The Artist Box

MUSIC. FASHION. LIFESTYLE.

Why Music Streaming Services Don’t Help Performers Money

There are a number of arguments about the fairness of streaming services — for the services themselves, and for major labels, streaming is often hailed as the “saviour” of the music industry. But artists, both independent and signed, often claim that payments made to them by the streaming services are unfairly small. The services routinely respond by noting that they pay tens of millions of dollars each year to record labels in royalties and licensing fees.
The arguments on both sides tend to suffer from misconceptions about the nature of music “ownership” and about the kinds of licenses underpinning the streaming service business model. By establishing the guise of a commodity market based on physical formats during its heyday (post-WWII to 1999), the recorded music industry created the widespread idea that music could be “bought” by “consumers” as if it were any other commodity.
Of course that was never the case. Consumers only ever acquired a non-transferable licence to listen to music under very specific and strict conditions. No title in the music was transferred and no licence other than the right to private enjoyment was given.
Music rights are divided into two broad categories: those associated with the musical composition itself (publishing rights) and those associated with any recording of that composition (recording rights). There are separate rights and obligations activated in the licensing of a recording, just as there are in the public performance of both the composition and any individual “recording” of that composition. Similarly, any recording generates a publishing right and, under the Australian Copyright Act, a recording right is automatically created for anyone who participates in its making.
Aside from these specific individual rights, there are more abstract rights systems into which individual rights enter in order to realise value. They include nation-specific “blanket” legislation that regulates the rights and obligations of broadcasters, audiences, labels, publishers, and, by extension, artists. They also include abstract rights around catalogue control, sale, lease and licensing.
The catalogue level of rights is central to the argument about streaming services and the way they pay (or don’t pay) artists. In the case of a catalogue sale (for example, when Universal recently bought EMI), artists have no clear claim on proceeds — control of their copyrights simply passes to another entity.
Streaming services are a post-internet solution to the downturn of physical music sales and the rise of “free” sharing platforms. They require the prestige and reputation of the majors’ back catalogues to operate. Without access to those rights, streaming services are simply not viable on any large scale.
Spotify and other streaming services loudly proclaim that they pay the major labels “tens of millions” of dollars each year for blanket access to their catalogues. Those transactions have no direct bearing on the use of specific tracks by the customers of Spotify. There is no clear claim for individual artists in respect of such payments because the license is for access to an entire catalogue, rather than the specific usage of any particular part. It therefore becomes what label accountants call “Black Box” revenue.
As songwriter and musician Helienne Lindvall explains:

“Black Box” is the name given to the income labels collect that can’t be directly related to the recordings of any specific artist. As the record industry changes, Black Box revenue is becoming more and more important, and artists and their managers are starting to wonder where this money has gone and why.

Music industry researcher Peter Tschmuck notes that the majors’ streaming model “is not just based on royalties … but also on guarantees and upfront payments by the streaming platforms”. The size of payments is a secret but they are likely in the “double-digit millions” and “need not be shared with the artists”.
In other words, the majority of the revenues currently being generated by streaming services are paid to the majors by entities in which the labels own large shareholdings. Those payments are made for catalogue-wide licences against which individual artists have no clear claim.
This system is almost certainly going to be short-lived, at least under current arrangements.
The major labels face multiple hurdles relating to artist payments for digital commerce. A number of successful legal challenges launched by Weird Al Yankovich, Eminem, and others have created a precedent recognising all digital sales as licensing deals, thereby greatly increasing the artist’s share of revenue (in the case of Eminem, from 12 per cent to 50 per cent).
It seems unlikely that the current relationship between the majors and the streaming services would withstand similar legal challenges from artists, at which point the long-term viability of streaming services will be less than certain.
If so, the current structures of streaming revenues may well be, as Thom Yorke put it this week, “the last desperate fart of a dying corpse”. View high resolution

Why Music Streaming Services Don’t Help Performers Money

There are a number of arguments about the fairness of streaming services — for the services themselves, and for major labels, streaming is often hailed as the “saviour” of the music industry. But artists, both independent and signed, often claim that payments made to them by the streaming services are unfairly small. The services routinely respond by noting that they pay tens of millions of dollars each year to record labels in royalties and licensing fees.

The arguments on both sides tend to suffer from misconceptions about the nature of music “ownership” and about the kinds of licenses underpinning the streaming service business model. By establishing the guise of a commodity market based on physical formats during its heyday (post-WWII to 1999), the recorded music industry created the widespread idea that music could be “bought” by “consumers” as if it were any other commodity.

Of course that was never the case. Consumers only ever acquired a non-transferable licence to listen to music under very specific and strict conditions. No title in the music was transferred and no licence other than the right to private enjoyment was given.

Music rights are divided into two broad categories: those associated with the musical composition itself (publishing rights) and those associated with any recording of that composition (recording rights). There are separate rights and obligations activated in the licensing of a recording, just as there are in the public performance of both the composition and any individual “recording” of that composition. Similarly, any recording generates a publishing right and, under the Australian Copyright Act, a recording right is automatically created for anyone who participates in its making.

Aside from these specific individual rights, there are more abstract rights systems into which individual rights enter in order to realise value. They include nation-specific “blanket” legislation that regulates the rights and obligations of broadcasters, audiences, labels, publishers, and, by extension, artists. They also include abstract rights around catalogue control, sale, lease and licensing.

The catalogue level of rights is central to the argument about streaming services and the way they pay (or don’t pay) artists. In the case of a catalogue sale (for example, when Universal recently bought EMI), artists have no clear claim on proceeds — control of their copyrights simply passes to another entity.

Streaming services are a post-internet solution to the downturn of physical music sales and the rise of “free” sharing platforms. They require the prestige and reputation of the majors’ back catalogues to operate. Without access to those rights, streaming services are simply not viable on any large scale.

