Number13

Music Industry Beats Digital Era Blues with Streaming

music

Thanks to streaming and the innovative business models of services such as Spotify, the music industry is back on a song now. But musicians do not seem to be enjoying new tunes much.  

In June 2006, the world of music experienced tremors when famous rock band Radiohead decided to end its contract with record label EMI Records. The band reasoned that they were receiving most of their profit from merchandise and concert tickets and hence they didn’t want to release their albums via a ‘record label’ (that’s the popular name for a record company).

The move made headlines. This was the first time that any music band got the nerve to bypass the monopoly of big record labels in marketing music. Radiohead had a stunning plan up their sleeve; an unorthodox marketing strategy: make money by giving music almost free. So, in October 2007, the British alternative rock-band stunned the world by releasing their new album ‘In Rainbows’ online via a “pay whatever” model.  

Yes, Radiohead asked their fans to “pick their own price” for downloading the album’s songs. The band whole-heartedly allowed fans to choose their own price. If they wanted the songs for free, so be it. Selling ‘In Rainbow’ online was a huge success. It received thousands of downloads and had made about $3million in revenues. When the album was released its physical form, it immediately made it to the top of Billboards.

Allowing fans to decide a price for the album was a path different from the traditional marketing norms of music industry. Obviously, the record labels saw it as a controversial sale strategy but Radiohead was in fact understanding and responding to the cultural transition happening in the music industry. The band felt that it was merely embracing the future trends of the market. Moreover, the public would rather enjoy music for free rather than spending a hefty amount to buy a CD or album.

Singing a new tune

Radiohead was not the first band to feel the change that was wafting through the air. Several musicians and bands were turning towards digital platforms for releasing their albums. There was a time when popular names such as Michael Jackson, David Bowie, Amy Winehouse and Backstreet Boys relied only on record labels such as EMI or its subsidiary HMV for the distribution of their albums across the globe. In the 1980s, HMV was alive and kicking in markets across the globe, including India, selling music albums in cassettes and CDs. But the invasion of digital technologies and peer-to-peer sharing of music affected the popularity of HMV and other record companies across the world. In India, HMV was later rebranded as Saregama India.

The shift was a painful one, across the globe.  

Sample the US. A research paper ‘The Rise and Fall of Record Labels’ by Ilan Bielas of the Claremont McKenna College in the US, notes that music records and sales always accounted for a significant portion of the GDP of the US, one of the biggest records markets in the world. In 1920, the recording industry sold 150 million records in the country, the research shows. 

Major players in the recording industry such as Decca Records, RCA and Columbia entered the industry during the 1950s. The 1970s saw technological advancements help the sales boom to 762 million records. Several small recording labels merged and The Big 5 was formed. The Big 5 in the music business consists of BMG, Warner, Universal, Sony and EMI. Later Sony and BMG merged and the Big 4 was born. Now, the gang is called the Big 3 – Sony BMG. Universal Music Group. Warner Music Group. EMI is no longer a player in the market. 

Digital disruption

The new transformative wave began in the 1980s, which saw the start of digitisation of music and, interestingly, the creation of Music Television Network (MTV). The mass appeal of MTV made the network a popular distribution channel for record labels in America. By the 1990s, music had moved to the Internet where file-sharing became a very popular method of consuming songs. Biels observes that between 1999 and 2003, music sales had plunged one-third. This is when MP3 players and downloading became prominent.

Technology was changing fast and neither the music industry nor record labels could keep up with the drastic changes occurring in the world of music. The 2000s saw sales of CDs plunge due to piracy sponsored by technologies such as Torrent. In 2000, music band Metallica had to sue Napster, a platform that let people share music without paying for it. Soon, music lovers would be split into two halves: those who were willing to pay for music and those who were not. 

It was in this juncture a game-changer entered the scene: music streaming services, mainly with the arrival of Spotify in 2006. It’s not that Spotify was the first to start the streaming business. Several players existed in the space when it started the business. But Spotify’s innovations would change the scene like never before.  

Streaming saviour 

Music analysts such as Bob Lefsetz believe streaming services are saving the music industry in profound ways. They offer music listeners great variety and choice, making them popular. The Guardian reported that in 2018 streaming music revenues exceeded profits from the sale of traditional formats such as albums and CDs for the first time. That year, revenues of Spotify, Apple Music and Amazon Music spiked over 40 per cent to $6.6 billion. This contributed to about 40 per cent of the total global market for recorded music.

In the meanwhile, the sale of physical format music, particularly CDs, fell 5.4 per cent to $5.2 billion, to form only 30 per cent of the overall market. BuzzAngle, a data company, observed that in 2018 album sales fell 18.2 per cent from the previous year and song sales fell 28.8 per cent. According to marketplace.org, streaming now accounts for about 75 per cent of the industry revenues. It says that Warner saw a growth of about 23 per cent in streaming in the last fiscal year (2019-20). Warner was the first major label to officially announce streaming as its primary revenue source.

The International Federation of the Phonographic Industry expects a surge in the popularity of devices such as Amazon’s Echo smart speakers and Google Home, where requesting for music to be played is one of its most popular uses, to boost streaming.

South Korean band BTS’s manager Big Hit says they had 756,000 fans watch their Bang Bang Con live stream in June 2020, each paying between 29,000 won (Rs 2,000) and 39,000 won (nearly Rs 2,600) totalling about Rs 13 crore in revenues. This is profitable considering the fact that those live streaming concerts happened during Covid-19 pandemic.

Can Spotify and Apple Music replace record labels?

The global music industry was slowly getting out of an economic slump thanks to the streaming services when the pandemic hit the world. This gave streaming services an extra responsibility of innovating, hosting popular virtual events and increasing consumer engagement and effectively monetise it. 

Still, many feel musicians are still not enjoying the benefits of the new trends. As musician and columnist Kabir Sehgal wrote in 2018, “musicians still aren’t getting a fair shake.” Market watchers like Sehgal feel artists are not paid enough for their work, especially the not-so-successful ones. 

Streaming services, backed by giant businesses, control the market, much like the recording companies did in the previous decades. Streaming is a success. In the US alone, people listened to an average of 32 hours a week in 2017. Unofficial estimates suggest the number has crossed 40 hours by 2020, especially during the pandemic. 

Industry watchers say streaming services have become the record labels of the day and they can help musicians get their due. Given that streaming services are now offering more services than music, their business models are more sustainable. 

For instance, services such as Spotify houses thousands of podcasts which are most popular. Rolling Stone reported that Spotify is looking to tie up with popular artists such as Shawn Mendes, Camila Cabello and Justin Bieber to enhance growth in music markets of the US, US, Europe and Asia. 

Podcasts allow music artists to share their stories directly, strengthen their fanbase and build their brand which gradually helps in retaining more control over their success. It would be interesting to see how podcasts change the game in the music industry in the coming years.

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