With a plethora of both new and established players taking advantage of a booming sync market, Nick Bennett examines the opportunities and challenges ahead.
It is an uncontroversial statement to say that the sync market is exploding at the moment. There are more companies offering sync than ever before and seemingly all of them are having the time of their lives.
Over the last few decades, the decreasing cost of content creation has directly caused the volume of video being uploaded to the internet to increase exponentially. Even just looking at YouTube, the amount of videos being uploaded every minute has grown from 6 hours in 2007 to 500 hours in 2020. These will be a mix of user-generated content, brand-generated content, and more traditional entertainment content.
If we extrapolate that to every social media platform, every traditional television channel launching an SVOD service, and every owned website then we land on a hell of a lot of music that will be needed to accompany those videos.
To match this demand there has been a huge range of music strategies from those bigger players creating the video content and also a range of interesting corporate strategies from those sync companies looking to provide the music.
Will the future growth of the industry sustain the current crop of companies? Will it allow for more new entrants? Will there be consolidation? How will sync-first companies fare against labels and publishers? To answer these questions we must first look at the past.
We can think about this from the demand side in three different categories, long-form entertainment content, advertising content, and user-generated content.
Long-Form Entertainment Content
Without trying to develop categories within categories, music in long-form content has been dictated mostly by three different factors; budget size, rights negotiations, and distribution.
High-end dramas always get to take their pick of composers, making a programme for the right channel or broadcaster will get you access to a wider range of pre-cleared music but having a too demanding list of distribution terms could put you back at square one.
The trend that picked up ahead of steam in previous years, especially in the US, was broadcasters building out their own catalogs. The stark realisation of how much they were spending on music led them to try and capture an opportunity to create their own composed music but also leverage the opportunity to bring down their royalty payments over the long term.
The challenge this mostly saw was when you create something specifically for one programme, it isn’t always that useful for anything else. What music libraries had made look easy became a challenge for broadcasters to execute. The big advantage they had over the music libraries is they were able to mandate the use of specific music, however, this caused issues if there wasn’t the right catalog.
This pattern continued with broadcasters seeking ways to reduce or recoup their music payments, including wholesale switching away from PRO registered music, offering incentives to individual libraries, and other tactics. This library section of long-form entertainment saw the most transition, in contrast with the composed and commercial music used in high-end programming, which saw fairly steady usage.
With the increase in SVOD and AVOD platforms, there is a new challenge that is yet to become totally clear. The category leader Netflix’s business model dictates it should pay high upfront fees and low or non-existent ongoing payments. This is in contrast to the traditional TV model. Most broadcasters and production companies pay smaller upfront fees to license the music (outside of the US) but then the broadcasters have to continue to make ongoing royalty payments when content is shown.
This clash has become evident with Netflix preferring to work more directly with composers on their original shows and buying out all of the rights, however, the back catalog they also host featuring commercial music and traditional library music means they will have an ongoing commitment to the PROs for the foreseeable future.
With many other SVOD platforms facing this dilemma and the PROs failing to negotiate the same on-demand rates they had for linear TV, there is a collision on the horizon.
The big challenge for library music comes as the cord-cutting continues. With 30% of US consumers planning to transfer to SVOD by the end of 2021, how will those back-end royalties be replaced?
The challenge for commercial music and composers is mostly around pricing pressure on sync, however, the challenge in the library music space is a different one entirely. This same pricing pressure has been evident for some time in library music with a large number of sync rights being given over free of charge in exchange for the promise of large back-end royalties. The big challenge for library music comes as the cord-cutting continues. With 30% of US consumers planning to transfer to SVOD by the end of 2021, how will those back-end royalties be replaced?
It could be obvious to state that those with the most flexibility are likely to win (perhaps this goes some way to explain Epidemic’s valuation), especially with the variety of business models emerging in this space, however, you’d be betting against the PROs working a way through this.
