How will COVID-19 impact the Music Industry?

It's a Friday night, March 6th, at 9 p.m. EST. I'm watching a band play at a local venue. The music was great all night until the venue abruptly cut the show short without explanation. Looking back, I'm thinking it was perfectly symbolic of what's to come.

The entire night was overshadowed by the recent stock market crash and the 400k-person event SXSW getting canceled earlier in the day due to COVID-19. The looming question in the back of my mind wouldn't disappear: what the f*@$ is going to happen to the music industry?

This wasn't an easy decision in the slightest for SXSW, but no doubt the right thing to do. Ultra Music Festival and Calle Ocho in Miami canceled shortly after the annual ATX event. It's not hard to imagine that's only the beginning. Plenty more will follow, and you can follow this article from Billboard for day-by-day updates. I cannot fathom how Coachella has not yet been canceled at the time of this writing–March 9th. Ciara and Madonna's tours have both come to an abrupt halt today. Currently in NYC, we’ve gone from an isolated incident to community spread - it seems to me Governer’s Ball could be canceled yet again in June.

The numbers from the recent Biogen company case below back up the decision to cancel large events to contain the spread. There are 23 reported cases to date from a 175 person event, reaffirming that outbreaks are more common in crowded places.

Even worse, the city of Boston knows about Biogen and has yet to cancel its Saint Patricks Day parade with a projected 1 million attendees this weekend.

We already know from 1918 how this decision plays out. 10,000+ Philadelphians became ill less than two weeks following a mass WW1 parade. Welp, hope everyone gets home safe!

According to Dr. Amesh Adalja of Johns Hopkins, many of the cases are clinically indistinguishable from the common cold or flu which makes the idea of containment an illusion. With a vaccine of large quantities possibly 12-18 months away, it's hard to imagine any of the major festivals happening the entire year ahead. Notes from the discussion can be found here.

Festivals and concerts may need to cancel or reschedule ASAP. If there's a chance that 20% of infected patients land in the ICU as some reports suggest, our health system will be easily overwhelmed. Wuhan had 26% of patients in ICU. South Korea's hospital beds are already full due to COVID-19.

In the latest update on Italy, a Doctor shared that conditions are worsening in their country:

If that's not convincing enough to cancel large scale events, consider the fact that the virus is following an exponential growth curve at the same time as we are slacking in diagnosing the number of cases. Actions that seem alarmist or ridiculous today will look reasonable in 3 weeks to a month from now. Canceling live music will be in 2020 will slow the rate of the infection so that the number of people who are sick does not exceed the capacity of our health system.

We're only seeing the beginning and need to practice social distancing soon, not joining crowds of tens of thousands of people. 

We're living in a before the virus and post virus moment in history; right now we’re in the in-between as the novel COVID-19 continues to spread worldwide. Very soon, we'll see an inevitable spike in cases in the U.S., who boasts the world's largest recording industry market.

Whatever happens, the ripple effects will become apparent in the global music industry.

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Here's how I imagine things reshaping in the music industry

The industry has been fighting to turn a profit ever since being nearly decimated in the early 2000s by file sharing. This time isn't anywhere near as life-threatening, but we will see some music industry companies strongly impacted; there will be winners and losers.

Record store day will likely see a loss of foot traffic and as a result, a loss of sales. Some sales may be salvaged with a heavy push of online ads.

Streaming will surge without in-person attendance while fans pour one out for their favorite festival. Major labels will see a rise in revenues in excess of the current $1 million every hour from streaming. Currently, streaming represents more than 80% of the industry’s revenue and will see a boost from a lack of touring.

On the bright side, the numbers above can tell you that this isn’t anywhere near as damaging to the industry as the Napster/file-sharing era. On the dark side, the numbers are a stark reminder that artists may stand to lose the most from COVID-19. Live music will hurt worse before it gets better. These first few festival cancelations are likely the tip of the iceberg and the touring industry may come to a grinding halt by May-June as coronavirus cases near a peak globally.

