Take a deep dive into the rapid growth of the indie sector, one of the seismic shifts that gained the most attention at the Music Tectonics Conference. Our guide to this shifting terrain is Tracy Maddux, CEO of AVL Digital Group, the parent company of CD Baby, AdRev, and DashGo, which all provide DIY Musicians with trusted tools for distribution, marketing, and monetization. Being independent doesn’t mean being alone: learn how Merlin, A2IM, and other organizations unite indie players to multiply their advocacy and negotiating power with governmental bodies and DSPs. As Tracy explains, indie growth is not just about scale. It's about options, audiences, and working together. Tracy places independent music’s growing market share in the context of the music biz and beyond, and shows how that growth interacts with other trends like globalization and the crumbling of the mainstream to shake up power structures. Get a deeper understanding of Mark Mulligan’s prediction in last week’s podcast that the rise of the self-empowered artist will be a more powerful shift than music streaming!
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To help you get the most out of Tracy's information-packed interview, we're making a transcript available here. Enjoy!
Dmitri Vietze 0:07
Welcome back to Music Tectonics, where we go beneath the surface of music and technology. I'm your host Dmitri Vietze. I'm also the founder and CEO of rock, paper, scissors, a music and tech PR firm. And we're just coming back from Music Tectonics the conference. Great event, thanks to everyone who came out.
And one of the things that came up both in the trading cards that we handed out and the keynote by Mark Mulligan was about the great influence of self-empowered artists in the music industry and how that's growing. And I thought it would be fun to bring back on to the show our next guest. I've got with me Tracy Maddux, the CEO of AVL Digital Group, which is the parent company of CD Baby, AdRev and DashGo. How are you doing, Tracy?
Tracy Maddux 0:52
I'm doing great today, Dmitri. Thanks for having me back.
Yeah, great to have you back! Great that you guys came out to Music Tectonics.
You spoke on a panel, a couple of other folks did too. But I want to dig into something that we touched a little bit on the last time you were on the show. And I thought we could maybe do a little more focused dive around this idea. So I'm just going to dive right in, Tracy, if that's okay.
Cool. How big is the recorded music industry today? And how does that compare to five and 10 years ago?
Well, we operate in a pretty small industry as things go. In 2018, the total revenue associated with the industry was $19.1 billion.
So that sounds like a big number, but I'm just going to use a hometown example to illustrate how small of an industry we're in. One of the largest companies in Oregon, just outside of Portland, Oregon, where I live, is called Nike. And we all know who Nike is, they make shoes and apparel. Last year, Nike's sales alone were $40 billion dollars. Half of those sales, shoes, constituted about $20 billion in sales. So
Nike sells more shoes by revenue than the entire size of the music industry worldwide at $19.1 billion.
Wow. And in terms of growth of recorded music industry now versus in the recent past, how significant is the growth right now?
The good news is we are growing. There was about a 10 year period from 1999 to 2015. I guess it's a 15 year period, where either the industry was in a no-growth situation, or a negative growth: it was actually contracting. And that, of course, was due to format shift, because consumers preferred downloads and eventually streams to physical media.
There was just less business activity and so the industry itself was getting smaller. And the good news is, we're in a growth industry. That $19.1 billion was forecast by Goldman Sachs to grow by about 7%, and it should be over $20 billion in 2019 because of consumer adoption of streaming. So there's more money in the industry now than there was last year. And we're now in a reasonably fast growing industry that's growing at about 7%.
So let's talk about the independent sector. How big is that now and how has that changed over the years?
Well, this is the really good news from where I sit. The independent sector is the fastest growing segment of the industry. Last year between self-released artists and independent labels, according to MIDiA research, and Mark Mulligan you referenced was one of the speakers at the Music Tectonics conference, MIDiA is his firm. They estimated 2018 revenues for the independent sector at about $1.6 billion, which is about 6 to 7% of the entire recorded music industry. But it's the fastest growing segment and it's growing in the mid-teens, 15 to 16%.
So a really quick way to say that without getting too mathy is that we're growing twice as fast as the rest of the industry, and we're actually taking market share away from the major players in the industry, specifically the majors Universal, Sony, and Warner, at a pretty fast clip.
So that raises a good point. I'm curious, how does that growth in independent music impact the overall music industry? You just mentioned it's taking market share, but what other dynamics are shifting as a result of this increased market share or power of independent music?