Equally, broadcasters and media companies have always preferred the partnership approach with music companies providing an array of services from admin publishing, music supervision, bespoke composition and even white-label platforms. This array of high touch services is likely something that anyone planning to scale to Epidemic’s size is unlikely to want to take on. Therefore, the opportunity is to either compete on flexibility or move to the other end of the spectrum and provide an array of music services that many of the industry have only dabbled in over the years.
The questions to pose are what services will transfer the relationship from a simple supplier/customer arrangement to a long-term partnership that will incur significant switching costs for the broadcaster and a defensible moat for the music company.
Where the focus for broadcasters and entertainment companies has been on building up their own catalogs or owning the music outright, advertisers and brands have mostly focused on getting the best deal possible on the best music on an ad hoc basis. The US has seen a long-term trend of in-house music teams such as at Droga5, Grey, and McCann, however, this approach has fluctuated in and out of favour in Europe.
Several of the large advertising groups over the years (WPP, Omnicom et al) have tried to find a better way to approach working with music but such is the nature of their decentralized organisations that this has rarely stuck. Trying to replicate the mandated approach from broadcasters runs into trouble when you put so much focus on the creativity of each and every bit of work. Asking individual creatives and producers to compromise on their chosen piece of music by going with the supplier that offers better value doesn’t land well at all.
Alongside the music itself, the quality of the platform or delivery mechanism of the music had played a part in the preference of some editors and producers working on long-form content, however, this differentiating factor was neutralised in the advertising space. Music companies were expected to defer to the preference of the brand or advertising agency, mostly delivering their music via WeTransfer, Box or Dropbox, therefore mostly differentiating themselves solely on the quality of their music, brand and human services.
The most interesting takeaway from all of this is the robustness of the model within this sector. Music companies, agencies, and brands alike have tried to bend and mould the process to their favour but with some resistance, the ad-hoc, non-exclusive nature of the approach remains intact.
Whereas previously commercial music was seen as the remit of those major labels, the huge expansion of the independent sector and companies to help deliver that music in a similar approach could see increased competition.
This defining feature is unlikely to go away any time soon, however, companies like SyncFloor, SoStereo and Bopper present an interesting risk to the major labels here. Whereas previously commercial music was seen as the remit of those major labels, the huge expansion of the independent sector and companies to help deliver that music in a similar approach could see increased competition.
This could also be the driving force behind the pricing pressure on the larger commercials and although it is still possible to get six figures for Super Bowl commercials, the regularity is diminishing.
What do advertising and brands want? In its simplest form, it could be described as the ability to choose what they want from who they want, which doesn’t really provide any helpful strategic direction other than that trying to capture the market via exclusive deals that could prove a dead end.
UGC (User Generated Content) has been considered the wild west for music licensing for some time and is still one of the subjects that regularly grabs the headlines. The point of its controversy normally stems from the inability of tech companies to control user behaviour. With nearly every tech platform that has sprung up, there has been a huge challenge to incorporate music within it.
At its core, the challenge has been around how music copyright has historically been structured and its compatibility with the advance of modern technology.
We have never expected consumers of music to understand when they are acting within the correct usage terms and when they are not. Historic examples such as taping then sharing records and burning CDs onto iTunes show how human behaviour has typically misunderstood or ignored copyright laws.
When we extrapolate this to any new technology platform, all the user wants to do is include their favourite artist within that experience. They have little to no understanding of why they would need to seek further permission from the record label, publisher, or artist. And why should they?
We are now seeing the upside in this from a music industry perspective, with streaming services and TikTok showing a route to monetising this usage. However, the most interesting example which also started most of the mobilisation of the music industry was YouTube.
Rumblefish can be credited as one of the original companies to focus on this but the interesting takeaway here is the mess that it caused on all sides. As advertisers attempted to leverage this new channel, music companies (major labels and music for sync companies) regularly responded by blocking and claiming copyright infringement on videos using their content.
The biggest challenge presented by YouTube was how fast things changed. YouTube was responding in near real-time to consumer behaviour and, as everyone reading this article will know, the music industry hasn’t historically been great at keeping up. This sluggish approach to finding the right model left the door open for companies like Epidemic Sound to co-create the approach to music with YouTube and although the broader relationship between YouTube and the music industry is in better shape now, it wasn’t always that way.
