Music and lifestyle companies are jockeying for each other's audiences. Who will win?

Happy belated New Year!! Whether or not you made any resolutions, hope you’re still feeling refreshed and excited to make the world a better and more wholesome place this year through whatever you do, no matter how small the gesture.

Before we go on with today’s essay, I wanted to share a personal update: in addition to my regular business reporting, I’m also on the founding editorial board for Molasses, a new alternative online music blog by, for and about young POC who are passionate about engaging critically with local/independent music scenes.

The first issue will be coming out this spring, and we’re currently accepting pitches on a rolling basis for pieces of all types about (and/or by!) POC musicians: interviews, features, show recaps, reviews, personal essays, op-eds, multimedia, you name it. As a note of style, we are much less interested in breaking news than in breaking diverse perspectives and critiques of music as an art form and historical canon.

Please send any pitches and inquiries for the mag to molassesmag@gmail.com, and I or others on the board will get back to you as soon as we can! I’ve also posted publicly about the new venture on Facebook and Instagram, and encourage you to spread the word to anyone who may be interested. Thanks so much :)

As with many previous newsletters, I’m going to open today’s installment with a perspective from the startup and tech world.

In their blog post “The Customer Acquisition Pricing Parade,” startup marketing experts David Perell and Nik Sharma argue that “digitally-native vertical brands”—i.e. direct-to-consumer retail brands like Allbirds, Away, Casper, Glossier and Warby Parker—will increasingly build and compete around audiences, rather than around industries.

As David and Nik explain, these brands are “go[ing] to war for the same customers on the same platforms,” including but not limited to Facebook, Instagram, Twitter and Google. Due to limited advertising space, customers then become more and more expensive to acquire—to the point where the typical venture-backed startup ends up spending 40% of all their funding on user acquisition.

Hence, future digital-native companies will prioritize sustaining the strength of their most loyal customer base—which often involves expanding horizontally into products that serve those customers’ diverse lifestyle needs, rather than vertically mastering just one industry.

“Once a paying customer is acquired, companies can cross-sell and up-sell them into different products, categories, and even brands,” reads the blog post. “The fight to find that customer will be much easier leading to an increase in transaction volume.”

Brands like Warby Parker are already bringing this audience-over-industry strategy to life. Over the winter break, I stopped by one of Warby Parker’s brick-and-mortar showrooms in Chicago, and was amazed that the company stocked their store not just with eyeglasses, but also with novels, poetry compilations and nonfiction books (e.g. a 33 1/3 book about David Bowie). It made me realize that differentiation in the direct-to-consumer world is increasingly about buying into a more holistic lifestyle, not just about buying a singular product—and that, as Warby Parker is doing, one would do well to expand horizontally and up-sell consumers on products across several verticals, in order to cater more comprehensively to that lifestyle.

Perhaps unintentionally, David and Nik almost perfectly described an intriguing evolution in the music business:

To humanize this concept, let’s first think about where an up-and-coming artist fits in.

It may seem abstruse to describe an emerging artist as “a digitally-native vertical brand that builds itself around an audience rather than around an industry,” but that phrase accurately describes the business models of a growing segment of the artist community.

Firstly, many musicians are digitally-native in that they don’t sell any physical versions of their records, and focus the majority of their brand strategy and fan engagement on social networks and other online channels, even if they are also active touring performers.

Secondly, given that streaming margins for the typical indie artist are still pretty low today, adjacent revenue sources beyond recorded music are taking on a more critical role in sustaining an artist’s career. A-list musicians have served as lifestyle influencers and ambassadors for decades, but now that role is arguably transitioning from a flashy luxury for the few to a mandate for the many. Artists of all career stages are selling more merch, pursuing partnerships and sponsorships across fashion, sports and food/drink earlier in their careers and investing more money into tech startups, all in the service of their own creative brands.

In other words, artists are increasingly moving beyond just the music industry in order to cater to wider audiences of fans with diverse interests and ambitions.

Importantly, there is more movement in the other direction as well, in that lifestyle icons are also choosing to release their own records (e.g. Charlotte Lawrence expanding into music alongside her modeling career, or virtual model Lil Miquela “recording” a single with Baauer) to complement their core business in retail and the influencer economy. This exacerbates competition and customer-acquisition costs for traditional musicians, who are now competing with “non-music brands” for the same audiences on the same online platforms.

We see this competition for audiences on a larger scale when we move from the artist level to the company/platform level. Namely, more music companies are trying to become lifestyle companies (e.g. Spotify and Pandora expanding into podcasts), and more lifestyle companies are trying to become music companies (e.g. W Hotels launching a record label). Likewise, all of these companies are using the same channels—streaming services, social media platforms, brick-and-mortar billboards and pop-up shops, etc.—to try to lure in the same customers.

Strategically, shuffling between music and lifestyle certainly isn’t unique to our current era. But I’ve realized in my research that relatively few artists and companies have refused to accept music-vs.-lifestyle as a dichotomy, instead baking that intersection into their business models from the very beginning.

I’ve illustrated this competitive landscape in a music-vs.-lifestyle diagram below, using a sample of companies that either have made strategic transitions between those two ends or have found a comfortable spot in the middle.

The diagram is certainly not exhaustive—and I am fully aware that the concept of a music-lifestyle “spectrum” might be erroneous altogether, since one could argue that music is just one component of the wider umbrella term of “lifestyle.” Nonetheless, I hope the sketch offers a potential starting point for future discussions around music strategy. I invite you to respond to this email with any feedback or suggestions for companies you would add to the list!

Let’s start with the left side of the diagram: music-focused brands that are trying to pivot or expand into lifestyle brands.

As discussed above, musicians and record labels traditionally take this route: they first see recorded and/or live music sales as their core business, then gradually expand into “lifestyle sectors” by starting their own merch line, securing third-party brand partnerships and endorsements, acquiring or launching media companies, and so on.

More importantly for the aggregate music business, music streaming platforms are making the same strategic moves—cannibalizing their own reputations as music-only brands in order to improve their own profit margins. Spotify is particularly aggressive in this regard, beginning to promote podcasts, daily news and even possibly audio workouts on the same level as music on its platform.

This is a classic audience-over-industry approach: now that Spotify has captured a loyal base of music streaming subscribers, they are up-selling that base into adjacent services that can satisfy different needs in those subscribers’ lives. (I wrote in a previous newsletter back in July about how Spotify was trying to decide between vertical and horizontal integration; it seems to be focusing on the latter right now.)

Now let’s focus on the far right of the diagram: lifestyle-focused brands that are trying to expand more deeply into music.

As I mentioned above, there are a handful of individuals like Charlotte Lawrence and Lil Miquela who have expanded into music to complement their core lifestyle careers. But there are many, many more examples of this lifestyle-to-music transition at the company level. There’s no way to be absolutely exhaustive here, but I tried to include the subcategories that I thought were the most relevant in today’s current music-business climate.

Below are some more details about each subcategory:

It’s important to point out here that the scale of these companies’ audiences is much smaller compared to those of pure-play streaming services like Spotify. Spotify can manage to reach 200 million monthly active users because most people in the world like some form of music, and want to engage with the art form regularly. In contrast, only a fraction of a percentage of the world’s population would consider themselves “monthly active customers” of SoulCycle or W Hotels—but that doesn’t mean either company can’t run a successful business (and Spotify has yet to turn a profit anyway).

Finally, let’s focus on the section in the middle of the diagram: brands that have strategically woven music and lifestyle together from their very inception.

Again, there’s no way to produce an exhaustive list of hybrid music/lifestyle companies, but here are some examples that have been top of mind for me recently—which will hopefully help clarify why I’m placing them in a different category altogether from the Spotifys and SoulCycles of the world:

• • •

While incomplete and imperfect, the above music<>lifestyle diagram illustrates the growing number of entry points into the music business from outside its immediate boundaries. And on the company level, as we established, music and lifestyle brands are trying to steal each other’s audiences by competing for attention on the same platforms.

One question remains: Who will win? Or more broadly, which direction of music<>lifestyle is most strategically sound and sustainable?

The harsh truth is that the economics of streaming makes it increasingly difficult to sustain a living or a company off of recorded music alone. As Union Square Ventures managing partner Andy Weissman once tweeted, “‘music’ has historically been a culturally more important art form than it has been a big business.”

As a result, I’ve noticed that a growing number of music-business deals are framing music not as a standalone product, but rather as a culturally powerful tool to achieve larger commercial ends and drive sales from merchandise, health and travel experiences and other higher-margin revenue streams in non-music verticals. In other words, music capital is increasingly flowing to (and from) companies on the right half of the diagram, not the left. I predict that artists in 2019 will also be working to differentiate their brand to thrive more on the right side or in the middle of the diagram, instead of starting on the left as is traditionally done.

In various interviews over the past few months, several music-industry execs have also told me that streaming competition will increasingly ride on wider technological ecosystems, not just on content. In other words, while Spotify remains the global market leader in paid music subscriptions for now, “pure-play” will become the exception rather than the rule for music streaming’s future. Tencent Music controls so much of China’s music market in part because it also owns WeChat, the country’s biggest messaging app. And there’s a reason why Apple Music is the fastest-growing music subscription business in the world, reaching 56 million paying subscribers in just 40 months: its parent company owns one of the world’s most popular ecosystems of smartphones and computers.

I would love to hear what you think: how do you think my diagram could improve? Which direction on the music<>lifestyle spectrum do you think is the most compelling or financially sustainable as an artist? Simply reply to this email and it’ll go straight to me!

I was humbled to find out that I won the Music Industry Gems category in 1AM Creative’s inaugural #1AMAwards, which was decided entirely on audience votes. I can’t thank you all enough for your support!

As for future travel plans, I’m super excited to be speaking more at universities this year! In late February, I’ll be giving a public talk at the University of Oregon about how the music business serves as a ripe petri dish for innovation in journalism, as part of the university’s Demystifying Media seminar series. Then in early April, I’ll be guest-lecturing to music-business students at Berklee College of Music’s Valencia campus, followed by a panel at the European DIY Musician Conference.

My visit to the University of Oregon will be my first time ever in the Pacific Northwest, so if you have any recommendations for places to check out and/or if you live around the area, please reach out!

My home city of New York is famous for its widely-televised “ball drop” at midnight on New Year’s Day. In searching for potato-related content for this issue, I learned that different cities will “drop” different items to ring in the new year, in line with their local cuisine or culture. For instance, on New Year’s Day 2019, the city of Boise, Idaho opted to drop a giant potato, which transformed into a box of inflatable “super crispy crinkle cut fries.” I’ve made it a new bucket list item to see this phenomenon in person.