Music Industry Musings

Tag: Spotify

Is the music industry headed for revolution?

This article originally appeared on the website of digital music distributor iMusician. I write two articles for them a month on advice for artists, new trends and the inner goings-on of the music business.

2014 was a loud year for the music industry. Artists, independent labels, publishers, managers and songwriters made plenty of headlines for demanding change. Taylor Swift stood up to Spotify and removed her catalogue and YouTube was publically berated for offering what were said to be highly unfavorable terms for the use of independent music on YouTube Music Key. Then Sony/ATV boss Martin Bandier threatened to withdraw performance rights from US collection societies over concerns that his songwriters were not being paid fairly by digital services.

Swift’s  latest album, 1989, along with her entire back catalogue, is no longer available on Spotify. The move was “out of respect for her superfans,” said the singer’s label boss Scott Borchetta. The exec favoured services that offer a premium tier-only like Beats and Rdio. Spotify founder Daniel Ek responded, pointing the finger at the deals acts have with their labels – and how much of a share of this revenue record companies are claiming.

As if in response to the unrest, a wealth of new companies that set out to assist, rather than control musicians are fast making ground. Veteran music manager Irving Azoff’s new company, Global Music Rights, aims to negotiate higher performance royalty rights for songwriters via direct licensing deals with digital services. Names already on board include Pharrell Williams and Ryan Tedder. Meanwhile, Audiam, existing to ensure payments for the use of music on digital services such as Spotify, YouTube and Rdio make their way to the creators (payments which, according to founder Jeff Price, currently often get lost due to ‘bad data’ from collection societies), has secured $2 million in investment.

Elsewhere, label services firms like Kobalt, who help artists and songwriters get open access to why they’ve been paid, what and when, have an impressive roster. The company represents, among others, Björk, Sam Smith, Bruno Mars, Red Hot Chili Peppers, Calvin Harris, Lenny Kravitz and Macklemore & Ryan Lewis. Kobalt is attractive because it offers creators the chance to own their copyrights, while picking from a menu of services that includes online global copyright administration, sync, A&R, digital collections, label services and neighbouring rights management.  In short, it’s starting to get really difficult for big companies – whether that be labels, collection societies or digital services – to get away with only serving their own interests (and back pockets).

History

Music wasn’t always so fraught. There was a time when artists would make music at their leisure, but The Beatles came along and proved there was big money to be made. A few wealthy people started to invest growing sums of cash into record labels and allowed the business to grow. However, those vested interests inevitably wanted to ensure their investment recouped a few times over and it all started getting a bit murky. Contracts that favoured the record labels were unwittingly signed and there were royalty disputes galore.

The internet arrived, Napster launched in 1999 as an online music download platform and sparked over a decade of free file sharing – rendering buying the physical product pointless for those that only cared about listening to a track. But while the internet brought a blow to the music industry’s bank account, it also offered those that don’t run the show a way of taking back ownership of their art – no longer were record labels an essential component of the route to market.

And while it’s no secret that income has been steadily declining since the glory days of the CD, the situation is nowhere near as dire as the news stories might have you believe. Yes, in 2014, the UK saw significant falls in album and single sales, but thanks to a steep rise in streaming, the market remained more or less flat overall. There’s enough to go around, it just needs to be distributed fairly.

What now?

The fight between YouTube and the independent label community resulted in “more favorable” terms being agreed than those originally set out. Together with the Taylor Swift vs. Spotify debate, it proves that all it takes is a small group of people to get together and demand change for those in power to realise how worthless they are without the people whose co-operation they rely on to exist. And it looks like there could be more to come.

Speaking at Eurosonic in January, Vevo International EVP Nic Jones tipped 2015 as a year for big change in the music industry. Agreements between labels, publishers and digital service providers are reportedly up for renewal, and Jones predicts a momentous shift when it comes to negotiating new terms. “I think that there are a lot of rights-holders who’ve licensed a lot of platforms over the last three to five years who will now be reviewing that decision when it comes up for renewal on the basis of how well monetised those platforms are,” he explained. “2015 is a vitally important year, we are at the very beginning of a transition, and there’s a lot to happen. There is no way that anybody can say that digital and streaming is the be-all and end-all.”

So how can you help this revolution along in 2015? When country singer Garth Brooks launched his own online retail shop, Ghost Tunes, last year, he said: “It’s going to get a lot better when music starts standing up for itself. Guys, there’s some big friends in music we need to stand up to. I mean, if iTunes is gonna tell you how to sell your stuff and it’s only gonna go this way, don’t forget who’s creating the music.”

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Is streaming killing the music industry?

