Are Music Revenue Streams Drying Up?

2011 has been an eventful year for the music industry and its consumers. Apple’s “big dog” online music retailer, iTunes, remained the king of market share, but as the months rolled on music consumers welcomed a slew of new arrivals.

Amazon’s download store, although not new, benefited by offering ultra low sale prices. For example, it elicited oohs and ahhs from consumers and groans from the industry when it offered Lady Gaga’s newest album for 99¢.

The music space also got a great deal more congested with the arrival of Spotify and its subscription/access model. Instead of buying albums or tracks and owning the files, Spotify says, “Pay us one monthly subscription fee and we’ll give you access to all the music, you don’t need to own it.”

Online streaming radio giant Pandora and others such as Slacker, iHeart and Last.FM also gained momentum with their subscription hybrids as smartphone penetration continued to escalate and automobile manufacturers announced systems that would allow consumers to listen to online streaming radio while driving.

In the midst of these choices, cloud services appeared from Apple, Amazon and Google. (Google also just took the wraps off its new MP3 store tied to the cloud and G+.) These offerings differed as to terms and functions, but basically gave users the ability to upload both previously and newly purchased tracks and then stream them over mobile and desktop computer units.

And to keep observers from becoming complacent about the overall music landscape, Facebook and Google Plus ushered in a new era of social media music sharing, finding ways for users of many of the above named companies to show friends, followers and circles what sounds they were enjoying.

While consumers were trying to take advantage of some of these new functionalities and discover which ones best fit their lifestyles, record labels and DIY artists were also studying the field, feeling perhaps like students getting ready for an exam where the content keeps changing. While it’s exciting to write about and experience a new buffet of choices for enjoying music, to record labels and artists it is a confusing new landscape. What is the best way for music-makers to navigate these seas of change? What should they expect going forward and most importantly, are music’s traditional revenue streams drying up?

Jay Frank

“The largest growth area is going to come to the masters company that thinks more like a publishing company,” says DigSin record label Founder/CEO and author of Futurehit.DNA Jay Frank as he deftly renames record labels into masters companies. “With growth in digital radio, cloud lockers and subscription services, the revenue sources diversify. As a result, the money made from masters will come from those who can successfully place, market and collect from the most places. It’s not just a dollar business going to a penny business as we are seeing in the small royalties from digital airplay. It’s that there will be numerous penny businesses to collect from that will form a sizable whole. Publishers have been doing this for years, and now labels will have to adapt to that way of thinking.”

Frank continues, “From any one pure source, the largest revenue growth in the next five years will come from YouTube. Very quietly, YouTube has become the No. 2 or No. 3 digital revenue source for many indie labels and musicians. They have made great strides fingerprinting and matching, which allows for greater attribution of content. With that, you can also monetize any video that the artist can think up, even if there’s no music involved. People are going to start to figure out how to maximize that stream next year. It will provide sizable revenue gains in 2013 and beyond.”

Pinky Gonzales

Pinky Gonzales, VP West Coast Operations for Bubble Up Interactive thinks, “The biggest move will be toward streamed services, whether you call that ‘the Cloud’ or use individual company names like Pandora or Spotify. And now Google and Apple are getting into the mix. With the Cloud, you upload your own songs and have access to them from any device. With Pandora, Spotify, and others like them, they provide the music and/or let you access their catalogs in addition to your own. On a side note, MyPlay.com, a Web 1.0 “music locker” service led by David Pakman, did exactly this back in 1999. The world just wasn’t ready for it. The real question here is, ‘What does this mean for the artists?’”

Gonzales continues, “Streaming revenues are dramatically lower than revenues from sales of digital music, and especially physical product,” Gonzales continues. “The major labels have been pacified for the moment, but once these contracts are up for renewal, it will be interesting to see what kind of profit there is to show for all these advancements in technology and bandwidth availability.”

Somewhat ominously, Gonzales questions the future of music sales for musicians. “What YouTube did for the music video may well be on its way to happening in the music streaming space,” he says. “High viewership and ubiquitous availability, but very few dollars in exchange. A copyright holder currently receives about $1,000 for every million video plays on a sponsored channel, meaning that to generate a million dollars in gross revenue, one BILLION views are required. Now split that money between your label, manager, bandmates and so-on, and suddenly the whole streaming model looks pretty bleak. That said, there will always be demand for new music, people willing to make it at any cost, and a lucky few that will make enough money to make a real career out of it. As long as there are tickets, t-shirts and tour sponsorships out there to pay the bills, the industry will find a way to support itself.”

David Gales

David Gales, Founder, The Gales Network agrees that lately the industry and technology supporting it have been spinning like an out of control carousel.

“Brands face a marketplace that is running at hyper-speed and morphing constantly,” he says. “I wonder if the lending model that is rolling out in the book space will have traction in the music industry. We have purchase, we have subscription, but not institutionalized lending. Music margins have eroded so much in the last several years. Already there isn’t very much room between 99 cents and free, so I don’t know if a viable paid lending model can be constructed. But anything that gets consumers to pay something is better than paying nothing for music. Also hopefully we will begin to see micro-payments for using music in user-generated content, which continues to be a huge and growing market. Would anyone have a problem with paying 5 cents to use a song on a video of their cat dancing? I personally wouldn’t buy the song ‘Feelings,’ but I might use it in my dancing cat video. Of course publishing reform would have to make this viable. Can’t get 9 cents on a 5 cent payment.”