Whether it’s ‘I Got 1 2 3 4 5 6 7 8 Ms in my Bank account!’ or ‘I might link my ting from Barking’ or even if we venture into ‘the ting goes skraaaa’ the evidence is clear to see that the top artists in the music industry are still managing to fill their pockets in this age of digitalisation.
For a very long period of time, (almost two decades in fact!), the revenue in the music industry was in a decline. In 1999, when the industry was at its ‘peak’, revenue came in at a tidy $25.2 Billion. The latest figures for 2017 however, show revenue at $17.3 Billion, just over half of what it was then. That figure is still a cause for celebration as it was the first time that the annual revenue had increased 3 consecutive years since the peak of 1999. To get a better understanding of this trend we first need to understand where the money came from back then and why it started to disappear in more recent times.
Where the money Came from?
Before the age of Smartphones and MP3 downloads there was Walkman’s and cassettes. If I wanted to listen to my favourite artist’s new single or album, I would have to trot on down to my local HMV or record store and purchase a physical copy of the record. In doing so, I was adding to the revenue of the industry, as the money I spent was split between the retailer, the record labels and the artist. In those days, CDs would fly off the shelves in the millions within days and weeks of release.
Take, for example, Millennium by the Backstreet Boys, released in 1999, sold over 500,000 physical copies in the first day alone. That album went on to be the best selling that year with a total of 9,445,732 sold. That’s just 1 group and 1 album, not including singles sold from that album, so it’s easy to see why the industry was booming as we started the new century. On top of sales of their work, artists and labels were pulling in the dollars from the sales of branded memorabilia such as T-shirts and from extremely lucrative tours and live performances.
Where the money went? – Technology and Pirated downloading
Now we know how the music industry became such a formidable giant we can now delve into the discussion of the David that challenged it and the stone that was used to bring it to its knees. If there is one thing that we as humans can all agree, it’s that we like the word ‘free’, and with the emergence of the internet came services such as ‘LimeWire’ and ‘FrostWire’ which allowed consumers to download free copies of the songs and albums of their favourite artists, albeit illegally. This trend of pirating music was and still is very hard to police and it quickly became ‘the norm’ for an extremely large percentage of music consumers. The move from CDs and vinyl’s to digital formats also helped strengthen the blow, as the sales of physical copies of albums and singles quickly declined. 1999 saw the birth of Napster the first ever P2P music sharing service. Since the founding of Napster, legitimate music sales in the United States dropped 47%, from $14.6 billion to $6.3 billion in 2009. According to a report by Institute for Policy Innovation (IPI), global music piracy “causes $12.5 billion of economic losses every year.
The Rise of Streaming
iTunes has been around since 2003 but not as a streaming or radio service but more like a shop where uses could purchase individual tracks for $0.99 a piece. It wasn’t until 2005 that modern music streaming emerged with Pandora. Pandora branded itself as a personalised online radio app which played a unique station to its users based on their personal preferences and listening habits.
And then came Spotify.
Spotify was born from the idea of combating music piracy by Daniel Ek and Martin Lorentzon in 2006. Spotify allows users to either stream music for free if they are willing to listen to advertisements, or pay a subscription fee for a premium service, meanwhile paying royalties due to artists and record companies. Its model was quickly accepted by the music industry as it was a direct solution to the losses in revenues and album sales due to music piracy over the Internet. As of last year Spotify boasts of 157 Million active monthly users with 71 millions of those being paid subscribers. Their success brought competitors from the likes of Apple Music, Google Play Music, Tidal and others and the industry boasts of approximately 176 million paid subscription accounts.
How streaming is bringing the money back – For the industry, the artists, but not themselves.
If you were to convert the number of monthly subscribers to the services into a monthly revenue, based on the monthly average of a $10 a month subscription that is almost $1.8 Billion every month. And the number of subscribers is on a steady rise.
It’s easy to see why streaming is the largest revenue share in the industry at 38% yet still rising.
streaming Companies pay royalties to record companies and artists on a ‘per stream’ basis, meaning the more listens, the more the money received for the content creators. In 2017, Spotify reported annual revenue of $4.99 billion, they also reported that they payed nearly 70% of all the revenues received back to the owners of the music – record labels, publishers, distributors, and independent artists themselves — and also took an almost $460 million loss. This is a very common theme, where streaming companies like Spotify and Netflix which rely on subscribers as their main source of income are operating in the red due to the need to pay out large sums in royalties.
Having said all that, not everybody in the industry is happy and a large number of artists ranging from Taylor Swift to Radiohead, as well as small independent artists have been very vocal in their concern into the underpaying of artists for their work. Artists have been known to have their work removed as they feel that more popular artists and those attached to the big labels are receiving disproportional rates for their work.
But all in all, the general consensus is that streaming is the jump-start that the music industry needed and with market streaming estimated to reach $9.7Billion by 2022, I’m sure even the doubters will be forced to change their minds soon.
This article was written by Daniel Isaac. Is he a better writer than his sister Joy Isaac? Let us know!