Yeah, it's interesting. "Power" is the way to ask that question. If you think about power today, you've got three players that represent over 60, maybe as much as 70% of the industry in terms of revenue, which means listening hours, listening minutes. The tracks that get listened to, 60 to 70% of them belong to artists that are distributed by Universal, Sony, and Warner in that order, the biggest of those players is powerful indeed: Universal Music with over a 30% world share of recorded music.
And so if you think about the kind of power that being in a large company like that gives the company to drive deals with DSPs, like Spotify and Apple, to amplify the artists that are distributed through those services by spending marketing dollars, it's a pretty daunting task to try to compete with that. And so when I think about the pirate power dynamic in the industry, it's one in which a few players really dominate.
But the flip side- and this is, again, an encouraging trend that I'm certainly enthusiastic about, is the fact that with streaming and the global adoption of streaming by millions, now over 200 million premium subscribers worldwide, for streaming services, there's a proliferation of choice. Because artists are able to connect directly with fans in different parts of the world, and this is essentially why the share of market is shifting towards the Indies. Fans are increasingly connecting with independent artists. And they have more choices. And those choices are skewing towards independent and self-distributed artists.
Actually, Mark Mulligan at that keynote also talked about the end of the mainstream era, and that there was a period of time where you could count on certain outlets being able to broadcast popular artists worldwide (not not every place, obviously). But there were these cultural moments as a result, and he's saying that now the way that people are consuming media, people are interested in more things that you could say are more segmented to what their interests are.
And so we're starting to see the "Rise of the Niches" and that the future of growth and music is really about putting together those niches in different territories. So it's interesting to hear about market share, but then also hear from him that actually can become a strategy as well.
I think that's right. I mean, one of the trends there that I would ascribe a buzzword to is globalization, where it's less about what's happening with artists in the US and in Anglo territories. But consumers in a place like Colombia or India, want to hear music that they may be more familiar with, that's more going to resonate with their cultural preferences. And it's not what we're all used to listening to in top 40 radio and so the impact of global consumption and shares is really very much more of a global one influenced by things happening in local economies.
So as independent music is increasing as a share of the pie, is it changing how rights are managed and licenses are being negotiated?
For sure. And the trend I'm incredibly excited about is the fact that our ability to communicate in a negotiation with any of the major platforms, for instance Spotify or Apple Music, has really changed, with the power tilting a little bit more towards the independent artist and the creator. And as a representative for some of those artists and creators, we now are able to assert more aggressively and advocate on behalf of those artists. And we're doing it collectively.
There are a number of organizations- in the US, the American Association of Independent Music is an example, more globally, Merlin is an example- that allow us to advocate and communicate with the players in the industry, and really are empowering the independent sector to get better economic terms with the services, and also to cohesively communicate what's important to us
What would you say are the differences between say A2IM and Merlin, Tracy?
A2IM is an organization that AVL and CD Baby are a member of. It's American, obviously, it's in the name. And it's got a fantastic executive director by the name of Richard Burgess who has a long history advocating for and on behalf of independent artists, and who himself as an independent artist. Its purpose is really to serve its membership in an advocacy role. And that advocacy extends to things like negotiating with and position papers on royalty rates with quasi-governmental boards and agencies, like Sound Exchange. And every now and again when rates get negotiated, they'll come out in support of, obviously, higher rates for artists.
They'll serve almost as a lobbying arm for the independent music industry. It and really exists to serve the labels and artists that are its members. Merlin is significantly different in that its focus is around collective bargaining. The organization, based out of the UK, was really created to advocate with the DSPs specifically for higher rates, and rates that are more on par with what the majors might be able to obtain with their huge market share.
And why would somebody be a member of both A2IM and Merlin? What's the difference between what they have to offer?
In fact there is a lot of joint membership. And these organizations don't compete, they essentially represent different things. So A2IM, in essence, is an organization that can advocate for governmental action. It can represent the independent artists and independent labels for things like the United States Congress. This is an American organization, after all. And so its purpose is to broad advocate legislatively with governmental and quasi-governmental organizations. Sound Exchange, for instance, and A2IM have some board members that are shared between the organizations.
For those of you that aren't familiar with Sound Exchange, I know Michael Huppe was on a previous version of Music Tectonics, it's a quasi Governmental Organization forum to collect non-terrestrial performance royalties. But anytime you've got government in action, you've got different players lobbying the government for things like higher royalty rates. And so A2IM can be vital in advocating for the interests of independent artists in those negotiations with the royalty board that sets rates for those royalties. That's just one example.
