. We’ve seen Beyonce do it all, from an Uber private party (e.g. ”pay me in equity”) to Coachella headliner fees (and a $20 million Netflix documentary about her Coachella performance), and even more to perform at an Indian wedding and a new hotel in Dubai.

The same is true for artists at all levels. Bay Area rapper Larry June just announced his new tour. Here are his stats:

  3 million monthly Spotify listeners

  ~40,000 – 50,000 tickets on sale for his upcoming 47-date Larry’s Market Run Tour (based on average venue capacity of 800 – 1,200)

Larry is independent so he has kept more of the streaming revenue that comes in, but his demand curve still exists. If he charges $30 per ticket, he could generate over $1 million in touring revenue alone.

And once brand partnerships, product sales, and investing are added to the mix, there are more companies helping artists leverage their massive platforms. It’s great for artists and fans, but trickier for traditional music companies that now have less to offer the most passionate music fans.

Closing the gap

There are two ways that music rightsholders want to close the gap:

–  charge everyone more by raising prices for music streaming services

–  charge select fans more via added gamified features or collectibles

Let’s start with streaming. A price hike could help, but even if Spotify raised rates from $9.99 to $19.99 per month, there’s still nothing serving the most passionate fans.

The bigger opportunity is in gamified features and collectibles. Some of this already happens with collectibles given the growth of physical album sales. For most users, the vinyl resurgence is more about self-expression than utility. But there’s a ceiling to the potential of vinyl sales. At $1 billion in total U.S. vinyl revenue in 2021, it’s more of a nice bonus than a game-changing revenue opportunity.

Music may not have as many big upsell features like a Fortnite or Roblox skin, but streaming services have a few levers to pull.

Spotify Wrapped is the most viral self-expressive product from any music streaming service. What would a freemium version of Spotify Wrapped look like, where fans who wanted more data and more analyses could pay for it? Last year’s Wrapped told us our personality traits like a Myers-Briggs test. Would 5% of paid users be willing to pay for even more ways to use data to show their fandom for several artists, genres, or moods?

How that revenue gets split between Spotify and rightsholders would be another contention point. But it wouldn’t take away from current consumption patterns though.

This tracks with the broader trend of finding additive revenue opportunities. Those include ideas I outlined in What Music Can Learn From Gaming, like user-generated content, A.I. as a service, and in-app purchases in digital environments. And if record labels had a more active role in distributing their music, there could be bigger opportunities ahead.

Traditional music companies should think about demand from both music fans and music creators. They are two distinct groups, but there may be an overlap. Given the heightened interest in A.I. and gaming, there are new options that may naturally attract both. That may be the best way to offer products that fans value.

Dan Runcie

Dan Runcie

Founder of Trapital

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