How Streaming Affects the Music Industry, Artists and Consumers

Digital music streaming has revived the music industry’s declining sales revenue, which bottomed out at the end of 2014.

With digital consumption at the forefront, all other sectors of monetization, especially physical (CDs, vinyl and do I dare include cassettes?), have begun to take a backseat to technology offering easily accessible and convenient modes of listening for music fans.



And as great as this accessibility can be for music lovers like you and me, this does pose a couple of problems for the most important driving force that makes all this integration possible: the artist.

And when the artist suffers…well, the ability to make quality music at a consistent rate becomes difficult too, which directly affects whom? That’s right, you guessed it: the consumer.

 

The Pros & Cons of Digital Music Streaming

Music Streaming: Rise of Digital Formats Stops the Music Industry's Decline | Statista

Digital formats save music industry decline (find more statistics at Statista.com).

The good thing about streaming services like Spotify, Apple Music and Pandora is that these companies offer reasonable monthly or yearly subscription fees. Audiences have access to the most popular music, ad-free, as fast and conveniently as possible.

No longer do fans have to order full-length LPs off of Amazon or visit local record stores to pick up their favorite artist’s new album.

The lazy consumer believes this is ideal. But the downside is this: Streaming removes the ability for fans to obtain and retain ownership of the music itself.

And if ownership of content becomes extinct, then the artist is not able to properly monetize their product.

Think of it this way: You are the No. 1 ranked financial analyst (you’re the pop star who made it!) in a firm with 1,000 employees. Would you feel comfortable earning the same rate as the man or woman ranked No. 1,000?

Let’s flip it now. You are the No. 1,000 ranked financial analyst (you’re the indie artist hungry for the spotlight!). What is your incentive for climbing to the No. 1 spot if you’re making just about the same as that man or woman leading the firm?

As a result, quality is negatively affected, businesses falter and the public suffers.

 

The Effect of Streaming on Indie Artists

In terms of music entertainment, remember, most of today’s pop superstars—the Katy Perry’s, the Taylor Swift’s, the Ed Sheeran’s, etc.—started off as independent artists.

Today’s most beloved musicians endured countless nights of live shows, long tour bus rides and sold physical copies of content leading to earned income and more original music. Unique authenticity from these experience directly affected the quality of the music.

Even when iTunes was created in 2001, and the paradigm shift to digital purchase supplanted traditional means of consumption, both indie and labeled artists still benefited. Consumers continued to purchase and own every piece of music that was then consolidated and stored in a personal music library.

Artists got their cut, and the rest of the world could still discover music organically.

The growing popularity of digital streaming has flooded the pool a bit with an overwhelming library of music. Fans can still find underground talent but the established talent—not always the best or unique talent—gets the front page.

Even when new artists break through the wall, there isn’t nearly as much incentive for fans to take the risk and purchase entire catalogues or feel inspired to see a live show performed by an unknown.

Indie artists must hope for insane amounts of exposure (playlists usually curated and dictated by false mislead metrics and algorithms) to motivate fans to move away from the big names.

 

A Look at the Numbers

Based on the following graph by Statista, streaming accounted for 27 percent of the 70 percent digital market revenue in music by 2014. Approximately 43.4 million people subscribed to music streaming services.

Music Streaming: Digital Accounts For Nearly 70% of U.S. Music Revenues | Statista

Streaming is a big part of music’s digital medium revenue (find more statistics at Statista.com).

And now?

According to the same source, by the end of 2020, it is projected that 221.5 million people will be subscribed to streaming services. Streaming subscription dominance will overwhelm digital purchases.

Good for the artist on a promotional level? Certainly. For their wallets? No.

Quora (h/t Forbes) provided a look at how streaming royalties are determined and divided by companies like Spotify, Apple Music, et al:

  • The monthly revenue of a service (Spotify, Apple Music, et al.).
  • Record labels have deals in place to get their royalty percentage flat, right off the top, so they receive their share of revenue first.
  • The PROs also have flat-percentage deals in place, and they are paid next.
  • The streaming companies also retain a percentage for themselves, generally 15–30 percent.
  • The streaming services often contract various back office services, who can get a percentage too rather than a flat fee. At this point you’re looking at around 40 percent of the total revenue remaining, before artists, songwriters and publishers have even been considered.
  • To establish the “per play allocation,” you then take [remaining revenue / total number service plays in that month].
  • Each publisher (the people who represent the compositions) then gets a lump sum payout of [per play allocation * total number plays publisher owns].
  • The publisher then delivers royalties to artists and songwriters; it is incumbent on the publisher to figure out how to split up their lump-sum payment to individual owners, and they also take a cut for the administration service.

This long list of variables adds a complicated element for how the artist makes his money.

This list does not include how much the artist can make based on the percentage of ownership on master recordings, the songwriting and the publishing process. The smaller the number, the bigger the cut.

 

The Taylor Swift Conundrum

Due to this complicated dynamic, Taylor Swift removing her music from Spotify in 2014 (she recently restored her main catalogue to key streaming services on June 9 of this year).

After that decision and up until this point, Spotify subscribers could only access the hit LP 1989 by purchasing the album or by switching to exclusive streaming services that Swift agreed to partner with. (Hello, Apple Music!)

The frustrated listener sits in the middle of all the chaos wondering: Will T-Swizzle and the streaming industry ever make amends? Are both doomed to never, ever, ever get back together.

In a similar situation and through a statement to The Associated Press in Nov. 2014 (h/t Andrew Leahey of Rolling Stone), Jason Aldean pulled his popular LP Old Boots, New Dirt from Spotify—an album that racked up over three million streams in its first week after citing his concern for lack of revenue:

“The debate the whole music industry is having on streaming is complicated. And while I’m definitely paying attention to the business side of things, I am first and foremost an artist. I’m an artist whose career has been built by the songwriters, publishers, producers and engineers that line Music Row in Nashville. What they do has value, and I want everyone who is involved in making my music to be paid fairly. This is about trying to do what is right for the people who have given me a great life.”

Established talents such as Swift and Aldean aren’t being greedy. Why should a quality artist receive the same insignificant cut as those who aren’t as nationally or globally popular?

The independent artist puts thousands and thousands of dollars into recording, mixing, production and equipment. Although streaming services could provide a significant uptick in promotion for a musician’s career, the cut from streaming services is just way too large to break even.

 

Digital Streaming and the Future of Music

According to Robert A. Celestin of RAC Law Firm, the average royalty rate of a song played or “streamed” amounts to .000075 cents. The artist would need to have their song played a million times to earn $75… ONE MILLION for a measly $75.

Definitely not enough to quit the day job.

Artists with potential to make it but not the time or means to continue the journey could be forced to give up on their craft before the opportunity for success presents itself.

Music streaming is still brand new, and it will continue to grow as companies get a better handle on the business model.

Piracy hasn’t threatened the industry as much as it did at the turn of the century thanks to this relatively new form of digital consumption. The bubble will eventually break with the tension between quantity vs. quality and artist vs. streaming service.

The fans, the enthusiasts and the loyal audiences lie in the center of it all.

For the future, one thing is for sure though: Listeners have more power than ever before. The fate of the music world, as it always has, will continue to depend on that factor.

 

Cover photo credit: rafiq’s Ain’t no beats 13/365 via photopin (license).

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