What has been the impact of streaming music services on
different areas of the music industry?
General Introduction
The music industry has arguably borne the brunt of the rapid change of technology more dramatically than many other industries. Right from the age of the first recorded audio following Edison's invention of audio recording, musicians in particular have faced the daunting prospect of losing many potent venues for revenue, and the massive blow dealt in this regard was merely the first of many to come. Having faced many challenges over the years, dealing with music that is primarily streamed might be the biggest change yet. By the early 2000s digital music was exchanged as files via legal distribution services such as iTunes, but also illegal file sharing sites like Napster. Just when the industry began to adapt to this influx of piracy, the now-rapid internet connections and the host of social and cultural implications of piracy, another potent new format in 2008 appeared in the market as a veritable answer to the woes of an ambiguous industry environment. This was the iconic Spotify which vowed to change the industry by the freemium nature of its services, and the growing catalogue of their massive music libraries. By 2016 Spotify had reached 30 million subscribers (McIntyre. H. 2016). It would appear that the huge growth of streaming over the past 6 years has 1 completely changed the way people consume music. Figures released by the International Federation of the Phonographic Industry (IFPI) show that 2014 was the first year where digital revenue streams equaled those from physical sales, with both, digital and physical, accounting for 46% each of the industry, while the remaining 8% is performance rights and synchronization (Anonymous, 2015). While the introduction of digital formats in the 2000s saw the decline of people buying the physical formats, the recent increase in streaming has arguably forced the evolution of the industry by introducing new models of music access, forcing laws and regulations around the new business model to adapt, urging it to an increasingly fairer model of music consumption when compared to physical sales and the other extreme of piracy.
2 (Anonymous, 2015)
With smartphones and tablets being oriented and modeled for
streaming rather than download of massive music libraries, the percentage of attributed revenue is set to continue increasing as download sales continue to decrease, after being at its highest in 2013,. The fact that digital revenues now equal physical sales is largely due to an increase in streaming services. Streaming services now account for 32% of digital revenues globally. (Anonymous, 2015). his huge change in the industry has implications and practical complications though, from how royalties are calculated to how rights are assigned, and finally how revenue might be fairly made for the artists who are the creators of the product.
3 I. Streaming
Streaming services are primarily of two kinds. Those that offer
subscription services (Tidal and Napster), ad-supported services (YouTube, Radio and Last.fm) and those that offer a combination of both: freemium services (Spotify and Deezer). At the end of 2014 there were an estimated 41 million people signed up to a paid subscription service (Anonymous, 2015) but the freemium and ad supported services appear to be the most popular amongst consumers. Unfortunately, the amount of revenues generated by these services is reportedly less than half of that, which subscription services eventually pay out to the music industry.
2010 2011 2012 2013 2014 13/14 % CHANGE
Subscription streams 0.32bn 0.45bn 0.73bn 1.13bn 1.57bn +39% revenue Number of paying 8m 13m 20m 28m 41m +46.4% subscribers
(Anonymous, 2015)
Youtube plays an interesting and unique role in this framework. Due
to a US copyright law called the Safe Harbor defense, which allows services such as YouTube to avoid licensing content from rights- holders if they agree to removing unlicensed content when being told, Youtube has managed to maintain a long term standing in the
4 streaming market. YouTube claims that they are a neutral hosting service and do not play a role in distribution and promotion of digital content for commercial gain. Major record labels hold around 20% equity share in Spotify (Greenburg, Z. 2015) which understandably do not contribute to trust on part of the artists.
(Masnick, M. 2015)
5 II. Record Labels, Indie Artists and Streaming Revenue
Music streaming has proved to be a strong cultural and
anthropological influence on people, lifestyle and how we consume and are exposed to music. Online music streaming is the latest industry- shifting phenomenon. Streaming music has again increased 93% in 2015, with 317 billion total streams, according to Variety (Nielsen, A. 2016).