Spotify and other streaming services loudly proclaim that they pay the major labels “tens of millions” of dollars each year for blanket access to their catalogues. Those transactions have no direct bearing on the use of specific tracks by the customers of Spotify. There is no clear claim for individual artists in respect of such payments because the license is for access to an entire catalogue, rather than the specific usage of any particular part. It therefore becomes what label accountants call “Black Box” revenue.

As songwriter and musician Helienne Lindvall explains:

“Black Box” is the name given to the income labels collect that can’t be directly related to the recordings of any specific artist. As the record industry changes, Black Box revenue is becoming more and more important, and artists and their managers are starting to wonder where this money has gone and why.

Music industry researcher Peter Tschmuck notes that the majors’ streaming model “is not just based on royalties … but also on guarantees and upfront payments by the streaming platforms”. The size of payments is a secret but they are likely in the “double-digit millions” and “need not be shared with the artists”.

In other words, the majority of the revenues currently being generated by streaming services are paid to the majors by entities in which the labels own large shareholdings. Those payments are made for catalogue-wide licences against which individual artists have no clear claim.

This system is almost certainly going to be short-lived, at least under current arrangements.

The major labels face multiple hurdles relating to artist payments for digital commerce. A number of successful legal challenges launched by Weird Al Yankovich, Eminem, and others have created a precedent recognising all digital sales as licensing deals, thereby greatly increasing the artist’s share of revenue (in the case of Eminem, from 12 per cent to 50 per cent).

It seems unlikely that the current relationship between the majors and the streaming services would withstand similar legal challenges from artists, at which point the long-term viability of streaming services will be less than certain.

If so, the current structures of streaming revenues may well be, as Thom Yorke put it this week, “the last desperate fart of a dying corpse”.

Thom Yorke Calls Spotify “The Last Desperate Fart Of A Dying Corpse”.
Spotify celebrates its fifth birthday today, but the streaming music service probably shouldn’t expect a present or card from Thom Yorke.
The Radiohead and Atoms for Peace musician has renewed his attack on Spotify in an interview with Mexican website Sopitas, describing the company as “the last desperate fart of a dying corpse”, and attacking its relationship with major labels.
"I feel like as musicians we need to fight the Spotify thing. I feel that in some ways what’s happening in the mainstream is the last gasp of the old industry. Once that does finally die, which it will, something else will happen," Yorke told Sopitas.
"But it’s all about how we change the way we listen to music, it’s all about what happens next in terms of technology, in terms of how people talk to each other about music, and a lot of it could be really fucking bad."
The interview follows Atoms for Peace’s decision earlier this year to pull its albums from Spotify and other streaming services, with Yorke and bandmate Nigel Godrich sparking a heated debate with their tweeted views on Spotify being bad for emerging artists.
The new interview is Yorke’s longest yet explaining his views, as he compares Spotify to what Radiohead did with their In Rainbows album in 2007, self-releasing it online and allowing fans to set their own price for the download.
"When we did the In Rainbows thing what was most exciting was the idea you could have a direct connection between you as a musician and your audience. You cut all of it out, it’s just that and that. And then all these fuckers get in a way, like Spotify suddenly trying to become the gatekeepers to the whole process," said Yorke.
"We don’t need you to do it. No artists needs you to do it. We can build the shit ourselves, so fuck off. But because they’re using old music, because they’re using the majors… the majors are all over it because they see a way of re-selling all their old stuff for free, make a fortune, and not die."
Spotify has become a lightning rod for criticism of streaming music by artists in recent months, partly because it’s the biggest service of its kind, with more than 24m active users and 6m paying subscribers.
The company has defended itself by pointing to the money it has paid out to music rightsholders – $500m by the end of 2012, with another $500m expected this year. And while that doesn’t answer Yorke’s specific criticism about major labels, Spotify has been praised by companies in the independent music world too.
In January, Beggars Group chairman Martin Mills said that 22% of his label group’s digital revenues had come from streaming in 2012. Meanwhile, independent labels’ trade body Merlin – which like the major labels has a stake in Spotify – said in May that a third of its members had seen streaming revenues more than double in the last year.
Spotify has also been hailed as a key factor in the music industry's comeback in countries like Sweden and Norway, where recorded music revenues rose 12% and 17% respectively in the first half of 2013, following more growth in 2012 after a decade of declining music sales.
Thom Yorke remains unconvinced that streaming is the answer to artists’ problems, though. “To me this isn’t the mainstream, this is is like the last fart, the last desperate fart of a dying corpse. What happens next is the important part,” he told Sopitas, before suggesting that the music industry should rethink its backing for certain new business models.
"It’s like this mind trick going on, people are like ‘with technology, it’s all going to become one in the cloud and all creativity is going to become one thing and no one is going to get paid and it’s this big super intelligent thing’. Bullshit," said Yorke.

Thom Yorke Calls Spotify “The Last Desperate Fart Of A Dying Corpse”.


Spotify celebrates its fifth birthday today, but the streaming music service probably shouldn’t expect a present or card from Thom Yorke.

The Radiohead and Atoms for Peace musician has renewed his attack on Spotify in an interview with Mexican website Sopitas, describing the company as “the last desperate fart of a dying corpse”, and attacking its relationship with major labels.

"I feel like as musicians we need to fight the Spotify thing. I feel that in some ways what’s happening in the mainstream is the last gasp of the old industry. Once that does finally die, which it will, something else will happen," Yorke told Sopitas.

"But it’s all about how we change the way we listen to music, it’s all about what happens next in terms of technology, in terms of how people talk to each other about music, and a lot of it could be really fucking bad."

The interview follows Atoms for Peace’s decision earlier this year to pull its albums from Spotify and other streaming services, with Yorke and bandmate Nigel Godrich sparking a heated debate with their tweeted views on Spotify being bad for emerging artists.

