The Music Industry Has 99 Problems…

The Music Industry Has 99 Problems And They Are…

Tuesday, September 2, 2014
by Paul Resnikoff

  1. The music recording is failing.  Across the board, artists are experiencing serious problems monetizing their audio releases.
  2. Recording revenues have been declining for more than 10 years, and they continue to decline precipitously year-over-year.  This has dismantled the label system, once the most reliable form of artist financing.
  3. Digital formats continue to grow, but not enough to overcome broader declines in physical CDs.
  4. Even worse, the evolution of formats keeps pushing the value of the recording downward.  Streaming pays less than downloads; downloads paid less than CDs.  And the next thing after streaming will probably be even worse.
  5. There is little evidence to suggest that this downfall is being made up by touring, merchandising, or other non-recording activities.
  6. Streaming is rapidly becoming the dominant form of music consumption. It also pays artists the worst of any formats before it.
  7. Post-album, artists and labels have failed to establish a lucrative, reliable bundleto monetize their recordings.
  1. Most consumers now attribute very little value to the recording itself, and most consumption (through YouTube, ad-supported piracy, or BitTorrent) happens at little-to-zero cost to the listener.
  2. A generally uncertain economic climateonly adds to consumer resistance against paying for music.
  3. A massive, decades-long shift towards free (or near-free) music means that entire generations have never paid anything for recordings.  And will continue to resist any requirements to pay for music.
  1. Streaming has largely failed artists and independent labels.
  2. The leading streaming music companies — YouTube/Google, Spotify, and Soundcloud — are also the most duplicitous and damaging towards artists.
  3. Streaming services like Spotify offer very little transparencyon their payout structures, which makes it a low-trust partner for artists.
  4. Even worse, Spotify is suspected of completely misrepresenting its per-stream payout structure, based on discrepancies with extremely low rates publicly published by actual artists (usually on Digital Music News, here, here, and here.)
  5. Indies and smaller artists also complain that their rates are lower than bigger, major labels.  Some have pointed to different tiers of compensation, though few have a concrete idea on exactly how payouts are structured (see #13).
  6. Payouts to artists are not only hard to figure out, they are almost universally low and cannibalistic towards other, more lucrative formats.  Which is why artists like Rihanna and Taylor Swift have opted not to license Spotify.  And why Taylor Swift’s label, Big Machine Records, has indicated that no future, frontline releases will be licensed to Spotify.
  7. Spotify actually pays the labels, often with huge, multi-million dollar advances and/or equity positions attached.  But labels frequently don’t pay their artists, either for legitimate (ie, the artist is unrecouped) or illegitimate (ie, they’re screwing the artist) reasons.
  8. The priorities of streaming services like Spotify skew towards acquisitions, IPOs, and other liquidation events, not towards the interests of content holders and artists.  And if you doubt that, just ask Goldman Sachs (a $50 million-plus Spotify investor). Which means artist payout issues may improve somewhat, but probably not dramatically.
  9. Even worse, the interests of the major labels are very similar, which explains the massive percentage shares awarded to major labels by streaming services.  These percentages are awarded in exchange for content licensing (just recently, Universal Music Group received $404 million from the sale of Beats).

(And why major labels are pushing for a Spotify sale north of $10 billion…)

  1.  Even worse than than, labels pay nothing from these cash-out windfalls to their artists, based on artist contract terms that have now been published (on Digital Music News).

+Here’s Another Way That Artists Get Screwed Out of Their Streaming Royalties…

  1. Google, the most influential company in the music industry, is actively resisting any efforts to reduce piracy across its key platforms, Search and YouTube.
  2.  Google is also working against the interests of indie labels, and has recently used its market power to force unfavorable licensing terms upon them.

+F*&K It: Here’s the Entire YouTube Contract for Indies…

  1. Streaming has caused piracy to wane, though free MP3 and torrent sites remain a serious problem for many rights owners.
  2. The number of people actually paying for streaming services remains relatively low, especially when compared to the broader population of music fans.  Part of the problem is that music fans are often extremely reluctant to upgrade from free, ad-supported, or carrier-bundled services.

