Naked Brands: The Future of Music

Naked Brands: The Future of Music

The future of music is a return to Mozart.

In 1781, Mozart moved from Salzburg to Vienna, the cultural capital of Austria, to advance his music career. At the time, music was scarce. There was no way to record it, so if you wanted to listen to Mozart’s music, you had to be there in person.¹ It was expensive to attend a Mozart performance. Wealthy aristocrats and the political leadership of small city-states financed Mozart’s travels and his performances. They had personal relationships him and supported him physically, emotionally, and financially.

That began to change when Thomas Edison invented the phonograph. Used originally for church sermons, and later for music entertainment, the phonograph beckoned a new era of pre-recorded music listening on demand. It would be decades, well into the 1940’s, before the average family could afford a radio or their own record player at home. Artists, who lacked the capital to create and distribute their music, were at the mercy of omnipotent record labels, who, by virtue of controlling distribution, determined what people listened to. Labels held tight relationships with radio stations, television networks, and record stores. They invested heavily to sign and promote a select number of artists — the chosen few. According to a 2014 report, since 2000, major labels spent between $500,000 and $2,000,000 to promote newly signed artists, money that could not be recovered if their albums flopped.²

The economic value of labels stemmed not from the music itself, but rather, from the music distribution — CD manufacturing, packaging, shipping, physical retail, and promotion, all of which have been made cheaper and easier by the internet.³ The number of songs that could be played on the radio, for example, was constrained by time — there are a limited number of radio stations and only 24 hours in the day. For example, he major record labels released more than 130 songs and almost 100 albums per week during the 1990s. But air time was limited — radio stations could only accept 3 or 4 new songs per week. While the big artists got bigger, those without capital and connections stayed powerless. Artists, then, kneeled at the pulpits of priestly record labels who maintained tight relationships with key decision makers. Knowing this, artists moved to Los Angeles, New York, or Nashville, where they paid their dues, did favors for the industry elite, and worked their way up the record label totem pole.

But then, the internet happened. The album unbundled. The music industry discovered an inconvenient truth: it was governed by a new class of economics in which its value fundamentally changed. Before the internet, the value of music was inflated by the album bundle –not by consumer demand. Owning music albums was the only way to access your favorite songs on-demand. The internet, however, completely unbundled the music album. It enabled the purchase of individual tracks, which led to a decline in album sales, thereby spawning a massive decline in revenue for the industry.

 Consumer Spend on Record Music has fallen 71% since 1999. (Source:  MediaREDEF )

Consumer Spend on Record Music has fallen 71% since 1999. (Source: MediaREDEF)

Data confirms this. Consumer spend on recorded music has fallen 71% since its 1999 peak, mostly driven by the collapse of album sales. On the internet, an infinite selection of free music is always at our fingertips, and because of this abundance, the value of music itself has collapsed.⁴ Pharrell, for example, made only $2,700 in songwriter royalties from 43 million plays of his hit song Happy, on Pandora.⁵ In the face of these changes, labels still command similar rates from artists and continue to capitalize on their influence, earning almost three times more than artists, songwriters and publishers — combined.


Controlling attention and using it prop up album sales — which the labels did — was once a tried and true strategy. Now, it doesn’t hold up. We entered a single-based, hit-driven economy with falling music sales and rising concert sales. In response, artists have switched their focus from music sales to concerts and merchandise; 87% of their revenue now comes from touring — not recorded music.⁶ Accordingly, artists have shifted their business models towards singles that, when presented on tours alongside merchandise, generate meaningful streams of revenue. This truth is being borne out every day; artists outside the Top 100 are gaining market share and connecting with fans within the universally accessible gardens of Soundcloud and YouTube.⁷

Artists, traditionally, were more methodical with their music releases, releasing an album every couple of years and working with the labels to promote it heavily. Now, artists are releasing music at greater and greater frequencies, focusing less on albums, and more on connecting with fans through video. They launch new tracks when the mood strikes, often inspired by holidays, pop culture, and current events, a sea change from just a decade ago. Consequently, fans have adopted more passive methods of music discovery and increasingly rely on playlists to ride the tsunami of new music. Playlists shape the waves by manufacturing hits. No playlist, no visibility — as if you don’t exist.

The power in the industry has shifted massively; what succeeds now is driven less by the discretion of gatekeepers and more by the wisdom of crowds.


