How Music Streaming Changed The Music Industry

This assessment will discuss the impact that music streaming has had on the industry. It will include the impact on the artists, as well as the record labels and publishers. It will discuss the changes in the way music is consumed, which in turn effects the way it is distributed. This essay will analyse the financial implications streaming has demonstrated within the music industry and the effects on physical products, such as vinyl. This research will include the use of charts to illustrate the impact of streaming and how it has changed the music industry overall.

Up until the late 19th century music could only be consumed in live venues. This consisted of musicians playing instruments for patrons, that would pay to attend these venues. In 1877 Thomas Edison invented the phonograph, this had two needles, one for recording and the other for playback and now for the first time, music could be consumed outside of a live venue. This led to the formation of the first record label, Columbia Records which was founded in America by Edward D. Easton in 1887.

A record label is designed to manufacture and distribute music created by artists signed to their label (Center, Misc. and Contracts, 2020). They are often structured with a CEO who controls the entire business element of the company. This is followed by the president, a vice president, the legal department, and the financial department. Further down the chain is the A & R department, the Promotions team, Artist Development, the Marketing department, the Publicity department, New Media, Record Label Liaison, the Sales department and the Art department.

The early 20th Century saw the emergence of several record companies including Universal Music Group, founded by Universal Pictures, and originally known as Decca records, up until 1962 when it merged with MCA. In 1995 Seagram acquired MCA and shortly after the name was changed to Universal Music Group. It is currently owned by conglomerates Vivendi who have a 90% stake and Tencent who have a 10% stake (Universal Music Group Careers, 2020). Sony Music is an American record label that is owned by Japanese conglomerate Sony. It was founded in 1929 as American Record Corporation before becoming Columbia Recording Corporation in 1938. In 1988 Sony Corporation bought the Columbia Recording Corporation and the new entity was renamed Sony. In 2004 it was renamed Sony BMG after a 50/50 partnership with Bertelsmann Music Group. In 2008 Bertelsmann’s stake was acquired by Sony and the company was renamed Sony Music Entertainment. In 1958 Warner Bros. Records was founded by Warner Bros. Pictures. In 2004 Time Warner sold Warner Music Group and it became a separate entity from Warner Bros. Pictures. In 2011 Warner Music Group was acquired by a conglomerate called Access Industries.

In 2018 these three major labels controlled 70% of the music industry. With a 27% and 3% market share for independents and artists, respectively. The three major labels own many subsidiary labels that may cater to a specific genre, this is displayed in appendix 3. Up until the year 2000, record labels used a similar formula for success. The A&R department would scout out the talent and bring them to the record companies, the record company may decide to offer the talent a record deal. Record companies would sign artist for a specified amount and would usually pay some of that in advance. The record company is obligated to pay the cost of the recordings for a future release, as well as the cost of any artwork and videos. They also incur the costs for Manufacturing and Distributing the music as well as any finance accrued in promoting the artists music.

The Government overview states that ‘Copyright protects your work and stops others from using it without your permission’. When an artist signs a record deal with a major label, they may decide to assign the copyright of their recordings to the label, meaning the label can print and distribute copies of the artist’s work. There are two type of copyright, the first is copyright of Musical composition, where the lyricist and composer is generally the author. Secondly is the copyright of sound recordings, in which the performer is usually the author. When an artist registers their music with the various collection societies they will be entitled to royalties. The physical or digital production of a song is known as mechanical royalties. Artists are also entitled to royalties for public performance (Understand Music Royalties, 2020). Royalties are paid for synchronization, which is music that can be found in the background of film and TV. Print works royalties is the sale of sheet music, such as a songbook. An artist may decide to sign a publishing deal, this would involve an author assigning some or total control of there copyright to the publisher for a share of the royalties, this would enable the publisher to exploit the composition (Deal, 2020).

When vinyl was introduced in the 1930’s, the quality made it hugely popular, which in turn allowed record companies to generate large sums of money. Vinyl remained dominant until the 1970’s where it was rivalled by cassette tape. In 1981 ABBA’s album ‘The Visitors’ became the first commercially released compact disc, which grew in popularity throughout the 90’s. These are known as physical copies and were manufactured and distributed, by record companies to records stores worldwide, HMV is one such store. HMV was founded in the U.K in 1921 and began to expand in the 1960’s. They were joined by other popular U.K chains, Our Price and Virgin Records, both founded in the 1970’s. Physical sales was a way in which independent artist could also generate income with some investment. By the time U.S rapper Master P was on his 3rd album “The Ghettos Tryin to Kill Me!” he was able to gross over $900,000 and sold over 250,000 units independently (Warner, 2020).

In 1999 the music industry was worth £30.6 billion. The emergence of Napster had a huge impact and changed the way how music is distributed. Founded by 3 friends Napster allows people worldwide to share music, as MP3 files for free. As Napster did not own the copyright to the music files being shared, record companies and Governments deemed it illegal, but the music industry was unable to stop file sharing and Napster continued to grow. In 2001 Napster paid £20 million in settlement fees to copyright owners and by May 2002 Napster could not afford to pay their staff and ultimately filed for bankruptcy. The company’s assets were sold to Roxio, who relaunched as a legal site in 2002, by which time other file sharing sites had taken over the market.

The effects on the industry were devastating as from 1999 – 2009 music sales in the U.S. were down by nearly 50% from 14.6 billion to 7.7 billion. Approximately 30 billion songs using file sharing sites were downloaded illegally between 2004 – 2009 and NPD Group reports that in 2009, only 37% of music acquired by consumers in the U.S. was paid for. The value of the music industry dropped every year till it reached a low of $15 billion in 2014. The effects were also felt by record stores as Virgin Megastores closed the remaining U.S stores in 2009.

