Streaming requires new business model for record companies

MonitorDollarSign_ByRenjithKrishnan_CST Published 11/5/2014

By Terry McBride

Streaming is the future of music consumption.

In Nielsen and Billboard’s sales numbers for 2013, streaming music increased 32 percent over the previous year, to 118.1-billion track streams. Overall music sales dropped 6.3 percent to about 1.5-billion tracks, albums, and videos. Digital music sales (downloads) dropped too, by 6 percent, about the same rate.

The Recording Industry Association of America recently announced that revenue from streaming-music services overtook that from the sale of physical CDs, and came in just a hair behind total physical sales. The RIAA also said that streaming now accounts for 27 per cent of recording industry revenues in the first half of 2014, versus 20 per cent the year prior.

About 35 percent of the revenues of my record company, Nettwerk Records, already come from streaming, and that amount is only going to grow in the coming years.

When music is streamed online, songwriters in North America are currently being vastly underpaid for the music they create, some thousandth fraction of a penny for each streaming play (though, as SOCAN CEO Eric Baptiste pointed out in his last SOCAN blog, there are reasons for this).The same is generally true for the artists, and the non-major record companies whose music is being streamed, which is why streaming is not yet offsetting the decline in physical sales and downloads in North America.

The solution to this problem is for record companies to seek a percentage of the revenue earned by the streaming companies, rather than a penny rate “per play” (or in this case, “per stream”). The solution must also create equitable deals between the labels and their artists to ensure that the artists are fairly compensated after such negotiations.

There’s a great deal of generational resistance to this idea. Past generations are strongly invested in the attitude that rates of remuneration for recordings have to be set by a governmental regulatory body. But in the online world, where borders are becoming more and more meaningless, where a song streams to one person at a time rather being played to hundreds of thousands of people via a spin on radio, and where streaming companies’ revenues are dwarfed by many orders of magnitude when compared with traditional media such as TV and radio, the only practical way forward is to abandon penny-rate regulations and negotiate percentage deals directly with the streaming companies. In addition to payment for access to their music, major labels are already obtaining equity in music streaming companies.

This approach can work. In fact, it already has. Nordic European countries are seeing growth from streaming music, and their artists are earning a significant portion of their living from it. The Norwegian recording industry reported that streaming revenue was up 66 percent in the first half of 2013. Streaming revenue accounted for two-thirds of total music revenues in Norway. It’s been a similar story in Sweden, Finland and Denmark. Sweden’s music industry is now back to double-digit growth, even though about 90 percent of the music consumed there occurs via streaming.

By comparison, if the penny-rate mentality doesn’t disappear sooner rather than later, the North American record industry will continue to shrink annually at a rate of five to six percent. In fact, one of the reasons Nettwerk has been able to prosper in the face of this continuing decline is that 90 percent of our income comes from outside of Canada.

The writing is on the wall. The old way needs to go. The record industry has got to get moving, and moving fast, to adapt to the new reality of music streaming.


Views expressed in this and all posts on this blog are not necessarily those of SOCAN.

About Terry McBride

Terry McBride is the CEO and co- founder of the Nettwerk Music Group, which includes Nettwerk Productions (Canada’s largest independent record label), Nettwerk Management (artist and producer management), Nettwerk One (music publishing), and Artwerks (graphic and fashion design). Founded in McBride's apartment in 1984, Nettwerk now has corporate offices in Vancouver, Boston, Los Angeles, New York, Hamburg and London. Nettwerk has sold more than 160 million albums worldwide, with such renowned artists as Avril Lavigne, Coldplay, fun., Passenger and Sarah McLachlan. McBride has spoken at dozens of international conferences about social marketing, digital branding, intellectual property rights and the future of music consumption. In 2008, he co-authored a paper entitled Meet the Millennials that became a marketing template for musicians in the digital space. A yoga enthusiast, McBride co-launched a chain of wellness centers called YYoga. It's McBride's vision for YYoga Studios to evolve into social third spaces, focusing on health and wellness for the body, mind, spirit and the community. McBride’s latest endeavor combines his two principal passions in the re-launch of Nutone Music, encompassing music from the realm of devotional chant, world beat and beyond. In 2003, McBride received the Walt Grealis Special Achievement Award, recognizing an outstanding individual who has contributed to the growth and advancement of the Canadian music industry. Terry has also twice been awarded the Pollstar Industry Award for Personal Manager of the year for his work with Sarah McLachlan (1997) and Avril Lavigne / Coldplay (2002).

Comments

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  1. Gerry Young

    This idea is good, and one that should be explored further, along with any other ideas that give a fair percentage back to the creators. Simply put, the present streaming setup in North America doesn’t pay the creators a fair share of the revenue for their artistic and financial contributions.

    Reply

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