Why is the Music Industry So Small?

Why is the value of the music industry so small compared to other forms of entertainment like gaming and television, even though music seems to be everywhere in our lives?

This week on the podcast, Dmitri kicks off a new miniseries built around this year's conference theme, "Rising Tide: Grow the Music, Grow the Value" with Jimmy Stone, managing partner of Alderbrook. Jimmy pushes back on the premise and walks through the real numbers behind the music market, including the gap between wholesale and retail revenue estimates.

Dmitri and Jimmy dig into why streaming struggled to create the kind of scarcity that once let labels set prices, how Napster and peer to peer sharing permanently changed what people are willing to pay for music, and why platforms like YouTube, TikTok, and Meta may still be underpaying rights holders for how music actually gets used. The conversation turns to where new revenue might come from next, including premium subscription tiers, interactive music features, exclusive concert access, and lessons from Tencent Music's super fan tier in China. They also tackle a big question head on, whether AI will end up being a multiplier or a deflator for music revenue, and why Jimmy lands on multiplier despite the uncertainty around rights and attribution. They close out talking about ABBA Voyage, holographic concerts, and why live human performance might become more valuable, not less, as AI generated music becomes more common.

If you're trying to make sense of where music's real value comes from and where it's headed next, this episode is a great place to start.

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Episode Transcript

Machine transcribed

[00:00:00] Dmitri: Jimmy Stone is the managing partner of Alderbrook, a financial advisory and early stage investment firm. Jimmy writes about music tech and the value of music, venture capital, and the trends that affect all these topics on Alderbrook's company blog. That's how I found him, I think. He was on a previous Music Tectonics episode on transmedia storytelling, which was greatly influential in my thinking about music innovation, and he's contributed toward my thoughts on growing the value of the music industry.

And this year's Music Tectonics conference theme, Rising Tide: Grow the Music, Grow the Value. So I thought, who better than Jimmy to help me kick off this new miniseries on the Rising Tide theme? Welcome back to the show, Jimmy.

[00:00:39] Jimmy: Hey, Dmitri. Great to be back.

[00:00:42] Dmitri: All right. So today I wanna focus on why the music industry is so small.

I don't know if it's a hot take, I don't know if it's controversial. We'll see. Podcast listeners, I know that you know that all around us is music, and not just around us that are in the music industry, but music is everywhere. It accompanies us exercising, commuting, cooking, studying, working. It's playing in coffee shops and stores and restaurants, throughout TV shows and films, on prank videos, dance videos, sports videos.

It's all over social media, right Jimmy?

[00:01:12] Jimmy: Yes.

[00:01:13] Dmitri: Uh, and in gaming and fitness apps, wellness apps, and thanks to laptops and DAWs, not to mention all the new musical instruments and mobile phones, and now artificial intelligence, more and more people are making music, sometimes derivative, sometimes cover songs, sometimes interpolation, sometimes seemingly original.

I don't know. We'll get into all that in the miniseries over the next two months. But suffice it to say, music has a huge cultural impact, and finding your music is a universal rite of passage of humans, defining our identities, our friend groups, and our worldview. Music's the measure of cultural shifts and pivot points for society at large.

Music's listens by such a large portion of humankind, th- at least the ones that we can track. And yet, when you look at the size of the music market economically, it pales in comparison to other forms of entertainment like television, gaming, sports, and social media. I'm getting off my soapbox, Jimmy.

Why is the value of the music industry so small?

[00:02:15] Jimmy: Yeah. So I think it's a lot of reasons, Dmitri. you know, first, I think with the digital age, music struggled to create scarcity. if you think about pre-internet, you know, you're purchasing physical CDs that were priced, you know, highly by retailers, and when the supply of those CDs ran out or tapes ran out, you were outta luck as a consumer.

Now we've got, you know, streaming services with every, song, every piece of music in the history of mankind, and we pay, 10 bucks more or less per month in, in developed markets to access that music. So if rights holders can't really set the price of, music or control the supply of it, you know, that impacts, ARPUs, uh, what people are, paying for music.

So I think, I think that's a big one. there's others as well. I think, you know, if, if we're comparing it to gaming, you know, and you look at certain regions, that have figured out how to monetize gaming, one being China, which is the largest gaming market. And you look at, China in terms of, in music terms, it's only the fourth largest, music market, I believe, as measured by IFPI.

So- I think in certain markets there's room for real growth. Those are a couple, but there's more.

[00:03:31] Dmitri: Yeah. Yeah, I mean, it's funny, when I, told you this before, you were like, "Is it actually small?" I mean, do you wanna say anything about that?

[00:03:38] Jimmy: Sure. I mean, yeah, I, I think just thinking about it, when y- sometimes it's quoted as about, like, an $80 billion market.

I think that's more on the wholesale side of things, and so Goldman's number for the retail side is 120 billion, which, you know, is quite a bit larger. And if you compare it to gaming, and you look at, Newzoo's report, it's 180 billion. But again, China comes up. You know, if, if China is the largest gaming market, and it's measured at 50 to 60 billion, I believe, by Newzoo, and you compare that to, to music, I mean, that delta alone, is enormous and, and can go a long way in explaining the difference there.

So I just... I think it's important, you know, oftentimes music's comped to, to gaming or to film and, while I, I agree that there's a lot of room to grow the, total market size, it is a reminder that it, or at least to me, when you include live, it's, it's a pretty big market, in my opinion.

[00:04:32] Dmitri: Right. Yeah, yeah. Yeah. I mean, right. So, like, what you say, y- you said 120 billion? Is that what you said when you come on every day?

[00:04:40] Jimmy: Yeah. I mean, that's according to Goldman Sachs. If you look at their, Music in the Air report, I think from last year, the wholesale revenue when you include recorded music publishing and live is, is roughly, I think, around 80 billion in 2026.