The new interview is Yorke’s longest yet explaining his views, as he compares Spotify to what Radiohead did with their In Rainbows album in 2007, self-releasing it online and allowing fans to set their own price for the download.

"When we did the In Rainbows thing what was most exciting was the idea you could have a direct connection between you as a musician and your audience. You cut all of it out, it’s just that and that. And then all these fuckers get in a way, like Spotify suddenly trying to become the gatekeepers to the whole process," said Yorke.

"We don’t need you to do it. No artists needs you to do it. We can build the shit ourselves, so fuck off. But because they’re using old music, because they’re using the majors… the majors are all over it because they see a way of re-selling all their old stuff for free, make a fortune, and not die."

Spotify has become a lightning rod for criticism of streaming music by artists in recent months, partly because it’s the biggest service of its kind, with more than 24m active users and 6m paying subscribers.

The company has defended itself by pointing to the money it has paid out to music rightsholders – $500m by the end of 2012, with another $500m expected this year. And while that doesn’t answer Yorke’s specific criticism about major labels, Spotify has been praised by companies in the independent music world too.

In January, Beggars Group chairman Martin Mills said that 22% of his label group’s digital revenues had come from streaming in 2012. Meanwhile, independent labels’ trade body Merlin – which like the major labels has a stake in Spotify – said in May that a third of its members had seen streaming revenues more than double in the last year.

Spotify has also been hailed as a key factor in the music industry's comeback in countries like Sweden and Norway, where recorded music revenues rose 12% and 17% respectively in the first half of 2013, following more growth in 2012 after a decade of declining music sales.

Thom Yorke remains unconvinced that streaming is the answer to artists’ problems, though. “To me this isn’t the mainstream, this is is like the last fart, the last desperate fart of a dying corpse. What happens next is the important part,” he told Sopitas, before suggesting that the music industry should rethink its backing for certain new business models.

"It’s like this mind trick going on, people are like ‘with technology, it’s all going to become one in the cloud and all creativity is going to become one thing and no one is going to get paid and it’s this big super intelligent thing’. Bullshit," said Yorke.

Starbucks Does More For Music Than Apple Ever Will

It’s the type of data Starbucks and Apple would never divulge, particularly once it starts to make Apple look unquestionably bad, assuming it doesn’t already.

Data that sheds light on what a customer does after she downloads one of the free songs Starbucks offers through iTunes. Each week, via its smartphone app and promotional code cards stacked at its registers, Starbucks gives you a free track and/or app download courtesy of Apple.
It’s a great idea.
As usual, no matter what happens after the fact, it’s a win-win for Starbucks. The freebie provides the company’s customers with another feature that makes the Starbucks’ user experience one of the best in the business. For Apple, it’s just another ingredient in its continued screwing of the music industry.
Apple wants the record labels to believe that its initiatives — from iTunes Radio to a partnership with Starbucks — will increase paid downloads. That’s a fantasy that, once proven misguided, won’t matter much to Apple, but will further decimate a helplessly backward music industrial complex.
After you download your free Kings of Leon or Sheryl Crow single (those were the last two weeks’ offerings at least at my Starbucks store and on my app), conventional — and wishful — thinking says, if you like the jam, you’ll buy the rest of the album, a few more songs or something else by the same or a similar artist. That trajectory might have flown in 2000 or maybe even 2010, but it’s set to become artifact if it has not already.
Like physical music sales, downloads are dying. After you get that one free iTunes song, courtesy of Starbucks and Apple, you are, increasingly, accessing, not buying the tastes that initial tease triggered. You’ll head to Spotify or Rdio to get exactly what you want or to Pandora(P_) to use Kings of Leon, “Temple” (that’s their single) or whatever else as a seed to create a personalized radio experience.
That’s the future … now.
If the music industrial complex ever removes its head from its carcass it will come to realize two crucial points:
The Starbucks-to-Apple (or wherever)-to-streaming route is where it’s at. So stop being fools and embrace streaming. Let the tech visionaries call the shots …
Not a company like Apple that has no business being in and has zero interest getting into the music business full force. Apple is not a music company. It’s not a software company. It’s a hardware company. It might say it’s trying to drive downloads — and, undoubtedly, it is — but if Apple fails in downloads, Apple still wins, assuming it continues to sell tens of millions of mobile devices annually.
It’s really that simple.
So much of what we need to know about the music industry and its fate sits right in front of us. It’s obvious to so many, yet the labels — once again — refuse to acknowledge the indelible ink on the wall. They’re taking on nearly all the risk in a game that ultimately takes no sweat off of Apple’s back. View high resolution

Starbucks Does More For Music Than Apple Ever Will

It’s the type of data Starbucks and Apple would never divulge, particularly once it starts to make Apple look unquestionably bad, assuming it doesn’t already.

Data that sheds light on what a customer does after she downloads one of the free songs Starbucks offers through iTunes. Each week, via its smartphone app and promotional code cards stacked at its registers, Starbucks gives you a free track and/or app download courtesy of Apple.

It’s a great idea.

As usual, no matter what happens after the fact, it’s a win-win for Starbucks. The freebie provides the company’s customers with another feature that makes the Starbucks’ user experience one of the best in the business. For Apple, it’s just another ingredient in its continued screwing of the music industry.

Apple wants the record labels to believe that its initiatives — from iTunes Radio to a partnership with Starbucks — will increase paid downloads. That’s a fantasy that, once proven misguided, won’t matter much to Apple, but will further decimate a helplessly backward music industrial complex.

After you download your free Kings of Leon or Sheryl Crow single (those were the last two weeks’ offerings at least at my Starbucks store and on my app), conventional — and wishful — thinking says, if you like the jam, you’ll buy the rest of the album, a few more songs or something else by the same or a similar artist. That trajectory might have flown in 2000 or maybe even 2010, but it’s set to become artifact if it has not already.

