Why Latin Hip-Hop is Still Undervalued

Latin artists earn little money from their YouTube dominance, but there are still opportunities to capture the value that's been created.

Last year, only two artists had more than 8 billion streams on a single digital streaming provider. One of those artists is Drake. His 25-track double album Scorpion (and the over-indexed exposure it received) drove in an estimated $50 million from Spotify. The other artist is Latin star, Ozuna. The YouTube charts have become his personal high score tally. In 2018, he had four of the top ten most-watched YouTube music videos.

But Ozuna probably earned a tenth of what Drake made on Spotify.

YouTube is largely an ad-supported platform. Artists get paid far less than they do on Spotify’s paid tier, Apple Music, and other services. Latin music’s YouTube dominance is well-documented, but its financial implications are seldom discussed. Music streaming is already a loss leader for most artists, but it’s an even stronger one in urbano music. In 2018, ad-supported streaming accounted for 24% of Latin music revenue, compared to just 8% for the U.S. market.

For better or worse, most Latin artists have adjusted their strategy and expectations accordingly. But the most successful companies that enter this space can address pain points and capture more value both for Latin artists and companies themselves.

Latin hip-hop is a different business model

Paid DSPs have had a tough time gaining profitable traction in emerging markets. Many music fans in Latin America are unbanked, underbanked, and don’t have access to credit cards. Spotify has made efforts to grow subscribers with alternative payment methods and absurdly steep discounts, but it’s hard to beat that free.99 price tag. Most of the Latin music streams likely came from Spotify’s free tier. It accounts for more than 50% of active users but just 10% of revenue.

This weight impacts the value in playlist placement as well. Spotify’s most followed genre-oriented playlists are RapCaviar (11.6 million), ¡Viva Latino! (9.8), and Baila Reggaeton (9.5). While the numbers are similar—and the engagement is actually higher on the latter two— the follower mix is different. Spotify’s playlist follower data is not public, but it’s safe to assume that a higher percentage of RapCaviar’s followers are paid subscribers. Streams on ¡Viva Latino! and Baila Reggaeton are less lucrative for both Spotify and the artists themselves.

To make up for the smaller streaming payouts, Latin artists tour constantly. Ozuna and Daddy Yankee have each been on tour four times since 2017! Luis Fonsi did 96 shows in the twelve months following “Despacito.” They all probably made bank on tour, but a what cost?

As I wrote last year in Why Choosing the Right Concert Venue Matters, touring is lucrative, but it has a high opportunity cost:

“In 2013 and 2014, The Mrs. Carter World Tour earned an impressive $230 million, but it took Queen Bey 132 shows and twelve months of touring to do so. She performed multiple arena shows in the biggest markets…

Just a few months after the tour ended, she upped the ante. Her and Jay Z booked football and baseball stadiums for the On The Run Tour… The leap clearly paid off; the extra capacity allowed them to gross $109 million from 21 shows in less than three months…The Formation World Tour earned $256 million from 49 shows in five months…This year’s On The Run II Tour is expected to earn $200 million from 48 shows…

Had Beyoncé subjected herself to the arenas for [On The Run, Formation World Tour, and On The Run II], she would have needed to perform an additional 207 shows since 2014 to match the $565 million her concerts have grossed in revenue. It would have been impossible to do all those shows while pregnant with the twins, make Lemonade, and do all the other stuff Beyoncé does.”

The “other stuff” is critical for Latin artists. When the opportunity cost is high, artists need to be particular about how their time is spent.

The blessing and curse of the American cosign

When a Latin artist’s song blows up, an American artist will often jump on the remix. Justin Bieber got on “Despacito,” Beyonce was on J Balvin and Willy William’s “Mi Gente,” and Drake was on Bad Bunny’s “MIA.”

American exposure means more money. These remixes improve status on the Billboard charts. They get more streams from paid subscribers and in turn, are more likely to be placed on playlists that are followed by more paid subscribers.

It’s an unfortunate dynamic that’s a symptom of a U.S.-centric, self-serving industry. It’s not an indication of true value.

But when these cosigns become sought-after goals for Latin artists, it reinforces a problematic dependency on American pop music to validate other genres. As Eduardo Cepeda wrote in a November Pitchfork article, artists might try to make music with ‘crossover appeal’ instead of music that’s true to themselves.

Latin trap artists already face pressure to tone down lyrics that are too raw for radio play. If artists started making music that was deemed acceptable for a guest verse from Ariana Grande, then its cultural appeal would be lost. Latin trap wouldn’t be Latin trap if everyone was out here sounding like Pitbull.

In an ideal setting, American collaborations would be seen as bonuses, not intentional objectives. But the limitations of the current business model have made the A-list guest verses an easier path to get more life out of the song’s success.

Finding value elsewhere

YouTube has partnered with Latin superstars on original documentary series and similar videos. This content will bring in higher revenue payouts since there are no masters or royalty payments. But this additional revenue still yields mere pennies on the dollar within YouTube’s overall business model.

There are two ways for Latin artists to earn more meaningful money: extract money from fans, or get paid by those who want access to fans. YouTube can facilitate both.

Many American artists have YouTube “merchandise shelves” to sell items within the music video page. More Latin stars can do the same. Merch is usually cheaper than a concert ticket. It gives fans a less expensive way to show support.

Also, YouTube can use its endless data to target fans with high discretionary income. These fans will spend money on expensive offerings like artist meet-and-greets, elaborate performances, and more. In August, Spotify is planning a ¡Viva Latino! live event in Miami with Bad Bunny and Nicky Jam as headliners. YouTube can do something similar in targeted regions.

From a sponsorship perspective, companies have probably lined up at the opportunity to have their products placed in music videos with the potential to get billions of views. I was surprised to find out that as of late September of last year, Ozuna didn’t have any major sponsorships! A few of his Instagram posts that might have been sponsored, but that’s it. There’s a ton of opportunity to get paid in a way that’s true to the artist.

As more companies strengthen their position in Latin music, there will only be room for a few winners. Even TikTok appears to be making moves in Latin music.

But success takes more than a student discount or low-priced promotional offer. Whoever wins will have figured out the best way to monetize their services, facilitate monetization for others, or both.

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Trapital is written by Dan Runcie. Contact me: info [at] trapital.co