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The Record Industry Expects a Windfall. Where Will the Money Go?

Updated: Jan 16, 2020

With streaming poised to infuse billions of dollars into the music business, artists are once again hoping to get their fair share.

Six years ago, when Thom Yorke memorably expressed his feelings about the music industry by calling Spotify “the last desperate fart of a dying corpse,” it was hard to argue with him. At that point, global sales of recorded music were headed for their 13th decline in 14 years, with the overall value of the industry nearly cut by half since the turn of the century. It looked like the digital revolution really did turn the music business into a moldering husk. But now, like any good zombie during an apocalypse, the industry is once again primed to devour the world on a massive scale.

In recent years, several financial institutions have predicted record labels will soon be celebrating annual revenues that begin to approach, if not surpass, their late-1990s peaks: What was an inflation-adjusted $25 billion-per-year business before the millennium could bring in more than $41 billion annually by 2030, according to Goldman Sachs. The biggest record label out there, Universal Music Group, which was bought by French conglomerate Vivendi for $32 billion in 2000, before the CD market crashed, is now speculated to be worth up to $50 billion.

It bears noting that the same banks making these bullish forecasts also have financial ties to the industry—but their reasoning isn’t totally far-fetched. Label revenue from sales and licensing of recorded music totaled $19.1 billion globally in 2018, marking a fourth straight year of increases. Much of the rise is thanks to people paying for subscriptions to streaming music services. In 2013, Spotify suggested that income would recover dramatically once it hit 40 million paid users; 100 million people now subscribe to Spotify. And analysts expect streaming to rack up millions more paying customers once it catches on in China, India, and other emerging markets.

But even with all these promised riches, people who are not in the industry’s uppermost echelon—including the vast majority of those actually making the music—are experiencing the streaming boom rather differently. A recent survey by the nonprofit Music Industry Research Association found that the median income for an American professional musician in 2017, when the industry was already rebounding, was around $35,000. Of that, only $21,300 came from activity related to music, including live gigs, streaming, and merch. For everyday professional musicians, live shows were the most common source of income in 2017; the median amount earned was just $5,427. Most survey respondents said they don’t earn enough from music to cover their living expenses.

According to the artists, managers, label executives, and industry observers I spoke with for this piece, streaming is transforming the music business in a way that should allow certain artists to keep a bigger share of the earnings from what they create. And yet, just as it’s been throughout the history of recorded music, most of the money will not go to artists. A few experts even admit that many musicians who might once have sustained modest yet viable careers may now have to give up on their dreams of making a living from their work. According to Daniel Glass, president and founder of Glassnote Records, the label that helped turn Phoenix, Mumford & Sons, and Childish Gambino into arena headliners, “There’s very little middle- and lower-class in recording. That world has dried up.”

Open Mike Eagle, who’s been a low-key fixture in the indie hip-hop world for more than a decade, tells me, “The streaming model is built for people who have millions of fans, not for people who have thousands of fans.” Mike says that when he began his career in the late 2000s, a healthy do-it-yourself culture helped him develop his skills below the radar: “There were enough musicians that you could link up with and tour with, and blow up that way.” No longer. “The DIY paths are the ones that are drying up the fastest,” he says.

Mike tells me that his most recent release, 2018’s six-song What Happens When I Try to Relax EP, cost about $10,000 to make, including production, recording, mixing, mastering, vinyl-pressing, and promotion. In its first four months of release, he says the record totaled about $20,000 in revenue, with roughly 40 percent of that from selling 2,000 vinyl copies (and “a few grand” from a million total streams).

Add in touring and merch, and Mike earned a sum of about $35,000 in that same time period, before expenses. “Not bad,” he admits, but it’s little enough that he needs to supplement his income. Luckily, Mike has been able to parlay some of the same skills that make him a compelling rapper into a TV career, recently starring in a series for Comedy Central, “The New Negroes.” “The money that I make in music is pitiful compared to what people make in television,” he adds.

Mike feels a responsibility to remind listeners how much their support means for artists who work with independent labels, and who rely on the narrowest of profit margins so they can retain as much creative freedom as possible. As the industry expands, the space for niche artists seems to him to be shrinking; on last year’s EP, he raps, “The economy killed the rhyme star.”

The record industry has always been subject to what’s now called technological disruption, and money disputes between the talent and the suits are probably as old as Robert Johnson’s fabled crossroads deal with the devil. That said, the modern history of the business traces a tale of major labels consolidating their power while other aspects of music’s ecosystem gradually withered away.