Like physical music sales, downloads are dying. After you get that one free iTunes song, courtesy of Starbucks and Apple, you are, increasingly, accessing, not buying the tastes that initial tease triggered. You’ll head to Spotify or Rdio to get exactly what you want or to Pandora(P_) to use Kings of Leon, “Temple” (that’s their single) or whatever else as a seed to create a personalized radio experience.

That’s the future … now.

If the music industrial complex ever removes its head from its carcass it will come to realize two crucial points:

  • The Starbucks-to-Apple (or wherever)-to-streaming route is where it’s at. So stop being fools and embrace streaming. Let the tech visionaries call the shots …
  • Not a company like Apple that has no business being in and has zero interest getting into the music business full force. Apple is not a music company. It’s not a software company. It’s a hardware company. It might say it’s trying to drive downloads — and, undoubtedly, it is — but if Apple fails in downloads, Apple still wins, assuming it continues to sell tens of millions of mobile devices annually.

It’s really that simple.

So much of what we need to know about the music industry and its fate sits right in front of us. It’s obvious to so many, yet the labels — once again — refuse to acknowledge the indelible ink on the wall. They’re taking on nearly all the risk in a game that ultimately takes no sweat off of Apple’s back.

Why The Music Industry Doesn’t Care About Selling Music

In today’s new music industry of peer-to-peer file sharing, download stores, and on-demand streams, it’s hard enough for an artist to make money by selling their music.  So what happens when the world’s largest music distributors and stores carry all the songs in world but don’t need to sell any of them in order to make money?

The answer: revenue from the sale of music goes down for the artist, while simultaneously there is no negative financial impact on the new stores and distributors.
 
Interests are clearly misaligned.  Artists have been reduced to replaceable cogs in a teeming mass of other undifferentiated music creators used purely as a commodity to represent breadth of choice for the consumer.  In short, artists are used to financially fuel these new companies, but they are not reaping the same financial reward in return.
The old music industry may have had a lot wrong with it, but at least it was clear how everyone in the food chain — the artist, record label, music distributor and physical retail stores — could stay in business.  The music had to be created, recorded, manufactured, distributed into stores and… SOLD.
Not so in the new music industry.  Now it is only the artist who must sell their music in order to “stay in business”.  And artists are fending for themselves against a tidal wave in a sea of technology companies and venture capitalists.  All sectors of the music industry are no longer being run by people from the music industry.  This glaring misalignment does not bode well for the future of music.
Let’s start with the music stores.

Music Stores/Services
 
Unlike the physical music store of yesteryear that needed to sell the CDs and vinyl sitting on their shelves to make money, the digital music stores and services of today (Pandora, iTunes, Amazon, Spotify, and others) can make money without ever selling — or even streaming – all the music they ‘stock’.  In this digital age, amongst the new ways music is being utilized for profit, the sale or streaming of music is almost an afterthought.
Take iTunes, currently the obvious substitute for the traditional record store.  If Apple happens to make money from the sale of the music (which, some suggest they didn’t for many years ), all the better — but, the main purpose of iTunes is to make money for Apple by selling Apple products and gaining market share for its operating system.
Amazon is more or less in the same boat, using music as an enticement to motivate people to create Amazon accounts, buy other products that are not music (including their own Amazon Prime service), sell more Kindles, and gain market share.  This explains why it sells music for less than it pays for it.  Music acquires those customers for their other products and services.
And it’s not just Apple and Amazon. Take a look at Spotify and other interactive streaming services.  How is it possible that a company like Spotify, whose sole business model is to make money from the streaming of music, is not prioritizing makingmoney from the streaming of music?

The answer: Spotify doesn’t need to stream the music it carries, nor be profitable from those songs it does stream, in order for its investors and owners to reach their financial finish line of selling the company or taking it public to make billions.
 
To reach their goal Spotify believes they must have:
(1) a huge number of subscribers, a vast catalog of artists,
(2) a user experience that customers find pleasing, and
(3) ubiquity.  
Making money off the music, or having the music it carries being streamed is, at this time, an afterthought.  And when the inevitable financial exit for Spotify does come, the artists will make no money from it despite being at least half of the equation.  This may explain why the major labels, all of whom own a piece of Spotify, do not appear worried about Spotify’s royalty rates.

Their eye is focused on the true financial prize: owning a percentage of a company that gets bought for billions.
 
Just look at Pandora: its shareholders made a fortune when the company went public, despite it making little to no profit. It was able to IPO off the artists’ music despite the music not ever needing to be played, nor paying themusic creators a royalty they deem reasonable.
At the ‘music store,’ the point of economic intersection where art truly does meet commerce, the entity selling the music generates revenue without selling music or can lose money on the sale or stream of a song and still reap a profit while the artist makes little or nothing at all.

The interests of the artists and the music stores are no longer aligned.
 
Technology has provided a way for there to be little-to-no cost or risk to have music stored on hard drives always available to buy or stream.  The incentive for a store to sell music and make money from that sale is gone.  Instead, music is used to sell smartphones, tablets, computers, recurring monthly subscription fees, operating systems and to generate market share. Or it’s being used as a loss-leader in order to attract a buyer; making all the investors and shareholders rich while the songwriters, publishers, artists and music creators get little to nothing. The artist is a commodity being aggregated to provide the impression of breadth in a music catalog.
Certainly, no one is disputing the fact that artists have always been commoditized to a degree; that is, their music was a ‘product’ to be peddled, sold or used by others to make money.  From recording studios, to labels, to distributors, to press to radio, to retail — the artist was the necessary means to a variety of parties’ monetary ends. However, in today’s industry there is a profound lack of transparency of how and why the artist is being used to make money.

