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It doesn’t take a big-shot music executive
or a statistician to see that the music industry is in a major
period of upheaval.
Sales of recorded music are at or near all-time
lows, digital downloads and concert revenues aren’t
doing enough to stop the bleeding, and technology has made
recording and sharing music easier than ever, driving up competition
in an already traditionally competitive industry.
Here is a list of 5 ways the music industry
is in serious trouble and some insight into how it can get
itself turned around.
1. Music Sales are in the Toilet
Sales of recorded music have declined
by 70 percent since 1999, even while adjusting for inflation,
according to Boluk. After years of sustained growth, digital
music downloads from online outlets like iTunes have also
begun to decline.
What’s disheartening is that music is
seemingly consumed more today than at any time in history,
with people popping in earbuds almost everywhere, from the
gym to the subway.
Physical retail sales have perhaps taken the
biggest hit; last year, Walmart, which sells the most physical
albums in the country by a long shot (one out of every four
CDs sold in the U.S.), cut its stock of CDs and its associated
retail space in stores by 40 percent. That means only the
hottest titles get carried in Walmart stores, which, after
iTunes, is the second-largest music retailer in the country.
2. Concert Revenues Don’t Do Enough
to Help
According to Boluk, the U.S. concert industry
has tripled since 1999, largely due to performers earning
an average of 35 percent more on per-ticket prices (adjusted
for inflation). But the overwhelming majority of that live
music revenue growth, 83 percent, has gone to artists not
in the top 100 tour earners.
In 2000, the top 100 touring artists took
home 90 percent of all concert revenue in the U.S. Now, that
number is down to just 44 percent.
Taken together with rapidly declining recorded
music sales, the “disappointing” concert revenue
numbers are a serious blow to the wallets of most popular
mainstream artists.
The upside is that indie musicians are making
more money than ever on rigorous touring schedules, and, according
to Boluk, are slowly cannibalizing what little is left of
recorded music sales.
3. Music is Less ‘Rare’ Than
It’s Ever Been
The shift in music distribution from physical
to digital has made music more readily available than at any
time in history.
Hop over to YouTube or SoundCloud and there
are literally millions of hours of unheard music stashed online,
albeit with greatly varying degrees of quality.
The point is, when major labels controlled
every aspect of making a record, including recording, distribution,
marketing and so on, they also controlled the level of output
in the music industry.
With the proliferation of user-uploaded content
sites like YouTube (not to mention streaming services like
Spotify), the artificial “scarcity” of good music
has been exposed. Spotify boasts a collection of 30 million
songs in its library, available for anytime-anywhere consumption.
And, according to Boluk, the average Spotify user streams
1,300 tracks per month. With a library and a listening habit
that large, the “value” of each track necessarily
goes down. While musicians like to think their albums are
“valuable” (and they are, in the sentimental sense
of the term), the saturation of the market has proven the
exact opposite to be true.
4. Streaming Services Can’t Save the
Industry (Yet)
The music world held its collective breath
in November when Taylor Swift, arguably the biggest superstar
on the planet, pulled all of her music from Spotify.
The move was a sharp rebuke to Spotify over
the seemingly skimpy royalty payments the company makes to
artists for streams of their music; according to Boluk, Spotify
pays artists anywhere between $0.006 and $0.0084, just fractions
of a penny, per stream.
And it’s not just Spotify; personalized
radio service Pandora has also come under fire for the royalties
it pays out to artists per stream.
Of course, this results in songs streamed
tens of millions of times generating just a few thousand dollars
for their artists. Once royalties to songwriters and publishers
are factored in, that number drops even lower.
The economic performance of Spotify is also
far from rock-solid. While the company boasts of having 75
million active users, 76 percent of those users accessed the
service for free in 2014, contributing only nine percent of
the company’s total revenue. According to Billboard,
Spotify’s operating losses have doubled since 2013,
even while revenue grew 45 percent to $1.22 billion.
Another potentially frustrating aspect of
streaming services lies in the way the companies set the value,
and the subsequent payout, for each track. Boluk demonstrated
the complex system with an example using rapper Drake:
If Spotify users stream more music in August
than July, but the same amount of Drake, Drake would see a
smaller cheque for the same play count. This could even happen
despite an increase in Spotify’s Monthly Revenue
If Spotify’s Monthly Revenue is flat, but Drake’s
stream count grows faster than total track volume, he could
be paid less per stream but generate more revenue
If revenues increase, Drake could see greater royalties even
if stream counts drop
This confusing payout structure is made more frustrating by
the changing way in which artists get paid. While artists
with big, mainstream physical releases usually collect a majority
of their revenue just a few months after the album goes on
sale, streaming revenues come every month and, in many cases,
in significantly smaller amounts. Additionally, artists and
their management teams may not know if an album is a hit for
a significantly longer period of time.
5. Record Labels Continue to Stiff Artists
Music distribution channels can only take
so much of the blame for the industry’s current dysfunction.
According to Boluk, contracts between record labels and their
artists have changed little in the last decade despite the
major overhaul the industry has gone through as a whole.
To illustrate the point, Boluk pointed to
an eye-opening statistic from a recent Ernst & Young report:
record labels took home 73 cents out of every dollar paid
out by Spotify and competitor Deezer, while songwriters got
16 cents and artists got 11.
With the importance of record labels diminishing
as barriers of entry into the industry are lowered, this hardly
seems fair.
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