Chapter 4 Market & Distribution
The CEE markets are emerging and future markets with very different demand characteristics than the mature Western and Nordic markets, and sometimes they show resemblance to the markets of Southwestern Europe.
On the live performances market, Estonia, Hungary, Czechia, Slovakia and Latvia are medium developed markets.
In the case of recorded content, the whole region, with the exception of Estonia is underdeveloped. Only a very small segment of the population is willing and able to pay for services.
This makes the whole region dependent on collective management, similarly to the emerging markets of Latin America. In the publishing and recordings market, around half of total revenues are made from public performance and private copying remuneration. In those countries, where any of these income sources are not performing well, there is very little recorded business at all.
4.1 Live Music Markets
The current price level of concert tickets more or less reflects the differences in purchasing power in the regional countries. Some markets are very much centralized around the capital city. The comparison below is made with the help of the CEEMID Music Professionals Survey 2019. In the comparison we excluded free concerts and ticket prices above 40 euros.
The typical audiences are reported as 30-130 visitors, which shows the importance of small venues, and the fragility of the live music business: the total ticket revenue in the case of small venues is between 500-1000 euros. Pre-sales are rare, and even these small revenues are very risky. Foreign performers visiting the region can usually expect somewhat bigger audiences, higher ticket prices. (See Figure 4.3 for national differences in the region.)
As we have seen in the Subchapter 2.1 Seasonality, the demand for live music performances is extremely seasonal in the region. Most of the concerts, and the most valuable concerts (in terms of ticket revenue) are usually held in December. Another peak is the summer festival-season, but the largest festivals often target foreign audiences and put foreign performers on the stage. The festival season can account for a quarter of the total revenues, but not for the artists. The festival season provides income for the technical ecosystem of sound, light, stage engineers, promoters, but only to a lesser extent to local artists. Most of this income is an export income in the national accounts (domestic production is financed by ticket sales to people earning their income abroad) and it is the most important music export revenue source in Hungary and Serbia, and probably several other CEE countries.
The income structure of musicians and bands is very fragmented. In the 20th century advanced market model, the main income source was related to recordings, and it was received from one quasi-employer, the label. Even in the case when an artist is represented by a label or a publisher in the region, it is likely that the main income source is live performance income. A typical professional plays in about 10-50 events in a year, which means payments from 10-50 sources. A consequence of this structure is that musicians do not have ‘employers’, their earning structure does not even resemble an atypical wage income. The special taxation, social security and pensions problems of musicians are usually not well represented in the national social dialogue, because popular music is not well unionized, and the employer side is not taken by any institution. The income of musicians is volatile, cyclical, risky, and often very unfavourably taxed.
Royalty income plays a very important role in stabilizing the volatile live music income, if and when it is available. However, only very few musicians are represented successfully by publishers and labels in the region. While publishers and labels can perform certain roles that are usually the roles of human resources and legal affairs at an employer, these services are not available for most of the music professionals in the region. This gap is sometimes partly filled by collective management organizations, but not to the point that would be usual in other business sectors. In our view, in the CEE, probably authors’ societies are in the position to play some quasi-employer roles, and represent at least tax and social security issues in the social dialogue.
4.2 Recorded Music
The market conditions are very different across Europe, and the headline figures known by market players are misleading for a typical artist or label, because their sales prospects are based on many unknown factors:
The (future) availability of new platforms in their key markets
Number of subscribers in their domestic territory and key foreign markets
Strength of repertoire competition in their domestic and key markets
Subscription fee and advertising revenue in the respective markets
National currency exchange rate in platform / distributor functional currencies
In the early stages of market development, minimum licensing requirements distort the revenues
4.2.1 CEEMID-CI Volume indexes
The combination of these six factors cannot be intuitively guessed and the information is not available to local market players. To make a meaningful comparison, we combined c. 700m royalty statements and selected for in each national territory the ‘typical’ songs in each month between January 2016 and February 2019. We defined the typical song(s) in a territory as the sound recording that took the median position in number of plays on Spotify, Deezer and Apple Music. The “median position” means that half of the songs in our database had fewer, half of them had more plays on the channel - in other words, the recording’s performance was typical.
Even though the United Kingdom or Germany are much bigger markets than Austria and the Visegrad region of Hungary, Czechia, Poland and Slovakia, the exploitation of song in these mature markets was not much higher than in Austria and the Visegrad region. In fact, the exploitation level of a typical song is similar to Switzerland, the Netherlands or Turkey.