(Image Source: Pitchfork)

Artists need to rethink revenue streams without touring major shows, or any shows for that matter. Independent artists need to brainstorm new ways to monetize their art.

Entertainment from touring won't disappear. The nature of the consumption will move elsewhere, likely into streaming. Record labels and their rosters can look ahead by innovating on marketing, distribution, and promotion.

(Image Source: DigitalMusicNews)

Live Music as we know it accounts for a vast chunk of earnings, per this 2017 graph. Live sound made up over 50% of the industry's revenue, which is likely less in 2020 with the rise of streaming service subscriptions.

Spotify, Tidal, Apple Music, Amazon Music, Deezer, and iHeartRadio are all set for a boost as Live Music takes a hit in the second quarter.

Colleges and Universities, a low hanging fruit for performing independent artists and record label talent, will begin closing and moving to virtual classes. Yet another loss to live music. Likewise, smaller-scale venues such as restaurants, cafes, and bars could close their doors to any foot traffic barring live music. These small businesses themselves may have a tough year ahead.

Speaking of colleges, the NCAA is weighing out eliminating fans from March Madness. It's another reminder that our country may grow closer to a quarantine-state as China and Italy have, ending live music entertainment for the foreseeable future. Record labels and artists seeking to create new earning opportunities in the absence of touring and can take a cue from 2018 and 2019's biggest album release strategies, starting with Travis Scott's Astroworld album. I'm not talking about creating a roller coaster park, I'm talking about merch bundle madness.

Part of the reason Astroworld topped the charts can be attributed to physical and digital recordings sold in bundles with album merchandise. The release and marketing campaign is one of the music industry's most successful to date. Then in 2019, the two albums duking it out for the top of the charts followed a similar release strategy. DJ Khaled infamously played himself attempting to bundle in energy drinks with his recordings and was beat to the top of the charts by Tyler the Creator's Igor. With a similar number of streams, Khaled's bundle was ultimately disqualified for encouraging fans to purchase energy drinks in bulk to push his album to #1.

The lesson to learn from these three albums is, if executed effectively and ethically, artists can increase digital and physical recording sales by building merch bundles on E-Commerce shops into their release strategy, with the potential to offset a fraction of the soon-to-come losses from the touring industry.

Another idea for record labels and artists to counter these losses is to create virtual experiences for fanbases. Virtual Reality, Augmented Reality, and Mixed Reality applications may see more usage to monetize recordings. Companies like CEEK VR and NEXT VR will see a boom this year with virtual entertainment set to rise. Childish Gambino creating an interactive AR experience for fans called PHAROS is a prime example

COVID-19 presents an opportunity for CEEK VR to grow its platform. According to ChipIn's editor in chief, CEEK has already proven their concept with top tier talent.

Live Nation's stock, as of Feb. 28th, had fallen from $75 to $60, and further to $47 today. It may rebound with the market, but I highly doubt in-person attendance will be bringing many returns in quarter two. On the contrary, CEO Michael Rapino made a statement claiming, "a show will be canceled here and there. But we’re confident, long-term, the show will happen; the revenue will flow and the fan will show up."

Warner Music Group's IPO was postponed as the markets crashed, yet there's an argument to be made for the fact that such a company has value beyond the current stock market situation. Songs, TV, and Film licensing will see a benefit with more people streaming. Similarly, Hipgnosis is one music company that withstood coronavirus pressures. Tim Ingham, Founder of Music Business Worldwide, was offered words of reassurance from the founder of Hipgnosis.

Record labels will strategize new ways to market, distribute, and sell their talent. Artists will have more time to record new music for the world to hear in a post-coronavirus world. Festival-goers and music enthusiasts alike will have all the time in the world to stream their favorite tunes. 

We'll all be fine long term. In 2021 it's business as usual, only with the new Music Modernization Act (MMA) beginning in January, but that's another story.

-Jimmy Seykot