The Recording Industry in the digital age, a fresh new start?

In this first blog post I will give my personal view on how the music industry has evolved during the past thirty years: and yes, I will be a little bit biased by my own experience, since I lived those years as a teenager and have gone through the different steps that brought us to the digital music platforms of these days.

 

Not even thirty years and the music industry has gone through the biggest changes since the phonograph came into general use in the early XX Century, and all these changes have profoundly impacted the way we listen to music and its availability, for the good and the bad. Since the advent of the phonograph, the music market has been heavily based on the physical support sales, and the transition from vinyl to CDs didn’t change too much the business model, after all it was only a matter of a different material. Going through different highs and downs during the years, as I said, the music market has been relying on the physical support production for decades, at least until the digital platforms revolution.

 

Taking a look at the US sales database from the RIAA website, there’s no doubt that in the last decades the music industry benefitted from a wide array of different physical supports, from vinyl to cassette, CD and DVD. Recorded music was available only on physical supports, and in the 70’s the vinyl accounted always as the biggest revenue source, reaching its peak in 1978, while the CD had its golden age in the 90’s and early 2000’s, obliterating the LP format.

In 1978 the vinyl format (including LP/EP and vinyl singles) accounted for 62.2% of the total revenue, while cassette and 8 track combined (this last one never too much popular outside of the US) totaled 33.8%. 

After over a decade of success from the late 80's to the 90's, the CD format knew its annus mirabilis in 2000, and  accounted for a staggering 93.3% of the total sales (including singles), leaving only 4.6% to cassettes and LP sales. it must be noted that the music market in other countries has always been influenced by the US trends in terms of physical support sales. Source: https://www.riaa.com. 

From whatever perspective we want to look at these statistics, there will be always one main thing in common: the physical support bought by the consumer and generating revenue for the recording industry. In other words, the only way to spread the artists’ recorded work was through a physical support, either LPs’, cassettes or CDs.

Living in the 90’s as a teenager, one of the first things coming to my mind is the limited number of recordings available for the average person, due to the nature of the music business model.

 

Buying one record every month was a kind of investment, since an LP or CD was two to three months’ worth the actual digital platform subscriptions. Except for the hit, you really never heard all the other songs in the record, so it was like betting on the new album, based on music reviews and your friends’ suggestions, but there was still some kind of excitement in buying a new album, from the unwrapping to enjoying the booklet and listening countless times the same record.

 

This relative shortage of recordings available was in some way an incentive to listen carefully to the few ones we owned or had borrowed, and having access to very old recordings or new niche artists was sometimes impossible: in other words, having lived both the physical support and digital download music eras, including what I call the transitional period of Napster, BitTorrent etc… (you can call it digital piracy), I experienced the good and bad from both.

 

The web digital revolution didn’t take over without some troubled years: the music industry was, after all, living pretty large with any kind of physical support, and in 1999 the music industry totaled $14.6 Billions in revenue only in the US. But the new century brought already the first subsidence signs, with a loss of $300 millions compared to the previous year, and it was only the beginning of a decade of revenue famine (and lawsuits from single artists and RIAA against the file sharing websites). In 11 years since 1999 the total revenue went down to $7.0 Billions, which means over 50% less than only a decade before!

 

We all know what happened, and I regret to say that we all contributed, for the good or the bad, to the massive shutdown of the old model in favor of the actual one: in other words, the file sharing piracy, criticized and legally prosecuted by the music industry and all major artists, has been the unfortunate and illegal medium to the new model. During these last years there has been a partial recovery of the industry, mainly due to the paid subscriptions of digital platforms, that grew from the almost noticeable 1.2% of 2005 to the 40.1% in 2017 of the total revenue.

 

While it’s clear that the digital download is the way to go for the industry, it must be noted that, with the exception of few big names, the artists still struggle to make more than few pennies, even with a good number of digital downloads.

The following table, published on the Trichordist (article here) speaks more than a million words.

With a rate of $0.00397 and $0.00783 per stream, respectively on Spotify and iTunes (the other platforms are not doing so much better), there’s no doubt that you will need millions of streams to make some money.

 

In a CNBC article (you can read it here) there’s an interesting theory about how the actual digital platforms should get rid of the record labels as intermediaries and cut deals directly with the artists, in order to improve their now ridiculous digital stream rates. The theory makes perfect sense, and the digital platform have probably reached the financial stability to compete with the old record labels, even if this theory would work only in reference to the new music acts.

 

In other words, taking off the record label as intermediary might be a good way to increase the revenue for the new music artists, while still paying royalties to the old record companies for the previously licensed music.

If we take the biggest player Spotify as an example, we can see that their business model has been proven so far successful for their incredible users growth rate, while being so far not profitable from a strict economic point of view (Spotify net income was $ -426.4 Millions in 2017 – source of Wikipedia).

 

Again, from the artists’ perspective, one less intermediary is a good thing in theory, but we need to be extremely positive that the new model corporations will be generous enough to share a bigger cut than what has been historically recorded since the advent of the phonograph, and not just in the US market.

 

For example, in the early XX Century the Brazilian music market was growing at a considerable rate, and the biggest name in the music industry was at that time Casa Edison, the first Brazilian recording Company founded by Fred Figner, an immigrant entrepreneur born in the Czech Republic. Between 1911 and 1912 he netted US $227.000, while paying pennies for the content of his music catalogue (his biggest artists earned US $58 during the same period, and the average pay for a recorded song was just US $6,50) - from Making Samba by Marc A. Hertzman -.

 

Coming back to the present day, I will say that technology might have changed, but for sure not the incredible revenue disproportion between music creators and intermediaries (namely recording Companies), at least so far. I want to stay positive and think that this new music business model, based on massive digital catalogues from the big recording Companies, will prove to be more virtuous compared to the previous ones…

 

Ai posteri l’ardua sentenza…

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