Navigating Covid-19: A Global Music Brand
16 November 2020
Many parts of the global economy have been hit hard by the Covid-19 pandemic. The music industry is certainly no exception. It has been severely affected by measures put in place to contain the virus, such as social distancing. This has caused many live musical events, including concerts, tours, album releases and signing sessions, to be cancelled or postponed. To get a feel for the challenges facing the industry and learn what strategies it is hoping to employ to weather the current storm and ensure a successful future, HKTDC Research talked to Duncan Wong, Managing Director at leading record label and music-based entertainment company Universal Music Hong Kong.
New Forms of Partnership
Since the peak of its success in 1999, the music industry has undergone years of struggle as it saw its business undermined by new digital technology. The industry as a whole saw its turnover dwindle for 15 consecutive years, until its business transformation began to pay dividends in 2015. Wong believes transformation will remain the key to survival and future success in the face of the Covid-19 turmoil.
During the digital boom of the 2000s and early 2010s, the industry saw turnover shrink by more than 40% – from US$25bn in 1999 to US$14bn in 2014 – according to the International Federation of the Phonographic Industry (IFPI). Record labels like Universal Music were encouraged (if not forced) to respond to this disruption, and so began a digital transformation. Wong noted that it had taken a long time for this process to bear fruit, saying: “To stay ahead of the digitalisation trend, we started our transformation process roughly 10 years ago. We expanded the scope of our business to provide our customers with an array of services that were far broader than those offered by traditional recording music companies. And so far, as we move deeper into the digital era, this new business model has been paying off.”
One of the most important steps that the company took was to redefine its relationship with its artists. Explaining what this redefinition means in practice, Wong said: “We changed our relationship with our artists from recording contracts to the so-called ‘360-degree’ contracts. In other words, we are now responsible not only for making the artists’ music accessible to the public by distributing online and offline, but also for other artist management activities, such as touring, filming plans, deals and schedules. This new form of relationship has redefined our ties with the artists as we take care of literally everything on our artists’ behalf on a profit-sharing basis. The closer bonds that it creates with our artists also lend great support to the planning of the artists’ development, which is especially important in this digital age when opportunities come and go.”
Wong added that the company’s closer ties with its artists have improved its ability to manage and negotiate deals with prospective clients, saying: “We have set up an artist management division to handle our connections with many various partners in the value chain including public relations (PR) agencies, production houses, corporate clients and promoters. This helps us explore how we can best leverage people’s strengths to achieve a win-win situation for everybody.
“For example, using our understanding of the local culture and our valuable assets like popular artists and strong back catalogues, we can now offer our clients a one-stop marketing service starting from the mapping out of a comprehensive marketing strategy from scratch to the execution of the marketing plan. It goes without saying that our long-established relationships with local media and distribution channels give us unrivalled advantages in securing the best marketing spots and slots at favourable prices.”
There is a complementary overlap between this new business model and some of the activities that have blossomed during the pandemic – such as e-commerce, online gaming and streaming. Wong described how his company is looking to take advantage of this, saying: “When it comes to social media marketing, a popular artist is always a great key opinion leader (KOL) who can boost brand and product awareness. With their huge fan bases and widespread media coverage, a popular figure can convey marketing messages more effectively to the members of the public via different offline and online platforms. We are readying ourselves to cross-fertilise collaboration with any brands that are launching social media marketing campaigns and that can, at the same time, promote our artists.”
Wong also sees immense crossover opportunities with the e-Sports industry. For example, hit songs could be licensed to game developers to enrich the overall online game experience.
Full Stream Ahead
Although digitalisation has long been recognised as a mega trend, it wasn’t until quite recently – as high-speed data plans become affordable and accessible worldwide – that music and entertainment streaming became mainstream. While music streaming and downloads have been generating income for the music industry since 2004, it is only since the 2010s – thanks to the global spread of 4G and the rise of streaming platforms – has music streaming become a pivotal revenue source for the industry. According to the IFPI, the revenue it produces has surpassed that of physical music products such as records and CDs since 2017 and, in 2019, it contributed 56% of the industry’s annual revenue.
Music streaming is demonstrating such a remarkable level of resilience that is acting as a lifeline for the struggling industry. Despite a dip at the beginning of the Covid-19 pandemic, the demand for music streaming has rebounded swiftly. At the same time, the subscriber base in most (if not all) music streaming platforms has expanded.
Spotify, for example, after a notable decline in late February, has seen its music streaming business gradually recover, reaching its pre-crisis level by the end of June. Meanwhile, the number of its paid subscribers increased by eight million during the second quarter of 2020, following an increase of more than six million between January and March. Another music streaming platform, the mainland China-focused Tencent Music Entertainment Group, also managed to expand its paid subscriber base by four million to 47 million between April and June 2020.
Rather than producing new releases, long-established music companies or record labels like Universal Music Hong Kong have been trying to make more use of their back catalogues. Wong explained how this has become a valuable new stream of income during the pandemic, saying: “Universal Music Hong Kong has had a huge back catalogue since acquiring PolyGram and inheriting its legacy in 1999. This, together with the hit songs we have produced ourselves, has endowed us with a rich catalogue of unrivalled breadth and depth going back some 50 years. This invaluable asset has allowed us to roll out a number of new remixes and music videos on music streaming platforms during the Covid-19 pandemic. This means that, on the one hand, we can maintain the visibility of our artists and brands, and generate additional revenue on the other.”
The measures that the music company has put in place to cushion the adverse impacts of the global pandemic have meant that the Universal Music Group (UMG), as a whole, has been able to grow its global streaming business by 8.5% year-on-year in the second quarter of 2020. This has proved a stark contrast with other business streams during these currently straightened times.
Although the promotion of music streaming to consumers in the mainstream market has rapidly become a priority for the company, Wong believes UMG will continue to release premium physical products, such as Super Audio CD (SACD), picture discs, crystal discs and vinyl records, via leading music retailers and their online stores.
The Future of Live Performances
The measures being taken to combat Covid-19 have seen music companies and record labels take a huge hit from the restrictions on live music performances. Performance rights were once the third-largest income source for the industry (behind only streaming and physical sales), amounting to US$2.6bn in 2019 according to the IFPI. While Universal Music Hong Kong has suffered along with the rest, Wong remains positive. Anticipating a revival of live music shows in the near future, Wong said: “The Covid-19 outbreak is having a huge impact on the live music business, and has led to us calling off a number of our concerts and tour plans, including one to celebrate the 50th anniversary of PolyGram. However, we are confident that the live music business will return to health sooner or later, as many music fans are not satisfied with quarantine livestreams and virtual concerts and are longing for the old days. This is also why we’re producing our next hit songs and music videos.”
Music can be a powerful therapeutic tool, helping people cope with the loneliness and depression that has built up since the beginning of the pandemic. Leading artists around the world have organised various virtual concerts and performances to spread positive messages and raise funds for healthcare workers on the frontline of the fight against Covid-19. Prominent examples include the One World: Together at Home concert curated in collaboration with Lady Gaga in April, and the Live Is So Much Better with Music Eason Chan Charity Concert in July.
While the purpose of these live stream events has been mainly to draw the attention of the public to the hardship of those whose work life is related to live concert production, a sector that has been strongly affected by the Covid-19 pandemic, virtual concerts also have the potential to become revenue generators themselves, partly because they are able to pull in audiences across the world unrestricted by time or location. Whether they can really become the new post-pandemic normal for commercial live music performances, however, depends largely on how much technology allows artists and music companies to make a virtual performance as immersive and memorable an experience as a traditional live event.
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