The Convergence of Video and Audio

Audio and video are coming together on YouTube, minting global superstars. The trend began in 1981, when MTV launched in the United States. The station launched with “Video Killed the Radio Star,” hinting at what was to come. MTV challenged radio’s stronghold on music discovery and famously played videos from artists that hadn’t hit the FM dial. New genres sprung up as a result. Hip-Hop, a format that regional radio stations refused to play, cultivated a relationship with mainstream America.⁸ The genre, once ignored by industry executives, has found its stride online, and this trend is showing no signs of slowing down.

If there was ever an digitally native music genre, Hip-Hop is it — cool, catchy, and contagious. Spotify is the new street; on streaming platforms, people listen to Hip-Hop and R&B at nearly twice the rate as the next most popular genre, rock. It’s been propelled by the pillars of modern music discovery — playlists, memes, and viral videos.

Artists have responded. Soulja Boy used to make Top 40 playlists and post them online. Then, he slipped his own track in there, people thought it was a hit, and the song jumped up the music charts. Coupled with an iconic dance and, the “Crank Dat” spent seven weeks as atop of the Billboard Hot 100 chart. Just this year, Rae Sremmurd and Migos had back-to-back Hot 100 hits with “Black Beatles” and “Bad and Boujee,” their reach, fueled by the use of those songs in popular video memes.⁹ In contrast to rock and pop music, where artists wait years to release their next album, hip-hop artists game algorithms with weekly releases, birthday drops, moving at the swift cadence of digital life.¹⁰

 


Social Media and the Power of YouTube

Modern media is inherently social — a conversation, not a broadcast. Our engagement with music doesn’t end when we listen to a song. Rather, it continues when we share it. By virtue of this evangelism, modern artists can go from famine to fame in a matter of weeks, and beats, once constricted to the confines of college dorm rooms or basement recording studios, can spread to nearly every corner of the globe a matter of hours. Harlem Shake for example, inspired people to upload videos of them doing the “Harlem Shake Dance.” Just 40 days after its first upload, the song had been heard more than 1 billion times on YouTube, an average of more than 20 million views per day.¹¹ Similar forces propelled Call Me Maybe. Crucially, in addition to being short and catchy, songs that go viral are easily broken down into small pieces for easy consumption on social media.

In its early years, YouTube was less of a place to discover stars and more of a place to connect with existing ones through music videos from mainstream artists and shaky amateur videos. With a backstory as heartfelt as his music, Justin Bieber changed that. With raw authenticity, and a personality so heartwarming you can’t help but tell your friends about it. Bieber’s cover of “Cry Me a River” made people feel like they were peeking through the Oval Office window, seeing something they weren’t supposed to.

Bieber’s arrival came at the perfect time. During the 2008 recession, people sought something beyond the untouchable lifestyles of the rich and famous on reality TV. Bieber’s alternative was a story of hope; a kid, stuck in the projects, whose mom had birthed him when she was a teenager. Fans were moved to evangelize his story, ignite his journey, and transcend themselves in the process. In turn, Bieber built an audience so loyal that with his multi-video album, Purpose, he broke the all-time record for simultaneous tracks on the Billboard Hot 100 with 17 (a record previously held by the Beatles, and since broken by Drake).

Learning from Bieber’s success, camera-friendly artists found new ways to merge audio and video. Consider PSY’s Gagnam Style, a viral YouTube video from 2014, which, became the top-ranked video in the world after being viewed almost than 3 billion times. The video was released before YouTube factored into the music charts. A review of the numbers shows that had Billboard included the YouTube numbers, Gagnam Style would have been the longest-leading Top 100 hit in history, at twenty-six weeks. In fact, the song was so popular that tourism to PSY’s native country of South Korea increased by more than 15% the following year, a direct result of the song’s popularity according to the Korea Tourism Organization.¹²

Today, artists gift their fans the pleasure of experiencing the creative journey alongside them, experiencing the same ebbs and flows, from struggle to creativity, as if they’ve entered another body. Fans, then, feel a more intimate connection with their favorite artists. The senses are heightened. Listeners see the audial depth supporting each timbre; each beat; each chord, as if they’re playing the notes themselves. In college, I was awestruck by Jon Bellion’s “Making Of” videos, where he looked right into the camera and took me along the exhilarating journey of crafting pitch perfect tunes, a tactic since replicated by Taylor Swift and Calvin Harris.¹³

It’s clear: the relationship between artists and their fans is changing.