Distributors
 
Although life was not a bed of roses between the traditional labels, artists and distributors, they all had the same goal: get CDs onto the shelf of the physical retail store, get them sold and collect the money from the sale. Arguments were over how this money was split, not whether the music should be sold to make the money.
Not so for today’s digital music distributors — think CD Baby, IODA, InGrooves, TuneCore, ReverbNation etc.  There is little to no cost of failure if the music doesn’t sell. These companies do not have 500,000 square foot warehouses with 20-foot high ceilings loaded with shelves piled high with CDs waiting to be picked, packed and shipped out to retail stores. They don’t have regional staff located around the country walking into stores to promote the bands, releases and checking for inventory around tour dates. They front no money for in-store marketing programs or manufacturing.  They suffer little to nothing if the music does not sell beyond the one time cost of placing a digital file onto the hard drive of Apple, Amazon or Spotify.
This paradigm in and of itself is not the problem.  But add to it that many of the board members and management of these new companies are not from the world of the music industry; they are from the world of technology, banks, software, hedge funds, private equity or technology firms that have no background in the music industry.  
Their goal is to get as high a financial return as quickly as possible by taking the company public or getting bought – both of which can be done without selling the ‘product’ they carry.  There is no reason or incentive to build an artist’s career or sell the music.  

Why invest in an artist like Bruce Springsteen for almost three years before he hits if it doesn’t help make money now.
 
Even more disturbing, as stores don’t need to sell music to make money, the distributor should be the last line of defense.  But for the most part, the new music distributors are also being run by the same banks, software, hedge funds, private equity or technology firms that have no background in the music industry. The artist is stuck in the middle between two sides — the stores and the distributors — both of which make money without incentive or need to sell the artist’s music and neither has leadership with industry expertise or institutional memory.

The artist is now, essentially, dealing with a two-front war.
 
Perhaps this explains the bizarre behavior of distributors taking distribution fees from artists without providing real value.  As an example, they claim to control synchronization rights to recordings and compositions for licensing into TV shows, film, videos games, YouTube, Vevo, and Vimeo, and then charge artists a fee to use their own music in their own YouTube videos.
The smart investors understand the dilemma of short term return at the expense of  long term growth.  They make certain to bring the right management into the company to assure they are not short sighted and destroy a valuable sector, however, many do not.

Where exactly does this leave the artist?  As an interchangeable cog that has little-to-no long term value.
 
Companies generating revenue from music, while no longer needing to sell it to make money, combined with management of many of these companies being from outside the music industry is a lethal mix for artists.  One they may just not survive.
By the time the owners of these new companies ‘exit’ reaping billions of dollars, a sea of decimated artists may be left in their wake wondering what the hell happened.
And the inheritors and owners of this new industry might just find themselves wishing someone actually cared about the artist as without them, there is no long term growth or industry to ‘monetize’ for anyone.  View high resolution

Why The Music Industry Doesn’t Care About Selling Music

In today’s new music industry of peer-to-peer file sharing, download stores, and on-demand streams, it’s hard enough for an artist to make money by selling their music.  So what happens when the world’s largest music distributors and stores carry all the songs in world but don’t need to sell any of them in order to make money?

The answer: revenue from the sale of music goes down for the artist, while simultaneously there is no negative financial impact on the new stores and distributors.

 

Interests are clearly misaligned.  Artists have been reduced to replaceable cogs in a teeming mass of other undifferentiated music creators used purely as a commodity to represent breadth of choice for the consumer.  In short, artists are used to financially fuel these new companies, but they are not reaping the same financial reward in return.

The old music industry may have had a lot wrong with it, but at least it was clear how everyone in the food chain — the artist, record label, music distributor and physical retail stores — could stay in business.  The music had to be created, recorded, manufactured, distributed into stores and… SOLD.

Not so in the new music industry.  Now it is only the artist who must sell their music in order to “stay in business”.  And artists are fending for themselves against a tidal wave in a sea of technology companies and venture capitalists.  All sectors of the music industry are no longer being run by people from the music industry.  This glaring misalignment does not bode well for the future of music.

Let’s start with the music stores.

Music Stores/Services

 

Unlike the physical music store of yesteryear that needed to sell the CDs and vinyl sitting on their shelves to make money, the digital music stores and services of today (Pandora, iTunes, Amazon, Spotify, and others) can make money without ever selling — or even streaming – all the music they ‘stock’.  In this digital age, amongst the new ways music is being utilized for profit, the sale or streaming of music is almost an afterthought.

Take iTunes, currently the obvious substitute for the traditional record store.  If Apple happens to make money from the sale of the music (which, some suggest they didn’t for many years ), all the better — but, the main purpose of iTunes is to make money for Apple by selling Apple products and gaining market share for its operating system.

Amazon is more or less in the same boat, using music as an enticement to motivate people to create Amazon accounts, buy other products that are not music (including their own Amazon Prime service), sell more Kindles, and gain market share.  This explains why it sells music for less than it pays for it.  Music acquires those customers for their other products and services.

And it’s not just Apple and Amazon. Take a look at Spotify and other interactive streaming services.  How is it possible that a company like Spotify, whose sole business model is to make money from the streaming of music, is not prioritizing makingmoney from the streaming of music?

The answer: Spotify doesn’t need to stream the music it carries, nor be profitable from those songs it does stream, in order for its investors and owners to reach their financial finish line of selling the company or taking it public to make billions.

 

To reach their goal Spotify believes they must have:

(1) a huge number of subscribers, a vast catalog of artists,

(2) a user experience that customers find pleasing, and

(3) ubiquity.  

Making money off the music, or having the music it carries being streamed is, at this time, an afterthought.  And when the inevitable financial exit for Spotify does come, the artists will make no money from it despite being at least half of the equation.  This may explain why the major labels, all of whom own a piece of Spotify, do not appear worried about Spotify’s royalty rates.

