It’s all about the music, isn’t it? No-one needs to make money to make music, but it certainly helps. Modern music begs to be created by and channeled through increasingly advanced technology, to be heard on multifarious shores. Music is global, dispersed and, increasingly, non-commoditised. Some money is necessary to facilitate this, but there’s less and less of the filthy stuff around. In 2009 global music related revenues slumped 7%, continuing a decline that began in the early naughties when the digital revolution took hold.
But it’s not as simple a picture of piracy induced decline as the record industry would like us to believe. What’s most important to understand is that digital theft is only partly to blame for these financial woes. Due to the ease on distribution of the new digital formats, and the ability to buy single tracks off of albums without buying the whole thing, sales have migrated away from lucrative CD sales (which supports a massive production and distribution infrastructure) to considerably less lucrative digital forms starving both the recording and distribution industries of cash. The way people consume music has changed forever, but the music industry was slow to catch on.
There has also taken place a devaluing of the music. Because of the ease of distribution of digital media, and no tangible way of stemming the free exchange of digital music files, a key economic law has been violated: the law of scarcity. Put simply, a ‘commodity’ that is desirable but abundant or freely available has a low (or non-existent) intrinsic value. Musicians and the industry alike would probably balk at this, but it’s an immutable law of economics that everyone’s going to have to get used to.
That said, the digital market is thriving in almost every territory, and the music based revenues in Australia, Brazil, South Korea, Sweden and the UK grew last year because of this. But it still remains harder than ever to make money out of music, and as a result record labels (key for providing funding for bands to produce and market their wares) are less able to take on new acts. This is leading to an anti-diversification of the music that’s being marketed to the masses and a preference for pushing legacy acts. This trend is likely partly responsible for the fact that digital sales, volumes of streamed tracks and even those of pirated tracks are all trending towards the popular end of the market. The ease and low cost of production and distribution of music mean that there are more acts than ever competing for listener attention. These three facts, among many others, mean that it’s tougher than ever for a marginal/unsigned/independent artist to get heard, let alone make money.
As a result bands are having to become marketing/promotion machines on top of all the other diversifying tasks they are having to take on in the absence of labels. Some see this as bad thing, others see it as bands being forced into taking control of their own destiny – this may come with much more work, and countless pitfalls and gotchas, but for those successful the immediate rewards are much higher. Unfortunately, only bands with a lot of nouse, real dedication and a lot of luck are likely to make this a reality, which leads us back to the labels – the market needs for them to start taking risks again, and quickly.
Instead, the big players have been trying to litigate and legislate their way out of their deepening hole. The former has yielded little success and cost a lot of money, the latter has had some success with legislation passed in both France and UK. The UK’s Digital Economy Act is controversial to say the least (it gives media companies the power to request that repeat offenders have their internet cut off) and was rushed through in a potentially unconstitutional fashion. This legislation is unlikely to work, not least because it won’t grow any teeth for at least 2 years, by which point Plan B will (God willing) have taken hold.
What’s Plan B? Well it’s already happening around you and the record industry is only mildly less worried about it than they were when this pesky digital revolution thingy started happening in the first place: streaming.
Industry backed Spotify currently dominates the European streaming market and is already becoming ubiquitous. The last software update saw them integrating with Facebook and including listener’s own MP3 library in playlists – a move which should give iTunes pause for concern. However, Spotify isn’t making anyone much money at the moment, least of all the artists, and there’s a palpable sense of “when will they shut it down” in the air. Until that is rival little cousin We7, whose revenue and royalty payout model yields better results, posted profits last quarter apparently proving that an advertising based streaming service can be profitable. The market is really hotting up, and with Apple recently squashing streaming service Lala, rumours are rife that they are preparing an iTunes based streaming service in an attempt to muscle in on the party.
These streaming services will need to become truly mobile before they are a viable alternative to MP3’s (Spotify already are for paid subscribers) and even with We7 turning a profit, it’s unlikely that they’ll be really embraced by the industry unless they can turn over a bit more cash, most likely via mandating paid subscription. One way or another, streaming would seem to represent the future of digital media, and once firmly established should render filesharing redundant.
This being the case, the situation we’re currently in, where making money out of selling music directly is nigh on impossible, will remain so for the foreseeable future and probably forever. That’s not to say that one can’t make money out of music. Live music is a big growth area at the moment, with many record labels looking to monetise their acts this way. However, this is driving ticket and bar prices up which could have the effect of squashing this market too.
An interesting side effect of digital streaming is that it’s actually widening the music listening audience. 60% of people never buy music, however, services like Spotify are engaging these people into actively consuming music and converting them into potential revenue targets – they may not want to buy music, but they may well pay to see it, or simply swallow some advertising for the privilege. Understanding, expanding and exploiting this ‘new’ audience will be key to the evolution of the music industry.
So where does all this leave the music industry? Well there’s a bunch of people that don’t make music who probably will have to find careers in different industries, but the people who do make the music are likely to carry on doing so, regardless of the economic welfare of the music industry. The economic battle will be fought by suits who will utter the word ‘licensing’ a lot while worrying about the logistics of an increasingly complex royalty system. The music is thriving, even if it’s not as good at generating dosh as it was before, and thanks largely to the advent of digital distribution, there’s a larger audience than ever before. The music exists without the industry, and that’s what matters.