+Exclusive: Spotify Crosses 11 Million Paying Subscribers…

  1. Downloads remain a more lucrative purchasefor artists (and labels), despite rhetoric indicating otherwise.  Sorry, most fans aren’t streaming songs thousands of times, even on their favorite tracks.
  2. It’s harder than ever for a newer artist to get noticed.
  3. The artist has greater and more direct access to fans than ever before in history.  Unfortunately, so do millions of other artists.
  4. Indeed, the typical music fan is flooded with music, not to mention videos, games, ebooks, and porn, all of which makes it extremely difficult to win and retain the attention of future fans.
  5. This also puts pressure on the artist to shorten the release cycle, and pump out content at a quick pace.
  6. The artist currently lacks a centralized hub onlinethat is a default for music fans, thanks to the erosion of MySpace Music.  Facebook was once viewed as a replacement for MySpace Music, until the major shift to Timeline.
  7. Even worse, Facebook is now charging artists to reach their own fans, a move it defends as necessary given massive increases in Facebook posts that are overwhelming users.

+An Artist Asks Facebook: “Why Do I Have to Pay to Reach My Fans?”

  1. All of which sort of makes the Facebook ‘Like’ a necessary win, but a difficult victory to celebrate.
  2. 99.9%of all artists cannot make a living wage off of their music, based on stats gleaned from TuneCore.
  3. In fact, David Lowery, a top thinker in the space and an artist himself, feels that artists are worse off nowthan they were in the analog era.  And, he points to lower payments, less control, a shift in revenue towards tech companies, and less secure copyright protections to prove his case.
  4. Most artists are overwhelmed with tasksthat go far beyond making music.  That includes everything from Tweeting fans, updating Facebook pages, managing metadata, uploading content, interpreting data, managing Kickstarter campaigns, and figuring out online sales strategies.
  5. The average musician is underemployed.  According to a musician survey conducted by the Future of Music Coalition (FMC), just 42 percent of musicians are working full-time in music.   The rest are complementing their music with day jobs that have little or nothing to do with music.
  6. Musician salaries are low.  Also according to the FMC survey, the average musician makes $34,455 a year from music-specific gigs, with overall incomes (music+non-music) averaging $55,561.
  7. Musicians are increasingly playing free shows, in the hopes of getting paid work down the line.  According to a recently-released report from the UK-based Musicians’ Union, more than 60 percent of artists have played at least one free gig in the last year.
  8. Even monstrously-large video superstars like OK Gocan have trouble generating significant revenue (based on their own admission).  And, big sponsors like State Farm can only attach themselves to so many videos.
  9. Artists live under the constant threat of leaks, especially popular artists.  And the worst result is the leak of an unreleased, half-baked recording, an issue recently experienced by both Skrillex and Ryan Leslie.
  10. Information overload and massive media fragmentation have made it very difficult for music fans to even notice releases exist — even if they are dedicated fans.
  1. Crowdsourcing worked for Amanda Palmer, though there are serious questions about whether it can work systematically for smaller artists who have never been signed to a major label or experienced significant financial support in the past.
  1. Vinyl LPs are surging year-over-year, but still represent a tiny fraction of recordings purchased.
  2. The production infrastructure around vinyl continues to ramp up slowly, and producing vinyl can be incredibly difficult.  Some facilities are expanding, though production delays are often the norm and hurting this market’s growth.
  3. Vinyl is bad for the environment.  That also goes for other revenue-generators like t-shirts and merchandise.
  4. Actually, so is digital: some environmentalists theorize that the digital transition may actually be more damaging to our Earth than physical.  Part of the reason is that cloud-hosting requires massive server facilities while consuming massive amounts of energy and pumping out lots of waste.
  5. On top of that, digital formats only coexist alongside physical devices like iPads, iPhones, laptops, and sophisticated headphones, all of which gets thrown away and replaced after a few years (or shorter).
  1. Traditional record stores have largely imploded, with holdouts like Amoeba now relics of an earlier era.  
