Are streaming services a false economy for distribution in the music industry?

On November 21, 2011

This week we have been assigned several readings from Will Page, including “PRS Report: State of the Music Industry” (2008, 2009 and 2010), “Moving Digital Britain Forward Without Leaving Creative Britain Behind”, “The Long Tail of P2P” and “Spotify – the Stats”. We will also look at David Hesmondhalgh’s “The British Dance Music Industry: A Case Study of Independent Cultural Production”.

When I began working as a freelancer, I kept hearing a common phrase – “Work for free or at full price; NEVER work cheap”. A cheap rate can undermine your working process by eliciting the expectation of a lower quality. Working for free manages expectations and gives you more power and control; working for full price allows clear processes to be defined and quality and turnover to be discussed freely. Yet imagine a musician as a freelancer, independent of major label contracts; it seems that musicians are being forced to work more and more cheaply while still meeting the demands of the paying consumer.

In my last blog post, I discussed the Open Source community and how it works together for the good of a project rather than its financial success. The model allows developers greater collaboration, producing tools for productivity’s sake, although not completely altruistically. Developers create these projects to enhance or even launch their careers, and many go on to (or are already in) full-time employment with software engineering companies, building for commercial ventures. Their “side projects” tend to lead to other ventures from which an income may be made. Whilst writing about this process, I could not help but compare it to the works created by music artists – and how such products were not necessarily made available just to create a revenue stream, but also to enhance or create other opportunities. So is the recorded medium being sacrificed willingly to improve statistics in other sectors? And with many sectors of digital music on the rise, why are artists getting such a poor deal from new retail services?

The economics of the music industry have changed significantly in the last decade. The live industry and publishing sectors have seen growth, recorded sales have declined (although they did flatten out in 2010) and emerging business models have given rise to new revenue streams through ad-supported campaigns. Synchronisation and merchandising deals have served to bolster the recording sector, with the greater use of 360 deals (Page [2010], p.7). Many attribute these changes to the convergence of technology, new music distribution models (such as streaming and online retail) and increased media consumption. According to Page, the industry is not all “doom and gloom” as many commentators state. Digital revenue was up in all three PRS reports (see above);51% year-on-year growth in 2008 represented a boom that continued through 2009 though cooled off slightly in 2010. iTunes is hugely successful and further online retailers such as HMV and even supermarket Tesco have been helping to sector growth. Spotify’s streaming service has seen a significant rise in popularity, citing 2.2m users in 2009, quickly gaining 1m users on launch in the USA in August 2011 and rising to an estimated 3.25m following a deal with Facebook in September 2011. 

Yet this week, John Hopkins demonstrated his strong dislike for Spotify. The streaming service is notorious for poor royalty output in relation to other means of distribution and the number of times the music is accessed: “Got paid £8 for 90,000 plays. Fuck Spotify.”  His sentiments were shared by fellow Twitter users, and soon the debate erupted on Music Week’s comment section. The major labels have been happy to strike deals with streaming services, but the royalty output for artists has been considerably lower than that based on the sale of physical formats. Spotify’s defence focuses on access rather than ‘per stream’ revenue, reminding us they are the second largest digital streaming service in regards to revenue and payout (over $100m) and that at least the artist is getting something, rather than the nothing that online piracy generates. It also has to be mentioned that users do not usually turn to services like Spotify to listen to independents, and it tends to be the indie artists and those without representation who are complaining the most. Hesmondhalgh notes that independents often avoid compilations and the mainstream; Spotify and such services similarly can’t meet the needs of the indie artist as any monetary success is based on popularity and favours the ‘star system’. Physical formats rather than digital sales have remained popular for the indie consumer due to the souvenir nature of the product; these artists often produce more interesting physical products, from limited edition vinyl to letterpress prints. 

Although piracy has been blamed for the overall decline in sales, the industry is also at fault for not adapting to technological change quickly enough and languishing in a submissive ‘something is better than nothing’ mentality. Now that digital distribution is becoming the norm, labels are being held at ransom over participation in online sales and streaming services. A perfect example of this was Apple’s treatment of Coldplay, promising the iTunes launch of the album at one price but cutting the price on release (Knopper, 2009). When the label complained, iTunes replied that the price was set and they could remove it from the store if requested. The album remained, and it became clear who holds the power in online retail. This seems to have created a knock-on effect, and the percentage the artists sees is dwindling. Labels must maintain a good relationship with their new online distributor, so it seems they are willing to work within these pricing models, however reluctantly. Yet the services do drive consumption, which aids the live sector and merchandise – the parts of the industry which can be made tangible and bespoke. So do the majors see digital streaming as a cheap sell off to drive other consumption, pushing products like live events? Is this a devaluation that leads to small term gains? Is this false economy? 

2012 is also poised to be the year of the new online music service – more and more are trying to exploit the digitisation of music sales and distribution. Amazon Cloud Drive, Google Music and Boinc will all look to capture a share of their respective markets. Amazon and Google have a strong user base to work from, while News Corp-backed Boinc will be entering as a relative newbie. But although moving away from the physical formats will lower cost in manufacturing and distribution for the label, the shift to digital formats has seen artists getting a poor deal on digital sales – and an even poorer one on streaming. 



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