Their eye is focused on the true financial prize: owning a percentage of a company that gets bought for billions.

 

Just look at Pandora: its shareholders made a fortune when the company went public, despite it making little to no profit. It was able to IPO off the artists’ music despite the music not ever needing to be played, nor paying themusic creators a royalty they deem reasonable.

At the ‘music store,’ the point of economic intersection where art truly does meet commerce, the entity selling the music generates revenue without selling music or can lose money on the sale or stream of a song and still reap a profit while the artist makes little or nothing at all.

The interests of the artists and the music stores are no longer aligned.

 

Technology has provided a way for there to be little-to-no cost or risk to have music stored on hard drives always available to buy or stream.  The incentive for a store to sell music and make money from that sale is gone.  Instead, music is used to sell smartphones, tablets, computers, recurring monthly subscription fees, operating systems and to generate market share. Or it’s being used as a loss-leader in order to attract a buyer; making all the investors and shareholders rich while the songwriters, publishers, artists and music creators get little to nothing. The artist is a commodity being aggregated to provide the impression of breadth in a music catalog.

Certainly, no one is disputing the fact that artists have always been commoditized to a degree; that is, their music was a ‘product’ to be peddled, sold or used by others to make money.  From recording studios, to labels, to distributors, to press to radio, to retail — the artist was the necessary means to a variety of parties’ monetary ends. However, in today’s industry there is a profound lack of transparency of how and why the artist is being used to make money.

Distributors

 

Although life was not a bed of roses between the traditional labels, artists and distributors, they all had the same goal: get CDs onto the shelf of the physical retail store, get them sold and collect the money from the sale. Arguments were over how this money was split, not whether the music should be sold to make the money.

Not so for today’s digital music distributors — think CD Baby, IODA, InGrooves, TuneCore, ReverbNation etc.  There is little to no cost of failure if the music doesn’t sell. These companies do not have 500,000 square foot warehouses with 20-foot high ceilings loaded with shelves piled high with CDs waiting to be picked, packed and shipped out to retail stores. They don’t have regional staff located around the country walking into stores to promote the bands, releases and checking for inventory around tour dates. They front no money for in-store marketing programs or manufacturing.  They suffer little to nothing if the music does not sell beyond the one time cost of placing a digital file onto the hard drive of Apple, Amazon or Spotify.

This paradigm in and of itself is not the problem.  But add to it that many of the board members and management of these new companies are not from the world of the music industry; they are from the world of technology, banks, software, hedge funds, private equity or technology firms that have no background in the music industry.  

Their goal is to get as high a financial return as quickly as possible by taking the company public or getting bought – both of which can be done without selling the ‘product’ they carry.  There is no reason or incentive to build an artist’s career or sell the music.  

Why invest in an artist like Bruce Springsteen for almost three years before he hits if it doesn’t help make money now.

 

Even more disturbing, as stores don’t need to sell music to make money, the distributor should be the last line of defense.  But for the most part, the new music distributors are also being run by the same banks, software, hedge funds, private equity or technology firms that have no background in the music industry. The artist is stuck in the middle between two sides — the stores and the distributors — both of which make money without incentive or need to sell the artist’s music and neither has leadership with industry expertise or institutional memory.

The artist is now, essentially, dealing with a two-front war.

 

Perhaps this explains the bizarre behavior of distributors taking distribution fees from artists without providing real value.  As an example, they claim to control synchronization rights to recordings and compositions for licensing into TV shows, film, videos games, YouTube, Vevo, and Vimeo, and then charge artists a fee to use their own music in their own YouTube videos.

The smart investors understand the dilemma of short term return at the expense of  long term growth.  They make certain to bring the right management into the company to assure they are not short sighted and destroy a valuable sector, however, many do not.

Where exactly does this leave the artist?  As an interchangeable cog that has little-to-no long term value.

 

Companies generating revenue from music, while no longer needing to sell it to make money, combined with management of many of these companies being from outside the music industry is a lethal mix for artists.  One they may just not survive.

By the time the owners of these new companies ‘exit’ reaping billions of dollars, a sea of decimated artists may be left in their wake wondering what the hell happened.

And the inheritors and owners of this new industry might just find themselves wishing someone actually cared about the artist as without them, there is no long term growth or industry to ‘monetize’ for anyone. 

Spotify Adds Follow Button, But Will Anyone Use It?



Spotify has added Follow buttons in the hopes that artists, labels, blogs and brands will embed them on sites. The buttons make it easy for web visitors to follow artists, label, tastemaker or any Spotify profile. But with Spotify payments producing less revenue for many artists and labels than sales, or a even play on Pandora, will they add them to their sites?


Previously the Follow button had only been available on the Spotify site. Now the music streamer suggests these uses:

Artists can use Follow buttons to bring fans to their profiles
Music labels can promote their artist profiles
Promoters can help publicize future events
Fans can promote their favourite artists
Bloggers and publishers can grow their following on Spotify
Promoters, bloggers and fans will likely embrace Follow buttons as an easy way to link to related music and increase their presence on Spotify.  Artists looking for exposure may want to do the same. But others, even those that accept Spotify as a legitimate and growing revenue stream, could choose to wait rather than encourage fans to listen to their music from a source that returns only minimal revenue.  View high resolution

Spotify Adds Follow Button, But Will Anyone Use It?

Spotify has added Follow buttons in the hopes that artists, labels, blogs and brands will embed them on sites. The buttons make it easy for web visitors to follow artists, label, tastemaker or any Spotify profile. But with Spotify payments producing less revenue for many artists and labels than sales, or a even play on Pandora, will they add them to their sites?

