Chapter 20
Epilogue
The Music Industry of the Future
Figure 20.1
The only constant in the entertainment industry is change and much of that change comes from forces outside of the industry. The history of the recording industry is full of technological advances that improved the quality of recordings, made them more accessible to the masses and more convenient to use. The Internet is the first technology adopted by (forced upon) the music industry that has hurt rather than boosted sales. It didn’t have to be this way (Knopper, 2009).
Instead of embracing the Internet from the beginning the recording industry resisted adopting the new technology, and although piracy may have declined as a percentage of music acquisition, other ways of consuming music, such as streaming, have replaced the sales of CDs. Shawn Fanning’s Napster and Pirate Bay are not the only contributors to the commoditization of music. Chris Anderson, former editor of Wired magazine, has written several books and articles suggesting that all music should be made available on the Internet, but he also suggested that it should all be free.
And so it has come to pass that much of the newly recorded music is given away. Indie or major, signed or unsigned, musicians are giving away songs and even entire albums to entice listeners to buy tickets to their concerts (Fard, 2014). In September of 2014, Apple iTunes worked a deal with U2 to give away as many as 500 million copies of their new album, Song of Innocence, during the launch of the iPhone6 and Apple Watch. While U2 was reportedly paid around $100 million by Apple, the recipients of the album paid nothing, further enforcing the notion that music should be free to own (Reilly, 2014).
Exceptions and counter trends do exist. Taylor Swift and others have pushed back against streaming because it cannibalizes sales and pays a fraction of what is earned on a download or video streams (Dickey, 2014). The resurgence of vinyl, and at a premium price, and the proliferation of specially packaged box sets encourage fans to opt for owning music produced by their favorite artists, not just renting it from a streaming service.
Streaming services and live concerts are the growth areas in the music industry. Jim Donio, President of the Music Business Association says, “As we look toward the future of the music industry, the issue that looms largest is clearly the ongoing transition from a commercial marketplace that is predominately unit-based to a predominately access-based consumption model. This transition will affect the industry in any number of ways. We are already seeing that certain artists and genres perform far better in the access-based streaming model than others. There are also shifts in the ways we measure consumption that will allow us to pivot quickly” (Donio, 2015). Streaming services were popularized in Europe as early as 2008, even while most Americans were still resistant to the idea (Gloor and Rolston, 2010). Wayne Rosso who was president of Grokster and Mash-boxx, in an interview for The Future of the Music Business said, “Where once [record labels] spurned the subscription model, they now want to push it as hard as possible. Unfortunately, it has proven a bust with consumers.” (Gordon, 2008). My, how things have turned around!
But one thing has not changed in the last 100 years, and that is the fact that the industry was and is built around the recording of the song. The music business systems are built around the monetization, distribution and marketing of the recorded song. Think about it. Unless you are at a live performance, what you are listening to is recorded. And you are probably at that concert because you first heard a recording of the artist. Radio, television, Internet, movies, video games—they all have recorded music. Call them record companies or music companies or anything else you want but their primary function, to record and market music is the same and without that recording much of the rest of the entertainment world goes silent.
Record labels, companies that made and sold recorded music, are quickly becoming extinct. They have been replaced with the music company that still makes records but also oversees merchandising, touring and branding partnerships. The old business model structured around music as a physical product sold in brick and mortar stores as the primary source of income is giving way to the sale of digital product sold and streamed through online retailers. Music companies have moved away from focusing on providing product, selling off their manufacturing capabilities, and focusing on being more of a content and service provider for the artist’s entire career—recording, touring, merchandise and even publishing, if they can get it. The role of labels of the future may be limited to developing content, and then marketing that content to consumers while others do the distribution.
This represents a drastic paradigm shift for record labels that resisted moving into the digital age. Not everyone sees this as a bad thing. Donald S. Passman, an entertainment attorney and author of All You Need to Know About the Music Business thinks,
In the next few years, the music business may be larger than it’s ever been. As subscription streaming services grow, we will get money from people who would have never gone near a record store (when those existed)—namely people older than their early twenties. And as to people who did buy music, the average consumer used to spend $40 per year on CDs. Subscriptions are $10 per month, or $120 per year. How that translates into money for artists is still to be seen, but the industry itself has enormous potential and artists will in time get their fair share
(Passman, 2015).
