How streaming music is changing the industry

Streaming isn't just a convenient way to get music for those with a high-speed Internet connection, it's poised to change the music industry as we know it — again.

Denys Prykhodov / Shutterstock.com

By Chandra Johnson, Deseret News National Edition

Summary

Streaming isn't just a convenient way to get music for those with a high-speed Internet connection, it's poised to change the music industry as we know it — again.

Every time he picks up a music magazine, Scott LeGere realizes how paramount music streaming is in his life

“I almost hate reading those magazines now because when I read a blurb about a record, I want to push the picture and hear it,” said LeGere, a professor of music at McNally Smith College. “It’s just a reminder that based on streaming’s convenience and immediacy, there’s really no putting the genie back in the bottle.”

As a music business professor and producer, LeGere says this month’s announcement that Apple plans to roll out its own streaming service marries the music industry’s future to streaming.

“It wasn’t that long ago that jumping in your car and going to a store was the most convenient way to find music. Now, it’s a Google search bar,” LeGere said. “That a company like Apple, that has the largest music store in the world, would cannibalize its own music sales tells you where the future is.”

Since Pandora was founded in 2000 and Spotify came to the U.S. in 2011, music streaming has quickly outpaced downloading as the primary way people listen to music.

In 2014, digital track and album download sales accounted for 113.2 million out of 227 million total sales, which included physical music like CDs and vinyl.

SEE MORE: How this superstar got Apple to change its streaming policy

To give streaming a comparable sales model (even though songs and albums aren't sold via streaming), the industry created stream equivalent albums — or the number of streams it takes to match the $7.50 wholesale revenue of a CD or a downloaded album. It currently takes 1,500 streams to equal the wholesale value of a downloaded or physical album, and in 2014, stream equivalent albums accounted for 46.9 million in album "sales."

The stream equivalent album figure nearly doubled year over year, a significant detail when overall album sales — including CDs and vinyl — slid by 8 million in one year, from 235 million to 227 million.

When artists have to hope their songs get streamed more than 1,000 times to make the same money they once did on a 10-track album, it's easier to see why high-profile musicians like Taylor Swift and Jay-Z have pushed back against the streaming model. In their efforts, both Swift and Jay-Z aren't fighting against streaming per se, but against a model that pays artists and others in the music industry fractions of pennies per stream.

In March, Jay-Z launched Tidal, an independent streaming service owned by musicians in what the service hoped would "forever change the course of music history." So far, that course has been difficult for Tidal; since its launch, Tidal has lost two CEOs and as a strictly paid, $10-a-month service, it competes with free versions of streaming services and free websites like YouTube.

Swift, on the other hand, has had more success in dealing with the issue of streaming. An outspoken opponent of file sharing and streaming as undervaluing music in general, Swift has held her music from streaming services like Spotify. This summer, she threatened to withhold her mega-hit record "1989" from Apple's proposed streaming service. Apple, to its credit,agreed to pay artists on the new service per stream in response.

While steaming’s future in the music industry seems secure, industry players are wondering what the future will look like, and whether or not the innovation it brings can change the label-driven music industry for the better.

“(Streaming) is not about demand or the Internet being good or bad, it’s more about the value we put into it and how to foster what we get out of it to make sure some of it gets back to the creators," Future of Music Coalition CEO Casey Rae said.

TopcaT@PeachTreeMusicGroup.Com

In turmoil again, music industry once more looks to Apple to save it

By Cecilia Kang 

Taylor Swift will allow her album “1989” to be part of Apple’s service, the first streaming service to include her music. (L.E. Baskow/Reuters).

More than a decade ago, the music industry was in crisis. Songs were being passed around the Internet illegally free of charge. CD sales were in decline. So major labels and musicians embraced Apple, which convinced consumers to open their wallets again by buying digital songs through iTunes.

Now again in turmoil, the music industry is looking once more to Apple, which launches its new $10-a-month streaming service Tuesday. The challenge this time: Find a solution for the industry as it struggles with Web sites that are legally streaming songs for free online.