Merlin is slightly different. It is based out of the UK, but it's very much a global organization. Its board consists of members who are elected by the membership from the EU, from the rest of world, and from the United States. The idea is to have balanced representation across the world for the independent sector. But the purpose of the entity is essentially to advocate on behalf of those rights holders that are not major labels for collective bargaining with the services that use the music. And so one of the key functions is to aggregate the volume of the independent sector, which again is very small relative to the majors, but to collectively represent those independent labels and artists in negotiations with the digital service providers like Apple and Spotify.
And the hope is, and I think this is actually showed up in the output of Merlin over the years, is that we're able to advocate for and get rates more competitive with what the major labels get from from their negotiations and their market power. And so that's a core function of what Merlin does.
The other key value that Merlin has brought to the independent industry is, as labels and artists in one part of the world are attempting to enter another part of the world, Merlin is advocating for and establishing deals with DSPs in other parts of the world. So for instance, recently AVL and CD Baby were able to deliver its catalogue, about 10 million tracks worldwide, to TenCent, which is a large Chinese DSP, by subscribers probably the largest DSP in the world with about 600 million active users. And just because of the difficulties in negotiating across time zones and across potentially language and cultural barriers, we relied on Merlin and Merlin's deal with TenCent to represent our artists. And so as a member of the Merlin organization, we were able to utilize the deal that Merlin did on behalf of its members with the presumably largest DSP in the world, TenCent.
So even with those 10 million tracks, you find value in putting those tracks into this Merlin pool in a sense of negotiating power to get better deals.
Yeah, absolutely. I just saw an announcement that Apple attained the 60 million track mark. So there's 60 million tracks available at Apple Music, and that's great. We know, for instance, that, from something that Daniel Eck said in public about six months ago, there's about 40,000 tracks delivered a day to Spotify.
And so we think that among the AVL brands, we represent something like 15 to 20%, perhaps, of the music being delivered to the DSPs, but that's not really a proxy for market share. Many of these songs don't get listened to as much. If we think about AVL's market share position worldwide, depending on geography we're anywhere from 2 to 4%. So we're really small in terms of what people listen to, but really big in terms of the music that's available.
You can read all about this idea of the long tail. But certainly the artists and labels that use our services tend to have music that may not yet be popular, maybe nobody's ever heard of it, or maybe they're in a geography where streaming is just becoming consumer preference for the first time. That's a long way of saying we deliver a lot of music with a little bit of market share. And so utilizing an organization like Merlin to advocate on behalf of those now almost 1 million artists gives us collectively more power together.
Are there other organizations that help you advocate for your artists and labels?
Yeah certainly, depending on geography. We've been engaged in the past with groups like ABMI down in Brazil, which is a burgeoning and very significant music market, with AIM and WIN in the UK, which are both membership organizations much like A2IM, and we're starting to engage in other parts of the world with independent music organizations in places like Colombia and India.
And so, wherever there's growth, wherever there's more people streaming music, and wherever there's an opportunity to connect with fans, and independent art, we want to make sure that we're engaged in the independent music ecosystem and that local region or country.
And what else do you do as a distributor to increase the negotiating power for your artists?
One of the things that we can do that's probably most effective is to help artists promote their music. We can give them tools to advertise their music on platforms like Spotify and Pandora. We can educate them about how to reach a larger fan base. Because at the end of the day, success as an independent artist or market share from the more collective point of view either as a distributor or representative organization like A2IM or Merlin, is about having lots of fans listening to lots of diverse and different music all over the world. And so whatever we can do to help artists connect with fans is what we should be doing.
Awesome. Well, this has been interesting to dive into this specific aspect of how independent music is growing and market share and what you do to have this collective bargaining thing which is such an intriguing thing to think about in the free market place. So is there anything else you want to throw into the mix about where you see independent music going as this continues to unfold, Tracy?
Well, I know we opened this way, but I think it's really encouraging to see the playing field tilt in favor of the independent and self-distributed artist, if not measured by market share, certainly measured by its ability to reach consumers all over the world. You know, streaming really has shaken things up and enabled artists everywhere to connect with fans everywhere in the world. And that really makes me excited about this next phase of growth in our industry.
Well, I've always liked weird music. So that's great for me because it just feels like I have access to so much more stuff that increases my curiosity intrigues me and so forth. So awesome. Well, Tracy, thanks for joining me again on the podcast. I'm sure we'll have you back again sometime. And looking forward to seeing you around at indie music week A2IM this coming summer is always a good place. SXSW, of course in March, and then the DIY musician conference that CD Baby organizes in Austin, that'll be in August. So there's opportunities for folks to meet up with you and continue talking about the growth and where independent music is going.
I look forward to connecting.
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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.