In the past few years, it has become glaringly obvious the economics of streaming music was not favorable toward artists. Interestingly, I recall the same thing being said when Apple first launched the iTunes Store, as the music industry pundits feared the move would make it easier for people to only buy the song(s) they wanted vs the whole album. They felt it was better for everyone to sell a $9.99 album vs. just one song for .99c.
In case you don’t know the economics of the music industry, it is generally pretty ugly for most artists. Unless you are a largely successful artist, your cut of sales can range between ten to twenty-five percent depending on how well you negotiated your contract (Those were the common percentages 15 years ago when I did work in the music industry. Doubtful much has changed). Labels simply act as investors. They generally offer artists money up front as part of the deal and then agree on a percentage of all sales. The label puts up the money to record the album, market it and, during the analog era, distribute it to retail. There is a science to this and it works. But the sales revenues are not just split between the label and the artist. Often there are licensing costs, costs to a songwriter, publisher, and a range of other costs built into revenue share. .99c spent on one song can often be split anywhere from five to seven ways. This is an intricate mess but ask any expert on the music business and they will tell you where artists really make their money is on performances/concerts. From getting discovered, signed, cutting an album, getting your album in retail, into circulation on the radio, promoted on TV, or the web, it all leads to one desired end goal for the artist’s financial interests-performing live.
We can scrutinize the economics, and often the politics, of the music industry all we want. However, if we are to take a truly pro-artist view of the situation, we need to think about how the structure, which now includes a streaming business model, will help artists build a large enough following they can go on tour and get paid for performing. Certainly, the business of music is evolving. Both free and paid streaming services are now part of the economic model. Understanding the economics of the business that doesn’t favor artists until they get large enough to tour and have multiple successful albums in order to negotiate better terms on future albums helps us frame how its evolution may impact the future of the music industry.
Curation/Discoverability
If I’m an up and coming artist newly signed by a label, my deal inevitably sucks. My hope is my song gets lots of air time and climbs the charts, generating awareness and a following. Historically, artists depended on tastemakers to like what they hear and want to expose it to listeners on their radio station. In the past, this was not been done by algorithms. If I’m an artist wanting to get discovered, I’m not sure I’d want to leave my fate in the hands of an algorithm. So radio DJs have played key roles in artists’ success. This is where Apple building DJ-run radio stations starts to get interesting. If Apple can build out a number of genre-specific radio stations run and curated by DJs to expose listeners to not only the best music of that genre but help them discover new music as well, it could wind up being huge for artists. Interestingly, there is a service that exists today which happened to be started by my friend DJ Skee called Dash Radio. Skee is a well known DJ and was the host of an XM radio station and branched off to start Dash Radio which offers DJ-run curated stations for every music genre. Bot approaches believe in the human as the ultimate curator over an algorithm and I tend to agree with them.
Minimizing the Need for “Labels”
Assuming you followed how I broke down labels above, then we can understand labels as basically the financing, marketing, and distribution. What is interesting to me is to think about the way things are changing and if labels are even relevant in the future. It is easier than ever for artists to record and self-publish their own music, solving the distribution need. While marketing is not inherent to most artists and they may need help, the internet and social media give artists great tools to market themselves. If tastemakers are continually hunting to discover and play new music for their listeners via their internet radio stations, this only helps their ability to attract an audience. In today’s digital era, you can make a case the traditional role labels play is becoming antiquated. While I don’t imagine labels actually going away anytime soon, it is interesting to see things Apple is doing to create a more artist-friendly environment both with discoverability and distribution. The last angle could be with concerts.
Festivals
Whenever Apple held their iTunes Music Festivals, I wasn’t entirely sure what they were doing. Now I’m wondering if they weren’t using those festivals to learn and refine this idea of regular global music festivals. I can imagine Apple Music Festivals happening all over the world. Widely attended and, more importantly, coveted by artists because of their global appeal. Remember, artists make the most money from performances and these music festivals could be lucrative for the artists, not only economically but also to be a great platform for newer, less well known artists to be discovered on a much larger stage. I’m speculating whether or not this will ever happen but I think it is an interesting idea, with an exceptionally pro artist angle.
As I think about the future of media in general many questions remain. Ten years ago, I know many pundits who thought change to the business of music would come much faster than it has. Whether the fundamentals for sweeping change are upon us or not, I think the next five years are going to be fascinating to watch.
