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Here’s the Music Industry News Roundup for the week of November 4rth, 2016. We’re coming to the end of the year, and as a result, starting to see a number of year-end stories. And it looks like the piracy argument will never die. Check it out.
YouTube Red is a bomb. It only managed to sign up 1.5 million subscribers in its first year, a pitifully small number.
On the other hand, Apple Music is coming on strong. Mostly because its users have more disposable income and trust the iOS environment.
The rumor is that Apple Music will soon be cheaper. Inside sources say that it will decrease to $8 a month by the holiday season.
Do A&R people follow online metrics of artists? Not as much as you might think, it turns out. When it comes right down to it, a real show with a real audience is a much better indicator of how good you are than an edited video.
Make way for the new hybrid record labels. Irving Azoff started the trend on the high end, but now there are indie labels attempting to do the same thing and build a label around today’s technology and mindset.
Pirated CDs are showing up on Amazon. The industry brings the pirated music issue up again, but the fact of the matter is that streaming has won, and this is a drop in the bucket revenue-wise.
Speaking of piracy, Facebook has banned several music sharing groups. That’s such an easy thing to do. Piracy may not be that big of a deal these days, but it’s still best to cut it off when you can.
YouTube makes a deal with GEMA. Good news for artists, labels and songwriters to get paid for their video views in Germany.
There’s a reason why tech companies are importing music execs. They just don’t know how to deal with artists and creatives, it seems. Whether this idea will work is yet to be seen.
The highest paid women artists – Forbes knows. And it’s exactly who expect them to be, but the amount they made last year is still staggering.
And finally, for the first time in long time, NPR has seen a large ratings increase. Politics may have something to do with it, but the state of radio in general is deteriorating as streaming takes over and the ad revenue dries up.
That’s the News Roundup of what went on in the music industry last week. Let’s see what next week brings.
The major record labels are adamant about keeping the price of a music streaming subscription at $9.99 per month, regardless of the platform, so it was a great surprise last week when Amazon announced that its new Amazon Music Unlimited service was priced at $7.99 per month for Amazon Prime members. It turns out that the labels haven’t softened their pricing stance at all, as Music Business Worldwide reported that Amazon will actually end up subsidizing the other 2 bucks when all is said and done.
It turns out that Amazon is expected to be paying out from between $5.50 to $6 each month to record labels and artists for each $7.99 Prime subscriber, and an additional $1.50 a month to publishers and songwriters. When you figure in administration, marketing, staff and infrastructure costs, that means that most if not all of that monthly fee has pretty much been eaten up.
So what’s the company’s end game?Amazon might be pulling an Apple here, losing money on software in order to sell more hardware and make a much higher profit. While Echo and Dot seem to be hits and are the leading products in this new category, there very well may be more hardware devices from the company on the way . Using music streaming as a loss-leader to make it’s hardware more attractive has been tried by many companies though, particularly in the mobile space, and only Apple has been wildly successful with the strategy.
The price subsidy could also be another way to increase Prime memberships. While Amazon doesn’t publish the actual number of subscriptions, insiders have reported it to be around 60 million, and when you consider that each one is paying $99 a year for the privilege, you can see why anything that might increase that number could be valuable. Still, it seems like a stretch to think that the average music user will say to himself, “I really want to subscribe to this music service because of this great price. Let me pay just $99 more so I can buy in.” [Read more on Forbes]
There’s been speculation for some time that Amazon was going to launch it’s own streaming music service to rival that of Apple Music and Spotify. While such a service could be formidable indeed, another me-too platform might not shake up the streaming landscape much. That could change if Amazon is able to launch a lower-priced service, which could be a game changer based on price alone.
Reports are that the company is considering a streaming service priced at either $4 or $5 per month, but it would only be available on Amazon’s Echo player, and not on phones or other devices. The service would have features much like its competition in that it would be fully ad-free and on-demand. Reports are that the company would also launch a $10 per month full-line service as well that would be available on all devices.
While an Echo-only service seems like a serious limitation given that Amazon has only sold a few million units so far (predictions say that there will be 4 million in use by the end of the year), it’s the precedent of breaking the $5 per month barrier that’s more important than the service itself.
Many industry analysts have railed against the standard $10 per month price point, with the premise being that the price is too high for the industry to reach the tipping point it needs to fully replace physical product. It’s long been predicted that $5 per month was the point that would reach consumers who were reluctant to subscribe at a higher price and finally have them sign on.