But then when they gross it up for gross revenue, it's closer to 120 billion

[00:05:00] Dmitri: I see. Well, I'm, I'm missing something in my numbers 'cause I keep coming up with, oh, maybe thir- 30, 30, 40 billion on recording, 30, 40 billion on live or something like that. But you're saying some of that is retail numbers and some of that's wholesale.

[00:05:13] Jimmy: Yeah, I think the, the numbers you may be quoting, and, granted, you know, I could be off too, but my understanding is the numbers you're quoting are after kind of platform fees, like Spotify takes 30%. Um, so the number that consumers are paying according to Goldman Sachs is closer to 120 billion.

[00:05:31] Dmitri: Wow, okay. and gaming, I keep hearing people quote is, like, 300 billion. Again, I can't-

[00:05:38] Jimmy: Yeah

[00:05:38] Dmitri: ... I can't verify. I did my Google searches and my Claudes and, and things like that, and it's, very hard to compare industries, especially when different groups have different, like different research uses different countries.

[00:05:50] Jimmy: Agreed.

[00:05:50] Dmitri: Like, some, some of the stuff's like, "Oh, China and India's not included." Some of it's like China is included, and like you said, certain countries in Asia have really figured out how to monetize gaming, and we don't know what's going on in music or something, you know?

[00:06:01] Jimmy: Yeah, it's just smaller, I think, in certain markets with music.

Um, yeah, 100%. I think some of those gaming numbers that are higher start throwing in hardware. I guess we could do that too for music and see where, where we come out, not just the content sales and the live piece. yeah, I, it- it's kind of hand wavy at, at, to a certain extent.

[00:06:19] Dmitri: I mean, that's a good point, actually.

If we talk about hardware, are we talking about listening devices? Are we talking about performance and recording devices?

[00:06:26] Jimmy: Yeah.

Exactly.

[00:06:27] Dmitri: Like, if that's-

[00:06:28] Jimmy: Yeah

[00:06:28] Dmitri: ... it's so funny how, how, like in music, you think about the recording, kind of listening to the recorded music as sort of like the, the key product. But in gaming, you're like, "Well, it's the devices and it's the games, and it's the, in- in-game purchases, the skins and the capes and the, emotes and the Twitch," you know?

[00:06:47] Jimmy: Yeah,

[00:06:48] Dmitri: yeah. There's so much other stuff

[00:06:48] Jimmy: there. Well, I think that's another, like, important point in gaming. you know, they've definitely prioritized, consumer segments and, you know, some folks are willing to pay, you know, thousands of dollars for that skin to, to really stand out, whereas in music, we've, to date at least, seen less revenue segmentation.

But that appears to be coming from the streaming services, which is ano- you know, could be another big driver of, of future TAM growth, which I know you're, you're high on.

[00:07:17] Dmitri: Yeah. How could you tell?

[00:07:19] Jimmy: Yeah.

[00:07:19] Dmitri: yeah. Yeah. Interesting. So you talked about scarcity. I'm still thinking a little bit about, like, comparison to other...

I guess to what people pay. We talked a bit about gaming a little bit. And, you know, the other thing about it that w- I guess before we go off the gaming topic, Jimmy, it feels like a lot more people listen to music than are active gamers. And so that's an interesting thing, too. It's like if you look at just the number of people that are out there playing games or out there listening to music, and of course you've got the sort of like lean in, lean back.

Are we talking about people playing Sudoku, or, or are we talking about people who are listening to music on the radio versus paying for a streaming service or buying tickets or whatever? So there's, like, probably a lot of messy data, speaking of hand-waving, probably a lot of messy data around, "Well, well, who are we talking about here?"

But it sure seems like music has this cultural saturation that, I mean, some gamers are gonna hate me for this, but that I don't think gaming does. You know what I mean? Like, our parents are probably listening to music at some amount and probably not gaming, you know?

[00:08:22] Jimmy: Yeah.

[00:08:22] Dmitri: And yes, there's some generational stuff, too, but I think there's cultural stuff, too, and it just seems like music has this universality.

I've never believed that Music is a universal language. I've always said music is a bunch of languages, you know? you can't say language is a universal language. But the point being, let that emotional engagement, that cultural identity, that rite of passage that I talked about in the intro, those things are tied to music, and they only are for gaming for some people.

[00:08:48] Jimmy: Yeah. I mean, I don't know if I'd agree 100% on gaming culture not being strong. Maybe it's not as, You know, there's, there aren't as many people who are strong gaming lovers versus strong music lovers. I don't know. I haven't looked at the data there. Uh, but I think there are some, elements at play.

You know, w- if you think about gaming, as a gamer myself, you know, you're... It's how are you consuming the game, you know? It's you're very focused on what you're doing typically. maybe not if you're playing Sudoku, on your phone. It's more of a re- relaxation thing. But, you know, if you're playing, like, FIFA or Call of Duty, you're, you're very focused, very engaged.

Whereas, like, some types of music listening, it's just kind of, you know, it's in the background. You're doing your work. I think that comes into play with, monetization and, what people are willing to pay. that's not to say that music's really focused on that type of monetization. I think, again, that's coming with some of the, the remix features, some of the AI features that are being discussed or rumored about.

 so it'll be interesting to see. You know, can, you know, music, platforms and services, you know, cultivate more foreground consumption? I think that would help with monetization

[00:09:56] Dmitri: Yeah. You know, I wanna switch a little bit to why people pay less for music than TV and video.

I think it's similar to what you were just saying, right? There's like usually with video streaming service, your full attention is there, whereas music it could be, but a lot of times you're doing other stuff at the same time. do you wanna say anything else about why people pay less for music than TV or video streaming?