Casey Rae, the CEO of the Future of Music Coalition, agrees:
Technological shifts continue to impact the marketplace for music in ways that have made it difficult for many artists and music companies to adapt. Lawmakers are also feeling the pressure, as a great many of the policies that govern what is and isn’t possible in the music industry were devised in an analog era. The complexities only increase from there. The Internet has made music a truly global phenomenon, which requires a more intentional approach to how rights are enumerated and revenue collected and distributed. The good news is that these changes have grown the potential market for music. Artists now have the opportunity to be heard in places that in years past would have been unreachable except by the biggest stars. For the industry, this means shifting to more of a service model, in which ‘plays’ overtake unit sales. To be sure, this impacts the economics for music creators, as well as up-front investment in songs and recordings. To ensure that artists aren’t left behind in this transition requires a new commitment to transparency, accuracy and accountability. Any party that distributes music, manages rights or collects money from an expanding universe of access should be looking at not only how to grow the industry, but also how to best serve their artist partners. Technology—which caused so much disruption to traditional business models—may offer a new set of solutions. But at the end of the day, it’s not a technical issue; it’s a vision thing. To truly achieve a better future for music, artists must articulate theirs.
(Rae, 2015)
Dave Pomeroy President, Nashville Musicians Association, AFM Local 257
We have seen dramatic shifts in the way in which an artists and labels promote their products. As we move towards more independent and artist owned labels competing with the majors, it has become essential to find ways to innovate without breaking the bank. Viral marketing and social media have created new opportunities and markets, but the new paradigm is not without its challenges.
Digital piracy dealt an enormous blow to the music industry as a whole, and while digital sales have finally begun to make up for the huge losses in sales of physical product, the concept of respect for intellectual property is still evolving. As an industry, it is essential that we re-educate the public about the need to compensate artists and copyright owners fairly, and find solutions that work for all shareholders, or generations of future musicians will find it very difficult to make a living.
The American Federation of Musicians is dedicated towards finding positive and constructive ways to solve problems, and we welcome the opportunity to be a part of this important and necessary dialogue as we move forward in a constantly evolving business environment. The future is what we make it.
Dave Pomeroy is a professional bassist, an independent artist, writer, studio musician, and producer. He has served as the president of Nashville Musicians Association, AFM Local 257 since June of 2010.
With that paradigm shift comes a shift in power. Record labels with their big budgets, worldwide distribution networks and marketing machines used to hold all the power. Today, music companies have positioned themselves more as partners with the artist, giving them more control, more favorable contracts (bye-bye controlled composition clauses) and larger royalties in exchange for smaller advances and participation in the revenue from booking and merchandising, services music companies now provide.
A New “Rental Culture”
Young people choosing to stream rather than purchase music may be part of a wider cultural shift away from ownership. Britany Robison wrote, “I’m addicted to the freedom of renting over buying, as are many of my friends and peers. Even those who are making enough to purchase a home are often opting to rent instead. We’ve seen the demise of the housing market, we’ve experienced the pain of digging our way out of debt, and we know the freedom of location-independence is available if we’re interested” (Robinson, 2014). The rental culture is not exclusive to real estate, either. Auto Rental News reports that more than 50% of millennials choose car sharing over ownership (Zipcar, 2014). This finding is reinforced by the popularity of ride share services like Lyft and Uber.
There are always going to be those artists who break through on an emotional level and end up in people’s lives forever. The way I see it, fans view music the way they view their relationships. Some music is just for fun, a passing fling (the ones they dance to at clubs and parties for a month while the song is a huge radio hit, that they will soon forget they ever danced to). Some songs and albums represent seasons of our lives, like relationships that we hold dear in our memories but had their time and place in the past.
However, some artists will be like finding “the one.” We will cherish every album they put out until they retire and we will play their music for our children and grandchildren. As an artist, this is the dream bond we hope to establish with our fans. I think the future still holds the possibility for this kind of bond, the one my father has with the Beach Boys and the one my mother has with Carly Simon.
—Taylor Swift July 7 2014—Wall Street Journal “For Taylor Swift, the Future of Music is a Love Story”
When it comes to entertainment, the same rental culture prevails. Millennials and their younger siblings have all but abandon television for streamed viewing on their schedule. Netflix, Hulu, iTunes, Amazon Prime, and others have catered to mostly young consumers who want to watch on their schedule rather than the networks’. Streaming music rather than buying CDs is just one more piece of the young person’s rental culture.
Increased Branding and Partnerships
Next Big Sounds 2014 Industry Report begins with this headline: “Brands. No longer a dirty word in the music industry” (Next Big Sound, 2014). Branding and brand partnerships have taken on tremendous importance under the new model and we believe it will continue to do so in the near future. Labels have reduced the money spent on tour support and it is being replaced with strategic partnerships of all sorts. Universal and their labels account for 57% of branding deals while Sony, Warner, and the indies each account for about 15%. Weird Al Yankovic had his first number one album, Mandatory Fun, at age 55 as much because of the partnerships created to market the videos as the content of the music itself. Yankovic partnered with eight different websites giving them each a limited-time exclusive in exchange for funding the production of the video. “Because RCA did not provide any production budget, Mr. Yankovic said, the videos were paid for by various partner sites that brought their own audiences, like Nerdist, Funny or Die, and College Humor” (Sisario, 2014). The partnership is mutually beneficial: “These sites benefit from extra traffic and ad revenue, while Al gets their extra promotional muscle in a different corner of the online world. And getting these third parties to pick up video costs means that Al’s label RCA isn’t paying for it either, meaning the record will potentially recoup faster” (Erikson, 2014). Yankovic’s sponsorship, like Lady Gaga and Doritos’, is not unique but is interesting because of who the brands are and the possibilities they foretell.