Before iTunes the labels had crappy policies: not selling singles (bad), charging $18 for a CD with only 2 good songs on it (bad) and suing their customers (REALLY bad). Now their revenues are down and I say if you screw the public, the public will be happy to return the favor.
While I understand the sentiment, if free streaming is the way of the future there likely won’t be much of a music industry.
As I said, it’s all about being able to get large enough to tour. That’s make it or break it for the artists.
iTunes demonstrated that people will pay for music if they get a fair deal. The labels need to show some intelligence and figure out a way to make streaming work for everybody. Or maybe Apple will once again provide the solution.
Music production is cheap, fun, and very meaningful to artists. Free streaming won’t stop that.
I don’t think Apple will be the future of music. But who knows.
A more interesting possibility for injecting money into the industry is live shows using virtual reality. Soon 🙂 .
One very unique thing Apple offers is their audience of Apple customers who are willing to pay for things. In this sense the audience has been curated, for the benefit of artists.
But wasn’t spotify offered at the iPhone ? wasn’t it marketed well ?
Still, only 15 million paying subscribers
Spotify isn’t Apple. I expect Apple Music to do better. There’s a lot of details and points of friction that should differ here. Of course we’ll have to wait and see. I never considered Spotify, but I am considering Apple Music. As for marketing, I was only vaguely aware of Spotify, I don’t think we could conclude that Spotify was marketed well or has anywhere near the kind of awareness that Apple brings to services.
In Apple Music I see the beginning of a possible new platform for artists, much more so than any other service has ever tried.
What Spotify doesn’t have is a billion active users of the device playing the music…
But as you say, we’ll see. Ping failed.
Your comment is kind of funny, you’re essentially crying “No fair!” Back to Ping, it wasn’t good enough. Apple isn’t actually magic, if Apple Music is good, works well, it will succeed. If it isn’t good enough it will fail.
I agree. It’s as funny as MS’s was when they bundled disk compression, browsers, undelete utilities, music, and video to what was supposed to be an OS. But hey, they were just “vertically integrating” the software.
Ah, so you are crying no fair. But you don’t need to worry, consumer markets aren’t going to have one winner, one powerful monopoly. Microsoft was the exception not the rule. Plus Microsoft mostly made crappy stuff back then. I never considered using Windows or much of anything from Microsoft, it was all such junk. I use some Office apps because I have to (clients), and IE here and there over the years, but I think that’s it.
If I were Spotify, I might think it’s not fair. It’s not fair to me if I can’t have Spotify, or if Spotify is not allowed to add features that compete. That hasn’t happened yet. (It did happen to Pebble, in the sense that their new App was delayed during the iWatch launch)
You might want to check the details of what actually happened with Pebble’s app. They had the app approved, then submitted another version only five days before product launch, pretty much guaranteeing the problem they encountered.
Point is, if there were alternate stores, their users would have the App.
If the alternate store wasn’t regulated, sure. But another store with a submission process would also take time. Pebble caused their own problem by pulling an already approved app. Your point has no merit.
They could have emailed it to their customers directly.
Sure, since email is so secure, great idea, what could possibly go wrong? Holy crap man, get a grip. Look, if you want to retain any shred of credibility you have to stop ranting about things that aren’t true. You’ve done this before, ‘editing’ reality to suit a narrative.
Apple isn’t perfect, they do make mistakes, but the Pebble app example doesn’t prove the point you’re trying to make. Pebble caused their own problem in this case.
Or ‘gasp’ had the download on their own site…
That used to be common, yes. And that has its own set of problems. There’s no getting around it, the Pebble app example doesn’t make the point you wish it did.
I see a couple ways Apple can help artists. It does seem typical that the artist doesn’t get their full percentage, labels charge expenses back to the artists, so a deal that says an artists gets 20 percent, well, I doubt very much the artist actually sees anywhere near 20 percent.
Anyway, Apple can connect artists directly with consumers. Imagine artists actually getting 70 percent of song revenue. That would change the industry.
The second thing is Apple concerts. Apple is getting pretty good at producing and distributing music concerts. This could expand and give artists another avenue to pursue live performance revenue.
Again, Apple’s 70/30 content revenue split would be a dream come true for artists.
The issue here again has to do with the rights. Unless an artist is the sole owner of their assets, then they aren’t getting 70%. So they would have to over time alter their deals so they can get own all the assets. While it is true Apple seeks to connect them to fans, we can ask the question why they don’t do this today when arguably they are more connected to their fans than ever through social media.
The SMART arists will do this, but I’m afraid most of them get trapped into decade old templates of how this is done. I think change is going to take some time but I do hope it comes.
