It’s a Small World After All
The world is connected and global, and music is no exception.
We know that the digital age is upon us, that many haven’t embraced the power of free content, artists and labels alike are trying nearly anything to make up for lost album revenue, and that the major source of revenue for artists these days comes from touring (a sector that is controlled by a giant that is struggling to control such a large market). So how did we get here, where are the opportunities for artists, and how can reach their audience during the content-inundation of a cluttered digital age?
Format recycling has always been a vital part of music industry evolution. Technology has moved along with time, migrating from vinyl, to eight-track, to cassette, to compact disc, to mp3, to YouTube & streaming on-demand. Today a blend of all these is being used by listeners. One misconception is that everyone has gone strictly digital, but that simply isn’t the case. Physical sales still represent a majority of sales, with 51% of distribution earnings according to the RIAA. If you considered radio, streaming, and other non-paid usage, however, we are clearly beyond physical copies and already well into the digital era. It was of no surprise to us that nearly 40% of the physical albums purchased were by fans 45 years of age or older (a demographic with a much closer connection to the use of non-digital formats).
When the evolution of the mp3 format took over, it allowed the average to decide if they like the music or not instead of solely relying on traditional outlets. With the touch of a button, the artist could upload and fans could download music without having to leave their home. The largest problem with the creation of the mp3 was the piracy boom and peer-to-peer file sharing. Album sales declined drastically, forcing an artist to rely more heavily on touring to have a sustainable career. The touring business in the United States is dominated by LiveNation, who through a series of mergers and acquisitions, controls 5 of the 9 major ticketing segments, and has exclusive rights and/or ownership of some of the largest stadium venues across the United States & growing in parts of Europe. Companies of their stature have their own unique sets of challenges, but are fighting many of the same economic pressures of smaller players. For a new act to emerge and compete with more established acts is a tall task, especially when the overall market is over saturated to begin with.
Based on our collective experiences, we believe that international connectivity is at an all-time high based on these advances, and that this connectivity coupled with the viral nature of music allows the artist to connect and emerge quicker than at any point in history! To expand upon the origins of this viewpoint, we have included the following story:
“After many hours of traveling via bus from Germany to Poland, our artist arrived at Woodstock Festival, Poland, unaware of what we were in for. It was all of our first trips to Poland, and we didn’t have much time in between gigs. All we had heard was that the crowd was massive and they had already been going hard for a few days. After getting settled in, we decided to take a walk around the festival grounds to observe our audience. After about three steps outside the VIP we realized that this was not your typical reggae listening fan base. The audience was there for a hard rock festival, indulging in aggressive rock music from the 80 bands present from all over the world (most notably bands like Papa Roach and Tonic.) Of course, the first thing that came to our mind was, “how is the crowd going to feel if we completely switch the vibes to bass heavy, rhythmic sounds like reggae music?”
When we took the stage playing there were no more than a few thousand people around the stage. With each song the audience grew closer to the stage. After just a few tracks, a massive crowd of 500,000+ (this is what the promoter later estimated, though we don’t claim to be able to distinguish to the thousand) engulfed the stage and embraced the music on a level that we had never witnessed before. The video below is shortly after our second encore to the stage, nearly 15 minutes after the set was planned to end. The moral of this story is that while in Poland, we witnessed first hand how other cultures embrace music.”
To say we are moving towards a global economy is misleading; we are already a global economy. If tomorrow the United States decided to raise the price of our grain export, we would see the effects internationally. On an international level, one of America’s biggest, if not biggest, exports is culture. Yet when its comes to the Music Business here in the United States, many have a misguided opinion about what it means to succeed not only in foreign markets but in the music business in general. Take Beyonce’s latest album release for example. Her new album, “4,” has been highly regarded as not yet performing to expectations here in the United States, yet the United Kingdom release has been viewed as a tremendous success so far, with six singles in the Top 75! “4” has sold 89,000 units in the first week of release in the UK, to become her second number one album in the territory. In our opinion, “4” is a success, as the measurement of success should be a blend of longevity, sustainability, and the building of a legacy and message to be left for the world forever.
The music industry needs to be focused on globalization of the artist and their brand, and fully integrating that brand with easy to use market penetrating technologies and communication tools. Roughly two-thirds of overall global tickets are sold outside of North America! This underscores the fact that, although the US is a huge market, it is not the only market.
We expect that as the global middle class expands, there will be a new population of consumers that will have more leisure time and more money to spend during that leisure time. LiveNation as an example, 29% of the company’s annual operating income is generated outside of North America, and they have expressed a rising focus on international markets for growth opportunities.
According to a recent research paper by Goldman Sachs, the number of viable markets for live events increased more than 60% from 2000 to 2010 and the company expects the 113 viable markets today to almost double over the coming years with most of that growth coming from Asia, the Pacific Rim, Latin America, Eastern Europe, and the Middle East. We expect global consumer, infrastructure, and commodity demands to continue to rise sharply due to the twin forces of (1) economic growth shifting to emerging middle-income economies and (2) the number of middle-income people increasing within these countries. As the world’s economic center of gravity shifts towards the “expanding middle” over the coming decades, we believe that multinationals have a once-in-a-lifetime opportunity to position themselves for the growth of the global middle class. North American ticket sales for the Top 100 tours increased 12% year over year vs. International ticket sales up 20%. That same year, Live Nation experienced robust growth in International attendance, while North American attendance declined 9% year over year. Year to date, Live Nation is still seeing stronger growth in International markets. Currently, Ticketmaster controls one-third of the global ticketing market share. Two-thirds of Ticketmaster’s profit comes from presence in 12 international markets; but 80% of international profits are coming from just 3 markets: UK, Ireland, and Australia. In six key markets, there are 124 million tickets that Ticketmaster ISN’T currently selling.
An August 2010 newswire post by Venkatesh Bala (Chief Economist of The Cambridge Group) outlined the importance of mobile communication in going global in emerging markets. Going global is the best strategy for diversification; not only the most efficient way, but also the most cost effective. With continued increases in connectivity, it is no doubt that the world is getting smaller. The demand for information and communication is being reshaped around the globe, especially in countries with a growing middle class. This same demand for information is what helps create our smart-phone and mobile boom across the world. Because of this, it becomes increasingly more cost effective for us to reach new markets without having to commit significant amounts of funding. The differences in information and communication patterns and trends between developing and emerging economies are striking. Internet penetration for established economies follows a fairly typical pattern, rising with income levels, and requiring a threshold of around $20,000 of per capita GDP to achieve 50% penetration. Not so for mobile communication, for many reasons, several of which are raised here. First, mobile penetration often exceeds 100% because people own multiple mobile phones. Second, while mobile phone penetration also rises with per capita GDP, it happens earlier, and faster, than Internet adoption. Instead of a $20,000 threshold, in many countries mobile phone penetration exceeds 50% with a per capita GDP as low as $5,000. In middle income countries such as Russia and Saudi Arabia, mobile phone penetration rates are even higher than those of more advanced economies such as the U.S. and Canada because mobile is an affordable, accessible alternative to the Internet. Asia constitutes 60 per cent of the world’s mobile music market, three times the size of the US. Japan, China and South Korea lead the charge, cornering 95% of the Asian market.
Now go global by making yourself mobile and social and you’re in business!