In 1977, the American recording industry outgrossed the Hollywood box office, hitting a then-high of $3.5 billion. Revenues climbed higher still in 1978, to $4.1 billion. Millions of people paid top dollar for the soundtracks to Saturday Night Fever and Grease.

At that time, the major record companies were defined as the six labels that also happened to own their own manufacturing and distribution arms. Independent labels, on the other hand, had to pay someone else to press their records, and someone else to distribute them to retail stores. Often, independent labels worked with independent distributors. But when the majors weren’t absorbing indie labels into their ranks, they were leveraging their clout to price out indie distributors, prompting a federal antitrust investigation and eventually forcing many of the smaller companies to shutter. “I’ve never seen such upheaval in my life,” the head of Cleveland-based indie distributor Progress told The New York Times in February 1979. Within eight years, Progress was out of business.

The record industry didn’t see such heights again until the ’90s, and new complaints about the majors’ influence followed. Sales in America climbed over the course of the decade, peaking in 1999 at $14.6 billion. In a 1993 essay called “The Problem With Music,” Nirvana studio guru and post-punk lifer Steve Albini explained how a band could make the record industry $3 million richer but still earn one-third of what they would have made working jobs at 7-11. In 2000, Courtney Love extrapolated the grim calculations even further, assailing the major labels for their allegedly exploitative business practices in a piece titled “Courtney Love Does the Math”; like Luther Vandross, Don Henley, and Beck before her, the Hole frontwoman eventually settled a lawsuit against her major label. Meanwhile, big-box stores like Wal-Mart and Best Buy muscled in on dedicated record shops, in turn cutting down shelf space devoted to controversial or emerging acts.

A slowing U.S. economy and the public embrace of unlicensed file-sharing networks like Napster combined to devastate the music industry in the early 2000s. But labels soon figured out how to make the internet work to their advantage. Despite short-term but very real financial anguish, the economics of leaving physical CDs behind actually turned out, in the long run, to be sneakily better for record companies (if not for artists) than the old model. IDC, a market-research firm, reported in 2000 that for every CD sale, 39 percent of the purchase price went to the label, while 8 percent went to the artist, and another 8 percent went to the publisher and songwriter. The firm correctly predicted that once digital download sales took hold, the labels wouldn’t be the ones to lose their take. Deutsche Bank, in its report on the music industry from earlier this year, estimated that for every $100 of consumer spending on CDs or vinyl, a label’s profit is $8; for every $100 spent on iTunes downloads, it’s $9; and for every $100 spent on streaming, a label’s profit is $13.

All of this past precedent and number-crunching strongly suggest that if more money will soon be pouring into recorded music, the record companies will be standing there holding out their platinum records like collection plates trying to catch it. “Labels are going to reap the rewards,” says Scott Rodger, who manages Paul McCartney, Shania Twain, and Andrea Bocelli. Despite decades of being swallowed up by conglomerates, indie labels are still very much included; depending on the survey, indies held somewhere between 32 percent and 40 percent of the global market share in 2017. “Being an independent does not put you at any disadvantage,” says Glassnote’s Glass.

Yet like in decades past, it’s the majors—now with in-house publishing and merch businesses to go along with their distribution arms and deep-pocketed parent organizations—who look positioned to throw their weight around. Deutsche points out that, a decade into streaming, the top 10 artists with the most Spotify followers are all backed by a major label. As Goldman Sachs bloodlessly put it in 2017, the majors are going to wring the greatest rewards from streaming because, “for every piece of content that is being monetized,” as much as 60 percent of royalties goes to them.

There was a brief moment in time when it looked like artists could have taken more control of their own fates. In 2007, Radiohead famously self-released their album In Rainbows at a pay-what-you-want price for downloads. Around the same time, Prince was going directly to fans with online subscription clubs. But then Prince returned to Warner in 2014. Two years later, Radiohead jumped to XL. Last year, Taylor Swift signed with Universal after spending her entire career at the (Universal-distributed) Nashville indie label Big Machine. And today, even the biggest self-released artist on Spotify, Chance the Rapper, still has a far smaller following than the most popular artists on the platform.