Agreed. It’s going to take a generation for this to change, and the change will only accelerate once artists have a platform they can use that is easy enough. Right now there are too many points of friction. It can be done already, and some artists have controlled their own music and earned most of their revenue for decades, but it is still the exception.
I’m pretty sure this is the kind of platform Apple is working on, but it has to be done slowly and in stages. You can’t disintermediate the record labels overnight.
I suspect that as production gets cheaper and web platforms and web based consumption expands, it will become easier and easier for artists to find an audience without selling their rights.
To be honest, I thought we were going to get there with Youtube and Soundcloud, but those two platforms never really developed in a way that made monetizing easier for artists. I think though that with the direction that media consumption and web based technologies are going, it’s only a matter of time before a competitor can lure content creators away with a business model that is more attractive to them from the monetization angle. I believe that when we see that, that’s when we’ll start to see a sea change.
This is assuming that legal complications aren’t involved though, which is where things get dicey.
I wouldn’t say it is easier, but the entry costs are nil these days. That is one thing the Big Machine still has over any independent artist, that marketing muscle. The problem with Youtube and Soundcloud is the problem that has always existed, how to get heard above the noise, even when you have something interesting to say. Sometimes it is the loudest megaphone that is heard, even if what they have to say is tripe.
Joe
Not for nothing are several of the wealthiest artistes (living and deceased) also the most prolific and successful songwriters; for this reason I will quibble slightly with your analysis of the main sources of a musician’s earnings.
But while accepting that the times may have changed irreversibly, the same can hardly be said of the music industry, whose leaders have for the past 70-odd years unchangingly regarded the artiste, the industry’s revenue source, as the lowest link in the food chain.
Compare and contrast this sad state of affairs with the much younger yet more vibrant and creative software industry, especially as regards its treatment of developers, and it is no wonder that the entire music industry is being handily outstripped by even one of the two largest mobile app stores in terms of revenue and profitability.
Sadly, it is increasingly doubtful that that this new streaming model will enable the tech giants to disrupt the feudal incumbency and usher in a newer, fairer system of revenue allocation that is needed to galvanised the stagnant swamp that obtains today.
Contextual Music Curation
When you market products and services – what, where, when & how are crucial contextual questions, thus I think the exciting change is the increased opportunity streaming gives to curate music with context. This was touched upon at WWDC15. Obviously  watch with heartbeat appears to have some advantage, but far more opportunities exist beyond ‘workout music’; some are crude and some high functional like revision music! Playlists, CD compilations, mixtapes are as close to behaviour around consumption that we currently know (some exceptions know doubt). I expect contextual curation to be elevated to a much higher level of granularity.
Perhaps I’m on my own in thinking this contextual curation will change consumption of music massively? I believe it will measurably grow the pie of music consumption.
You make a valid point about algorithms not being the new artist’s best friend. However, I would take the point further.
Algorithms are good in identifying patterns (ie. finding music that for (un)known reasons goes together), but that does not mean they are good salespeople for new music and new trends.
On the other hand, the really good DJs are trusted as tastemakers and actually help shape the tastes of their listeners by linking new music to current events, giving it context or just by giving it their seal of approval. Being spotted by one of these tastemakers is gold for any new artist.
That’s my concern also. I’m sure that there are a lot of different algorithms for suggesting music, but at least the algorithms that recommend movies, books and stuff most likely depend on them being already quite popular. In fact, the algorithms may be strongly biased towards popular titles and may not be good at surfacing good music from new artists.
I would like to know how good these algorithms actually are for getting new titles (which have not yet become popular) discovered.
There is pressure on the price of all items to drift down to the marginal cost of production. This is especially true of digital products. In the 12 years since the iTunes Store launched, the marginal costs for songs has gone down significantly yet the price of a song has pretty much remained unchanged. I wonder how popular streaming would be if the price of songs had gone down with reductions in costs.
What gets bucketed under the marginal cost of production matters. The act of making distributable music itself is probably lower than it’s ever been, but that alone doesn’t account for everything bucketed under “production cost”.
I should have been more precise. By marginal costs I meant the cost of producing/selling one more unit. For songs sold digitally online, these marginal costs basically come down to bandwidth and processing.
And I got what you mean by marginal costs, but I think it’s more than just the bandwidth and processing. For example, there may be marginal costs for royalties too depending on the licensing agreement, and there may be marginal costs to marketing to push listens/purchases. Of course, this applies more to track purchases than for streaming, but there’s a lot more costs than the act of distributing.