Previously the Follow button had only been available on the Spotify site. Now the music streamer suggests these uses:

  • Artists can use Follow buttons to bring fans to their profiles
  • Music labels can promote their artist profiles
  • Promoters can help publicize future events
  • Fans can promote their favourite artists
  • Bloggers and publishers can grow their following on Spotify

Promoters, bloggers and fans will likely embrace Follow buttons as an easy way to link to related music and increase their presence on Spotify.  Artists looking for exposure may want to do the same. But others, even those that accept Spotify as a legitimate and growing revenue stream, could choose to wait rather than encourage fans to listen to their music from a source that returns only minimal revenue. 

GTA 5 Sales Hit $1 Billion, Will Outsell Entire Global Music Industry

Video games don’t get much bigger than Take-Two Interactive's Grand Theft Auto, otherwise known as GTA. With the release of Grand Theft Auto 5 on Sept. 17, the franchise moved beyond just being one of the biggest video game franchises in the world and set its sights on a larger crown; becoming the world’s most successful release across all of entertainment. In just its first three days after release, Grand Theft Auto 5 raked in more than $1 billion in sales. Compare that to this summer’s biggest blockbuster at the box office, Iron Man 3, which brought in “only” $372 million in its first weekend across the globe. 
While games like Candy Crush and Angry Birds have attracted most mainstream attention on video games in the past year and have users in the hundreds of millions, the success of Grand Theft Auto 5 is a pointed illustration that big budget console games — the game reportedly cost roughly $265 million to develop and market — still drive global video game sales. How has Grand Theft Auto become such a dominant franchise and what does its success say about the future of video games?
Controversy leads to success
The Grand Theft Auto series was launched in 1997 as a somewhat plain-looking game where the player had a satellite-like view of a 2D city. The game was met with slightly above average reviews, but received a wave of media attention for its focus on car-jacking and allowing players to attack pedestrians. As is often the case, the controversy over the game’s violence created a wave of PR that was a boon to sales.
A second version of the game was launched in 1999 that looked very much like the first. Like its predecessor, it performed well, but was well below the league of videogame’s biggest blockbusters. 
However, in 2001 the series was reinvented with the launch GTA III. The game maintained the “open world” appeal of the first two games in the series, but was designed with an advanced 3D game engine. Taking a look at the image of the original GTA on the right and the jump provided by going to a 3D engine inGTA III on the left is quite stunning. 
The game took the video game world by storm, winning several “Game of the Year” awards on its way to selling more than 14.5 million copies. In the following year, Rockstar North developed Grand Theft Auto: Vice City, which went on to sell more than 17.5 million copies. Finally, in 2004, the final game of the GTA III era, Grand Theft Auto: San Andreas, hit and led to more than 27.5 million units sold. 
Re-booting for the newest generation of consoles 
Grand Theft Auto’s run of success is even more impressive when you consider three titles were released in such short time between 2001 and 2004. However, with the release of more powerful “next generation” consoles like the Xbox 360 and PlayStation 3 in 2005 and 2006, the series was overhauled to take advantage 
Graphics got better, maps got bigger, the already expansive “open world” premise behind Grand Theft Auto was taken to new extremes in the development of Grand Theft Auto IV. As a result, the game also took longer to create; missing its initial launch date of October 2007. It also cost more, with a reported development budget of $100 million. At the time, that was among the highest ever development costs for a video game.  View high resolution

GTA 5 Sales Hit $1 Billion, Will Outsell Entire Global Music Industry


Video games don’t get much bigger than Take-Two Interactive's Grand Theft Auto, otherwise known as GTA. With the release of Grand Theft Auto 5 on Sept. 17, the franchise moved beyond just being one of the biggest video game franchises in the world and set its sights on a larger crown; becoming the world’s most successful release across all of entertainment. In just its first three days after release, Grand Theft Auto 5 raked in more than $1 billion in sales. Compare that to this summer’s biggest blockbuster at the box office, Iron Man 3, which brought in “only” $372 million in its first weekend across the globe. 

While games like Candy Crush and Angry Birds have attracted most mainstream attention on video games in the past year and have users in the hundreds of millions, the success of Grand Theft Auto 5 is a pointed illustration that big budget console games — the game reportedly cost roughly $265 million to develop and market — still drive global video game sales. How has Grand Theft Auto become such a dominant franchise and what does its success say about the future of video games?

Controversy leads to success

The Grand Theft Auto series was launched in 1997 as a somewhat plain-looking game where the player had a satellite-like view of a 2D city. The game was met with slightly above average reviews, but received a wave of media attention for its focus on car-jacking and allowing players to attack pedestrians. As is often the case, the controversy over the game’s violence created a wave of PR that was a boon to sales.

A second version of the game was launched in 1999 that looked very much like the first. Like its predecessor, it performed well, but was well below the league of videogame’s biggest blockbusters. 

However, in 2001 the series was reinvented with the launch GTA III. The game maintained the “open world” appeal of the first two games in the series, but was designed with an advanced 3D game engine. Taking a look at the image of the original GTA on the right and the jump provided by going to a 3D engine inGTA III on the left is quite stunning. 

The game took the video game world by storm, winning several “Game of the Year” awards on its way to selling more than 14.5 million copies. In the following year, Rockstar North developed Grand Theft Auto: Vice City, which went on to sell more than 17.5 million copies. Finally, in 2004, the final game of the GTA III era, Grand Theft Auto: San Andreas, hit and led to more than 27.5 million units sold. 

Re-booting for the newest generation of consoles 

Grand Theft Auto’s run of success is even more impressive when you consider three titles were released in such short time between 2001 and 2004. However, with the release of more powerful “next generation” consoles like the Xbox 360 and PlayStation 3 in 2005 and 2006, the series was overhauled to take advantage 

Graphics got better, maps got bigger, the already expansive “open world” premise behind Grand Theft Auto was taken to new extremes in the development of Grand Theft Auto IV. As a result, the game also took longer to create; missing its initial launch date of October 2007. It also cost more, with a reported development budget of $100 million. At the time, that was among the highest ever development costs for a video game. 