[00:10:19] Jimmy: Yeah. Well, TV video streaming, I don't necessarily have, you know, I don't know that comp specifically. I would say, you know, there's a lot of reasons though why the ARPUs are lower, in my opinion, in music verse, you know, other entertainment verticals. I think part of it's that, you know, background consumption.

 a part of it is they don't really have a choice in some ways with, um, you know, how pricing works. There hasn't been really a premium tier. Prices have slowly been increased versus in, you know, video streaming services, increasing prices much more, more frequently over time. so I think, those are, are some of the reasons for sure.

I mean, no less about international markets with video streaming, but, you know, music markets, there's typically less paid penetration. the streaming subscriptions are much lower priced, uh, in those markets. So, I think kind of all those things contribute

[00:11:14] Dmitri: Yeah.

Yeah.

Interesting.

You

know-

[00:11:16] Jimmy: What,

what's your

take, Dmitri, on that one?

[00:11:18] Dmitri: Um, so I, I, I think it's something that I've had trouble wrapping my head around because I've personally have been so engaged with music .

[00:11:27] Jimmy: Yeah.

[00:11:28] Dmitri: and, uh, you know, as a kid I wasn't a big TV watcher. I've started probably watching more TV as an adult than I did, than I did as a kid, you know?

I was running around on a dirt bike or learning how to juggle in the front yard or

[00:11:42] Jimmy: Yeah, yeah

[00:11:42] Dmitri: ... playing in the alleys with other kids and stuff. Oh, the '70s. Um, and so TV just, you know, I remember a lot of reruns. Maybe TV's just gotten so much better as well, you know? Like, there's just so many more choices now than when I was a kid.

But I, I think what you're saying makes sense, and it makes me think a lot about sort of something that maybe we'll get to or maybe we should talk about now really, which is, like, I think one of the major label heads talked about this, how much people are paying, per hour of consumption.

[00:12:12] Jimmy: Yeah.

[00:12:12] Dmitri: You know?

[00:12:13] Jimmy: For sure.

[00:12:13] Dmitri: And, and around gaming and, and TV I see that. You're say- you're saying, like, they're fully engaged, so they're paying more per hour. And, and you mentioned the remix thing of could that bring people into paying more per hour for, for music listening? 'Cause you're not just listening, you're doing something else with it.

[00:12:26] Jimmy: Yeah, and I think there's one other thing that I failed to point, like, to mention that I think's important. You know, if you think about how these music service, like, the product that these music services offer, it's pretty much the same across the board. Everybody's got the same catalog, and there's fierce competition.

Whereas in TV, gaming, you know, there is that scarcity piece comes into play. You know, the catalog that you get on Netflix is different than Disney+, and so on and so forth. So when there's less scarcity, right, you have more pricing power. There's, you know, as a consumer, if you wanna watch these shows on Netflix, you can't...

You know, you gotta get the Disney+ subscription too. So I think that's a big deal, right, for ARPUs and, and, you know, drives a lot of the differences as well is that, you know, one catalog, everybody has the same catalog, and there's not that, uh, scarcity in music.

[00:13:21] Dmitri: Is it, is that related to Napster?

I mean, is that, uh, related to peer-to-peer sharing? Is the reason that all music streaming services have virtually the same catalog because everyone got used to getting access to all music for free, and streaming just had to get people to pay anything-

[00:13:37] Jimmy: Yeah ...

[00:13:37] Dmitri: for music?

[00:13:38] Jimmy: Yeah, it's a great question. I mean, I don't, I can't tell you the perfect story for why it's kind of evolved that way.

 I think it's probably a mix of, you know, rights holders, not really wanting to maybe get into the streaming business early, meaning, like, you know, they, spread their bets ac- they, they wanted to license the music. And so as more than one platform started to emerge, you know, they spread their bets across multiple s- platforms, streaming services, DSPs, and as a result, it's kind of evolved to where you have, you know, these more than one DSP with the same content.

Whereas with, you know, TV streaming, Netflix was kind of the early entrant there, and I think, you know, over time the rights holders said, "Wait a minute, we wanna kinda control the distribution of the content," and started breaking away and, and forming their own, uh, s- uh, platforms. We haven't really seen that in music.

And so, you know, I think it's probably, rights holder driven and kind of a different approach in music than in other entertainment verticals. But to be honest, I, I haven't studied that closely, so I don't, I don't know for sure.

[00:14:46] Dmitri: Yeah. Yeah, interesting. I mean, I also think about... the fact that Napster and just peer-to-peer sharing pre-streaming, maybe had a role in devaluing music.

I mean, that seems like an obvious statement to me, but I don't know if it's true just because we went from CDs to all of a sudden people ripping stuff and sharing stuff and nobody paying for anything. and it just, I don't know. I hear some people say, "Well, labels should've gotten ahead of this somehow," and I just don't know how they could've.

I don't, I don't understand how they could've. but, I mean, do you... is that a fair statement, you think, to say that-

[00:15:20] Jimmy: Yeah, for sure

[00:15:21] Dmitri: ... peer-to-peer sharing and Napster devalued music across the board?

[00:15:24] Jimmy: Yeah, I mean, it's, I think it's fact. You know, if you look at recorded industry revenue in that period, it fell off a cliff and, you know, decimated the industry.

So, yeah, for sure. I think, digital music, like it took a long time to f- to get to this business model that is growing the industry again. so early on, yeah, I would absolutely agree with it, it basically commoditized music, not even commoditized it 'cause you, you didn't have to pay f- pay at all anything.

But, you know, it eventually, once iTunes came around, kind of commoditized music, uh, consumption and, you know, over time the industry slowly built from there. And I think going forward to grow the TAM, kind of the theme you're, building towards, one piece of that is, i- in my opinion, is gonna be reintroducing, scarcity and figuring out ways where consumers are willing to pay for access or, exclusives or, you know, things that i- basically aren't commoditized in music.

And, and it's taken a while to kind of get, to get back to that focus area 'cause the first piece was just getting people to pay for music at all after Napster came about and kind of shook the industry.