Labels and Radio Doing Direct Licensing
Another trend to watch is radio stations signing direct agreements with record labels to pay performance royalties. Big Machine Label Group entered into agreements with Cox Meida Group, Entercom, and Clear-Channel, who also did a deal with Warner Music, to pay the labels and their artist for the use of their recordings on the radio (Big Machine and Cox Media Seal Direct Licensing Deal). In the U.S. terrestrial radio stations are not required to pay royalties of any sort to artists or their labels (just to songwriters and publishers). But these deals include a direct payment for the use of the songs on the radio groups’ Internet properties (e.g., iHeartRadio) as well, circumventing Sound Exchange and their direct payment to the artist. Online streaming service, Pandora also entered direct licensing agreements with Sony/ATV and BMG Publishing and independent label group, Merlin (Arcade Fire, Lenny Kravitz). Although this will probably have little effect on music marketing it may mean that recording artists will have their Internet royalties used to recoup their advances.
More important to music marketers, Edison Research confirmed in the fall of 2014 that American teenagers listened to more streamed music (64 minutes per day) than terrestrial radio (53 minutes per day). UK teenagers still listen to more broadcast radio (124 minutes per day) than streaming (81 minutes per day) (Cridland, 2015). How consumers discover new music has changed with the Internet. The IFPI Investing in Music report says, “Record companies have generally switched their marketing spend towards digital platforms, which enable them to more tightly target individual groups of consumers. Yet the costs of online marketing are increasing, and record companies also have to continue to advertise across television, radio, print and outdoor media to drive awareness of their artists” (IFPI, 2014). Young music consumers are bypassing the radio stations their parents depended on for music discovery and using the Internet to find their music. In the process, they are also bypassing the filtering of music by record labels and radio stations. Instead, they rely heavily on social media and their own research to discover new music. And record labels are too. Martin Mills, chairman of Beggars Group whose artists include Adele, told the IFPI, “We’ve been discovering artists online for the last decade or so. We’re not looking for the metrics, the most hits or the most views, but we’re using online platforms as a tool to find artists we are interested in” (IFPI, 2014). We have not yet hit a new equilibrium and the consumers’ time and the labels budget will probably continue to shift toward the Internet for the foreseeable future.
Continued Fragmentation of the Market
Social media allows friends, no matter how separated by time or distance, to share music and make recommendations. The declining costs of music production technology and digital storage make it possible for almost anybody to record a song and make it available on the Internet. This is what Chris Anderson suggested in “The Long Tail”—make everything available (Anderson, 2004). How has this played out in the Internet world? A study conducted by Will Page and Andrew Bud of MCPS-PRS in 2008 of the 13 million songs available for download, more than 10 million had failed to sell a single copy (Michaels, 2008). The number of new releases in the U.S. peaked that year at 105,575 different titles and continued to decline to about 75,000 in 2011 before rebounding slightly in 2012 to 76,875 titles. Every conceivable genre and every niche market is represented on the Internet, but without the distribution and marketing, the kind provided by record label professionals, it appears that most of them will never be discovered, not even by the artist’s own mother. Wills and Bud’s research bares this out finding the 52,000 of the 13 million tracks accounted for 80% of all revenue. Maybe we need the hits after all.
But a hit record isn’t what it used to be. The best selling album of 2014 was Taylor Swift’s 1989 with 3.66 million units sold, including 1.4 million digital copies. This is a significant increase over 2013’s The 20/20 Experience (Justin Timberlake, 2.43 million), but a far cry from NSYNC’s No Strings Attached which sold 9.936 million copies in 2000 alone. In fact, 1989 would not have made the top 12 in 2000 (Ryneski, 2001). The industry returned to a singles models as evidenced by the over 9 million tracks downloaded from 1989 and other top sellers in 2014, but appears ready to move into a streaming model based on shifting trends in music consumption. Nielsen’s end of year report indicates that year over year sales were down in almost every category, including digital downloads of albums and songs, but on demand streams of audio and video increased 54% to 164 billion (Houghton, 2015).