  2. Record Store Day has helped stem the decline among smaller record stores, though many complain that major labels are now flooding RSD stores with crappy products.  Others regard RSD as a mere band-aid against the inevitable.
  3. Either way, the biggest releases always go to the biggest brick-n-mortar stores: Target, Best Buy, or Wal-Mart.
  4. Yet these larger, ‘big box’ retailers are accelerating the downward spiral in CD sales, both by dramatically reducing shelf space and by pushing pricing aggressively downwards (often to $5 or less).  This is happening even though older demographics are often still receptive to the format.
  1. Major labels, once the most reliable form of financing for new and established artists, are now a fraction of their former selves.
  2. And thanks to heavy financial pressures, the creative process at major labels has become increasingly formulaic, overly refined, and often unsatisfying to the artists involved.
  3. A large number of legacy artists are now suing their major labels, arguing that downloads should be classified as ‘licenses’ instead of ‘sales’.  And, thanks to a monumental victory by F.B.T. Productions, this shift will create a massive financial obligation for labels.
  4. Most people who work at major labels have very low job security.  Which makes it difficult for them to develop longer-term artist careers, not to mention those of the artists they represent.
  5. Younger people are not generally not interested in working at labels anymore, which makes it harder for those companies to innovate.
  6. Instead of enjoying some theoretical resurgence, indie labelsare mostly getting squeezed by devalued and declining recordings, piracy, and far greater leverage from artists themselves.
  7. A once-promising shift towards 360-degree modelsnever quite generated enough money for major labels, even though major labels generally insist on broader rights deals with all new artists.
  8. Established music companies often overpay their executives by a wild margin, despite massive and ongoing losses.  That may have the effect of skewing the executive focus towards personal enrichment, while sending red flags to investors.  Glaring examples of this include Warner Music Group, Live Nation, and Pandora, among others.  The RIAA also suffers from this convoluted compensation problem.
  1. Very little innovation now comes from inside the industry.  Instead, it is now dictated by non-industry players like Facebook, YouTube, Twitter, and Instagram.
  2.  A broader ‘brain drain’ in the music industry, across both traditional and technology sides, has dampened innovation in the space.
  1. A large percentage of live music fans are frustrated with high ticket prices at concerts, and gouging on in-venue items like beer.
  2. All of which means that fans now regard live concerts as a one-off, infrequent ‘event,’ instead of a regular outing.  In fact, the average consumer goes to just 1.5 shows a year(per Live Nation Entertainment).
  3. Despite rhetoric to the contrary, touring is actually extremely difficult and expensive for most artists.  Even for more established artists like Imogen Heap, who stopped touring despite solid crowds.
  4. And, the secondary ticketing market is often fed before the actual market, thanks to bots, aggressive scalpers, or the artists and ticketing providers themselves.
  5. Fans frequently miss shows from their favorite artists, even when these artists roll into their hometowns.
  6. But wait: despite an on-rush of apps and services like Songkick and Bandsintown, attendance at shows hasn’t really increased that much.
  7. And, attempts to monetize live streams (or previously-recorded gigs) remains a speculative bet that has yet to pay off.
  8. Meanwhile, service feescontinue to outrage fans, even though artist guarantees and advances are often a culprit (but it’s complicated…)
  9. Classical orchestras and ensembles continue to struggle, thanks to a continuing problem invigorating younger audiences.   That has forced lots of smaller-market orchestras to downsize or discontinue, while applying plenty of pressure to bigger-city orchestras as well.
  10. Merch table CDs, once a very solid source of on-the-road revenue for developing bands, has now evaporated.
  1. Traditional radio tends to play the same 14 songs in heavy rotation, with mind-numbing regularity and lots of commercials.
  2. And, this repetitive playlist is often cloned throughout the United States, thanks to formatting homogeneityand heavy ownership consolidation.
  3. Even worse, a lot of listeners don’t seem to mind.  Which means very little music actually gets into rotation and discovery becomes harder.
  4. Traditional radio doesn’t pay for the performance of recordings.  And, if they’re ever forced to, they’ll probably play fewer songs, or sign more direct deals with labels like Big Machine Records.