[00:16:38] Dmitri: Right. Yeah. I wanna get to that because it sounds like you've got some ideas about how to fight the scarcity effect and growing the TAM and rising the tide for all in, in music.

And you know, it is funny, I sometimes I think I'm talking about the recorded music, and sometimes I'm talking about music as whole. And when you talk about music as a whole, you're saying live music too, but then you're saying, "Oh, what about musical instruments? What about music-making software?"

[00:16:59] Jimmy: Yeah.

[00:16:59] Dmitri: "What about AI creation?"

There's all these- Right ... there's all these pieces. and you know, I, I, I... maybe I'm overdoing it here, Jimmy, with why is the value of the music industry so small, but I think what we've just pointed to is sort of a pattern with peer-to-peer sharing, Napster. First, like, just this huge drop of, potential revenue.

You used the word commoditizing to refer to purchasable downloads, so even unbundling the album for downloads- Right ... is a piece of it. But also making it, like, just feel like, oh, there's lots of stuff you could get here. It's almost replaceable. Like, you could buy this download or that download or whatever, and then getting people back to just the idea of paying for any music with streaming or paying for, like, real big access.

I'm, I'm curious just to mention, we don't have to spend too much time on it, a couple of other things that I wonder about that make the music industry feel small, at least the recorded side. I'm thinking about YouTube, TikTok, Meta. Are they paying as much? I mean, like, in a way it's interesting. Like, with Spotify, labels quickly figured out how to get some equity, do some licensing, et cetera.

With YouTube, it seems like they built technology faster than negotiations were able to have, or even lawsuits were able to have. They kinda, used the, the, DMCA takedown process as a way of saying, "Oh, that's fine. If you don't want your music here, you can just take it down. But if you wanna keep it here, we'll give you a little slice of advertising revenue."

And, I know YouTube Music came later, and they actually maybe pay even more than other sh- music streaming services. But with that UGC side, which is where the, TikTok and the Meta stuff comes in, are they underpaying for music?

[00:18:32] Jimmy: I don't have the stats in front of me. I mean, I know they're paying out, you know, more and more-

[00:18:36] Dmitri: Billions,

[00:18:37] Jimmy: yeah

 each year, and it's growing, and I, I guess you could make the argument they're not, they're not paying nearly enough, as they should. But, it's not the... you know, the trajectory is, positive and hopefully will continue. what is your take on that?

[00:18:50] Dmitri: Well, the same way you described, like, the Napster thing, of course scarcity went away instantly.

In the case of YouTube, and you know, I love that YouTube's now saying, "Hey, we wanna outpay Spotify for music."

Right. That's what they're saying, right? Like, "We wanna pay the music industry more than Spotify is." Which is, you know, you wanna talk about growing the TAM? Please do. YouTube is used all over the world.

For some, some parts of the world it's the primary music, and for some demographics even in the US, the primary music ingestion platform or f- or listening platform, discovery platform for that matter. but it just makes me think about, like, you know, putting your thumbs on the scale a little bit by saying, "Well, the music's there.

The law protects us. If you want us to take it down, we will, or you can share." And the... They have a stronger negotiating position if they say that versus if they were like, "Hey, we're gonna launch this service. Can we license some music?"

[00:19:41] Jimmy: Right.

[00:19:41] Dmitri: Now, the flip side is the labels might've said, "Sure.

How many billions you got?" You know? And it's kind of a tough situation, but I don't know. I g- that, that's where I wonder, maybe YouTube's sorted it out. I wonder about TikTok and, and Meta, Instagram, like there's so much music on those platforms. I don't think people are listening to music on TikTok and Meta the way they would in the car or with headphones on, you know, when they're walking or studying or whatever.

So I get that it's a lighter amount, but then it feels like it's kind of like sync revenue in a way. Like that, let- that there should be a sync license, and so it almost needs to be like pre-licensed rather than after the fact, let's negotiate what UGC content has your music in it, and this whole ridiculously difficult process of like claiming, "Oh, it looks like you're using one of my songs.

Can I please get paid for that?" You know, that kind of thing. So that's, I guess that's... I don't have numbers or answers either, but I just have that question of sort of like, damn, technology keeps doing this thing where it moves faster and then negotiations follow. Negotiations move faster than the law, and user behavior y- moves faster than the negotiations, you know?

So you have this ticking time bomb feel, and then you have a lot of record labels who are like, " Let's talk about millions of dollars instead of fractions of pennies," and maybe that does or doesn't make it to artists or creators or songwriters, you know?

[00:21:05] Jimmy: Yeah.

[00:21:06] Dmitri: Kind of a mess

[00:21:08] Jimmy: A lot there. A lot there

[00:21:10] Dmitri: Yeah.

I've also wondered, and we don't have to get into it, on the sync side, just more traditional sync, TV and film, why is it such a fraction? When you look at the, pie graphs of, where the mu-

[00:21:20] Jimmy: Right

[00:21:20] Dmitri: ... music industry revenue comes from, and you think about how much TV and film get out of, music in terms of adding value to it, it just baffles me that sync is such a small slice of the pie, you know?

[00:21:32] Jimmy: Yeah. And well, I mean, I, I think there's a number of startups working on solutions to try to grow the pie in that space. but yeah, that's an area where I haven't spent much time.

[00:21:41] Dmitri: Yeah, yeah. We need to take a quick break, and when we come back, I think I should ask you about what you were talking about in terms of what new things are emerging related to challenging this idea of scarcity as it relates to pricing and interactivity and things like that.

 we'll be right back Okay, we're back. Now, early on in this conversation, Jimmy, you mentioned that the biggest issue with growing the music industry is around scarcity in music, and you kind of at one point sort of hinted at, "Yeah, we'll see what happens with interactive music." and I'm curious if we can talk more about that.