Streams have been included in the count for album sales and towards platinum certification, even though the way its being counted is rather controversial. Skepta, a grime artist from London, won the Mercury Prize in 2016 with No label, No PR, No publisher, No manager, No PA, No stylist, in his words. This is another aspect of the change involved, as nowadays the options are more open than ever for independent artists to build a fan base and sell out shows. While Apple Music, Tidal and Spotify fight for exclusives and subscribers, many artists are being offered giant sums in return for their next release. But as a new act starting out, big money-deals with streaming giants dont feature in the agenda. One in a million will form a group as unstoppable as Skeptas, Boy Better Know. But currently theres a greater possibility than ever to do it alone, thanks to self-release platforms like Bandcamp, where artists can sell LPs and merchandise directly to fans. But for building an actual long-term career, we cant underestimate the power and influence of record
6 labels and how they are still a large part of that journey. Not only do they apply a level-headed business acumen, they offer the artists a team of realistic and passionate people, but unfortunately fewer and fewer record labels are investing in artists in the long term. In many ways you can say that artists are beginning to realize that a small team of focused people can be better than signing a deal with one of the major record labels. These artists, like Frank Ocean are understanding this and taking matters into their own hands by, in a sense, forming a little indie label for themselves. Major labels like Universal have tried to fight back with banning streaming exclusives.
However, the revenue with streaming has been a controversial issue.
A lot of smaller musicians and songwriters, who are signed to big record labels have been baffled at the bottom lines they are being offered, and have made complaints that their earnings are affected by the new payment models of digital downloads and music streaming. A lot of these complaints have been aimed at the big record labels (Warner Music Group, Sony Music and Universal Music), as they have been accused of making royalty payment negotiations with the various streaming services, that they were holding onto the profit themselves. Even some major acts like Radioheads Thom Yorke have lashed out at their record labels for these royalty cuts. This has to some extent forced the various record 7 labels to treat their artist with a bit more respect and re-negotiated the deals with the streaming services. Warner Music Group declared that they will pay artists a portion of whatever they make from selling its ownership stakes in services like Spotify, if (or when) those businesses ever go public. Soon after Sony Music, not to be outdone by Warner, told its artists the same thing. This was a rather vague and intangible statement from both Warner and Sony, and it still leaves a lot of questions to ponder over for the artists like: Warner and Sony didnt disclose the size of their stakes in streaming services, so how much money do the artists stand to make? And also, how would they divide and distribute the payouts made to musicians? The extent of artists power within their labels wont be really seen until all these hypothetical events really play out. With the biggest major label, Universal Music, now being called out to make a similar offer to their artists if they want to keep up with Warner and Sony. It seems the record industry is finally due to start paying more attention to the actual people they do business with. This is a step in the right direction due to record labels finally being put under pressure from their artists, and also from independent artists showing it is possible to make it in the music industry without being signed to one of the big three. Although the streaming market is dominated by a few big corporations, the introduction of these new services (Tidal, Apple, Spotify) suggests that the market is about to enter a new stage of competition, in particular amongst the subscription services, the
8 industry will have to adapt as it has done in the past. Physical music sales are going down, causing a dramatic drop in total revenues. This has forced record labels to sign artists to 360 Deals, where the label offer financial support to artists in exchange for a share of revenue through other things than record sales such as merchandise and touring. These deals have now become the norm in the industry. The rise in streaming is also another source of income, which is yet another complicated royalty calculation in most record contracts.
