The impact of streaming on music

When the coronavirus took hold, live music was one of the areas hardest hit by the pandemic. Social distancing, having no vaccine and hospitals filling ensured that for many it wasn’t safe to perform live.  In Wales one of the last major concerts to take place before lock down was the stereophonics performance in the motorpoint arena in Cardiff. The problem I think the band faced was they were caught in the middle of selling tickets to shows. There was no official guidance from the UK or Welsh Government at the time to cancel the show and the possibility of having to refund a massive amount of ticket holders if the show wasn’t cancelled for reasons outside of their own control.

Sometimes this is called Force majure, an act of god. It is a common term that you'll see as part of a clause in a recording or publishing contract. 

Overnight live music closed down and the income stream for many touring bands disappeared overnight. What we’re going through now is the equivalent to Nirvana cancelling hair metal at the beginning of the 90s or Napster’s impact on album sales and consumption at the turn of the millennium.

In March 2020, the #BrokenRecord Campaign, founded by Gomez vocalist, guitarist and songwriter Tom Gray, gained considerable traction on social media, bringing together musicians, industry professionals, fans and other parties dissatisfied with artist remuneration from music streaming in order to agitate for changes to the existing model.

For this blog and the video, I wanted to explore how we got into this position, how the role of music consumption has changed since the 90s and also explore what the possible routes out of this might be. 

HOW did we get here?

This issue can be traced back to the founding of Spotify over 10 years ago in 2008. At the time the music industry globally was coming out of the hangover of the digital transition. Napster had changed the game over night and income from traditional sales dropped through the floor as the industry didn’t adapt as quickly as it could.
Spotify’s business model was not through the ownership or selling rights to people to download their own music but to stream whatever songs they wanted to a phone, computer or home for a set price.

In order to do this the royalty fee was incredibly low. If you look at online royalty calculators, the argument is that for every 1,000,000 plays you get on spotify, the rights holders will be paid approximately £4,000.  If the money for the rights holders has to be distributed to a digital distributor, a record label, songwriters, performers, a manager and a whole host of others, that slice of the pie becomes very small very quickly.

When raising awareness, broken record quoted

“This is Covid-19. Live [income] has gone, PRO money is going to dry up shortly. Whatever anger you think there is in the industry now towards streaming, imagine it in six months’ time when the last of the money that’s in touring musicians’ bank accounts has gone, and when their PRS and PPL cheques go through the floor, this has been problematic for such a long time, and that’s why I call it ‘Broken Record’ because there’s nothing new about this. I’m just saying basically the same things that you’ve heard a million times. But the context has completely changed. The problem is that streaming always cannibalised culture and gave all of the income to a very small amount of the market. It always did that. It’s just now it’s deeply unhealthy. Now it’s dangerously unhealthy."

All of this happened whilst Daniel Ekk earned enough money to seriously consider a bid to takeover Arsenal football club. This isn’t entirely his fault though, when Spotify started, they agreed access to the major label libraries in exchange for shares of the company. Whilst the pay outs per stream were a tiny amount I’d imagine most people thought it may have a few years of growth but the business model wouldn’t sustain itself and Spotify would collapse.

What we’ve seen happen over these last few years is spotify have had a plan for growth, they’ve bought business that support their own model and provide an opportunity for innovation, be it from Podcast platforms (anchor), blockchain companies or even data analytics and AI driven playlist technologies. As result Spotify isn't as reliant on music as much as it used to be: Podcasts for example are a huge win for the platform as they don’t need to pay a royalty for long form content to be distributed to its listeners and in return, they keep the members fees or any advertising revenue generated. This is why they were able to offer Joe Rogen such a massive signing on fee when announcing an exclusive deal. One of the impacts on this deal saw Spotify's value increased by $35bn (https://www.musicbusinessworldwide.com/spotifys-market-cap-value-soars-by-nearly-4bn-in-wake-of-landmark-joe-rogan-podcast-deal/)

The current global music landscape

Globally - streaming now accounts for 62% of global recorded revenue income, 16.2% of all recorded revenue comes from ad supported streams. Even through the pandemic, the income raised through streaming meant the recorded industry so an overall growth through the pandemic. 

This doesn’t quite paint the overall picture though.

Physical Revenue over the last year has gone down by 4.7% globally. In all honesty this is a market shift that has been occurring for a number of years though.

The other consideration with regards to this data is that the IFPI only cover the revenue generated from recorded music. IFPI take into account nothing about live music or other revenue streams that the music industry generates so we need to think about other sources of data to get a better picture.