Do you think that these premium... I mean, we've seen a lot of news recently about Spotify announcing a deal that has to do with interactive music. We just saw Deezer has a tool like this. Audiomack, the, the more kind of like agile, innovative, independent global streaming platform, has had something called Audio Mod for a while.

Um, and there's been a lot of startups that have come up for, like, remixing and things, some of, some of which even got licenses, but they never really took off. Maybe they didn't have enough, like, network effect within their individual app, and then you couldn't do with anything with it when you remix.

But do you think that there's an opportunity for a kind of interactive music piece that can help grow the pie?

[00:22:59] Jimmy: Yeah, just to be clear, I think it's one of the reas- scarcity is one piece of it. I don't think it's the only kind of, or the, the most important for, you know, way to, to continue growing the pie.

I think there's a number of, ways to do it. but I do, I mean, I... We'll see. I don't know. I'll, I'll kind of punt on that if, an interactive feature or an interactive app will, will be the driving force behind, you know, new, um, premium tiers. I think there-- it's not just kind of the interactive piece.

I think it's, probably gonna be a few things. You know, exclusivity on concert tickets. Spotify's, you know, working with Live Nation on that. potentially, although seems maybe less likely, exclusivity on, artists, new releases or merchandise. I think, you know, it's not just the interactivity piece.

I think you can introduce scarcity in a lot of different ways, and so that's what I would expect, over the next several years, is trying to think of, or come up with, uh, features or products that, you know, fans are excited about and willing to pay more for

[00:24:00] Dmitri: Yeah. Uh, that's-- I guess that's what I'm, I'm trying to find out. Like, there's all these ideas, whether it's from the streaming services or from startup founders, or even just super fans that are like, "I would love this," which ones will actually take off? Spotify seems like they've tried so many things in the past.

[00:24:17] Jimmy: Mm-hmm.

[00:24:17] Dmitri: And there was a moment where Spotify felt very social, like there was a social element with it. They even had an app store inside of Spotify, if I remember correctly. And maybe it was too early to do that, or maybe there was investment pressure or licensing pressure around, "Wait, hold on. If you're gonna do all that kind of stuff, we have to clamp down on sort of like what's the return on the, the investment in those technologies or opening up the APIs to that extent."

[00:24:42] Jimmy: Right.

[00:24:42] Dmitri: I don't really know. But it seems like a lot of the tests that have happened just didn't pan out.

[00:24:47] Jimmy: Right.

[00:24:47] Dmitri: And yeah.

[00:24:48] Jimmy: Now they're doing video too, like watching, you know, live concerts, which could be-- become an exclusive, uh, feature as well. Yeah, I mean, I don't, you know, I can't, I can't see the future, so I don't know for sure.

I mean, I think one interesting cor-- like, uh, example to look towards is, you know, Tencent Music and what's worked for them in China. They've built a successful super fan, tier in their streaming service. We wrote an article about it, I think last year. and, y- you know, I think it's been a mix of... And, and it's hard to tell 'cause it seems like on each earnings call they, what's driving the super fan conversion changes, at least that, that's my, what I remember.

But it's been a mix of, you know, exclusive, merch, exclusive access to concerts, premium audio, which obviously isn't gonna be a, a part of or doesn't appear to be like it's gonna be a part of any Spotify premium tier. But it's, it's kind of been a mix of all the things that we've talked about.

 so hopefully, uh, if it's combined, in one app, something similar will work in other markets other than China. But yeah, I mean, it's, it's hard to, predict with much certainty g- for the reasons you, mentioned. A lot of these features or some of these features on their own haven't really worked successfully in the past.

So, it's exciting that, you know, as growth slows, it's, slightly across the industry, but also at, as it starts to slow at some of the streaming platforms, they're ready to really embrace new products and, and see what does work. So, I think that's, that's the exciting part.

[00:26:24] Dmitri: Yeah, that's interesting.

It's almost like those tests that Spotify has tried over the years, going back to its earliest days, might have just been too early to miss the, or initial value proposition. But now that, like you said, growth is slowing, you have this mature consumer base on these streaming services that are like, "Okay, I am wo- Spotify is part of my life."

The way people freak out on the end of the year with Spotify Wrapped, where it's just, like, a crazy... You know, it's like a Super Bowl moment, which is kind of insane.

[00:26:54] Jimmy: Yeah.

[00:26:54] Dmitri: Which is pretty awesome in a sense, because everybody's, like, comparing or s- or bragging or posting or whatever. that makes a lot of sense, so I appreciate that kind of, that, that kind of insight to it.

 and also, I really respect thinking about what's happening in China and in, and Asia in general, because we keep seeing lots of user behavior that literally follows like the wind across the globe over time. It takes longer than the wind, longer than a hurricane, to get across, and hopefully doesn't diffuse before it gets here sometimes, right?

But the super app concept, so much of the kind of stuff that we're talking about takes place on Instagram.

[00:27:28] Jimmy: Mm-hmm.

[00:27:29] Dmitri: You know? Like w- band... A- all bands seem more concerned about their Instagram profile and presence than their Spotify one. I know that sounds crazy, but, you know, if you're an up-and-coming band and you're like, "Well, I just don't have that many followers on Spotify," you're building your following on social media.

Particularly Instagram just seems, like, creator-friendly in, in the United States.

[00:27:47] Jimmy: Yeah.

[00:27:48] Dmitri: And so then you're selling, trying to sell merch on Instagram. You're trying to announce tickets, but you can't actually buy them on Instagram. Then you go to some profile page that has some kind of, like, multi-link controller, a sep- third-party app to get more links because Instagram has a limitation.

So in a way, Spotify's sort of saying, "Wait a second, we let... we used to have this. It didn't work out." Now that stuff... When we talk about the industry being fragmented, I feel like that's part of it. It's that fragmentation between artist and fan.

