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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
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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.

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(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.

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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

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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)

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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

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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
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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

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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.
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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

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(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

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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).

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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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McIntyre, H. 2016. 'With 30 Million Users, Spotify Is Gaining Subscribers Faster And
Faster'. www.forbes.com

Anonymous, 2015. Global Digital Music Sales Catch Up to Physical, Finally.


www.emarketer.com (page 1)

Anonymous, 2015. Global Digital Music Sales Catch Up to Physical, Finally.


www.emarketer.com (page 2)

Anonymous, 2015. Global Digital Music Sales Catch Up to Physical, Finally.


www.emarketer.com (page 2)

Anonymous, 2015. 'IFPI publishes Digital Music Report 2015'. www.ifpi.org (page 3)

Anonymous, 2015. 'IFPI publishes Digital Music Report 2015'. www.ifpi.org (page 3)

Greenburg, Z. 2015. 'Revenge Of The Record Labels: How The Majors Renewed Their
Grip On Music'. www.forbes.com

Masnick, M. 2015. 'Yes, Major Record Labels Are Keeping Nearly All The Money They
Get From Spotify, Rather Than Giving It To Artists'. www.techdirt.com

Nielsen, A. 2016. Adele, Streaming and Vinyl Rule Nielsens Year-End Music Report.
www.variety.com

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

McCandless, D. 2015. Money Too Tight to Mention. www.inormationisbeautiful.net

Loeb, S. 2015. How does Spotify make money?. www.vator.tv

Loeb, S. 2015. How does Spotify make money?. www.vator.tv

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