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Is streaming killing the music industry?

Music streaming has been around in one form or another for the better part of 13 years now. Napster and Kazaa may not have – as predicted – killed the industry, thanks probably in part to technology like iTunes, iTunes Radio and Spotify, which taught people that there was a legal and cheap alternative to piracy.

But has it got people purchasing again?

Things may not be as grim as many predicted, but that doesn’t mean everything is peachy. Global music revenues have halved since 1997, according to writer and creative industries advocate Elmo Keep.

“People like to say that (free streaming) means you can then spend money on seeing a band play live but touring is a massively expensive undertaking that is profitable for about two per cent of all artists,” she said. “So that is a lie people like to tell themselves to feel better.

“The fact is the global revenues of the music industry have halved since 1997, since Napster. It’s something they are still trying to recover from.”

James Hearn, a music industry researcher from Nashville, Tennessee told Techly that streaming services may have helped educate a new generation of young people not to pirate, but that doesn’t mean they’re actually spending a lot or any money on music purchases.

“One of the primary advantages of streaming music versus piracy is the community that is created by using streaming services,” he said. “For example, Spotify’s social media features and integration into other social media platforms makes it very familiar, accessible, and interactive to a younger audience, which is also the demographic that, traditionally, has pirated most of the music online.

“By making a version of seemingly ‘free music’ via streaming, or at least a market where people don’t feel like they’re paying for each individual song they stream, with the added bonus of social interaction with friends, streaming music services understand how to keep their audience engaged and coming back for more.

“This sense of community is lacking in a lot of online piracy, and people, especially young people, have such a predisposition to online communities, that it’s not hard to convince people to switch.”

Keep told Techly that streaming is not a model that brings a lot of revenue to the industry.

“If you look at Spotify, someone who pays the top tier subscription is paying $144.00 on music per year, total,” she said. “That is the equivalent of what used to be about five CDs a year. So on the basis of those figures, you can easily see that over time, that is not a sound way to make money, unless a giant, giant number of people adopt that payment scheme commensurate with the losses that come from people spending much less money on music than they used to.”

More importantly, the more deleterious effect of streaming is that it devalues music, film, television, books and journalism, Keep says.

“Streaming services are meant to be a cheap, appealing way to buy something,” she said. “But that serves the interest of Spotify, not artists. And you can see that reflected in the tiny amounts that get paid out to artists in this model, and the growing number of artist who are taking their music out of these services, because they don’t see it as offering them a good deal financially.”

If people are using Spotify and they find an artist whose music they appreciate, consumers should buy the record or CD directly from the artist instead of streaming it whenever the mood hits you, Keep said, because streaming gives artists almost nothing in revenue.

The only future viability of the music industry, and the streaming services that come along with it, is if content becomes more expensive. That’s something customers are just going to have to get used to, according to Keep.

“The reason they are currently so cheap is because they are loss-leaders: for Apple and Amazon, their interest is market dominance, so they set prices very, very low for that reason. Spotify is interested in Spotify being hugely valued as a company and possibly being bought by someone else – like Amazon – it isn’t a model that actually turns a profit.

“So if there was a time where these companies jacked up prices so that producers actually made money from the transaction, then hopefully people would be happy to pay that, if they understood their money was going to producers, not just to a company that provides a hosting services for their product, which they are profiting off massively.”

In the meantime, while we are waiting for this time to come, the creative industries advocate says consumers should find a way to pay the artist or musician directly.

Who is the problem – record labels or tech giants?

Record labels have historically been the whipping boys of the music industry, often criticised for taking a massive share of profits from their music while the artists who actually produce said music starve.

But labels have found a new alliance with content producers since streaming services hit the web.

Far from the enemy, Keep says record companies and studios enable the creation of content.

“Without them, there would hardly be anything,” she said.

The new enemy is tech giants like Apple, Spotify and Pandora.

“The economy is hugely weighted in the favour of multibillion dollar tech conglomerates, who don’t actually create anything themselves, and who have no concept of what it costs to create the content they sell, yet they set the pricing,” she said.

Keep called for labels, studios and publishers to beat streaming companies at their own game by cutting them out altogether.

Louis CK did it, there is way for small artists to band together with their own content platforms and get rid of these corporate overlords who are far more punitive than any record label that every existed,” she said.

“These companies – Apple and Google in particular – go out of their way to avoid paying tax, they don’t invest in the creative industries. Apple is the least philanthropic company on Earth; they lobby government for outcomes that will favour their business models at the expense of the culture industries and they set very strict terms on how artists can distribute their work through their services.

“People love to demonise record labels in an effort to justify their piracy, but record labels actually invest in artists; none of these companies do that.”

Hearn also said it was time for record companies, labels, studios, artists and businesses to change in order to keep pace with the times.

“The industry changes in response to consumer habits and the technology available, and always has, from the time before Edison’s phonograph until now,” he said.

“If anything, the content creators and record labels need to learn how to work with the current business models, and not against it.

“There’s no use in fighting against what the consumers want. You either figure how to work with the system, or try in vain to fight against it. The most successful content creators have figured out how to use the current technology to their advantage, instead of trying to force the consumer’s hand.”

About the author

Claire Porter is an award-winning journalist. Previously the tech editor of news.com.au, Claire has had her work published in some of Australia’s biggest websites and newspapers.

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Comment (4)

    Greg Bromage

    Tuesday 24 June 2014

    “global revenues for the music industry have halved since 1997, since Napster”

    And let’s not forget also since Sony, Warner, EMI, Bertelsmann, and Seagram were prosecuted for price fixing the cost of CDs since the early 1990s.

    According to http://www.newsday.com/business/technology/ftc-cd-makers-settle-in-alleged-price-fixing-1.270756, the FTC felt that by 1997 this had artificially inflated prices by $500 million or so.

    Can we get an adjusted figure on how much the revenues have dropped once this had been deducted?

    Reply

      Tristan Rayner

      Tuesday 24 June 2014

      Interesting, interesting. $500,000,000 of 1997 dollars would be worth: $728,862,973.76 in 2014 (worth about 46% more)

      Reply

    Jon

    Saturday 28 June 2014 Reply

    Jansen

    Tuesday 4 November 2014

    “There’s no use in fighting against what the consumers want. You either figure how to work with the system, or try in vain to fight against it. The most successful content creators have figured out how to use the current technology to their advantage, instead of trying to force the consumer’s hand.”

    Exactly! And if you are not going to let people stream your music, young people will just fall back to torrenting. Welcome to the Internet.

    Reply