[00:28:13] Jimmy: Yeah.

[00:28:14] Dmitri: And now to say bring it back in, you're giving me hope, honestly, Jimmy.

Like, I actually am like, "Oh, maybe I'll get more engaged with my streaming apps as a result of this." That feeling of sort of like- It was great for discovery and for playlisting and so forth, and now it feels sort of like, "Oh, it's-- I've got my playlist now. It's cool. Whenever I wanna put on music, I definitely put it on, but what else do I do there?"

[00:28:35] Jimmy: Yeah.

[00:28:35] Dmitri: It feels like there is more value to be had there.

[00:28:38] Jimmy: Yeah. I mean, I think there's kind of the existing formats and, the path to a higher TAM is both more subscribers, which, you know, has been what, most ESPs have been s- solving for over the past, you know, 10 to 15 years.

There's the conversion to paid, and a lot of what we're talking right-- about right now is the ARPU, which is, you know, how do you get people to pay more? One is the new tiers and all the features behind them. The other is just ongoing pricing increases, which look like that's gonna happen, so that's gonna help, you know, grow your TAM as well.

 but I, I realize we're, we're focusing a lot on streaming. There's other formats that could help unlock, you know, new revenue, both at live and on digital channels. So, yeah, we can talk about those if you want as well. But, um-

[00:29:21] Dmitri: Yeah, I mean, which ones come to mind?

[00:29:23] Jimmy: Yeah, I mean, uh, we'll see kind of like what actually works. I think it's interesting on the B2B side, you know, what Soundtrack Your Brand's doing. they-- I think they like think the market is $40 billion. If they're right, that's a huge, you know, unlock for the industry. you know, Peloton came along and started, driving new revenue to the industry, so who knows what, you know, new well-wellness use cases could drive licensing revenue as well.

Um, s- uh, you know, Suno, which everybody hates, we'll see if, you know, that creation type apps can drive significant revenue for the industry. But point being like, I don't know what's gonna be the one or the two that, that will drive new revenue, but there's exciting new, platforms, apps, companies that are, trying to unlock more revenue, which would be upside to all the things we've talked about on streaming.

 because it would be, you know, new hours for people to engage with music or new licensing opportunities for folks who are using music but maybe aren't paying what they, should, for it, in the case of the B2B streaming. So yeah, those are some ideas, but we'll have to see

[00:30:32] Dmitri: Yeah, and we'll get into that more later in the series, too.

Jimmy, we're not gonna rely on you for all the answers, all the, all the predictions-

[00:30:38] Jimmy: I don't have the answers. I'm just- ...

throwing out ideas

out there.

[00:30:40] Dmitri: Just questions. It's all questions. Yeah, yeah, yeah. You know, I do wanna get into, a few more things today. I'm gonna ask you a question directly. Will AI be a multiplier on music revenue or a deflator?

[00:30:52] Jimmy: I think it's probably... Look, I think it could impact it both ways, but net-net, I think multiplier. I think, you know, it, it, it may impact some of the creator tools companies and, that's gonna create competition, that use case. But I think how it can be used, will either get more folks to pay for music or, they'll be willing to spend more, so I'm gonna say multiplier.

[00:31:17] Dmitri: Hmm. Yeah, and I'm, I'm glad you're saying it 'cause I, I wanna have some hope here. You know, there's this one side of the argument which is, Generative AI music creation tools could potentially threaten the idea of copyright and intellectual property, which could feel to a lot of creators, like artists, traditional artists, whatever traditional means, non-AI artists

[00:31:38] Jimmy: Yeah

[00:31:38] Dmitri: that there's gonna be another big drop, a Napster style, like, "Oh, shoot, there's so much more music out there, and now I can't differentiate myself from others. It's even harder to differentiate myself from others because now people make music that sounds just like me without having to go through the 10,000 hours of practice-

[00:31:55] Jimmy: Right

[00:31:55] Dmitri: or production or, or whatever." So there's that, like, existential threat piece of it.

[00:32:00] Jimmy: Right.

[00:32:01] Dmitri: but if licensing, if licensing is handled well, if attribution and, royalty payments are handled well, because why wouldn't it go well -

[00:32:10] Jimmy: Right

[00:32:11] Dmitri: ... when there's 1,000 splits versus just 10 splits per song or, or something, something like that?

But, like, there's both, like, the licensing that goes into the, payment for licensing that goes into training the models, but then, like, what happens when the AI-created songs get out there? You know, what rights holders get paid on the listening of the, you know, third generation of-

[00:32:32] Jimmy: Right

[00:32:32] Dmitri: ... a song getting made or something.

 so anyway, I'm hopeful about... I'm hopeful to hear that you're hopeful, I guess is what I'm saying.

[00:32:39] Jimmy: Yeah.

No, I, I think, um, it's hard to know for sure. But, you know, I, believe, or my opinion is that eventually, you know, rights holders will be pro- protected and, hopefully, you know, there's new opportunities to generate even more revenue from that, both, like, at the beginning when the music's being trained, the models are training on the music, then when the song is created on the music, and maybe there's other ways to, you know, generate royalties as a result of, AI music.

I, I believe, too, that, and I know the data shows it so far, I, I think it'll persist. I could be wrong. But that, you know, people will wanna consume music from authentic human beings. we'll see how that plays out. But I, you know, that's, that's my hope at least. And, so I think rights holders over the long run will be fine.

But, It is, uh, it is an uncertainty, and it does, I understand why it creates some anxiety, and the rules are still trying to be figured out. So it makes sense why folks are apprehensive.

[00:33:40] Dmitri: Well, and I, interestingly, you just mentioned this idea that people might swing back to wanting to see human-created music-

[00:33:48] Jimmy: Right

[00:33:48] Dmitri: live, human performers, for example. and you s- started off saying one of the biggest challenges with pricing is around scarcity, you know?

