Jesse Kirshbaum, CEO of NUE Agency, and Clayton Durant, CEO of CAD Management, run through several key areas the music industry needs to address immediately in order to survive this pandemic.
With over 350,000 + cases of the Coronavirus in the U.S., states and municipalities have taken the unprecedented action of closing large portions of their economies through social distancing and mandatory closure of non-essential businesses. These provisions are meant to reduce the negative health impacts COVID-19 is having on our society, however, the stress on our economy is becoming too much to bear as the country walks a fine line of entering the 34th recession. The current pandemic may mark one of the worst in American history.
According to a recent survey by The Wall Street Journal, projections show a downturn that predicts the slump will last months, and will in some ways rival — possibly even surpass — the severity of the economic crash in 2008. Similar findings were noted in Goldman Sachs’ latest economic pulse report, which projects U.S. output to fall 3.1% this year and unemployment to soar up 9% from the current 3.5%. The question is: how exposed is the broader music industry in this recession?
The Coronavirus has caused a toll on our society with uncertainties and disappointments piling up day after day, especially within the music industry. The renowned SXSW festival was canceled due to the pandemic, costing both the festival and local Austin economy an estimated $356 million. Additionally, Live Nation halted its slate of worldwide concerts which plummeted the stocks nearly 70% in only a matter of weeks. The pause of live events has placed an immense amount of pressure on various companies like Paradigm, which laid off nearly 100 of its 600-plus employees and made payroll reductions for those remaining at the company. Artists like Zac Brown also cut the majority of its staff due to similar situations, like canceling world tours.
Within a short timespan, companies like ASCAP, The Azoff Company, CAA, Live Nation, Paradigm Talent Agency, the Recording Academy, the RIAA, United Talent Agency, William Morris Endeavor, and others — banded together in response to write an appeal to Congress for financial relief to combat the ongoing pandemic.
With great relief, the request from the music business has been put into action by the government. Within the final $2 trillion relief package, self-employed musicians, songwriters, and music support crews who make under $100,000 per year are now eligible to apply for relief grants and loans, such as the Emergency Economic Injury Disaster Loan (EIDL) grants. The stimulus deal — being the largest in American history — also includes a bundle of other programs assisting small businesses, contractors, individuals with student loans, and unemployed workers, which can deposit more cash into workers’ pockets that are affiliated with the music industry. Despite the government’s intervention, it is critical that, as a collective industry, we continue to find additional options to finance our future and consider the larger implications of this economic recession. Below are a few areas the industry needs to address immediately if we want to come out on the other side of this crisis:
The Music Business Will Need to Double Down on Monetizing Recorded Music Through Advertising:
Despite the economic downturn, the recorded sector will likely be the most shielded part of the music economy post-recession. Prior to the pandemic, estimates from Goldman Sachs noted that the global recorded music market will hit a staggering $45 billion by 2030, due to a projected billion-plus paid streaming subscribers. We noticed healthy record labels like Universal Music Group, Sony, and Warner who jointly averaged $22.9m every 24 hours in 2019. We are currently in an environment where the industry will need to rely more heavily on recorded music revenue than ever before. The reliance will ultimately force the recorded music business to relook at their margins on music and ask themselves how to drive new forms of revenue from recorded music. An area that could be a big opportunity in this new quarantine culture is reexamining the current ad-supported model that surrounds platforms like Spotify and Pandora. In particular, it is important the music industry look at new ways to bring new advertisers into the music ecosystem to drive the average revenue per user (ARPU) up.
“We are currently in an environment where the industry will need to rely more heavily on recorded music revenue than ever before.”
Consider the fact that the music industry has seen its average revenue per user, particularly in emerging territories, dip for the last few years. For instance, Spotify’s APRU declined in this past quarter by 6% to $5.39. Outside of Spotify, platforms like Tencent, which owns the largest collection of music streaming companies in Asia, saw its monthly average revenue per paying user from its social entertainment services unit rise only 7.4% to 127.3 yuan ($18.20), the slowest growth since it went public in 2019. Better ad experiences and opportunities for brands will be critical to bringing more revenue into recorded music, especially if we as a collective business want to capture more of the marketing and advertising dollars that were meant for sports this year.