III. Other benefits of streaming
Streaming has been heralded as the primary reason for the decline in music piracy, which is a big statement. Artists and labels are also beginning to benefit from the effects of streaming, let alone considering the easy exposure it renders. Charts generated due to streams influence artists standings, and another thing that is beneficial due to the rise in streaming, is the amount of data which can be exploited commercially. Artists can instantly see in which towns their songs are being listened to, so that tours can be organized accordingly, and labels can build marketing campaigns based on the information that is being provided. Also licensing content to streaming services does not require as much promotion and marketing, as most of the promotion is done by the digital distribution platform via discovery functions, playlists, recommendation tools, home-screen artist promotions etc. 9 IV. Royalties and Streaming
As streaming is growing so rapidly and artists are complaining about
not getting enough revenue through streaming, royalty companies like PRS, MCPS and PPL have had to negotiate deals and make systems for calculating how much to pay the artist. First of all, they have split steaming into two kinds: non-interactive, which is where listeners play music without the ability to choose the songs that play next. The other one is Interactive, where listeners can choose the songs that are played, Interactive or on-demand streams are treated differently from the radio-style streams in that the rate is considerably higher, (generally between $0.005 and $0.009, depending on how much the listener pays per month, among other factors. This was based on graphs below). Service Per Stream Royalty # of Streams = $1 Microsoft Groove 0.031113139 32 Soundcloud GO 0.01037594 96 Slacker 0.006153846 163 Tidal 0.0054 185 Google Play 0.005278658 189 Apple Music 0.005103035 196 Deezer 0.00510566 196 Rhapsody 0.004579501 218 Spotify 0.003589881 279 Vevo 0.002071429 483 Aspiro 0.001676301 597 Soundcloud 0.001305585 766 YouTube 0.001288172 776
10 (Resnikoff, P. 2016.)
(Resnikoff, P. 2016)
The down side here is that if the artist is signed to a label, money from interactive streams is paid directly to them. The artist will then be paid by the label, based on the royalty amount negotiated in the agreement. For instance, if an artist negotiated a 15 percent royalty rate, then he or she will be paid 15 percent of $0.005 (using that number as an average), or $0.00075 per stream. So how the artist gets paid is very much dependent on the contract with the artists publisher or record label and, which streaming platform the content is on, so you can see why artists, bands, musicians and even record
11 labels can be confused about how much theyre receiving from streaming.
When streaming first appeared on the market, the music industry
and artists where very skeptical about whether it was a positive and profitable phenomenon that took over. Within a few years, most people actually thought it would ruin the music industry, because it was getting more popular and record labels, publishers and artists werent getting any royalties. Physical record sales and digital download sales where plummeting, it looked to be a disaster. But as streaming has grown, so has the licensing and laws around it. Royalty companies have now negotiated deals with streaming platforms so the rights-holders can get their money, and therefore people in the industry is much more supportive and actually think it can save the ever growing music industry. The Featured Artists Coalition (FAC) is an organization campaigning for fairness and equality for artists in the music industry.
It includes well-known figures on its board such as Billy Bragg, Dave
Rowntree from Blur, Nick Mason from Pink Floyd, and Annie Lennox. Spotify, says about 70% of its revenues from advertising and subscriptions goes back to rights holders - the record labels, collecting societies and publishing companies (Loeb, S. 2015). It says it has paid out more than $1bn (800 million) in royalties since its launch in 2008 to the end of 2013 (Loeb, S. 2015).
12 V. Conclusion
Streaming looks like a permanent phenomenon, and is clearly here to
stay as music ownership becomes alien to a new generation of consumers, who are now more concerned with instant access to a vast collection of more than 43 million tracks. There are currently about 400 licensed music services and the introduction of Apple and Google into the market will secure streaming as a key part of the music industry. In order to adapt to this, there need to be a greater transparency from record labels to the distribution of streaming income amongst their artists. New record deals will need to separately deal with streaming income royalties, while old deals should be renegotiated. Hopefully, this industry will see a lot of deserved justice.
Bibliography
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Anonymous, 2015. Global Digital Music Sales Catch Up to Physical, Finally.
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Resnikoff, P. 2016. 'How Many Streams Does It Take to Earn $1? Take a Look'. www.digitalmusicnews.com
Resnikoff, P. 2016. 'How Many Streams Does It Take to Earn $1? Take a Look'. www.digitalmusicnews.com
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