Changing Relationships Between Artists and Their Fans

As power shifts from businesses allocating capital to individuals who command attention, artists can break into the Top 40 without having to squeeze through narrow bottlenecks that have choked the industry for so long. Beginning with labels who signed artists directly from MySpace, the model for discovering superstars has flipped. Attention shifted away from away from albums and towards music videos. On YouTube, the most successful artists have both musical and visual appeal, and also the talent to transform an onlooker into a fan in a single video.

Paradoxically, while more music is being released, collectively, it is less valuable than ever before.

The music business is inverting — music used to be the bottom of the funnel, but now, it’s the top. Streaming should be seen not as a way to profit. Instead, streaming should be used as a platform to reach people all over the world who listen to music and allow them to consume your content without having to pay. By making music free and accessible, artists can maximize their reach. Then, they can monetize in other ways like events, concerts and merchandise.

The US concert industry has nearly tripled since recorded music sales peaked in 1999. Modern artists spend much more time touring than they did before Napster. While estimates vary, artists command almost 35% more per ticket, adjusted for inflation. In 2000, the Top 100 artists collected nearly 90% of annual concert revenues, but today, their share has fallen to 44% and 83% of the growth in concert monetization has gone to artists outside the Top-100.¹⁴ Artists use Spotify data to see the geographic distribution of their fanbase. Then, instead of touring cross-country, they spend more time performing where their fandom is most intense.¹⁵This hints at some deeper trends, namely, a leveling of the playing field and the shift from one-time payments to reverberating revenue streams.

 Changes in Concert Revenues (Source:  MediaREDEF )

Changes in Concert Revenues (Source: MediaREDEF)

In the past, artists received their money upfront, when fans purchased an album. In the streaming era, payment is indefinite and continuous. This mirrors what’s happening in other, digitally-influenced industries such as gaming. In 2011, only 17 percent of revenue for the the Top-100 gaming apps came from subscriptions. That ratio has since flipped. Revenue from subscriptions has shot up to 86 percent of total revenue.¹⁶ The game has changed.

Musicians are no longer specialists; they’re actors, marketers, and community builders. Consider Kendrick Lamar’s recent halftime performance at the College Football championship. ESPN (owned by Disney), the network covering the game, used Kendrick’s viewership to promote Disney’s upcoming film, Black Panther, with a soundtrack produced by Kendrick.¹⁷

An orchestra of revenue streams — in perfect harmony.

Beyond concerts, artists are monetizing through music video sponsorships, product placement, perfume lines, merchandise, and private events. People don’t just buy music — they buy the brand. In 2011, for example, Jay Z and Kanye West were paid $3 million each for a private show in Dubai.¹⁸ Kanye’s success doesn’t end there; his music generates fandom, which generates hype, which, in turn, generates revenue for his eponymous apparel line. His forthcoming clothes are designed not as individual pieces to be worn, but rather as a complete ensemble of Yeezy apparel. Head-to-toe.¹⁹ Meanwhile, Taylor Swift has served as New York City’s global brand ambassador, Justin Bieber’s branded tour merchandise lines the stores of H&M, and DJ Khaled has revitalized his career via image posts on Snapchat.


Naked Brands

“I’m not a businessman, I’m a business, man.” Jay Z, Diamonds from Sierra Leone

These trends hint at a changing of the guard — the rise of Naked Brands. As the world becomes increasingly immersive and interconnected, our favorite artists are mere clicks away at all times. In this modern age, fans don’t just want to support favorite artists; they want to establish emotional connections with them, and latch their messaging onto their own identity. This fandom is not consumptive, but rather performative, active and social.

Naked Brands are defined not by symbols, logos, or television advertisements, but by the authenticity of dynamic personalities. Like Mozart, music fans are now physically, emotionally, and financially invested in their favorite artists.

Artists are building fervent communities and maintain intimate relationships with their fans. They include us in the making of their music, share their secrets with us, and come to our hometowns to play music for us. The best music artists feel more like friends, and less like celebrities.

Their music is frictionless to consume and instead of optimizing for one-time album purchases, their brands are optimized for lifetime value. Consequently, relationships between artists and their fans are changing. Musicians are profiting less from direct music sales, and more from symphonies of revenue of streams — live events, branded merchandise, and above all, their own fandom communities. Musicians, once tested by tone and tenor, are now measured by their digital persona; on stage at all times, they’re no longer “just musicians.”

Musicians are like best friends now.