Financial Stress Will Create Greater Consolidation; Increasing Market Size of Major Players
Although the government has stepped in to assist, there will ultimately be greater consolidation on the back half of this recession. Let’s recount the events of the 2008 financial crisis. We saw banks like JPMorgan Chase, Bank of America, and Wells Fargo acquire the likes of Merrill Lynch, Bear Stearns, and Washington Mutual. If history is any indicator, this recession will likely make the biggest players in music even more influential. It will be harder than ever for indies to survive this down period and the big companies that have cash on their side will get great deals for their money. In particular, Live Nation and AEG will likely look to acquire more independent promoters and venues to expand their overall reach.
“If history is any indicator, this recession will likely make the biggest players in music even more influential.”
Moreover, there is also the possibility that companies like Google, Amazon or Apple, who have cash-heavy balance sheets, will look to make additional acquisitions in music, such as purchasing competitor streaming services or taking equity in additional music companies. This could also be an opportunity for companies like Spotify to make more strategic acquisitions to better position themselves as music companies post COVID-19.
Private Sector Will Need To Continue To Support The Music Business:
During this economic downturn, it is truly incredible and inspirational how the music business has come together in a time of peril. From The Recording Academy and its affiliated charitable foundation MusiCares establishing the COVID-19 Relief Fund, to Spotify making a financial contribution of up to $10 million to help artists and other members of the music community in need, it has certainly been a collective industry effort to help all those who have been affected.
Outside of corporate donations, we have also seen corporations rejigger their business models to help their broader stakeholders. For instance, Bandcamp, an online music and merchandise shop, announced it would waive its revenue cut to support the artists using the platform. Even wealthy estates are stepping up to the plate. Michael Jackson’s estate donated $300,000 to help entertainment professionals who are out of work during the Coronavirus pandemic.
“This all-in industry approach to uplift those who are being affected is the best way to see the music business come out on the other side of this recession.”
Internationally, concert site Bandsintown is raising money through a weeklong marathon of online shows, and Alicia Keys teamed with Amazon to spread the word via Instagram and donate up to $100,000 each, which in turn encouraged fans to like, comment on, and share the post. This all-in industry approach to uplift those who are being affected is the best way to see the music business come out on the other side of this recession.
Embrace New Technologies and Platforms To Connect With Fans Virtually:
While deep downturns in the market are destructive to many businesses’ and people’s financial wealth, recessions have oftentimes forced innovative ways of thinking to adjust to new realities set by market forces. With that in mind, the recession we are collectively facing isn’t all doom and gloom. For the first time, we are seeing the global music industry adopt live streaming in ways that no one could have imagined. For instance, John Legend performed on Instagram Live, and a new electronic music collective NeuroDungeon hosted a virtual party on Twitch and in the avatar-chat app Club Cooee. Michelle Obama and DJ D-Nice are also leveraging live streaming to get more people interested in voting by hosting a virtual #CouchParty so viewers can learn how to register to vote from the comfort of a couch. It is innovations like these that will set new standards and opportunities for creators in the future to reimagine how the music industry tours and connects with fans.
“It is innovations like these that will set new standards and opportunities for creators in the future to reimagine how the music industry tours and connects with fans.”
COVID-19 has crippled the longest-running expansion of an economy the US has ever seen and we as an industry have been hit with a Mike Tyson-like blindsided punch. Despite the uncertainty about our future, we must all continue to encourage entrepreneurship and enable creators to continue to create. The lifeblood of this business will continue to be the artists and their songs, lyrics, and melodies that capture our hearts and souls. It is our responsibility as a music business to enable this creation, so that the creative engine that feeds our business can help us all move past this uncertain economic period.
This article was originally published on LinkedIn.