[00:33:56] Jimmy: Sure.

[00:33:56] Dmitri: Uh, and so it could be that's what creates scarcity, right? Right. If there's, you know, the, people might be more attracted to human... And I certainly see it in the teenagers in my family, you know, and, friends of, of my kid and stuff, who are playing, like, you know, hardcore punk acoustic music at all-ages clubs where they're moshing, and some people are coming back a little bit bruised, but still laughing and having fun.

[00:34:22] Jimmy: Right.

[00:34:22] Dmitri: That is not an AI experience, man. That is a grungy, dirty human experience.

[00:34:27] Jimmy: Yeah.

[00:34:29] Dmitri: so there could be some scarcity around that in a cool way.

[00:34:32] Jimmy: Yeah, absolutely. And there's a lot of, things happening in the live space that are really interesting, you know, new formats.

[00:34:39] Dmitri: Oh, yeah.

[00:34:39] Jimmy: ABBA Voyage and, Sphere, and, you know, you're seeing segmentation and pricing there, too, which-

[00:34:46] Dmitri: Hmm

[00:34:46] Jimmy: you know, uh, the segmentation piece, that's, you know, more ARPU, more revenue potentially for the industry. On the new format piece, you know, that's potentially getting new fans for new, you know, for older artists or for new artists. so yeah, uh, you know, live's another area that's, there's exciting things going on to, to increase the TAM as well.

[00:35:07] Dmitri: Yeah, I mean, if we look at the AI, is it a multiplier? And you talk about ABBA Voyage type of stuff, or I saw Ozzy Osbourne has an avatar that's coming out-

[00:35:16] Jimmy: Cool

[00:35:16] Dmitri: ... of some sort that's gonna be very interactive as well. We've talked on the podcast about KISS literally sold the biometric data along with their song catalog-

[00:35:25] Jimmy: Oh, wow

[00:35:25] Dmitri: for a Las Vegas, ABBA Voyage style thing that will happen.

[00:35:28] Jimmy: Pop house,

yeah.

[00:35:29] Dmitri: Yeah, Pop House bought that one. so you know, that's another place where AI actually creates a new experience, like a new revenue stream. and one thing that I think's interesting about it, when we keep b- battling between the recorded side and the live side, if you're a song publisher, if you own the rights to-

[00:35:46] Jimmy: Yes

[00:35:46] Dmitri: that stuff- Yes ... all of a sudden you're starting to take a piece of the live music pie, in a sense. I don't know that people would choose this, you know, a, a KISS concert in Las Vegas over a similar, an AC/DC concert in Las Vegas. I don't know if they would or not, um, or maybe they do both. but it's certainly a scalable, right?

If you don't have humans who have to perform.

[00:36:08] Jimmy: Yeah.

[00:36:08] Dmitri: Which is probably, like, for the human artists when we just talked about, oh, people might want more humans.

[00:36:12] Jimmy: Yeah.

[00:36:12] Dmitri: It's like, wait, what? We have to compete with h- you know, Obi-Wan Kenobi holograms-

[00:36:17] Jimmy: Yeah

[00:36:17] Dmitri: ... everywhere we turn?

[00:36:19] Jimmy: Right. No, fair enough.

[00:36:19] Dmitri: But it's a potential revenue stream.

Yeah.

[00:36:21] Jimmy: With ABBA Voyage, it's super interesting 'cause we d- we wrote another, like, deep dive on, on the newsletter, folks can check out on that one, and it was, there's a lot of things that were cool about it, but two that come to mind were, the demographics at the show, it drove a lot of young people to, discover and engage with ABBA.

 which is really neat and an opportunity for, older artists who maybe aren't touring anymore. so that's really neat. and maybe the most interesting thing which kind of blew me away was what seemingly that concert has done to ABBA's streaming numbers and, presumably a lot of that is being driven by new fans who discovered the band through the concert and now are streaming the music much more.

And what, like, I don't have the numbers in front of me, but, you know, typically when you see an artist go on tour or do a big event, you'll have like a short tail shape where, you know, consumption will spike but come back down and, you know, you're hoping for a new baseline. But with ABBA, the last time we looked at the numbers, it's just been, you know, up and to the right, sustained, and the show's been going for a few years now.

So we'll have to see what happens when it stops. But yeah, I mean, for, if I'm an, you know, if I'm an artist, an older artist, that would get me super, super excited. So really pumped to see what happens with Kiss when Kiss's, uh, streaming numbers once, once that show's open in Las Vegas. but yeah, just like a really, you know, again, interesting licensing use case and, uh, you know, kudos to the Pop House people.

They've done really

well.

[00:37:53] Dmitri: Yeah. Yeah. It's, they're inventing a format, which is cool. Yeah. I mean, there was so much conversation about VR and AR and mixed reality and headsets and all that kind of stuff, and it turns out this is an interesting hybrid of that virtual stuff IRL, you know?

[00:38:07] Jimmy: Yes.

[00:38:07] Dmitri: Like, you know, not everybody wants to buy or wear a headset, but they actually kind of want to be around other people in the audience, even if the performers-

[00:38:13] Jimmy: Yes

[00:38:13] Dmitri: are holograms, which is super interesting too.

[00:38:16] Jimmy: For sure. Have you, uh, just out of curiosity, have you been to the ABBA Voyage concert that

happened?

[00:38:19] Dmitri: I haven't been there yet, no. Have you?

[00:38:21] Jimmy: Yeah, I really wanna do it. No, I haven't done it either.

[00:38:22] Dmitri: Yeah.

[00:38:22] Jimmy: I really want to.

[00:38:24] Dmitri: Yeah, I mean, the other thing that, the Pop Houses of the world and another company we've talked to called Hyper Real that builds some of those experiences, talk about is the interactivity as well.

So each show could be different.

