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How Digital Is Forcing Change In The Traditional Music Industry

Amongst upheaval, the record labels and artists need to evolve

27Jan

The music industry, despite now being predominantly being accessed by users on devices, is an archaic one. The business model relies on the use of the marketing budgets of record labels to push album sales and promote an artist in order for them to become a star. This simply doesn't fit with modern business thinking, in that almost anybody can make an impact on an industry through promotion online and sharing their work on social networks.

Arguably one of the most famous artist’s in the world at the moment is Justin Bieber, who was found through this exact way, posting videos of him singing on Youtube and creating a fanbase. However, he then signed for a record label in order to take this further, before becoming an international superstar. Therefore, this kind of self promotion helps artists to get found and allows record labels to find them, but they are then forced into the same archaic system.

The issue with this system is that it is losing money. From its heyday in the late 90's when it was making $30 billion annually, in 2014 it made only $15 billion. One of the main reasons for this is that streaming services are one of the most popular ways of accessing music, and they don't pay out a huge amount of money. For instance, despite having 75 million users, Spotify only pays between $0.006 and $0.0084 per stream. According to one member of a successful band, despite having 34 millions 'streams' he only made $2400 after tax.

It seems that one of the major issues affecting artists is that of the fraction of a cent per play that they receive, they need to split it with their record label, meaning that many up-and-coming artists often cannot sustain themselves on their streaming earnings alone.

However, attempts have been made to try and rectify this situation, not least with Taylor Swift forcing Apple to pay artists for streaming during the 3 month trial period of their 'Apple Music' service. Artists have also taken to simply not using record labels, cutting the significant costs that this relationship has on their earning potential. Radiohead are a prime example of this, breaking from their record company EMI in the early 2000's and releasing their own material ever since, despite being one of the most popular bands in the world. They were very critical of the industry as a whole, and after splitting from EMI Thom Yorke, their lead singer said , 'I like the people at our record company, but the time is at hand when you have to ask why anyone needs one. And, yes, it probably would give us some perverse pleasure to say 'F**k you' to this decaying business model.'

The amount being made through streaming services is also increasing, from being non-existent in 2009 to making up around $2bn in 2014 (today this is likely to be considerably higher). With increasing numbers of people using streaming services and artists being paid for every stream their songs receive, it means that more money is going to be made through this way.

However, saying that record labels are a bad thing would not be completely true, as their primary motivation is to promote up-and-coming bands. The business model revolves around making money from the superstars and investing it in the stars of tomorrow, helping them to grow. In fact, according to the Recording Industry Association of America, around 90% of all singles released make no profit, meaning that the 10% that do need to finance the rest.

Given that record companies are almost exclusively used for promotional budget and contacts, their biggest draw is going to be in order for artists to play at, and sell out, the largest profitable venues. Here, the revenue has stayed more or less constant for the last six years, so perhaps this is one area where the record labels could still make similar profits as before.

For the time being though, the industry will continue to suffer until streaming services become even more popular or more bands take the same route as Radiohead, which could potentially damage the smaller bands trying to make a name for themselves.

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