More Mobile than Ever
Music is already more mobile than ever and all indications are that it will continue in that direction. Laptops, tablets, and Internet-connected phones were just the beginning. Now automobiles and watches connect to the Web and access our Spotify, iHeartRadio, and iTunes accounts so we can access our playlists and favorite songs. All of this information is stored in the cloud so it can be accessed anywhere there is an Internet connection. According to Apple analyst Gene Munster, neither iTunes nor the iPad makes the top five in the list of Apple’s priorities; but the Apple Watch and iPhone do (Yarrow, 2015). iTunes radio has already overtaken Spotify, and is now the third largest music streaming service by market share (Elmer-DeWitt, 2015). Apple now dominates both software and hardware when it comes to music.
Watching the Horizon
Traditional business management and strategy warns us to keep our eyes not only on our own industry, however broadly we have defined it, but also to keep our eyes on other industries that may impact our own. As we said previously, every major change in the music industry has been a result of some new technology, many of which originated from the outside. A Price-waterhouseCoopers survey of CEOs found that a full 86% of respondents believe that technological advances will most transform their business in the coming years (“CEOs”). Since we often can’t predict which technologies will impact our business or how we must remain flexible and open to change when it comes. Embracing and adapting to change is how we survive and those who do it most quickly and adeptly will reap the greatest rewards.
References
Anderson, C. “The Long Tail.” Wired, October 2004. Accessed January 23, 2015.
“Big Machine and Cox Media Seal Direct Licensing Deal.” Big Machine Label Group, June 12, 2014. Accessed November 13, 2014.
“CEOs Foresee Changes Resulting from Technology.” emarketer.com. N.p., February 6, 2014. Accessed January 23, 2015.
Cridland, J. “Streaming Overtakes Radio Use for US Teens: but UK Fares Better.” Media Info. N.p., January 21, 2015. Accessed January 23, 2015.
Dickey, J. “Taylor Swift on 1989, Spotify, Her Next Tour and Female Role Models.” Time.com. Time Inc., November 13, 2014. Accessed November 13, 2014.
Donio, J. Personal interview. January 16, 2015.
Elmer-DeWitt, P. “iTunes Radio overtakes Spotify, gaining on iHeartRadio in U.S.” Fortune. N.p., March 11, 2014. Accessed January 23, 2015.
Enderle, R. Starbucks and HP: The Future of Digital Music, Ecommerce Times. http://www.ecommercetimes.com/story/33164.html. 2004.
Erikson, K. “5 Lessons for the Music Industry from ‘Weird Al’ Yankovic.” Hypebot.com. N.p., July 29, 2014. Accessed January 19, 2015.
Fard, F. J. “4 Reasons Why Giving Away Your Tracks Can Be Priceless.” Sonicbids Blog. N.p., July 10, 2014. Accessed January 19, 2015.
Gloor, S. and Rolston, C. P. “Can The Madness Be Monetized? An Exploratory Survey of Music Piracy and Acquisition Behavior.” Journal of the Music & Entertainment Industry Educators Association Vol. 10, No. 1 (2010).
Gordon, S. The Future of the Music Business. 2nd ed. Milwaukee, WI: Hal Leonard, 2008. 317.
Houghton, B. “Music Sales Down In Almost Every Category In 2014.” hypebot.com. N.p., January 2, 2015. Accessed January 23, 2015.
Investing in Music. Ed. Placido Domingo. IFPI, 2014.
Knopper, S. Appetite for Self-destruction: The Spectacular Crash of the Record Industry in the Digital Age. New York: Free Press, 2009.
Michaels, S. “Most music didn’t sell a single copy in 2008.” The Guardian. N.p., December 23, 2008. Accessed January 23, 2015.
“Next Big Sound Presents 2014: State of the Industry.” Next Big Sound. N.p., January 2015. Accessed January 23, 2015.
Passman, D. S. Personal Interview. January 14, 2015.
Rae, C. Personal Interview. January 13, 2015.
Reilly, D. “U2’s iTunes Deal Reportedly Cost Apple $100 Million.” SPIN. N.p., September 12, 2014. Accessed January 19, 2015.
Robinson, B. The Cultureist. N.p., August 18, 2014. Accessed January 19, 2015.
Ryneski, P. Neo Soul. N.p., January 19, 2001. Accessed January 23, 2015. http://www.neosoul.com/music/2000/bsalbums.html.
Sandoval, G. “Labels Size up Web 2.0 Music Services.” CNet News. http://news.cnet.com/8301-1023_3-10184877-93.html. March 2, 2009.
Sisario, B. “Weird Al Yankovic Scores with ‘Mandatory Fun’.” The New York Times. N.p., July 23, 2014. Accessed January 19 2015.
Yarro, J. “Here are the Top 5 Priorities for Apple, According to Top Apple Analyst Gene Munster.” Business Insider. N.p., January 22, 2015. Accessed January 23, 2015.
“Zipcar: More than 50% of Millennials Choose Car Sharing Over Driving Own Car.” Auto Rental News. N.p., January 28, 2014. Accessed January 19, 2015.