Music streaming: A new direction or a dead end?
When Taylor Swift pulled her albums from Spotify last November after the company refused to restrict her albums to the paid subscription tiers, it re-sparked the debate about how musicians should be compensated for their work.
She was also hugely critical of Apple’s new streaming service Apple Music.
In June, she posted an open letter (entitled "To Apple, Love, Taylor,") on Tumblr, criticising their decision not to pay artists royalties during a three-month trial period.
“We don’t ask you for free iPhones,” she added. “Please don’t ask us to provide you with our music for no compensation.”
Less than 24 hours after this public complaint, Apple reversed its decision - confirming that it would pay its full royalty rates for music during the free trial.
Swift’s frustrations are at the core of the debate about the modern perceptions of music.
Proponents of the streaming model argue that it offers a wider choice and opens up an immense musical environment for consumer – a democratisation of music, where the listener gets to choose what they want to listen to.
Detractors argue that streaming encourages a perception that music has no value.
Today, an estimated 41 million people pay for a streaming service of some kind, up from 28 million people in 2013.
Spotify founder Daniel Ek said his company is building a "new music economy that works for artists in a way the music industry never has before."
The company reported that it paid out $1bn in 2014 alone, and said that 70% of all revenue generated by the company goes back to labels and artists.
Non-subscription ad-supported services like video platform YouTube argue they don't need to pay for the music they host because they are just a platform for users to upload content. But as more and more fans get their music from YouTube, the lack of payment to artists has become a real bone of contention.
The current royalty rates for a stream of a single song are much smaller than for the purchase of a single song.
Normally for a $9.99 iTunes download, the artist gets 94c, the record label $5.35 and iTunes gets $3.70.
On Spotify; the royalty rate is between 0.05c and 0.84c per stream. That final payout is dependent on the individual contract of the artist.
While a per-song payment for a download is much higher than the per-song payment of a stream, downloads represent a one-off purchase.
Streaming services operate according to the concept that as the subscriber base continues to grow; the money will grow exponentially. Therefore, the more popular the artist, the greater the number of streams and the higher revenue produced.
However, critics argue that whilst this new phenomenon makes music more accessible and allows for a larger audience, it does not benefit upcoming artists. The reality is that only the biggest stars can create a large enough pool of subscribers to really benefit financially.
The International Federation of the Phonographic Industry (IFPI), a not-for-profit organisation that represents recording companies around the world, releases an annual report examining the performance of the industry. This year's report, released in April, showed that digital sales had drawn even with physical sales (such as money from albums bought in-store) for the first time ever in 2014.
Both accounted for 46% of the total industry’s revenue (approximately $15bn) and pulling in about $6.85bn each. The remainder of the industry's revenue came from other sources, including licensing of music for film, TV.
The commonly-held view is that the debut of Napster in 1999 sounded the death knell for the traditional record business.
The music industry has struggled to cope with the movement from physical formats to digital content. As yet, it has been unable to monetize this new method of acquiring music to the level of the 1990s; where the music industry revenue was approaching $40bn by the end of the decade.
There is a massive generational shift taking place, as many younger listeners are coming from a position of never previously having to pay for music. P2P (peer-to-peer) sharing has been estimated to account for over 30% of all global internet traffic.
The dramatic reduction in album sales has meant that live performances have become the main revenue generator for artists.
Sinead O’Connor outlined the difficulties of being an artist in this digital environment in a heartfelt post on her Facebook page in June.
She was very critical of the ubiquitous nature of music piracy: “people don’t buy records anymore, they steal them”.
She also spoke openly about the extra strain that the new musical environment has on many artists: “the only way musicians are able to feed their families is by touring”.
The rise of streaming services has introduced a fundamental change in how the industry makes money.
The focus has shifted from selling ownership of music to selling access to it.
Streaming services offer exclusive content, artist interviews and pre-releases. The signs suggest that through subscriber streaming; the music industry has gained a better understanding of the digital marketplace.
However, the capacity of streaming to become a viable and sustainable platform for exciting and ground-breaking new musical talent remains in doubt.