[00:38:36] Jimmy: Yes.

[00:38:36] Dmitri: They could respond to people in the audience. they could, you could have, eventually you could have two concerts that were from totally different decades perform together. Two artists that, you know, like a, a hybrid concert. Somebody could open for another artist, or they could actually collaborate.

What if, you know, Elvis Presley did a song with Eminem, you know?

[00:38:56] Jimmy: Right.

Yeah.

[00:38:56] Dmitri: Now, I don't know if I'd wanna hear that one at all.

[00:38:59] Jimmy: Yeah, no, I mean, but what you're bringing up I, I think is interesting in terms of, like, the novelty of it, you know? it'll be really interesting, in my opinion, to see, you know, where things go over time as it becomes a little more familiar, as, you know, will you keep going to new shows?

Will you keep coming back? I mean, I think what you're seeing with ABBA Voyage, sorry to, like, continue to beat this horse-

[00:39:20] Dmitri: No, no

[00:39:20] Jimmy: ... but, the fact that the show's been running for this long, is a good sign because, you know, presumably people are coming back. It's probably not just new people constantly coming in.

So yeah, the hope would be like you're describing. you can keep making it fresh, but even if it's not totally fresh, people are still engaged and wanna continue to go and, uh, experience it. So that's something that'll be kinda interesting to watch as this format expands.

 TBD, I guess

[00:39:47] Dmitri: Yeah, oddl- oddly enough, it reminds me of the Rocky Horror Picture Show when I was a kid-

[00:39:52] Jimmy: Mm-hmm

[00:39:52] Dmitri: ... which was an interactive film experience because people would dress up for it, they would throw rice at the wedding scene.

[00:40:00] Jimmy: Yeah.

[00:40:00] Dmitri: There were all these rituals that took place, and I could imagine with Kiss-

[00:40:04] Jimmy: Yeah,

totally

[00:40:05] Dmitri: e- even if you're not into their music necessarily, you might show up with face paint- Totally ... or you might get your face painted there, and you might stick your tongue out like Gene Simmons at certain mo- moments.

[00:40:16] Jimmy: Yeah, totally. I mean, I think there are certain bands, certain artists where it just makes total sense.

Like, Jimmy Buffett is another one, I would imagine, where like, you know, the, you know, the sh- the, what is it? The, the Parrot Heads or the Shark Heads? I can't remember the fans. I think-

[00:40:28] Dmitri: Oh,

yeah. Their fandom.

[00:40:30] Jimmy: Yeah, would just totally- Yeah ... geek out. Like, I don't know. I, I would definitely go to that one, too, so.

yeah,

100%.

[00:40:35] Dmitri: I'd go to the yacht rock one, my friend, my- myself, you know?

[00:40:39] Jimmy: There you go. We've all got our

thing.

[00:40:40] Dmitri: I'll sing some, some Steely Dan and, uh-

[00:40:44] Jimmy: There you go.

[00:40:47] Dmitri: Uh, everyone brings their Hawaiian shirts.

[00:40:49] Jimmy: Yep.

[00:40:49] Dmitri: Yep. well, you know, we've covered a lot of territory, Jimmy. You know, we started off talking about why is the music industry so small.

You helped us get some insights to, well, maybe it's not as small. It depends on how you measure it. We've talked about a lot of different factors for sort of what's been making it challenging. I guess I would wrap up by asking you what makes you hopeful for a rising tide in growing the TAM in music?

[00:41:13] Jimmy: Yeah, I think it's a lot of things. I mean, I think in general it's just music provides a lot of value and relative to the, you know, the, the price that we're paying, it's- There's-- I think there's a lot of room there. And so whether it's expanding, you know, regions where the market's still relatively small, uh, we mentioned China, you know, India, I think there's room to run.

I think even on streaming prices, there's room to run. I think there's new formats that are exciting. And so, you know, when you combine all these things, it, still-- to me, it still feels, you know, famous last words, but it, still feels like there's wind at the back for the industry. And so, that's what makes me hopeful.

[00:41:54] Dmitri: Yeah. We didn't even talk that much about the global growth possibilities, which is, I think actually that is the wind in the sails in a lot of, in a lot of ways. But it, at least it, it provides sort of like a s- a stable growth area that these other new formats that we've been talking about could sort of, leverage as well.

Like y- may-maybe it's a two-pronged strategy, right? Growth globally as these markets continue to develop, monetizing even the basics of streaming with this optimization of premium experiences, new formats in places that have already become mature. That's sort of what I've taken away from your conversation.

[00:42:29] Jimmy: Yeah, 100%. I think, it, you know, it, just off the top of my head, I think two ways I would look at it would be, uh, you know, formats. So whether it's an existing format like streaming that's already established, ways to move the levers there. New formats, which are, you know, it's hard to guess what, you know, those will look like, but there's a number of possibilities.

And then, yeah, so that's one. And then the re- the regional, approach as well, and some of these regions where, you know, they're big in other entertainment verticals, but maybe not so big in music. And so how do you grow them, uh, you know, and what's driving them to be smaller? Sometimes it's probably cultural, you know, just not paying for music historically.

But, you know, what's, what... Uh, like just go back to Tencent Music, what they're doing in China is really interesting and, creates optimism, at least for me, where some of those markets may go in the future.

[00:43:17] Dmitri: Amazing. Jimmy Stone, Alderbrook, it's been great talking to you. Thanks so much for coming back on the podcast.

[00:43:23] Jimmy: Thanks, Dmitri. Great seeing you. Bye, everybody.

Let us know what you think! Find us on LinkedIn, and Instagram, or connect with podcast host Dmitri Vietze on LinkedIn.

The Music Tectonics podcast goes beneath the surface of the music industry to explore how technology is changing the way business gets done. Weekly episodes include interviews with music tech movers & shakers, deep dives into seismic shifts, and more.