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Trends: Five music business trends to watch in 2015 (A Free Read)

By | Published on Sunday 15 February 2015

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Streaming Services

With this the first CMU Trends Report of 2015, Business Editor Chris Cooke identifies five trends he expects to see dominating the music business in the next twelve months.

CONSOLIDATION OF THE STREAMING MARKET
We all know that streaming music boomed in 2014 while CD sales continued to slide and download sales peaked, but it is still early days for the streaming market at large. It may be the fastest-growing revenue stream for the record companies, but in most markets it is some way off surpassing CD and download income levels.

And while certain services do seem to be gaining more traction then others, almost all the streaming companies are currently loss-making, with most prioritising growth over profitability, mainly because they have business models that require multi-territory operations and mass-market consumption to work out long term.

Plus, in the case of the start-ups, scale boosts perceived value when the big first sale (or IPO) comes along. And it’s that sale, rather than achieving profitability as a business, that will enable early backers to recoup on their investment.

Nevertheless, the streaming market is already pretty crowded, and will only become more so as the big three – Apple, Google and Amazon – all pursue their latest streaming music ambitions under the Beats, YouTube and Prime brands respectively.

Meanwhile, as the European services like Spotify, Deezer and WiMP/Tidal continue to expand globally (the latter soon to be under the management of a certain Jay-Z), platforms that began in Australia and Asia have their eyes set on Europe, led by Guvera, which is plotting a UK launch through its recent acquisition of Blinkbox Music.

But, while it’s probably all still to play for in the streaming music domain, it seems unlikely that so many rival services can survive, meaning mergers and shutdowns are therefore likely this year. Certainly neither Guvera’s aforementioned acquisition of Blinkbox or Sony’s decision to wind down Music Unlimited, both announced last month, were in anyway surprising.

A BIG DEBATE ON THE DISTRIBUTION OF DIGITAL ROYALTIES
Meanwhile, as streaming music becomes a key revenue stream for music rights owners, expect plenty more debate on who’s paying what to whom.

The bigger players – Spotify, YouTube and especially Pandora – can all expect to see artists, songwriters and others criticising their business models and the royalties they pay once again. (Zoe Keating got in there early, of course, with her revealing blog about YouTube’s new deal for self-releasing artists).

But more debate in 2015 may take place within the music rights industry as artists, songwriters and publishers increasingly question why the vast majority of the money that the streaming services pay into the music community goes to the record companies.

When it comes to the two sets of music copyrights – the lyrical and musical rights repped by the publishers versus the sound recording rights owned by the labels – the revenue split was traditionally 50/50 (or thereabouts) when recordings were played on radio or in public spaces, while with CDs the labels got a much bigger cut than the publishers because they took the risk in developing the artist, recording the music and distributing the content onto the high street.

The latter approach has been more or less adopted in the streaming space, the record companies arguing that they continue to be the primary risk-taker with new talent, and actually pump content into the streaming platforms, and do all the marketing around new releases. Most of which is true.

But are the risks as high when you’re pushing content into streaming platforms as opposed to pressing and distributing CDs? Is it not true that, in the streaming age, a flurry of listening, and therefore revenue, might equally stem from an artist’s live activity, or television bookings, or a cleverly placed sync, all of which might happen without the label’s active involvement? And anyway, aren’t labels now securing their investments on a multitude of artist revenue streams, not just copyright?

All of these questions could result in publishers calling for a bigger slice of the streaming pie. As as we go to press, the songwriters have just announced a campaign focused on the digital royalties they are receiving. Meanwhile featured artists and session musicians will continue to lobby for a bigger share too.

Whether any of this can be settled without these questions being raised in court or Parliament remains to be seen.

MORE PRESSURE WILL BE PUT ON GOOGLE OVER SEARCH
Tackling piracy will remain a priority for the record companies and music publishers in 2015, even if they don’t bang on about it all quite as music as they did ten years ago.

Web-blocking is set to remain a preferred anti-piracy tactic in those countries where copyright laws allow such things, and you can expect to see the music and movie industries lobby for that option to be introduced elsewhere too.

