The “waterfall” strategy: A new way to monetize paid concert livestreams

By: Maarten Walraven

Published: 2020-12-14

Guide by Maarten Walraven-Freeling and Cherie Hu

To date, we’ve tended to treat music livestreams the same way as real-world live shows — i.e. as events that happen in the moment, that can never be revisited or repeated and whose value is fleeting over time. This seems to be in stark contrast to recorded music, where major artists’ catalogs can accrue hundreds of millions of dollars in value for their seemingly infinite shelf lives in the streaming era, not for their ephemerality.

But we’re far past a critical inflection point in online music media, where livestreams are now far more common than in-person concerts. This has produced a flood of online performance videos, a growing percentage of which are higher in quality and warrant repeat viewings among more loyal fans.

This raises an important question for the future of the music business: Does the notion of scarcity and ephemerality inherent in the live music economy make sense in a virtual, on-demand world? More specifically, can livestreamed concerts and events benefit from an on-demand or subscription-based business model in 2021 and beyond?

In many cases, the answer is yes — pointing to a major untapped market for both the recorded-music and live-events sectors, in terms of increasing the shelf life of a livestream the same way that DSPs have elongated the shelf life of songs.

To unpack how this can work, we can look to another industry that is undergoing a paradigm shift in real time: Movies.

Lessons from the film industry: Waterfalls and windows

Historically, major film studios like Universal Pictures, Paramount Pictures, Warner Bros. and Disney have adopted a “waterfall” release approach for their productions. The term “waterfall” is often used in the music industry to refer to a release strategy where artists drop singles in rapid sequence leading up to a full album rollout, to build up hype while gathering early feedback and engagement data from fans.

In film, it operates a bit differently: The studio releases the same exact product in full, but across multiple different channels over a longer period of time to maximize revenues, as illustrated in the diagram below (from the European Audiovisual Observatory):

In this way, a given film’s release cycle can be expanded across five or more different touchpoints over the course of several months or even years. The most important and historically lucrative window for a film studio is the “theatrical window,” i.e. the amount of time that a film has to be shown exclusively in theaters before moving on to retail and on-demand channels. Typically, the theatrical window lasts 70 to 90 days, although this has been steadily shrinking year-over-year, largely due to the influence of subscription video-on-demand (SVOD) services like Netflix. The exact length of each kind of release window depends on country-specific regulations and commercial agreements.

The COVID-19 pandemic has dramatically altered the film industry, and accelerated the trend of shortening release windows as a result. According to a recent report from the research firm Omdia, box-office revenues are down 71.5% year-over-year, and video streaming and SVOD revenues are set to overtake theatrical revenues for the first time in 2020 (see graph below). In a recent letter to Congress, U.S. cinema trade groups warned that nearly 70% of small and mid-sized movie theater companies would be forced to close permanently or file for bankruptcy in the coming months without federal aid (a similar predicament that live music venues are facing).

Major studios are responding by significantly lowering their theatrical windows, or doing away with them altogether. A handful of examples:

While the strategy certainly comes with its critics (hello, Christopher Nolan), it’s inevitable in a world not only of shifting revenues, but also of vertical integration, whereby most major film studios are part of media companies that also own proprietary video streaming services. In certain contexts, an owned-and-operated SVOD strategy might make more sense if it can pull in more viewers from a specific audience — e.g. families, whereby kids will watch a film twenty times over the course of a month – than might be drawn to theaters for one-off visits. While cinemas will remain an important part of film release strategies in the future, the current reality means that studios will have access to many more hybrid options moving forward.

Adapting the film industry’s model for music livestreams

The music industry should closely monitor this ongoing, three-way tug-of-war among studios, theaters and tech platforms — if only because artists and labels increasingly want to take part in any resulting upside.

As Water & Music reported earlier this month, over 20 major artists like Ariana Grande, Anitta, Blackpink and Beyoncé will have released exclusive documentaries and concert films to SVOD services like Disney+, Netflix, Apple TV+ and HBO by the end of 2020 — more artists than in any previous year. Such deals are effective for promoting consumption of back catalogs and turning previously casual fans into more loyal devotees on a global scale.

To date, paid livestreams have largely been left out of this SVOD conversation. But there’s no reason why the recent influx of premium virtual concerts with expensive production budgets — like Dua Lipa’s Studio 2054 and Billie Eilish’s Where Do We Go? The Livestream — shouldn’t also be considered for longer-term monetization opportunities beyond the event itself. Moreover, given the challenge of discovering and marketing livestreams online, not every existing or potential fan of an artist will find their way to a ticketed event in time.

This is where the potential of a waterfall strategy for paid livestreams comes in. Under this strategy, the original concert video can move from a ticketed livestreaming model for a smaller group of fans, to an on-demand or pay-per-view (PPV) release on a different platform with wider reach, to an exclusive distribution deal with an SVOD service like Netflix or Disney+ or even with a free ad-supported TV (FAST) service like Pluto TV or Samsung TV Plus. In each step, music provides a destination for fans to discover the artist alongside a new service, and/or for said services to attract new users and retain existing ones.

We can map out this strategy as follows:

There are three primary factors to consider when building out a waterfall strategy for a music livestream: Quality, rights and distribution. Digging deeper into each of these categories, we can also get a sense of why this strategy has been relatively difficult to achieve up until now.

1. Quality

To understand what kinds of concert livestreams work well for a waterfall approach, we can go back in time over 50 years to a concept that the media theorist Marshall McLuhan coined in the 1960s of “hot” versus “cool” media. In McLuhan’s definition, “hot” media is high-fidelity and low-participation, with little need for any additional contribution from the audience (e.g. listening to the radio), while “cool” media is low-fidelity and high-participation, relying heavily on user interaction (e.g. talking to friends on the telephone).

The vast majority of music livestreams on platforms like Instagram, Twitch and Facebook are intentionally produced as “cool” media. The audio and video quality might not be the best (remember Teddy Riley on Verzuz?), but that doesn’t matter as much, because the value the viewer sees in the livestream is more in the higher levels of interactivity and two-way conversation they get with the streamer.

In contrast, both premium, paid livestream events and films made for cinemas and SVODs can be categorized as “hot” media; they are more highly-produced videos with relatively minimal opportunities for fan participation, aside from a live chat in the case of most online events.

For artists looking to extend the lifespan of their livestreams over the course of a longer waterfall strategy, they have to think about producing “hot” rather than “cool” media from the beginning. In other words, just like with an aspiring classic song, artists pursuing a waterfall release have to aim for a higher quality of video and audio, and optimize for evergreen rather than ephemeral value. For instance, a more premium, more highly-produced livestream event is more likely to attract TV and SVOD users six months down the line than a static camera feed of someone DJing for hours in their bedroom.

This is quite different from how artists might see the value of livestreaming in their careers. Many emerging artists in particular treat livestreaming on their Instagram or Twitch pages as a low-cost way of engaging with fans, and optimize for interaction and audience development rather than for profit or aesthetic quality alone. Moreover, higher production budgets might not be available to artists who want to maintain a higher frequency of livestreaming output.

That said, awareness of a potential waterfall strategy can help artists pick certain livestreams out of a packed schedule that they want to produce at a higher level and push further through a distribution funnel down the line. In fact, it’s already possible on services like Twitch for artists to make their livestream archives available only to paying channel subscribers. This allows artists to monetize their videos in a more direct-to-fan manner (DMCA challenges notwithstanding) while gathering data on which parts of the archives are getting the most engagement after the fact and might be worth spinning off into separate experiences on other platforms.

2. Rights

Making a livestream available on-demand after the fact is a licensing hassle, especially if you are working with artists signed to major labels who have the exclusive right to make said artists’ recordings.

As Water & Music has covered in the past, securing the proper rights to legally monetize and broadcast a livestream publicly is quite complicated, because the format invokes literally every kind of copyright possible in the music industry. Including a preexisting recording of a song in your livestream implicates master rights on the label side, and mechanical rights on the publishing side; if you want to rebroadcast your livestream in the future or make it available for on-demand viewing after the fact, you’ll need a separate sync license for every third-party song you feature in the stream; digital media transmissions require separate, dedicated public performance license fees from those that physical venues pay PROs; beyond musical copyrights, you may also have to obtain trademark, name or likeness licenses if you want to feature major brand names or visual imagery in your stream.

