What’s the fastest-growing profit center in the record business?
For years, there’s been one easy answer: streaming. Yet that’s not the case anymore, according to someone in the know — Steve Cooper, the CEO of Warner Music Group.
Warner generated over $3.8 billion in recorded music revenues in the last year, with some 63% of that coming from the likes of Spotify, Apple Music and YouTube. But Cooper made an oddly-under-the-radar revelation to analysts when Warner released its latest financials on November 23rd: “With an expanding number of partnerships including Facebook, TikTok, and Snap, among others, social media is already a meaningful nine-figure revenue stream for us and is growing at a faster rate than subscription streaming,” he said.
I’ve double checked with a Warner rep, and Cooper was referencing a nine-figure annual revenue stream for Warner, which is bouncing up by a double-digit percentage every year.
On the surface, this hardly seems surprising. Massive social media companies are paying massive money to massive music companies for use of their music. But we mustn’t be guilty of short memories about this stuff. As recently as the first quarter of 2018, Facebook, TikTok, and Snap were paying Warner precisely zero dollars for the use of music (and, in the case of Facebook, actually infringing music copyrights with abandon). March 2018 saw Warner ink its first-ever “holistic” licensing deal with Facebook and its child company Instagram; it wasn’t until August 2020 that Snapchat inked a music licensing agreement with Warner. TikTok, which launched in the U.S. in August 2020, still remains without a long-term licensing deal with Warner’s recorded music operation.
In two years, social media has gone from being a thorn in music’s side to becoming a total cash cow.
When it comes to spotting trends in the blockbuster music business, Warner is worthy of particular attention because, as it boasts in its own SEC filings, the company “adapted to streaming faster than other major music entertainment companies and, in 2016, were the first such company to report that streaming was the largest source of our recorded music revenue.”
Now, as subscription streaming’s growth slows down, Cooper is pointing a big neon finger at the potential of social platforms to take the record industry into its next phase of growth — not just in terms of artist marketing and promotion, but also cold hard cash. “We’re standing on the threshold of a new golden age of music and the opportunities are everywhere,” said Cooper on Warner’s November earnings call. “We see subscription streaming as just the beginning. It’s only one of our many avenues for long-term growth.”
Further evidence that social media holds pots of gold include the fact that Sony Music just struck the first major multi-year licensing deal with TikTok (complete, we can assume, with a megabucks advance and minimum guarantee payment from Bytedance). This goes double if it’s true that Western music companies will continue copying from their Chinese counterparts — specifically, chasing Tencent Music Entertainment’s stronghold in a combo of social media, music streaming, and online karaoke. (Remember that Tencent, which generated $773 million from “social entertainment services” like livestreaming and community karaoke in its last quarter, owns slices of Universal Music Group, Warner Music Group and Spotify, plus algorithmic A&R platform Instrumental and Indian streaming platform Gaana.)
The smart money’s now on online karaoke and music creation becoming big business for the music industry, particularly music publishers, around the globe. The seeds of this behavior are already being sown by the likes of TikTok and Instagram Reels, which encourage audiences to create their own content with music. TikTok’s rival Triller, in which the major labels own equity, also launched a music-making competition earlier this year, “Step Up To The Mic,” offering its winner a record deal and the chance to create a track with Quavo and Takeoff. And a couple of weeks ago Snapchat acquired Voisey, a music-making vocal collaboration platform that sees amateur singers harmonizing over beats and tunes from professional producers. Poutyface, a Los Angeles artist, was spotted on Voisey and is now signed to Island Records.
As Cooper said on Warner’s call: We’re clearly moving into an era where “the creators are the audience and the audience are the creators, producing a massive multiplier effect.”
Some forecast that the global games market could generate over $300 billion annually by 2025. The entire recorded music market currently generates around 6% of that figure.
The flashing dollar signs don’t stop at social platforms; Cooper also noted that Warner is seeing a “marked acceleration in early-stage streams including “gaming, fitness, and livestreaming.”
These are sprawling, multi-faceted opportunities for the music industry. But permit me to drill down into a few stats to highlight their potential. The ascent of livestreaming has been well covered by Rolling Stone and others: Dua Lipa’s recent Studio 2054 livestream shifted 284,000 paid-for tickets before the event, retailing for anywhere from a $11.99 early bird US price, up to over $100 for the American Express “Levitating Lounge Package” in the U.K., complete with a signed album, a sweatshirt and behind-the-scenes access. All of which will have resulted in a single-concert gross revenue ranging from anywhere between $2 million and $20 million.
The fitness industry is obviously exploding during pandemic lockdown, with luxury home-bike subscription platform Peloton reporting quarterly revenue of $758 million in the three months to end of September, up by a stunning 232% year-on-year. The company told its investors in a letter last month that its subscription revenue — which hit $156.5 million in Q3 — was subject to ongoing “variable costs, including music royalties.”
Furthermore, both Warner and rival Universal Music Group just inked licensing deals with VR fitness game Supernatural, which enables people, via Facebook’s Oculus, to work out in “360-degree captures of some of the most beautiful places on earth”. Supernatural’s pumping music soundtrack includes tracks from the likes of Lizzo and other stars, meaning Warner and Universal will be getting a slice of revenue from the title’s $19-per-month subscriptions. A niche product? Don’t bet on it: The global fitness subscription market is already worth more than $23 billion.
And then there’s video games, which have fueled innovations this year including Travis Scott’s much-discussed concert in Fortnite, as well as recent buzz around Roblox, which has over 150 million monthly users and recently attracted 33 million people to a virtual performance by Little Nas X. Some forecast that the global games market could generate over $300 billion annually by 2025. The entire recorded music market currently generates around 6% of that figure; capturing even a fraction of the games industry’s revenue via music royalties and artist partnerships would be a huge windfall for companies like Warner.
Cooper was surely thinking of all this when he said on the November call: “If there’s been a silver lining to the Covid cloud, it’s been an opportunity to to recalibrate our long view, accelerate the pace of change, and position ourselves to emerge from the pandemic stronger than ever.”
Tim Ingham is the founder and publisher of Music Business Worldwide, which has serviced the global industry with news, analysis, and jobs since 2015. He writes a weekly column for Rolling Stone.