Since Universal acquired EMI in 2012, the majors are down to just three. One is Universal Music Group, which generated $7 billion in revenue in 2018 for French media conglomerate Vivendi. Another is Sony Music, which brought in $3.8 billion in 2018 for parent company Sony. The third is Warner Music Group, which reported $4 billion in revenue last year as part of Soviet-born billionaire Len Blavatnik’s privately held Access Industries.

The major labels may be the most obvious beneficiaries from the predicted streaming surge, but they aren’t alone—streaming platforms will certainly have their say, too. “The systems change, but the results are the same,” says Ben Swank, co-founder of Nashville indie Third Man Records. “Now we get to watch a bunch of tech bros talking about how much they love SoundCloud rap.” And yet, streaming services’ path to riches is more complicated than it might seem. “Tech companies need a lot more subscribers in the hope that they can make their business work,” says Rodger.

At the moment, Spotify can’t quite get the numbers to add up. The No. 1 subscription streaming service posted revenues of $1.7 billion in its most recent quarter, but still lost about $158 million. In order to host so many songs, Spotify now pays roughly $288 million a month to labels and other copyright owners—and those labels can negotiate costs upward whenever the streaming giant looks like it’s about to become profitable. (Spotify's recent diversification into podcasts meets a clear business imperative to move beyond music.) Beyond that, Spotify faces rivals—in Apple Music, YouTube, and Amazon Music—that are insulated by parent companies, so they can better afford to burn money building market share. And if the record industry’s growth largely happens in emerging markets, as assumed, Spotify could be at a disadvantage compared with local competitors such as India’s Jio Music or Africa’s Boomplay (though it does already have a strategic partnership with China’s biggest streaming service, Tencent).

A Spotify spokesperson declined to comment for this story, but at an event last year, CEO Daniel Ek said that the “top tier” of artists who account for the most streams grew from 16,000 in 2015 to 22,000 in 2017. Ek added, “My goal over the next few years is to increase that to hundreds of thousands of creators who have material success on our platform.” Last fall, Spotify launched a playlist submission tool, landing more than 10,000 artists their first spots on Spotify’s editorial playlists. So while the company is at least taking steps to boost lesser-known acts, it’s still hard to imagine that most will ever earn a sustainable income from streaming.

Despite many caveats, a real opportunity exists for at least some artists to earn a bigger cut of industry revenues in the next few years. Although the actual amount will vary widely, the typical label deal, including advances, sees 35 percent of revenue going to artists, according to Deutsche. But other options for artists are rapidly proliferating, including distribution-only deals, which give artists an 80 percent share of revenues. Or artists can keep a potentially greater share of their proceeds by choosing from a vast array of self-release and label services options, involving such companies as TuneCore, CDBaby, Bandcamp, and Kobalt’s AWAL. Established stars can sometimes secure joint venture deals with labels, splitting revenues from their recordings 50-50. Spotify itself has reportedly been offering some artists a 50 percent per-stream revenue share.

The extra percentage points from alternate distribution arrangements come at the cost of the serious promotional punch that a label ideally provides, but for some it can be worth it. “The opportunity for talent to take a greater share of the growing recorded music pie is staring everyone in the face,” says Brian Message, partner in Radiohead’s management company and co-founder of ATC Management, which represents PJ Harvey and Nick Cave. “Superstars will continue to dominate the headlines, but the ongoing growth of the semi-professional and niche artists being able to contribute to their living will surge.” Message recommends new bands start small, set achievable goals over a number of years, and maintain decision-making control as the fanbase swells. “The importance of staying together as a tight-knit team and trusting each other cannot be overestimated,” he says.

And now that listeners are used to all-in-one streaming services that offer a vast catalog of songs, the opportunity is right for more focused services that give specific subsets of fans a chance to go deeper, according to Vickie Nauman, a long-time digital music industry executive. “Market segmentation is next,” she says, noting, “Music is inherently tribal, and there are underserved fans waiting in the wings.”

Someone poised to take advantage of such market segmentation is underground rapper JPEGMAFIA. His idiosyncratic amalgam of avant-garde provocation and street-level bluntness has helped amass more than 700,000 monthly listeners on Spotify, and seemingly about as many glowing reviews. “This is the best time to completely be yourself and hopefully make a living from it,” he tells me. JPEG says his main income is from music, with a large portion from touring and merch. Because he does all aspects of his songs himself, from songwriting to production, he doesn’t have to share the proceeds.

