Digital Get Down: Royalties, Technology, and the Changing Music Industry

The race for streaming service domination has been a hot topic in the music industry of late. Spotify, Apple Music, Pandora, Tidal, and even Amazon have been vying for streaming market share, and it remains unclear who will come out on top. Spotify is the current world leader, with 40 million of their 100 million users being paying subscribers. The application, though widely popular amongst consumers on account of its large music library and low-priced monthly subscription rate, has had issues retaining artists and the rights to stream their full catalogues. Musicians such as Beyoncé, Prince, and Taylor Swift have chosen to withdraw all or some of their pieces from the service.

screen-shot-2016-11-29-at-10-24-17-pm

Most artists that refuse streaming services the rights to their work continue to cite low royalties as one of their main reasons for withholding content. Artists earn between a tenth of a cent and a half of a cent per stream, meaning the service really only becomes profitable for artists that can rack up millions of song plays. For an artist like Beyoncé, however, that should come as no problem–of the music she does have on Spotify, her top five most streamed songs have been played a conglomerate 1 billion times and counting.

Image result for low royalties on spotify

Perhaps a more pressing issue for artists (aside from, ahem, the interest of supporting their husband’s failing streaming service) is the vast amount of Spotify profit that is funnelled back into the industry by way of record companies. Labels such as Sony and Universal have a near 20% stake in Spotify, with an estimated investment worth of over $1 billion. This is likely an important factor for many major artists, as musicians have a historically strained relationship with the labels that carry them.Image result for i don't trust these record labels in touring

Though largely unbeknownst to the general public, artists typically do not own the rights to the music they create. Instead, the rights belong to the record companies that sign them. Thus, the record labels care less about how the music is distributed and more about who they are signing. Labels collect royalties on albums over fifty years old– and this “back catalogue” of music alone accounts for over $1 billion of Sony’s revenue each year. This money is then invested in scouting new musicians, some of whom will hopefully be the royalty moneymakers of the future.Image result for radiohead pay what you want album

Expectedly, most artists are less than thrilled with deals they wind up with. It was not until the digital age, however, that they began having their opinions heard. In October 2007, the English rock band Radiohead (“I’m a creep, I’m a weiiirdooo”–trust me, you know it**) cut out the recording label middlemen and released their album “In Rainbowsdirect to consumers on their band website. Fans were allowed to select the price they wished to pay, between $0 and $20, and the album immediately became available for download onto their computers. The release was a success, as the album sold over 3 million copies worldwide (both digital and physical–it was 2007, after all), and the digital sales alone were higher than the total sales of their previous album “Hail to the Thief“.

 

Image result for jacob whitesides

Yep, this kid is making way more money than you. Fedorable.

In the near decade that has followed Radiohead’s essential invention of digital music marketing, the industry has been consistently disrupted by the growth and implementation of digital technology. Spotify made Pandora irrelevant, Beyoncé changed the game with that digital drop, and the power of social media gave the 17-year-old Jacob Whitesides enough leverage to negotiate a record label deal in which he owned all the rights to his music.

 

 

 

So where do artists go from here? Possibly to Kobalt, the Swedish music company you have definitely never heard of. Kobalt aims to revolutionize the music industry by charging artists a fee for using their production and marketing services while still allowing them to retain all rights to their own music.

“The old model is on the way out. We are building the new music industry structure” -Willard Ahdritz, Kobalt founder

The company strives to achieve sustainable trust and transparency between artists and their firm. For artists in recording contracts with content in streaming services, they offer technology that ensures that artists receive all royalties they are entitled to. The band Snow Patrol reports that Kobalt found them over $1 million in unearned revenues based on streaming royalties they would have otherwise missed. Unaffiliated artists without contracts are able to use Kobalt’s recording technologies and services to produce and distribute their music, all while retaining the rights to it. Kobalt’s current clients include Sir Paul McCartney, Lenny Kravitz, The Foo Fighters, and unsurprisingly, Radiohead.

As time goes on, it seems likely that artists and record labels alike will move towards the Kobalt way of industry. Though the system is currently imperfect, it will be interesting to hear how digital music technologies evolve to bridge the gap between artist and consumer–better listen closely!

 

**you might recognize the Vega Choir version of Radiohead’s “Creep” from this trailer for a movie about a guy you might have heard of:

9 comments

  1. Austin Ellis · ·

    Very good post! I liked how you took a look at the different streaming services, and how artists and labels monetize music. It does seem pretty unbelievable that labels own the rights to music that artists are actually creating. Chance the rapper is definitely a good example of someone looking to change this practice, by offering all of his music for free download, and not signing to any label. Artists like chance, in collaboration with companies like Kobalt, are likely to change the music industry landscape. Hopefully.