Who remembers the good old days of spending money on music? That simple transaction between artist and consumer, of capital in exchange for labour – the formula that kept our favourite industry buoyant. But nowadays there’s no need for all that faff, as a click of a mouse lands the majority of music straight into your lap for either a tiny bit of money (£5-10 a month), or (if you don’t mind a few adverts) no money at all.

Spotify is a service made in heaven for the consumer, easy, fast, cheap and with minimal effort required. How on earth did we survive without it? And why did those bloody pop stars make us pay so much for music before? Well, it’s not quite as simple as that of course. Because the reason why record labels give Spotify et al. rights to their artist’s music so cheaply is because they’ve sort of been backed into a corner. Piracy came first you see, so if they didn’t, most people would go and (illegally) download the latest Rihanna album for free anyway.

Streaming services make music legally available for the fraction that it would cost from somewhere like iTunes or HMV. They generate profit from advertisers on their free service, and from users who pay for the tiered subscription services. Around 70% of all the revenues that Spotify makes go directly to record labels, publishers and collecting societies. These rights holders then pay the artists according to the deals they have in place.

Spotify pays royalties in relation to an artist’s popularity on the service. For example, they pay out approximately 2% of their gross royalties for an artist whose music represents approximately 2% of what users stream. This means that a popular song or album could generate more revenue for an artist over time, than it historically would have from upfront unit sales. But in general, the rate artists are getting paid is pretty low and Spotify’s founder Daniek Ek has recently said you’d have to stream one song 200 times in order to generate the equivalent of a paid for download.

The rate of income is a big issue because the less money artists earn from selling music, the less money goes into the industry as a whole. This means there’s less to spend on nurturing new acts, who don’t get a No.1 record first of all (by being on a TV show like the X Factor), but with a bit of time and cash might just be the next Nirvana/Madonna/Adele/James Brown. Secondly, it might be all well and good for major labels with a lot of big commercial acts on their roster (David Guetta (EMI) and Rihanna (Def Jam – Universal) were the most streamed artists of 2012), but for small independent labels it doesn’t make as much sense.

Taylor Swift recently withheld her new album Red from Spotify, Deezer and Rhapsody. For her label Big Machine Records, the minimal income stream is negligible. And having her album available for free could potentially stop people buying the record. Although of course, the LP did turn up on piracy sites Grooveshark and BitTorrent and was also up on YouTube.

However, it’s not all bad and as a discovery and exposure platform, Spotify is hard to beat. Think of it like a radio station that plays all music released on demand, not just the tracks that are lucky enough to get playlisted. And an ever increasing amount of apps and social media partnerships make it very easy for users to share new music. Mumford & Sons’ latest release through Glassnote Records got a huge amount of streams on Spotify, but was also one of the biggest debut sales weeks for an album last year. So it could be argued that people found the Mumford album on the service, and loved it enough to go and buy it properly. But, this is a rare example. So what are we going to do? Where is the money going to come from? Will only rich people be able to be pop stars? Will our charts be dressed head to toe in ever more commercial garbage? Will music disappear?

Well, no-one knows for sure, and that’s one of the reasons why the music industry is probably the most happening industry at the moment. In the meantime artists are lending their faces to advertising (Cheryl Cole & L’Oreal, Katy Perry & Pop Chips), expanding their income options (Lady Gaga’s Eau Du Parfum) and doing synch deals (like Paloma Faith’s song on the John Lewis advert), to fund their next album/tour.

Traditionally, people would use reviews, recommendations or radio play to decide whether to exchange pocket money for music, nowadays we get to hear an entire album in full before measuring its worth. But unless someone decides to banish the internet from the face of the earth, the days of making serious money from recorded music are a long and distant memory.

However, that’s not the end of the story and if labels get it right, there’s still some serious cash to be made. In fact, instead of dying a slow and painful death, the music industry is actually a major contributor to the UK economy. It contributes nearly £5 billion, of which £1.3bn comes from exports earnings and employs around 130,000 people. In real terms, Adele’s record label XL records made a cool £41.7m profit in 2011. Sony Music UK revenues tipped £191m in the 12 months to March 31 2012 and the company’s highest paid director made £952,508. And Universal Music Group (worldwide) made over £2.5bn in the first nine months of 2012.

Yes, things have changed since the glory days of yore. Employees no longer fly First Class, labels don’t expense ‘fruit and flowers’ (read: drugs and hookers) or frequent The Ivy at lunchtime. Revenues have gone down, salaries have halved, belts have got tighter and employees work harder. But in general – as long as you’re good – there’s enough to make a fair living from. And that’s all anyone really needs isn’t it?