JPEG hopes the forthcoming commercial renaissance will enable a creative one. “I feel like 2019 is gonna be a creative explosion like in the late ’90s, when niggas was wearing trash bags and shit, fucking flying around,” he says. “All that weird shit was going on. DMX was dropping three albums a year. It was just a creative boom.” But he’s quick to emphasize that if the present moment feels reasonable it’s only because previous eras were so much worse. “It’s still shit,” he admits of today’s music industry, “but it’s the best we got.”

Last year, Citigroup issued a report that attempted to figure out how much of U.S. music industry revenue went to musicians in 2017. Their effort included the touring and publishing business as well as the record companies and streaming services. Its answer: 12 percent. In other words, out of all the money that changes hands because of music—$43 billion, the bank claimed—the people who actually make music get only slightly more than one-tenth. Harper’s picked up the statistic in its monthly index, noting by comparison that the amount of NBA revenue going to players is one-half. What’s more, according to Citi, artists’ share was actually up, from 7 percent in 2000, driven mainly by the concert industry.

The Citi report drew harsh, thoughtful rebukes from industry insiders, who derided it as oversimplified and inaccurate, so its results are perhaps best treated as a starting point for conversation rather than the end of one. “Various revenue streams and careers are fundamentally structured so differently that pooling them to arrive at an aggregate number is misleading by nature,” says artist-advocacy nonprofit Future of Music Coalition’s director Kevin Erickson, who suggests instead zooming in on how individual revenue streams add up to a living, or, more often, fall short.

To that end, the Music Industry Research Association’s survey of working musicians suggests that streaming will have a long way to go before most artists can rely on it to pay the bills: Only 28 percent of the survey respondents indicated they made any money from streaming royalties in 2017, with the median amount totaling just $100. “If all of us just do this for free, these things will not exist,” says Katie Alice Greer, singer for rock trio Priests and co-founder of the indie label Sister Polygon. She tells me that although her imprint has tended to enjoy strong physical sales relative to its size, streaming revenue remains negligible.

But the bulk of the industry’s revenue still goes to the major labels. “I don’t hear the music companies complaining about digital music providers,” says Jim Griffin, managing director of digital music consultancy OneHouse and a former Geffen Records tech executive. “They are awash in cash.” Universal Music Group might be worth $50 billion, according to a recent report by JPMorgan. Based on a slightly less rosy forecast, Rolling Stone recently estimated that Warner might be worth as much $23 billion, and Sony Music as much $61.5 billion. That’s more than $100 billion at stake for the big three labels alone. On the streaming side, Spotify is worth $25 billion, according to the stock market. Considering such huge sums, it doesn’t take an algorithm to see that many musicians might be getting short shrift.

Musicians could also face new threats to their livelihood from “fake artists”—pseudonymous composers allegedly paid lower royalties than the real artists vying for their spots on streaming playlists—or even artificially intelligent computers. “We technically could be replaced by AI,” admits Justin Raisen, a songwriter and producer who’s worked with Angel Olsen, Yves Tumor, and Charli XCX, and who recently co-founded the label Kro Records. “However, I don’t think people would really take that very well.”

The story of musicians’ conflicts with the forces of industry is more like a novel than a long-division exercise, teeming and unpredictable, and rich with iconoclastic characters. How to quantify the shift from expensive studios to ubiquitous laptops and smartphones, from the traditional record-store system to a song from New Zealand being instantly available for free with a tap of the finger—and what to do about all the gainful employment lost in the transition? These questions defy easy cost-benefit analysis: What’s the right price for modernity? When more and more people around the world are able to more conveniently hear, and share, manifold expressions of the human condition in the form of recorded sound, who writes the check?

Writing nearly two decades ago, Courtney Love touched on a few other points that seem at once soothsaying and sadly out-of-touch in a culture constrained by trickle-down streaming economics. She argued that artists aren’t brands: “Don’t tell me I’m a brand. I’m famous and people recognize me, but I can’t look in the mirror and see my brand identity.” That music isn’t a product: “It’s not a thing that I test market like toothpaste or a new car. Music is personal and mysterious.” That art isn’t content: “The problem with artists and the internet: Once their art is reduced to content, they may never have the opportunity to retrieve their souls.” More artists and audiences—the people who make the music and the people who pay for it with their ad views and subscription dollars, their smart devices and hard wires—should feel emboldened to speak up for the intrinsic value of their art. Or else no one will be getting their money’s worth.

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