With its paid service, Apple will go against the grain of these proliferating sites — which partly fund themselves by requiring consumers to hear a few ads once in a while. Google, which has 1 billion music listeners through YouTube, introduced its own free streaming service last week. Pandora, the early streaming specialist, has 85 million listeners, and Spotify has doubled the number of its nonpaying users to 75 million in the past year.

3 times Taylor Swift was a savvy businesswoman

Taylor Swift's big win over Apple Music isn't the first time the pop star has proven her savvy business skills in the music industry. (Nicki DeMarco/The Washington Post)

The trends are a source of deep unease in the music industry, which would see a drastic change to its business model if it had to largely rely on advertising for revenue, rather than song sales.

“We are at an important inflection point of the evolution of music,” said Larry Miller, a professor of music business at New York University’s Steinhardt School. “After more than 15 years in digital music transition . . . only Apple has the potential to push streaming — paid streaming — into mainstream adoption.”

Apple is coming relatively late to the scene, but the tech giant arrives as labels and musicians have been searching for an alternative to Spotify. The privately-held firm was actually once championed by the music industry as an alternative to Pandora, but is now feared as it sees exponential growth.

After months of negotiations with music labels and artists big and small, Apple committed a vast marketing budget for glitzy TV ads and direct marketing to the hundreds of millions of e-mail accounts it holds. It also promised slightly better royalties to artists than Spotify and other streaming partners, according to people familiar with the company’s plans.

And in a departure from its rivals, Apple promised to strictly enforce its policy that users must pay after a free, three-month trial.

“Apple is generally positive for artists in getting better pay because subscriptions pay about seven times as much as free services do to artists,” said David Lowery, a member of the bands Cracker and Camper van Beethoven and a lecturer in music economics at the University of Georgia.

“But we don’t want to create another monopoly where we end up like authors did with Amazon. What we want is more options,” Lowery said.

The stakes are just as high for Apple, which for the first time saw music downloads decline on iTunes for the first time last year. Two-thirds of U.S. consumers, meanwhile, are listening to streaming music each week, according to Nielsen Entertainment research.

When Spotify first launched in the United States in 2011, the three major music labels — Universal, Sony and Warner — threw their support behind the company and took equity in the privately-held firm. Spotify chief executive Daniel Elk pitched the labels, saying most users would come first as free listeners but then become hooked and eager to pay $10 a month for the service’s premium tier, which is ad-free and gives users more control over what they hear.

In a May earnings call, Warner Music chief executive Stephen Cooper reiterated the importance of getting users to start paying. “We continue to believe that the long-term sustainability of the ‘freemium’ model is predicated on high levels of conversion from ad-supported ‘free’ to paid subscription,” Cooper said. “Of course, in order to achieve those levels, the benefits of paid subscriptions must be clearly differentiated from the ad-supported offerings.”

But in the last four years, Spotify has struggled to grow its paid service. Almost all new users started out with the fee plan, but only about 20 percent to 30 percent of them became paying customers, according to industry executives.

Privately, music labels began to express frustration. Spotify wasn’t putting enough money into marketing its premium service and didn’t collect credit card numbers of new users to ease the transition to the premium tier, executives said. They complained that Spotify, preparing for a public offering, appeared more interested in bulking up its overall user numbers to impress investors than generating revenues that could be passed down to labels, writers and musicians.

“The irony of it is that there is nothing more that we wanted than to make Spotify a significant player, but what happened was that Spotify revealed its true colors — that it is no different than any Silicon Valley company that wants to build a whole business on audience and not subscribers,” said a music industry executive who spoke on the condition of anonymity because of ongoing relationships with streaming providers.

Apple and Spotify’s recent dealings with Taylor Swift was also telling, two music industry executives said.

Earlier this month, Taylor Swift complained that Apple wasn’t paying artists for their music during the new service’s three-month free trial period. Apple quickly agreed to reverse its policy.

But in November, Swift said she would keep her “1989” album off Spotify because she believed the company’s free tier of ad-supported streaming would never make enough money to support artists. She insisted her album “1989” should only be available to subscribers of Spotify’s premium tier. Spotify, however, wouldn’t budge; the company said it was sorry to see Swift leave.