  1. Internet radio has failed artists and publishers.
  2. Songwriters are increasingly getting screwed by digital formats, including internet radio.  In one disclosure, songwriter Desmond Child reported more than 6 million plays on Pandora for “Livin’ On a Prayer,” only to receive a check for $110.  Ellen Shipley, a songwriter whose biggest hit was “Heaven Is a Place on Earth,” received $39 for more than 3.1 million plays.
  3. Yet Pandora, the largest internet radio provider, still can’t make a consistent profit.
  4. But that hasn’t stopped Pandora executives like Tim Westergren from cashing in tens of millions in stock.
  5. Meanwhile, Pandora has burned the IPO prospects of companies like Spotify, thanks to endless profitability problems and massive executive cashouts.
  6. And, Pandora still can’t effectively license in most countries outside of the US.  Most notably, that includes the UK (though the company recently found a way to enter Australia and New Zealand).
  7. But this isn’t just Pandora’s problem.  Last.fm, for example, was forced to severely curtail their internet radio services based on licensing costs.
  8. All of which is why in the US, Pandora is asking Congress to lower the royalties it pays to labels(via SoundExchange).  But artists already feel like they’re getting screwed, which is why they now hate Pandora.
  9.  Meanwhile, the royalties that are being paid to SoundExchange often end up in massive, unpaid piles.  That is, hundreds-of-millions-large piles of unpaid collections.  Which of course, SoundExchange doesn’t like to talk about but collects interest on.
  10. A good music education is now a difficult, risky investment.
  11. And the costs are becoming exorbitant: conservatories and music schools like Berklee charge exorbitant amounts for their programs, though post-graduation job and income prospects are generally dim.  Indeed, the cost of attending Berklee College of Musicfor one year is $62,319according to the school, which is actually on-par with institutions like Julliard and Oberlin.
  12. Music fans have access to more music than ever, but are often completely overwhelmed.  This often results is less interest in music that isn’t heavily promoted, already established, or somehow ‘viral’.
  13. The Long Tail was mostly a fantasy, and so is the concept that great music naturally finds its audience.  Buried gems remain buried in the digital era, while the most successful artists still seem to be those with the best backing and money.
  14. Music conferences are often expensive, both in terms of time and money.
  15. There are also too many of them.  Which is why music conferences frequently repeat the same information, over and over again.
  16. Music conferences are sometimes held in far away, difficult-to-reach places, and last for days.  Which also means that music conferences can be giant distractions from work that needs to get done back at your office.
  1. Non-stop, on-the-go music listening could be killing the ears of an entire generation.
  2. The world has progressed past the white earbud.  The only problem is that lots of users are blasting headphones non-stop, with little regard for near-certain ear damage ahead.  Which is why numerous reports continue to ring the alarm on future hearing loss.
  1. Piracy didn’t go away.  It merely wears a new disguise.
  2. The DMCA, once considered a reasonable method for flagging and removing infringing content while protecting online companies from liability, has now become an unmanageable and dysfunctional process for most content owners.
  3. Even worse, the DMCA has become a highly-profitable, aggressive, and artist-unfriendly loophole for companies like Grooveshark.
  4. Yet Google also remains a huge part of the problem.  Searching for torrents and pirated material is not only easy, it’s frequently auto-completedfor the user in Google’s searchbox.  Or, worse, delivered in email as part of a Google Alert.
  5. The RIAA, a group with only limited success fighting piracy and more powerful tech, radio, and other lobbies, remains a questionable luxuryfor major labels.  In fact, top RIAA executives like CEO Cary Sherman are still somehow pulling multi-million dollar salaries from their major label constituents, despite questionable effectiveness.
  6. The RIAA has also burned endless amounts of money chasing defendants like Jammie Thomas, who was initially fined millions for downloading 24 songs to the Supreme Court.  That case lasted for more than 7 years after endless challenges, with a near-zero impact on file-sharing and piracy levels.  In fact, a lot of that stuff simply doesn’t matter anymore.

 

http://www.digitalmusicnews.com/permalink/2014/09/02/music-industry-99-problems

 

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