Copyright law tends to lag behind technological change, but the current livestreaming boom could spark a change in policy around who owns and/or benefits financially from the format. For instance, in July 2020, GWVR, a collection society for German concert promoters, announced a new policy that would give local promoters between 1.71% and 4.5% of sales revenue from recordings made at their events, whether in audio-only or audiovisual form (e.g. CDs, LPs, DVDs and online video subscriptions). More recently, in early December, the UK’s PRS for Music sparked controversy among artist managers when they proposed an increase for the starting collection tariff on gross ticket receipts for livestreams from 4.2% to 8%.

We can only expect to see more of these kinds of policy changes and debates in the next few months. The rise of the waterfall release approach for livestreams will be a driver of these changes, while experiments with the strategy may struggle under the weight of existing copyright structures.

3. Distribution

The hottest destinations for future concert livestream archives will likely be the same as the current preferred partners for concert films and documentaries: SVOD services that not only command large global audiences like Netflix, but also are owned by and integrated with larger tech or media conglomerates, such as Amazon Prime Video and Apple TV+. The latter category may be more appealing to music rights holders who want a direct line from film ventures to catalog consumption; Amazon can hypothetically provide this integrated infrastructure with the combination of Amazon Prime Video, Amazon Music and Twitch, and Apple with the combination of Apple Music, Apple TV+ and their vast range of hardware devices. (This capability was also likely the impetus behind Dua Lipa’s international distribution deals with Tencent and Gaana for Studio 2054).

As Water & Music reported, nearly 90% of premium SVOD music deals to date have been with artists signed to major labels. This doesn’t mean independent artists don’t have the opportunity to extend the shelf life of their own livestreams on other platforms. A growing number of niche pay-per-view or subscription-based streaming services, like iNDEMAND and Mubi, have partnered or expressed interest in partnering with musicians. Some independent event platforms like LIVENow, which has hosted live and on-demand viewing for online concerts from the likes of Dua Lipa and Gorillaz, allow artists to implement a waterfall strategy in a more direct-to-consumer fashion. Stephen White, CEO of Stageit, tells me that the popular music livestreaming platform is planning new post-show opportunities including not just on-demand/PPV playback, but also distribution to subscriber- and advertising-based viewing platforms.

Outside of online distribution channels, even a cinema release approach for premium livestreams could potentially be lucrative post-pandemic — inverting the traditional cinema-to-streaming release cycle. Perhaps the most obvious case study is the Metropolitan Opera’s direct-to-cinema “Live in HD” series, which drew close to 250,000 viewers and nearly $18 million in revenue worldwide in 2019. Notably, the cinema experience is differentiated from that of going to the actual opera house, and not just because the former’s tickets are cheaper: Cinemas often show backstage views before the opera starts, and closer camera angles during the show itself.

Conclusion: The end of destination viewing?

As the previous sections show, a “waterfall” approach to livestreaming unveils longer-term opportunities for monetization and audience development around an online concert experience, in a way that maximizes reach, fan engagement and return on investment.

To close out this analysis, let’s go back to our earlier discussion about the film industry. One trend that we can expect to see in both the movie and concert industries in 2021 is that the core product — i.e. the movie, or the live show — is no longer just a matter of temporary, ephemeral “destination viewing,” whereby fans buy tickets to view the given content at a specific time on a specific platform.

For both online and offline concerts, the in-the-moment  “destination viewing” is certainly invaluable for artists from a fan-engagement and monetization perspective, in that artists can upsell fans into different levels of perks and access, from merch bundles to behind-the-scenes footage and digital VIP meet-and-greets. Historically, scarcity has driven this increase and diversification in pricing models for shows.

But we live in a vastly different world now where, especially for artists who want to reach new fans and stay culturally relevant, “success” is not just about maximizing profit or FOMO. It’s also about meeting a global fan base where they are and partnering with digital media platforms that are ingrained into existing fan behavior, inside and outside of music. Especially in a pandemic — where artists, labels, promoters and other industry stakeholders rely more than ever on technology just to get by — concert livestreams have the potential, even an imperative, to sustain more durable lives online.