  2. Fascinating post! The royalty system definitely needs to be reformed, and it’s great to see artists and companies working hard to set the wheels in motion. Alongside Kobalt, Bandcamp is supposed to be a great medium for artists to promote themselves, sell music, and remain independent. Innovative companies aside, it still seems tough for independent artists to contest the immense resources of firms like Sony and Universal, so it may still be awhile before everyone’s favorite artists are justly compensated. Regardless, it looks like we are headed in the right direction.

  3. rohansuwarna · ·

    Great job! All of the music streaming services certainly have their own unique ways of standing out. To me Spotify has a done a pretty good job of distinguishing themselves from the rest. They have turned more so into a music-social media platform, allowing us users to follow artists. So we can get notifications and updates about new music, tours, and podcasts. Also, since Spotify has my location as Boston, every two weeks or so I get an email about concerts in the local area. However, since Apple has the capital to support them they still have a lot of leverage. The music streaming industry does not have a clear winner yet, and I think it will be a while until we will see a clear winner.

  4. Nice, deep post. Good work!

  5. Great analysis of the music streaming industry! It’s still so surprising to me that so many companies are emerging and fighting for a space with such low margins. Spotify saw revenues double in 2015, yet still experienced net loss. While I love streaming music because of its affordability, it makes me wonder what’s next for these services. As they compete against each other and artists feel marginalized, I think that they will end up suffering financially.

  6. jagpalsingh03 · ·

    Great post! I definitely think that over the next few years, there is going to be a large shift in how music is distributed to the public as many artists have essentially “declared war” on record labels. One of Tidal’s biggest selling points is that it is made by the artists and is for the artists, promising higher royalties as it is owned by many high profile stars like Jay-Z, Beyonce, Alicia Keys, etc. I have never heard of Kobalt before but they do boast an impressive client list and I know many of the popular streaming services have attempted similar models. Prince launched his 2015 album exclusively with Tidal after criticizing record labels and Frank Ocean’s Blonde was launched exclusively with Apple Music only after Frank Ocean was no longer under contract with Universal Music. As a music fan, this trend makes me nervous as it appears that artists are using exclusivity to leverage themselves against record labels. I don’t want to be left out of the latest Jay Z Tidal album or exclusive Spotify album because I’m an Apple Music user. Interesting topic and I guess we’ll have to wait and see if a streaming service can dominate the market.

  7. Great post! I think you do a good job of addressing a lot of problems that artists have with streaming services and how they are fundamentally set up. You also do a good job of addressing why artists are fed up with these services and how competitive everything is. One thing that you didn’t address was the strength of the recording studios to distribute a popular artist’s music. If a lesser known musician owns the rights to their music but can’t distribute it, it makes it very difficult for them to be successful regardless of how much they make on their music. In regards to your blog, it was actually the funniest blog post I’ve read today and I appreciate the music jokes that you made (Creep is a prime song).

    1. cmackeenbc · ·

      Thank you! Glad you appreciated the jokes. You are right, the record labels have an extreme leg up in distribution for new artists, which is why it is typically seen as “making it” in the industry once a new artist signs a deal. The labels, however, have recently been shifting their attitudes towards artists and music ownership, which is one thing that the Sony executive in the “Economist” video above touches upon. Additionally, Spotify is one way that an emerging artist can gain attention in the industry (with or without a label), but it is up to the Spotify executives who they are going to support. Hozier is a great example of this, as his rise to fame was truly catapulted by Spotify’s inclusion of his “Take Me to Church” in the “Spotlight Artist” program/playlist. There’s a great article you can check out here on Spotify’s potential influence if you’re interested! (http://www.billboard.com/articles/business/6656722/spotify-spotlight-support-major-lazer-hozier)

  8. I love this post. Jay-Z (the best business man in music, in my opinion) has really stressed the importance of owning your own masters as an artist throughout his career. He was willing to give up his position as President and CEO of Def Jam Records for the rights to “Reasonable Doubt” (his debut album). He paid $5 million out of pocket buy himself out of his contract for his last album on Def Jam Records (Blueprint 3) when he left the company. He sold joint-rights to that same album to Live Nation for $10 million who also gave him a $150 million advance in that same deal to start his 2nd record label, Roc Nation. He owns the masters of all the under material under this label (J Cole, Big Sean, DJ Khaled just to name a few).
    Macklemore is another artist who has really stressed the importance of this. He was the 5th highest paid rapper in 2014 according to Forbes despite having no external business ventures. He was the first independent artist in 20 years to have a #1 single, showing that record labels are no longer necessary thanks to the digital age. This allows him to negotiate his own publishing and distribution deals and he doesn’t have to give a cent of the profits to anyone else because he didn’t give up his rights to any labels.
    My point being if you don’t own your own masters, you have no leverage. The artists know this, which is why I absolutely love the concept of Kobalt. I think this company is going to be a huge success.

%d bloggers like this: