The digital revolution has done a lot of damage. But some artists can still see the way forward

Taylor Swift’s music video for her latest single, Look What You Made Me Do, includes a scene where she is shown raiding the bank vault of a music streaming company. Having smashed records on YouTube and Spotify and notched up her first UK number one single, the scene is a telling one. Writing songs that exploit her personal life – from celebrity feuds to the short-lived romance that was Hiddleswift – and through deft manipulation of social media, Swift offers lessons in how to make a hit machine in the new digitally driven world of music.

Streaming is king

After a decade of plummeting revenues due to online piracy, the decline in CD sales and a lack of viable digital services, streaming has come of age for artists and record labels. The global recording industry body the IFPI and the UK’s BPI have both marked 2017 as a tipping point where revenue from streaming services such as Spotify, Apple Music and Deezer will surpass that made from traditional CD sales.

Global streaming revenues need to grow by less than 10% this year – last year saw a 60% surge to $4.6bn – to pass physical sales, which fell 8% to $5.4bn in 2016. Total digital income, including the rapidly dying downloads market, passed physical sales in 2015.

Swift’s new song, from the 27-year-old singer’s first album since 2014, was played more than 10m times on Spotify on the day it launched, breaking its record for first-day streams formerly held by her friend Ed Sheeran.

Swift staged a high-profile boycott of Spotify in 2014, withholding her album 1989 from the service and pulling her back catalogue in support of her contention that “music should be paid for”. But she relented in June this year, in part, some observers believe, because of the improving revenue picture.

“If you are a young pop artist streaming is at the centre of everything you do – it is not everything you do, but it is at the centre,” says Mark Mulligan, analyst at Midia Research. “It is the place to get discovered, drive ticket sales, [it] helps get on the radio and digital playlists, and it is becoming increasingly important as a source of revenue.”

MTV is no more

Swift may have used last weekend’s MTV video music awards to debut the video to Look What You Made Me Do, but the once mighty TV channel is no longer the medium that matters. MTV’s seminal music moment came with Michael Jackson’s 1983 Thriller video, which cemented its position as a cultural force, but by the early noughties the internet had taken its place. And that means YouTube.

Swift’s video had the most YouTube global streams in a 24-hour period – more than 43m – beating the previous record-holder, Psy’s Gentleman. By Friday it stood at more than 110m.

Swift’s marketing is a masterclass in exploiting the personal life her fans lap up, from references to Kanye West and Kim Kardashian – who tussled with Swift when she objected to the line “I made that bitch famous” in one of West’s songs – to her long feud with Katy Perry, relationship with Tom Hiddleston and recent victory in a sexual assault case. “Visual content is way more than the traditional music video and behind-the-scenes interviews,” says Max Lousada, head of Warner Music UK, which has launched its own content and production studio called The Firepit. “It’s a platform for artists to show more of who they are and tell their story in a different way.”

Own social media

Taylor Swift is the fourth most followed user on Twitter with 85 million followers – behind arch-rival Perry, Justin Bieber and Barack Obama – and has more than 100 million Instagram followers. And she knows how to use them.

“Artists like Swift know exactly how to directly engage with their fans on Twitter. Her ability to strike a conversation between herself and fans is priceless,” says Will Hardy, entertainment partnership manager at Twitter. “Taylor loves to show a personal side to her on Twitter, which the fans love. Every time she tweets, she talks to 85 million people, a reach that was unthinkable just a decade ago.”

Swift is a master in fan engagement, from making breakup-music playlists for heartbroken followers to tracking down superfans who camped out for 20 hours to catch her going to a BBC Radio 1 interview – complete with self-promotional selfies, of course.

Before the launch of her single she wiped all of her social media pages clean, which naturally sent fans wild. That tied into the death and rebirth motif of her video and upcoming album Reputation. “The twin forces of streaming and social media have dramatically altered the rhythm of what we do,” says Lousada. “We’re able to generate these huge moments and start real-time dialogue with fans that creates unprecedented, instant amplification all over the world.”

Facebook Twitter Pinterest Taylor Swift and Ed Sheeran at the 2016 Grammys. Photograph: Kevin Mazur/WireImage

A digital tide floats all boats

It is not just superstars benefiting from the rise of global digital services. Last week Merlin, the global digital rights agency representing more than 20,000 independent labels, announced that it had paid out its billionth dollar to members. “Unlike the old model of a record store and radio playtime, where it is very difficult for smaller artists to get a look in, digital services are close to a flat, open marketplace where you can succeed on merit,” says Charles Caldas, its chief executive. “You have always had your pop mainstream – the Taylor Swifts, Adeles, Beatles, Sinatra, Britney Spears – but what is really interesting is what is happening with the rest of the market.”

Caldas says that the rise of digital music has been disproportionately more important to smaller artists. According to Merlin, which was set up in 2008 to help indies to band together to strike better deals with digital services such as Spotify, 64% of members say that streaming accounts for more than half their digital revenues. And more than 40% get the majority of digital revenue from overseas. Merlin now gets more revenue from Brazil than it does from France, which is the world’s fifth biggest music market.

There’s still a ‘mainstream’

Digital services and algorithms recommending music have supposedly ushered in an era of discoverability and choice. But it isn’t quite working out that way. Songs being played almost continuously by fans on streaming services have wrought havoc with charts, causing a stagnation in new entries with big name artists dominating. The most high-profile example came in February when all 16 tracks from Sheeran’s new album hit the Top 20.

Playlists created and edited by companies like Spotify, mirroring the old model employed by radio DJs, are beginning to become the default listening choice.

“We are seeing a subtle but significant shift where a smaller number of people are using their own playlists and a larger number are using those that have already been curated,” says Mulligan at Midia Research. “It means people are being led, and that [digital services] may not be as much of a discovery mechanism as we thought. Worst case, it could lead to a homogenisation of musical tastes.”

YouTube has a value gap

The music industry believes that Google-owned YouTube is only paying a tiny portion of what it makes from online ads to artists: a so-called “value gap”. Last year artists earned more from royalties on vinyl than they did from YouTube, according to the BPI, despite the huge numbers of views racked up by major artists like Swift.

YouTube reckons the industry should feel lucky getting the $1bn it did hand over last year, claiming it is from “light” users who would never subscribe to a paid-for service, so labels and artists are getting income now that they never would have seen before.

A draft European copyright directive that could result in YouTube having to pay more royalties to labels and musicians is due to be voted on by the committee reviewing the proposals in the European parliament later this year.

Last week a highly optimistic report estimated that the paid-streaming market would be worth $28bn by 2030, more than the $27.4bn the entire recorded music industry was worth at its peak in 1996 – a prediction some experts have questioned.

Warner, home to Sheeran, Bruno Mars and Dua Lipa, will make well over $1bn from streaming this year and last week figures from Universal Music, the world’s largest music company, put it on track for $2bn this year.

However, Warner Music chief executive Steve Cooper has cautioned against overenthusiasm, saying that the industry is in the “early stages of recovery” after a prolonged decline. “In 2016, the recorded music industry was only half as big as it was in the year 2000,” he said. “[But] there remains an enormous amount of untapped potential for subscription streaming to achieve global scale.”