Record companies struggled to adjust to the emergence of Napster and before there were 3 major labels, there were 4. EMI records were the 4th major label up until 2011. The company run into financial trouble and was acquired by Citigroup in February 2011 (Thinking, 2020), the musical arm of the company would be sold to Vivendi’s Universal Music Group for $1.9 billion and the publishing company sold to Sony for $2.2 in November 2011. Ironically EMI’s capitol released the first download version of a single which was ‘Barbarella’ by Duran Duran in 1997 but senior executives were reluctant to pursue this method of distribution. EMI were slow to react to the changes in the music industry which ultimately led to their demise. Other major labels took steps to preserve their brands after the loss of revenue, Universal acquired indie label Sanctuary, while Sony merged with BMG, with Warner aggressively trying to sign artists to 360-degree deals (Forde, 2020).

Traditional record deals entitle the record company to revenue generated from record sales, but a 360-degree deal allows the record company to the revenue generated from all activities, including live performances, this can have a huge impact on an artist’s earnings. 360 deals are not exclusive to record labels and can be done between artist and the Music Industry. Madonna and Jay Z both signed 360 deals with promoter Live Nation in 2007 and 2008 respectively.

With the sale of physical products declining in the early 2000’s and record labels having to constantly sue file sharing sites for copyright, Steve Jobs from Apple managed to convince record companies to allow him to use their music, to open a digital online store which he called iTunes (Chen et al., 2020). With conditions put in place, music could now be sold online. This would benefit the record companies as well as Apple, but not so much the artist. Since a typical download from iTunes for $9.99 would earn the record company $5.35, Apple would earn $3.70 and the artist would get the remaining $0.94. An artist would get $ 0.09 for an individual song, meaning if an artist sold 12,399 songs a month, it would equate to a monthly salary at McDonalds, having a negative impact on an artist’s earnings. Royalties paid by streaming companies to artist and publishers, vary depending on different factors, such as, what country the listener is in, as well as if it is a paid subscription. If the artist has a specific royalty rate and the pricing and currency in different regions.

With the sale of physical products declining and a rise in digital sales, artists and Publishers are now receiving less royalties from streaming services, as a result, must find other means to increase their earning potential. Touring for an artist is a viable way to make money and the live music sector, as well as synchronisation deals have shown growth from the years 2005 -2015 as can be seen in Appendix 4. In 2017 Drake made $23.7 million off streams compared to grossing $85 million off the Summer Sixteen tour. Without the backing of a record label and a huge fan base, a relatively unknown artist may find it hard to generate money from streams. Touring as an opening act for an established artist may be an option, to generate income.

2008 saw the launch of Spotify, this is a free streaming service that gets content directly from record labels. Upon launch Spotify would stream music with adverts, in the hope that consumers would pay a £10 monthly subscription for the service to be advert free. In 2018 Spotify had 159 million active users and was available in 61 countries. This saw iTunes change their business model and in 2015 Apple Music was launched which consisted of a paid monthly subscription (How Spotify came to be worth billions, 2020). In the year 2018 Spotify owned 36% of the market share of streaming services, with Apple music controlling 19% as can be seen in Appendix 5. Amazon, Tencent, Deezer, Google, Pandora and MelON making up 31% between them and others making up the remaining 14%.

In 2015 MTV reported that ratings for their target market, were down by 29% in the first quarter of that year, from the previous year. MTV targets 12-34-year olds and an insider said, “they had seen a shift in the way music videos were consumed by the younger audience”, as they were now consuming music videos on their mobile phones. April 2005 saw the first video uploaded to YouTube, the creators realised there was not one location where videos could be shared, so invented YouTube for this purpose. In 2007 YouTube was launched in the U.K as well as 8 other countries. 2012 saw the first video to have a billion views, which was Psy’s ‘Gangnam Style’ and in the same year introduced live streams. In 2012 YouTube had 1.3 billion users and 5 Billion videos were being watched per day. Unless an advert has been generated on a YouTube video an artist would not be entitled to royalties from YouTube.

Streaming music seems to be the most popular way to consume music by the youth as can be seen in Appendix 7. In 2014 Streaming was dominant among 16-24-year olds, with digital music collection proving to be more popular than physical products. Physical products remained more popular among all other age groups, especially with the over 45’s who grew up in the physical product era. The number of people listening to music on mobile devices is steadily rising, as in the U.S. this number increased from 12% in September 2009 to 27% in May 2012.

The music industry began to grow again in 2016 after an 11-year slump, with streaming services Spotify, Apple music, YouTube, and Amazon Music Unlimited dominating the industry. These streaming services contributed to 63% of the overall revenue acquired by the music industry. Sales of physical products continued to decrease, as well as digital sales notably Apple’s iTunes.

Upon conclusion this essay shows the revolution of the music industry. The early years of vinyl, later followed by cassette tape and Compact Disc, proved extremely popular amongst consumers and very profitable for record labels as well as artists. The emergence of Napster had a huge impact on the Music Industry and with file sharing unable to be stopped, the industry was forced to adjust. With the industry seeing a decline in revenue for 11 years, 2016 saw the industry begin to grow again, coinciding with growing popularity of streaming services. The way music is being consumed seems to be changing with streaming most popular among 16-24-years olds and a growing trend of music being consumed on mobile phones. If these trends continue, I predict that Music Streaming will become more and more dominant.