Maybe even in the US, where the web-block-enabling SOPA and PIPA proposals caused a right old hoo haa when put before Congress in 2012.

Though we all know that, while web-blocks might help to communicate to more casual web-users which websites don’t comply with copyright rules, it doesn’t stop anyone eager to access a Pirate Bay or Kickass Torrents from getting onto those sites. The biggest problem there is Google et al, which often list links that circumvent the blockades at the top of search queries about blocked sites, while also continuing to list deep links from blocked websites unless a rights owner specifically requests their removal.

We noted last year that removing all links associated with blocked websites from its search engine result lists would be the single biggest thing Google could do to placate the copyright industries. Though, despite their own ambitions in the content provision domain, the company remains resistant to such a proposal.

But we can expect the music and movie industries to quietly lobby on this in 2015, increasingly looking to lawmakers to put pressure on the web giant, and other major search engines, to play ball.

THE GRASSROOTS LIVE COMMUNITY WILL BE MORE VOCAL
Last year saw the grassroots live music community in the UK start to unite – around initiatives like Independent Music Week, the Music Venue Trust and Venues Day – creating a forum for promoters and venue operators to share there common frustrations: licensing issues especially around noise levels, small venues being priced out of town centres, gig-focused venues facing competition from pubs using music as a sideline, and the ongoing challenge of making any money whatsoever out of promoting new bands despite all the talk of a “booming live sector”.

Of course, it’s no secret that making money out of promoting grassroots gigs, where brand new bands will likely play to an audience well under a hundred, is really hard to do, unless you own the bar selling the drinks. And yet we all know that for most artists, however sophisticated your online presence, those early gigs are key for honing your sound and capturing an initial fanbase, most of which now happens long before a label, publisher or agent become involved.

The people promoting these gigs, therefore, feel that they provide a vital service for the industry at large, but struggle to make a living promoting brand new talent, and rarely benefit if and when the bands they booked first subsequently go big. But what is the solution? Should government or the wider industry be helping, both by removing hurdles and, possibly, providing funding to grassroots promoters? Or should bands be using direct-to-fan channels to self-promote, so fewer people requirement payment?

Having rallied a little in 2014, we can expect those leading this community to be come more organised and more vocal this year. Indeed, already the Music Venue Trust has joined the UK Live Music Group, giving it access to the more mainstream live sector and, via its chair, to cross-sector music business body UK Music. Meanwhile a preliminary report on the state of the grass roots music scene was published as part of Independent Venue Week, with the final edition due to follow in March.

MORE ATTENTION ON DIRECT-TO-FAN AND MULTI-REVENUE STREAM DEALS
While the rise of streaming still grabs the headlines, the record companies continue to reinvent their artist relationships through multi-revenue stream (aka ‘360 degree’) deals.

Doing so reflects the often unspoken acceptance that recorded music will never again generate the same level of income it did at the peak of the CD business. Only in 2012 did rising download revenues compensate for declining CD sales, resulting in a tiny growth for the global record industry at large. But now booming streaming monies – themselves heavily subsidised by start-up capital and tech company subsidy – need to overcome declines in both CD and download sales.

But featured artists have always had multiple revenue streams open to them. Indeed many, once signed to a label, saw only nominal income from their recordings for several years, initially living off publishing, live, merch et al. The real problem for the wider music industry when the CD bubble burst wasn’t so much declining record sales as it was the fact the industry’s primary investors in new talent – the labels – had too often secured their investments entirely on one single revenue stream: the one that’s now in decline.

Most labels, of course, now insist on a cut of other revenue streams when investing in new talent, either a share of the live and publishing monies generated by the artists through other deals, or possibly hands-on involvement in the act’s merch and brand partnership activity. Managers and lawyers initially advised artists against such deals, but in more recent years they have, in the main, become the norm.

But a more holistic partnership between artist and label can actually work for both parties if managed correctly. In particular, multi-revenue stream deals can incentivise labels to get involved in the generally under-tapped domain of direct-to-fan, better servicing and therefore capitalising on core fanbase.

Opportunities abound in this emerging strand of the music business, though labels are only just working out how to structure their deals and in-house resources to capitalise on that fact. It will be interesting to see what is achieved in 2015.



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