In these smaller markets, the number of subscribers is smaller, and the repertoire competition is also smaller: a smaller number of subscribers will almost certainly select fewer songs to play than a larger number of subscribers. In the emerging markets of Albania, Montenegro, Macedonia the number of plays is very low because the number of subscribers is small and the only available platform is Deezer.
After analysing the path of the typical (median) sound recordings, we re-created the same analysis for relatively successful songs. We defined a song successful if it had more plays on Deezer, Spotify or Apple Music than 90% of the songs that were played at all in our reference database. These songs are not hits (the real hits are in the top 1%, or even in the top 0.01% of the songs), but certainly far more successful than most recordings on the market.
The picture in Fig. 4.5 somewhat different than in the case of typical songs. Overall, a relatively successful song can gain a larger audience in the United Kingdom and Germany than in the smaller countries. Successful songs in Turkey benefit from the size of the population, but due to lower penetration rates a Turkish success in terms of listening quantity can expect as many streams as a successful Austrian, Czech, Hungarian, Polish or Slovak song.
4.2.2 Typical income
In the Central and Eastern European markets artists are disadvantaged by the smaller local population size, but the lower level of repertoire competition also benefits them. If a song starts its career in Austria or Hungary, it does not typically reach a much smaller audience than in Germany or the UK, but the revenue prospects are clearly different.
As we can see 4.6, the typical revenues were relatively flat in the past three years. While listening quantities were growing, so was the number of subscribers and range of exploited songs. In fact, as more diverse audiences entered the market, the market shares of the typical labels started to shrink. As a consequence, the typical artists did not see any significant revenue growth from the rising number of users.
We can clearly group the countries into five groups:
- The United Kingdom
- Germany, Switzerland and the Netherlands
- Austria, Czechia, Hungary, Poland, Slovakia, Southeastern Europe and Baltics, Turkey
- Non-EU emerging markets, except for Turkey
In fact, the least developed, emerging markets saw significant decreases. We believe that this is mainly caused by the diminishing revenue from telecommunication cross-sales and the levelling of the minimum licensing fees per territory.
4.2.3 Successful recordings’ income
The difference among successful songs is similar to the typical songs, but in the emerging markets, where relatively small audiences listen to a relatively small number of songs, occasionally local hits can achieve great success, especially if they are helped by transitory factors..8
Streaming completely altered the way recorded music is sold. The key difference is the extraordinary growth in competition. Whereas national markets did not have on inventory more than a hundred thousand songs in record shops, in streaming, about 1000x more, maybe 100 million recordings are available. The level of competition is extremely high in the mature markets, and somewhat lower in the emerging markets.
The emerging markets apply lower prices, which naturally result in lower income in these markets. The combined effect is huge: a typical song in the UK earns about 10x more than in the CEE markets. Obviously this makes rich markets very lucrative for exports.
For some CEE market players, access to all global markets creates an opportunity. For most of them, they pose an existential threat. Not only do they bring in 10x less revenues in their home markets than their UK or German peers, but they are facing increased competition from foreign producers in this small, fragile market.
We will address the problem of music export and import in Chapter 5 about music exports.
4.3 Collective Management
Many markets in the region are very reliant on revenues from collective management. This is not a CEE but more an emerging market phenomenon, because similarly developed Latin American countries have a similar income structure.
In some countries, for example Czechia, Hungary, Croatia, we see rather strong collective management revenues, with a much smaller gap compared to rich countries than in the case of individual digital revenues.
Fig. @(fig:dependencecollective) is made from the IFPI Global Music Industry Reports’ data9. We have made estimates for small countries not included in the report. We can clearly separate the regions by their income structure. The Nordic countries and Switzerland have the highest level of individual royalties due to the strong performance of subscription streams. They are followed by Western countries, except for France, which has very strong individual and collective revenues. The CEE countries and Turkey rely the most on collective management.
We have analysed the radio, television, and background music tariffs and collections for several producer or performer societies in the region. Our analysis shows that their tariffs, or collections, or both, are significantly below any properly set benchmarks within the single EU market. The heavy dependence is not based on strong collective management, but on extremely weak digital sales.
In the absence of strong streaming revenues, the audience appears to be more inclined to rely on torrenting and home copying than in Western Europe. Our CEEMID databases started out from measuring the value of home copying in Hungary, Slovakia and Croatia.
As we will see in the next chapter, the relative strong performance of collective management is both a blessing and a curse, because it is unusually heavily tilted towards author’s rights. It provides a relatively stable lifeline for the recorded business, but it does not align well with the innovative nature of digital music, because normally producers are better placed to invest in new recordings and promote them than authors.
However, there are some countries, for example, Moldova, Bosnia-Herzegovina, or Armenia, where we cannot talk about a functional collective management system.