The $5 price point has been resisted by the major labels as being too low, and they have fought with the streaming services to keep it at $10. While that might have been a wise decision when streaming was ramping up, in order to truly grow to the heights that most in the industry believe can happen, an adjustment downward is necessary to overcome current consumer objections based primarily on price. The adoption of the proposed $5 per month of the Echo-only service would make music execs more comfortable with the idea that a lower price means more customers, enough so to make up for any perceived money being left on the table. [Read more on Forbes]
When it comes to technology, the music business has always been about convenience. It’s ultimately never about the sound or even a lower cost, it’s always comes down to what’s easiest to use. Still, it’s surprising to see the MP3 file format (or the “download” as many know it) accelerating so quickly towards the end of its useful service life.
From the beginning of the modern music business, consumers have quickly gravitated to the latest technology that made it easier for them get their music fix. Going way back to the 1880s, the business consisted of distributing sheet music that the family musician would use to play the latest songs in the living room. When the player piano was introduced, piano rolls became the must-have product.
The Victrola brought the 78 RPM shellac record in the early 1900s, which was soon replaced by the much more durable 33 1/3rd RPM vinyl record that could hold more than twice as much music. But vinyl records weren’t portable, so in the 1960s 8 track tapes became a big hit for taking your music with you in your car. Cassettes were more convenient however, since they were smaller and operated more like a record album, having two sides. They also provided the ability to fast forward and reverse to quickly find the song you wanted, features not available on the 8 track.
The CD was a revelation, not so much for the digital audio it provided, but for its random access ability that let the user easily select a track with no rewinding or forwarding. This is where the music industry got greedy and included a “technology charge” on every CD, jacking the price up far higher than need be, which eventually caused a consumer backlash after the newness of the format wore off.
That dovetailed into the rise of personal computers and the internet, and the ability to share music was high on the list things that the average computer user craved. In Germany, the Fraunhofer Institute developed the MP3 file format in 1993, but it wasn’t until 1997 when it finally took off thanks to the advent of the Winamp player and popularized by MP3.com website.
An MP3 file “let the air out of the tire” of a standard digital CD file, making it about 10 times smaller in size. As a result, music files could then be easily transferred over the low bandwidth online connections of the times (remember, we’re talking the old 32kbd modem days). Not only that, a user’s favorite songs could be ripped from a CD then freely shared with friends without having to pay those sky-high CD prices. Before you knew it, the revolution had arrived as piracy ran rampant, sales waned and record stores closed.
After several feeble attempts to open up an online music store by the major labels, Apple came to rescue with iTunes in 2003, the first large scale way to monetize digital music, a move that the majors rue till this day. [Read more on Forbes…]
After a year run up, the streaming service Deezer has finally launched in the United States. Spotify’s major competitor in Europe is now in the world’s largest market, but the question is, does it have enough to differentiate itself from the rest of the current streaming contenders in the space? The Paris-based service launched in 2007 and is already live in 180 countries and has 3 million paid subscribers.
Deezer is available on iOS, Android and Windows phone apps and features a catalog of 40 million songs and 40,000 podcasts, but most significant is that it won’t have a free, ad-supported tier. The service is instead opting for a free 30 day trial period with no ads and no usage limitations. That should make artists, their managers and their labels happy, but it may not be much of an incentive to get people to jump from an existing service of choice.
The platform allows users to create multiple playlists, import MP3s of songs they already own so all their music can be found in one place, and even listen while offline. A feature called Flow also provides song recommendations based upon the user’s listening experience and existing library, and something called Deezer Sessions features live music from festivals and other venues. There are also curated playlists and recommendations, and lyrics are available for the songs you listen to.
Deezer is rolling out its U.S. service without a top Stateside executive though, as former CEO Tyler Goldman is apparently no longer with the company, according to TechCrunch. You can hear Goldman discuss Deezer on my Inner Circle podcast from September 13, 2015.
The company postponed its IPO last year after receiving only lukewarm interest, but raised an additional round of funding worth $109 million this year that made the U.S. launch possible. Deezer has been active in the territory for a while though, as it had previously acquired Muve Music from AT&T as well as the podcast service Stitcher, and also partnered with Sonos last year to support its $19.95 per month high-resolution tier. [Read more on Forbes...]
Who says Apple’s music executives aren’t smart? In what may end up being a brilliant strategic move, the company discretely made a proposal to the governing Copyright Royalty Board to increase the song publishing royalty rate to 9.1 cents per 100 interactive streams, a significant increase over what is currently paid, according to the NY Times.