“Our feeling was that Spotify is too entrenched in very simple principles. They said they would never put anything just on premium and were unwilling to take a nuanced approach,” said one industry executive who spoke privately to protect an ongoing relationship with Spotify.

Spotify disagrees that it hasn’t grown the number of paid users quickly enough.

“Nobody is more interested in driving subscriber growth than we are. Nobody has more data about what works and what doesn’t, and nobody has had anything close to our success in actually getting people to subscribe,” said Jonathan Prince, a spokesman for Spotify. “The numbers speak for themselves — 100 percent growth from 10 to 20 million in just a year, the highest conversion rate of any ‘freemium’ business, whether it’s music, video, news or games, and orders of magnitude more subscribers than any of our competitors.”

Cecilia Kang is a staff writer covering the business of media and entertainment.

Music Industry Predictions: Labels, Concerts, Licensing and More

This guest post is written by Jeff Rabhan, artist manager, music-industry executive and international consultant. His clients have garnered twelve Grammy Awards, sold more than one hundred million records and generated over one billion dollars in global receipts. Rabhan currently serves as Chair of the Clive Davis Department of Recorded Music atNew York University’s Tisch School of the Arts.

Fire up the crystal ball folks because it’s time to look and see what the future holds for many areas of the music industry and ultimately for many of you who are pursuing a career in the business. We’ve seen more change in the last decade then the previous 50 years combined, leaving many of you befuddled and wondering what tomorrow will bring.  While there’s no such thing as a sure thing in the music business, read on to see how today’s unanswered questions get answered tomorrow…

The Future of Record Labels

Can you imagine a major record company that only has a roster of 10 international superstars instead of 60 acts in various stages of development? It might not be so far-fetched.

Record companies are adept at doing three main things: getting songs on radio, effectively distributing records to countries around the world simultaneously, andmarketing worldwide successful artists on a grand scale.

Not a week goes by where I don’t hear some young artist knock a major label for not developing artists. It’s not what they do anymore so why blame them? It’s like blaming a shoe store for not selling underwear.

It’s on you to build a story for yourself that makes you appealing to them if that’s your goal, and a catchy song is no longer enough to grab their attention.

What does this mean?

You will see label rosters shrinking down to their core. Look for labels to “specialize” in certain genres or styles of music. Imagine a Sony Music that only releases female pop records like Beyonce, Adele, and Shakira. Or an Interscope that becomes a hip-hop only label.

One thing is for sure: if it isn’t fit for radio, chances are you will not find it on a major label roster in the next five years. Which creates an opportunity for… independent labels.

Independent labels grabbed 32.6% of U.S. album sales in 2012, according to Soundscan stats.

Indie labels are experiencing a resurgence of visibility within the marketplace, mostly due to a successful recipe of mixing a clear vision, likeminded artistry, and a tight geographic radius, in a way that’s very similar to the success of labels like Sub Pop, Matador, and Mammoth Records in the early 90s.

The new normal is to be the big fish in a little pond and success continues to come for those labels with laser focus.

Bottom line is that there’s a lot of good music out there and most of it is not right for major labels anymore. There used to be a time when consumers bought releases from particular labels simply because the releases were so heavily and successfully curated that fans felt an allegiance and a belief that that label’s brand stood for quality. The best example of this was Def Jam in the early days. In the next several years look for indie labels to continue to pop up, grow their fanbase, and happily own their little piece of the world.

What does this mean for artists looking for a record deal?

Continue to think global but start by acting local. Take a look a the labels in your area that may be a good fit first and truly assess if you belong on a major label. Chances are you don’t in the new world.

The Future of Live Concerts

It’s no secret that most popular artists are making most of their bucks from concerts and brand partnerships. But what does the future of concerts look like and will this affect the artists as well as the fans?

Newsflash: we are already experiencing a shift in the way we see concerts. All of you are buying tickets to a show online — soon the hard ticket stub will be a thing of the past as you simply swipe your phone and go about your merry way. It’s not just concerts — we already use the same technology to get many other goods including movie tickets, airline flights, and many others.

