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Is Streaming Killing the Music Industry?

Apple

Apple has recently announced it has plans to launch a streaming service to tackle the threat posed by services like Spotify, Youtube, Soundcloud, Deezer and other corporate music efforts in the form of Google Play and Microsoft’s Xbox Music. The news comes after recent double-digit falls in iTunes sales. A scare for those who had hoped that Apple had finally found the way to monetize music in the digital age.

Musicians and those making their living out of the music industry won’t be happy folk. iTunes was seen by many as the last bastion against online piracy and falling physical sales. Only it looks like iTunes has eventually faced up to the realization that streaming is the latest and biggest threat to its business model. U.S. digital track sales decreased for the first time ever in 2013, dropping from 1.34 billion to 1.26 billion, according to Nielsen SoundScan. Sales of CDs also continued their decline, dropping 14 percent to 165 million. Music streaming service Spotify, which has drawn criticism from famous performers in the past few years for paying artists too little, is probably the most controversial of the streaming services trying to solve this. The loud furor over artist payment however hasn’t been enough to stop Apple from chucking its hat into the mix and starting an all-out stream war.

Playing artists a pittance hasn’t been the only reason streaming has come under pressure. It’s been under fire for making a mockery of copyright law too. In September 2013, British dance music label Ministry of Sound (MoS) filed a lawsuit against Spotify for allowing users to make playlists with names and tracks identical to those of Ministry of Sound compilation albums. Users were even going so far as to name these lists ‘Ministry of Sound’ too. With users free to rearrange tracks into playlists for online play – at what point do tracklists become albums? Is it when you name them the same? Or upload identical album artwork? Or could the fact that both share the same songs in the same order be put down to simple coincidence? The legality of it is cloudy at best.

It’s not all bad though, right? Streaming music revenue in the U.S. grew 39% in 2013, generating $1.4 billion in revenue and making up more than one-fifth of the recorded music industry’s business, up from a measly 15% in 2012. Looks promising? The US cycling industry alone is worth $6.1 billion, that’s four times the value of what streaming brings to the entire United States music industry. To put it in perspective, streaming music (something everyone does) makes less than a quarter of the money that all of the people selling bicycles do (a hobby a lot less people do, obviously).

It’s even worse when you consider just how music is made. Some music might sound like it was made in a factory on an assembly line but even those records you hate have been uniquely created at a relatively high cost. Otherwise the whole enterprise would be a lot cheaper. It takes producers, vocalists, sound engineers plus label staff, marketing and PR all to make a ‘medium’ to ‘large’ release worth it. Those cost money: a hell of a lot more than making one bicycle does.

So is this the fault of streaming companies if they just can’t make the money to begin with? What Spotify pays labels is a surprisingly large share of their revenue: only 30% of it is kept by the company with the rest being paid out on a pro rata basis to record labels and artists. Which group you’re in will determine exactly how you get paid as Spotify pays the label where an artist is signed in most cases. Don’t expect to get rich quick though, even if you’ve got a record deal. Its common practice to ask the artist to sign away all copyrights to their material when they join the label’s roster. This makes it the label’s discretion when deciding when and how much you get paid, and record companies won’t be feeding you champagne when you’re earning them a tiny $0.007 per play. If you’re lucky you’ll get a glass out of the cheap bottle they bought down at the garage with your $24 takings, although only after first reaching 3,500 plays.

Record labels do have to take part of the blame for this though. The percentage they take off the artists for streaming is based on an old model when the label not only had to look after the performer’s commercial interests, but actually manufacture the records too. Speaking to Music Week John Smith, General Secretary of the Musicians’ Union in the UK said: “It is no longer necessary for a record company to pay to manufacture, store and distribute physical product. In the pre-digital era, artists understood that these costs went some way to justifying the low royalty rate. There are none of these costs associated with streaming, so why are the labels paying a royalty based on a physical sale?”

In a coalition with the Music Managers’ Forum and the Featured Artists Coalition, John has called for streaming royalties to be split equally between artists and their label in a submission to the EU consultation on copyright. Whether or not this will bear fruit will depend entirely on how persuasive the argument from the other side is – that limiting label revenues will damage investment in new music, hurting us all in the future.

But ultimately, when all music is essentially free and downloaded with a simple Google search, any business aiming to sell it as a commodity is in a free-fall race to the bottom. Companies that have managed to turn a profit in the digital music business have largely done so because they offer such a wide range of choices in one location and instant downloads at a fraction of the previous price. Users that would’ve previously paid for their sounds one-by-one now have no incentive to do so. In taking the inevitable path to streaming, Apple will have taken an axe to digital music’s last hope of salvation. We’ve relegated the industry to little more than a charity case. Thom Yorke describes it as “the last desperate fart of a dying corpse”. I’m starting to think that maybe he missed the funeral.

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