Chance The Rapper Says The Music Industry Is Dead!
2013 just may be the year of chance for Chicago’s own Chance The Rapper. The not-so-mainstream artist has made a wave of accomplishments following the release of his mixtape Acid Rap–going on tour with the likes of Eminem and Kendrick Lamar, appearing on Lil Wayne’s Dedication 5 and now adding voiceover actor to that bucket list. In an interview with Rolling Stone, the 20-year-old rapper revealed that he recently took on the daunting task of playing Bob Marley for an episode of Adult Swim’s Black Dynamite. “I had to play Bob Marley and I planned on doing this research, and I did not. I came unprepared,” the MC admitted. “I can’t wait until the voiceover people that are professionals hear this and laugh at me, like, ‘Oh this guy’s such an amateur!’” While the young MC is consistently churning out accomplishment after accomplishment, he holds cryptic views of mainstream success and explains that while there is no reason to sign to a label, he’s still somewhat of a mainstream artist. “It’s a dead industry, but I’m kind of a mainstream artist now. Not by choice. Not by what I make or anything. But just by that ripple-effect shit.” Following the success of Acid Rap, there is hope that fans will be served another musical offering from the “Juice” MC for free. “What’s an album these days, anyways? ‘Cause I didn’t sell it, does that mean it’s not an official release?” Chance says. “So I might not ever drop a for-sale project. Maybe I’ll just make my money touring.” Let’s see how Chance’s new rules stack up as his success grows. View high resolution

Chance The Rapper Says The Music Industry Is Dead!

2013 just may be the year of chance for Chicago’s own Chance The Rapper. The not-so-mainstream artist has made a wave of accomplishments following the release of his mixtape Acid Rap–going on tour with the likes of Eminem and Kendrick Lamar, appearing on Lil Wayne’s Dedication 5 and now adding voiceover actor to that bucket list. In an interview with Rolling Stone, the 20-year-old rapper revealed that he recently took on the daunting task of playing Bob Marley for an episode of Adult Swim’s Black Dynamite. “I had to play Bob Marley and I planned on doing this research, and I did not. I came unprepared,” the MC admitted. “I can’t wait until the voiceover people that are professionals hear this and laugh at me, like, ‘Oh this guy’s such an amateur!’” While the young MC is consistently churning out accomplishment after accomplishment, he holds cryptic views of mainstream success and explains that while there is no reason to sign to a label, he’s still somewhat of a mainstream artist. “It’s a dead industry, but I’m kind of a mainstream artist now. Not by choice. Not by what I make or anything. But just by that ripple-effect shit.” Following the success of Acid Rap, there is hope that fans will be served another musical offering from the “Juice” MC for free. “What’s an album these days, anyways? ‘Cause I didn’t sell it, does that mean it’s not an official release?” Chance says. “So I might not ever drop a for-sale project. Maybe I’ll just make my money touring.” Let’s see how Chance’s new rules stack up as his success grows.

How Do Online Music Streaming Sites Get Rights For The Songs

They negotiate deals with the major labels/rights holders and the other (smaller) labels are pretty much forced to follow suit.
However, not all labels feel it is beneficial for them to stream their artists’ music through these platforms and so they hold out in hopes that fans will buy the music in either physical form or digital.
You can just google “artists who pulled their catalog from Spotify” and you’ll see a bunch of relevant articles.
Part of the reason they are pulling has exactly to do with the trade-off: economics (royalties) vs distribution.
Is it worth it?
The economics vary by streaming service.
I don’t know any figures for Saavn, Dhingana, or Gaana, but Spotify is one of the bigger players in the streaming music game.
They paid $180M in 2011, were on pace to double that in 2012, and will surely be beyond that in 2013 (Music streaming revenue rises by 40 percent).
This sounds like a lot of money, but when you break it down by the amount an artist actually rakes in, it’s minuscule (partially because of the split the artist has with their label).
Spotify has received a lot of negative press regarding how small the checks are that artists receive.
Most reports I’ve seen, artists earn roughly half a cent per stream:
Spotify RoyaltiesStreaming Shakes Up Music Industry’s Model for Royalties
Back in 2010 Information is Beautiful put out an excellent side by side comparison of the different formats and the royalties they generate: How Much Do Music Artists Earn Online? View high resolution

How Do Online Music Streaming Sites Get Rights For The Songs

They negotiate deals with the major labels/rights holders and the other (smaller) labels are pretty much forced to follow suit.

However, not all labels feel it is beneficial for them to stream their artists’ music through these platforms and so they hold out in hopes that fans will buy the music in either physical form or digital.

You can just google “artists who pulled their catalog from Spotify” and you’ll see a bunch of relevant articles.

Part of the reason they are pulling has exactly to do with the trade-off: economics (royalties) vs distribution.

Is it worth it?

The economics vary by streaming service.

I don’t know any figures for Saavn, Dhingana, or Gaana, but Spotify is one of the bigger players in the streaming music game.

They paid $180M in 2011, were on pace to double that in 2012, and will surely be beyond that in 2013 (Music streaming revenue rises by 40 percent).

This sounds like a lot of money, but when you break it down by the amount an artist actually rakes in, it’s minuscule (partially because of the split the artist has with their label).

Spotify has received a lot of negative press regarding how small the checks are that artists receive.

Most reports I’ve seen, artists earn roughly half a cent per stream:

Spotify Royalties
Streaming Shakes Up Music Industry’s Model for Royalties

Back in 2010 Information is Beautiful put out an excellent side by side comparison of the different formats and the royalties they generate: How Much Do Music Artists Earn Online?

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