Mary Meeker’s Internet Trends 2017 report reads like a hybrid between a bible and an annual check-up for Silicon Valley. A Partner with Kleiner Perkins Caufield & Byers (KPCB), Meeker painstakingly outlined key macro and micro trends across industries from gaming and media to advertising and healthcare, filling a whopping 355 pages with data points and case studies validating the use of cutting-edge technologies in mainstream settings.
One intriguing, unspoken pattern emerges from the report: all of the top six companies by global market capitalization in 2017—Apple, Google, Amazon, Facebook, Tencent and Alibaba, a combined market value of over US$3 trillion—are making aggressive investments in music. Apple, Google and Amazon are a handful of the players sparring for market share in the streaming wars, alongside more music-centric competitors Spotify, Pandora, SoundCloud, Tidal and Deezer. Facebook is looking to secure music licensing deals with major labels amidst its growing interest in video, and recently hired former YouTube exec Tamara Hrivnak to lead its global music strategy and business development.
Across the Pacific, Tencent Music Entertainment Group just signed a landmark licensing deal with Universal Music Group, atop its existing deals with Sony and Warner; its music streaming and download service QQ Music has over 400 million monthly active users, over three times as many as those on Spotify. Alibaba Music extended its licensing deal with BMG, and launched an artist-management venture with video site Youku; its parent, Alibaba Digital Media and Entertainment Group, plans to invest over 50 billion yuan (US$7.4 billion) in new projects over the next three years.
These developments arrive against the backdrop of the music industry’s financial inflection point, which Meeker painted in broad strokes. Overall recorded music revenue grew by 11% in 2016, after 16 years of an average annual decline of 4%; aggregate streaming revenues finally offset the decline in physical sales, and Spotify alone now accounts for 20% of recorded music revenues worldwide. Video-on-demand is seeing similar growth, with Netflix usage up 669% over the last five years and now accounting for 30% of all home entertainment revenue in the U.S.
As more and more tech behemoths try on music for size, how should the music industry itself react? What follows are four higher-level themes in Meeker’s report that show not only already-existing transformations in the music business, but also a blueprint for new ideas.
1. Streaming curation is not as social as you might think.
On page 176 of her report, Meeker presented an abridged history lesson on the evolution of marketing in media. The network era of the 1950s to 1980s catered to the “Market of Millions”—prioritizing high viewership without personalization. In contrast, argued Meeker, today’s media serves the “Market of One x Millions”—allowing sub-genres, individual tastes and à-la-carte consumption behavior to flourish. In other words, given that Spotify has 126 million monthly active users, the company must learn, track and adapt to 126 million different homepage layouts and user experiences.
This implies that curation drives user engagement on streaming services in an individualized, rather than social, manner. In her report, Meeker cited statistics from a 2015 survey conducted by Goldman Sachs and BPI, which revealed that building and sharing playlists rank dead last on a list of nine possible factors for choosing a streaming service, while the three most important factors for respondents were catalog size (“very” or “fairly” important for 75% of users), new music discovery (70%) and multi-device listening capabilities (70%). Numerous academicpapers from the past decade have arrived at similar conclusions—namely that social, community-driven features on streaming services are relatively unimportant, compared to factors such as price and music quality.
This is not to discount the importance of playlists, which are crucial for user acquisition and retention by way of high-quality music discovery. In fact, Spotify users listen to an average of 41 artists per week, up 40% from three years ago—likely due to the clever interplay of algorithmic and handpicked playlists on the service. On the artist side, Spotify’s playlists have proven their ability to propel emerging musicians into the mainstream like never before, while providing invaluable listener data for refining tour and album campaigns.
Yet, this growing breadth of music discovery is arguably driven more by the platform itself surfacing up new content than by the activity of an individual’s bounded social network. Put another way, effective recommendations on playlists like Discover Weekly and Release Radar require crowds, but not groups.
The verdict is still out on whether this presents a lucrative opportunity for Spotify and peripheral services to provide a superior social music curation experience. Spotify recently launched its QR-like Spotify Codes, but only after rolling back its native inbox and messaging features. Perhaps the better vector to consider is vertical, rather than horizontal—using playlists as social media tools for artist-to-fan interactions, rather than fan-to-fan ones.
2. There’s still a lot of mobile money left on the table.
Meeker’s report makes it clear that media companies should tailor their content and distribution strategies to mobile. While the smartphone market seems to be approaching saturation—growing by just 3% in 2016, versus 10% in 2015 and 28% in 2014—daily engagement on mobile devices has increased twofold since 2014, from two to four hours. China is a particularly prominent case of this trend, as widening entertainment options from the likes of Tencent (including the company’s Universal deal) have played a key role in the country’s mobile internet usage outpacing user growth.
