Can Advertising Save Rock and Roll?

When an album sells more than 500,000 copies, it is said to have gone “gold.”

Beyonce’s Lemonade and Drake’s Views are two examples of albums that went gold in 2016. In the early years of the modern music industry, out of which this term was born, creating a hit album meant making a whole lot of money… it really meant gold.  Now sure, Beyonce still makes a nice return from her success, but how much money a musician like her can earn from record sales has changed drastically in the current era. In fact, the music industry has been in a devastating free fall for more than 15 years.

The Recording Industry Association of America reported that in 2015 the U.S. music industry generated more than $7 billion in revenue. That is no small sum, except when compared to the $14 billion generated in 1999. Nevertheless, there are still albums being heard by millions, but the term “gold” seems undeniably tarnished. The digital music revolution is killing the traditional music industry, just like digital news is killing print media. What digital should provide is the opportunity for more people to listen to more music more often—an increase in consumption. Instead, the entire media industry, music included, devalued their products by offering so much for free when the move to digital initially began. Consumers have gotten used to that reality very quickly. Now, it seems most people refuse to pay for digital media, even if digital is a better version. The most promising solution, in both the music industry and the media industry at large, is utilizing advertisers.

The digital music issue can be summed up in terms of “elasticity,” or responsiveness to change in price. There is no perfect way to measure this theoretical economic concept in the physical world, but it can be estimated by using Spotify’s cost model. Spotify has about 100 million active users. Of these, 30 million pay $10 per month, and the rest take advantage of the “freemium” ad-supported model.

Spotify’s model responsiveness to price is -1.33. Anything with a measure less than one is considered elastic. Digital music then, is an extremely elastic product, meaning consumption will plummet at almost any increase in price. This elasticity value is comparable to that of water from a public drinking fountain—an undoubtedly popular resource, but use would likely plummet if a pay model was established. This is why today’s hit albums lack that real “gold” feeling. Unwillingness of consumers to pay for digital music has made the music industry’s sales-based revenue a shadow of its former self.

In response, the industry has tried a number of re-monetization strategies. But as these plays have found little success, something is becoming evident. Advertising may not be the hero the industry deserves, but is likely the one it will ultimately need.  Prior to realizing this, big players like Spotify and Pandora treated advertising as something to be avoided, by offering pay-to-avoid models. This concept essentially turned ads into punishments for the non-payer, and the sting of punishment was only worsened by initial lack of targeting and high levels of ad frequency. Indeed, a Mintel survey of digital music listeners reported continuing declines in ad efficacy and appreciation as recently as 2015. The result was a media space which has often been frustrating to listeners and unwelcoming to brands, making the industry’s struggles unsurprising.

Yet another monetization attempt from music streaming leaders has been content exclusivity. The idea being that releasing new albums over just one platform will draw in new users or lure them away from competitors. Considering again the high elasticity of this product, it is clear that this will ultimately not work. Consumers have relatively little desire to change their behavior and begin paying for a service just to gain access to one new digital album—exactly the opposite actually. Their response will more likely be to simply steal the album, as they did this summer with Frank Ocean’s Blonde, an album which was released exclusively on Apple Music and then pirated more than 750,000 times almost immediately. The International Federation of the Phonographic Industry has estimated that about one-fifth of all internet users, including 20 million in the U.S., regularly access free music illegally. Growth is difficult for an industry so at odds with its target audience.

Ultimately, the digital world should be providing consumers with more options, not close-ended choices. It is creative advertising minds, both inside and outside of the music industry that will move things in the right direction. These are the people who will get listeners, music producers and the most important source of media revenue in the modern world—brands—on the same team.

A few of these advertising thought leaders have already started on this path. For example, Spotify recently made an announcement that signals its acceptance of advertising as integral to business revenue. As a result, the company will partner with Rubicon Project, AppNexus and The Trade Desk to make ad inventory available programmatically. For years, media planners have targeted audiences by radio genres and formats as broad as “country.” Imagine the value of targeting individual consumers based on their complex and customized digital listening habits. This is a fine example of how the digital direction of music can actually be empowering to the industry, as well as inviting to advertisers.

While programmatic is one trend currently buzzing in the media industry, another is podcasts. iHeartMedia recognized this, and also acknowledged advertising’s place in the execution. iHeart plans to join forces with dynamic entrepreneur-services company WeWork to create and curate a series of podcasts specifically for the modern working person. Some of them will feature content like interviews with successful startup CEOs. There will also be live radio shows which focus on the type of music people listen to throughout a typical work day. These shows will premiere in WeWork locations around the world. As they are made available for streaming to all of iHeart’s users, they will serve as a type of native ad for the benefits of joining WeWork. The hope here being that the music, when packaged and paired with a brand, will become something people are excited to access.

One of the most complete brand packages in the digital music streaming space up to this point is British fashion retailer Burberry’s presence on Apple Music. The brand has its own “curator” channel that puts together playlists full of the type of mellow, rainy-day British songs that might entice a listener to go straight out and buy a fine tweed jacket. And the brand doesn’t stop there. Some of the independent artists featured on the channel perform during Burberry fashion shows as part of a series called Burberry Acoustic. Of course, these musicians also wear the brand and have become full-time influencers. But the lesson here is that this is a campaign creating value for all parties—Burberry, Apple Music and any consumer who discovers Benjamin Clementine, a London pianist and tenor, on the channel.

Wherever value is created, revenue is not far behind. And sure enough, The Economist recently reported the U.S. music industry’s second straight year of revenue growth, the only two consecutive years of growth in this millennium. Assuming a continued cooperation with advertisers and primary focus on improving the fan experience remains in place, the music industry might soon strike gold once again.