The much-derided Content ID was a huge leap forward that has paved the way for some form of usability by consumers, music suppliers, and YouTube themselves, however, it is far from perfect.
The first challenge is the constant adaptation of user behaviour on existing platforms and the second is a fairly narrow view held by some that all UGC can be served in the same way.
The challenge when thinking about UGC can be separated into a couple of buckets. The first challenge is the constant adaptation of user behaviour on existing platforms and the second is a fairly narrow view held by some that all UGC can be served in the same way. The former can only be solved by taking an agile and flexible approach to how each type of music company works in this space (labels, publishers, and sync specific music companies) and there is no easy answer. The latter could require a bit more strategic consideration.
When considering the job to be done of music in the UGC space it’s easy to assume all creators want to just use their favourite artist on every video. Whilst this is definitely true in some instances, and these can be well served by micro-licensing and companies such as Lickd, there is an alternative job to be done.
In some instances, the need of a creator is more closely aligned to the need of an editor for long-form entertainment content. That need is for music to help tell the overarching story and digging through Spotify to find it isn’t always the best approach. The well-refined search functionality and metadata of library music is normally perfectly suited to this approach and the music itself has been created with this purpose in mind. Unfortunately even solving the licensing headache of commercial music won’t suddenly mean Biffy Clyro’s new single perfectly builds to a crescendo with the right cut downs and stings.
Who Wins in Sync?
All things considered, the global sync market is in a very healthy place.
Although the largest of sync deals have decreased in volume over time, the royalty payments have continued to hold strong and the sheer amount of video being created continues to grow exponentially.
In terms of the different sectors, there will likely always be a place for the traditional production libraries in long-form entertainment, until such a time when the floor falls out on broadcast royalties, but that appears to be some way off.
However, Disney proves a great case study of being brave and pulling ahead of the curve. In 2017 they made the decision to cut the cash cow of Netflix and go direct with Disney+. This was a difficult decision but being clear on their strategy made it easier. If we apply this to music libraries, how will they see their relationship with the PROs and their cash cow of broadcast royalties? Do they place their bet on this revenue crossing the digital divide or do they plan for a future with a more direct ability to license?
Getting ahead of the pack could have a significant advantage, although Epidemic Sound will be hoping everyone just continues to hold out. With regards to composed and commercial music, it appears unlikely there will be any huge impact given the trends that have appeared so far in long-form entertainment content, other than sync increasing in value as a marketing strategy to drive more streaming royalties.
In the advertising sector, there is probably more to play for. There is hot competition on who gets to be the aggregation layer. With Songtradr’s long list of acquisitions, they are well-positioned to meet a full suite of music needs, from sync through to bespoke composition and sonic identity. Smaller players in this similar model, such as SyncFloor and Bopper, also show the potential for others to push for market share.
As previously mentioned, history provides a cautionary tale with the industry thus far resisting consolidation. How will those involved respond to this?
“Our vision is based around relevance. Is the music creatively relevant, will it resonate with my audience and can I use it in the way I need to? Our ecosystem ensures we can solve those questions at scale, for all customer types.”
– Nick Woollard, SVP Global Platform Sales, Songtradr
As far as UGC goes, this is the most complex and undefined. As I mentioned in a previous article, there is a whole industry shift needed in how the commercial music industry thinks about UGC and its associated platforms. Lickd appears on the road to solving one of the jobs to be done, especially with their latest funding round and investment partnerships.
With regards to the other job to be done, there is hot competition in the VC-backed sync platform space with Artlist, Epidemic Sound, Audiio, and many others competing in what could be viewed as a race to the bottom. Epidemic Sound has the clear lead and also a strategic advantage (the only true royalty-free catalog) but the dynamics change so quickly in this space and how to adapt and achieve true scale whilst not getting disrupted is the question to be answered.