On the surface, this is not only an greater payday for songwriters and music publishers, but also a vast simplification over the current complex royalty calculation. Streaming services now pay publishers from 10.5 to 12% of overall revenue, which is determined via a strikingly large number of factors that changes with the device used, the country the user resides in, if the service is bundled, and the type of subscription, to mention just a few. The music royalty collection company Audiam reports that the average publishing royalty is now around 5 cents per 100 plays, so Apple’s proposal of 9.1 cents represents a windfall for a part of the industry that has suffered during the run up of streaming popularity.
There’s also a psychological impact that goes along with that figure however. Currently, the mechanical royalty rate for every song on a CD or vinyl record, or a download, is also set at 9.1 cents. A streaming rate set similarly will not only bring it in line with those standards, but put the ease of calculation back in the hands of the songwriter and publisher, who must now depend upon the streaming company to calculate the monies owed.
The Back-Door Strategy
While simplicity may seem to be the overriding factor for the proposal, there’s something much more strategic behind Apple’s thinking. First of all, an increase in publishing royalty payments would severely stress stand-alone streaming companies who’s only product is music streaming like Deezer and Tidal, but most especially Spotify. That company still hasn’t turned the corner to profitability, and having to pay roughly 80% more in publishing royalties might keep it that way, which may put the company in a more serious bind with its already itchy investors.
Not only that, it would put a severe crimp on any interactive streaming service (as opposed to non-interactive like Pandora) that currently features a free ad-supported tier, since the royalty rate per 100 streams would be the same regardless of if the subscriber makes a monthly payment or not. Such an increase in expenditures might put an end to the free tier as we know it (which in the end, might not be such a great thing for the industry – a topic for another day). [Read more on Forbes…]
Artists, bands and record labels have issued an all-out assault on YouTube this year over a variety of issues that mostly stem from what they consider to be low royalty payouts. The problem is, while it’s likely that many of the presumptions leading to the attacks have a basis in reality, their conclusions may be premature.
In the music industry’s eyes, YouTube is a devil that it’s forced to deal with. The service is widely used to market it’s product while throwing off enough revenue that it can’t be easily dismissed, yet YouTube is in a position of strength where the labels can’t easily use their licensing leverage to get their way as they could with other streaming service negotiations in the past. What seems to be true is that content owners are receiving a lower royalty rate for every video view than ever before. In fact, industry analyst Mark Mulligan reports that the per view rate was actually cut in half from 2014 to 2015, and is now down to around $0.001. That said, YouTube continues to pay the industry more money than ever, with almost $2 billion in payments since 2014.
While that may be true, the fact of the matter is that YouTube isn’t nearly as powerful as it once was, and indications are that its popularity for music delivery is waning. According to a recent BuzzAngle report that looked at music consumption from the beginning of the year, for the first time streaming actually outpaced music video views, with the number of streams at 114 billion and video views at around 97 billion.
What’s more, according to the GlobalWebIndex study, young people between 16 to 24 (the traditional driver for video views) are more willing to pay for streaming than older adults, despite indications that only 1 in 10 digital consumers end up paying for streaming music overall. This figure for younger Americans could actually be higher though, since pre-teens and teens don’t usually have credit cards. Many ask their parents to pay for the subscription or are part of a parent’s family streaming plan, so the complete picture here is still a question mark. When you take that into consideration, there may be more young people in that subscriber category than you might think.
Google has certainly taken notice to these numbers and is attempting to increase it’s own music subscriptions by running a sale. First of all, a free 2 month trial period for Google Play is now available that includes its YouTube Red service as well, and Red alone is being offered for just $0.99 for the first three months through the YouTube app. A company running aggressive sales campaigns is reacting to the market, and Google sees the writing on the wall. YouTube is falling out of favor with the demographic that, at least up until now, consumes it the most. [Read more on Forbes…]
(Photo: Rego Korosi via Flickr)
The music business was once all about the single song, transitioned to the album, and looks to be transitioning back again, as album sales sink lower and lower. While the writing may be on the wall that the concept of an album may be as outmoded as a buggy whip, artists, bands and record labels continue to hang on to the idea rather than looking at the data before them. Like it or not, the album is clearly dying.
According to Billboard quoting the Nielsen Music mid-year report, album sales have fallen by 16.9% so far this year, but even more worrisome is the fact that albums by current artists aren’t catching on, falling by more than 20%. Digital album sales and CD sales continue to fall like a rock, with only vinyl sales increasing (although the growth has slowed to 11.4% with just 6.2 million sales – hardly enough to write home about in the grand scheme of things).
The fact of the matter is that in this Music 4.0 world we now live in, is there even a reason for an artist to automatically make an album without considering some other alternatives first?