UK Music

UK Music's annual report explores the state of the industry in the UK over the course of the previous year. At the time of writing, the last data we have for this section covers 2019 which was conducted last year. According to the report, the UK music economy was worth £5.8 billion to the UK Economy and generated £2.9 billion in terms of exports to the world.

From this report we can see also that live music added £1.3billion to the GVA of the UK economy and also catered for approximately 34,000 jobs. It’s a significant chunk of the overall pie.  Now if you imagine live music as a gateway to new artists and opportunities to discover new music, not only have people lost their jobs and still in a completely uncertain position but artists will also lose out on their own ability to further increase their revenue by not being able to play shows, sell merchandise and get more streams for their performances.

UK Music estimated 72% of the music industry are self employed, some of these people did not manage to meet the guidelines for receiving the grants for one reason or another.

Part of the report from UK music highlights the expected drop in overall revenue in this years upcoming due to the loss of live and music and the surroundings economies that support this.

We’ve already seen tons of live events and festivals cancelled because of uncertain conditions and also, constantly changing goalposts for support.

Just to reinforce this point. Live music generated £1.3 billion to the UK economy.
For comparison, In 2019, the fishing and aquaculture industry contributed £446 million to the UK economy. The only reason for using the fishing industry as an example is because this has been brought up in the news a lot recently in relation to brexit. I feel feel the arts and music sometimes gets ignored as an industry and profession and just want to highlight the importance of music and live music has as an export for the UK.

ON top of that - Music Tourism accounts for £4.7billion on its own
So at the present time, there are currently limited opportunities for touring
Before the turn of the century, tours were generally seen as loss leaders in order to generate more revenue for the sale of albums.

You go on tour in more countries and arenas and it generates opportunities to raise awareness and revenue for the album. Going on tour is expensive but some of the cost would be offset by the income generated from sales of the album which, at the time were hugely profitable and collectable. These days that’s turned on its head. Albums are almost seen as a promotional tool to allow a band to go back out on the road in order to make money and survive.

With the advent of streaming, the potential income for those on labels may not be to the same level as before. The money is in the merch sales, the physical sales of collectables, special events, doing what KISS does and selling tickets to exclusive access to a soundcheck and meet and greet and thinking outside the box a little

Basically you have to go on tour to make money.

Tom Gray from Gomez points out “There is a cultural delusion around the glamour of music which is for the most part portrayed and pushed by musicians themselves, in order to maintain the appearance of success, But even very ‘successful’ musicians and artists that you’ve heard of do not make enough money from recorded music to pay their rent.”

Now touring becomes a problem in the middle of a pandemic and as seen from the UK music industry, there has potentially been £1.3billion lost revenue to the UK economy in under a year.

This is whilst we’re seeing reports from IFPI painting the picture that the industry is growing across all areas and all regions of the industry.

There’s no real argument against the statement that Streaming plays a major role in the music industry landscape. Tidal was effectively launched as a way for people to support artists receive a higher fee per stream.

The problem with tidal is it wasn’t the first player here and it’s behind Spotify in terms of the ability to recommend new tracks and curate playlists to artists in the similar manner in which Spotify does. I’ll put my neck out and say having better quality audio and better payouts for the artists doesn’t matter to the average music listener, they are more interested in convenience and they want everything to load from one place.

Whilst comparing Spotify & Tidal, let’s look at another industry explore the early days of Netflix’s online portal. Blockbuster were still the giants in the market but focused on bricks and mortar building and physical sales

They were offered to buy netflix at an earl stage but pass on it. Eventually they realised they needed to go online and start offering video on demand services. The site launch with a similar look and feel to Netflix. What Blockbuster didn’t take into account was that they didn’t have the data about the viewer habits and recommendations that netflix had about its users. They created something that looked incredibly similar but the user experience wasn’t as strong and people struggled to find something to watch as easily.

Nowadays blockbuster is left with a single store that you stay at via Air Bnb

Data analysis is an area Spotify have invested in heavily and you can see a number of acquisitions over the last few years that support this case. They acquired Tunigo, Echonest, Seed Scientific, Sonalytic. All of these companies were focusing around data analysis and the potential for future song recommendations.

IN streaming sharing and stealing, Richard hillerman was quotes about a question he was asked about the difference between big data companies such as Google, Netflix, Spotify and compare it to a music industry

“You have to remember, that decisions in these industries have always been made based on someone’s ‘gut feel’ about what will sell in the market, and the people with good gut instincts are the ones who rise to positions of power in their companies. The problem is, these companies are now competing against companies like Google, Amazon, and Apple who don’t make gut decisions - they make quantitative decisions based on what their data tells them”

This is what people talk about when the term Big Data is bandied about

If you think about how Spotify is acting and compare it to the likes of the traditional record label. They are acting on a quantitative level and labels may still be tied to emotion and their gut instinct. As a result, Spotify have been able to grow without much friction or opposition, partly because they gave away a shareholding the major labels in the first place. Their success was also the labels success.