That’s not news, you say! That’s just technology making the purchase easier.

You want to know what happens to that fan experience? You know, when you’re standing so close you can feel the artist sweat? If you are one of the lucky few to be that close, you probably waited all day and stood on your feet for hour after hour for that prized spot.

But many fans no longer want that live experience, especially in the cases of larger arena and stadium shows. I get it — by the time you buy the tickets, shlep to the venue, park your car, and buy your beer and t-shirt before finding your seats fighting the sea of other people doing the same thing all along the way, your wallet feels empty and the experience has lost its luster.

Festivals like Lollapalooza already stream live shows on YouTube. Image: Mashable.

Look for major growth in the streaming of concerts, especially for those aforementioned arena shows for two reasons: first, many fans would rather enjoy the show in the privacy and comfort of their own home and, next, because it gives artists another income stream.

Festivals like Coachella and Lollapalooza are already on board. Couple that with technology advances (holographic Tupac performances??) and you’ve got a movement. Look for YouTube and UStream to continue to lead the pack.

The live show is coming to you and you can decide just how you want to see it and wear your pajamas if you so desire.

What does this mean for the up-and-coming touring act or artist interested in touring?

Make technology your friend. Posting flyers to get the word out and making tickets available only at the venue hurts your chances of reaching maximum fan potential. Work with your venue to sell tickets online or experiment with streaming shows for a small fee either live or after the fact. Get creative with your YouTube channel and make live content a bigger part of your fan experience. It will build your buzz and bring more bodies to the venues and online events as your reputation builds a live band with surprises. Reverb Tip: Meanwhile, it doesn’t hurt to play live gigs while you get acquainted with live streaming. We recommend you try the free Gig Finder, which will connect you to the best venues in any town. 

The Future of Radio

Terrestrial radio is still the #1 way that people discover music, but that may be changing as we speak.

Local radio vs internet radio: which is better for indie artists?

The real question facing radio is: will it all become digital or will good ol’ AM/FM still have a presence? We know that if you aren’t driving, don’t have a car, or live in a major urban center like New York City, YouTube has become the destination for listening to music. Pandora and Spotify both have fairly robust internet radio presences, yet there are few things to consider as we look forward.

For those of you paying attention, have you been following the Internet Radio Fairness Act?  The IRFA wants to reduce the royalties being paid by internet music streaming services like Pandora.

On the other side, record labels and artists feel that the act will deprive rights holders of deserving income. The bill hasn’t been passed and my crystal ball tells me it won’t when nicknames for the bill include the “unfairness act” and the “paycheck reduction act.”

When the majority of the music community is against something, clearly there’s an issue, but it brings up many questions that will impact the future of radio.

Currently there are several ways that people use Internet radio services. From niche playlists to sites dedicated to discovering new artists.

Internet radio has the potential to break even bigger barriers than it has; yet copyright laws are hindering this evolution. Also keep in mind that in over 85 car models there is some form of Internet radio service integrated into the cars entertainment system. This issue needs to be figured out ASAP. Internet radio operates under a completely different rate than other forms of digital radio and everyone is taking notice.

Bottom line: There will always be radio, yet the way we access it will continue to change as wireless gets better and networks like 4G have more power.

Look for smarter recommendation-based software and more interactive and personalized experience — a theme that will repeat itself over and over in the growth of digital media and the technological advances that accompany it.

What does this mean for new artists looking to get exposure on the airwaves?

Don’t get your hopes up unless your music is ear candy for terrestrial radio and you’ve got a major label promoting your song. The sea of artists found on Spotify makes a breakthough difficult and new artists are rarely “discovered” via recommendation-based software platforms like Pandora. Look for local radio, specialty shows, college radio and a strong, creative Internet presence to get your music out. Reverb Tip: We recommend two great ways to get your music heard by more people: 1) Submit to opportunities — everything from festivals to online radio play; 2) Run a Promote It campaign on top music sites.