At least in the U.S., however, advertising budgets are still somewhat backwards: print accounts for only 4% of daily media consumption for adults but a stubborn 12% of ad spend, whereas mobile accounts for 28% of daily media consumption but only 21% of ad spend. According to Meeker, that leaves $16 billion of potential mobile ad revenue on the table.
The music industry in particular has several reasons to invest more in mobile advertising. Paid streaming subscribers, the segment driving the industry’s growth, prefer to consume music on smartphones over desktop, according to the IFPI. In fact, many entrepreneurs have already gotten the mobile memo, and are bringing the industry onboard. Startups like Tribe and Markerly are helping labels and promoters connect with micro-influencers online, while others like Pacemaker, 8Stem and MetaPop are painting a mobile-first future for remix culture. Producers such as 18-year-old Steve Lacy are weaving iPhone music production into hit albums by Kendrick Lamar, J. Cole and other hip-hop establishments.
One important challenge that remains, particularly in the live and retail sectors of music, is driving more sales on mobile devices, beyond subscription streaming. Mobile accounts for 70% of concert browsing and discovery activity, but only 30% of actual transactions—signaling the need for better mobile e-commerce experiences with higher conversion rates.
3. Visual and vocal cues will drive more music discovery and search.
“A lot of the future of search is going to be about pictures instead of keywords,” Pinterest Co-Founder and CEO Ben Silbermann told CNBC in April 2017. Meeker quoted Silbermann in her report to reinforce how the core digital user experience will shift away from text, and towards visual and vocal cues.
As for visual, Meeker recounted how companies such as Netflix and Amazon regularly “regram” or repost content from fans, using redistribution as a means to drive engagement. Shazam first introduced visual recognition to its app in May 2015, and has since rolled out several dynamic experiences around static physical objects, in partnership with Island Records, Disney and Target. The share of downstream video traffic on Facebook, Snapchat and Instagram has been growing over the last four years, while that on YouTube has actually been decreasing, according to Meeker—suggesting that the shortest-form visual content has the widest reach.
In parallel, the rise of voice-enabled devices may introduce an entirely new paradigm for music discovery by removing LED screens entirely, legitimized by rapid adoption rates and backend improvements. This year, Google has reached human-level accuracy for word recognition—i.e. 95%—and 20% of mobile queries on Android phones last year were made via voice. The number of installed Amazon Echo devices and corresponding Skills are growing exponentially, reaching 11 million and 12,000 respectively this year, and Apple’s recent announcement of its HomePod marked the start of an even more competitive smart-speaker landscape.
As a result, major label execs are already brainstorming new marketing strategies around the Amazon Echo. At A2IM’s Indie Week conference earlier this month, Ananda Sen, Head of Music Partnerships at Google Hardware, already gave a hint of what smart-speaker music marketing could look like, running hand-in-hand with the rise of chatbots and automated messaging: “Labels could potentially create bots for these connected devices to allow for that additional layer of interactivity, whether it’s a voting app or a conversational app. Ariana Grande could have a conversation with you, via a speaker. It hasn’t been built out yet, but that would be incredible to see.”
4. Interactive gaming will continue to shape digital entertainment experiences across the board.
In its ongoing search for inspiration, the music industry frequently cites gaming as a sector that successfully conquered, rather than succumbed to, digital disruption. Global gaming revenue surged to $100B in 2016, up nearly 9% year-over-year, according to Meeker’s report. Mobile gaming accounted for a record 37% of this revenue, surpassing that of PCs for the very first time.
Beyond financials, Meeker also argued that video games laid the groundwork for innovative Internet services across the board by setting an example for optimizing learning and engagement. From creative and interactive storytelling on Amazon, Netflix and Twitch, to the psychological rewards of incremental upgrades and downloads, to the pared-down beginnings of instant messaging and secondary markets, the backbone of video games has informed many of the most successful tech and media companies today. In fact, Meeker made the bold claim in her report that interactive gaming “has been helping prepare society for [the] ongoing rise of human-computer interaction.”
We are already seeing traces of this connection in the music industry: bands like Glass Animals are designing video games around their albums, and indie labels like Monstercat are running 24/7 video streams on Twitch. Spotify’s Gaming Portal turns one year old this August, and its suite of original gaming playlists—including “Power Gaming,” “Top Gaming Tracks” and “Like A (Final) Boss”—boasts over 1.4 million followers combined. According to Meeker’s report, the opportunities are ripe for advertisers as well: the most well-received types of ads are mobile app rewards (68% positive response) and social click-to-play experiences (52% positive), both of which are interconnected with gaming and which could align well with a variety of music marketing campaigns.
As with any industry, the key for today’s successful music company is knowing not just where your consumers are, but also where they expect you to be. From games to smart devices, Meeker’s all-encompassing tech trends report lays out a compelling argument for where exactly those expectations lie.