In fact Sony sold half its stake for $768million and distributed the money throughout the label, other labels and industry bodies also sold their share with Spotify’s went public. Merlin was another label body that sold their share as they believed it was a conflict of interest to keep it.

How Royalties are calculated

Currently the revenue for streaming is calculated in 2 batches. Those from premium members, and income from advertising revenue members. It takes numbers of plays across the entire region, divides it by income generated and distributes it accordingly. Advertising revenue is distributed in a similar manner.

This means the revenue and data from a subscriber who only listens to gomez may not see their entire subscription allocation go towards the band. It may be that someone else who listens constantly throughout the day (24/7) has far more plays and a portion of the Gomez fans subscription goes towards paying BTS or Taylor swift. The argument from some has been to distribute the royalty according to what each member listens to.

This was brought up in the Department of Culture Media and Sports inquiry into the economics of music streaming. When the questions was raised towards the possibility of revenue distribution of each subscriber going to their respective artists major labels argued that it would be incredibly hard to implement as any changed in royalty collection, distribution and calculation would be in breach of the contracts the major labels have with spotify. Again this comes back to the issues then that streaming may be weighted towards mass play artists such as Ed Sheeran, BTS, Dua Lipa against smaller artists with a core fan base.

For spotify the most profitable subscribers are the ones who listen to podcasts all day, there is no payout and podcasters will generally generate their revenue from advertising or selling complementing products alongside their podcast.

So without streaming the industry would collapse

Well yes and no? If streaming disappeared then the industry would adapt like it did after the collapse at the turn of the millennium, we’d see a drop in global income and revenue for the recorded sector of the market. It may take a few years but I’d expect to see more opportunities for innovation. 

I think we’re at a stage now where we have to think about music in a more comprehensive avenue as part of a bigger picture for yourself as an artist. Some artists have made podcasts to support their band, others have done fundraising campaigns to support their live staff in the uncertain times, we’ve seen collabs and brand partnerships as well and some of the more successful artists have been performing live premium streams for tickets.

Tims listening parties on twitter were opportunities for bands to talk about the album process and raise awareness for the band and hopefully have people buy a little bit of merch and revenue for the artist.

The hardest part of this avenue is consistency, thinking outside the box and doing something interesting that connects with your audience.

Katherine Oyama, Director of Government Affairs and Policy at YouTube, described how livestreaming has been successful for some performers:
We have been looking at livestreams. In the last couple of months, we have had livestream concerts—Blackpink is a good example. They just sold tickets to a live concert on YouTube. They sold out about 20 times the capacity of the O2 arena for one concert. I think Niall Horan did one recently in the UK from the Royal Albert Hall; he had about 150,000 customers, at maybe $20 each. It is about diversifying and looking at whether we can monetise livestreams more.  A lot of artists are turning to their channels to sell their own merchandise, or even their own vinyl records. Some are experimenting with memberships on their channels. I think there will be more opportunities like that.

What if you trialled a few new activities for your band, your studio or yourself as an artist? Could you measure what you were doing and explore what might work and what might not? If over the course of a month could you find a new way of working and promoting yourself that causes a massive spike in streams, sales or downloads?

I’m really interested in this area so let me know if you’ve done anything like this in the comments?

Could you look at what other successful artists were doing and take data from their page? How often do they post? What type of content are they posting? Is there a specific time that seems to work better than others. All of this information may help you in the future but you need to have a goal in mind before starting. 

The reason being is I see all too often people going onto FB, Insta, twitter and posting the same old “SINGLES OUT, DOWNLOAD IT NOW”, ‘here’s the previews’, “we’re being played on XYZ Radio tonight at 11:45pm”. I’m not knocking any of this but have you thought about spreading out.

The ones who get traction are usually the ones doing something slightly different.
Secondly, this is something successful Youtubers are all doing. They’ll be spending time going through their analytics to the point of testing thumbnail clips to determine which had the best Click through percentage.

As an artist there are unlimited opportunities to innovate your position.

What I’d love to hear now is your views on this topic? Is streaming killing music? How do you supplement your income, are you making a success from streaming, or was live music never for you. Leave me a comment below, I’d love to hear from you.