The Future of Licensing

Before you lament all of the changes or fear the demise of the traditional business, hold onto your hat because the future of licensing looks bright.

The opportunities for artists to get their songs placed on other outlets such as television, film, and video games are exponentially increasing. TV and film license fees have been decreasing and video games are allowing artists to make up for that loss. Video games are giving artists what’s known as performance-based royalties, which allow them to reach a new type of audience.

How does this impact the ever growing and evolving Internet?

Internet outlets are getting smarter! They’re creating exclusive content and licensing music for only online usage. Artists can now have their songs placed on everything from a Hulu original series to a series on Netflix. It used to be extremely difficult for new artists to get placements on TV/film. Now with all these new outlets, artists have many more opportunities to get heard and seen.

And when you speak about online content, you must bring YouTube into the conversation.

Will it remain an outlet for fly by night, flavor of the moment quasi-stars to reach critical acclaim, or is the future of TV at stake?  YouTube is undergoing a giant makeover within the next few years as premium content and niche channels are about to take over. YouTube has the potential to become the go-to platform for building business media in the future. They aim to develop channels that are topic specific and interactive — meaning viewers will get exactly what they want. The company has already invested 100 million dollars in developing premium channels that range from education to fashion.

This will also allow YouTube to form deeper integrations with the other companies and products like Google. Count on YouTube to remain on top and in control.

What does this mean for you?

Put down the guitar for a minute and get your fingers working on the computer to develop lists of outlets, shows, gaming properties and online networks to pitch music to. Unsigned, up-and-coming acts regularly get placements on networks programs these days and that trend is going to continue. Make music licensing a centerpiece of your story.

Welcome to the future

Music Industry Grows First Time in a Decade on Digital Adele

The worldwide recorded music industry’s revenue grew 0.3 percent to $16.5 billion last year, the first increase in more than decade, as more people downloaded music and used online streaming sites.

Adele’s “21” was the best-selling album and Carly Rae Jepsen’s “Call Me Maybe” was the best-selling single, an industry group representing music labels said in a statement today. Digital sales rose 9 percent to $5.6 billion and now account for about 34 percent of total revenue, according to the International Federation of the Phonographic Industry.

The improvement is welcome for an industry battered by piracy, the shuttering of record shops and declining sales of CDs. Digital sales of music now account for the majority of record companies’ revenue in countries including the U.S., Norway, Sweden and India, the IFPI said.

“These are hard-won successes for an industry that has innovated, battled and transformed itself over a decade,” said Frances Moore, chief executive officer at IFPI. “They show how the music industry has adapted to the Internet world, learned how to meet the needs of consumers and monetized the digital marketplace.”

Streaming Music

Major services for downloading and streaming music have proliferated and are now available in more than 100 markets, while subscribers to online music services increased 44 percent to an estimated 20 million in 2012, the group said. The European digital market grew faster than average at about 20 percent in 2012, the IFPI said.

Still, the industry has a problem with unlicensed music services using tracks without permission. To halt such sites, Internet service providers, search engines and advertisers need to cooperate, the IFPI said.

The number of people using illegal music-file sharing dropped by 17 percent last year as more streaming services became free to use, according to research from New York-based NPD Group. The practice peaked in 2005 when one in five Internet users over the age of 13 accessed illegal file-sharing sites to download music, the group said. The figure is now 11 percent.

“For the music industry, which has been battling digital piracy for over a decade, last year was a year of progress,” said Russ Crupnick, senior vice president of industry analysis at NPD. “Among other factors, the increased use of legal and licensed streaming services has proven to be an alternative for music fans.”

The IFPI also reported today that British songwriter Adele’s “21” was the first album to top the global chart for two consecutive years since the IFPI began reporting worldwide best-sellers in 2001. Taylor Swift’s album “Red” took second place last year, followed by One Direction’s “‘Up All Night.”

One Direction had two of the top 10 albums of the year and Maroon 5 and Flo Rida each had two songs in the top 10 singles.

To contact the reporter on this story: Kristen Schweizer in London atkschweizer1@bloomberg.net.

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net.