Albums are expensive and time consuming to make and, for the most part, amount to a lot of wasted effort as consumers only listen to one or two songs (the singles) anyway even if they buy the album. Most people that get their music from a streaming service will end up cherry-picking the most visible songs (again, the singles), and will never experience the rest of the album cuts anyway. Even if they do, chances are they’ll only listen to each a few times at most, and in most cases, not at all. That’s a lot of wasted effort for so little in return.
The Album In The Age Of Digital
The album concept may actually have been over for a lot longer than it seems, since the sales numbers have been propped up artificially since the beginning of the digital age. Track equivalent-albums, where 10 downloads equal one album sale, never really represented a true album of 10 songs. Most of the time one or two songs that happen to be from the latest album release were downloaded over and over again, but to label bean counters, that somehow amounted to a purchase of a real album. Move ahead in time to the present and stream-equivalent albums (or SEA, where 1,500 streams equal one album sale) presents the same dilemma.
While this might have made a convenient apples sort-of to apples data point that made a balance sheet look good, the problem is that it doesn’t reflect the reality of 80 to 90% wasted resources, since most of the songs of an album are ignored both internally by the label’s marketing department, and by potential listeners. Still artists and labels insist on making a product that’s increasingly becoming irrelevant to current audiences. [Read more on Forbes…}
As Apple Music reaches its first anniversary, the service is now up to 15 million paid subscribers, second only to Spotify’s 30 million. That number may not be as rosy as it seems though, since it may be well below what many in the industry initially expected.
A recent report from Cowen & Co. predicted that U.S. revenue from all streaming services will double by 2021, but Spotify is still expected to hold the subscriber lead during that period and not Apple Music.
One of the reasons why the service can be considered to be underperforming is the fact that Apple iTunes has more than 800 million accounts with credit cards already on file, and all of them had the ability to take advantage of a 90 day free trial of the service when it launched. While it’s true that Apple Music has worked it’s way up to 15 million paid subscribers from an initial 6.5 million, that’s still less than 2% of the potential audience once considered easy to tap.
While there was no official prediction on the number of conversions from iTunes to Apple Music, you can bet that not many in Apple upper management were counting on a figure that low. It’s difficult enough to get buy-in from consumers who aren’t already your customers, but when you can’t even get your most loyal customers who’ve spent money with you before (and a lot, in some cases) to sign on, you’ve got a problem.
Granted, there are some territories where an additional $9.95 per month (or the currency equivalent of the territory) might be considered a hardship, but the fact of the matter is that there are over 580 million iPhone users worldwide, which is an expensive purchase no matter what part of the world you live. Even using that total, 15 million subscribers still brings the conversion rate to slightly above 2.5%. [Read more on Forbes...]
Now that Brexit has unleashed its shock and horror on the financial markets worldwide, other much smaller sectors are wondering how it will affect them as well, and the music business is no exception.
The traditional music business (meaning record labels) is run by a crafty street-wise bunch that know how to roll with the punches, and that’s why I think they’ll find a way to come of this with a net gain when all is said and done.
Most of the analysis of the situation that I’ve read so far centers on the fact that doing business in both the UK and Europe will be more expensive because of the escalated operating costs associated with keeping offices either in London or in Europe. Travel, labor, and finances will all take a hit as costs rise because of the increased paperwork involved.
It’s a fair premise that will likely play out that way, but remember that the industry has a talent for turning lemons into lemonade (although usually that doesn’t apply to the artists).
For example, back in the ‘60s, all record producers were just staff personnel of the record label, and paid as such. After Sir George Martin had huge success after huge success with The Beatles that netted EMI hundreds of millions of dollars in profit, he didn’t get as much as a Christmas bonus, let alone a raise, in appreciation for his efforts. As a result, Sir George bolted and became what amounted to the first independent record producer, demanding his own royalty on the records that he produced in the process. Of course, an exodus of successful record producers followed, and it looked like the major labels had a huge new cost on their hands.
The lemonade came when the labels hit on the idea of passing off this new cost to the artist, and the producer royalty has been the responsibility of the artists ever since. The record labels came out ahead because there were now fewer employees on the payroll, and this new very expensive cost wasn’t theirs to worry about.
Another example came in the late 80s when recording budgets where skyrocketing. At the time, the labels paid all the invoices resulting from the recording process no matter how large or small. This resulted in an accounting nightmare, with vendors constantly upset with slow payments, and everyone in the supply chain from the artist on down being constantly hassled about it. The budgets were higher than ever, resulting in more invoices than ever, requiring more accounting manpower than ever to keep up. [Read more on Forbes…]