Why music is not lost

When radio became popular in the 1920s, many believed this was the end for recording artists and live music. Suddenly, music was being played with no compensation or income streams available. Record companies worried that sales would drop. Venue owners believed people wouldn’t go out and see live music any more. Musicians’ Unions and Performing Rights Associations fought for compensation and a slice of radio advertising revenue. This is a complex story to summarize; but it took nearly 15 years to implement new copyright and royalty models for musicians.

The music industry is currently in a state of flux - due to the internet and digitization - as are many other industries affected by technological and social changes. But as the radio example shows, there is a well documented history of musicians adapting to technological and social changes over the past century.

As long as there is technological innovation, musicians and the industry that supports them will either embrace these changes or feel threatened. Musicians must adjust to these changes and to consumer demands. This means not just changing distribution formats of music, but also musical forms. (12-inch mixes of LPs, for example, came in response to DJs sampling and creating mix tapes in the late 1980s and early 90s).

Social media platforms have enabled musicians and music companies to develop new strategies for distribution that disrupt the more traditional linear supply chains dominated by the major record labels. Under the old, linear model, a series of intermediary steps (contracts, production, publishing, distribution, promotion) eventually led to a retail outlet. But independent music labels - which provide an important platform for new talent and music-making - are disrupting this paradigm with new business models and artist/audience relationships. The 2015 Worldwide Independent Network report on the global economic and cultural contribution of independent music showed that independent labels have 37.6% of the global market, worth $5.6 billion.

In relation to music distribution, academic Patrick Wikstrom writes that technological changes consist of three models: ownership, access and context. The “ownership model” has dominated the last century with the sale of recorded music on formats like CDs and records. The “access model” refers to the rise of online subscription-based music streaming services like Spotify. A “context model” enables audiences to “do things with music”.

Musicians today must be multi-skilled. The revolution in the 1990s of audio software platforms such as Protools and Cubase enabled creators to be producers of their own music, cutting costs dramatically. In the first decade of this century, the emergence of web 2.0 has propelled the democratization of production tools resulting in the rise of “the Produser” (coined by Axel Bruns) - part producer, part user.

The new digital economy is a shared economy, built increasingly upon user-led content creation. The consumer transforms from passive recipient to active co-creator. Consumers are now informed, connected, empowered and consequently have more market power. Once music has been digitised, it can be changed into any format. But this endless re-working/bundling/re-contextualization of digital music is, of course, not well served by older 19th Century frameworks of copyright protection.

Many income streams

Today’s musician relies upon many income streams: live performance, royalties from performance, recordings, synchronisation rights, teaching, licensing, merchandising etc. Streaming, downloading and stem releases (the creation of groups of audio tracks, processing them separately prior to combining them into a final master mix) are for the moment the main consumption models (with a nostalgic resurgence in high quality vinyl).

This fact is reflected in the 2015 International Federation of the Phonographic Industry report, which shows that digital sales of music made up 45% of the market. Physical sales (CDs, vinyl) comprised 39%, with performance rights (broadcasting royalties) at 14% and synchronization (rights aligned with uses such as film soundtracks) at 2%.

Beyond digital sales, the other growth trend is in live performance revenues. A recent Price Waterhouse report predicted revenue from performances would rise by 3% annually through to 2020.

In Australia, combined revenue from all income streams for musicians actually increased last year to a historically high growth rate of more than 12%, according to APRA-AMCOS.

Crucially, in Australia, digital revenue (downloads, basic and “premium” streaming services, on-demand video, website use and user-generated services) provided the impetus for growth from $47m to $68m from 2015 to 2016). This has provided some correction to earlier industry periods bereft of answers to the spectacular rise of downloads and file-sharing of music mp3s through computer systems.

Obstacles remain. While aggregator services such as YouTube rely heavily on advertising, hundreds of millions of users can freely upload and watch content, producing a significant gap between usage and payment.

This is the “value gap”. The royalties paid back to artists for streaming or YouTube dissemination are minimal – only massive amounts of streams can produce substantial income. For Spotify, royalties are around 0.006 – 0.0085 per dollar; YouTube is 0.001.

A legislative solution

But the solution is legislative. There is now a world-wide push to address this value gap so that more of the royalties go to the copyright owners. In September this year, the European Commission published a proposal on copyright in the Digital Single Market to address the value gap. Amongst other things, it would oblige companies such as YouTube to work with copyright holders (labels, publishers, individuals) and address the value gap between those who own the rights for music and the creators of it.

Then there is Blockchain, currently being trialled by global banks and seen by some in the music industry as a possible future solution to copyright problems.

Blockchain is a public decentralised ledger used in digital currencies. Each block is like an individual bank statement and a permanent record of a transaction. It is transparent, open and immutable. For musicians, it has the potential to be a smart contract embedded within a music file that automatically sends licensing, payments and usage agreements to anyone using that file around the world.

Blockchain is in its early days, with problems still to be solved (relating to bandwith and issues of consumer trust), but it could signify the future.

The CD as calling card

As with all previous eras, the music industry is highly competitive. It is not enough to be “talented” and hope to be discovered. Survival today requires that musicians embrace these new approaches - either individually or collectively - in order to reach their audiences.

This is hard work. It requires continual exposure through performance and/or product availability via distribution and social media platforms. These days the CD, like vinyl recordings, has become more like a calling card and promotional free giveaway by artists. The release of new cars and computers without in-built compact disc drives is further evidence of the change in consumer behaviour.

To state the obvious: contemporary music industries are struggling to find new ways to connect with audiences and create value in their products and services. However, history shows these industries are always in flux. These days, there is now music that adjusts to your mood or activity like Spotify “running” (a playlist tailored to keep energy levels up while exercising); or Melody’s Virtual Reality player, which will allow audiences to watch and stream concerts in 360 degree surround visual and audio from their own lounge room.

The increased complexity of digitization, and related changes to cultural products, business, trade and consumption, require massive innovation. Also needed are innovative new copyright and royalty models before new revenue streams can be realized.

The authors are part of an Australian Research Council Linkage grant research team investigating the economic and cultural value of the Australian music export.

This is a response to our Friday essay: the loss of music. You can read it here.