The role of record labels in the music streaming business is big. How big?

Last week I wrote about the new RIAA numbers that showed how streaming is now almost a third of “music industry revenues.” I also said how the industry hasn’t seemed to figure streaming pricing out and I was glad that Rdio was trying a new tier called Rdio Select for $4 a month for a limited music selection.

Then yesterday the Verge wrote about the Sony-Spotify contract signed in January 2011 that explains a lot about why streaming isn’t working quite yet. Why? Even though there are a lot of positive trends, it seems like the same, traditional powerhouses, the labels, still hold too much power and while they are using it to line their pockets, this might be stifling the industry.

Let’s look at the four players again, shall we?

  • Users. Adoption of streaming is growing at the expense of physical purchases and digital downloads. Nothing new. But remember, the sweet spot for music-loving users is to pay up to $65 annually for music, not $120.
  • Streaming services. Spotify, the leading streaming service, still not profitable. Today it announced a few new services to bolster income. More on that some other day.

    Ed Sheeran, adding some color to this blog post. Source: Entertainment Weekly

    Ed Sheeran, adding some color to this blog post.
    Source: Entertainment Weekly

  • Artists. Says Taylor Swift: we’re not being paid enough for each stream, so no music for you. Says her pal Ed Sheeran: Spotify is not for income, it’s for building an audience. He recently gave an interview to Entertainment Weekly and had this to say about Spotify: “Q: You were the most streamed artist on Spotify in 2014. How do you feel about the current debate over compensation for musicians? A: Elton John played Wembley Stadium [in the ’80s] and the tickets were 2 pound 50. I’m playing Wembley and the tickets are 150 pounds. I haven’t really sold records in Norway because they don’t really [buy] records—Spotify is their chart. But Multiply was No. 1 there for 26 weeks, so I can go play a stadium there now…. Spotify works for some people and it doesn’t work for others.”
  • Labels. This is where the analysis by The Verge comes in handy and sheds some light on why the other three players aren’t happy. Spotify paid and is paying Sony (a major label) a lot of money in advances and profit sharing that goes beyond the pittance paid per stream. Rich Bengloff, president of the American Association of Independent Music quoted in the article, believes that this income isn’t being shared with the artists. “A lot of the time, money that is paid outside of the direct usage doesn’t end up getting shared.” Sony is the one holding the cards, the access to artists, and Spotify and other services must negotiate with them otherwise their services will lack the content to attract users. Sony isn’t passing this bounty on to its artists for many reasons but one may be because many have older contracts that don’t emphasise streaming revenue and they don’t have to share.

For streaming to succeed, this has to change. Users have to pay a price they feel comfortable with, artists need to be compensated justly and streaming services need to make a profit (they’re not here for charitable purposes, right?) Will it? Not in the near future as so few labels hold the rights to so many artists’ music. But in the future, artists might end up having Taylor Swift-like leverage and be able to influence their labels or negotiate directly with the streaming services. Then we might see an industry shift.

As always, stay tuned dear readers. We’re still in for a bumpy ride.



3 thoughts on “The role of record labels in the music streaming business is big. How big?

  1. Pingback: The link between streaming apps, music discovery, and unsigned artists | What it all boils down to

  2. Pingback: Streaming revenue is up, music industry is still unhappy | What it all boils down to

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