It’s a rather simple answer to an insanely simple question: would you rather have an algorithm DJ your party/wedding or have a human-being do it?
An algorithm, no matter how intelligent, can’t see that no one’s dancing and needs to change the tune, knows when it’s time for a slow dance or when you just need some background music for cutting the cake or the appropriate song for when the party goes from rave to playful conga line.
If Apple’s smart they’ll use their human-based streaming service as a key differentiator against Spotify, Rdio and other competitors who rely on 1’s and 0’s to pick songs.
Regardless of what Steve Aoki is or isn’t doing behind that huge soundboard it’s certainly more exciting to see him than an empty DJ booth set to autoplay.
“Unless you are a largely successful artist, your cut of sales can range between ten to twenty-five percent depending on how well you negotiated your contract”
And for some artists, their advance is already figured in, i.e. they get nothing again until the advance is caught up. And until then the label recoups their pay outs. They cover the costs upfront and expect to recoup through sales. They are taking a risk in that if the sales don’t ever cover the costs, they are out the money. But they are expecting to recoup their costs before the artist sees another dime.
Seems fair until you discover you’ve blown through your advance in a month’s time. That’s why I support and sometimes work with organizations (like C4 in Atlanta and Fractured Atlas in NYC) to help artists get more business savvy. Few arts degrees seem to cover the _business_ side of art. (www.bfamfaphd.com).
Joe
One thing to correct from this article. The largest source of income for artists is not from concert performances, it is from music publishing, which is the performance of their intellectual property rights on radio, television, sheet music, compulsory licensing, etc. Concerts last for a short duration, and since a large majority of artists are now signing 360 deals, the concert revenue, merchandising, and licensing belongs to the major company they are signed to, not the artists. Music publishing (plus digital rights), is collected throughout the life of the artist plus 50 years beyond that. For example, Dr. Dre, though he made out like a bandit with Dre Beats, was already turning over a healthy profit annually through the collection of statutory royalties from his music publishing rights, without having released much of anything the past decade plus or so. And that Is because he took care of his business to realize that earning potential. Another great example is Michael Jackson and SONY Music’s SONY/ATV music publishing venture.
No matter how many digital companies come along, who have the ‘secret formula, ‘ to the ‘new’ music industry infrastructure, as long as the major distribution companies own the bulk of the content provided to these services, business remains as usual, whether it be physical or digital. Streaming has certainly not been favorable for artists, but neither has those companies or individuals who feel that music should be free, and offer up artist’s intellectual property on share sites, blogs, etc., or the digital distribution companies that have come and gone who just take the rights of these artists for granted!
Independent artists who have been successful are rare and nil compared to the juggernaut of the majors that continue to pump out content that they ‘deem worthy’ for all listeners globally. Artists get an unfair shake from both sides. How is it fair to want to blame the majors, side with the digital companies that want to offer intellectual property for free, and the artists end up losing either way. When was the last time you walked into your local Apple retailer and picked up the latest version of the iPhone for free? How about a brand new car? How about a new pair of jeans, a shirt, shoes, etc.
The point continually being missed is that no matter how much cheaper production has gotten, (don’t other companies also find ways to reduce production cost?), no matter how many digital companies offering digital music services spring up, or how many so called experts, media moguls, or hate mongers there are towards the majors, no attention is ever paid to the actual content providers, the artists themselves, whether independent or signed to a major. They consistently end up holding the proverbial losing hand in the constant battle to prove who is right and who is wrong.
Young artists, in fact, all artists breaking into the industry also need to first understand this is a business unlike any other. They need to protect their intellectual property and brand, then prepare themselves with as much knowledge as they can gain from industry insiders, by reading the multitude of resources out there that will teach them about the business, and surrounding themselves with a team that knows more than they do, vice the thousands of sharks out there that are lurking for an opportunity to take advantage of an artist not willing to learn the basics of the business, and who will allow that to drive them, vice depending on their eagerness to make it, and be successful, lead them to turn them away from knowledgeable sources
Until both sides begin to work together to find solutions to the industry and how better content can be provided, vice utilizing methods slanted toward either side, hence this algorithm crap, and everyone, including the artists gets their fair share in revenue, wherever it comes from, this is going to be a never ending war that won’t be won by either side anytime soon. It’s why Radiohead, Prince, Taylor Swift, Dr. Dre, and other artists like them have found other ways to realize the full earning potential of their intellectual property rights.
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